2022ps代写新西兰Essay范文 Corporate Ownership & Control Essay
新西兰Essay范文 Corporate Ownership & Control Essay 指导新西兰essay Option I Quantitative Methods – Choice (c)
LEVELS OF OWNERSHIP STRUCTURE, BOARD COMPOSITIONAND BOARD SIZE SEEM UNIMPORTANT IN NEW ZEALANDTrevor Chin, Ed Vos* and Quin CaseyAbstractThe relationship between firm performance and board composition, size and equity ownership structureare investigated in this paper for a sample of 426 annual observations of New Zealand firmsacross a five-year period. No statistically significant relationships could be found. These results areconsistent with several previous studies and cast doubt on agency explanations used to relate boardownership to corporate performance. This may be due to endogenous factors or due to the small sizeof the New Zealand pool of corporate directors.Keywords: firm performance, board composition, ownership structure* Associate Professor of Finance, Waikato Management School, University of Waikato, Private Bag 3105Hamilton, New Zealand, Email: [email protected] IntroductionFinance literature assumes that managers are imperfectagents for investors (Jensen and Meckling(1976)). This assumption reflects circumstances inwhich managers of firms may attempt to pursuegoals other than shareholder wealth maximization.As a result, agency costs arise from this divergenceof interests. Several methods for controlling theseagency costs have been advocated, such as the paymentof dividends, the use of private debt and managerialstock ownership. However, another importantdimension in the reduction of agency costs lies withthe monitoring of managers by the board of directors.The board of directors is generally regarded as acrucial aspect of the corporate structure of any organization.In theory, they provide the link betweenthose who provide the capital (shareholders) and thepeople who use the capital to create value – the managers(Monks and Minow (1995)). This link infersthat boards are the overlap between the small andpowerful group that runs the company and a largeyet relatively powerless group that wishes to seecompany performance maximized.The board’s primary role is to monitor managerson behalf of shareholders. Numerous studies havesuggested that the effectiveness of this overseeingrole is affected by the number of independent or‘outside’ directors included on the board (see forexample Kaplan and Reishus (1990)), the percentageof outstanding stock held collectively by the board(e.g. Morck et al. (1988)), and the size of the boardof directors (e.g. Yermack (1996)). These studieshave however primarily focused on firms based inthe United States, which have been found to have asignificant amount of their large, and medium-sizedpublicly traded firms being widely controlled (found#p#分页标题#e#to be at the 80% mark for large firms and 90% formedium-sized firms in a recent study by Porta et al(1999)). New Zealand was found however to have acorporate governance control base that was widelyheld of only 30% for large companies and 57% formedium-sized companies.This unique situation means that a greater percentageof these firms are controlled by closely heldgroups, such as the family and the state. Under thissetting, we would expect the agency costs of NZfirms to be lower than that of US firms (as similarlypostulated by Eisenberg et al. (1998) in a study onFinnish firms). In light of this, we investigate threevariables, being the percentage of outside directors,the percentage of outstanding stock held collectivelyCorporate Ownership & Control / Volume 2, Issue 1, Fall 2004120by the board, and board size, and more specificallyinvestigate the effect that these variables might haveon firm value within the New Zealand context. Specifically,an attempt is made to determine what levelsof these variables enhance the ability of the board toeffectively monitor the use of shareholder funds.The paper is organized as follows: Section 2provides a review of the previous literature that hasfocused on the monitoring effectiveness of boards ofdirectors. The sample data and methodology are presentedin Section 3. Section 4 deals with the dataanalysis and hypothesis testing and Section 5 concludes.2. Literature reviewOwnership structureSince initial work on the subject by Berle and Means(1932), much research has been carried out in thefinancial literature on the relationship between levelsof equity ownership of managers and firm performance.It has been stated by Berle and Means (1932)and Jensen and Meckling (1976), that there may be apotential conflict of interest between managers andshareholders due to managers having an incentive toadopt investment and financing policies to benefitthemselves, to the detriment of shareholder wealthmaximization (see also Morck et al. (1988)).A way to counter this conflict of interest hasbeen postulated to be by increasing the equity ownershipof managers in the firms they manage. Bydoing so, the managers will have a financial stake inthe firm and will thus carry out less self-benefitingactivities and instead work more effectively towardsthe job they were hired to do, which is to maximizeshareholder wealth. This is known as the convergenceof interest hypothesis (Berle and Means(1932), and Jensen and Meckling (1976)).Whilst some empirical work carried out has reportedthat such a relationship is unfounded (see forinstance Demsetz (1983) and Mikkelson et al.(1997)) much empirical work carried out in this area#p#分页标题#e#has shown a positive relationship between the levelof equity ownership and firm performance. For instance,Mehran (1995) in an examination of the executivecompensation structure of 153 randomlyselectedmanufacturing firms found that firm performancewas positively related to the percentage ofequity held by managers as well as to the percentageof their compensation that is equity-based. In anotherstudy carried out by Ang et al. (2000) that relatedagency costs to ownership structure, it was reportedthat agency costs were found to be inversely relatedto the proportion of shares owned by managers.In addition, there have been many papers thathave indicted that the positive relationship betweenthe level of equity ownership and firm performanceonly goes up to a point, after which the performanceof the firm drops. This drop at high levels of equityownership has been said to be due to managers anddirectors being free from checks on their control andthey subsequently indulge their preference for nonvaluemaximizing behaviour. This is known as theentrenchment hypothesis. Many empirical studieshave reported the confirmation of this hypothesis.For instance, Hermalin and Weisbach (1991) found anonmonotonic relationship between Tobin’s Q (anindicator of firm performance) and the fraction ofstock owned by CEOs still on the board of directors.More specifically, the relationship was found to bepositive between 0% and 1%, negative between 1%and 5%, positive between 5% and 20%, and negativeafter that. In a subsequent study of 371 Fortune 500firms for 1980, Morck et al (1988) found thatTobin’s Q was found to first rise as insider ownershipincreased up to 5%, then fell as ownership increasesto 25%, then rose only slightly at higherownership levels. McConnell and Servaes (1990)found a similar curvilinear relation between Tobin’sQ and the fraction of common stock owned by corporateinsiders, being positive up till ownershipreached 40% to 50%, then it became slightly negative.A recent study by Rosenstein and Wyatt (1997)found that stock-market reactions to the announcementof inside director appointments was found to besignificantly negative when inside directors ownedless than 5% of common stock; significantly positivewhen the ownership level was between 5% and 25%;and insignificantly different from zero when ownershipexceeded 25%. Other work carried out showinga similar rise-fall relationship between managerialequity ownership and firm performance include Stulz(1988) and Hermalin and Weisbach (1991).It is thus hypothesized that a similar rise-fall relationshipwill be observed between board equityownership and firm performance in the sample of#p#分页标题#e#New Zealand listed firms in this study. The null hypothesisbeing that the rise-fall relationship will notbe observed.Board compositionThe existence of outside directors on the board ofdirectors has been stated to be important in order toprovide a monitory role over the board (see Fama(1980), Fama and Jensen (1983)). Shivdasani andYermack (1999), in a study on whether CEO involvementin the selection of new directors influencesthe nature of appointments to the board, foundthat fewer independent outside directors were appointedwhen the CEO was involved suggesting thatthis was a mechanism used by them to reduce activemonitoring pressure. Dahya et al. (2002) investigatedthe relationship between CEO turnover and corporateperformance following the Cadbury Committee issuanceof the Code of Best Practice in 1992.To improve board oversight, the Code recommendedthat boards of UK corporations include atleast three outside directors and the positions ofChairman and CEO be held by different directors.The study found that there was a significant increaseCorporate Ownership & Control / Volume 2, Issue 1, Fall 2004121in the sensitivity of management turnover to corporateperformance following the adoption of the Codeand the increase in sensitivity of turnover to performancewas due to an increase in outside boardmembers (similar to the finding of Weisbach(1988)). It has been thus postulated that boards comprisinga majority of independent outsider directorsare more likely to make decisions consistent withshareholder wealth maximization. Many empiricalstudies have reported the postulation to be true. Forinstance, Cotter et al. (1997) carried out a study examiningthe role of target firm’s independent outsidedirectors during takeover attempts by tender offerand found that independent outside directors enhancedtarget shareholder gains. In addition, boardswith a higher majority of independent directors weremore likely to use resistance strategies to enhanceshareholder wealth.In a similar study, Byrd and Hickman (1992)found in an investigation of 128 tender offer bidsfrom 1980-1987 that bidding firms on which independentoutside directors held at least 50% of theseats had significantly higher announcement dateabnormal returns than other bidders. Weisbach(1988) found that the higher the proportion of outsiderson a board, the more likely it was that theboard will replace the firm’s CEO after a period ofpoor corporate performance. In addition, Rosensteinand Wyatt (1990) report direct evidence of a positivestock price reaction at the announcement of the appointmentof an additional outside director.#p#分页标题#e#A reason for these results has been said to bethat those who are perceived to be better managerstended to become outside directors (Fama (1980),Fama and Jensen (1983), Kaplan and Reishus(1990)). Fama and Jensen (1983) and Ricardo-Campbell (1983) argue that outside directors whohold multiple directorships have greater incentives tomonitor corporate decisions on behalf of the shareholdersas they have made a significant investment inestablishing their reputations in the market place fordecision experts.Some studies have suggested however, that outsidersmay not have any effect over the monitoringof managerial decisions. In practice, the CEO has adominant role in choosing outside directors (seeMace (1986)), possibly casting doubt about the abilityof outside directors to make independent judgmentson the performance of the firm. Indeed, somestudies have suggested that it is possible to have toomany independent outside directors on a board.Byrd and Hickman (1992) reported that boardsin their sample with over 60% outsider compositionproduced negative shareholder wealth effects. A reasonfor this is because corporate boards have a varietyof responsibilities and thus require a diverse setof talents to carry them out effectively (Baysingerand Butler (1985)). In addition, Klein (1995) alsofound a negative relationship between the presenceof outsiders and firm performance.Due to the results of the majority of past studiesmentioned earlier, it is hypothesized that firm performancewill have a positive correlation to the percentageof outside directors on the board of directors.The null hypothesis being that the positive correlationbetween firm performance and the percentage ofoutside directors on the board will not be observed. Itis not expected that the decline in firm performance,as found by Byrd and Hickman (1992) will be observedwith the sample studied in this paper, as NewZealand firms were found to not be held as widely asUS firms (see Porta et al. (1999)).Board sizehttp://www.ukassignment.org/daixieEssay/Essayfanwen/Board size has been argued to have an inverse relationshipwith the degree of effective monitoring providedby the board of directors. This is known as theboard size effect and has been said to be due to problemsthat arise in group coordination and the abilityto process problems efficiently as group size increases(Lipton and Lorsch (1992), Jensen (1993)).This argument is drawn from organizational behaviourresearch that suggests that as work groups growlarger, total productivity exhibits diminishing returns(for instance see Steiner (1972) and Hackman(1990)). Holthausen and Larcker (1993) consider#p#分页标题#e#board size among a number of variables that mightinfluence executive compensation and company performance,but failed to find consistent evidence of anegative relationship between company performanceand board size.In contrast however, using a sample of 452 largeUS industrial companies from 1984 to 1991, Yermack(1996) found an inverse relationship betweenfirm value, as measured by Tobin’s Q, and the sizeof the board of directors. Yermack’s findings wereconfirmed by similar findings of a board size effectby Eisenberg et al. (1998) within their sample ofsmall and midsize Finnish firms. In addition, an empiricalstudy carried out by Tufano and Sevick(1997) found that mutual fund boards with smallerboards and boards with a larger fraction of independentmembers tended to negotiate and approve lowerfees (being a proxy for higher efficiency of the boardof directors).The implications of the board size effect couldbe seen to lead to a trend for the average size ofboards to shrink over time. For instance Bacon(1990) reported that the number of board members atlarge companies in the sample studied declined froma median of 14 in 1972 to a median of 12 in 1989. Inaddition, Huson et al. (2001) found in a study examiningCEO turnover at large public firms over a 24year period from 1971 to 1994 that board size wasrelatively constant at 14 directors through to the late1980s but declined to 12 directors from 1989 to1994.From the work carried out previously, it is hypothesizedthat a similar inverse relationship betweenboard size and firm performance will be obCorporateOwnership & Control / Volume 2, Issue 1, Fall 2004122served in the sample of New Zealand listed firmsstudied in this paper. The null hypothesis being thatsuch an inverse relationship will not be observed.EndogenietyWhilst it can be helpful to find relationships betweenfirm performance and levels of equity ownership,board composition, and board size such conclusionscannot be said to be econometrically conclusive dueto firm performance being endogenously determinedby exogenous (however only partly observed)changes in the firm’s contracting environment inways consistent with the predictions of principalagentmodels (Himmelberg et al. (1999)). There iseven question as to whether any of the three factorsare exogenously determined.Cho (1998) reported finding that investment affectscorporate value which in turn affects ownershipstructure and not the reverse. Indeed, as Denis andSarin (1999) suggest, determination of ownershipand board structure (at least) is a more dynamicprocess than previously understood with changes#p#分页标题#e#being part of a process that reallocates assets to differentuses and to different management teams inresponse to a change in business conditions. There isgreat importance in understanding there may be unobservedheterogeneity in the contracting environmentacross firms that may be excluded unknowinglyby methodology. For instance, if some of theunobserved determinants of Tobin’s Q are also determinantsof managerial ownership, then managerialownership might spuriously appear to be a determinantof firm performance (as suggested by Himmelberget al. (1999)). We shall return to this analysisfollowing the empirical results.3. Data and methodologyDatahttp://www.ukassignment.org/daixieEssay/Essayfanwen/The data sample studied included all firms listed onthe New Zealand Stock Exchange for a five-yearperiod from 1996 to 2001. Information on directorstock ownership, the percentage of outside directorson boards, and board size was gathered and collatedfrom printed annual reports and annual reports availablefrom firms’ websites. Financial information onfirms in the sample was obtained from Datex, a databasefor financial information on New Zealand companies.In addition, Datastream and annual reportswere used to obtain financial information requiredwhere information was not available on Datex.Where information was incomplete, the firm wouldbe excluded from the sample. The final sample includedthe following number of firms for each year,with the number in the brackets representing the totalnumber of firms listed on the New Zealand StockExchange for that year: 1997 – 73 firms (224), 1998- 76 firms (229), 1999 – 87 firms (218), 2000 – 97firms (231), and 2001 – 93 firms (220). This comprisesa total of 426 annual observations over thefive-year study period.The level of director ownership on each board ineach year was calculated as the total amount ofcommon stock held collectively by the directors,divided by total outstanding common stock at fiscalyear end. Stock options were not considered in thisstudy, as they are very rare in the New Zealand context.Board size represents the number of memberson the board of directors at the fiscal year end oftheir respective organizations. Outside directors weredefined as those who were not current or former employeesof the company. The percentage of outsidedirectors was calculated by the number of outsidedirectors divided by the number of members on theboard of directors (board size).MethodologyFollowing the methodology of several recent relatedstudies such as Morck et al. (1988) and Yermack(1996), the value of the firm was measured byTobin’s Q, defined as:#p#分页标题#e#Tobin’s Q = Market value of assets / Replacementcost of assetsMarket values of assets were calculated as theyear-end value of market equity. This measurementis limited as no value is included for the marketvalue of long-term debt for which reliable estimatescould not be obtained. The replacement costs of assetswere assumed to be equal to the book value oftangible assets. This assumption reflects the lack ofinformation on company depreciation rates availablefor firms in the sample. Although Tobin’s Q is undoubtedlya noisy proxy of the effectiveness of boardmonitoring, it is well suited to the purpose of thisinvestigation. An alternative approach that could beused is the event study methodology, for which theanalysis of unexpected changes in levels of firm performance,board equity ownership, board composition,and board size could be conducted. However,the event study methodology is also limited by severalproblems such as noise which can contaminatethe experiment. Descriptive statistics were calculatedfrom the sample of firms studied over the five-yearperiod, on a yearly and total basis, consisting of themean, median and standard deviation.Relationship between outside directors and performanceMany empirical studies have reported a positive relationshipbetween the percentage of outside directorsand firm performance (see Cotter et al. (1997), Byrdand Hickman (1992), Weisbach (1988), and Rosensteinand Wyatt (1990)). This positive relationship isbelieved to be due to the improvement in monitoringthe decisions made by firms’ management teams.Outside directors have an incentive to ensure thatCorporate Ownership & Control / Volume 2, Issue 1, Fall 2004123shareholder wealth-maximizing decisions are made,due in great part to their reputational capital in themarket for decision experts (Fama and Jensen 1983).In order to investigate the relationship betweenfirm performance and levels of outside directors presenton firms’ boards, we compare separately themean of Tobin’s Q among subsets of levels of outsidedirectors. An ordinary least squares regressionanalysis is performed to ascertain if any relationshipbetween the variables exists.Relationship between board size and performanceThe board size effect is an effect found in past studiesby researchers such as Yermack (1996), Eisenberget al. (1998), and Tufano and Sevick (1997). Itshows an inverse relationship between board sizeand firm performance due to the breakdown in groupdynamics and communication problems that occursin increasingly large groups. In this study we try toascertain if such a relationship exists in our sampleof New Zealand firms, by averaging the Tobin’s Q#p#分页标题#e#across different board sizes. Ordinary least squaresregressions are performed to see if any relationshipbetween the variables exists.Relationship between board ownership and performancePrior studies have suggested that board ownershiphas both positive and negative effects on the value ofthe firm depending on the ranges of board ownershipstudied. For example, Rosenstein and Wyatt (1997)found that stock-market reactions to the announcementof inside director appointments was found to besignificantly negative when inside directors ownedless than 5% of common stock; significantly positivewhen the ownership level was between 5% and 25%;and insignificantly different from zero when ownershipexceeded 25%. Morck et al. (1988) used similarranges and found that Tobin’s Q was found to firstrise as insider ownership increased up to 5%, thenfell as ownership increased to 25%, then rose onlyslightly at higher ownership levels. Using theseranges of board ownership (<5%, 5-25% and >25%),we try to ascertain if a similar relationship existswith the New Zealand data sample using regressionsand non-parametric testing. Within these ranges andthe sample as a whole, regressions were calculatedbetween Tobin’s Q and three variables for each yearand the total sample pooled together. The regressionformula consists of:Tobins Q = α + β Variable + εWhere:Variable is either level of director stock ownership(DSO), percentage of outside directors (OD) orboard size (BS). The Spearman rank correlation nonparametrictest was also conducted within theseranges and the sample as a whole, and using Tobin’sQ and each of the three variables for each year andthe total sample pooled together. The Spearman rankcorrelation checks for differences between the ranksto ascertain if there are any relationships between thevariables at various levels of board ownership.Where:di = rank(Xi)-rank(Yi), and Xi and Yi are pairedobservationsn = number of observations5. ResultsDescriptive statisticsAs Table 1 highlights, the percentage of equityowned by directors appears to increase from 1997 to2000 and then decrease slightly in 2001, with a meanfor the period of 7.24% and a median of 0.66%. Thisis in contrast to the study by Morck et al. (1988) whodocumented mean and median values of 10.60% and3.40% respectively.Yermack (1996) also detected slightly higherpercentage values for his sample of US firms, reportinga mean level of ownership of 9.10% and a medianof 2.80%. Our findings are consistent with thefindings by Porta et al. (1999). In addition, Table 1highlights the fact that board size seems fairly stable#p#分页标题#e#over the period of the study obtaining a mean of 6.5members. Nevertheless, there are indications of aslight shrinking of board size by small percentagesfrom 1997 (6.68 members) to 2001 (6.31 members).This is consistent with the findings of Bacon (1990)and Huson et al. (2001) who both found a decreasein the size of boards of directors in their sample offirms over a longer time period than this study (a 24year period in Huson et al.’s case). The percentage ofoutsiders seems to have decreased over the first fouryears of the period studied, and indeed decreased byapproximately 7.5% from 1997 to 2001. This is incontrast to Huson et al. (2001) who found an increasinglevel of outsiders in the sample studied, from70.6% in the period 1971-1982 to 78.6% in 1983-1994.Relationship between outside directors and performanceTable 2 shows the mean Tobin’s Q for differentpercentages of outside directors including the correlationcoefficient of the mean Tobin’s Q to percentageof outsider directors. Figure 1 shows the relationshipof the percentage outsiders to mean Tobin’sQ.( 1 )61 212−= −Σ=n ndrniisCorporate Ownership & Control / Volume 2, Issue 1, Fall 2004124Table 1. Levels of Director Stock Ownership, Board Composition and Board Size for the Period 1997 To2001http://www.ukassignment.org/daixieEssay/Essayfanwen/The sample consists of 426 annual observations for the following number of firms for each year, 1997 (73 firms), 1998 (76firms), 1999 (87 firms), 2000 (97 firms), and 2001 (93 firms). Director stock ownership is total stock owned collectively bydirectors divided by total outstanding common stock. Outside directors are those that are independent of the company.Board size represents the number of directors as outlined in annual reports.Table 2. Mean Tobin’s Q for Ranges of Percentages of Outside Directors on Firms’ Boards.N represents the number of observations used to calculate mean Tobin’s Q in each range of percentage outsiders.Range Mean Tobin’s Q N0 – 10 0.6883 210 – 20 0.4896 720 – 30 0.5692 2030 – 40 0.4258 1440 – 50 0.5307 1450 – 60 0.5236 3660 – 70 0.6342 5170 – 80 0.4870 4780 – 90 0.4841 12290 – 100 0.5948 113Correlation 0.030.00000.10000.20000.30000.40000.50000.60000.70000.80000 – 1010 – 2020 – 3030 – 4040 – 5050 – 6060 – 7070 – 8080 – 9090 – 100Percentage of Outsiders RangesFirm PerformanceFig. 1. The Relationship between Firm Performance and the Percentage of Outside Directors#p#分页标题#e#1997 Mean Median Standard DeviationDirector Stock Ownership (%) 6.18 0.54 12.44Outside Directors (%) 79.74 83.33 19.14Board Size 6.68 6.00 2.031998 Mean Median Standard DeviationDirector Stock Ownership (%) 5.64 0.43 11.63Outside Directors (%) 77.39 80.91 20.22Board Size 6.66 6.00 2.041999 Mean Median Standard DeviationDirector Stock Ownership (%) 7.39 0.66 13.61Outside Directors (%) 72.57 80.00 24.01Board Size 6.63 6.00 1.992000 Mean Median Standard DeviationDirector Stock Ownership (%) 8.32 1.07 14.92Outside Directors (%) 71.89 80.00 24.74Board Size 6.30 6.00 1.842001 Mean Median Standard DeviationDirector Stock Ownership (%) 8.10 0.68 14.17Outside Directors (%) 72.23 80.00 26.09Board Size 6.31 6.00 1.871997-2001 Mean Median Standard DeviationDirector Stock Ownership (%) 7.24 0.66 13.51Outside Directors (%) 74.43 80.00 23.37Board Size 6.50 6.00 1.95Corporate Ownership & Control / Volume 2, Issue 1, Fall 2004125Overall interpreting the results in Table 2 andFigure 1 is difficult. Although there were some positivespikes in the results we cannot reject the nullhypothesis that there is no relationship between firmperformance and an increasing number of outsiders.A particular level of percentage of outsiders on afirm’s board of directors cannot be ascertained as noobvious relationship trends are seen in the results andthus stating a level of percentage outsiders wouldmerely be an inconclusive guess. While some studiessuggest there should be a positive relationship andothers a negative one, this study finds very little relationship.Relationship between board size and performanceThe means of Tobin’s Q for each different sizedboard of directors are reported in Table 3 and shownin Figure 2. The performance fluctuates between thethree and nine members and then waivers downwardonce the board size reaches ten members. The levelof board size likely to provide effective monitoringappears to be optimal at around nine members whichis when performance is the highest. This is supportedby Lipton and Lorsch (1992) who believed, based ontheir sample of US firms, that a board composed of 8or 9 members is more likely to provide effectivemonitoring.Table 3. Mean Tobin’s Q based On the Number of Members on the Board of DirectorsN represents the number of observations used to calculate mean Tobin’s Q for each board size.Board Size Mean Tobin’s Q N3 0.5166 174 0.5906 495 0.5657 626 0.5065 1117 0.5490 748 0.5171 429 0.6409 3810 0.4312 1711 0.4506 1413 0.2878 2Correlation -0.03890.00000.1000#p#分页标题#e#0.20000.30000.40000.50000.60000.70003 4 5 6 7 8 9 10 11 13Board SizeFirm PerformanceFig. 2. The Relationship between Firm Performance and the Size of the Board of Directors.The data yielded a correlation coefficient of –0.04, indicating a slight inverse relationship betweenboard size and firm performance. Yet this correlationcoefficient is not only very small, it is also based onpooled data in the sample, therefore no firm conclusionscan yet be drawn. Therefore a more detailedanalysis follows in the next section.Relationship between board ownership and performanceRegression and non-parametric correlations relatingTobin’s Q to director stock ownership (DSO), percentageof outside directors (OD) or board size (BS)were calculated by year and first categorized into thethree ranges of stock ownership previously discussed.Table 4 reports these results.Very few statistically significant relationshipswere found. In fact, Table 3 shows there is little orno relationship between performance and the percentageof outside directors or board size in all stockownership ranges. There also appears to be no significantrelationships between performance the percentageof director stock ownership within each levelsof director ownership. To see if this latter relationship,or indeed a relationship with the percentageof outside directors or board size, may exist acrossall ranges of stock ownership occurs across all levelsof stock ownership, the relationship between performanceand the three variables are tested on a yearby-year basis with the results shown in Table 5.Corporate Ownership & Control / Volume 2, Issue 1, Fall 2004126Table 4. Regression Coefficients and Spearman Rank Correlations between Variables and Performance basedon Director Ownership LevelsLevel of Ownership1997 <5% 5-25% >25%Coeff. T Stat rs Coeff. T Stat rs Coeff. T Stat rsDSO 0.000 0.004 -0.141 0.000 -1.143 -0.207 -0.001 -0.074 0.263OD -0.003 -0.657 0.195 -0.003 -0.394 0.004 0.001 0.151 -0.528BS 0.030 0.644 -0.127 0.030 -1.545 -0.206 -0.119 -2.577** -0.749*1998 <5% 5-25% >25%Coeff. T Stat rs Coeff. T Stat rs Coeff. T Stat rsDSO 0.043 1.381 0.015 -0.013 -1.188 -0.042 -0.008 -0.752 0.086OD 0.000 0.248 0.220 -0.008 -2.405* -0.388 -0.008 -1.392 -0.754*BS -0.018 -0.853 -0.241 -0.057 -1.608 -0.128 -0.024 -0.601 -0.4781999 <5% 5-25% >25%Coeff. T Stat rs Coeff. T Stat rs Coeff. T Stat rsDSO 0.026 0.997 0.196 -0.030 -0.852 0.209 0.006 2.425* -0.175OD 0.001 1.159 -0.049 -0.008 -0.740 0.011 0.000 0.057 0.000BS -0.029 -2.080* -0.144 0.128 1.460 0.003 0.002 0.138 -0.2262000 <5% 5-25% >25%#p#分页标题#e#Coeff. T Stat rs Coeff. T Stat rs Coeff. T Stat rsDSO 0.038 1.242 0.024 0.009 0.531 0.129 0.004 1.922 0.191OD 0.000 0.015 0.016 -0.001 -0.140 0.027 0.000 0.025 -0.033BS -0.026 -1.363 -0.158 -0.028 -0.559 -0.064 -0.009 -0.462 -0.2882001 <5% 5-25% >25%Coeff. T Stat rs Coeff. T Stat rs Coeff. T Stat rsDSO 0.022 0.693 -0.003 0.017 0.476 0.112 0.003 0.924 0.242OD -0.001 -0.404 0.018 0.011 1.207 0.379 -0.002 -0.954 -0.284BS -0.040 -2.011* -0.238 0.053 0.439 0.096 -0.013 -0.527 -0.096* Correlation is significant at the .05 level (2-tailed). ** Correlation is significant at the .05 and the .01 level (2-tailed).Table 5. Regression Coefficients and Spearman Rank Correlations between Variables and Performance byYearhttp://www.ukassignment.org/daixieEssay/Essayfanwen/1997 1998 1999Coeff. T Stat rs Coeff. T Stat rs Coeff. T Stat rsDSO -0.003 -0.532 -0.085 0.000 -0.128 -0.016 -0.002 -0.928 0.013OD -0.002 -0.550 0.112 -0.001 -0.342 0.082 0.001 0.657 -0.039BS 0.011 0.330 -0.203 -0.020 -1.210 -0.236* -0.007 -0.427 -0.0452000 2001Coeff. T Stat rs Coeff. T Stat rsDSO 0.001 0.633 0.012 0.001 0.439 0.014OD 0.000 -0.005 0.015 0.001 0.573 0.074BS -0.025 -1.627 -0.131 -0.008 -0.350 -0.133* Correlation is significant at the .05 level (2-tailed).Again we see there are no significant relationshipsemerging on a year-by-year basis. Finally, wetest the whole sample (1997-2001) based on the levelof director ownership with the results reported inTable 6.Table 6. Regression Coefficients and Spearman Rank Correlations between Variables and Performance byYearTotal Level of OwnershipSample <5% 5-25% >25%Coeff. T Stat rs Coeff. T Stat rs Coeff. T Stat rsDSO 0.030 1.426 -0.013 -0.001 -0.064 0.014 0.003 0.654 0.128OD 0.000 0.358 0.080 0.000 0.102 0.057 0.001 0.398 0.000BS -0.007 -0.534 -0.136* -0.009 -0.253 -0.054 -0.007 -0.310 -0.197TotalCoeff. T Stat rsDSO -0.001 -0.502 -0.009OD 0.001 0.591 0.066BS -0.005 -0.495 -0.121*Corporate Ownership & Control / Volume 1, Issue 4, Fall 2004127This also yields few significant results. Thereforewhile the Figure 2 showed that there appeared tobe a weak relationship between performance andboard size, Tables 4 to 6 statistically show that afirm’s performance does not seem to be reliant onthe director stock ownership levels, the percentage ofoutside directors or the size of the firm’s board. As aresult, we find it difficult to reject any of our threehypotheses. Namely, there does not seem to be arise-fall relationship in performance relating to ownershipstructure, nor to the percentage of outside directors,nor to the board size.6. ConclusionThis study investigates the effect three variables#p#分页标题#e#(percentage of outsiders, percentage of stock heldcollectively by the board, and board size) have onfirm performance for a sample of firms over a fiveyearperiod between 1997 and 2001. Many empiricalstudies are based upon US firms which aremainly widely held and controlled, contrast to NewZealand’s significantly less proportion of large andmedium-sized publicly traded firms being widelyheld.This paper therefore tests New Zealand’sunique situation. As was discussed earlier, the issueswith regard to endogeneity are important to consider.Cho (1998) reported finding that investment affectscorporate value, which in turn affects ownershipstructure and not the reverse. In addition, asHimmelberg et al. (1999) suggests, if some of theunobserved determinants of Tobin’s Q are also determinantsof managerial ownership, then managerialownership might spuriously appear to be a determinantof firm performance. This perspective is consistentwith our findings and could indeed be the mainreason for these results. Our results are interesting inthat they seem to support several other studies in thesmall market New Zealand environment. Consistentwith Demsetz (19983) and Mikkelson et al. (1997),we find no relationship between firm performanceand ownership structure. Similar to Mace (1986) andByrd and Hickman (1992), we find that the percentageof outside directors has little impact on overallfirm performance. And we failed to find consistentevidence of a negative relationship between companyperformance and board size. Beyond the endogeneityissue discussed above, these results mayalso be understood in terms of the smallness of theNew Zealand market. This lack of overall size mayin fact contribute to a smaller pool of directors aswell as creating a small ‘community’ of directorswho all sit on multiple boards and consult with eachother. This is a possible area for future research.References1. Ang, J. S., Cole, R. A. and Lin, J. W. (2000).Agency costs and Ownership structure. TheJournal of Finance. 55(1), 81-106.2. Bacon, J. (1990). Membership and organizationof corporate boards. Research Report No. 940.The Conference Board, Inc: New York.3. Baysinger, R. D., Butler, H. N. (1985). CorporateGovernance and the board of directors: Performanceeffects of change in board composition.Journal of Law, Economics and Organization,1.4. Berle, A., Means, G. C. (1932). The moderncorporation and private property. Macmillan,N.Y.5. Byrd, J. W. and Hickman, K. A. (1992). Do outsidedirectors monitor managers? Evidence fromtender offer bids. Journal of Financial Economics.32(2), 195-221.6. Cho, M. (1998). Ownership structure, investment,#p#分页标题#e#and the corporate value: an empiricalanalysis. Journal of Financial Economics. 47(1),103-121.7. Cotter, J. F., Shivdasani, A. and Zenner, M.(1997). Do independent directors enhance targetshareholder wealth during tender offers? Journalof Financial Economics. 43(2), 195-218.8. Dahya, J., McConnell, J. J. and Travlos, N. G.(2002). The Cadbury Committee, corporate performance,and top management turnover. TheJournal of Finance. 57(1), 461-483.9. Demsetz, H. (1983). The monitoring of management.Business Roundtable. New York.10. Denis, D. J. and Sarin, A. (1999). Ownershipand board structures in publicly traded corporations.Journal of Financial Economics. 52(2),187-223.11. Eisenberg, T., Sundgren, S. and Wells, M. T.(1998). Larger board size and decreasing firmvalue in small firms. Journal of Financial Economics.48(1), 35-54.12. Fama, E. F. (1980). Agency problems and thetheory of the firm. Journal of Political Economy.88, 288-307.13. Fama, E. F. and Jensen, M. C. (1983). Separationof ownership and control. Journal of Lawand Economics. 26, 301-325.14. Hackman, J. R. (1990). Groups That Work.Jossey Bass, San Francisco.15. Hermalin, B.E. and Weisbach, M.S. (1991).The effects of board composition and direct incentiveson firm performance. Financial Management.20(4), 101-10516. Himmelberg, C. P., Hubbard, R. G. and Palia, D.(1999). Understanding the determinants ofmanagerial ownership and the link betweenownership and performance. Journal of FinancialEconomics. 53(3), 353-384.17. Holthausen, R. W. and Larcker, D. F. (1993)Organizational structure and financial performance.Unpublished manuscript. Wharton School,University of Pennsylvania, Philadelphia: PA.18. Huson, M. R., Parrino, R. and Starks, L. T.(2001). Internal Monitoring Mechanisms andCorporate Ownership & Control / Volume 2, Issue 1, Fall 2004128CEO Turnover: A Long-Term Perspective. TheJournal of Finance. 56(6), 2265-2297.19. Jensen, M.C. (1993). The modern industrialrevolution, exit, and the failure of internal controlsystems. The Journal of Finance. 48(3),831-881.20. Jensen, M. and Meckling, W. (1976). Theory ofthe firm: Managerial Behaviour, agency costs,and ownership structure. Journal of FinancialEconomics. 3, 305-360.21. Kaplan, S. and Reishus, D. (1990). Outside directorshipsand corporate performance. Journalof Financial Economics. 27(2), 389-410.22. Klein, A. (1995). Firm productivity and boardcommittee structure. Unpublished manuscript.Stern School of Business, New York Univ.:N.Y.http://www.ukassignment.org/daixieEssay/Essayfanwen/23. Lipton, M. and Lorsch, J. W. (1992). A modest#p#分页标题#e#proposal for improved corporate governance.Business Lawyer. 48(1), 59-77.24. Mace, M. (1986). Directors: Myth and reality.Harvard Business School Press, Boston: MA.25. McConnell, J. J. and Servaes, H. (1990). Additionalevidence on equity ownership and corporatevalue. Journal of Financial Economics.27(2), 595-612.26. Mehran, H. (1995). Executive compensationstructure, ownership, and firm performance.Journal of Financial Economics. 38(2), 161-184.27. Mikkelson, W. H., Partch, M. M. and Shah, K.(1997). Ownership and operating performanceof companies that go public. Journal of FinancialEconomics. 44(3), 281-307.28. Monks, R. A. G. and Minow, N. (1995). CorporateGovernance. Basil Blackwell, Cambridge.29. Morck, R., Shliefer, A. and Vishny, R. (1988).Management ownership and market valuation:An empirical analysis. Journal of FinancialEconomics. 20, 293-315.30. Porta, R. L., Lopez-de-Silanes, F. and Shleifer,A. (1999). Corporate ownership around theworld. The Journal of Finance. 54(2), 471-517.31. Ricardo-Campbell, R. (1983). Comments on thestructure of ownership and the theory of thefirm. Journal of Law and Economics. 26, 391-394.32. Rosenstein, S., Wyatt, J. G. (1990). Outside directors,board independence, and shareholderwealth. Journal of Financial Economics. 26(2),175-191.33. Rosenstein, S. and Wyatt, J. G. (1997). Insidedirectors, board effectiveness, and shareholderwealth. Journal of Financial Economics. 44(2),229-250.34. Shivdasani, A. and Yermack, D. (1999). CEOInvolvement in the Selection of New BoardMembers: An Empirical Analysis. The Journalof Finance. 54(5), 1827-1853.35. Steiner, I. D. (1972). Group process and productivity.Academic Press, New York.36. Stulz, R. (1988). Managerial control of votingrights: Financing policies and the market forcorporate control. Journal of Financial Economics.20, 25-54.37. Tufano, P., Sevick, M. (1997). Board structureand fee-setting in the U.S. mutual fund industry.Journal of Financial Economics. 46(3), 321-355.38. Weisbach, M. (1988). Outside directors andCEO turnover. Journal of Financial Economics.20, 431-460.39. Yermack, D. (1996). Higher market valuation ofcompanies with a small board of directors.Journal of Financial Economics. 40(2), 185-211.