The impact of the board process on board and corporate performance: the case of Slovakia
-
DOIhttp://dx.doi.org/10.21511/ppm.18(2).2020.30
-
Article InfoVolume 18 2020, Issue #2, pp. 366-381
- Cited by
- 952 Views
-
123 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Nowadays a great deal of attention is paid to corporate governance (CG). Frequent takeovers of ownership rights by management bodies led to a need for business owners to establish clear rules for business management and compliance monitoring. The aim of this paper is to examine the relationship between selected characteristics of the governance process and the ability of governing bodies to perform their core tasks, as well as to model and predict the impact of the selected characteristics of the governance process on the company’s financial performance, measured by the year-on-year change in return on equity. The respondent sample consists of members of randomly selected top management entities with their headquarters in Slovakia. A total of 132 subjects participated and answered questions in the survey, 54% of which were joint stock companies, 36% were limited liability companies and 10% were respondents from cooperatives. Data were personally collected by a questionnaire survey conducted during 2019. To verify the assumptions and success of the formulated model, correlation analysis, binary logistic regression and other relevant tests were used. The results show that each of the examined board process attributes significantly affects at least one board performance attribute. All significant correlations have a positive value. Independent variables in the ROE regression model increased the estimation rate of ROE change from 54.5% to 93.9%. The model is applicable in the CG practice and allows the prediction of changes in ROE with respect to ongoing governance processes.
Acknowledgment
This paper has been supported by the Scientific Grant Agency of Slovak Republic under the project VEGA No. 1/0749/18 “Research on the application of corporate governance principles in companies in Slovakia”. The authors would like to express their gratitude to the Scientific Grant Agency of The Ministry of Education, Science, Research and Sport of the Slovak Republic for financial support of this research and publication.
- Keywords
-
JEL Classification (Paper profile tab)G22, G34, M14
-
References54
-
Tables9
-
Figures0
-
- Table 1. Logistic regression
- Table 2. Hosmer-Lemeshow test results
- Table 3. Omnibus tests of model coefficients
- Table 4. Classification table
- Table 5. Coefficients
- Table 6. Variables in the equation
- Table 7. Descriptive statistics and case summaries
- Table A1. Description of variables
- Table A2. Correlation analysis of variables
-
- Akinleye, G. T., Olarewaju, O. M., Fajuyagbe, B. S. (2019). Corporate governance and financial performance: an empirical analysis of selected multinational firms in Nigeria. Problems and Perspectives in Management, 17(1), 11-18.
- Amason, A., & Sapienza, H. (1997). The effects of top management team size and interaction norms on cognitive and affective conflict. Journal of Management, 23(4), 495-516.
- Ararat, M., & Ugur, M. (2003). Corporate governance in Turkey: An overview and some policy recommendations. Corporate governance: An International Review, 3(1), 58-75.
- Ararat, M., Aksu, M., & Cetin, A. T. (2015). How Board Diversity Affects Firm Performance in Emerging Markets: Evidence on Channels in Controlled Firms. Corporate Governance: An International Review, 23(2), 83-103.
- Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257-273.
- Boeker, W., & Goodstein, J. (1991). Organizational performance and adaptation: Effects of environment and performance on changes in board composition. Academy of Management Journal, 34(4), 805-826.
- Boyd, B. (1990). Corporate linkages and organizational environment: A test of the resource dependence model. Strategic Management Journal, 11(6), 419-430.
- Cadbury, A. (1992). Report of the Committee on the Financial Aspects of Corporate Governance. London: Gee & Co. Ltd.
- Conyon, M. J., & Peck, S. I. (1998). Board size and corporate performance: evidence form European countries. The European Journal of Finance, 4(3), 291-304.
- Daily, C. M., & Dalton, D. R. (1993). Board of directors leadership and structure: Control and performance implications. Entrepreneurship Theory and Practice, 17(3), 65-81.
- Daily, C. M., & Dalton, D. R. (1994). Bankruptcy and corporate governance: The impact of board composition and structure. Academy of Management Journal, 37(6), 1603-1617.
- Dalton, D. R., Daily, C. M., Ellstrand, A. E., & Johnson, J. L. (1998). Meta-analytic review of board composition leadership structure and financial performance. Strategic Management Journal, 19(3), 269-290.
- Deutsch, Y. (2005). The Impact of Board Composition on Firms’ Critical Decisions: A Meta-Analytic Review. Journal of Management, 31(3), 424-444.
- Freire, F. (2019). Duality CEO-Chairman and its relation with the effectiveness of the board control. Problems and Perspectives in Management, 17(4), 239-251.
- Gillan, S. L. (2006). Recent developments in corporate governance: An overview. Journal of Corporate Finance, 12(3), 381-402.
- Gillan, S. L., & Starks, L. T. (1998). A survey of shareholder activism: Motivation and empirical evidence. Contemporary Finance Digest, 2(3), 10-34.
- Gopinath, C., Siciliano, J. I., & Murray, R. L. (1994). Changing role of the board of directors: In search of a new strategic identity. The Mid-Atlantic Journal of Business, 30(2), 175-185.
- Grofcikova, J. (2016). The use of financial analysis indicators for the monitoring of company financial situation and elimination of financial risk. Managing and Modelling of Financial Risks 2016. 8th International Scientific Conference. Ostrava.
- Grofcikova. J., & Izakova, K. (2018). Corporate governance and firm performance in Slovakia. Proceedings of the 18th International Scientific Conference Globalization and its Socio-Economic Consequences. Rajecké Teplice. 532-539.
- He, L., He, R., & Evans, E. (2020). Board influence on a firm’s long-term success: Australian evidence. Journal of Behavioral and Experimental Finance, 27, 100327.
- Hung, H. (1998). A typology of the theories of the roles of governing boards. Corporate Governance: An International Review, 6(2), 101-111.
- Jackling, B., & Johl, S. (2009). Board structure and firm performance: evidence form India´s top companies. Corporate Governance: An International Review, 17(4), 492-509.
- Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control system. Journal of Finance, 48(3), 831-880.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior. Agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
- Johnson, J. L., Daily, C. M., & Ellstrand, A. E. (1996). Board of directors: a review and research agenda. Journal of Management, 22(3), 409-438.
- Judge, W. Q., & Zeithaml, C. P. (1992). Institutional and strategic choice perspectives on board involvement in the strategic decision process. Academy of Management Journal, 35(4), 766-794.
- Kaczmarek, S., Kimino, S., & Pye, A. (2012). Board Task-related Faultlines and Firm Performance: A Decade of Evidence. Corporate Governance: An International Review, 20(4), 337-351.
- Khanchel, I. (2007). Corporate governance: measurement and determinant analysis. Managerial Auditing Journal, 22(8), 740-760.
- Kiel, G. C., & Nicholson, G. J. (2003). Board composition and corporate performance: How the Australian experience informs contrasting theories of corporate governance. Corporate Governance: An International Review, 11(3), 189-205.
- Kliestik, T., Valaskova, K., Lazaroiu, G., Kovacova, M., & Vrbka, J. (2020). Remaining Financially Healthy and Competitive: The Role of Financial Predictors. Journal of Competitiveness, 12(1), 74-92.
- Kouaib, A., & Jarboui, A. (2016). Real earnings management in innovative firms: Does CEO profile make a difference? Journal of Behavioral and Experimental Finance, 12, 40-54.
- Lawrence, B. (1997). The black box of organizational demography. Organization Science, 8(1), 1-22.
- Legislation of the Slovak Republic. (1991). Commercial Code No. 513/1991 collected as amended.
- Legislation of the Slovak Republic. (2002). Act No. 431/2002 Coll. on Accounting.
- Levrau, A., & Van Den Berghe, L. (2007). Corporate governance and board effectiveness: Beyond formalism (Working Papers of Faculty of Economics and Business Administration No. 07/448). Ghent University, Belgium.
- Maassen, G. F. (1999). An international comparison of corporate governance models (3rd ed.). Amsterdam: Spencer Stuart.
- Macus, M. (2008). Board capability: An interactions perspective on boards of directors and firm performance. International Studies of Management & Organization, 38(3), 98-116.
- Masulis, R. W., Wang, C., & Xie, F. (2012). Globalizing the boardroom – The effects of foreign directors on corporate governance and firm performance. Journal of Accounting and Economics, 53(3), 527-554.
- Melone, N. (1994). Reasoning in the executive suite: The influence of role/experience-based expertise on decision processes of corporate executives. Organization Science, 5(3), 438-455.
- Mitton, T. (2002). A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis. Journal of Financial Economics, 64(2), 215-241.
- Musa, H., Rech, F., & Musova, Z. (2019). The role of corporate governance in debt and dividend policies: case of Slovakia. Investment Management and Financial Innovations, 16(2), 206-217.
- Namoga, M. O. (2011). Corporate governance and board performance: Empirical Evidence form Pacific Island Countries (Ph.D. Thesis). James Cook University, Australia.
- OECD. (1998). Corporate governance: Improving competitiveness and access to capital in global markets. A report to the OECD by the business sector advisory group on corporate governance. Paris: OECD Publishing.
- OECD. (2015). G20/OECD Principles of corporate governance. Paris: OECD Publishing.
- Ong, C. H., & Wan, D. T. W. (2008). Three conceptual models of board role performance. Corporate Governance: An International Review, 8(3), 317-329.
- Pearce, J. A., & Zahra, S. A. (1992). Board composition from a strategic contingency perspective. Journal of Management Studies, 29(4), 411-438.
- Pettigrew, A. M. (1992). On studying managerial elites. Strategic Management Journal, 13(2), 163-182.
- Pham, P. K., Suchard, J. A., & Zien, J. (2011). Corporate governance and alternative performance measures: evidence from Australian firms. Australian Journal of Management, 36(3), 371-386.
- Priem, R., Lyon, D. W., & Dess, G. (1999). Inherent limitations of demographic proxiesin top management team heterogeneity research. Journal of Management, 25(6), 935-953.
- Shleifer, A., & Vishny, R. W. (1997). A Survey of Corporate Governance. Journal of Finance, 52(2), 737-783.
- Velte, P. (2018). Is audit committee expertise connected with increased readability of integrated reports: Evidence from EU companies. Problems and Perspectives in Management, 16(2), 23-41.
- Welch, E. (2003). The Relationship Between Ownership Structure and Performance in Listed Australian Companies. Australian Journal of Management, 28(3), 287-305.
- Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185-211.
- Yilmaz, N., & Mazzeo, M. A. (2014). The effect of CEO overconfidence on turnover abnormal returns. Journal of Behavioral and Experimental Finance, 3, 11-21.