Decis Econ 30:193209, Liu N, Chen WH (2017) Executives overconfidence, political connection and acquisition premium of enterprises. Chen, X., Chen, X., & Liu, Z. Asia Pacific Journal of Management 18(2):245263. Thus, the board of directors has the responsibility to monitor and initiate managers in the company to increase the wealth of ownership and firm value. Therefore, as to the best knowledge of the researcher, no study investigated the interaction effect of managerial overconfidence and CG measures to influence firm performance. The negative interaction results could be explained by the fact that overconfident leads managers to have lower debt due to overestimate the profitability of investment projects and underestimate the related risks. According to this study finding, competition helps to build the best management team. Technol Forecast Soc Chang 135(2):208216. The results of the linear and nonlinear relationship between corporate governance mechanisms and firm performance, (including, ROA, ROE and Tobin Q) are shown in Tables 5.1 and 5.2.The OLS, fixed effects and dynamic system GMM methods with Whites clustered robust standard errors were used to The basic rationale of corporate governance is to increase the performance of firms by structuring and sustaining initiatives that motivate corporate insiders to maximize firms operational and market efficiency, and long-term firm growth through limiting insiders power that can abuse over corporate resources. Allen F, Gale D (2000) Corporate governance and competition. To address the study objective, the researcher used panel data of 11,634 samples of Chinese listed firms from 2010 to 2018. In: Brief A, Walsh J (eds) Academy of Management Annals V3. These findings are consistent with agency theory, which suggests that the shareholders who hold large ownership alleviate agency costs and information problems, monitor managers effectively, consequently enhance firm performance [81]. There are a lot of studies that examine and investigate the effect of external CG practices on the financial performance of a company, especially in developed nations. The data for this study required are accessible from different sources of secondary data, namely China Stock Market and Accounting Research (CSMAR) database and firm annual reports. Explore Deloitte Indias Knowledge Base. Abdullah [1] also argues that debt financers may refuse to provide debt when a firm is having a low credit rating. Corporate Soc Responsib Res 18(3):311339, Gillan SL (2006) Recent developments in corporate governance: an overview. Design/methodology/approach - The paper examines the impacts by estimating the empirical model in which a firms accounting profitability is a Firm size can be measured in many ways; common measures are market capitalization, revenue volume, number of employments, and size of total assets. This indicates that the independent directors in Chinese firms are not strong enough to monitor internal CEOs properly, due to most Chinese firms merely include the minimum number of independent directors on a board to meet the institutional requirement and that independent directors on boards are only perfunctory. Tables 3 and 4 report the results of three model specification tests to determine whether an appropriate estimation model was applied. statement and It is put together on a number of consistent mechanisms; internal control systems and external environments that contribute to the business corporations increase successfully as a complete to bring about good corporate governance. Thus, managerial overconfidence could have a positive influence on relationships between debt finance and firm performance; thus, the following hypothesis is proposed: Managerial overconfidence moderates the relationship between debt financing and firm performance. In another perspective, the result indicated a positive moderating role of overconfidence managers in the relationship of debt financing and market-based firm performance. Dharmastuti, and Wahyudi (2013). The ownership concentration is positively related to firm performance. Overconfident CEOs are better at investing for future investments like research and development, so it plays a strategic role in the competition. In this context, NIKE approaches governance with a view to enhancing long-term shareholder value. Working paper, City University of Hong Kong, Yasser QR, Mamun AA, Rodrigs M (2017) Impact of board structure on firm performance: evidence from an emerging economy. So, this study believes that firms with overconfident managers will have lower debt. However, there is no consensus on the role CG on firm performance, due to different contextual factors. Even with the absence of agency conflicts and asymmetric information problems, there is evidence documented for distortions such as the case of corporate investment. Concentrated ownership presence among the firms investors provides an important driver of good CG that should lead to efficiency gains and improvement in performance [81]. There are both internal monitoring According to Baccar et al. While this presents challenges, it has also opened the door to a much broader talent pool since companies are no longer required to hire people that live within commuting distance of the nearest office. In another way, the weakness of independent board monitoring ability allows CEOs overconfident that may damage firm value. This study sample was limited to only listed firms on the stock market, due to hard to access reliable financial and corporate governance data of unlisted firms. Managerial overconfidence negatively influences the relationship of independent board and firm performance. As a basic check for multicollinearity, a correlation of 0.7 or higher in absolute value may indicate a multicollinearity issue [32]. Previous studies claimed that overconfidence is a dysfunctional behavior of managers that deals with unfavorable consequences for the firm outcome, such as value distraction through unprofitable mergers and suboptimal investment behavior [61], and unlawful activities (Mishina et al. It often represents the framework of policies and guidelines for each individual in the business. A typical characteristic of such dynamic panel data is a large observation, small-time, i.e., that there are many observed individuals, but few observations over time. J Financ Econ 102(2):272292, Koke J, Renneboog L (2005) Do corporate control and product market competition lead to stronger productivity? LX(6), Marnet O (2004) Behavioral aspects of corporate governance. In addition to analyzing the role of the board of directors in controlling agency related costs, this analysis provides an opportunity to understand if corporate ownership has a significant influence on the agency behavior of management in large corporate units after controlling for corporate governance mechanisms. China Stock Market and Accounting Research, Abdullah SN (2004) Board Composition, CEO duality and performance among Malaysian listed companies. Balancing power in an organization ensures that no one individual has the ability to overextend resources. Evidence from market-oriented and block holder-based governance regime. External corporate governance mechanisms like product market competition and debt financing are limited from emerging market CG literature; therefore, this study provided comprehensive empirical evidence. 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. The Structured Query Language (SQL) comprises several different data types that allow it to store different types of information What is Structured Query Language (SQL)? When the CEOs are getting more powerful, boards will be inefficient and this situation will result in poor performance, due to high agency problems created between managers and ownerships. Board of directors monitoring has been centrally important in corporate governance. The growth opportunities of sample firms have an average value of 9.8%. Such a result push managers to make sub-optimal decisions and increase observed corporate distortions as a result. WebEnvironmental, social, and corporate governance (ESG) is a framework designed to be embedded into an organization's strategy that considers the needs and ways in which to generate value for all organizational stakeholders (such as employees, customers and suppliers and financiers).. ESG corporate reporting can be used by stakeholders to Econometric analysis of dynamic panel data means that researchers observe many different individuals over time. Privacy The impact that a company generates on all its stakeholders and its consequences should not be underestimated; good management of stakeholders Thus, hypothesis 5, which predicts a negative relationship between debt financing and firm performance, has been supported. Adv Financ Econ 9:265285, McDonald K, Westphal JD (2008) Demographic diversity in the boardroom: mediators of the board diversity-firm performance relationship. Business Dictionary: Corporate Governance, Corporate Governance: Corporate Governance Defined. Therefore, the following sections provide a brief discussion of internal and external corporate governance from different angles. This study investigates the impact of corporate governance (CG) mechanisms with inclusion of compliance and diligence index on corporate performance (CP) of firms in Nigeria and Ghana. After applying all the above criteria, the study's final observations are 11,634 firm-year observations. WebEnvironmental, social, and corporate governance (ESG) is a framework designed to be embedded into an organization's strategy that considers the needs and ways in which to generate value for all organizational stakeholders (such as employees, customers and suppliers and financiers).. ESG corporate reporting can be used by stakeholders to The basic rationale of corporate governance is to increase the performance of companies by structuring and sustaining incentives that initiate corporate managers to maximize firms operational efficiency, return on assets, and long-term firm growth through limiting managers abuse of power over corporate resources. The market share of every firm is calculated by dividing the firm's net sale by the total net sale of the industry, which is calculated for each industry separately every year. Humanomics: Int J Syst Ethics 33(1)3855, Malmendier U, Geoffrey T (2005). Due to shareholder concentrated economic risk, these shareholders have a strong encouragement to watch strictly over management, making sure that management does not engage in activities that are damaging the wealth of shareholders. One-year lag of performance has been included in the model and two to three periods lagged independent variables were used as an instrument in the dynamic model, to correct for simultaneity, control for the fixed effect, and to tackle the endogeneity problem of independent variables. Concurrently, several reasons in the literature show managerial irrationality. Herb Allen. WebOne of them is the good corporate governance mechanism. [8], and Liu et al. It predicts that managerial overconfidence negatively influences the relationship of independent board and firm performance. 3) In the difference-in-Hansen test of exogeneity, it is acceptable under the null that instruments used for the equations in levels are exogenous. Following the previous studies [22], Wei Hu et al. Regarding leadership and firm performance relation, there are different arguments; there is not consistent conclusion among different researchers. This study used CG mechanisms measures internal and external corporate governance, which is represented by independent board, dual board leadership, ownership concentration as measure of internal CG and debt financing and product market competition as an external CG measures. J Manage Stud 48(3):487513, Carpenter MA, Westphal JD (2001) The impact of director appointments on board involvement in stra- tegic decision making. Good corporate governance means leaders are aware of the impact the company generates on its stakeholders, have the capacity to respond to stakeholder needs and are always prepared to face the various challenges that the future may bring. Regarding debt finance and firm performance relationship, the impact of debt finance was found to be negative on both firm performances as expected. Following this direction, many listed firms had appointed more independent directors, with a view to increase the independence of the board [54]. These two factors are vital to make good governance a reality. In the case of the Chinese Security Regulatory Commission (2002), independent directors are defined as the directors who hold no position in the company other than the position of director, and no maintain relation with the listed company and its major shareholders that might prevent them from making objective judgment independently. In line with this definition, many previous studies used a proportion of independent directors to measure board independence [56, 79]. J Financ Econ 120(1):194209, Hribar BP, Yang H (2016) CEO Overconfidence and management forecasting. WebFollowing the agency theory and taking other influential factors into account, such as firm size, leverage ratio, variance of sales, growth of sale and firm age, the results suggest that there is a strong relation between ownership concentration and corporate performance, measured by Tobin's Q. 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