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Board size, corporate regulations and firm valuation in an emerging market: a simultaneous equation approach

Board size, corporate regulations and firm valuation in an emerging market: a simultaneous equation approach
Board size, corporate regulations and firm valuation in an emerging market: a simultaneous equation approach
We investigate the association between board size and firm valuation for a sample of 169 firms from 2002 to 2011 in South Africa (SA). The SA corporate context is interestingly and uniquely characterised by greater urgency to meet affirmative action regulations, such as black empowerment in board appointments, limited qualified and experienced directors, especially black directors, concentrated ownership, weak enforcement of corporate regulations and greater government ownership. These features make SA corporate boards perform a weaker agency (advisory, monitoring and disciplining) role than Western European and US boards, but a stronger resource dependence role, by providing access to resources, such as business contacts and contracts. This suggests that any positive impact of board size on firm valuation is likely to depend on the effective execution of the resource dependence role than the agency role. Our results suggest that board size has a positive association with firm valuation, consistent with larger boards providing better access to resources. Overall, our results support the resource dependence role of boards than their agency role. The results are robust across a raft of econometric models that control for different types of endogeneity, as well as different types of accounting and market-based firm valuation measures.
Corporate governance, board regulations, firm valuation, simultaneous equations, South Africa
0269-2171
194-220
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Opong, Kwaku K.
d0be5207-8d96-417d-9ef4-144d8056e0f3
Danbolt, Jo
2688d46f-2c9d-41c4-a581-1474bb755b21
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Opong, Kwaku K.
d0be5207-8d96-417d-9ef4-144d8056e0f3
Danbolt, Jo
2688d46f-2c9d-41c4-a581-1474bb755b21

Ntim, Collins, Opong, Kwaku K. and Danbolt, Jo (2015) Board size, corporate regulations and firm valuation in an emerging market: a simultaneous equation approach. International Review of Applied Economics, 29 (2), 194-220. (doi:10.1080/02692171.2014.983048).

Record type: Article

Abstract

We investigate the association between board size and firm valuation for a sample of 169 firms from 2002 to 2011 in South Africa (SA). The SA corporate context is interestingly and uniquely characterised by greater urgency to meet affirmative action regulations, such as black empowerment in board appointments, limited qualified and experienced directors, especially black directors, concentrated ownership, weak enforcement of corporate regulations and greater government ownership. These features make SA corporate boards perform a weaker agency (advisory, monitoring and disciplining) role than Western European and US boards, but a stronger resource dependence role, by providing access to resources, such as business contacts and contracts. This suggests that any positive impact of board size on firm valuation is likely to depend on the effective execution of the resource dependence role than the agency role. Our results suggest that board size has a positive association with firm valuation, consistent with larger boards providing better access to resources. Overall, our results support the resource dependence role of boards than their agency role. The results are robust across a raft of econometric models that control for different types of endogeneity, as well as different types of accounting and market-based firm valuation measures.

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Accepted/In Press date: 29 October 2014
e-pub ahead of print date: 1 December 2014
Published date: 20 May 2015
Keywords: Corporate governance, board regulations, firm valuation, simultaneous equations, South Africa
Organisations: Centre of Excellence for International Banking, Finance & Accounting

Identifiers

Local EPrints ID: 401003
URI: http://eprints.soton.ac.uk/id/eprint/401003
ISSN: 0269-2171
PURE UUID: 94346177-8b57-400f-a3db-ba15d62ec865
ORCID for Collins Ntim: ORCID iD orcid.org/0000-0002-1042-4056

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Date deposited: 03 Oct 2016 10:19
Last modified: 16 Mar 2024 02:27

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Contributors

Author: Collins Ntim ORCID iD
Author: Kwaku K. Opong
Author: Jo Danbolt

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