سهامداران مسلط، بوردهای شرکت های بزرگ، و ارزش شرکت: تجزیه و تحلیل کشور متقابل

We investigate the relation between corporate value and the proportion of the board made up of independent directors in 799 firms with a dominant shareholder across 22 countries. We find a positive relation, especially in countries with weak legal protection for shareholders. The findings suggest that a dominant shareholder, were he so inclined, could offset, at least in part, the documented value discount associated with weak country-level shareholder protection by appointing an ‘independent’ board. The cost to the dominant shareholder of doing so is the loss in perquisites associated with being a dominant shareholder. Thus, not all dominant shareholders choose independent boards.

This paper is an empirical investigation of the relation between corporate value and board composition in firms with a dominant shareholder. The question addressed is whether a ‘strong’ board can offset the market value discount in firms domiciled in countries with weak legal protection for shareholders. Such a discount has been documented by Claessens, Djankov, Fan, and Lang (CDFL, 2002), Durnev and Kim (DK, 2005), and La Porta, Lopez-de-Silanes, Shleifer, and Vishny (LLSV, 2002). This discount is often attributed to the ability of a dominant shareholder to divert corporate resources from other shareholders to himself for personal consumption, especially in countries with weak legal shareholder protection. In essence, the question that we address is whether a dominant shareholder could, were he so inclined, increase firm value by appointing a strong board with a mandate of assuring minority investors that he will refrain from diversion of the firm's resources and whether the effect of board composition on firm value, if there is any, is different between countries with weak and those with strong legal shareholder protection. The studies most closely related to ours are DK (2005) and Klapper and Love (KL, 2004). These studies empirically investigate the relation between firm value and the ‘quality’ of a firm's corporate governance where the proxies for the quality of governance are two firm-specific indices: the Credit Lyonnais Securities Asia (CLSA) corporate governance scores and the Standard & Poor's (S&P) transparency rankings. As do the other studies cited above, these two report that proxies for Tobin's Q are lower in countries with weak legal shareholder protection. They further report, however, that the value discount is less in firms with higher corporate governance scores. We complement these studies by exploring what role, if any, the composition of the board of directors has in reducing the value discount in firms with a dominant shareholder across countries with strong and those with weak legal shareholder protection. The premise underlying our analysis goes as follows. Dominant shareholders have an incentive and, in the absence of a countervailing force, the ability to divert corporate resources from other shareholders to themselves for personal consumption. Such diversion reduces the observed market value of the firm. In some instances, however, a dominant shareholder may be willing to reduce his diversion of corporate resources in exchange for an increase in firm value. The most likely instance in which this will occur is when the dominant shareholder wishes to sell equity either on personal account (for diversification or consumption purposes) or through the firm (to undertake positive net present value projects). The problem for the dominant shareholder is convincing outside shareholders that he will refrain from diverting resources. We investigate whether he can do so by appointing a strong board charged with a mandate of curbing the dominant shareholder's diversion of corporate resources. This proposition raises at least three related questions. First, can the appointment of a strong board be a deterrent to diversion given that the dominant shareholder can just as easily remove directors as appoint them? In such circumstances, appointment of a strong board would be unlikely to increase firm value. A counter argument is that, at the margin, if replacement of strong directors is costly to the dominant shareholder for any reason, appointment of a strong board could at least ameliorate the loss in value associated with a firm having a dominant shareholder.

Our analysis of 799 firms with dominant shareholders from 22 countries finds a positive and statistically significant relation between firm value and the percentage of the board made up of directors not affiliated with the dominant shareholder. This relation is especially pronounced in countries with weak legal protection for shareholders. The implication is that a dominant shareholder, were he so inclined, could raise the value of his firm by appointing an ‘independent’ board, and this would be especially so in countries that provide weaker legal protection for shareholders. But the increase in firm value is not without cost to the dominant shareholder. In particular, theoretical models that analyze the economics of firms controlled by a dominant shareholder predict a value discount in such firms and attribute the discount to diversion of corporate resources for personal use by the dominant shareholder. The cost to the dominant shareholder of a strong board is the loss of these perquisites of control. For the dominant shareholder, the question becomes one of trading off the personal value of these lost perquisites against the value increase in his shares. We argue that the value increase is especially valuable to the dominant shareholder if he expects to sell shares either from personal account or through the firm to raise capital. In addition, we argue that independent directors who can be dismissed by the dominant shareholder have an incentive to monitor the dominant shareholder because failure to monitor could mean a loss in their human capital in terms of the lost opportunities for other board positions. Further, given the risk to their human capital, we argue that independent directors negotiate upfront assurances that they will have the power to monitor well. Thus, the power to monitor arises from the legal environment and by virtue of the pressures imposed by the market for independent directors. Consistent with this line of reasoning, we report evidence of a robust market for independent directors in that 71% of the independent directors in our sample serve on multiple boards. We also find a positive and significant relation between the proportion of the board composed of directors not affiliated with the dominant shareholder and the likelihood of the firm to issue equity. As a final analysis, we search for direct evidence of whether independent directors curb the actions of dominant shareholders by examining related party transactions (RPTs) between the dominant shareholder or an entity that he controls and the firm in our sample. We find a significant negative relation between the proportion of the board made up of independent directors and the likelihood of an RPT and a negative relation between Tobin's Q and the occurrence of an RPT. Thus, the data indicate that a dominant shareholder is more likely to appoint independent directors when his firm intends to issue equity, that there is an active market for independent directors around the world, that a higher proportion of independent directors is associated with a lower incidence of RPTs, that firms without RPTs have higher values than firms with RPTs, and that firm values are positively correlated with the proportion of independent directors comprising the board. Throughout we emphasize that we are interested in the effect of board composition in firms with dominant shareholders. Our motivation is the observation that most publicly traded firms outside the US are controlled by a dominant shareholder. But some firms outside the US are widely held. The definition of an independent director in such firms would be different from the definition used here. In widely held firms where there is no dominant shareholder, the primary agency conflict is often thought of as being the conflict between management and shareholders rather than the conflict between a dominant shareholder and minority shareholders. Whether a strong board has a similar role in such firms is a further question to be explored.