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Ownership and Board Structures in Irish plcs

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  • Donnelly, Ray
  • Kelly, Paul

Abstract

The board of directors is considered pivotal in a company's corporate governance architecture. However, the board is just one of several governance mechanisms. External shareholders may be more concerned with the overall monitoring of management provided by the market for corporate control, ownership structure, the regulatory environment and board structure than each individual control mechanism. Thus, from their perspective, there may be a substitution effect between monitoring by the board and by other forms of governance. The overall governance of the company could be optimised by very different board structures. On the other hand, management will always be motivated to create a board that is an extension of itself rather than independent. It may have the opportunity to so do if it has sufficient ownership. In this scenario the board structure is the outcome of a bargain struck between the CEO and the outside owners and may therefore complement ownership structure. We examine the relation between ownership and board structure in Irish plcs. We test the substitution and bargaining hypotheses regarding effects of ownership on board structure. We find that the percentage of share capital owned by executives is negatively related to the percentage of the board comprised of non-executive directors and the likelihood of having a non-executive as chairman. We interpret this as evidence in favour of the bargaining hypotheses. Further indirect evidence in favour of this hypothesis is provided by a strong negative relation between the monitoring capacity of a board and company size. In contrast the evidence we report in favour of the substitution hypothesis is weak.

Suggested Citation

  • Donnelly, Ray & Kelly, Paul, 2005. "Ownership and Board Structures in Irish plcs," European Management Journal, Elsevier, vol. 23(6), pages 730-740, December.
    • Handle: RePEc:eee:eurman:v:23:y:2005:i:6:p:730-740
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    Citations

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    Cited by:

    1. Gregorio Sanchez-Marin & J. Samuel Baixauli-Soler & M. Encarnacion Lucas-Perez, 2010. "Ownership Structure and Board Effectiveness as Determinants of TMT Compensation in Spanish Listed Firms," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 12(1), pages 92-109, November.
    2. Zona, Fabio, 2014. "Board leadership structure and diversity over CEO time in office: A test of the evolutionary perspective on Italian firms," European Management Journal, Elsevier, vol. 32(4), pages 672-681.
    3. Bansal, Shashank & Thenmozhi, M., 2020. "Does concentrated founder ownership affect board independence? Role of corporate life cycle and ownership identity," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    4. Ray Donnelly & Mark Mulcahy, 2008. "Board Structure, Ownership, and Voluntary Disclosure in Ireland," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(5), pages 416-429, September.
    5. Niamh Brennan, 2010. "A review of corporate governance research : an Irish perspective," Open Access publications 10197/2962, Research Repository, University College Dublin.
    6. Regina M. Lizares, 2022. "Ownership concentration and board structure: Alignment and entrenchment effects in an emerging market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2557-2569, September.
    7. Khaled Elsayed, 2011. "Board size and corporate performance: the missing role of board leadership structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(3), pages 415-446, August.
    8. Donnelly, Ray, 2008. "Accounting, board independence and contagion effects from adverse press comment: The case of Elan," The British Accounting Review, Elsevier, vol. 40(3), pages 245-259.
    9. Hayam Wahba, 2014. "Capital structure, managerial ownership and firm performance: evidence from Egypt," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1041-1061, November.
    10. Acero Fraile, Isabel & Alcalde Fradejas, Nuria, 2014. "Ownership structure and board composition in a high ownership concentration context," European Management Journal, Elsevier, vol. 32(4), pages 646-657.

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