The association between board characteristics and the risk-adjusted return of South African companies

Abstract

PURPOSE : Regulatory documents and the literature recommend individuals with various characteristics to be included on a board, which should improve the efficiency of the board and promote company performance. Stakeholders have different expectations from a company, for which the literature holds the board accountable. Shareholders, for example, want superior returns, while government requires the implementation of transformation initiatives, especially in South Africa. It will therefore be valuable to several interested parties to know which board characteristics are likely to promote their objectives. DESIGN/METHODOLOGY/APPROACH : Binary logistic regression is used to analyse the relationship between various board characteristics and the risk-adjusted performance of a company. The dataset comprised 170 companies, from the 13 largest sectors/subsectors of the Johannesburg Stock Exchange for the period 2009 to 2015. FINDINGS : Percentage female (negative), chief executive officer remuneration (negative), chairman remuneration (positive) and non-executive director remuneration (positive) and the payment gap (positive) showed statistically significant relationships with the odds that a company is categorised as a top performer based on its risk-adjusted return. PRACTICAL IMPLICATIONS : The findings inform various parties whether the benefits ascribed to the various board characteristics, by the literature and regulations, are actually obtained. ORIGINALITY/VALUE : The study moved away from the practice of looking for linearity in corporate relationships and expanded the list of board characteristics reviewed. It used a risk-adjusted performance measure, introduced innovative diversity measures, and focussed on South Africa.