Corporate governance structures and firm performance in large agriculture companies in New Zealand

Pages987-1006
Published date01 October 2018
DOIhttps://doi.org/10.1108/CG-07-2018-0241
Date01 October 2018
AuthorJamal Roudaki
Subject MatterStrategy,Corporate governance
Corporate governance structures and rm
performance in large agriculture
companies in New Zealand
Jamal Roudaki
Abstract
Purpose This study aims to explore the role of corporate governance (CG) characteristics on the
financialperformance of large agricultural companiesin New Zealand. External auditor remunerationand
board characteristics,such as board ownership, board compensation,board independence and board
gender diversity, are addressed in the context of New Zealand’s agricultural companies by applying
agencytheory.
Design/methodology/approach This paper uses a balanced panel data generalised least square
regressionanalysis on 80 firm-years of observationsover the period from 2012 to 2015.
Findings Empirical analysis revealed thatexternal auditors’ remuneration and board characteristics,
such as board compensationand board independence, except for board ownership and board gender
diversity, held no associationwith the agricultural companies’ performance.While board ownership and
board genderdiversity were negatively, but significantly,associated with firm performance,these results
were pronouncedin the listed agricultural companiesrather than in the non-listed companies.
Research limitations/implications This study encounteredlimitations commonly associated with the
majority of industry-specific studies, i.e. small sample size and lack of published financial information
from databases.Therefore, for generalisation,these limitations were considered relevant.
Practical implications The resultsof this research project are beneficial forauthorities and agricultural
company directors in implementing CG principles and guidelines to empower such companies in
internationalcompetition. Encouraging agricultural companiesto maintain a high level of transparency in
financial reporting is of central interest for the government’s economicdevelopment, and stock market
investors achieve a high level of transparency in non-financial disclosures, the chief objective of this
study. Finally, the results of this paper may encourage auditors to scrutinise CG disclosures by
agriculturalcompanies in more detail, lookingfor undisclosed information.
Social implications The results of this paper may encourage managerial transparency by providing
appropriate disclosuresfor the public benefit. Investorsmay benefit from the disclosure provided intheir
economic decision-making and the public may expand on the information disclosed in facilitating
developmentthrough exports, expansion of foreigninvestments and the indigenous economy.
Originality/value The findings contributeto the literature by providing novel and original insights into
using a sample of listedand non-listed agricultural companiesto extend the current understanding of the
governance-performancenexus.
Keywords Financial performance, Accounting, Financial reporting,Corporate governance
Paper type Research paper
Introduction
The newly established New Zealand Exchange (NZX) amended the listing rules in 2003 to
tidy up its listing requirements. Therefore, the Securities Commission of New Zealand
published Corporate Governance Principles and Guidelines in 2004. The capital market
authorities have started to align with the latest international developments by considering
the adaptation of corporate governance (CG) principles and guidelines (Keeper, 2012). In
Jamal Roudaki is Senior
Lecturer at the Faculty of
Agribusiness and
Commerce, Lincoln
University, Christchurch,
New Zealand.
Received 25 July 2018
Accepted 25 July 2018
DOI 10.1108/CG-07-2018-0241 VOL. 18 NO. 5 2018, pp. 987-1006, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 987
this process, the Securities Commission attempted to enhance the capital market battling
for the upper hand against international competition in the financial and commodity
exporting markets (Securities Commission of New Zealand, 2002). Agricultural companies
are at the top of the list for enhancing their market competition, as they are the most
important players in New Zealand’sindigenous and consumer products’ export markets.
The performance of companies is subject to scrutiny from various stakeholders headed by
stockholders, then investors, customers and suppliers, to name those of high priority from a
long list of stakeholders. Enteringand staying in global competition required market players
with the highest CG performance and ability to remove barriers for their companies’
business activities from operating, financing and investing. The financial and CG
performance of a company is vital for inviting investors, customer, and suppliers from all
over the globe (Al-Matari et al.,2014). As such, New Zealand company managers are held
responsible and accountable for enhancing a firm’s performance (FP) to be successful in
the competitive international market. The literature on CG advocacy suggests that, among
others, the implementation of CG principles and guidelines is one of the most important
recipes for success in strategicplanning.
Implementation of corporate governance codes (CGCs) by a company’s management
signals to the stakeholder safe and sound management in public and private companies.
Consequently, agency theory, which is rooted in the separation of managers and owners
(Bhimani et al., 2008) in the era after huge corporate scandals, enters a new phase of
development. Based on the important impacts of the agency theory in defining the
relationships (or conflicts of interest) between companies’ management and stakeholders,
at large, CGCs contributed to finding a solution while protecting the interests of
stockholders, promoted managerial performance and firm profitability, aiming to enhance
shareholders’ wealth while giving an upper hand to the company in the competitive global
market. The literature about implementing CGCs is overwhelming from empirical studies
that elaborated the relationship among these internal company players. Alongside the
agency theory, other theories, such as stewardship, stakeholders, politics and
dependency, are considered as the basic assumptions about developing CGCs (Abdullah
and Valentine, 2009).
Reddy’s (2010) findings indicate a strong relationship between CG compliance and FP
in the context of large and small New Zealand companies. Therefore, this research
takes into account the role of CG regulations (guidelines) on the performance of
agricultural companies in the context of New Zealand’s large agricultural companies.
The agency relationship has a marvellous considerable impact in recruiting CGC in
running the company smoothly. The common assumption that the small- and medium-
size companies consider the large companies as a role model justifies concentrating on
large companies.
This study is a continuing research project about the quality of CG disclosures in New
Zealand’s agricultural companies(Roudaki and Shahwan, 2017). Content analysis revealed
that, on average, in NZ agricultural companies, CG disclosures are on the low side. This
lower level of CG disclosure motivated the present research to explore the contributing
factors by extending the previous research project. To do so, this research establishedtwo
objectives: first, it compares the findings of Roudaki and Shahwan’s (2017) CG disclosure
scores with the financial attributes of the same NZ agriculture firms; and second, it
examines the impact of CG characteristics on firms’ financial performance by drawing on
the agency theory framework.
The findings reveal that external auditor remuneration and board characteristics, such as
board compensation and board independence, except for board ownership and board
gender diversity, hold no association with agricultural companies’ performance. However,
the study found that board ownership and board gender diversity are negatively, but
PAGE 988 jCORPORATE GOVERNANCE jVOL. 18 NO. 5 2018

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