THE EFFECTS OF BOARD AND OWNERSHIP STRUCTURE ON CORPORATE GOVERNANCE DISCLOSURE: EVIDENCE FROM EAST AFRICAN COUNTRIES
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Abstract
The corporate boards and ownership structure are central to the effective monitoring and success of a firm. However, most studies have focused on developed nations while paying relatively little attention to developing countries where institutions and corporate governance systems are weak. Specifically, these studies have ignored the effect of CEO and ownership structure’s intervening behaviour on the effectiveness of board monitoring role and corporate governance disclosure in developing countries. Using hand-collected data of 92 listed firms in East African countries (54 from Kenya, 16 from Tanzania, 16 from Uganda, and 6 from Rwanda) over the 2007 to 2017 period, this study aims at extending our understanding by examining the impact of board characteristics (board independence, size, and diversity) and ownership structure (concentrated, institutional and managerial) and further analyses the moderating effect of CEO power and ownership structure on the CG disclosure.
The findings suggest a significant variation in CG disclosure practices among the sampled East African firms. First, the study finds board independence, diversity, and size to positively, while CEO power and concentrated ownership exhibit a negative and significant influence on CG disclosure. Second, it was found that building up critical masses of minority groups is beneficial for firms in terms of CG disclosure. Precisely, even though both ethnic minorities and gender have positive effects on CG disclosure, the female’s contribution appears noticeably higher. Third, regarding the moderating role, the study’s findings show that both CEO power and managerial ownership weaken the impact of board independence on CG disclosure. However, concentrated ownership and institutional ownership appear to strengthen the effects of board independence on CG disclosure. The results appear robust after various sensitivity analyses, including pre & post-2009, sub-sample testing, and endogeneity tests using the two-step system GMM.
The study extends our understanding regarding the effect of board characteristics and ownership structure on CG disclosure, particularly the moderating effects of CEO power and ownership structure. The results’ implications lie with the importance of paying attention to board characteristics and ownership structure as a means for effective corporate disclosure by policymakers and practitioners.