Board Characteristics and Accounting Performance in Banking Industry: The Indonesian Experience

Muhammad Agung Prabowo

Abstract


This paper examines the effect of board characteristics on accounting return in the Indonesian banking industry. The conceptual framework borrows from agency theory claiming that the board is held liable for monitoring responsibilities and that monitoring effectiveness will lead to higher corporate achievement. Yet the theory predicts that board characteristics matter in constituting firm performance. It is hypothesized that leadership structure, representation of independent directors, board size, and the rank of college board chairperson attended are necessary attributes enable the board to deliver better performance. The investigation is based on a dataset consisting of 83 banks during 2009-2015. Panel data analysis reveal that the proportion of independent directors, board leadership structure, and board size shows insignificant influence. The rank of universities the board chairperson graduated is found to have an impact on accounting earnings. The impact is robust after the type of controlling owners is taken into account. Yet the association between university rank and performance is more pronounced in the listed-banks.

JEL Classification: G32; M14

DOI: https://doi.org/10.26905/jkdp.v22i1.1742


Keywords


Accounting Performance; Board Characteristics; Corporate Governance

Full Text:

PDF

References


Adams, R. B., & Ferreira, D. (2007). A theory of friendly boards. The Journal of Finance, 62(1), 217-250.

Alchian, A. A., & Demsetz, H. (1972). Production, information costs, and economic organization. The American economic review, 62(5), 777-795.

Baiman, S. (1990). Agency research in managerial accounting: A second look. Accounting, Organizations, and Society, 15(4), 341-371.

Baliga, B. R., Moyer, R. C., & Rao, R. S. (1996). CEO duality and firm performance: What's the fuss? Strategic Management Journal, 17(1), 41-53.

Bantel, K. A., & Jackson, S. E. (1989). Top management and innovations in banking: Does the composition of the top team make a difference? Strategic Management Journal, 10(1), 107-124.

Barker III, V. L., & Mueller, G. C. (2002). CEO characteristics and firm R & D spending. Management Science, 48(6), 782-801.

Basuony, M. A., Mohamed, E. K., Hussain, M. M., & Marie, O. K. (2016). Board characteristics, ownership structure, and audit report lag in the Middle East. International Journal of Corporate Governance, 7(2), 180-205.

Baysinger, B., & Hoskisson, R. E. (1990). The composition of boards of directors and strategic control: Effects on corporate strategy. Academy of management review, 15(1), 72-87.

Black, D., Smith, J., & Daniel, K. (2005). College quality and wages in the United States. German Economic Review, 6(3), 415-443.

Borisova, G., Brockman, P., Salas, J. M., & Zagorchev, A. (2012). Government ownership and corporate governance: Evidence from the EU. Journal of Banking & Finance, 36(11), 2917-2934.

Borisova, G., Fotak, V., Holland, K., & Megginson, W. L. (2015). Government ownership and the cost of debt: Evidence from government investments in publicly traded firms. Journal of Financial Economics, 118(1), 168-191.

Brickley, J. A., Coles, J. L., & Jarrell, G. (1997). Leadership structure: Separating the CEO and chairman of the board. Journal of Corporate Finance, 3(3), 189-220.

Burgstahler, D. C., Hail, L., & Leuz, C. (2006). The importance of reporting incentives: Earnings management in European private and public firms. The accounting review, 81(5), 983-1016.

Chang, Y. K., Oh, W.-Y., Park, J. H., & Jang, M. G. (2017). Exploring the relationship between board characteristics and CSR: Empirical evidence from Korea. Journal of Business Ethics, 140(2), 225-242.

Dalton, D. R., Daily, C. M., Ellstrand, A. E., & Johnson, J. L. (1998). Meta‐analytic reviews of board composition, leadership structure, and financial performance. Strategic management journal, 19(3), 269-290.

Denis, D., & Mc Connell, J. (2003). International corporate governance. Journal of Financial & Quantitative Analysis, 38(1), 1-36.

Drydakis, N. (2016). The effect of university attended on graduates' labour market prospects: A field study of Great Britain. Economics of Education Review, 52(9826), 192-208.

Duru, A., Iyengar, R. J., & Zampelli, E. M. (2016). The dynamic relationship between CEO duality and firm performance: The moderating role of board independence. Journal of Business Research, 69(10), 4269-4277.

Elsayed, K. (2007). Does CEO duality really affect corporate performance? Corporate Governance: An International Review, 15(6), 1203-1214.

Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of political economy, 88(2), 288-307.

Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law & Economics, 26(2), 301-325.

Fosberg, R. H., & Nelson, M. R. (1999). Leadership structure and firm performance. International Review of Financial Analysis, 8(1), 83-96.

Gaur, S. S., Bathula, H., & Singh, D. (2015). Ownership concentration, board characteristics, and firm performance: A contingency framework. Management Decision, 53(5), 911-931.

Guest, P. M. (2009). The impact of board size on firm performance: Evidence from the UK. The European Journal of Finance, 15(4), 385-404.

Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of management review, 9(2), 193-206.

Haque, F. (2017). The effects of board characteristics and sustainable compensation policy on carbon performance of UK firms. The British Accounting Review, 49(3), 347-364.

Hartog, J., Sun, Y., & Ding, X. (2010). University rank and bachelor's labour market positions in China. Economics of Education Review, 29(6), 971-979.

Hopt, K. J., & Leyens, P. C. (2004). Board models in Europe–recent developments of internal corporate governance structures in Germany, the United Kingdom, France, and Italy. European Company and Financial Law Review, 1(2), 135-168.

Hung, H. (1998). A typology of the theories of the roles of governing boards. Corporate Governance, 6(2), 101-111.

Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency cost, and ownership structure. Journal of Financial Economics, 3(4), 305-360.

Kanagaretnam, K., Lim, C. Y., & Lobo, G. J. (2010). Auditor reputation and earnings management: International evidence from the banking industry. Journal of Banking & Finance, 34(10), 2318-2327.

Krause, R., Semadeni, M., & Cannella Jr, A. A. (2014). CEO duality: A review and research agenda. Journal of Management, 40(1), 256-286.

Lau, S. T., Shrestha, K., & Yu, J. 2016. Corporate governance and the information content of earnings announcements: A cross-country analysis. Contemporary Accounting Research, 33(3), 1238-1266

Leventis, S., & Dimitropoulos, P. (2012). The role of corporate governance in earnings management: Experience from US banks. Journal of Applied Accounting Research, 13(2), 161-177.

Leventis, S., Dimitropoulos, P., & Owusu-Ansah, S. (2013). Corporate governance and accounting conservatism: Evidence from the banking industry. Corporate Governance: An International Review, 21(3), 264-286.

Lewellyn, K. B., & Fainshmidt, S. (2017). Effectiveness of CEO power bundles and discretion context: Unpacking the ‘fuzziness’ of the CEO duality puzzle. Organization Studies, 38(11).

Li, H., Meng, L., Shi, X., & Wu, B. (2012). Does attending elite colleges pay in China? Journal of Comparative Economics, 40(1), 78-88.

Long, M. C. (2008). College quality and early adult outcomes. Economics of Education Review, 27(5), 588-602.

McGuinness, S. (2003). University quality and labour market outcomes. Applied Economics, 35(18), 1943-1955.

Ng, E., & Thosuwanchot, N. (2017). Board characteristics and corporate environmental performance: A meta-analysis. Paper presented at the Academy of Management Proceedings.

O’Sullivan, J., Mamun, A., & Hassan, M. K. (2016). The relationship between board characteristics and performance of bank holding companies: Before and during the financial crisis. Journal of Economics and Finance, 40(3), 438-471.

Prabowo, M., & Simpson, J. (2011). Independent directors and firm performance in family controlled firms: Evidence from Indonesia. Asian-Pacific Economic Literature, 25(1), 121-132.

Raheja, C. G. (2005). Determinants of board size and composition: A theory of corporate boards. Journal of Financial and Quantitative Analysis, 40(2), 283-306.

Rodriguez-Fernandez, M., Fernandez-Alonso, S., & Rodriguez-Rodriguez, J. (2014). Board characteristics and firm performance in Spain. Corporate Governance, 14(4), 485-503.

Romano, G., & Guerrini, A. (2014). The effects of ownership, board size, and board composition on the performance of Italian water utilities. Utilities Policy, 31(C), 18-28.

Stiglitz, J. E. (1993). The role of the state in financial markets. The World Bank Economic Review, 7(1), 19-52.

Torchia, M., & Calabrò, A. (2016). Board of directors and financial transparency and disclosure. Evidence from Italy. Corporate Governance, 16(3), 593-608.

Unger, J. M., Keith, N., Hilling, C., Gielnik, M. M., & Frese, M. (2009). Deliberate practice among South African small business owners: Relationships with education, cognitive ability, knowledge, and success. Journal of Occupational and Organizational Psychology, 82(1), 21-44.

Untoro, W. (2017). Ownership structure and publicness of firms: A literature review. Jurnal Keuangan dan Perbankan, 21(4), 555-561.

Upadhyay, A. D., Bhargava, R., & Faircloth, S. D. (2014). Board structure and role of monitoring committees. Journal of Business Research, 67(7), 1486-1492.

Vafeas, N., & Vlittis, A. (2016). The association between board composition and corporate pension policies. Financial Review, 51(4), 481-506.

Van Tendeloo, B., & Vanstraelen, A. (2008). Earnings management and audit quality in Europe: Evidence from the private client segment market. European Accounting Review, 17(3), 447-469.

Wahba, H., & Elsayed, K. (2014). The effect of life cycle stage of a firm on the relationship between board size and financial performance. International Journal of Managerial and Financial Accounting, 6(4), 273-295.

Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012) Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581-606.

Wright, A. (1988). The comparative performance of MBAs vs. undergraduate accounting majors in public accounting. Accounting Review, 63(1), 123-136.

Zahra, S. A., & Pearce, J. A. (1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15(2), 291-334.




DOI: https://doi.org/10.26905/jkdp.v22i1.1742

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: -
Email: [email protected]

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0