An analysis of corporate governance and company performance: a South African perspective

Abstract

This study examines the relationship between corporate governance mechanisms and company performance as measured by economic value added (EVA), return on assets (ROA) and Tobin's Q. A multiple regression model is used to compare the association between corporate governance mechanisms and company performance for 158 companies listed on the JSE Securities Exchange (formerly known as the Johannesburg Stock Exchange) for the year 2012. We report four main results. First, board size is found to be negatively and significantly related to EVA suggesting that firms with smaller boards perform better than those with larger boards. Second, the relationship between Tobin's Q and the proportion of non-executive directors (NEDs) on the board is both positive and significant, suggesting that companies with higher proportions of NEDs seem to perform better than those with lower proportions of NEDs. Third, frequency of board meetings is negatively and significantly related to both the ROA and the Tobin's Q suggesting that companies which hold board meetings less frequently appear to perform better than those holding board meetings more frequently. Fourth, the relationship between company size and two performance measures (EVA and ROA) is both positive and significant, suggesting that larger companies seem to perform better than smaller ones. Furthermore, the association between leverage and the ROA is negative and marginally significant, suggesting that companies with less debt appear to perform better than those with more debt. Overall, based on the number and strength of associations between board characteristics and the measures of performance, we conclude that Tobin's Q has a better association with board characteristics than both EVA and ROA. The study also shows that the majority of firms listed on the JSE comply with the King III propositions that the majority of board members be NEDs and that the majority of the NEDs be independent.

The effect of industry nuances on the relationship between corporate governance and financial performance: Evidence from South African listed companies

“…Similar to the studies of Mohammed, Che-Ahmad and Aljaaidi (2012) and Pamburai et al (2015), the fact that the correlation coefficients are below the 0.8 threshold indicates that multicollinearity is not a problem in this study.…”

“…Further, similar to the studies of Muchemwa, Padia and Callaghan (2016), Pamburai et al (2015) and Rodriguez-Fernandez, Fernandez-Alonso and Rodriguez-Rodriguez (2014), in addition to the correlation matrix, this study also assesses the variance inflation factors to check the level of multicollinearity for each dependent variable against all six independent variables. Chatterjee and Hadi (2012) posit that a value of variance inflation factors larger than 10 should be considered an indication of the presence of multicollinearity.…”

“…One aspect in relation to the board internal structure is board activity (Arosa, Iturralde & Maseda 2013). Board activity is defined as the frequency of board meetings in a year (Pamburai et al 2015). The frequency of board meetings allows the board to be apprised of activities of the company and thus manage the agency relationship on behalf of the shareholders.…”

“…Before conducting the regression analysis, various preliminary tests are conducted (Haniffa & Hudaib 2006;Pamburai et al 2015). The following subsection discusses the assumptions of the ordinary least squares regression method to determine which estimation technique is appropriate for the study.…”

Empirical Study of the Relationship between Board of Director Mechanisms and Perceived Performance of Listed Firms in Nigeria

“…The recent debate on the performance of insurance firm will for a long time remain an area of interesting research. The scandals in the early 1990's has exposed many multinational firms in the United Kingdom and United States with a high-profile corporate scandals, unexpected corporate failures, unprofessional behaviours by the Chief Executive Officer (CEO) and management (Adegbite, 2015;Al-matari, 2014;Ehikioya, 2009;Harvey Pamburai, Chamisa, Abdulla & Smith, 2015;Rossi, Nerico&Capasso, 2015; Nuhu& Ahmad, 2017; Samaduzzaman, Zaman &Quazi, 2015). It has been suggested that the scandals at Enron, WorldCom, Qwest, Tyco and other corporate entities in the US resulted in a loss of more than USD 7 trillion of investors' funds (Donaldson, 2003;Global Issue, 2009;Lawal, 2012).…”