Determinants of board structure: Evidence from Australia

Abstract

Linck, Netter and Yang (2008) investigate the determinants of board structure in the high litigation-risk and low ownership-concentration environment of the U.S. In contrast, using a hand-collected data set of over 1,000 firms, this paper investigates the determinants of board structure in the low litigation-risk and high ownership-concentration environment of Australia. Multivariate analyses suggest that while board size and board independence are increasing in firm size, CEO duality is decreasing in firm size. Additional tests suggest that high ownership concentration increases board size, decreases board independence and increases CEO duality. These results imply that if high litigation-risk against directors (as in the U.S.) has a monitoring role in corporate governance, ownership concentration appears to offer an alternative governance mechanism in low-litigation-risk countries such as Australia.

Boards of directors: composition and effects on the performance of the firm

“…because of the lack of communication, cohesion and even the lack of accountability. In addition, as we expected, this need for supervision, derived from the power of the C.E.O., is reflected in the positive and significant relationship of this variable with the independence of the board, which would inhibit the extraction of private benefits and possible agency conflicts with the remaining shareholders (Boone et al, 2007;Linck et al, 2008;Monem, 2013;Raheja, 2005, among others. ) Also, we expected to see an increase in diversity because this is less likely to be subject to pressure from the C.E.O.…”

Firm Characteristics, Shareholder Sophistication and the Incidence of a ‘First Strike’ Under the ‘Two Strikes’ Rule in Australia

“…). Owing to differences in institutional setting such as differences in ownership concentration and litigation risk between Australia and the US (Monem ), other differences between the UK and Australia (e.g., differences in history of the capital market, the non‐binding nature of UK say on pay and investor sophistication), it is not clear whether the same firm characteristics will lead to shareholder rejection of the remuneration report in Australia. Thus, the current research attempts to identify some firm characteristics that are associated with the incidence of a first strike.…”

“…On the other hand, high ownership concentration may plausibly discourage rent‐seeking behaviour in an environment that features low litigation risk such as Australia (Monem ). Moreover, the private benefits of control can be enhanced for those who currently have control under the existing structure (Bebchuck and Roe, 1999).…”

“…Large firms are likely to have an efficient pay‐setting process. Specifically, large firms are likely to have a stronger governance structure with the separation of the board chair from the CEO (Monem ), greater representation of non‐executive and independent directors on the board (Monem ) and the existence of a remuneration committee of which the CEO is not a member (Monem and Ng ). Larger firms can also afford to hire independent remuneration consultants in designing efficient and effective compensation schemes.…”

Changing board behaviour: The role of the ‘Two Strikes’ rule in improving the efficacy of Australian Say‐on‐Pay

“…Lastly, Panel C provides summary statistics of all other firm‐specific, CEO‐specific and corporate governance control variables incorporated in the regression analysis. The results obtained are consistent with other contemporary empirical studies of corporate governance in Australia (see also Matolcsy and Wright, , ; Clarkson et al ., ; Monem, ; Monem and Ng, ; Duong and Evans, ).…”