Board Size, Corporate Regulations and Firm Valuation in an Emerging Market: A Simultaneous Equation Approach

30 Pages Posted: 12 May 2015

See all articles by Collins G. Ntim

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Kwaku K. Opong

University of Glasgow - Adam Smith Business School

Jo Danbolt

University of Edinburgh Business School

Date Written: May 11, 2015

Abstract

We investigate the association between board size and firm valuation for a sample of 169 firms from 2002 to 2011 in South Africa (SA). The SA corporate context is interestingly and uniquely characterised by an urgency to meet affirmative action regulations, such as black empowerment in board appointments, limited qualified and experienced directors, especially black directors, concentrated ownership, weak enforcement of corporate regulations and greater government ownership. These features make SA corporate boards perform a weaker agency (advisory, monitoring and disciplining) role than Western European and US boards, but a stronger resource dependence role, by providing access to resources, such as business contacts and contracts. This suggests that any positive impact of board size on firm valuation is likely to depend on the effective execution of the resource dependence role more than the agency role. Our results suggest that board size has a positive association with firm valuation, consistent with larger boards providing better access to resources. Overall, our results support the resource dependence role of boards more than their agency role. The results are robust across a raft of econometric models that control for different types of endogeneity, as well as different types of accounting and market-based firm valuation measures.

Keywords: Corporate governance, board regulations, firm valuation, simultaneous equations, South Africa

JEL Classification: G32, G34, G38

Suggested Citation

Ntim, Collins G. and Opong, Kwaku K. and Danbolt, Jo, Board Size, Corporate Regulations and Firm Valuation in an Emerging Market: A Simultaneous Equation Approach (May 11, 2015). International Review of Applied Economics, Vol. 29, No. 2, 2015, Available at SSRN: https://ssrn.com/abstract=2604950

Collins G. Ntim (Contact Author)

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

Kwaku K. Opong

University of Glasgow - Adam Smith Business School ( email )

University Avenue
Gilbert Scott Building
Glasgow, Scotland G12 8QQ
United Kingdom

Jo Danbolt

University of Edinburgh Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

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