Purpose This study aims to reconcile some of the conflicting results in prior studies of the board structure–firm performance relationship and to evaluate the effectiveness and applicability of agency theory in the specific context of Italian corporate governance practice. Design/methodology/approach This research applies a dynamic generalised method of moments on a sample of Italian listed companies over the period 2003-2015. Proxies for corporate governance mechanisms are the board size, the level of board independence, ownership structure, shareholder agreements and CEO–chairman leadership. Findings While directors elected by minority shareholders are not able to impact performance, independent directors do have a non-linear effect on performance. Board size has a positive effect on firm performance for lower levels of board size. Ownership structure per se and shareholder agreements do not affect firm performance. Research limitations/implications This paper contributes to the literature on agency theory by reconciling some of the conflicting results inherent in the board structure–performance relationship. Firm performance is not necessarily improved by having a high number of independent directors on the board. Ownership structure and composition do not affect firm performance; therefore, greater monitoring provided by concentrated ownership does not necessarily lead to stronger firm performance. Practical implications This paper suggests that Italian corporate governance law should improve the rules and effectiveness of minority directors by analysing whether they are able to impede the main shareholders to expropriate private benefits on the expenses of the minority. The legislator should not impose any restrictive regulations with regard to CEO duality, as the influence of CEO duality on performance may vary with respect to the unique characteristics of each company. Originality/value The results enrich the understanding of the applicability of agency theory in listed companies, especially in Italy. Additionally, this paper provides a comprehensive synthesis of research evidence of agency theory studies.
In the context of internal auditing, when there is no obvious correlation between auditors' activities and financial performance, it is critical to identify areas where value is added as well as the drivers that enable this, in the evaluation of the effectiveness of the internal auditing function (IAF). This paper addresses whether and how internal auditing activities (IAAs) can add value to their organisations. In order to gain some understanding of value-adding processes, we analysed the responses of more than 1,800 internal auditors to questions specifically designed to evaluate this contribution. This sample was based on the 2010 global survey of the internal auditing profession that the Institute of Internal Auditors Research Foundation (IIARF) carried out; only those respondents were included whose role showed they were in a position to make decisions and influence the work of their IAF. This study found evidence that four variables are positively associated with adding value: IAF independence and objectivity; compliance with the Institute of Internal Auditors' (IIA) Code of Ethics; the IAF's contribution to the evaluation of the effectiveness of internal control; and the IAF's contribution to the evaluation of the effectiveness of risk management. With the exception of independence and objectivity, the analysis reveals that the remaining value drivers of the IAF's activities vary between developed and emerging countries and between financial and non-financial companies, suggesting that the factors influencing the IAAs' effectiveness might be partially context dependent.
This paper is the result of a survey of internal audit practitioners that sought to evaluate the actual and potential of internal audit at the strategic management level.The paper discusses the nature and application of modern internal auditing, and discusses the definition and practice of strategy. Controlling strategy is a much under-researched area and very few studies have addressed this issue. One approach to integrating strategic objectives across the whole of an organisation's systems is the Balanced Scorecard (BSC) which is a method of assuring senior management that a range of performance indicators (including financial, external, innovation and internal systems) is used to evaluate performance. A significant part of the research is the evaluation of the potential application of the BSC to corporate governance and control issues.A review of the strategic management and control literature showed that controlling strategy has developed into a primarily behavioural and incentive driven process, rather than the structural and rigid command and control systems that were prevalent in the early stages of scientific management. Indeed, many authors argue that an over-reliance on structure is in fact a negative influence on the creativity and entrepreneurial practices that are seen as essential to successful performance at the senior management level. The resulting paradox of attempting to control strategy This paper examines the role of internal auditors in strategic management, in particular their use of the Balanced Scorecard (BSC). The research is empirical, based on the results of a survey of an international, specialist group of professionals. This group comprised both internal auditors and non-internal auditors. Membership is multinational and a full range of industries was represented. The response rate was more than 22%, and all results were tested for significance. Respondents were asked to evaluate their own and their organisation's attitudes towards a range of statements about strategy and the BSC. The results show that there is a significant awareness of the potential benefits of the Balanced Scorecard and its potential role in good corporate governance practice. It was also clear that 'soft' controls and qualitative issues are addressed and reported on.
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