Does the South African stock market value an independent dual board leadership structure?

Collins Gyakari Ntim

Abstract


We examine the crucial policy question of whether the South African (SA) stock market values a dual board leadership structure (DBLS) using a sample of 169 listed firms from 2002 to 2007. We find a significant positive link between DBLS and market valuation, but only in firms with independent chairpersons, implying that the market values firms with independent DBLS more highly. Our results are robust across a number of econometric models that control for different types of market valuation proxies and endogeneity problems. Our findings offer empirical support for agency theory, which suggests that independent DBLS increases the capacity of the board to effectively advise, monitor and discipline top management, and thereby improving market valuation.


Full Text:

PDF

References


Baliga, R.B., Moyer, C.R. and Rao, R.B. (1996) CEO duality and firm financial performance, Strategic Management Journal, 17, 41-53.

Beiner, S., Drobetz, W., Schmid, M.M., and Zimmermann, H. (2006) An integrated framework of corporate governance and firm valuation. European Financial Management, 12, 249-283.

Boyd, B.K. (1995) CEO duality and firm performance: a contingency model, Strategic Management Journal, 16, 301-312.

Bozec, R. (2005) Boards of directors, market discipline and firm performance, Journal of Business Finance & Accounting, 32(9-10), 1921-1960.

Brickley, J.A., Coles, L. and Jarrell, G. (1997) Corporate leadership structure: on the separation of the positions of CEO and chairman of the board, Journal of Corporate Finance, 3, 189-220.

Dahya, J., Lonie, A.A. and Power, D.M. (1996) The Case for separating the roles of chairman and CEO: an analysis of stock market and accounting data, Corporate Governance: An International Review, 4(2), 71-77.

Donaldson, L. and Davis, (1991) Stewardship theory or agency theory: CEO governance and shareholder returns, Australian Journal of Management, 16(1), 49-64.

Donaldson, L. and Davis, J.H. (1994) Boards and company performance – research challenges the conventional wisdom, Corporate Governance: An International Review, 2, 151-160.

Guest, P.M., (2009) The impact of board size on firm performance: evidence from the UK, European Journal of Finance, 15, 385-404.

Gujarati, D.N. (2003) Basic econometrics. McGraw-Hill: New York.

Henry, D. (2008) Corporate governance structure and the valuation of Australian firms: is there value in ticking the boxes. Journal of Business Finance & Accounting, 35, 912-942.

Jensen, M.C. (1993) The modern industrial revolution, exit, and the failure of internal control systems, Journal of Finance, 48, 831-880.

Kiel, G.C. and Nicholson, G.J. (2003) Board composition and corporate performance: how the Austrian experience informs contrasting theories of corporate governance, Corporate Governance: An International Review, 11(3), 189-205.

King Committee. (1994 & 2002) King reports on corporate governance for South Africa. Institute of Directors, Johannesburg.

Laing, D. and Weir, C.M. (1999) Governance structures, size and corporate performance in UK firms, Management Decisions, 37(5), 457-464.

Lipton, M., and Lorsch, J. (1992) A modest proposal for improved corporate governance, Business Lawyer, 48, 59-77.

Ntim C.G., Opong K.K., and Danbolt, J. (2012) The value relevance of shareholder versus stakeholder corporate governance disclosure policy reforms in South Africa. Corporate Governance: An International Review, 20(1), 84-105.

Ntim C.G., Opong K.K., Danbolt, J., and Thomas, D.A. (2011) Voluntary corporate governance disclosures by post-apartheid South African corporations. Journal of Applied Accounting Research, forthcoming.

Ntim, C.G. (2011) The King reports, independent non-executive directors and firm valuation on the Johannesburg stock exchange. Corporate Ownership and Control, 9(1), 428-440.

Ntim, C.G. (2012) An integrated corporate governance framework and financial performance in South African listed corporations. South African Journal of Economics, forthcoming.

Ntim, C.G. and Osei, K.A. (2011) The impact of corporate board meetings on corporate performance in South Africa. African Review of Economics and Finance, 2(2), 83-103.

Ntim, C.G., (2009) Internal corporate governance and firm financial performance evidence from South African listed firms. PhD thesis, University of Glasgow.

Petersen, M.A. (2009) Estimating standard errors in finance panel data sets: comparing approaches. Review of Financial Studies, 22, 435-480.

Rechner, P.L. and Dalton, D.R. (1991) CEO duality and organizational performance: a longitudinal analysis, Strategic Management Journal, 12(2), 155-160.

Rhoades, D.L., Rechner, P.L. and Sudramurthy, C. (2001) A meta-analysis of board directorship structure and financial performance: are “two heads better than one? Corporate Governance: An International Review, 9, 311-319.

Sanda, A., Mikailu, A.S. and Garba, T. (2010) Corporate governance mechanisms and firm financial performance in Nigeria, Afro-Asian Journal of Finance and Accounting, 2(1), 22-39.

Vafeas, N. and Theodorou, E. (1998) The relationship between board structure and firm performance in the UK, British Accounting Review, 30, 383-407.

Weir C., Laing, D. and McKnight, P.J. (2002) Internal and external governance mechanisms: their impact on the performance of large UK public companies’, Journal of Business Finance and Accounting, 29(5), 579-611.

Weir, C. and Laing, D. (2000) The performance-governance relationship: the effects of Cadbury compliance on UK quoted companies, Journal of Management and Governance, 4, 265-281.

Wooldridge, J.M. (2010) Econometric analysis of cross section and panel data. MIT Press: Massachusetts.




DOI: https://doi.org/10.17811/ebl.1.1.2012.35-45

Refbacks

  • There are currently no refbacks.


ISSN: 2254-4380