Corporate Governance and the Performance of Seasoned Equity Offering Firms in Nigeria: The Mediating Effect of Agency Costs
The objective of this study is to implement Analysis of Moment Structure (AMOS) at the same time analysing the power of corporate governance on Post – Seasoned Equity Offerings (SEO’s) performance as well as in determining whether agency costs exist as a mediating variable between them. We conjecture that the mediating function of agency costs reduction is fundamental to the causal relationship between corporate governance and Post-SEO underperformance. Failure to tackle agency costs as a mediating variable may perhaps be one reason for the inconclusive findings in the allied literature. This study intends to focus on an SEO sample, for the reason that it is essential to evaluate how better corporate governance mechanisms can enhance SEO performance by estimating the relationship between different variables. To achieve this, the study will apply the approach and analyse SEOs in Nigeria from 2005-2015.
Mohammed Aminu Bello,
Aminu Kado Kurfi,
Bamidele Adeboye Adepoju,
Abdu Ja’afaru Bambale,
Corporate Governance and the Performance of Seasoned Equity Offering Firms in Nigeria: The Mediating Effect of Agency Costs, Journal of Finance and Accounting.
Vol. 4, No. 3,
2016, pp. 111-125.
Abbasi, M., Kalantari, E., & Abbasi, H. (2012). The Impact of Corporate Governance on Chief Executive Officer ( CEO ) Duality in Iranian Banking Sector. Kuwait Chapter of Arabian Journal of Business and Management Review, 2(1), 1–9.
Abidin, S., Reddy, K., & Chen, L. (2012). Determinants of ownership structure and performance of seasoned equity offerings: Evidence from Chinese stock markets. International Journal of Managerial Finance, 8(4), 304–331. doi:10.1108/17439131211261242.
Aghion, P., Reenen, J. V. and Zingales, L. (2009). Innovation and Institutional Ownership. American Economic Review, 103(1), 277–304. http://doi.org/10.1257/aer.103.1.277.
Al-attar, A. (2012). Corporate Governance and Earnings Management : Jordanian Evidence, 5(1), 216–225. doi:10.5539/ibr.v5n1p216.
Ang, J.S., R.A. Cole, and J.W. Lin, 2000, “Agency Costs and Ownership Structure,” Journal of Finance 55, 81-106.
Barnhart, S. W., & Rosenstein, S. (1998). Board conposition, managerial ownership, and firm performance : An empirical Analysis. The Financial Review, 33, 1–16.
Bhagat, S., & Black, B. (2000). Board Independence and Long-Term Firm Performance. Social Science Research Network Electriconic Journal, 2000(February), 1–44. http://doi.org/10.2139/ssrn.133808.
Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14, 257–273. doi: 10.1016/j.jcorp.
Bhattacharya, P. S., & Graham, M. (2007). Institutional Ownership and Firm Performance: Evidence from Finland. Working Paper, 1–33. http://doi.org/10.2139/ssrn.1000092
Bo, H., Huang, Z., & Wang, C. (2011). Understanding seasoned equity offerings of Chinese firms. Journal of Banking & Finance, 35(5), 1143–1157. doi:10.1016/j.jbankfin.2010.09.025.
Bodunde, O., Rosemary, O. & Soetan, O. (2015). Competition, corporate governance and corporate performance: Substitutes or complements? Empirical evidence from Nigeria. African Journal of Economic and Management Studies, 6(3), 251 – 271. doi:DOI 10.1108/AJEMS-02-2012-0007.
Boone, A. L., & White, J. T. (2015). The effect of institutional ownership on firm transparency and information production. Journal of Financial Economics, 117(3), 508–533. doi:10.1016/j.jfineco.2015.05.008.
Bushman, R., J. Piotroski, and A. J. Smith, 2004, “What Determines Corporate Transparency?” Journal of Accounting Research 42(2), 207-252.
Chernenko, S., Greenwood, R. and C. F. F. (2010). Agency Costs, Mispricing, and Ownership Structure Sergey Chernenko. NBER Working Paper No. 15910, 1–50.
Chi, J.D. and S. D. Lee, 2010, “The Conditional Nature of the Value of Corporate Governance,” Journal of Banking and Finance 34, 350-361.
Clarke, Jonathan, Dunbar, Craig and Kahle, K. M. (2001). Long-Run Performance and Insider Trading in Completed and Canceled Seasoned Equity Offerings. Journal of Financial and Quantitative Analysis, 36(4), 415–430. doi:10.2307/2676218.
Clark, E., Belghitar, Y., & Kassimatis, K. (2011). Managerial ownership and firm performance: A re-examination using marginal conditional stochastic dominance. Online Journal, 1–40.
Clark, E., Belghitar, Y., & Kassimatis, K. (2011). Managerial ownership and firm performance: A re-examination using marginal conditional stochastic dominance. Online Journal, 1–40.
Coles, J. L., Lemmon, M. L., & Wang, Y. A. (2008). The Joint Determinants of Managerial Ownership, Board Independence, and Firm Performance. Working Paper, Arizona State University, (852). Retrieved from http://ssrn.com/abstract=1089758
Cornett, M. M., Marcus, A. J., Saunders, A., & Tehranian, H. (2007). The impact of institutional ownership on corporate operating performance. Journal of Banking and Finance, 31(6), 1771–1794. doi:10.1016/j.jbankfin.2006.08.006.
Craswell, A.T., S.L. Taylor, and R.A. Saywell, 1997, “Ownership Structure and Corporate Performance: Australian Evidence,” Pacific-Basin Finance Journal 5(3), 301-323.
Charfeddine, L., & Elmarzougui, A. (2010). Institutional Ownership and Firm Performance : Evidence from France. The IUP Journal of Behavioral Finance, VII(4), 35–46.
Dasilas, A., & Leventis, S. (2013). Corporate Governance, Dividend Status, Ownership Structure, and the Performance of Greek Seasoned Equity Offerings. International Journal of the Economics of Business, 20(3), 387–419.
Dbouk, W., & Ismail, A. (2010). Corporate governance and long run performance of seasoned equity issuers. Journal of Multinational Financial Management, 20(4-5), 159–177. doi:10.1016/j.mulfin.2010.08.001.
Demiralp, I., Mello, R. D., Schlingemann, F. P., & Subramaniam, V. (2011). Are there monitoring benefits to institutional ownership ? Evidence from seasoned equity offerings Are there monitoring benefits to institutional ownership ? Evidence from seasoned equity offerings. Journal of Corporate Finance, Forthcoming, 48.
Dey, A., Engel, E., & Liu, X. (2011). CEO and board chair roles: To split or not to split? Journal of Corporate Finance, 17(5), 1595–1618. http://doi.org/10.1016/j.jcorpfin.2011.09.001
Dharmastuti, C., & Wahyudi, S. (2013). The Effectivity of Internal and External Corporate Governance Mechanisms Towards Corporate Performance. Research Journal of Finance and Accounting, 4(4), 132–140.
Doğan, M., Elitaş, B. L., Ağca V., & Ögel, S. (2013). The Impact of CEO Duality on Firm Performance: Evidence from Turkey. International Journal of Business and Social Science, 4(2), 149–155. Retrieved from http://www.ijbssnet.com/journals/Vol_4_No_2_February_2013/16.pdf
Dufour, F. T. and D. (2011). Managerial Ownership and Performance : a Simultaneous-Equation Model. Journal of Business Studies Quarterly, 3(1), 300–310.
Elyasiani, E., & Jia, J. (2010). Distribution of institutional ownership and corporate firm performance. Journal of Banking and Finance, 34(3), 606–620. http://doi.org/10.1016/j.jbankfin.2009.08.018
El-Faitouri, R.(2014). Board of Directors and Tobin’s Q: Evidence from U.K. Firms. Journal of Finance and Accounting, 2(4), 82-99. Available online at http://pubs.sciepub.com/jfa/2/4/2 Science and Education Publishing DOI: 10.12691/jfa-2-4-2.
Ferreira, D., Ferreira, M. a., & Raposo, C. C. (2011). Board structure and price informativeness. Journal of Financial Economics, 99(3), 523–545. doi:10.1016/j.jfineco.2010.10.007.
Ferreira, M. A., & Laux, P. A. (2010). Corporate Boards and SEOs : The E ff ect of Certi fi cation and Monitoring. In 2008 European Finance Association Meetings, ISCTE (pp. 1–47).
Florackis, C., Kostakis, A., & Ozkan, A. (2009). Managerial ownership and performance. Journal of Business Research, 62(12), 1350–1357. http://doi.org/10.1016/j.jbusres.2008.12.001
Gesser, R., Halman, R., & Sarig, O. (2005). Measuring the agency costs of dispersed ownership: The case of repurchase initiations. Corporate Ownership and Control, 11(February), 1–40.
Gugong, B. K., Arugu, L. O., & Dandago, K. I. (2014). The Impact of Ownership Structure on the Financial Performance of Listed Insurance Firms in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1), 409–416. http://doi.org/10.6007/IJARAFMS/v4-i1/698
He, W., Li, D., Shen, J., & Zhang, B. (2013). Large foreign ownership and stock price informativeness around the world. Journal of International Money and Finance, 36, 211–230. doi:10.1016/j.jimonfin.2013.04.002.
Hermalin, B.E. and M.S. Weisbach, 2003, “Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature,” Economic Policy Review 9, 7-26.
Himmelberg, C.P., R.G. Hubbard, and D. Palia, 1999, “Understanding the Determinants of Managerial Ownership and the Link Between Ownership and Performance,” Journal of Financial Economics 53(3), 353-384.
Hu, Y., & Zhou, X. (2008). The performance effect of managerial ownership: Evidence from China. Journal of Banking and Finance, 32(10), 2099–2110. http://doi.org/10.1016/j.jbankfin.2007.12.047.
Hubbard, R. G., Agrawal, A., Baker, G., Bhattacharya, S., Bond, S., Calomiris, C., … Palia, D. (1999). Understanding the determinants of managerial ownership and the link between ownership and performance. National Bureau of Economic Research. Journal of Financial Economics (Vol. 53). http://doi.org/10.1016/S0304-405X(99)00025-2
Huang, C.-W., Ho, P.-H., Lin, C.-Y., & Yen, J.-F. (2014). Firm age, idiosyncratic risk, and long-run SEO underperformance. International Review of Economics and Finance, 34, 246–266. doi:10.1016/j.iref.2014.08.009.
Huang, R. and Tompkins, J. G. (2009). Corporate Governance and Investor Reactions to Seasoned Equity Offerings. Online Journal. Retrieved from http://ssrn.com/abstract=1433359
Hao, G. Q. (2014). Institutional Shareholder Investment Horizons and Seasoned Equity Offerings. Financial Management, 43, 87–111. http://doi.org/10.1111/fima.12038
Horner, S., & Valenti, A. (2012). CEO duality: How the Balance of Power within a Firm affects the Decision to Name a Newly Appointed CEO as Chair. Journal of Leadership, Accountability …, 9(3), 53–75. Retrieved from http://www.na-businesspress.com/JLAE/horner93_abstract.html
I., B., & Ehikioya. (2014). Corporate governance structure and firm performance in developing economies : evidence from Nigeria. The International Journal of Business in Society, 9(3), 231 – 243. doi:10.1108/14720700910964307.
Iqbal, Z., Wang, K., & O, S. (2009). Board independence and market reactions around news of stock option backdating. Journal of Economics and Finance, 35, 104–115. http://doi.org/10.1007/s12197-009-9109-z
Javeed, A., Muhammad, R., & Yaqub, S. (2015). An Empirical Examination of the Impact of Corporate Governance Measures and Capital Structure on Firm Profitability in Pakistan. Research Journal of Finance and Accounting, 6(13), 9–17.
Jegadeesh, N. (2000). Long-Term Performance of Seasoned Equity Offerings: Benchmark Errors and Biases in Expectations. Financial Management (Wiley-Blackwell), 29, 5–30. doi:10.2307/3666227.
Jensen, M.C. and M. Meckling, 1976, “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure,” Journal of Financial Economics 3, 305-360.
Karim, W., Tony, Z. and Mollah, S. (2013). Impact of Board Ownership, CEO-Chair duality, and foreign equity participation on auditor choice of IPO firms: Evidence from an emerging market. International Journal of Accounting and Information Management, 21(2), 148–169. http://doi.org/10.3386/w19846
Kim, E. H., & Purnanandam, A. (2013). Seasoned Equity Offerings, Corporate Governance, and Investments. Review of Finance, 18, 1023–1057. doi: 10.1093/rof/rft012.
Kim, H. and A. Purnanandam, 2009, “Corporate Governance and Investor Confidence in Seasoned Equity Offerings,” University of Michigan Working Paper.
Klapper, L.F. and I. Love, 2004, “Corporate Governance, Investor Protection and Performance in Emerging Markets,” Journal of Corporate Finance10, 703-728.
Koerniadi, H., Krishnamurti, C., Lau, S. T., Tourani-Rad, A., & Yang, T. (2015). The role of internal and external certification mechanisms in seasoned equity offerings. Journal of Multinational Financial Management, 30, 110–127. doi:10.1016/j.mulfin.2015.04.001.
Kyereboah-Coleman, A. (2008). Performance in Africa : A Dynamic Panel. J. Stud. Econ. Econometrics, 32(2), 1–25.
La Porta, R., Lakonishok, J., Shleifer, A., & Vishny, R. W. (1997). Good News for Value Stocks: Further Evidence on Market Efficiency. Journal of Finance, 52(2), 859–874. doi:10.2307/2329502.
Laing, D., Weir, C. M., Laing, D., & Weir, C. M. (2011). Governance structures, size and corporate performance in UK firms. Management Decision, 37(5), 457–464.
Li, X., & Sun, S. T. (2015). Managerial Ownership and Firm Performance : Evidence From the 2003 Tax Cut. Online Journal, 1–56.
Lincoln, A., Fields, R., & Adedoyin, O. (2013). Chairman/CEO Duality and its Effects for the Management of Corporate Governance in Guayana. International Journal of Business and Management, 8(20), p36. http://doi.org/10.5539/ijbm.v8n20p36
Linden, P. and Z.P. Matolcsy, 2004, “Corporate Governance Scoring Systems: What Do They Tell Us?” Australian Accounting Review 14(1), 9-16.
Lippert, R.L. and M. Rahman, 1999, “Multinationality, CEO Compensation, and Corporate Governance: Some Empirical Evidence,” Managerial Finance 25(10), 1-12.
Liu, W. (2011). Board Independence and Long-term Firm Performance. Unpublished Ph. D Thesis, Universiteit Van Amsterdam, (December).
Liu, Y., Miletkov, M. K., Wei, Z., & Yang, T. (2015). Board independence and firm performance in China. Journal of Corporate Finance, 30, 223–244. http://doi.org/10.1016/j.jcorpfin.2014.12.004
Loughran, T., & Ritter, J. (1997). The Operating Performance of Firms Conducting Seasoned Equity Offerings. The Journal of Finance, 52(5), 1823–1850. doi:10.1111/j.1540-6261.1997.tb02743.x.
Mathiesen, H. (2002). Managerial ownership and financial performance. Unpublished Ph.D. Thesis Submitted to Copenhagen Business School, Department of International Economics and Management.
Mediaty. (2013). The Impact Of Information Asymetry Towards The Quality Of Accrual Earnings With Good Corporate Governance ( GCG ) As Moderating Variabel. IOSR Journal of Economics and Finance, 1(4), 1–5.
Meltem, G., 2009, “The Evolution of Corporate Governance Mechanisms After Going Public: Evidence from Turkish Panel Data,” International Journal of Economic Perspectives 3(1), 59-82.
Moscu, R.-G. (2013). Does CEO duality really affect corporate performance? International Journal of Academic Research in Economics and Management Sciences, 2(1), 156–166. http://doi.org/10.1111/j.1467-8683.2007.00641.x
Mule, R. K., & Hons, B. E. (2015). Financial Leverage and Performance of Listed Firms in a Frontier Market : Panel Evidence from Kenya. European Scientific Journal, 11(7), 534–550.
O’Brien, P.C. and R. Bhushan, 1990, “Analyst Following and Institutional Ownership,” Journal of Accounting Research 28, 55-76.
Pathan, S., Skully, M., & Wickramanayake, J. (2007). Board size, independence and performance: An analysis of thai banks. Asia-Pacific Financial Markets, 14(3), 211–227. http://doi.org/10.1007/s10690-007-9060-y
Paskelian, O. G., & Bell, S. (2010). The market and operating performance of Chinese seasoned equity offerings. Applied Financial Economics, 20, 649–657. doi:10.1080/09603100903459881.
Peng, M. W., Li, Y., Xie, E., & Su, Z. (2010). CEO duality, organizational slack, and firm performance in China. Asia Pacific Journal of Management, 27(4), 611–624. http://doi.org/10.1007/s10490-009-9161-4
Price, R., & Roma, F. J. (2011). The impact of governance reform on performance and transparency. Journal of Financial Economics, 99, 76–96. doi:10.1016/j.jfineco.2010.08.005.
Ramadan, E.-F. (2014). Board of Directors and Tobins Q: Evidence from UK Firms. Journal of Finance and Accounting, 2(4), 82 – 99. doi:DOI:10.12691/jfa-2-4-2.
Rashid, A. (2013). CEO duality and agency cost: Evidence from Bangladesh. Journal of Management and Governance, 17(4), 989–1008. http://doi.org/10.1007/s10997-012-9213-x
Rehman, A., & Shah, S. Z. A. (2013). Board Independence, Ownership Structure and Firm Performance : Evidence from Pakistan. Interdisciplinary Journal of Contemporary Research In Business, 5(3), 832–845.
Ross, S.A., 1977, “The Determination of Financial Structure: The Incentive- Signaling Approach,” Bell Journal of Economics 8, 23-40.
Ruan, W., & Tian, G Ma, S. (2009). Managerial Ownership and Firm Value : Evidence from China’s Civilian-run Firms Managerial. Online Journal, (61), 1–22.
Rüdiger, F., & Stulz, R. M. (2008). Managerial ownership dynamics and firm value. An Index to the Working Paper in the Fisher College of Business Working Paper Series Is Located at: Http:// www.ssrn.com/link/Fisher-College-of-Business.html Fisher.osu.edu, (January).
Sahut, J.-M., & Gharbi, H. O. (2010). Institutional Investors’ Typology and Firm Performance: The Case of French Firms. International Journal of Business, 15(1), 33–50. Retrieved from http://www.craig.csufresno.edu/IJB/Recent Pub.htm\nhttp://search.ebscohost.com/login.aspx?direct=true&db=eoh&AN=1091250&site=ehost-live
Sajid, G., Muhammad, S., Nasir, R., & Farman,a. (2012). Agency cost, corporate governance and ownership structure: the case of Pakistan. International Journal of Business and Social Sciences, 3(9), 268–277. Retrieved from http://mpra.ub.uni-muenchen.de/42418/
Salas, J. M. (2010). Entrenchment, governance, and the stock price reaction to sudden executive deaths. Journal of Banking and Finance, 34(3), 656–666. doi:10.1016/j.jbankfin.2009.09.002.
Sanda, A. U., Garba, T., & Mikailu, A. S. (2008). Board Independence and Firm Financial Performance: Evidence from Nigeria. Economic Development in Africa, (December 2006), 1–31.
Scholes, M., 1972, “The Market for Securities: Substitution versus Price Pressure and the Effects of Information on Share Prices,” Journal of Business 45, 179-211.
Shahid, R., & Akash, I. (2015). Mediating and Moderating Role of Financial Signaling, Information Asymmetries of Corporate Governance in Debt versus Equity and Market Value Behavior. Pakistan Journal of Commerce and Social Sciences, 9(2), 461–484.
Shuk, J. (1998). Does CEO Duality Matter: An Integrative Approach, 1–158.
Sir Adrian Cadbury. (2003). Let there be light. Internal Auditor, 60(1), 38–46.
Tang, H. (n.d.). CEO Duality and Firm Performance – The Role of External Competition and Internal Governance. Online Journal, 24.
This, I., Lanka, S., Times, T., & Lankan, T. S. (2009). Does CEO duality really matter? Evidence from an emerging market. Online Journal, 1–23.
Ugwoke, R. O., Onyeanu, E. O., & Obodoekwe, C. N. (2013). Duality Role of Chief Executive Officer ( CEO ) in Corporate Governance and Performance of Quoted Companies in the Nigerian Stock Exchange : An Appraisal of the Perception of Managers and Accountants.Rearch Journal of Finance Accounting., 4(12), 11–19.
Ujunwa, A. (2012). Board characteristics and the financial performance of Nigerian quoted firms. The International Journal of Business Society, 12(5), 656 – 674. doi:10.1108/14720701211275587.
Wang, K., Chen, Y.-H., & Huang, S.-W. (2008). Agency Theory and Flotation Methods in Seasoned Equity Offerings: The Case in Taiwan. Review of Pacific Basin Financial Markets and Policies, 11(4), 555–567. doi:10.1142/S0219091508001477.
Wong, J. P. H. F. and T. J. (2005). Do External Auditors Perform a Corporate Governance Role in Emerging Markets ? Evidence from East Asia. Journal of Accounting Research, 43(1), 35–72. doi:10.1111/j.1475-679x.2004.00162.x.
Yang, T., & Zhao, S. (2012). CEO Duality, Competition, and Firm Performance. SSRN Electronic Journal. http://doi.org/10.2139/ssrn.2177403
Yu, C. J. (2015). Board Independence, Monitoring, and CEO Pay Disparity. Online Journal, 1–24.
Zhu, Y., & Tian, G. (2009). CEO pay-performance and board independence: the impact of earnings management in China. 4th International Conference on Asia-Pacific Financial Markets (CAFM). Seoul, Korea: Korean Securities Association., 1–39. Retrieved from http://ro.uow.edu.au/commpapers/1890/