Corporate Boards, Ownership Structure and Firm Performance in an Environment of Severe Political and Economic Crisis

Abstract

This study examines the relationship between board and ownership structures and firm performance in an environment of severe political and economic crisis. Using panel data from the Zimbabwe Stock Exchange (ZSE) for the period 2000-2005, we split the period into prepresidential election period (2000)(2001)(2002) (a relatively stable political and economic period) and post-presidential election period (2003)(2004)(2005)) (a hostile political and economic period) to capture the differences in the political and economic landscape. We find that board size, ownership concentration and executive directors' share ownership increased whilst the proportion of nonexecutive directors reduced in the post-presidential election period. Employing a system Generalized Method of Moments (GMM) approach, we find that performance is positively related to board size and ownership concentration in the post-(but not in the pre-) presidential election period. The results also show that performance is negatively related to executive directors' share ownership in the post-presidential election period, but positively related in the pre-presidential election period. The proportion of non-executive directors is negative and significant in both periods. These findings support the notion that the effects of board and ownership structures depend on the nature of the firm's environment, and therefore have important implications for policy-makers.

Board size, corporate regulations and firm valuation in an emerging market: a simultaneous equation approach

“…The positive coefficient is consistent with our hypothesis that SA boards perform a stronger resource dependence role, but a weaker agency role, and that larger SA boards are better placed to attract critical resources, such as finance, business contacts and contracts to improve long-term firm value. Our evidence also offers support to the results of past African and other emerging markets studies (Henry, 2008;Mangena et al, 2012), but generally contradicts the findings of prior Western European and US studies (Yermack, 1996;Guest, 2009). …”

“…Also, due to greater agency problems, larger firms are likely to engage in good CG practices (Beiner et al, 2006), and may have higher Q. By contrast, smaller firms tend to have higher growth opportunities (Mangena et al, 2012;Al-Najjar, 2011, 2013, and may be related to higher Q. Given the mixed evidence, we hypothesise that gearing (GEAR), capital expenditure (CAPEX) and firm size (LNTA) will correlate either positively or negatively with firm valuation.…”

“…However, we argue that the paucity of empirical evidence on South Africa also offers genuine opportunities to make distinct contributions to the extant literature. Sanda et al (2010) and Mangena et al (2012) are rare exceptions. In contrast to the results of studies conducted in developed countries, both studies report positive association between board size and firm valuation, as proxied by ROA and Tobin's Q, in samples of 72 Zimbabwean and 93 Nigerian listed firms, respectively.…”

“…In fact, prior research suggests, for example, that corporate boards in emerging markets generally perform a weaker monitoring role (Okeahalam, 2004;Kumar, 2006;Henry, 2008;Al-Najjar, 2011, 2013. As such, an investigation of the link between board size and firm valuation in emerging markets, where there is a conspicuous dearth of empirical evidence (Mangena et al, 2012;Ntim et al, 2012a, b), is crucial in providing a more complete understanding of the impact of board size on firm valuation.…”

Determinants of different accounting methods choice in Tanzania

“…Hence reporting huge profits might attract significant consequences from politics. However, it is also possible in Tanzania, as in most other African states, that large companies are political connected (Mangena, Tauringana and Chamisa, 2010). Such political connection implies that political costs relating to reporting huge profits may not be an important issue since managers will be protected by influential politician to whom they are connected.…”