AN EMPIRICAL ANALYSIS OF THE RELATION BETWEEN BOARD
STRUCTURE AND FIRM VALUE : CASE STUDY OF THAI LISTED
COMPANIES IN SET 100
Sasivimol Meeamol, Kasetsart University, Thailand
fbussas@ku.ac.th
Vimol Rodpetch, Kasetsart University, Thailand
fbusvmr@ku.ac.th
Sarayut Rueangsuwan, Kasetsart University, Thailand
ome_17@hotmail.com
ABSTRACT
The objective of this study is to analyze the relationship of a firm value with the structure of
board members of firms that are listed in Thailand SET 100. The independence variables are
board size, percentage of independent director, percentage of financial or accounting
expertise in audit committee, independent chairman, CEO duality, and percentage of female
directors. The dependent variable is firm value which is estimated by using Tobin’s Q. The
data used for the analysis are from financial statement between the years 2007 to 2009.
There are 87 companies being investigated in this study. The study also excludes financial,
insurance, property fund, and banking sectors. The result suggests that the structure of board
members of a firm has the relationship with the value of a company and only CEO duality
that show the statistical significant.
Keywords : Corporate Governance, Thailand, Firm Value, Tobin’s Q, Board Structure
INTRODUCTION
Given the increasing importance of corporate governance in Thailand, many researches have
studied the role of corporate governance. Corporate governance consists of the set of
processes, customs, policies, laws and institutions affecting the way a corporation is directed,
administered or controlled. Corporate Governance also includes the relationships among the
many stakeholders involved and the goals for which the corporate is governed. Organization
for Economic Co-operation and Development (OECD, 2004) defines corporate governance as
the system by which business corporations are directed and controlled. The corporate
governance structure specifies the distribution of rights and responsibilities among different
participants in the corporation such as, the board, managers, shareholders and other
stakeholders, and spells out the rules and procedures for making decisions on corporate
affairs (Kajola, 2008). In conclusion, corporate performance structure comprises internal
control, market control, board control, corporate charter, law and regulation
About the Code of Corporate Goverance (2004) in the Thailand Securities and Exchange
Commission stated that the Board of Director is responsible for governing the firm through
an objective, independent check on its management. Solomon (2004) also Vander Bauwhede
& Willekens (2003) stated that there should be accurate and free-flowing information going
in and out of the board to promote a healthy, functioning corporate body; more than just
assuming responsibility for the financial statements. Fama and Jensen (1983) theorize that the
board of directors is the highest internal control mechanism responsible for monitoring the
actions of top management.
According to the meaning, principles and empirical research of corporate governance, those
illustrate the important of corporate governance to organization. In Thailand, corporate
governance is the concentrate area in the Securities and Exchange Commission (SEC) and the
Stock Exchange of Thailand (SET), both institutes have disbursed to corporate governance.
The SET focuses on internal control in improving its corporate governance of Thai firms,
especially on the structure of board of directors (Yammeesri and Herath, 2010).
Many empirical researches provide evidence about the important of including outside
directors on the board for purposes of monitoring management in agency problem. The
relation between board of director composition and firm value is particularly important to the
accounting profession. Fama’s (1980) and following research conducted by Fama and Jensen
(1983) also stated board composition and board of director’s recommendations propose that
having higher percentage of outside directors increases the board’s effectiveness as a monitor
of management. Fama and Jensen (1983) acknowledged that the board toned down the
agency problem by acting as advisors to the CEO and executive managers, and to be
boundary spanners in expanding the company linkage with the external environment, as well.
According to the limited local studies on this accounting phenomenon also the increased
importance of corporate governance in Thailand, this study empirically examines by
attempting to assess the role of corporate governance practices, particularly those involving
the structure of board of directors, in explanatory the firm value listed in the SET 100,
Thailand. This study intent to provide the beneficial results to several stakeholders for
bringing these knowledge to improve the feature of corporate governance.
THEORETICAL BACKGROUND AND DEVELOPMENT OF HYPOTHESES
A number of studies based on the relation between the structure of board of director and firm
value argued that the structure of board of directors have the relation with the firm value.
Various researches were conducted from a number of methodologies. The conceptual
framework of this study is identified in Appendix A.
According to the conceptual framework in appendix A, we define the structure or
characteristics of board of directors as independence variable and dependence variable is firm
value, which measure by using Tobin’s Q. Tobin’s Q is calculated in the period that fit with
the timeframe. Chung and Pruitt (1994) reported that Tobin’s Q measures firm performance
under decision making in asset investment.
The independence variables that fit with how to measure the broad structure in this study are
as follows: 1. Board Size, 2. Percentage of Independent Directors, 3. Percentage of Financial
or Accounting Expertise of Directors in Audit Committee, 4. Independent Chairman, 5. CEO
Duality, and 6. Percentage of Female Directors.
As mentioned, several independence variables are defined to examine the relation between
board structure and firm value: Case Study of Thai Listed Companies in SET 100, which
approaches from literature reviews, can be explained as follows:
1.
Board Size (BS): Board size is measured by using total board of director at the end of
period. Total board of director will examine whether it can increase the value added of the
firm. Pfeffer and Salancik (2003) suggested that the higher the number of directors, the
higher financial performance. These findings also matched with what Delton et al. (1999)
concluded that the number of the board members has correlations with financial performance
which includes accounting measurement and current market value. Moreover, the board
members also bring in outside expertise that can improve the effectiveness of a firm. The
information about the board members also gets published in the annual report. The hypothesis
is proposed as follows:
H1a: The Tobin’s Q of firm listed in SET 100 is positively associated with board size.
2.
Percentage of Independent Directors (ID): Percentage of independent directors is
measured as independent director to the entire number of board of director, it indicates
responsibility of directors to make sure that agency problem and the possibility of having
nominees may reduce (Beiner et al., 2006; Helland and Sykuta, 2005; Lee and Carlson,
2007). The hypothesis suggests the follow:
H1b: The Tobin’s Q of firm listed in SET 100 is positively associated with Percentage of
Independent Directors.
3.
Percentage of Financial or Accounting Expertise of Directors in Audit Committee
(FAE) : Carcello et. Al. (2006) and DeFond et al. (2004) suggest that the proportion between
numbers of financial or accounting expertise of directors in audit committee supports the
transparency and the competence of the company. Education background is used to
determine the qualification of experts. The hypothesis is as follow:
H1c: The Tobin’s Q of firm listed in SET 100 is positively associated with Percentage of
Financial or Accounting Expertise of Directors in Audit Committee.
4.
Independent Chairman (ID): Independent chairman who has no personal involvement
with the company prior joining the board is more likely to protect the benefit of an
organization. The chairman position that is held by an independent chairman would also
raise the visibility of practicing corporate governance. The information mentioned is also
published in the annual report or 56-1 form. The hypothesis is as follow:
H1d: The Tobin’s Q of firm listed in SET 100 is positively associated with Independent
Chairman.
5.
CEO Duality (CD) : Finkelstein and D’Aveni (1994) points out that if CEO has
multiple duties and assume double positions such as being a president and a CEO together at
the same time, it may encourage him to be able figure out the way to deceive the company.
The problem of CEO duality also complements with Mallette and Fowler (1992) about the
possibility of passing information to outsiders. Thus, segregation of duties principle is very
important for the company. The hypothesis is as follow:
H1e: The Tobin’s Q of firm listed in SET 100 is negative associated with CEO Duality.
6.
Percentage of Female Directors (FD) : Smith et al. (2006) suggests that multiple
genders allow company to increase competitiveness and lead to higher profit. Carter et al.
(2003) supports the idea and also conclude that different gender generate mechanism to
establish a check and balance system for a company. The following hypothesis is trying to
prove the extent to which the proportion of female directors has an effect on the profit and
market value of the company. The proportion of female and male director can also be seen in
the annual report. The hypothesis is as follow:
H1f: The Tobin’s Q of firm listed in SET 100 is positively associated with Percentage of
Female Directors.
In this study, the four control variables are defined in order to identify the specific impact of
board structure on firm value. The control variables use in this study, have also been included
in several researches in the literature.
1. Firm Size (FS): Firm Size is measured as the natural logarithm of book value of total
assest. Majummdar (1977) reported that there is a positive relation between firm size and
firm performance.
2. Gearing Ratio (GEAR): Gearing Ratio is measured as total liabilities divided by total
stockholder’s equity. Grossman and Hart (1982) and Jensen (1986) reported that leverage
(measured by total liabilities divided by total assets) shows the positive signal of firm
value and management.
3. Percentage of Sale Growth (SG): Percentage of Sale Growth is measured as the total
sales of the current year minus total sales of the previous year divided by total sale of
previous year. Mak and Kusnadi (2005) stated that sales growth is positively related to
firm value.
4. Lagged Return on Assets (ROA): Lagged Return on Assets is measured as operating
profit divided by average total assets. By the mean, average total assets are calculated as
average of total assets of current year and total assets of previous year.
According to dependence variable, independence variable and control variable, the regression
model is defined as follows:
Regression Model :
Qt   t  1BS t   2 IDt  3 FAEt   4 ICt  5CDt  6 FDt  7 FSt  8GEARt  9 SGt  10 ROAt 1   t
Where:
Qt
: Tobin’s Q in the period of firm i in year t (Tobin’s Q);
t
: Constant at time t (Constant);

: Coefficient of independence variables at time t or time t-1 (Coefficient);
BS
: Total board of director of firm i at time t (Board Size);
ID
: Percentage of independent directors divided by total board of director of firm i at
time t (% Independent Directors);
FAE : Percentage of financial or accounting expertise of directors divided by total board
of director of firm i at time t (% Financial or Accounting Expertise of Directors in
Audit Committee);
IC
: A Dummy variable which a value of one if chairman of firm is the independence
board and a value of zero otherwise, of firm i at time t (Independent Chairman) ;
CD
FD
: A Dummy variable which a value of one if there is not a spilt between chairman of
firm and CEO and a value of zero otherwise, of firm i at time t (CEO Duality);
: Percentage of female directors of firm i at time t (% Female Directors)
FS
: The natural logarithm of book value of total assets of firm i at time t (Firm Size)
GEAR : Total liabilities divided by total stockholder’s equity of firm i at time t (Gearing
Ratio)
SG
: Total sales of the current year minus total sales of the previous year divided by total
sale of previous year of firm i at time t (%Sale Growth)
ROA : Operating profit divided by average total assets of firm i at time t (Lagged Return on
Assets)
t
: Residual at time t (Error Terms)
RESEARCH DESIGN
In this study, the causal or explanatory approach will be applied. A cross-sectional analysis
will be conducted in this research. The sample size will be collected in Thailand SET 100
during year 2007-2009. Anyway the firms in the Banking, Insurance, Financing and Property
Fund sector will not be included in this study because the transactions of those industries will
be different to other industries. The data will be collected on December 29, 2009, total 80
firms, which have been shown in Appendix B. The secondary data is applied as source of
data in this study. Appendix C shows the details of source of secondary data such as the SET,
SEC, Website of listed firms, etc.
Focusing in measurement of variables for Regression model can explained as follows
(Appendix D):
BS : Total board of director at time t (Board Size), will be calculated by counting the number
of board of director shown in report 56-1 at the year ended under the title “board of director
and management team”
ID : Percentage of total independence director at time t (% Independent Directors), will be
calculated by counting the number of board of director and the number of independence
director, shown in report 56-1 at the year ended under the title “board of director and
management team”
According to SET regulation, independence director (or outside director) will have
outstanding share in that firm not more than 0.05%. Also independence director must not be
the management team, employee or advisors who have the fixed salary. Under SET
regulation, the listed firm must have at least 3 independence directors.
ID
=
Total independence director x 100
Total director
FAE : Percentage of financial or accounting expertise of directors in audit committee at time
t (% Financial or Accounting Expertise of Directors in Audit Committee), will be calculated
by counting the number of board of director and the number of financial or accounting
expertise of directors in audit committee, shown in report 56-1 at the year ended under the
title “board of director and management team”. Under SET regulation, the financial or
accounting expertise of directors in audit committee must have knowledge in financial or
accounting field must have at least a bachelor degree in financial or accounting, or have
experience in financial or accounting field.
FAE = Financial or accounting expertise of directors in audit committee x 100
Total audit committee
IC : Dummy variable which a value of one if chairman of firm is independence board and a
value of zero otherwise, at time t (Independent Chairman), will be calculated by checking
whether chairman of directors is independence board, which shown in report 56-1 at the year
ended under the title “board of director and management team”.
CD : Dummy variable which a value of one if there is not a spilt between chairman of firm
and CEO and a value of zero otherwise, of firm i at time t (CEO Duality), will be calculated
by checking whether there is not a spilt between chairman of firm and CEO, which shown in
report 56-1 at the year ended under the title “board of director and management team”.
FD : Percentage of female directors at time t (% Female Directors), will be calculated by
counting the number of board of director and the number of female directors, shown in report
56-1 at the year ended under the title “board of director and management team”.
FD
=
Percentage of female directors x 100
Total directors
Q : According to theory of Tobin’s Q, Lindenberg and Ross (1981) studied about the
valuation, they stated that the firm valuation can measure with market value of stock. Chung
and Pruitt (1994) defined to calculate Tobin’s Q as market value of firm, they stated that
Tobin’s Q is measured as market value of common stock (market price of common stock
multiply outstanding share volume) plus market value of preferred stock and market value of
liabilities, also book value of assets will be used instead of replacement cost.
( MP  OSV )  MV p / s  MVl
Q
BVa
Where:
MP : Market Price of common stock
OSV : Outstanding Share Volume
MV p / s : Market Value of Preferred Stock
MVl
: Market Value of Liabilities
BVa
: Book Value of Assets
DATA ANALYSIS
The statistic used in this study consists of descriptive statistics, which are Mean and Standard
Deviation, Pearson’s Product Moment Correlation Coefficient, Inferential Statistics with
Multiple Regression Analysis, shown in Appendix E.
EMPIRICAL RESULTS
Table 1 presents descriptive statistics of the variables which average for 3 years. The results
show that the mean for 3 years of Tobin’s Q is 1.36, minimum is 0.34 and maximum is 7.20.
Average total number of board size is 12, which the maximum is 18 whereas the minimum is
5. Average percentage of total independence director is 3 8 , which shown the maximum 80
and the minimum is 1 8 . When focus on percentage of financial or accounting expertise of
directors in audit committee, it shows the average is 34. Also when concentrate on percentage
of chairman of firm is independence board, the average shows 36.5. Whereas the descriptive
statistic shows the average percentage is 9.6 when there is not a spilt between chairman of
firm and CEO. About average of percentage of female directors is shown 10.4.
Focusing on control variables, the statistic shows that average ROA is 10.7, whereas the
maximum is 55 percent and the minimum is minus 22 percent. Average market value of total
assets is 54,839 million baht. The gearing ratio which is measured as total liabilities divided
by total stockholder’s equity and the average sales growth are 1.32 percent and 9.6 percent,
respectively.
Table 1: Descriptive statistics, average for 3 years (2007-2009).
(N = 249)
Variables
Q
BS
ID
FAE
IC
CD
FD
ROA
FSMB
GEAR
SG
Variable Description
Tobin’s Q
Board Size (Number)
% Independent Directors
% Financial or Accounting Expertise of
Directors in Audit Committee
% Independent Chairman
% CEO Duality
% Female Directors
% Lagged Return on Assets (2006-2008)
Firm Size (Book Value of Total Assets) (million
bath)
Gearing Ratio
% Sale Growth
Min
Max
Mean
Std. Dev.
0.34
5
18
0
7.20
18
80
100
1.36
12
38
34
0.81
2.5
12.5
26.0
0
0
0
- 22
2,018
100
100
38
55
1,103,589
36.5
9.6
10.4
10.7
54,839
48.3
29.6
9.7
10.2
115,806
0
-60
16.83
369
1.32
9.6
1.57
39.89
Appendix F presents descriptive statistics of the variable for each year during year 20072009. It shows the Tobin’s Q is 1.61, 1.08 and 1.07 for year 2007-2009, respectively.
Average number of board size for each year is 12 persons, the maximum of every year is 18,
whereas the minimum of year 2008 and year 2009 is 6 person and the minimum of year 2007
is 5. The average percentage of independence director of year 2007, 2008 and 2009 are 36.7,
38.5 and 38.7 percent, respectively. The minimum of percentage of independence director in
year 2007 is 19 percent and the maximum is 69 percent. Whereas the maximum and the
minimum of percentage of independence director in year 2008 and 2009 is equal, the
minimum is 18 percent and the maximum is 73 percent.
Focusing on average percentage of financial or accounting expertise of directors in audit
committee of year 2007, 2008 and 2009 are 35.6, 33.6 and 33.6, respectively. Whereas, the
maximum and the minimum is 100 percent and zero percent is equal for all years. For
average percentage of chairman of firm is independence board of year 2007, 2008 and 2009
are 33.8, 36.9 and 36.5, which the maximum and the minimum is 100 percent and zero
percent, which is equal for all years. The descriptive statistic shows the average percentage of
year 2007, 2008 and 2009 are 10.0, 9.5 and 9.3 when there is not a spilt between chairman of
firm and CEO which the maximum and the minimum is 100 percent and zero percent, which
is equal for all years. About average of percentage of female directors of year 2007, 2008 and
2009 are 10.7, 10.2 and 10.4, which the maximum and the minimum is 38 percent and zero
percent, which is equal for all years.
Focusing on control variables, the statistic shows that average ROA of year 2006, 2007 and
2008 are 12.2, 11.9 and 9.6, whereas the maximum of year 2006, 2007 and 2008 are 38.0,
42.0 and 55.0, whereas the minimum of year 2006, 2007 and 2008 are -12, -3 and -22
percent. Average market value of total assets of year 2007, 2008 and 2009 are 51,216 million
baht, 54,839 million baht and 53,262 million baht, whereas the maximum of year 2007, 2008
and 2009 are 891,524 million baht, 885,192 million baht and 1,103,589 million baht,
respectively. The minimum of year 2007, 2008 and 2009 are 2,018 million baht, 2,935
million baht and 2,582 million baht, respectively. The average gearing ratio which is
measured as total liabilities divided by total stockholder’s equity of year 2007, 2008 and 2009
are 1.30, 1.39 and 1.38 percent, respectively. Whereas the maximum and the minimum of
year 2008 and 2009 are equal, which are 16.83 and 11.10 percent. The maximum and the
minimum of gearing ratio of year 2007 are 11.46 and 0.07. Finally, the control variable which
is the percentage of sale growth, the average of year 2006, 2007 and 2008 are 13.17, 16.06
and 15.82. Whereas the maximum and the minimum of year 2008 and 2009 are equal, which
are 369 and - 60 percent. The maximum and the minimum of average percentage of sale
growth of year 2007 are 300 and - 36 percent.
Before testing for the Multiple Regression Analysis, we need to test correlation between all
variables in order to check for auto-correlation, singularity and multicollinearity. Table 2
shows correlation coefficients for 3 years (year 2007- year 2009). It shows that there is no
correlation among testing variables.
Table 2: Correlation Coefficients for 3 years (year 2007- 2009).
Q
BS
ID
FAE
IC
CD
FD
BS
ID
FAE
IC
CD
FD
ROA
FS
GEAR
SG
Variables
Q
BS
ID
FAE
IC
CD
FD
ROA
FS
GEAR
SG
-0.099
-0.078
-0.002
-0.116
0.200
-0.099
0.598
-0.033
-0.093
-0.007
ROA
FSMB
GEAR
1.000
-0.175 1.000
-0.206 0.146 1.000
-0.059 0.363 0.105 1.000
-0.151 -0.147 -0.037 -0.248 1.000
-0.136 0.122 0.167 0.214 0.002 1.000
-0.183 0.100 0.021 -0.044 0.104 -0.029 1.000
0.273 0.281 -0.009 -0.121 -0.079 -0.028 -0.009
0.203 -0.149 -0.024 -0.085 -0.084 -0.125 -0.232
-0.113 0.054 0.090 0.040 0.069 0.052 0.124
1.000
0.086
-0.040
1.000
0.023
Variable Description
Tobin’s Q
Board Size
% Independent Directors
% Financial or Accounting Expertise of Directors in Audit Committee
Independent Chairman (%)
CEO Duality (%)
% Female Directors
Lagged Return on Assets (%)
Firm Size (Book Value of Total Assets)
Gearing Ratio
% Sale Growth
Moreover, we test the error of data. The histogram figure indicates that the distribution is
abnormal. The probability plot has deviation. Besides, this study uses Durbin-Watson Test
for checking autocorrelation, the Durbin-Watson Test shows d = 1.743. It means there is
degree of freedom among the variables. For testing regression standardized residual with
regression standardized predicted value, the results states that there is no pattern on plots.
Multicollinearity also is tested, all independence variables shows that all VIF is less than 5, it
means board size, percentage of independent directors, percentage of financial or accounting
expertise of directors in audit committee, percentage of independent chairman, CEO Duality
(%) and percentage of female directors do not relate for each other.
Table 3 and table 4 shows the result of pooled - data Multiple Regression Analysis (R Square
= 0.406), stated that independence variables have significant influence to dependence
variable (p = 0.000, which is less than 0.05). In other word, board structure has an influence
on a firm value.
Focusing on coefficient between dependence variable and independence variable, we find
that CEO Duality and Lagged Return on Assets have significant ( p = 0.014 and p = 0.000,
which is less than 0.05, respectively), whereas, the other independence variables do not show
the significant statistic and the incremental significant.
Results from the multiple regression shows that there are 3 variables consistent with H1, the
coefficient on board Size (BS), percentage of financial or accounting expertise of directors in
audit committee (FAE)) continue to be positive and significant (p < 0.05). Whereas, the
hypothesis about CEO duality (CD), which there is not a spilt between chairman of firm and
CEO, is not consistent with H1, it means that there is positively relation between Tobin’s Q
and CEO duality at level 0.05.
Furthermore, the Tobin’s Q is negatively relation with percentage of independent directors
(ID), independent chairman (IC) and percentage of female directors (FD), which these
hypotheses will be rejected at level 0.05. Whereas, the Tobin’s Q is positively relation with
lagged return on assets (ROA) and Gearing Ratio (GEAR), which are control variables. The
Tobin’s Q is negatively relation with percentage of sale growth (SG) and Firm Size (FS).
However, the regression model with dependence variable and independence variables without
including 4 control variables in the model indicates that one hypothesis is rejected
(Hypothesis H1e), which means there is a positively relation between Tobin’s Q and CEO
Duality (CD). This findings suggests that CEO who is also acting as a chairman has the
influential effect on the firm value.
Moreover, the result of regression model with 4 control variables indicates that two
hypotheses are rejected. The two hypotheses are H1d and H1e. There is positively relation
between Tobin’s Q and CEO Duality (CD) but negatively relation between Tobin’s Q and
percentage of Independent Directors (ID).
According to the regression analysis for each year, the results of regression analysis of year
2007 and 2009 have a statistic significant at 0.05. The result of regression analysis of year
2007 and year 2009 shows the similar findings with pooled - data regression.
Table 3: Summary of Regression Results .
Sum of
Mean
Model
Squares
df
Square
F
Sig.
.000a
1
Regression
66.230
10
6.623
16.273
Residual
96.866
238
.407
Total
163.096
248
a) Predictors : (constant), BS, ID, FAE, IC, CD, FD, ROA, FS, GEAR, SG
Table 4: Regression Results for 3 year (year 2007- year 2009).
Coefficient
Constant
BS
ID
FAE
IC
CD
FD
ROA
FS
GEAR
SG
R2 = 0.406
*Significant level .05
1.816
0.011
-0.092
0.024
-0.005
0.132
-0.072
0.603
-0.048
0.044
-0.088
t-statistic
2.004*
0.180
-1.593
0.463
-0.089
2.486*
-1.353
11.224*
-0.812
0.822
-1.724
IMPLICATION TO RESEARCH RESULTS
For Pooled-Data result, R Square is equal to 0.406. Considering this result with our
hypotheses, the findings, using F-test, suggest that there is statistical significant difference.
However, if we consider the coefficient parameters of each variable, the results show that
only one selected variable, CEO Duality, has the effect to the value of a company (p-value =
.014 ). Using t-test, findings show there is negatively statistical significant different. The
outcome suggests that the CEO who is also acting as a chairman of a company can influence
the way the firm is run. The objective of a company would also be fulfilling if the two
positions are held by the same person. This finding is similar with Anderson and Anthony
(1986). The result also indicate the larger the company, the more benefit and lose if a
company has the leader that held two position as CEO and chairman (Brickley et al. 1997). In
conclusion, the reverse relationship between CEO Duality and Firm value happen and no
statistical significance for these other variables.
The results shows that there is no statistical significant in board size, Mak and Kusnadi
(2005) also supported the idea that more board of directors will not increase financial
performance. Their findings stated that co-operation will be problematical if there is more
board of directors. They also argue that it is not guarantee that more board of directors will
generate financial performance.
For the percent of independent directors and percentage of financial or accounting expertise
of directors in audit committee, the board member with freedom to make any decisions
without involving self interested may not reflect the higher revenue than those that have less
independent directors. One explanation of this outcome is the degree of freedom that
independent director have in making decisions. For the number of independent directors, the
right amount depends on the work or expertise that the firm may request from these directors.
Moreover, the agency theory also suggests that the independent directors should not hold
more than 0.05 percent of stock. That said, this group of directors might not contribute to the
price of a company stock. Bhagat and Black (2002) also concluded that a firm that has
independent directors may not have anything to do with a company stock price.
The results shows that the independence chairman is no statistical significant. Donaldson and
Davis (1991) also supported the idea that independent director who serves as CEO is more
likely to help increase the productivity of a company. There is also no statistical significant
between male and female director. Williams and O’Reilly (1998) suggested that to have
directors from both sex would not allow better communication and will increase the
emotional judgment. Lau and Murnighan (1998) argued that the higher the numbers of
different sex in the board the higher the possibility of having the longer discussion and time
need to make decision.
CONCLUSION
The findings of this study suggest that structure of board of director has a direct effect on the
value of a firm. The result suggests that CEO duality has a incremental significant.
Nevertheless, we can conclude that CEO Duality has positive relationship with the value of a
firm while other variables have no influence to the firm’s value. However, the regulator that
is responsible for set up the rule and regulation should apply the board structure concept. The
results of this project can enhance the company performance. The future research should
focus on the relationship among other independent variables, and concentrate more on how
the structure of a board of director is form and the method to measure firm value.
REFERENCES
1. Anderson, C. A., & Anthony, R.N. (1986). The New Corporate Directors. New York:
Wiley.
2. Banderlipe II, M.S. (2009). The Impact of Selected Corporate Governance Variables in
Mitigating Earnings Management in the Philippines. Business&Economics Review,
19(1), 17-27.
3. Beasley, M.S. (1996). An Empirical Analysis of the Relation Between the Board of
Director Composition and Financial Statement Fraud. The Accounting Review, 71(4).
4. Beiner, S., Drobetz, W., Schmid, M.M., & Zimmermann, H. (2006). An Integrated
Framework of Corporate Governance and Firm Valuation. The Journal of European
Financial Management, 12(2), 249-283.
5. Bhagat, S., & Black, B. (2002). The Non-Correlation Between Board Independence and
Long-Term Firm Performance. Journal of Corporate Law, 27, 231-273.
6. Brickley, J.A., Coles, J.L., & Jarrell, G. (1997). Leadership Structure: Separating the
CEO and Chairman of the Board. Journal of Corporate Finance, 3(3), 189-220.
7. Carcello, J.V., Hollingsworth, C.W., Klein, A., & Neal, T.L. (2006). Audit Committee
Financial Expertise, Competing Corporate Governance Mechanisms, and Earnings
Management. Working paper, The University of Tennessee, Tennessee.
8. Carter, D. A., Simkins, B.J., & Simpson, W.G. (2003). Corporate Governance, Board
Diversity, and Firm Value. Financial Review, 38, 33–53.
9. Chung, H., & Pruitt, W. (1994). A Simple Approximation of Tobin’s Q. Financial
Management, 23, 70-74.
10. Delton, D., Daily, C., Johnson, J., & Ellstrand, A. (1999). Number of directors and
financial performance: a meta-analysis. Academy of Management Journal, 42( 6) , 674686.
11. Donaldson, L., & Davis, J.H. (1991). Stewardship theory or agency theory: CEO
governance and share- holder returns. Australian Journal of Management, 16, 49-64.
12. Finkelstein, S., & D’Aveni, R. (1994), CEO duality as a double-edge sward: how board
of directors balance entrenchment avoidance and unity of command. Academy of
Management Journal, 37(5), 1079-1108.
13. Helland, E., & Sykuta, M. (2005). Who’s Monitoring the Monitor? Do Outside Directors
Protect Shareholders’ Interests?. The Financial Review, 40, 155-172.
14. Kajola, S.O. (2008). Corporate Governance and Firm Performance: The Case of Nigerian
Listed Firms.European Journal of Economics Finance and Administrative Sciences, 14.
15. Kouwenberg, R. (2006). Does Voluntary Corporate Governance Code Adoption Increase
Firm Valuation in Emerging Markets? Evidence from Thailand. College of Management,
Mahidol University, Thailand.
16. Lau, D.C., & Murnighan, J.K. (1998). Demographic Diversity and Faultlines: The
Compositional Dynamics of Organizational Groups. Academy of Management Review,
23, 325–340.
17. Lee, S.K., & Carlson, L.R. (2007). The Changing Board of Directors: Board
Independence in S&P 500 Firms. Journal of Organizational Culture, Communication and
Conflict, 11(1), 31-41.
18. Lindenberg, E.B., & Ross, S.A. (1981). Tobin’s Q Ratio and Industrial Organization. The
Journal of Business, 54(1), 1-32.
19. Mak, Y., & Kusnadi, Y. (2005). Size Really Matters: Further Evidence on the Negative
Relationship Between Board Size and Firm Value. Pacific-Basin Finance Journal, 13,
301-318.
20. Mallette, P., & Fowler, L. (1992). Effects of board composition and stock ownership on
the adoption of poison pills. Academy of Management Journal, 35(5), 1010-1035.
21. Mark, L.D., Rebeccan, N.H., & Xuesong, H. (2005). Does the Market Value Financial
Expertise on Audit Committees of Boards of Directors?. Journal of Accounting Research,
43(2).
22. Pfeffer, J., & Salancik, G. (2003). The External Control of Organizations: A Resource
Dependence Perspective. Stanford, CA: Stanford Business Books.
23. Smith, N., Smith, V., & Verner, M. (2006). Do Women in Top Management Affect Firm
Performance? A Panel Study of 2,500 Danish Firms. International Journal of Productivity
and Performance Management, 55, 569–593.
24. Solomon, J., & Solomon, A. (2004). Corporate Governance and Accountability. West
Sussex : John Wiley & Sons.
25. Williams, K., & O’Reilly, C. (1998). Forty Years of Diversity Research: A Review, in B.
M. Staw and L. L. Cummings (eds.). Research in Organizational Behavior, 77–140.
26. Yammeesri, J., & Kanthi Herath, S. (2010). Board Characteristics and Corporate Value:
evidence from Thailand. Corporate Governance, 10(3).
Independence Variable
Appendix A
Dependence Variable
Board Structure
- Board Size
- % Independent Directors
- % Financial or
Accounting Expertise of
Directors in Audit
Committee
Firm Value
- Tobin’s Q
- Independent Chairman
- CEO Duality
- % Female Directors
Figure 1 : Conceptual framework
Appendix B
Classified Listed Company accordance to the sector in SET 100, as of December 29,2007
Sector
No. of Company
Agriculture
2
Automotive
1
Construction Materials
9
Commerce
6
Electronics
4
Energy and Utility
14
Food and Beverage
5
Health Care Services
3
Home & Office Products
1
Industrial Materials & Machinery
3
Information Communication and Technology
7
Media & Publishing
3
Mining
1
Packaging
0
Petrochemical
2
Property
17
Tourism & Leisure
1
Transportation & Logistics
8
Total
87
Type of Variable
Independence
Variable
Dependence
Variable
Appendix C
Dependence Variable and Independence Variable
Variable
Symbol
Measurement
BS
Ratio Scale
Form 56-1 , Annual
report (SEC)
ID
Ratio Scale
Form 56-1 , Annual
report (SEC)
FAE
Ratio Scale
IC
Nominal Scale
CD
Nominal Scale
FD
Ratio Scale
Tobin’s Q
Ratio Scale
Board
Structure
Firm Value
Source of data
Form 56-1 , Annual
report (SEC)
Form 56-1 , Annual
report (SEC)
Form 56-1 , Annual
report (SEC)
Form 56-1 , Annual
report (SEC)
Form 56-1 , Annual
report
(SEC),SETSMART
Appendix D
Statistic Test
Statistic
No.
Hypothesis
1
Hypothesis
2
Hypothesis
3
Hypothesis
4
Hypothesis
5
Hypothesis
6
Hypotheses
The Tobin’s Q of firm listed in SET
100 is positively associated with Board
size.
The Tobin’s Q of firm listed in SET 100
is positively associated with Percentage
of Independent Directors.
The Tobin’s Q of firm listed in SET 100
is positively associated with Percentage
of Financial or Accounting Expertise of
Directors in Audit Committee.
The Tobin’s Q of firm listed in SET 100
is positively associated with
Independent Chairman.
The Tobin’s Q of firm listed in SET 100
is negative associated with CEO
Duality.
The Tobin’s Q of firm listed in SET 100
is positively associated with Percentage
of Female Directors.
Correlation
Coefficient
Multiple
Regression
Analysis












Source of
secondary data
SEC, SET
SEC, SET
SET
Appendix E
Details of source of secondary data
Type of source of secondary
Type of data
data
 Book value of preferred stock
 Additional paid in capital –
preferred stock
 Stockholder’s equity
 Outstanding common stock
 Report of 56-1 year
volume
2007-2009
 Total liabilities
 Financial statement year
 Total assets
2007-2009
 Total revenue
 Operating profit
 No. of outstanding common
stock as of the year ended , year
2007-2009
 Percentage of independence
director
 Percentage of financial or
accounting expertise of
directors in audit committee

Percentage of female directors
 Report of 56-1 year

Total independence director
2007-2009
 Total board of director
 Annual report year 2007 No. Audit committee
2009
 No. Female directors
 No. of financial or accounting
expertise of directors in audit
committee
 Details of chairman
 Details of CEO
 Stock price of common stock
SET SMART
at the year ended during year
2007-2009
Variables
Appendix F
Descriptive statistics for each year, during year 2007 - 2009
(N07 = 80, N08 = 84, N09 = 86)
Variable Description
Min
Max
Mean
Q07
Q08
Q09
Tobin’s Q – Year 2007
Tobin’s Q – Year 2008
Tobin’s Q – Year 2009
BS07
BS08
BS09
Board Size – Year 2007 (Number)
Board Size – Year 2008 (Number)
Board Size – Year 2009 (Number)
ID07
ID08
ID09
Independent Directors – Year 2007 (%)
Independent Directors – Year 2008 (%)
Independent Directors – Year 2009 (%)
FAE07
FAE08
FAE09
IC07
IC08
IC09
Std.
Dev.
0. 43
0.34
0.34
7.20
4.73
4.73
1.61
1.08
1.07
0.92
0.60
0.60
5
6
6
18
18
18
12
12
12
2.5
2.5
2.5
19.0
18.0
18.0
69.0
73.0
73.0
36.7
38.5
38.7
12.4
12.7
12.8
Financial or Accounting Expertise of Directors in
Audit Committee – Year 2007 (%)
Financial or Accounting Expertise of Directors in
Audit Committee – Year 2008 (%)
Financial or Accounting Expertise of Directors in
Audit Committee – Year 2009 (%)
0
0
0
100
100
100
35.6
33.6
33.6
27.4
25.9
25.8
Independent Chairman – Year 2007 (%)
Independent Chairman – Year 2008 (%)
Independent Chairman – Year 2009 (%)
0
0
0
100
100
100
33.8
36.9
36.5
47.6
48.5
48.4
0
0
0
0
0
0
100
100
100
38.0
38.0
38.0
10.0
9.5
9.3
10.7
10.2
10.4
30.2
29.5
29.2
10.1
9.5
9.8
CD07
CD08
CD09
FD07
FD08
FD09
CEO Duality – Year 2007 (%)
CEO Duality – Year 2008 (%)
CEO Duality – Year 2009 (%)
Female Directors – Year 2007 (%)
Female Directors – Year 2008 (%)
Female Directors – Year 2009 (%)
ROA06
ROA07
ROA08
Lagged Return on Assets – Year 2006 (%)
Lagged Return on Assets – Year 2007 (%)
Lagged Return on Assets – Year 2008 (%)
-12.0
-3.0
-22.0
38.0
42.0
55.0
12.2
11.9
9.6
9.0
7.7
11.6
FSMB07
FSMB08
FSMB09
Firm Size (Book Value of Total Assets) – Year
2007 (million bath)
Firm Size (Book Value of Total Assets) – Year
2008 (million bath)
Firm Size (Book Value of Total Assets) – Year
2009 (million bath)
2,018
2,94..
2,935
891,524
885,….
885,192
51,216
54,…..
53,262
109,237
107,56..
106,416
GEAR07
GEAR08
GEAR09
Gearing Ratio – Year 2007
Gearing Ratio – Year 2008
Gearing Ratio – Year 2009
0.07
0.11
0.11
11.46
16.83
16.83
1.30
1.39
1.38
1.51
1.89
1.87
SG07
SG08
SG09
Sale Growth – Year 2007 (%)
Sale Growth – Year 2008 (%)
Sale Growth – Year 2009 (%)
-36.0
-60.0
-60.0
300.0
369.0
369.0
13.17
16.06
15.82
38.93
49.93
49.37