Hypothesis on "Corporate Governance and Environmental Performance"

Hypothesis 10 pages (3143 words) Sources: 1+ Style: Harvard

[EXCERPT] . . . .

However, some scholars found out that there was a positive relationship between non-executive directors and the performance of the firm, whereas Bhagat and Black (1999) found out that there was a negative relationship between the non-executive directors and the performance of the firm. However, other studies did not found any significant relationship between the non-excretive directors and the performance of the firm.

Audit Committee Independence and environmental performance

The outcomes of the relationship amid the audit committee independence and the performance of the firm are somewhat ambiguous. However, Chan and Li (2008), from their study found out that the independence of the audit committee, for instance, to have at least 40% of expert-independent managers serve on the audit committee, would positively influence the performance of the company. In addition, Ilona (2008) found out that there is a positive relationship amid the audit committee independence and the performance of the firm. Furthermore, Erickson et al. (2005) suggested that when directors are independent, this could work well to reduce many problems that may arise in the company. Based on this argument, that independent directors can reduce such firm problems, it is possible to argue that an independent committee audit can reduce the firm's problems. In simple words, a positive relationship amid the independence of the audit committee and the performance of the company is justified. Owing to the discussion provided, the apparent hypothesis is that there is a positive relationship, which exists amid the independence of the audit committee and the firm's performance.

Compensation Committee Independence and environmental performance

Currently, the compensation committee has become engaged in corporate decisions, and in terms of the efficiency of the boards, it is significant to note that the sub-committees under take most of the board functions. In regards to the design of pay schemes, the compensation committees are the most significant sub-committee immediately under the board of directors. For most firms, the decision of management pay is delegated to the compensation committee, of the board of directors. In addition, the compensation committee plays a significant role in establishing the CEO pay schemes in the interest of the company. However, there has been inadequate evidence concerning the characteristics and efficiency of the compensation committees. Newman and Mozes (1999) investigated the relationship between the compensation schemes and executive compensation, and their study shows that the sensitivity of executive pay to performance is low, especially when there is a member of the committee who is an insider. This suggests that the relationship between CEO compensation and firm performance favors managers, when there is an insider in the committee. On the other hand, Conyon and Peck (1998) provide evidence that firms that have committee members who are all outsiders such a committee is in line with the firms performance. The hypothesis apparent is that the connection existing amid management pay and firm performance tends to be stronger in firms that adopt compensation committees.

Nomination Committee Independence and environmental performance

Most importantly, board members comprise a significant part of the committees. This means that it is beneficial to examine the different elements that make up the committees. Prior studies have recommended the utilization of different committees to oversee the many activities, which occur within the organization. For instance, such committees include the audit, nomination, and environmental committees. These committees are significant, and they have the capacity to reduce some of the problems, which might arise within the organization. For instance, the audit committee, and nomination committees will ensure that the financial procedures of the company occur within the laws of the firm. Felo, Krishnamurthy and Solieri (2003), through their study explored the relationship between expertise, independence, and the composition of the audit committees and the quality of reporting financial matters. The study suggests that expertise and size have a positive relationship to financial reporting quality, but the two have no relationship to the independence of the committee. In addition, the study comments that given prior evidence of a negative relationship between the quality and cost of capital, the firms could advance the quality of reporting financial matters by properly structuring the audit committees. When the firm does this, the firm will reduce the costs of capital. Nevertheless, the presence of committees in a firm will have a positive impact on reducing the cost when measured on a scale of cost to revenue (Reddy et al., 2010). In addition, an effective nomination committee will ensure that the appointment of non-director is in line with the interests of shareholders and subsequently reduce the firm's problems. In this context, the apparent hypothesis is that there will be a positive relationship between the nomination committee and the performance of the firm.

Environmental Committee Presence and environmental performance

In the context of committee presence and the influence it has on the firm, it is apparent that committees play a significant role, and substantial influence on the activities of the firm. In this context, the committees, such as the environmental committee plays an important role when it comes to the reminding of the firm on issues of environmental respect. The environmental committee works to make sure that the firm complies with the laid rules, or regulations that the government postulates in respect to environmental issues. Therefore, similar to the audit committees, remuneration committees, and other many committees that may be present in a firm, there will be a positive relationship between the presences of a committee to the performance of the firm. In this context, the environmental committee will have substantial influence on the firm, and it works to ensure that the firm conforms to the regulations to avoid environmental degradation and subsequent fines imposed due to the same. In this context, the apparent hypothesis is that there is a positive relationship between the presence of an environmental committee and the environmental performance of the firm.

Developed Hypotheses

1. There exists a positive relationship between the size of the board and environmental performance

2. There is a negative relationship between non-executive directors an environmental performance

3. There is a negative relationship between CEO duality and environmental performance.

4. There is a positive relationship, which exists amid the independence of the audit committee and the firm's performance.

5. The connection existing amid management pay and firm performance tends to be stronger in firms that adopt compensation committees.

6. There will be a positive relationship between the nomination committee and the performance the firm.

7. There is a positive relationship between the presence of an environmental committee and the environmental performance of the firm.

Conclusion

The aim of this paper was to develop the provided hypothesis in the context of corporate governance, in relation to environmental performance. In addition, the provided information is consistent with the studies used for the paper. However, in some instance, there was apparent mixed up of results, where the authors find different information on the issues in question. In the case of board meetings, it was apparent that there was varied information, whereby authors did not find significant relationship, there was a negative relationship, or there was a positive relationship between the board meeting and the environmental performance of the firm. The topic of corporate governance has proven as significant, especially in the context of environmental performance.

Most importantly, it is apparent that various activities in the firm, such as board meetings, nominations and many others have the capacity to influence the firm's performance. Nevertheless, the different stakeholders in a firm, and the committees, which include the audit committees, remuneration, nomination, board committees, and others, play an important role in the growth and performance of the firm. Notably, their presence will have a positive relationship with the environmental performance of the firm. From the results gathered, it is apparent that large boards will improve the performance of the firm, mainly because it comprises of professionals who will manage environmental issues, and avoid problems that may arise in the firm. Notably, larger boards will result in improved monitoring, increased independence of the board, which are important activities that will lead to improved performance of the firm.

Bibliography

Bhagat, S., & Black, B. (1999). The uncertain relationship between board composition and firm performance. Business Lawyer, 54 (3), pp. 921 -- 963.

Booth, J. & Deli, D. (1996). Factors affecting the number of outside directorships held by CEOs.

Journal of Financial Economics, 40 (1), pp. 81-104.

Chan, K.C., & Li, J. (2008). Audit Committee and Firm Value: Evidence on Outside Top Executives as Expert Independent Directors. Corporate Governance: An International Review, 16(1), pp. 16-31.

Conger, J. (1998). Qualitative Research as the cornerstone methodology for understanding leadership. Leadership Quarterly, 9 (1), pp. 107-121

Conyon, M.J., & Peck, S., (1998). Board control, remuneration committees, and top management compensation. Academy of Management Journal, 41 (2), pp. 146-158.

Dowell, G., Hart, S., & Young, B. (2000). Do corporate global environment standards create or destroy market value? Management Science, 46(8), 1059-1074

Erickson, J., Park, Y., Reising, J., & Shin, H. (2005). Board composition… READ MORE

How to Reference "Corporate Governance and Environmental Performance" Hypothesis in a Bibliography

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