Regression analysis of board independence effect on Return on Assets

*, ** and *** denote significance at the 10%, 5% and 1% level, respectively.

	Developed	Emerging
	(1)		(2)		(3)	(4)		(5)		(6)
ind	0.070		0.065		0.062	0.093		0.021		0.020
	[3.010]	***	[3.120]	***	[2.930]	[0.790]		[1.920]	*	[0.760]
ind2	-0.065		-0.058		-0.055	-0.080		-		-
	[-2.960]	***	[-2.900]	***	[-2.670]	[-0.630]
CoalitionsS3	-0.040		-0.042		-0.040	0.005		-		-
	[-2.440]	**	[-2.690]	***	[-2.510]	[0.070]
IndG	-0.039		-		-	-0.128		-		-0.095
	[-1.040]					[-1.970]	**			[-2.090]	**
Coalitions	-0.001		-		-	0.007		-		-
	[-0.660]					[0.690]
d_e	-0.006		-0.006		-0.006	-0.000		-0.020		-0.095
	[-3.950]	***	[-3.940]	***	[-3.620]	[-0.010]		[-5.560]	***	[-2.090]	**
ta	-0.005		-0.006		-0.005	-0.022		-0.007		-0.002
	[-2.160]	**	[-3.260]	***	[-3.000]	-1.980	**	[-2.940]	***	[-0.400]
Igrowth	0.008		0.008		0.007	0.023		0.012		0.026
	[4.060]	***	[4.310]	***	[3.150]	[3.720]	***	[4.340]	***	[5.030]	***
_cons	0.080		0.088		0.100	0.055		0.120		0.084
	[4.110]	***	[5.570]	***	[6.340]	[1.180]		[6.000]	***	[2.060]	**
Year effect	No		No		Yes	No		No		No
Industry effect	Yes		Yes		Yes	Yes		Yes		Yes
R2	20.80%		21.70%		22.10%	23.50%		23.40%		32.90%
P-val	0.000		0.000		0.000	0.000		0.000		0.000

ROE present the tendency to invite independent directors after the performance fails (Hermalin & Weisbach, 1998, 2003). Tests did not indicate endogeneity on the emerging countries.

After the controlling for endogeneity issue the effect of independent directors share stays non-linear on the corporate performance with 95% confidence interval. The optimal point refers to 50.6% of independent directors share in the board of directors.

Endogeneity of independent directors ratio analysis

	Developed		Emerging
	(1)		(2)			(3)		(4)
ind	25.963		0.449			4.134		0.331
	[2.080]	**	[0.850]	**		[1.700]	**	[1.590]	**
ind2	-25.623		-0.367			-		-
	[-2.010]	**	[-0.740]	**
d_e	-0.178		0.081			0.099		0.151
	[-1.470]	**	[2.620]	***		[0.340]		[2.300]	**
ta	0.033		0.120			-0.229		-0.203
	[0.140]		[2.930]	***		[-2.160]	**	[-4.090]	***
Igrowth	0.086		0.071			0.201		0.187
	[0.640]		[2.230]	**		[0.810]	**	[3.580]	***
_cons	-3.498		0.086			2.113		3.188
	[-1.490]	**	[0.230]			[1.860]	**	[7.830]	***
Hausman test P-val	0.001		0.384

Picture 2. The effect board independence and of coinfluence of independent directors ration with ownership concentration on Tobin's Q

The Hypothesis 5 about effect of the number of wining coalitions against independent directors' decisions does not supported by the data from developed and emerging countries. Nevertheless, the effect of Tobin's Q is significant and positive for the sample of emerging countries. The result is counterintuitive. On the one hand, the positive effect on market valuation may be explained by the large number of major owner's representatives in the board of directors on emerging markets (Aguilera, 2016). On the other hand, since more uncertainty in the developing counties insiders may be more effective in the board of directors supported by deep knowledge of technological processes and company-specific weak points (Liu et al., 2015; Ahern & Dittmar, 2012; Rindova, 1999).



Conclusions and discussion

The research documents non-linear relation between board independence and corporate performance for developed markets. The result is conformed with previous studies about large number of contradiction effects of independent directors as internal conflicts reduction and wide resources as networking and human capital on the positive side (Fereira & Matos, 2008; Liu et al., 2015) and impossibility to respect firm-specific problems solving and lack of deep technological process skills on the negative (Ahern & Dittmar, 2012; Rindova, 1999).

Insignificant effect of independent directors on emerging markets sample could be explained by several ways. First of all, the specific features of emerging markets as high ownership concentration and significant state ownership influence the independent directors' effect on corporate performance thought informal limitations of independent director's activities as decision-maker. Secondly, the foreign ownership stake is not significant to affect stock price performance and local investors demand less additional monitoring activities through personal networking and better information inflow.

Ownership structure effect is also differs in dependence of the sample on developed and emerging countries. As for developed markets the most significant effect is provided by ownership concentration with negative sign. The optimal share of independent directors shifts to the right (to the higher level) with the growth of three major shareholders stake.

The impact of state ownership is significant only for emerging countries with negative sign and support previous studies about inefficiency of government ownership (Lui et al., 2015; Kim et al., 2007; La Porta, 1999, 2000) and increase the independent directors share significance.

The issue about number of the winning coalition against independent directors stays the question for further research and should take into account the board structure in terms of member's affiliation.

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Appendix I



Appendix II

Table II

Regression analysis of board independence effect on ROA on emerging markets

*, ** and *** denote significance at the 10%, 5% and 1% level, respectively.

	(1)		(2)		(3)		(4)
ind	0.093		0.124		0.021		0.020
	[0.790]		[0.130]		[1.920]	*	[0.760]
ind2	-0.080				-		-
	[-0.630]
IndCS3	0.005		1.895		-		-
	[0.070]		[1.900]	*
IndG	-0.128		-5.101		-		-0.095
	[-1.970]	**	[-6.280]	***			[-2.090]
Coalit	0.007		0.426		-		-
	[0.690]		[2.590]	**
d_e	-0.000		0.359		-0.020		-0.095
	[-0.010]		[2.860]	***	[-5.560]	***	[-2.090]
ta	-0.022		-0.146		-0.007		-0.002
	-1.980	**	-2.310	**	[-2.940]	***	[-0.400]
Igrowth	0.023		0.361		0.012		0.026
	[3.720]	***	[2.910]	***	[4.340]	***	[5.030]
_cons	0.055		1.847		0.120		0.084
	[1.180]		[3.030]	***	[6.000]	***	[2.060]
Year effect	No		No		No		Yes
Industry effect	Yes		Yes		Yes		Yes
R2	23.50%		23.50%		23.40%		32.90%
P-val	0.000		0.000		0.000		0.000





STATA do-file

sum tq roa roe

graph box tq roa roe

graph box tq roa roe if tq>0

drop if tq<0

drop if roa<0

drop if roe<0

graph box tq roa roe

drop if tq>4.5

sum tq roa roe

drop if roa>0.25

drop if roe>0.4

graph box tq roa roe

sum tq roa roe

gen ind1= ind*100 if cntr==1

replace ind1= ind*100 if cntr==4

replace ind1= ind if cntr!=1& cntr!=4

drop ind

gen ind= ind1/100

sum ind indn board coalitions cs3 g

graph box ind indn board cs3 g

gen Igrowth Industry =0 if growth<0.04

replace Igrowth Industry =1 if growth>0.04

replace Igrowth Industry =. if growth>1

gen ind2= ind* ind

gen indn2= indn* indn

gen IndCS3= ind* cs3

gen IndG= ind* g

gen market=1 if cntr<4

replace market=0 if market>3

xtset id2 yearofreporting

forvalues i= 0/1 {

qui reg tq ind ind2 IndCS3 IndG Coalit ta d_e Igrowth Industry if market==`i'

qui scalar ess1_`i'= e(mss)

qui scalar n1_`i' = e(N)

qui reg tq ind ind2 IndCS3 IndG Coalit ta d_e Igrowth Industry

qui scalar essf= e(mss)

qui scalar nf = e(N)

qui scalar k=e(df_m)+1

}

qui scalar chow = ((essf-ess1_0-ess1_1)/(k))/((ess1_0+ess1_1)/(n1_0+n1_1-2*k))

qui scalar pval = Ftail(k,n1_0+n1_1-2*k,chow)

xtgls tq ind ind2 IndCS3 IndG Coalit ta d_e Igrowth Industry , igls panels(heteroskedastic)

estimates store hetero

xtgls tq ind ind2 IndCS3 IndG Coalit ta d_e Igrowth Industry

local df = e(N_g) - 1

lrtest hetero . , df(`df')

xtreg tq ind ind2 IndCS3 IndG Coalit d_e ta Igrowth Industry if market==0, re robust

xtreg tq ind ind2 IndCS3 d_e ta Igrowth Industry if market==0, re robust

xtreg tq ind ind2 IndCS3 d_e ta Igrowth Industry i. yearofreporting if market==0, re robust

xtserial tq ind ind2 IndCS3 IndG Coalit ta d_e Igrowth Industry if market==0

xtreg tq ind ind2 IndCS3 d_e ta Igrowth Industry if market==0, fe

estimates store fixed

xtreg tq ind ind2 IndCS3 d_e ta Igrowth Industry if market==0, re

hausman fixed ., sigmamore

xtreg roa ind ind2 IndCS3 IndG Coalit d_e ta Igrowth Industry if market==0, re robust

xtreg roa ind ind2 IndCS3 d_e ta Igrowth Industry if market==0, re robust

xtreg roa ind ind2 IndCS3 d_e ta Igrowth Industry i. yearofreporting if market==0, re robust

xtserial roa ind ind2 IndCS3 IndG Coalit ta d_e Igrowth Industry if market==0

xtreg roa ind ind2 IndCS3 d_e ta Igrowth Industry if market==0, fe

estimates store fixedr

xtreg roa ind ind2 IndCS3 d_e ta Igrowth Industry if market==0, re

hausman fixed ., sigmamore

xtivreg tq (ind ind2= board cs3 l. roe) d_e ta Igrowth Industry if market==0, re

est store dreiv2

xtreg tq ind ind2 d_e ta Igrowth Industry if market==0, re

est store dre2

hausman dreiv2 dre2

xtreg tq ind ind2 IndCS3 IndG Coalit d_e ta Igrowth Industry if market==1, re robust

xtreg tq IndCS3 IndG Coalit d_e ta Igrowth Industry if market==1, re robust

xtreg tq IndCS3 IndG Coalit d_e ta Igrowth Industry i. yearofreporting if market==1, re robust

xtserial tq ind ind2 IndCS3 IndG Coalit ta d_e Igrowth Industry if market==1

xtreg tq IndCS3 IndG d_e ta Igrowth Industry if market==1, fe

estimates store fixed1

xtreg tq IndCS3 IndG d_e ta Igrowth Industry if market==1, re

hausman fixed ., sigmamore

xtreg roa ind ind2 IndCS3 IndG Coalit d_e Igrowth Industry if market==1, re robust

xtreg roa ind d_e Igrowth Industry if market==1, re robust

xtreg roa ind IndG d_e Igrowth Industry if market==1, re robust

xtreg roa IndG d_e Igrowth Industry if market==1, re robust

xtreg roa ind IndG ta d_e Igrowth Industry i. yearofreporting if market==1, re robust

gen i2014=1 if yearofreporting==2014

replace i2014=0 if .

xtreg roa ind IndG ta d_e Igrowth Industry i2014 if market==1, re robust

xtserial roa ind ind2 IndCS3 IndG Coalit ta d_e Igrowth Industry if market==1

xtivreg tq (ind = board cs3 g l.roe) d_e ta Igrowth Industry if market==1, re

est store ereiv2

xtreg tq ind d_e ta Igrowth Industry if market==1, re

est store ere2

hausman ereiv2 ere2

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