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

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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.

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Authors and Affiliations

  1. Development of Southern Africa, P.O. Box 27073, Monument Park, Pretoria, 0105, South Africa

    Gerrit Kok

  2. Department of Financial Management, University of Pretoria – Hatfield Campus, Private Bag X20, Hatfield, Pretoria, 0028, South Africa

    Cornelis H. van Schalkwyk & Elda Du Toit

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  1. Gerrit Kok
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Kok, G., van Schalkwyk, C.H. & Du Toit, E. The association between board characteristics and the risk-adjusted return of South African companies. Int J Discl Gov 18, 58–70 (2021). https://doi.org/10.1057/s41310-020-00096-9

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