The impact of board attributes on financial performance of South African companies
Date
2016
Authors
Marokane, Tshepo Terence
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Abstract
Empirical evidence has established that companies with robust corporate
governance systems outperform their counterparts who do not have such
structures in place (Ehikioya, 2009). A critical component of a strong corporate
governance system is a board of directors (Hermalin & Weisbach, 2001).
Through its King reports, South Africa has a developed code of governance
principles (West, 2006). The latest such report, King III, mandatory for all
companies listed on the Johannesburg Stock Exchange (JSE), is clear about
board attributes such as size, independence and diversity (Gstraunthaler,
2010).
The aim of this study is to investigate the impact of board attributes on the
financial performance of JSE-listed companies. The contradictory results from
international studies on the topic (Pereira & Filipe, 2014), as well as the limited
empirical evidence for the South African-specific context (Collins G Ntim,
Opong, Danbolt, & Thomas, 2012), prompted this study
The results are based on a Pearson Correlation test evaluating how board
attributes impact companies' financial performance. Further tests, such as
regression models, could have been used, and indeed this was so in previous
studies (Nguyen, Locke, & Reddy, 2014; Austin Ujunwa, Okoyeuzu, &
Nwakoby, 2012). However, the results obtained from the Pearson Correlation
test did not justify a need for further analyses, and in fact the number of
variables selected could have eroded the accuracy of the findings.
The chosen variables for board attributes are as follows: size, independence
and diversity. Operating Profit (OP), Return on Assets (ROA) and Return on
Equity (ROE ) were the selected dependent variables to measure company
financial performance. When the variables were tested, the only statistically
significant relationship was established with ROE, which correlated with board
size and non-white directors only. OP and ROA did not have a significant
correlation with any of the board attributes.
Description
MBA
Keywords
Corporate governance -- South Africa. Boards of directors -- South Africa. Industrial management -- South Africa.