Effect of board size on return on equity of dual listed South African companies.
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Date
2011
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Abstract
More and more South African companies have taken the route to list their securities in developed
economies in addition to the Johannesburg Securities Exchange. As a result of listing on exchanges in
developed countries that have adopted stringent corporate governance regimes, together with the fact
that those countries’ securities exchanges have listing regulations that are different from those of the
Johannesburg Securities Exchange, has caused these dual-listed companies to adjust their board structure
and composition to comply with these regimes and regulations. South African companies are also
operating in an environment that has a strong transformation agenda that seeks to transform corporations
by giving historically disadvantaged South Africans corporate ownership and equal representation in all
levels of economic activity. Most corporate boards in South Africa do not represent the demographics of
society. The transformation of boards due to international listings, global corporate governance
developments and local legislative framework has lead to changes in board composition and structure.
This study examines the effect of corporate board size on South African dual-listed companies in
relation to shareholder value. This study is extended to study the effect of corporate board size to other
variables that may affect board size to determine their impact on shareholder value.
Data was sourced largely from annual reports and other publicly available documents (e.g. investor
presentations). Statistical methods such as correlation and significance tests were utilised to test if a
relationship exist between primarily board size and return on equity of dual listed South African
companies. The overall period of investigation is over a four-year span (2005-2008). Available data was
manipulated to create a one year lag between independent (board size and secondary variables) and
dependent (ROE, PM. TAT, EM and Tobin’s Q) variables. Dependent variables were averaged over the
2006-2008 period one year ahead of the independent variables period of 2005-2007.
The findings show no evidence of any association between board size and the firm performance as
measured by the return on equity. However, interestingly, there is evidence that independent directors are
negatively associated with the return on equity. This unexpected finding regarding board size and the
negative association of independent board members with shareholder value is explained. The study also
provides evidence that a greater proportion of non-executive owner directors are better at maximizing
shareholder value than independent directors.
Description
Thesis (MBA)-University of KwaZulu-Natal, Westville, 2011.
Keywords
Corporate governance., Business ethics., Theses--Business administration.