The Effect of Corporate Governance on Chief Executive Officer - Literature review Example

Student Name: Tutor: Title: Effect of Corporate Governance on CEO Course: Introduction Corporate governance is expected to contribute to enhancement of control and monitoring of managerial power within firms. Corporate governance affects the Chief Executive Officer (CEO) in many ways. Mechanisms of control have been instituted through corporate governance to check the excessive of the CEO. There are various studies that looked the impact of corporate governance on the CEO. This literature review looks the various studies that have explored the associated of corporate governance and managerial behaviour in firms. The CEO is held responsible for financial performance and behavior of company since he is involved in important decision making. Brown and Lee (2010) describe corporate governance as a set of mechanisms which are employed in mitigating agency issues between shareholders and managers. CEO equity grants are theoretically a component of corporate governance since they tie the personal wealth of the CEO to the stock price performance of the firm hence decreasing the chances of the CEO taking suboptimal actions with the intention of harming shareholders. Many practitioners, shareholder activists, institutional investors and academic researchers agree that instead of being an efficient tool for governance, in many circumstances equity grants have been demonstration of corporate governance that is dismal (Brown & Lee, 2010). Poor governance has been linked to cash compensation that is excessive despite there being limited empirical studies on the association between equity grants and corporate governance. The managerial power perspective concur that CEOs have significant influence on corporate boards as well as compensation contract structures to their own benefit. Therefore, weaker governance offers CEOs with relatively more power as compared the board hence permitting them to get more compensation that it is justifiable economically (Brown & Lee, 2010). This perspective suggests an association that is negative between the CEO equity grants’ value and the governance strength. Brown and Lee (2010) suggest that if equity grants are employed in aligning shareholders’ and managers’ interests, firms have to swap equity incentives for the active monitoring where direct monitoring using corporate boards is not cost-beneficial. Core, Holthausen and Larcker (1998) observe that Measures of board as well as ownership structure is the reason behind the variation in CEO compensation preceding the controlling for standard economic pay determinants. Signs of coefficients on the ownership structure and board variables show that CEOs get more compensation where governance structures are deemed less effective. Firms having weaker governance structures possess more agency issues and CEOs within firms with more agency challenges get greater compensation. However, firms with more agency problems do perform worse. Critics of practices that craft CEO compensation have argued that since the board of directors can be influenced by the CEO, consequently the board should not structure the compensation package of CEO for maximization of value for outside shareholders. CEO compensation is more where the CEO doubles up as the board chair (Core, Holthausen & Larcker, 1998). Bushman, Chen, Engel & Smith (2003) explains that corporate transparency that is limited increases the demand for corporate governance systems with the intention of alleviating moral hazard challenges as a result of serious information gap between shareholders and managers while other conditions remain constant. There are two major factors which constrain corporate transparency within huge public companies within the United States. Firstly, it is the financial accounting systems that are relatively uninformative accompanied by the failure of a firm’s GAAP earnings to explain variation in shareholder value in fashion that is timely. Secondly, it is the complexity of the firm owing to extensive geographic as well as line of business diversification. Whereas geographic and industry diversification varies widely along various dimensions, they both provide substantial informational and operational complexity (Bushman, Chen, Engel & Smith, 2003). Multi-industry firms are confronted with the likelihood that capital can be inappropriately allocated within the firm. Moreover, firms that are diverse firms shift their focus from the CEO and demand managerial talent that is top-class as well as unrelated segments may possess conflicting corporate cultures or operational systems. The managers from personal business segments are insulated from pressure triggered by the threat of a takeover and are less likely to get equity incentives that are powerful. Combining operations that are diverse results into information aggregation challenges that can occasion very significant information asymmetries in the firm or between outside investors and firm insiders through suppressing the activities attributed to information intermediaries (Bushman, Chen, Engel & Smith, 2003). Whereas firms that are diversified have a duty of disclosing segment data, the information can encounter challenges attributed to cost allocations, segment identification, as well as transfer of pricing schemes. Governance structures of existing firms are not optimally configured. Where there is governance structures that are weak, managers of firms take part in value-destroying diversification behaviour. It has been demonstrated, however, diversified firms’ CEOs are paid more as compared to CEOs of firms that are focused and the wage premium usually is consistent with the an ability matching story as opposed to an entrenchment story (Bushman, Chen, Engel & Smith, 2003). If weak governance results into diversification, it has to work against locating evidence that costly monitoring is linked to diversified firms. Kang and Shivdasani (1994) explain that there are distinct characteristics that distinguish a typical Japanese firm from U.S. publicly traded firm. One of the features is known as Keiretsu. This is a major characteristic within Japanese corporate structure whereby many firms belong to a certain industrial group. There are about 17 main industrial groups within Japan. Eight of these groups are focused around a major commercial bank. The bank is regarded as a central organ within the group as well as it plays an important role in financial activities. Firms under a keiretsu are held together by a nexus of implicit and explicit contracts and have business ties with various firms within the group. Corporations in Japan have also traditional place more dependence on bank financing. Various corporations in Japan have a commercial bank referred to as the main bank which forms part of the main stockholders (Kang & Shivdasani, 1994). The main bank offers both long-term and short-term financing for client firms. Whereas firms usually operate autonomously, whereas the bank is in charge of monitoring the firm’s performance as well as it intervenes when profitability is deemed poor. The main bank focuses in collecting and evaluating of information on managerial performance and offers mechanism that provides a substitute for the takeover market with is nonexistent in Japan. The main bank further carry out the function of an insurer since implicit contracts that are long-term with the company can result into incentives to offer needed assistance when client firms are in any financial situation. The large equity as well as debt positions of Japanese financial institutions impact investment decisions of companies as well as decrease agency costs. Another component of the Japanese corporations is the board of directors (Kang & Shivdasani, 1994). Outside directors in the U.S. are believed to carry out the crucial function of corporate governance. When the board is made up of majorly outside directors, the possibility of CEO turnover is inversely proportional to the performance of the firm. On the contrary, majority of board of directors of firms in Japan are dominated by inside directors. Many of directors in Japanese firms comprise of long-term employees and held the position on board for quite some time. Outside directors in Japanese firms is lower or completely absent. Substandard firm performance is linked to outside appointments. Nevertheless, a vital governance function is achieved by outside directors. Records show that various corporate takeovers have influenced the disciplining of poor performing managers within the U.S. Takeovers are rare in Japan (Kang & Shivdasani, 1994). Consequently, corporate acquisition has played no significant part in governance role in the country. The outside directors’ presence on the firm’s board bears no significance on the turnover sensitivity to either stock-price performance or earnings. Large shareholders and main banks play a crucial role in the event that another top executive may be put in place from outside the company. A successor can be obtained outside the firm when ownership through the top shareholders is very high or there is existence of a major bank relation. This is less likely where the firm has outside membership (Kang and Shivdasani, 1994). These outcomes taken together indicate that mechanisms like the main bank system as well as concentrated equity ownership have an important role to play in governance in Japan. The Japanese and American corporate worlds differ substantially. Hartzell and Starks (2000) state that owing to increasing ownership and interest of institutional investors in corporate governance, the presence of institutional investors is linked to some executive compensation structures. There is a substantial negative relation between the degree of compensation as well as the concentration of institutional ownership. This suggests that serve the role of monitoring in the shareholder-manager agency challenge. The role of monitoring of institutional investors within corporate governance has gathered more importance owing to the growth of ownership of corporations in the past few decades. Monitoring has specifically focused on the incentives which are provided for the top level management via compensation contracts. Hartzell and Starks (2000) further supply that the activist institutional investors have boldly demonstrated their interest within this are for quite some time. Some are of the view that managerial compensation has to be specifically tied to the firm’s performance. Moreover, private money managers like Fidelity Investments, have shown their intention of voting against stock-related compensation plans if they are not supported by other shareholders or do not offer management with adequate incentives to enhance financial performance. Consequently, with the growing interest in managerial compensation by institutional investors together with boosted dominance in equity markets, one expects institutional investor presence in a firm to be attributed to certain executive compensation structures. This kind of agrees with the observation made by Core, Holthausen and Larcker (1998). Ferri and Maber (2009) agree with Hartzell and Starks (2000) that in recent years there is a growing interest in the impact of various monitoring mechanisms like board structure and institutional ownership on executive pay. Concurrently there has been controversy regarding the suitable role of the voice of the shareholder within corporate governance. Ferri and Maber (2009) examine the impact of a legislation introduced in 2002 in the UK on CEO pay where it calls for an annual advisory shareholder vote regarding the executive compensation report that has been prepared by the board. The voice on the pay vote was supported by the government of UK with the purpose of increasing transparency, accountability, as well as performance linkage of executive pay in response to concerns by investors following quick growth in CEO pay coupled with adoption of US-style compensation practices that are controversial. Stories of ‘rewards for failure’ and ‘fat cat pay’ were awash in the British press discussing high-profile firms such as Vodafone, Marconi and GlaxoSmithKline (Ferri & Maber, 2009). GlaxoSmithKline was compelled to modify various contentions provisions in its executive pay plan as well as start extensive and continuous consultation process with its shareholders. Many other companies adjusted their pay practices for CEOs following mounting pressure of say on pay votes especially with regard to provisions seen as pay for failure (Ferri & Maber, 2009). Attributed to the experience in the UK, other countries have put in place similar legislation and say on pay has become a crucial theme within governance reform debate in the United States. Lewellyn and Muller-Khale (2012) demonstrated that there was general agreement that absence of restraint by financial firm executives in the United States to participate in subprime mortgage lending practices that were risky had a role to play in contributing to inflation together with deflation of the house bubble in the course of the global financial crisis. This assertion lends credence to the observation by Ferri and Maber (2009) that legislation on firms’ management had spread to the United States. Managerial proclivity ignored warning signs and engaged in risky actions that exposed stakeholders to financial losses during the crisis. In spite of extensive research, the correlation between managerial risk taking and corporate governance mechanisms is still imprecise as well as predictions that are agency-based have proven to be inconsistent and weak (Lewellyn & Muller-Khale, 2012). One likely reason for the absence of clear relationships can be attributed to the agency theory assumption whereby managers can have stable risk preferences, being either risk neutral or risk averse. From this perspective managers can prefer taking risks and on the view the extant agency theory founded on governance literature that distribution of power between chief executive officers and boards of directors’ dictates whose interests are most likely to be favoured. Lewellyn and Muller-Khale (2012) explain that power of the CEO is positively correlated to unmanaged and excessive risk taking. Managerial risk taking means making decisions which are deemed to be highly unpredictable and uncertain outcomes and the potential of realizing huge losses. Plenty of literature support that the CEO is one of the most influential person within the company and has the capacity to be the driver of strategic choices as well as organizational outcomes (Lewellyn & Muller-Khale, 2012). CEOs with power in the agency theory framework are anticipated to pursue those actions as well as decisions favouring their own personal interests, and following the assumption of risk aversion, they are not expected to make risky choices. Sanders and Carpenter (1998) agree that internationalization or globalization has changed the nature and boundaries of strategy, competitive advantage, and competition. Advances in communications and technology have brought lands that were distant closer and made it important to leverage good business ideas and product innovations across national borders. Firms operating within multiple countries are faced with multipoint competition which forces them to operate as integrated wholes. International firms are usually held to represent complex managerial decision-making environment. A critical determinant of the ability of a firm to successfully cope with complexity is its governance structure. Specifically, the manner in which members of its top management are rewarded, the top team composition and board structure have dominated the dialogue on firm governance. Sanders and Carpenter (1998) show that Top management team compensation, composition as well as board structure are some of the factors that the management and boards can directly control within international firms. The degree of internationalization of a firm is a significant determinant of the kind of complexity encountered. The level of internationalization of a firm corresponds to its dependence on foreign markers for factors of production and customers, as well as geographical dispersion of the dependence. Governance has critical implications on the manner in which top management teams process important information (Sanders & Carpenter, 1998). A classic agency situation arises where the board has the role of directly monitoring executive performance hence making information processing more difficult. Agency theory proposes that the monitoring challenge can be largely resolved via governance arrangements which align the top management’s interest with profit-maximizing goals of the firm shareholders. However, the potential agency problems attributed to firm internationalization, little has been researched on the relation existing between internationalization and corporate governance. The diversity of competitors, customers and regulations that come with internationalization increases the variety, disunity and volume of information that top management teams have to process (Sanders & Carpenter, 1998). Governance structures refer to the monitoring, control, as well as incentive arrangements surrounding the members of a top management teams. Like the case discussed by Ferri and Maber (2009); Masulis, Wang and Xie (2007) explored the passage of the Starbanes-Oxley Act 2002 by regulators and legislators following several cases of corporate scandals within the US. However, these reforms were put in place without scientific evidence supporting their intended benefits. It is important to understand how mechanisms of corporate governance impact shareholder wealth. There are several corporate control mechanisms that assist in mitigating the manager-shareholder conflict of interest. Bad CEOs have the potential of adopting takeover defenses for purposes of entrenchment and go ahead to make bad acquisitions. Evidence points to the fact that antitakeover provisions permit managers to enter into unprofitable acquisitions without any significant threat of losing their corporate control (Ferri & Maber (2009). Corporate control possesses a material and strong effect on the efforts by the manager for making value-enriching investments and particularly acquisitions that are profitable. Lin (2005) shows that agency theorists have come up with various internal control methods that can be used to reduce agency challenges. The various methods are substitutive and hence it is viewed that both the board of directors as well as the external shareholders can be used to influence CEO compensation. The stewardship theory disputes the presumption of self-interest of agency theory suggesting that managers see themselves as being stewards of their organizations. Chhaochharia and Grinstein (2009) explain that the decision on the manner of compensating the manager has been assigned to the board of directors in modern corporations. Experts have argued over the significance of the delegation mechanism in impacting the CEO compensation. Many point to the labour market for talent as being the major factor that dictates the design and level of compensation contracts. Board decisions concerning compensation can deviate largely from labour market values. In responding to the surge in corporate scandals in the U.S. in 2001 and 2002 the Sarbanes-Oxley Act as well as new rules established restrictions on operations and structure of boards. The intention of this rules as also discussed by Masulis, Wang and Xie (2007) was strengthening of corporate governance practices of companies that are listed. The provisions required that members of the audit, compensation as well as nominating committees be independent; a large portion of board members on one board be independent; separate meetings for nonemployee directors to be carried out; and detailed written procedures be used to appraise CEOs as well as elect new board members. Many firms did not comply with the stipulated requirements but CEO compensation decreased in the period following the enactment of the rules (Chhaochharia & Grinstein (2009). One factor that is attributed to the decrease in CEO compensation is the need many of the board members have to be independent. The drop was instigated by the decrease in the stock-based compensation and bonus. One mechanism that has been seen to impact compensation is concentrating institutional holdings as well as the other is the presence on the board of the nonemployee blockholder. CEOs are inclined to handpick their directors hence the legal requirement for independence may not lead to material effect on director actions (Chhaochharia & Grinstein (2009). Corporate scandals that emphasized on the requirement for new compensation rules also led to the emergence of shareholder groups advocating for specific governance structures, and there is a high possibility that firms that did lack majority of independent members raised public interest and were under immense pressure to cut down compensation of the CEO. Ozkan (2007) echoes that compensation packages for CEOs have been emphasis of much academic as well as media interest. One concern is whether mechanisms of corporate governance can play an important role in the determination of the level of executive compensation. Corporate governance mechanisms have been demonstrated through literature may help in reducing agency conflicts between shareholders and executives and consequently impact the compensation policy. The mechanisms comprise of ownership as well as companies’ board structures (Ozkan, 2007). The role played by institutional investors in the United Kingdom has remained a hotly contested issue. Owing to the aggregate level of institutional ownership in the equity market in the United Kingdom, one crucial question to explore is how effective are the institutional shareholders concerning corporate issues in the United Kingdom. Institutional investors in the United Kingdom apparently adopt a passive approach towards disciplining and monitoring management of firms. Ozkan (2007) further states that vocal institutional shareholders have shown their dismay concerning remuneration packages that CEOs as well as other senior managers are awarded particularly in the wake of poor performance. The decision by Sainsbury’s board in 2004 to award a hefty bonus of £2.4 million to former chairman, Sir Peter Davis, caused uproar from many institutional shareholders. Conyon and He (2011) observe that China corporate governance is changing while taking after important characteristic of boards within the United States like the adoption of compensation committees and independent directors. Conyon and He (2011) explored the role of board of directors particularly in the event of independent directors. Ownership structure of firms that are publicly traded in China is distinct. The state has share ownership whereas firms’ private control is becoming very prevalent. Publicly traded firms usually have one dominant shareholder. This brings about the question on how efficient market reforms can be and whether suitable incentives are offered to senior managers especially in firms that are state-controlled (Conyon and He, 2011). The standard economic theory suggests that firms come up with compensation packages that are efficient in solving moral hazards and motivating CEOs. Boards decide CEO pay as well as incentives founded on economic factors, the level of agency issues as well as difficulty in monitoring for the purpose of aligning shareholder as well as managerial interests. Agency theory expostulates that executive pay is correlated positively to the firm’s performance. Conyon and He (2011) further explain that compensation disclosure in China is very different from the US. Early regulation did not compel firms that are listed to disclose complete information about executive compensation in the annual reports. According to Bhagat and Bolton (2008) there is plenty of literature that regards corporate board features as significant determinants of corporate governance that is; board independence, and stock ownership of members of the board as well as whether the CEO and Chairman positions are occupied by different or same individuals. Corporate boards have the capacity to at least ratify or make crucial decisions like those concerning investment policy, compensation policy of management, and board governance itself. It is believable that board members having suitable stock ownership will have the incentive to offer effective oversight and monitoring of crucial corporate decisions, therefore board ownership and independence can be an appropriate proxy for good governance Bhagat and Bolton (2008). According to Xie, Davidson III and DaDalt (2003) the management of earnings have in the recent past received increased attention by regulators as well as the mainstream media. Earnings management is prevalent as well as CEOs perceive earnings management as a tool of ensuring that the firms meet expectations of earnings. Doctored records and falsified reports are common issues and there is great accounting rot that can be exposed. The monitoring which outside directors offer can be improved if they are financially sophisticated. According to Xie, Davidson III and DaDalt (2003) established that the corporate executives’ presence as well as investment bankers on the audit committees is linked to a decrease in the level of management of earnings. Accrual accounting nature provides managers with more discretion in the determination of actual earnings of a firm reported within any given financial period. The management has reasonable control on the timing of actual expense items. If manager incentives are founded on the financial performance of their companies it can be in their self-interest to provide the manifestation of better performance via earnings management. The discretion of management over reported earnings coupled with these earnings bear on compensation presents a possible agency issue. Apart from the management compensation challenge, earnings management can affect investors through providing them with false information. The capital markets make use of financial information in setting security prices (Xie, Davidson III & DaDalt, 2003). On the other hand, investors make use of financial information to make a decision of whether to sell, buy or hold securities. Cornett, Marcus and Tehranian (2007) reiterate that financial economists and accountants have devoted reasonable attention on the effect of governance structures as well as compensation schemes on subsequent corporate behaviour. Accounting literature records that such factors have significant impact on management of earnings, whereas the finance literature demonstrates that they in a similar way impact financial performance. When considered together the two strands of literature raise a different issue: if management of earnings is impacted by governance as well as compensation arrangements, then the project effect of the arrangements has on reported financial performance can be partly cosmetic. Cornett, Marcus and Tehranian (2007) agree that literature on the effect of corporate governance on management of earnings is scarce. Corporate governance variables in some contexts have been demonstrated to affect firm performance as well as behaviour. Some of the variables include director and executive stock ownership, institutional ownership within the firm, CEO tenure and age, characteristics of board of director, and CEO pay-for-performance sensitivity. They agree with Hartzell and Starks (2000) that corporate monitoring by the institutional investors has the potential to constrain the behaviour of managers. Conyon (1997) investigated the effect of corporate governance innovations on the top director compensation using a sample of two-hundred and thirteen UK companies from 1988 to 1993. He established that compensation of the director as well as prevailing shareholder returns are usually positively correlated. Conyon (1997) concurred with Ferri and Maber (2009) that compensation obtained by senior executives in huge United Kingdom has attracted a lot of attention from the press and public. Concern has been raised that remuneration packages awarded to top management of firms does not reflect the underlying performance of the respective firms. The debate emanates from extensive media reporting of adverse cases where large top pay rises as well as perceived excessive severance kind of arrangements. It is not easy to isolate positive relation between the top management pay and the performance of the company. Where such an association can be determined using data from UK, the quantitative effect seems to be quite small (Conyon, 1997). From this background concerning executive pay issues attention has also switched to institutional mechanism through which senior management personnel in a company are actually rewarded. Bushman, Chen, Engel and Smith (2004) suggest that transparency of operations of firms that is constrained to outside investors enhances the call for governance systems to mitigate the moral hazard problems. Directors’ and executives’ incentives, ownership concentration, equity-based incentives together with outside directors’ reputations vary indirectly with earnings timeliness; and that directors’ equity-based incentives and ownership concentration increase the complexity of the firm. Nevertheless, percentage of inside directors and board size do not vary substantially with earnings timeliness or the complexity of the firm. Within the United States and other economies that have a strong legal protection beyond the shareholders’ rights, the transparency of operations of a firm and activities to the outside investors compels the top managers to act in the interests of the shareholders (Bushman, Chen, Engel and Smith, 2004). Further, Yermack (1996) established an inverse association between firm value and board size in a sample consisting of 452 large US corporations from 1984 to 1991. The outcome is strong to various controls for industry membership, company size, growth opportunities, inside stock ownership, and alternative structures of corporate governance. Firms having small boards also show greater favourable values for financial ratios, and further offer stronger CEO performance incentives in compensation as well as threat of dismissal. The decisions by the top managers seem to be influenced by takeover threats, executive compensation; boards of directors’ monitoring as well as other control mechanisms. Conclusion The issue of corporate governance has raised a lot of concern from various practitioners and stakeholders owing to cases of top managers being awarded hefty packages in the wake of poor performance of their respective firms. The executive makes crucial decisions that affect the operations of the firm. It is important to dig deeper to find out how CEOs are affect by corporate governance in the wake of increased pressure to enhance monitoring and control in order to safeguard the interests of the shareholders. In the long run, the CEO is affected by all measures that instituted to enhance corporate governance. Despite the various literature discussing the association of CEO and compensation packages, there is need to explore the effect of corporate governance on the CEO in particular. The current literature is amorphous and covers various relationships in firm ownership structures without focusing on the impact of corporate governance on the CEO. Against this background, there is need for further research to fill the gaps on the effect of corporate governance on the CEO. References Bhagat, S. & Bolton, B. 2008, Corporate governance and firm performance, Journal of Corporate Finance, 14, pp. 257-273. Brown, L.D. & Lee, Y. 2010, The relation between corporate governance and CEOs’ equity grants, J. Account. Public Policy 29, pp. 533-558. Bushman, R., Chen, Q., Engel, E. & Smith, A. 2004, Financial accounting information, organizational complexity and corporate governance systems, Journal of Accounting and Economics 37, pp. 167-201. Chhaochharia, V. & Grinstein, Y. 2009, CEO Compensation and Board Structure, The Journal of Finance, 64 (1), pp. 231-261. Conyon, M.J. & He, L. 2011, Executive compensation and corporate governance in China, Journal of Corporate Finance, 17, pp. 1158-1175. Conyon, M. 1997, Corporate governance and executive compensation, International Journal of Industrial Organization 15, pp. 493-509. Core, J.E., Holthausen, R.W. & Larcker, D.F. 1998, Corporate governance, chief executive officer compensation, and firm performance, Journal of Financial Economics 51, pp. 371-406. Cornett, M.M., Marcus, A.J. & Tehranian, H. 2007, Corporate governance and pay-for-performance: The impact of earnings management, Journal of Financial Economics 87, pp. 357-373. Ferri, F. & Maber, D. 2009, Say pay vote and CEO Compensation: Evidence from the UK, Harvard Business School. Hartzell, J.C. 2000, Institutional investors and executive compensation. Kang, J., & Shivdasani, A. 1995, Firm performance, corporate governance, and top executive turnover in Japan, Journal of Financial Economics 38, pp.29-58. Lewellyn, K.B. and Muller-Kahle, M.I. 2012, CEO power and risk taking: Evidence from subprime lending industry, Corporate Governance: An International Review, 20 (3), pp. 289-307. Lin, Y. 2005, Corporate Governance, Leadership Structure and CEO Compensation: evidence from Taiwan, Corporate Governance, 13 (6), pp. 824-835. Masulis, R.W., Wang, C. & Xie, F. 2007, Corporate governance and acquirer returns, The Journal of Finance, 62 (4), pp. 1851-1889. Ozkan, N. 2007, Do corporate governance mechanisms influence CEO compensation? An empirical investigation of UK companies, Journal of Multinational Financial Management 17, pp. 349-364. Sanders, G.W.M. and Carpenter, M.A. 1998, Internationalizaion and Firm Governance: the roles of CEO Compensation, top team composition, and board structure, Academy of Management Journal, 41 (2), pp. 158-178. Xie, B., Davidson III, W.N. & DaDalt, P.J. 2003, Earning management and corporate governance: the role of board and audit committee, Journal of Corporate Finance 9, pp. 295-316. Yermack, D. 1996, Higher market valuation of companies with a small board of directors, Journal of Financial Economics 40, pp. 185-211. Read More