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

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  • Collins G. Ntim
  • Kwaku K. Opong
  • Jo Danbolt

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 an 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 more 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 more 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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  • Collins G. Ntim & Kwaku K. Opong & Jo Danbolt, 2015. "Board size, corporate regulations and firm valuation in an emerging market: a simultaneous equation approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(2), pages 194-220, March.
    • Handle: RePEc:taf:irapec:v:29:y:2015:i:2:p:194-220
    DOI: 10.1080/02692171.2014.983048
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    2. Ahmed A. Elamer & Collins G. Ntim & Hussein A. Abdou & Andrews Owusu & Mohamed Elmagrhi & Awad Elsayed Awad Ibrahim, 2021. "Are bank risk disclosures informative? Evidence from debt markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1270-1298, January.
    3. Amal Jmaii & Noomene Zaafouri & Hella Guerchi Mehri, 2024. "On the measurement of corporate governance and its impact on bank profitability and credit risk: The case of Tunisian listed banks," African Development Review, African Development Bank, vol. 36(2), pages 239-251, June.
    4. Renuka Sharma & Kiran Mehta & Archana Goel, 2023. "Non-linear relationship between board size and performance of Indian companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(4), pages 1277-1301, December.
    5. Anis El Ammari, 2021. "Do CEO Duality and Ownership Concentration Impact Dividend Policy in Emerging Markets? The Moderating Effect of Crises Period," IJFS, MDPI, vol. 9(4), pages 1-21, November.
    6. Amewu, Godfred & Alagidede, Paul, 2019. "Mergers and executive compensation changes: Evidence from African markets," Research in International Business and Finance, Elsevier, vol. 48(C), pages 397-419.
    7. Douglas A. Adu, 2024. "How do board and ownership characteristics affect bank risk-taking? New evidence from sub-Saharan Africa," Journal of Banking Regulation, Palgrave Macmillan, vol. 25(3), pages 209-233, September.
    8. Ahmed A. Elamer & Collins G. Ntim & Hussein A. Abdou & Alaa Mansour Zalata & Mohamed Elmagrhi, 2019. "The impact of multi-layer governance on bank risk disclosure in emerging markets: the case of Middle East and North Africa," Accounting Forum, Taylor & Francis Journals, vol. 43(2), pages 246-281, April.
    9. Ntim, Collins G., 2016. "Corporate governance, corporate health accounting, and firm value: The case of HIV/AIDS disclosures in Sub-Saharan Africa," The International Journal of Accounting, Elsevier, vol. 51(2), pages 155-216.
    10. Nam, Jonghoon & Liu, Xiaohui & Lioliou, Eleni & Jeong, Mugoan, 2018. "Do board directors affect the export propensity and export performance of Korean firms? A resource dependence perspective," International Business Review, Elsevier, vol. 27(1), pages 269-280.
    11. Areneke, Geofry & Kimani, Danson, 2019. "Value relevance of multinational directorship and cross-listing on MNEs national governance disclosure practices in Sub-Saharan Africa: Evidence from Nigeria," Journal of World Business, Elsevier, vol. 54(4), pages 285-306.
    12. Mohammad Nurunnabi & Monirul Alam Hossain & Saad A. Al-Mosa, 2016. "Ceci n'est pas une pipe! Corporate Governance practices under two political regimes in Bangladesh: A political economy perspective," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 13(4), pages 329-363, November.

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