The Relationship between Corporate Governance and Firm Performance from International Perspective

BuiPhanNhaKhanh TV pdf 1 Queen’s Management School Queen’s University Belfast 2014/2015 MSc Dissertation THE RELATIONSHIP BETWEEN CORPORATE GOVERNANCE AND FIRM PERFORMANCE FROM INTERNATIONAL PERSPECTI[.]

Queen’s Management School Queen’s University Belfast

2014/2015

MSc Dissertation

THE RELATIONSHIP BETWEEN CORPORATE GOVERNANCE AND FIRM PERFORMANCE FROM INTERNATIONAL PERSPECTIVE

Bui Phan Nha Khanh

40142258

Presented for MSc Finance

This project is entirely the original work of student registration number 40142258 Where material is obtained from published or unpublished works, this has been fully acknowledged

by citation in the main text and inclusion in the list of references

Word Count: 14,191 words (The word count excludes references, title page, acknowledgement, tables of contents, list of figures, tables and abbreviations)

25th August, 2015

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Abstract

This research provides an empirical assessment of the governance – performance relationship using data from ten developed countries with 920 firms during 2006-2014 After controlling for time invariant effects, the result indicates a strong association between board size and both measures of performance, Tobin’s Q and return on assets I find evidence against the recommendations that more independent and female directors on board or the separation of CEO and chairman position lead to higher level of return on assets No significant estimations

of board independence and gender diversity are cited for Tobin’s Q whereas longer tenure of CEO is significantly correlated with higher Q ratio Overall, my finding supports that small board size with the balanced existence of insiders and outsiders are more effective

Keywords: Corporate governance, firm performance, international perspective

Acknowledgements

I would like to express my heartiest gratitude to everyone who provides me the possibility to complete this dissertation This dissertation would never be able to complete without the support of my respectable supervisor, Dr Gareth Campbell, who is extremely knowledgeable about the field of corporate finance He had spent his valuable time to give advices, share experiences with me all the way long I am truly grateful for having such a wonderful supervisor

A great thanks to my classmates in MSc Finance, MSc Risk Management and MSc Computational Finance programmes, especially to Tripti Sharma, Christine Wen-Chieh Tai, David Xiang Zhao, Randy Wang, Yaqi Kang, Tong Wang, Matthew Eastwood, for their cooperation, suggestions as well as encouragement not only in classes but also in my daily life I appreciate their help and treasure all the best memories with those amazing friends Finally, I would like to offer my deepest thank to my beloved family and my boyfriend, who always support me, stand by my side and give me strength to overcome difficulties

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Table of Contents

Abstract 2

Acknowledgements 3

List of Tables 6

List of Figures 7

List of Abbreviations 8

Chapter 1 - Introduction 9

Chapter 2 - Literature Reviews 11

2.1 THEORIES OF CORPORATE GOVERNANCE 11

2.1.1 Agency Theory 11

2.1.2 Stewardship Theory 12

2.2 RELEVANT RESEARCH IN CORPORATE GOVERNANCE 13

2.3 PRACTICES OF CORPORATE GOVERNANCE 13

2.4 VARIABLES SELECTION AND HYPOTHESIS DEVELOPMENT 19

Chapter 3 - Data and Methodology 25

3.1 DATA 25

3.1.1 Introduction to sample data 25

3.1.2 Descriptive Statistics of Variables 28

3.1.3 Variance Inflation Factor 34

3.1.4 Correlation Matrix 35

3.2 METHODOLOGY 37

Chapter 4 - Analysis and Regression 40

4.1 EXPLORATORY DATA ANALYSIS 40

4.2 REGRESSION ANALYSIS RESULTS 43

4.3 RESULTS OF REGRESSION ANALYSIS OF INDUSTRY EFFECTS 46

4.4 RESULTS OF REGRESSION ANALYSIS OF COUNTRY EFFECTS 47

4.5 RESULTS OF REGRESSION ANALYSIS OF TIME EFFECTS 49

4.6 REGRESSION ANALYSIS RESULT: ALTERNATIVE ECONOMETRIC METHODS

56

4.7 ADDITIONAL TEST OF BOARD SIZE – PERFORMANCE RELATIONSHIP 58

Chapter 5 - Discussion and Conclusion 60

5.1 DISCUSSION 60

5.2 CONCLUSION 63

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List of Tables

Table 2.1 Summary of Governance Code in different countries 15

Table 2.2 Previous research concerning governance performance relationship 17

Table 3.1 Description of variables 26

Table 3.2 Descriptive Statistics of Variables 28

Table 3.3 Descriptive Statistics of Sample Firms by Industry 32

Table 3.4 Descriptive Statistics of Sample Firms by Country 33

Table 3.5 Variance Inflation Factor of Regression Variables 34

Table 3.6 Pearson Correlation Matrix 36

Table 4.1 Comparison of means of regression variables for firms with different governance characteristics 40

Table 4.2 Econometric Estimations of the relationship between firm performance and corporate governance 43

Table 4.3 Econometric Estimations of relationship between firm performance (Tobin's Q) and corporate governance in different industries 50

Table 4.4 Econometric estimations of relationship between firm performance (ROA) and corporate governance in different industries 51

Table 4.5 Econometric estimations of relationship between firm performance (Tobin's Q) and corporate governance in different countries 52

Table 4.6 Econometric estimations of relationship between firm performance (ROA) and corporate governance in different countries 53

Table 4.7 Econometric estimations of relationship between firm performance (Tobin's Q) and corporate governance across time 54

Table 4.8 Econometric estimations of relationship between firm performance (ROA) and corporate governance across time 55

Table 4.9 Econometric estimations of relationship between firm performance and corporate governance: IV-2SLS and IV-GMM estimators 56

Table 4.10 Regression result of number of board meetings and percentage of meeting attendance on board size 58

Table 5.1 Comparison of Hypothesis Expectation and Empirical Results 60

List of Figures

Figure 3.1 Percentage of firms involved by country and list of stock market indices of sample

firms 25

Figure 3.2 The percentage of firms involved by industry 26

Figure 3.3 Board Characteristics of Sample Firms (2006-2014) 29

Figure 3.4 Leadership Characteristics of Sample Firms (2006-2014) 29

Figure 3.5 Description of Firm Performance (2006-2014) 30

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List of Abbreviations

NACD : National Association of Corporate Directors IRRC : Investor Responsibility Research Center