|Corporate governance, board structure and firm performance : evidence from Hong Kong
|Hong Kong Polytechnic University -- Dissertations
Corporate governance -- China -- Hong Kong
Directors of corporations -- China -- Hong Kong
|Graduate School of Business
|107 leaves ; 30 cm
|The major role of the corporate board of directors is to install governance mechanism, as well as to provide guidance for internal management, so as to enhance firm performance. According to agency theory, the separation of ownership and control gives managers the incentives and power to pursue their own interests at the expense of the owners. This has led some firms in the West to change the board structure by including more outside directors, reorganizing leadership structure and reducing board size in order to make the board more independent to act in the interests of shareholders. On the contrary, organizational theory emphasizes the importance of unity of command and cooperative relationship within an organization. This concept has led to a different setup of board structure. Hong Kong is an international financial center, a free economy, and a place where "East meets West". Western management concepts and the oriental family ownership concept are cross-influencing each other. However, there is a dearth of empirical research to understand the linkage between board structure and firm performance. In this paper, the research question is whether board structure can affect firm performance. The overall purpose is to investigate the relationship between board structure and firm performance, and examine which of the theories is more relevant to the institutional and cultural settings in Hong Kong. The empirical research here covers the top 93 listed companies during the year from 1998 to 2000. Using market-based performance measurements, the findings reveal that the proportion of outside directors and board size are positively related to Tobin's Q. The results are robust to a number of further analyses. However, there is no support for the relationship between other board structure variables, such as the proportion of grey directors and leadership structure, with Tobin's Q. When accounting-based performance measurements are used, such as ROA, ROE and ROS, there is no concrete evidence to support the hypothetical relationships. This is probably due to the fact there are many factors which can affect the accounting-based measurements, such as better monitoring by the corporate board can lead to more conservative accounting performance indicators. The contribution to literature by this thesis is the use of agency theory and organizational theory to examine this much contentious corporate governance issue in institutional and cultural settings quite different from the West. The contribution to the practice of management are highlighting the important monitoring role of outside directors, and the resource role of board size for enhancing firm performance in a business environment dominated by family ownership. However, caution has to be taken as effective monitoring and provision of critical resources cannot be made possible without the underlying context, such as institutional setup and cultural value, which supports the businesses on an on-going basis.
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