Regulatory requirements and board composition
- Publication Type:
- Thesis
- Issue Date:
- 2010
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This thesis addresses the research question of regulatory requirements and board
composition. Specifically it has two objectives: first, to provide evidence of the impact
of the Principles of Good Corporate Governance and Best Practice (PGCG&BP)
introduction in 2003 by the Australian Stock Exchange (ASX) on board composition.
Second, to examine the association between board composition and continuous
disclosure as a measure of governance effectiveness. Two of the main principles of the
PGCG&BP were independent boards and greater accountability, and Australia provides
a unique institutional setting to test accountability with the Continuous Disclosure
Regime (CDR) because of the single portal announcement repository and the almost
universal single topic announcements. This latter feature removes the confounding
effect found in many other studies using annual reports. From a sample of 450 firms in
2001 and 2007, I find the number of firms with (majority) independent boards and
committees increased following the PGCG&BP regulation (substantially in the case of
the nomination committee), however the percentage of independent directors on boards
increased only marginally, with firms that initially had a high percentage of independent
directors often reducing their level of independence (mean reversion). Using ordinary
least squares regression (OLS) I find the relation between board composition and firm
characteristics reduced after the introduction of the regulation, adding weight to the
proposition that boards were forced to become less ‘efficient’ or ‘optimal’. Further
testing with OLS and two-stage least squares regression to control for potential
endogeneity issues finds more independent boards do not appear to be associated with
more continuous disclosures but the association is significant with other corporate
governance factors. These results bring into question some of the expected outcomes of
this corporate governance regulation.
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