اداره امور شرکت ها، انضباط بازار خارجی و بهره وری شرکت
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|5211||2011||15 صفحه PDF||سفارش دهید||11050 کلمه|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Corporate Finance, Volume 17, Issue 3, June 2011, Pages 403–417
Using a sample of Australian companies over the 2000–2005 period, we examine the impact of internal corporate governance on firm's total factor productivity, taking into account the interaction between internal governance and external market discipline. Our empirical findings point to a substitution effect between product market competitiveness and firm-level corporate governance. Overall, internal corporate governance mechanisms – more efficient boards and greater CEO stock-based compensation – are effective instruments for improving firm productivity. However, internal governance is less effective when a firm faces a highly competitive product market. We find only weak empirical support for an association between firm's ownership structure and productivity, and no support for an association between industry takeover intensity and firm productivity.
Does a firm's choice of internal corporate governance measures influence firm performance? There has been a growing empirical literature on the link between corporate governance and firm performance. This paper builds on this literature by considering the differential effect of internal corporate governance on firm performance, taking into account the influence of external market discipline faced by the firm (in terms of product market competitiveness and an active market for corporate control). In contrast to the existing literature, we measure firm performance using total factor productivity (TFP henceforth).1 Productivity, defined as the residual production output beyond and above the contribution of input costs, is arguably a better measure of the firm's real economic performance. Given that prior literature has established that good internal governance is related to better financial profitability and higher market valuation,2 one would expect that good governance also has a positive impact on the underlying determinant of firm value, namely, productivity. The primary purpose of this study is to fill in this gap in our knowledge, to address whether good internal governance indeed helps improve firm productivity. Further, we draw upon another strand of literature that documents a link between industry-wide competitiveness and firm-level internal corporate governance instruments, such as managerial incentive schemes (Aggarwal and Samwick, 1999), business combination laws (Giroud and Mueller, 2010) and anti-takeover provisions (Chou et al., 2008). We explicitly examine whether the degree of external market discipline affects the link between internal governance and firm productivity. Australia, like the US, is a common law country with a well developed capital market, albeit smaller. The conventional wisdom is thus to classify Australia as having an “outsider system”, similar to that evidenced in the US. However, Australia's corporate governance is more representative of an “insider system” (Dignma and Galanis, 2004). Firstly, shareholdings in Australia are more concentrated, with many corporations having large blockholders (La Porta et al., 1999 and Lamba and Stapledon, 2003). In our sample, the average firm has an ownership concentration ratio of 35% (measured as common stocks held by insiders). Secondly, executive compensation in Australia is less tied to stock performance. In our sample, the CEO of an average firm receives only 6% of total pay in shares or stock options while 73% remuneration in the forms of fixed salary or cash bonus. Thirdly, Australian corporate boards have a long tradition of separating the roles of chairman and the CEO. Furthermore, given that the Australian equity market is relatively small and corporate ownership is concentrated, it is not always feasible (or sensible) to have complete board independence. In our sample, the average Australian corporate board has 5 to 6 directors, with majority being non-executive directors. Whilst Australian companies face product market competition that is comparable to their US counterparts, takeovers (in particular hostile bids) are less common in the Australian market.3 In sum, these institutional differences suggest that Australia represents as an ideal laboratory to examine the influence of internal corporate governance and external market discipline on corporate productivity. In the first part of our empirical analyses, we define and calculate TFP for a sample of Australian companies over the period of 2000 to 2005. In the second part, we examine how TFP is impacted by various elements of internal corporate governance (board characteristics, ownership structure, and CEO compensation), different proxies of external market discipline (product market competition and takeover threat) and their interactions. Our main finding is that internal corporate governance matters, but the extent depends on the external market environment. Overall internal corporate governance is an effective instrument to improve firm productivity. Firms with more efficient boards and higher CEO stock-based compensation have higher productivity than otherwise. However, internal governance is less effective when a firm faces a competitive product market. There is a strong substitution effect between internal governance and external competition. Further, we find only weak support for a relationship between ownership structure and productivity. Our results are robust to various model specifications and controlling for a number of firm-level factors and fixed effects.4 In summary, our findings are consistent with the argument, dating back to at least Alchian, 1950 and Stigler, 1958, for a substitution effect between internal corporate governance and external market discipline, measured as the level of industry-wide competition. However, we find no association between the level of industry-level takeover intensity and the effectiveness of internal governance. This study adds to the existing literature in several ways. Firstly, beyond ownership structure that has been examined in existing studies concerning the relationship between corporate governance and firm productivity, we examine the roles played by boards and managerial incentive contracts. Our findings indicate that board structure is of particular importance. Secondly, we test, explicitly, the importance of external market discipline and how it interacts with internal governance in determining firm productivity. We provide empirical evidence in support of the argument that product market competition serves as a substitute for internal governance. We control for unobservable firm heterogeneity, therefore ensuring the robustness of our results. Finally, this study is the first to integrate corporate governance and productivity literature in the context of the institutional differences in the Australian environment, complementing prior studies that focus primarily on the U.S. corporate environment. The rest of the paper is organized as follows. Section 2 reviews relevant literature and summarizes key testable hypotheses. Section 3 describes the data and presents descriptive statistics. Section 4 outlines our empirical framework, presents the main findings and discusses robustness checks. We conclude with Section 5.
نتیجه گیری انگلیسی
The integration of internal corporate governance, external market discipline and firm productivity has largely been overlooked in the current debate on corporate governance. Prior empirical studies, focusing largely on metrics of financial performance, have found that better internal governance is associated with enhanced firm performance. Existing literature also points out that external product market competition could serve as a substitute of internal governance, in that competition mitigates agency problems. Utilizing a sample of Australian companies over the period of 2000–2005, we test how corporate governance influences another metric of firm performance, namely, productivity. We first estimate the input shares of labour and capital costs using a Cobb–Douglas production function, and attribute the residual between actual economic output and estimated output as the measure of production efficiency, or total factor productivity (TFP). Next, we regress TFP on measures of internal corporate governance, external market discipline and their interaction terms, taking into account fixed effects. Our main findings suggest that internal corporate governance could affect firm productivity, however differently in competitive versus non-competitive industries. Overall, better governance – more non-executive directors, smaller boards and higher CEO stock-based compensation – has a positive impact on productivity. However, when a firm operates in a competitive industry, the tougher product market competition reduces agency problems and, in turn, weakens the effectiveness of internal corporate governance. Corporate governance matters little to firm productivity due to this substitution effect. We find only weak evidence suggesting that the insider ownership concentration ratio serves as an effective governance channel. In addition, unlike product market competitiveness, market for corporate control as measured by the level of industry-wide takeover threat is found to have no significant impact on TFP; nor does it serve to substitute the effectiveness of internal corporate governance in promoting better productivity.