Board of directors and firm debt in Spanish SMEsa power perspective

  1. Juan Francisco Martín-Ugedo 1
  2. Antonio Mínguez-Vera 1
  1. 1 Universidad de Murcia
    info

    Universidad de Murcia

    Murcia, España

    ROR https://ror.org/03p3aeb86

Revista:
European Research on Management and Business Economics

ISSN: 2444-8834

Año de publicación: 2023

Volumen: 29

Número: 3

Páginas: 106-116

Tipo: Artículo

Otras publicaciones en: European Research on Management and Business Economics

Resumen

This manuscript examines the influence of some variables relating to boards of directors that we consider to be proxies for power (gender diversity, duality, board size and insider ownership). Their influence on firm debt is explored. The sample examined, Spanish non-financial SMEs, has some particular characteristics. Share ownership, which is usually highly concentrated in the Civil Law context, is even more concentrated when we focus on SMEs. As a consequence, there is little separation between ownership and control. We have employed a power perspective as the main theoretical framework. Data were obtained from the SABI database, and the methodology employed is a panel data, applying the System GMM technique. This methodology makes it possible to control for endogeneity and individual heterogeneity. The results show that a larger proportion of female directors, larger boards, the separation of the roles of CEO and Chairman, and more shares owned by directors and by the CEO stimulate a decrease in firm debt. This evidence supports the hypotheses tested.

Referencias bibliográficas

  • Adams, R. B., Almeida, H., & Ferreira, D. (2005). Powerful CEOs and their impact on corporate performance. The Review of Financial Studies, 18(4), 1403–1432. https:// doi.org/10.1093/rfs/hhi030
  • Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309. https://doi.org/10.1016/j.jfineco.2008.10.007
  • Andrade, G., & Kaplan, S. N. (1998). How costly is financial (not economic) distress? Evidence from highly leveraged transactions that became distressed. The Journal of Finance, 53(5), 1443–1493. https://doi.org/10.1111/0022-1082.00062
  • Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968
  • Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/ 10.1016/0304-4076(94)01642-D
  • Baixauli-Soler, J. S., & Sanchez-Marin, G. (2015). Executive compensation and corporate governance in Spanish listed firms: A principal–principal perspective. Review of Managerial Science, 9(1), 115–140. https://doi.org/10.1007/s11846-014-0122-z
  • Bajaj, M., Chan, Y. C., & Dasgupta, S. (1998). The relationship between ownership, financing decisions and firm performance: A signalling model. International Economic Review, 39(3), 723–744. https://doi.org/10.2307/2527397
  • Banerjee, A., Nordqvist, M., & Hellerstedt, K. (2020). The role of the board chair-A literature review and suggestions for future research. Corporate Governance: An International Review, 28(6), 372–405. https://doi.org/10.1111/corg.12350
  • Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research. Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182. https://doi.org/ 10.1037/0022-3514.51.6.1173
  • Barry, C. B., Mann, S. C., Mihov, V. T., & Rodriguez, M. (2008). Corporate debt issuance and the historical level of interest rates. Financial Management, 37(3), 413–430. https://doi.org/10.1111/j.1755-053X.2008.00019.x
  • Baxter, N. D. (1967). Leverage, risk of ruin and the cost of capital. The Journal of Finance, 22(3), 395–403. https://doi.org/10.2307/2978892
  • Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/ 10.1016/S0304-4076(98)00009-8
  • Brav, O. (2009). Access to capital, capital structure, and the funding of the firm. The Journal of Finance, 64(1), 263–308. https://doi.org/10.1111/j.1540- 6261.2008.01434.x
  • Carter, S. & Shaw, E. (2006). Women’s business ownership: Recent research and policy developments. Report to the Small Business Service. Available at https://strathprints .strath.ac.uk/8962/1/SBS_2006_Report_for_BIS.pdf.
  • Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial Review, 38(1), 33–53. https://doi.org/10.1111/ 1540-6288.00034
  • Cashman, Gillan, & Jun. (2012). Going overboard? On busy directors and firm value. Journal of Banking & Finance, 36(12), 3248–3259. https://doi.org/10.1016/j. jbankfin.2012.07.003
  • Chaganti, R. (1986). Management in women-owned enterprises. Journal of Small Business Management, 24(4), 18–29. Available at https://typeset.io/papers/management-in -women-owned-enterprises-1ph2vx40i5?citations_has_pdf=true.
  • Cheng, S. (2008). Board size and the variability of corporate performance. Journal of Financial Economics, 87(1), 157–176. https://doi.org/10.1016/j.jfineco.2006.10.006
  • Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51(3), 371–406. https://doi.org/10.1016/S0304-405X(98)00058-0
  • Daily, C. M., & Dalton, D. R. (1994a). Bankruptcy and corporate governance: The impact of board composition and structure. Academy of Management Journal, 37(6), 1603–1617. https://doi.org/10.5465/256801
  • Daily, C. M., & Dalton, D. R. (1994b). Corporate governance and the bankrupt firm: An empirical assessment. Strategic Management Journal, 15(8), 643–654. https://doi. org/10.1002/smj.4250150806
  • de Enrique Arnau, L., & Pinillos-Costa, M. J (2023). Board of directors and business transformation: A bibliometric analysis. European Journal of Management and Business Economics. https://doi.org/10.1108/EJMBE-10-2022-0338
  • Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49–64. https://doi.org/10.1177/031289629101600103
  • Eurostat (2023). Key figures on european business, May. European Commission, Luxemburg. Retrieved from https://ec.europa.eu/eurostat/documents/15216629/1 6825859/KS-04-23-195-EN-N.pdf/3f72cb73-0ba3-bcfe-0a2f-7bbc03ea5361?ver sion=2.0&t=1685428985626. Accessed August 21, 2023.
  • Fahlenbrach, R., Low, A., & Stulz, R. M. (2010). Why do firms appoint CEOs as outside directors? Journal of Financial Economics, 97(1), 12–32. https://doi.org/10.1016/j. jfineco.2010.01.003
  • Fasano, F., S´anchez-Vidal, F. J., & La Rocca, M. (2022). The role of government policies for Italian firms during the COVID-19 crisis. Finance Research Letters, 50, Article 103273. https://doi.org/10.1016/j.frl.2022.103273
  • Finkelstein, S. (1992). Power in top management teams: Dimensions, measurement, and validation. Academy of Management Journal, 35(3), 505–538. https://doi.org/ 10.5465/256485
  • Forbes, D. P., & Milliken, F. J. (1999). Cognition and corporate governance: Understanding boards of directors as strategic decision-making groups. Academy of Management Review, 24(3), 489–505. https://doi.org/10.2307/259138
  • García, C. J., & Herrero, B. (2021). Female directors, capital structure and financial distress. Journal of Business Research, 136, 592–601. https://doi.org/10.1016/j. jbusres.2021.07.061
  • García-Martín, C. J., & Herrero, B. (2018). Boards of directors: Composition and effects on the performance of the firm. Economic Research-Ekonomska Istraˇzivanja, 31(1), 1015–1041. https://doi.org/10.1080/1331677X.2018.1436454
  • Gaud, P., Jani, E., Hoesli, M., & Bender, A. (2005). The capital structure of Swiss companies: An empirical analysis using dynamic panel data. European Financial Management, 11(1), 51–69. https://doi.org/10.1111/j.1354-7798.2005.00275.x
  • Gorman, M., & Sahlman, W. A. (1989). What do venture capitalists do? Journal of Business Venturing, 4(4), 231–248. https://doi.org/10.1016/0883-9026(89)90014-1
  • Grosvold, J., & Brammer, S. (2011). National institutional systems as antecedents of female board representation: An empirical study. Corporate Governance: An International Review, 19(2), 116–135. https://doi.org/10.1111/j.1467- 8683.2010.00830.x
  • Hall, G. C., Hutchinson, P. J., & Michaelas, N. (2004). Determinants of the capital structures of European SMEs. Journal of Business Finance & Accounting, 31(5–6), 711–728. https://doi.org/10.1111/j.0306-686X.2004.00554.x
  • Halliday, C. S., Paustian-Underdahl, S. C., & Fainshmidt, S. (2021). Women on boards of directors: A meta-analytic examination of the roles of organizational leadership and national context for gender equality. Journal of Business and Psychology, 36(2), 173–191. https://doi.org/10.1007/s10869-019-09679-y
  • Hermalin, B. E., & Weisbach, M. S. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9(1), 7–26. Available at https://papers.ssrn.com/sol3/papers.cfm?abstra ct_id=233111.
  • Hernández-Cánovas, G., Mínguez-Vera, A., & Sánchez-Vidal, J. (2016). Ownership structure and debt as corporate governance mechanisms: An empirical analysis for Spanish SMEs. Journal of Business Economics and Management, 17(6), 960–976. https://doi.org/10.3846/16111699.2013.859171
  • Hernández-Nicolás, C. M., Martín-Ugedo, J. F., & Mínguez-Vera, A. (2019). The effect of gender diversity on the board of Spanish agricultural cooperatives on returns and debt: An empirical analysis. Agribusiness: An International Journal, 35, 639–656. https://doi.org/10.1002/agr.21608
  • Himmelberg, C. P., Hubbard, R. G., & Palia, D. (1999). Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Economics, 53(3), 353–384. https://doi.org/10.1016/S0304-405X(99) 00025-2
  • Hofstede, G. (2021). Hofstede Insights. Retrieved from https://www.hofstede-insights.co m/country-comparison-tool?countries=spain. Accessed February 5, 2023.
  • International Council of Small Business (2023). The 6th Edition of the ICSB Global MSMEs Report, June 27. Retrieved from https://www.un.org/sites/un2.un.org/ files/icsb-global-msmes-report-2023.pdf . Accessed September 2, 2023.
  • Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831–880. https://doi.org/10.1111/ j.1540-6261.1993.tb04022.x
  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
  • John, K., & Senbet, L. W. (1998). Corporate governance and board effectiveness. Journal of Banking and Finance, 22(4), 371–403. https://doi.org/10.1016/S0378-4266(98) 00005-3
  • Judge, W. Q., Jr., & Zeithaml, C. P (1992). Institutional and strategic choice perspectives on board involvement in the strategic decision process. Academy of Management Journal, 35(4), 766–794. https://doi.org/10.5465/256315
  • Kelly, R. M., Hale, M. M., & Burgess, J. (2008). Gender and managerial/leadership styles. Women & Politics, 11(2), 19–39. https://doi.org/10.1300/J014V11N02_02
  • Khan, W. A., & Vieito, J. P. (2013). CEO gender and firm performance. Journal of Economics and Business, 67, 55–66. https://doi.org/10.1016/j.jeconbus.2013.01.003
  • Kieschnick, R., & Moussawi, R. (2018). Firm age, corporate governance, and capital structure choices. Journal of Corporate Finance, 48, 597–614. https://doi.org/ 10.1016/j.jcorpfin.2017.12.011
  • La Porta, R., Lopez-de-Silanes, F., & Shleifer, A (1999). Corporate ownership around the world. The Journal of Finance, 54(2), 471–517. https://doi.org/10.1111/0022- 1082.00115
  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R (2002). Investor protection and corporate valuation. The Journal of Finance, 57(3), 1147–1170. https://doi.org/ 10.1111/1540-6261.00457
  • Leech, D., & Manj´ on, M. C. (2002). Corporate governance in Spain (with an application of the power indices approach). European Journal of Law and Economics, 13(2), 157–173. https://doi.org/10.1023/A:1013680820398
  • López-Delgado, P., & Di´ eguez-Soto, J. (2020). Indebtedness in family-managed firms: The moderating role of female directors on the board. Review of Managerial Science, 14(4), 727–762. https://doi.org/10.1007/s11846-018-0307-y
  • May, D. O. (1995). Do managerial motives influence firm risk reduction strategies? Journal of Finance, 50(4), 1291–1309. https://doi.org/10.1111/j.1540-6261.1995. tb04059.x
  • Maxfield, S., Shapiro, M., Gupta, V., & Hass, S. (2010). Gender and risk: Women, risk taking and risk aversion. Gender in Management: An International Journal, 25(7), 586–604. https://doi.org/10.1108/17542411011081383
  • Merchant, K. (2012). How Men and Women Differ: Gender Differences in Communication Styles, Influence Tactics, and Leadership Styles. CMC Senior Theses. Paper 513. Available at https://scholarship.claremont.edu/cmc_theses/513
  • Michaelas, N., Chittenden, F., & Poutziouris, P. (1999). Financial policy and capital structure choice in UK SMEs: Empirical evidence from company panel data. Small Business Economics, 12(2), 113–130. https://doi.org/10.1023/A:1008010724051
  • Mínguez-Vera, A., & Martín-Ugedo, J. F. (2010). Firm risk and the power of the Chairman and CEO in a civil law country: Evidence from Spain. The International Journal of Human Resource Management, 21(3), 371–388. https://doi.org/10.1080/ 09585190903546912
  • Ministerio de Industria, Comercio y Turismo (2023). Cifras Pyme, January. Retrieved from https://industria.gob.es/es-es/estadisticas/Cifras_PYME/CifrasPYME-ener o2023.pdf. Accessed August 21, 2023.
  • Mishra, S., & Mohanty, P. (2014). Corporate governance as a value driver for firm performance: Evidence from India. Corporate Governance, 14(2), 265–280. https:// doi.org/10.1108/CG-12-2012-0089
  • Modigliani, F., & Miller, M.H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297. Available at http://www.jstor.org/stable/1809766.
  • Modigliani, F., & Miller, M.H. (1963). Corporate income taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433–443. Available at http:// www.jstor.org/stable/2352621.
  • Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics, 20, 293–315. https://doi.org/10.1016/0304-405X(88)90048-7
  • Moscovici, S., & Zavalloni, M. (1969). The group as a polarizer of attitudes. Journal of Personality and Social Psychology, 12(2), 125. https://doi.org/10.1037/h0027568
  • Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13 (2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0
  • Nakano, M., & Nguyen, P. (2012). Board size and corporate risk taking: Further evidence from Japan. Corporate Governance: An International Review, 20(4), 369–387. https:// doi.org/10.1111/j.1467-8683.2012.00924.x
  • Nielsen, S., & Huse, M. (2010). Women directors’ contribution to board decision-making and strategic involvement: The role of equality perception. European Management Review, 7(1), 16–29. https://doi.org/10.1057/emr.2009.27
  • Olsen, R. A., & Cox, C. M. (2001). The influence of gender on the perception and response to investment risk: The case of professional investors. The Journal of Psychology and Financial Markets, 2(1), 29–36. https://doi.org/10.1207/S15327760JPFM0201_3
  • Parsons, C., & Titman, S. (2009). Empirical capital structure: A review. Foundations and Trends in Finance, 3(1), 1–93. https://doi.org/10.1561/0500000018
  • Palmer, T. B., & Wiseman, R. M. (1999). Decoupling risk taking from income stream uncertainty: A holistic model of risk. Strategic Management Journal, 20(11), 1037–1062. https://doi.org/10.1002/(SICI)1097-0266(199911)20:11<1037::AID- SMJ67>3.0.CO;2-2
  • Pfeffer, J (1981). Power in organizations. Marshfield, MA: Pitman. Available at http s://www.biblio.com/book/power-organizations-j-pfeffer/d/1235958633? placement=morelikethis.
  • Roberson, Q. M. (2019). Diversity in the workplace: A review, synthesis, and future research agenda. Annual Review of Organizational Psychology and Organizational Behavior, 6, 69–88. https://doi.org/10.1146/annurev-orgpsych-012218-015243
  • Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial statement analysis (3rd ed.). New York: John Wiley & Sons. (Chapter 7). Available at https://www.oreilly.com/library/view/international-financial-statement/978111 8999479/.
  • Rosener, J. B. (1990). Ways women lead. Harvard Business Review, 68(2), 119–125. https://doi.org/10.1007/978-90-481-9014-0_3
  • Sah, R., & Stiglitz, J. (1986). The architecture of economic systems: Hierarchies and polyarchies. The American Economics Review, 76(4), 716–727. Available at http:// www.jstor.org/stable/1806069.
  • Sah, R. K., & Stiglitz, J. E. (1991). The quality of managers in centralized versus decentralized organizations. The Quarterly Journal of Economics, 106(1), 289–295. https://doi.org/10.2307/2937917
  • Sánchez-Marín, G., Lucas-P´ erez, M. E., Baixauli-Soler, S., Main, B. G., & Mínguez-Vera, A. (2022). Excess executive compensation and corporate governance in the United Kingdom and Spain: A comparative analysis. Managerial and Decision Economics, 43 (7), 2817–2837. https://doi.org/10.1002/mde.3564
  • Sánchez-Vidal, J., Hern´ andez-Robles, M., & Mínguez-Vera, A. (2020). Financial conservatism fosters job creation during economic crises. Applied Economics, 52(45), 4913–4926. https://doi.org/10.1080/00036846.2020.1751053
  • Spanish Good Governance Code (2020). Comisi´ on Nacional del Mercado de Valores, Madrid. Retrieved from https://www.cnmv.es/DocPortal/Publicaciones/CodigoGo v/CBG_2020_ENen.PDF . Accessed July 4, 2023.
  • Tajfel, H., & andTurner, J. C. (2004). The social identity theory of intergroup behavior. In J. T. Jost, & J. Sidanius (Eds.), Political psychology: Key readings (pp. 276–293). London: Psychology Press. https://doi.org/10.4324/9780203505984-16.
  • Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1–19. https://doi.org/10.1111/j.1540-6261.1988. tb02585.x
  • Valls Martínez, M. C., Martín-Cervantes, P. A., & del Mar Miralles-Quir´os, M. (2022). Sustainable development and the limits of gender policies on corporate boards in Europe. A comparative analysis between developed and emerging markets. European Research on Management and Business Economics, 28(1), Article 100168. https://doi. org/10.1016/j.iedeen.2021.100168
  • Warner, J. B. (1977). Bankruptcy costs: Some evidence. The Journal of Finance, 32(2), 337–347. https://doi.org/10.2307/2326766
  • Watson, W. E., Kumar, K., & Michaelsen, L. K. (1993). Cultural diversity’s impact on interaction process and performance: Comparing homogeneous and diverse task groups. Academy of Management Journal, 36(3), 590–602. https://doi.org/10.2307/ 256593
  • World Bank. (2012). World development report 2012. Gender equality and development. Washington, D.C.: World Bank. Retrieved from https://openknowledge.worldbank. org/handle/10986/4391 Accessed October 4, 2022.
  • Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185–211. https://doi.org/10.1016/ 0304-405X(95)00844-5
  • Zarebski, P., & Dimovski, B. (2012). Determinants of capital structure of A-REITS and the global financial crisis. Pacific Rim Property Research Journal, 18(1), 3–19. https://doi. org/10.1080/14445921.2012.11104347