Research Regarding The Board Of Directors Composition Finance Essay
Research Regarding The Board Of Directors Composition. Banks are all similarly confronted with particular regulations and inspections of banking supervisions. Within this topic, the board of directors plays an important role. There are different factors considering how the composition of a board might influence its performance and the decision-making process. Therefore, factors like independence, age structure, percentage of minorities and women and the size of the board will be analyzed. After determining the composition, the influence of it on the percentage of equity financing and therefore the risk propensity will be analyzed. Furthermore, the composition will also be linked to performance indicators as Return on Assets (ROA), Return on Equity (ROE), and the development of stock quotations.
3.1. Corporate Governance
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Get Help Now!The term corporate governance describes processes through which an organization is controlled and directed. Those structures specify which rights and duties certain participants in a company have and how the decision-making process works. This mostly affects the board of directors, the top management team (TMT) as well as shareholders and other stakeholders (OECD, 2005).
Corporate governance is concerned with the possible abuse of power of the managers and the need for certain qualities like openness, integrity and accountability during the whole decision-making process. As shown in Figure 3.1, it also examines how certain mechanisms, including incentives, can help to minimize transactions costs that arise in an organization between principals and agents as described in the agency theory below (Mathiesen, 2002).
3.2 Structure of the Board of Directors
The members of the board are generally elected by the shareholders and their responsibilities vary with the nature and the complexity of the organization. However, there are two different systems regarding the boards of directors. On the one hand there is the Anglo-Saxon system in countries like the United States and Japan (12Manage: The Executive Fast track, 2008). This consists of a one-tier board structure, where executive and non-executive directors work together in the board of directors (Weimer and Pape, 1999). This single board is usually entirely appointed by the shareholders and the CEO often also holds the board chair (12Manage: The Executive Fast track, 2008).
On the other hand, in countries like Germany and the Netherlands, companies have adopted a two-tier board structure. There, the board is divided int
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