This study examines small business owners at small firms in Västerbotten’s perception on board composition, board diversity and the role of the board together with its impact on firm performance. We were interested in knowing what kind of characteristics these firms are looking for in their board composition and explore their attitudes towards their choice ofinside or outside directors, and also the impact of homogeneity and heterogeneity in theboard. Further, we wanted to examine the general role of the board in small firms and get insight on whether the small business owners believe this had any impact on firm performance or not. The subject of board of directors can be found within the field of corporate governance, in which it has a central role. Existing literature on the subject left a gap of knowledge on board of directors in small firms, from which the opportunity of research was found. Since a vast amount of firms on the Swedish market are small firms, this subject is of significant meaning for understanding and gaining insight into how small business owners in these firms view the board of directors. To get a deeper view into the subject we explored if any differences were detectable between three different industries, and the selected industries were; IT, transportation and construction. This qualitative study was conducted by using a semi-structured interview technique. The objectives of having a qualitative study was to obtain in-depth understandings and perceptions from the participants in order to answer our research questions; What kind of characteristics are small business owners looking for when selecting new board members, what type of different resources can different types of directors bring, and what impact do small business owners believe this has on firms’ performance? The findings from this study revealed that small business owners at small firms in Västerbotten did not value and use the board in the same extent as larger firms had been found to do in other empirical studies. However, indications were found among our sample that small firms in the IT industry uses their boards in another way than other firms do. Moreover, it was of common occurrence that small firms only have one singe director on their boards both due to that they have a board solely due to legal reasons and also due to that the owners, which is also the directors in these firms, does not want to reduce their level of control over the firm. Overall, the impression from the participants’ perceptions and views were that the board was not used in the way it could be and that for many small firms the costof recruiting more directors is too high.

In recent years the field of corporate governance has been characterized by an increasing effort to gain a better understanding of the role of boards for the financial performance of a firm. The present study thereby searches to build upon the small but growing literature that focuses particularly on boards in a two-tier system. It extends the current knowledge about the effectiveness of supervisory boards by measuring the interaction of board work and firm performance and illustrates the differences and similarities between the one-tier and the two-tier system in this context. It moreover highlights the advantages of testing board effectiveness in a dualistic system and enriches our current understanding on how various board characteristics at once impact the financial performance of a firm. (authors' abstract) / Series: Working Papers / Institute for Strategic Management

published_or_final_version / Business / Master / Master of Philosophy

The purpose of this dissertation is to examine the informational role of audit client (i.e. firm) reputation in the auditor switching and retention decision. I perform an experimental examination of an analytical model, prescribing the optimal choices made by firms in the decision to retain or switch auditors without considering firm reputation. Using an experimental markets approach, I provide evidence of the market reaction to a firm's switch/retention decision under two alternative treatments. In the first (baseline) treatment, an explicit test of the analytical model, firms do not incur reputation effects when making the decision to switch or retain auditors. In the second treatment, firms consider market perceptions of opportunistic auditor switching and retention and the potential effects on the firm's reputation.The choice of auditor switching and retention is a significant component of the firm's corporate governance structure. I precisely measures reputation formation and its impact on this specific governance decision by the inclusion of prior period auditor switch/retention decisions made by firms in reputation treatment conditions. Prior archival research has demonstrated a link between auditor quality and earnings quality. These studies suggest that the retention of a high-quality auditor, or dismissal of a poor-quality auditor, can signal high quality earnings to the market. The converse is also suggested; retention of a poor-quality auditor, or dismissal of a high-quality auditor, can signal poor earnings quality. The decision to retain or switch auditors is made annually by firms who have superior information over their auditors and investors. In the short run, the decision to retain or switch auditors offers a temporary signal which the market may not clearly price. However, including the firm's track record of auditor switching and retention decisions among auditors of differing quality allows for the development of a positive or negative reputation on this portion of corporate governance.The results presented provide evidence of the model's descriptive validity for the firm's optimal choices and related market reaction to the auditor switching decision for a finite time horizon. Additionally, the study examines the market reaction to a firm's reputation on the auditor switching and retention decision.

CEO duality has been the subject of debate for over twenty years and shows no signs of abating. With conflicting theoretical and empirical evidence underpinning the debate the practice has fluctuated, investor perception of board leadership structure has altered, international regulation has reacted, scholarly conceptualizations of duality have become overly complex, and the need to understand duality and conclude the debate has increased. This thesis explores duality in listed corporations and aims to form an appropriate solution to end the dichotomy. My solution requires one to confront misunderstandings which have led to a traditional insistence towards structural reform and prolonged the contentious debate, and recognize an underlying contention which needs to be resolved to bring finality to the debate. I argue finality is possible if a process oriented approach is adopted and corporations recognize the need to be technically equipped to deal with leadership structures in the modern corporate arena.

CEO duality has been the subject of debate for over twenty years and shows no signs of abating. With conflicting theoretical and empirical evidence underpinning the debate the practice has fluctuated, investor perception of board leadership structure has altered, international regulation has reacted, scholarly conceptualizations of duality have become overly complex, and the need to understand duality and conclude the debate has increased. This thesis explores duality in listed corporations and aims to form an appropriate solution to end the dichotomy. My solution requires one to confront misunderstandings which have led to a traditional insistence towards structural reform and prolonged the contentious debate, and recognize an underlying contention which needs to be resolved to bring finality to the debate. I argue finality is possible if a process oriented approach is adopted and corporations recognize the need to be technically equipped to deal with leadership structures in the modern corporate arena.

WHAT DRIVES FIRMS TO DIVERSITY? By RONG GUO Committee Chair: Dr. Omesh Kini Major Department: Finance This paper examines whether corporate governance structures, serving as proxies for agency costs, can explain firms’ decision to diversify. Specifically, it has been hypothesized that firms with worse corporate governance structures are more likely to diversify. The extant literature usually compares the governance characteristics of multi-segment firms to those of single segment firms to address this issue. However, different governance characteristics may simply reflect differences in firm characteristics of diversified firms and focused firms. Furthermore, industry factors may affect both the propensity of firms to diversify and their governance characteristics. To separate out the agency costs explanation of firms’ decision to diversify, I compare the corporate governance structures of single segment firms that choose to diversify with those of a matched sample of single segment firms in the same industry that choose to remain focused. I find that firms with a higher percentage of outsiders on the board and smaller board size are more likely to diversify. These findings are inconsistent with the agency costs explanation of why firms choose to diversify. In addition, the CEO pay-to-performance sensitivity of diversifying firms is also not significantly different from that of firms that stay focused. The corporate governance characteristics cannot explain the changes in excess value around diversification either. Although some of the governance characteristics are significantly related to the announcement effects of diversifying mergers, these relations are often inconsistent with the agency cost explanation. Taken together, my evidence indicates that diversifying firms do not systematically have worse governance structures than firms that stay focused and, therefore, higher agency costs do not appear to drive the decision to diversify.

I investigate the relation between firm risk and firm transparency over the period 1992-2006 and find that the level of firm transparency and the level of firm risk are negatively related. I also find that higher CEO pay-performance sensitivity (delta) works to mitigate this inverse relationship. This result is consistent with Hermalin and Weisbach (2007) who suggest that managers reduce risk to protect their pay and performance evaluations under higher levels of firm transparency. I further find that firms in high technology industries are more likely to increase risk relative to firms in other industries when transparency is high. Finally, I develop an additional proxy for transparency based on the Standard and Poor’s Transparency and Disclosure Score. Results using this proxy are generally consistent with my findings that there is an inverse relationship between risk and transparency and that CEO pay-performance sensitivity lessens this relationship.

Au cours de la dernière année, la régie d'entreprise a subi des bouleversements majeurs. Autrefois reléguée au second plan comme relevant des affaires internes de la compagnie, les récents scandales financiers aux États-Unis ont poussé à l'avant plan la problématique de la régie d'entreprise et le rôle que doivent assumer les divers intervenants du marché. Le congrès américain a réagi très rapidement aux scandales par l'adoption d'une loi. Les autorités canadiennes durent se questionner sur le type de réforme qui devrait conduire le Canada vers une meilleure régie d'entreprise tout en conservant sa compétitivité dans un contexte de mondialisation. Le présent mémoire se veut une approche pratique à la problématique de la régie d'entreprise. Au-delà des théories élaborées, le contexte actuel requiert une action concrète adaptée au milieu et au contexte économique canadien. En ce sens, la réaction des autorités canadiennes aux changements en place aux États-Unis nous renseignera non seulement sur la philosophie des autorités canadiennes, mais également sur l'approche qui sera privilégiée par celles-ci dans l'évolution de la régie d'entreprise qui doit mener à la reprise de confiance des investisseurs dans le marché, confiance durement ébranlée par les récents scandales financiers. / Over the past year, corporate governance has suffered many hits. Traditionnally pushed aside as management's problem, the recent wave of financial scandais in the United-States has put corporate governance at the front end. In that context, the role of market participants must be redefined. The United-States Congress reacted very rapidly to the scandais by adopting a new by-Iaw, the Sarbanes-Oxley Act. The Canadian authorities had to question themselves as to what kind of reform Canada would need to put it on the path of better Corporate Governance without compromising its competitiveness in a global market. The present paper follows a practical approach to the recent Corporate Governance problems. Beyond the theories elaborated on Corporate Governance, today's context requires concrete action adapted to the Canadian economic environment. In this sense, the reaction of the Canadian authorities to the new rules in the United-States will give insight as to what is the Canadian authorities' philosophy on the subject and what lies ahead for regulatory changes in Canada in the market's search to regain investor confidence after a wave of financial scandais. / "Mémoire présenté à la faculté des études supérieures en vue de l'obtention du grade de Maître en droit (LL.M.)"

<p>This literature study aims to identify international best practice concerning the role of the board and more particularly that of the independent director in ensuring good corporate governance. The study is based on sources which include a large contingent of up to date sources on the subject ranging from newspaper articles, journal articles, various corporate governance codes, company reports and reports on governance such as Cadbury and Higgs.</p>