The association between board characteristics and the risk-adjusted return of South African companies
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ORIGINAL ARTICLE
The association between board characteristics and the risk‑adjusted return of South African companies Gerrit Kok1 · Cornelis H. van Schalkwyk2 · Elda Du Toit2 Received: 24 February 2020 / Accepted: 28 September 2020 © Springer Nature Limited 2020
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. Keywords Risk-adjusted return · Sharpe ratio · Diversity · Market-based · Binary logistic regression
Introduction “Where there is no counsel, the people fall; But in the multitude of counsellors there is safety.” (Proverbs 11:14KJV). Solomon may well have had a board of directors in mind when he wrote this proverb, as one of the board’s main purposes is to provide counsel to a company. Regulatory documents such as King IV and the literature on corporate governance recommend various characteristics to be included on a board of directors, to achieve appropriate levels of diversity, * Gerrit Kok [email protected] 1
Development of Southern Africa, P.O. Box 27073, Monument Park, Pretoria 0105, South Africa
Department of Financial Management, University of Pretoria – Hatfield Campus, Private Bag X20, Hatfield, Pretoria 0028, South Africa
2
independence, knowledge and experience. This is promoted to improve the functioning of the board and consequently improve company performance (Arzubiaga et al. 2018; Ferreira 2010; IoDSA 2
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