Corporate board reforms around the world and stock price crash risk

Hu, Jinshuai; Li, Siqi; Taboada, Alvaro G.; Zhang, Frank

doi:10.1016/j.jcorpfin.2020.101557

Cited by 126 publications

(105 citation statements)

References 45 publications

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“…On the other hand, there is much scepticism as to whether board reform, e.g. introducing outsider/independent directors to the board, will mitigate the agency problems (Bhagat and Black, 2002;Hermalin and Weisbach, 2003;Hu et al, 2020). For example, reforms may appoint an independent director who lacks the required knowledge or expertise.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…The existing board structure is considered the first-best equilibrium outcome of a market solution. The introduction of independent directors who lack firm-specific expertise and are more conservative due to concerns for their own reputations may potentially increase the risk of the firm (Hu et al, 2020). Moreover, independent directors are more likely to make suboptimal decisions because insiders do not want to reveal full information.…”

Section: Descriptive Statisticsmentioning

confidence: 99%

“…Using a sample of board reforms in 41 countries, Fauver et al (2017) document an increase in firm value following reforms involving board and audit committee independence, but not reforms with the separation of the chairman and the chief executive officer (CEO) positions. However, there are many debates among scholars regarding the effectiveness of the introduction of independent board members to mitigate the agency problem (Bhagat and Black, 2002;Hermalin and Weisbach, 2003;Hu et al, 2020). In addition, there exists information asymmetry between independent directors and controlling shareholders.…”

Section: Introductionmentioning

confidence: 99%

“…In practice, controlling shareholders tend to invite someone they know well to join the board, so that the personal relationship alleviates the concern of independent directors in regards to information asymmetry. Not to mention, in many cases, the appointment of an independent director may be inappropriate due to the lack of expertise and specific knowledge required by the firm (Hu et al, 2020). Hence, certain board reforms may increase the firm risk and result in a higher level of COE.…”

Section: Introductionmentioning

confidence: 99%

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Board reforms and the cost of equity: International evidence

Zhang

et al. 2020

Accounting & Finance

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We examine the impact of corporate board reforms on the cost of equity (COE) using a sample of data in 41 countries for the period from 1992 to 2012. We find a significant increase in the COE after board reforms worldwide. This effect is eased for firms in countries under a comply‐or‐explain reform approach, as well as for firms in emerging countries. We further conclude that board reforms involving board independence, audit committee and auditor independence, and the separation of the CEO and Chairman positions, result in increases in the COE. Our results suggest that board reforms are considered inefficient to mitigate agency problems.

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Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Section: Descriptive Statisticsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Board reforms and the cost of equity: International evidence

Zhang

et al. 2020

Accounting & Finance

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“…Similarly, Li, Lu, Mittoo, and Zhang (2015) show a positive relationship between board independence and performance of Chinese listed companies, and pinpoint the importance of board independence in firms with concentrated ownership structure. For a cross country sample, Hu, Li, Taboada, and Zhang (2020) document that board reforms that improve monitoring and the oversight of management reduce crash risk significantly. From an agency theory perspective, it is expected that the proportion of NEDs would signal improved monitoring and therefore will be positively associated with the financial performance of companies.…”

Section: Literature Review and Development Of Hypothesesmentioning

confidence: 99%

Governance disclosure quality and market valuation of firms in UK and Germany

et al. 2020

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This study develops a “comply or explain” index which captures compliance and quality of explanations given for non‐compliance with the corporate governance codes in UK and Germany. In particular, we explain, how compliance and quality of explanations provided in non‐compliance disclosures, and various other internal corporate governance mechanisms, affect the market valuation of firms in the two countries. A dynamic generalised method of moments (GMM) estimator is employed as the research technique for our analysis, which enabled us to control for the potential effects of endogeneity in our models. The findings of our content analysis suggest that firms exhibit significant differences in compliance, board independence and ownership structure in both countries. The “comply or explain” index is positively associated with the market valuation of UK firms suggesting that compliance and quality governance disclosure are value relevant in the UK. Institutional blockholders' ownership is, however, negatively associated with the market value of firms, which raises questions about the monitoring role of institutional shareholders in both countries. We argue that both compliance and explanations given for non‐compliance are equally important, as long as valid reasons and justifications for non‐compliance are provided by the reporting companies. These findings thus imply that the “comply or explain” principle is working well and that UK and German companies could benefit from the flexibility offered by this principle. With respect to the role of board size, board independence, ownership structure, and institutional ownership of firms, this study offers policy implications.

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Corporate board and dynamics of capital structure: Evidence from UK, France and Germany

et al. 2022

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Theoretical arguments suggest that capital structure will adjust to the dynamics of the corporate governance environment. In line with this prediction, we examine the impact of board characteristics on capital structure dynamics and the speed of adjustment. Using 2690 firm-year observations for 2009-2018, we find that firms in a stakeholder-oriented corporate governance environment adjust their leverage faster than those in a shareholder-oriented environment. We also find that corporate board characteristics influence firms' capital structure and speed of adjustment towards target leverage. Our findings are robust to alternative measures of leverage and endogeneity. The overall evidence supports the relevance of the corporate board's composition in both shareholder-oriented and stakeholder-oriented corporate governanc (CG) environments. We conclude that board composition mitigates agency conflict.

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Corporate board reforms around the world and stock price crash risk

Cited by 126 publications

References 45 publications

Board reforms and the cost of equity: International evidence

Board reforms and the cost of equity: International evidence

Governance disclosure quality and market valuation of firms in UK and Germany

Corporate board and dynamics of capital structure: Evidence from UK, France and Germany

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