Analyzing Why Organizations Differ in Board Composition: Evidence From a Large Panel of Greek Manufacturing Firms

Analyzing Why Organizations Differ in Board Composition: Evidence From a Large Panel of Greek Manufacturing Firms

Dimitrios Koufopoulos (University of London, UK), Ioannis Gkliatis (University of Hertfordshire, UK), Konstantinos A. Athanasiadis (Birkbeck University of London, UK) and Epameinondas Katsikas (University of Kent, UK)
Copyright: © 2020 |Pages: 15
DOI: 10.4018/IJCFA.2020010101


In this paper, building upon several theories (agency theory, stakeholder theory, and resource dependence theory) and by utilising data from 161 Greek manufacturing companies that were listed in the Athens Stock Exchange on the 31st December 2008, the authors explore the relationships between the organisational characteristics of the firms (organisational age, organisational size, and years listed in the stock market) and the board configuration (board size, board leadership structure, and directors' dependence/independence). The motivation of the study was based on both the peculiarity of the Greek context in the front of a strong economic crisis, but also in trying to establish relationship of board characteristics with factors that are understudied. Both descriptive and inferential statistics (ANOVA tests) were utilised to answer the research questions. Interestingly and in alignment with the literature, the findings showed that larger organizations tend to have larger boards and greater proportions of external and independent directors. However, no more strong relationships have been identified between the organisational characteristics and the board configuration. The paper contributes by suggesting that while board configuration is being determined by factors like the legal context of the country and the broader external environment suggested by the literature, various company characteristics can explain some of the board characteristics. Finally, it is worth mentioning that this study examines the listed Greek manufacturing companies during very turbulent times, the start of the financial crisis in Greece, which may have an impact on the configuration of the boards at that time.
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1. Introduction

Numerous studies in the last couple of decades attempt to establish the links between the board characteristics and financial performance of businesses. While discussion of hot topics in the corporate governance agenda increases geometrically —with examples of limited board diversity, inflated executive compensation and lack of transparency in board operations—there is still limited research on what may determine the different needs businesses may have in terms of their board composition (Koufopoulos and Gkliatis 2018; Koufopoulos et al., 2013). Corporate governance (CG) has emerged in the last 20 years mainly due to a number of corporate failures and scandals that have drawn the global attention. Furthermore, the financial crisis in 2008 has highlighted issues of CG in a widest sense and the corporate governance codes and recommendations are being revisited in order to facilitate transparency and accountability of the management processes within organisations. Most of the discussion on CG has been driven by concerns with the effectiveness of board of directors that is expected to represent the interests of the shareholders; a board that that is supposed to control the opportunistic behaviour of managers and to provide resources to the firm. This paper aims to understand whether internal company characteristics can determine or impact the way boards are formulated. It is suggested that companies of different size, age and years being listed in the stock exchange may lead to different needs in the board configuration.

Previous research has supported the view that national regulatory institutions dictate the intra-company corporate governance systems and mechanisms (Yoshikawa, Zhu, Wang, 2014; Filatochev, Jackson, Nakajima, 2013; Aguilera and Jackson, 2003; La Porta, Lopez-de-Silanes, Sheifer and Vishny, 2000;). Nevertheless, more recent research has highlighted firms do not always comply with the regulatory mandate (Bednar, Love and Kraatz, 2015; Chizema, Liu, Lu and Gao, 2015). This is in line with the difficulty of estimating the consequences of changes in governance provisions on shareholder returns. The selection of the governance structure and the type of governance provisions of the firm, have an endogenous origin and they are correlated with other firm’s characteristics, which means that if we compare the returns of firms with distinct governance structures it would be extremely difficult to isolate the effect that governance has over the returns. In addition, investors do understand that a better governed firm might have a superior performance, which is depicted in higher share prices (Cunat, Gine, Guadalupe, 2012).

In Greece, CG is a topic of increasing interest, as a result of dysfunctional boards, executive misconduct and international pressures for a more shareholder-oriented model of governance. However, due to the fact that Greece is a small economy with the majority of companies being small to medium, the interest of corporate governance is highly concentrated on the listed companies of the Athens Stock Exchange (ATHEX). In this study, the focus is on the manufacturing companies of the ATHEX, with about half of the total listed companies being characterized as such.

The negative international environment during 2008 has affected the performance of the Greek economy. The major financial indices of the Greek economy have remained at the same levels with the previous years or became negative (Bank of Greece, 2008). It is worth mentioning that during the period 2000-2010 the manufacturing sector increased with a lower rate than the national economic activity (+0.1% from +2.2%). Especially, the manufacturing sector shrunk by 1.7% in 2008, due to the global financial crisis (Foundation for Economic and Industrial Research, 2012). During this period, the production rose only in 9 branches of the sector, while in the majority—14 branches—the production declined. More specifically, whenever a branch registered an increase, the decline from the rest of the branches was significantly stronger (Foundation for Economic and Industrial Research, 2008).

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