Research Article

Do board-level controls matter? – An agency perspective on socially responsible investment (SRI) company boards in South Africa

Published in: South African Journal of Accounting Research
Volume 34, issue 3, 2020 , pages: 205–235
DOI: 10.1080/10291954.2019.1675255
Author(s): Blanche Steyn, South Africa, Farai Kwenda, South Africa, Lesley Stainbank, South Africa


If board-level controls matter, the introduction of the 2008 Companies Act with its enhanced legislative requirements, should have a positive impact on firm performance. To assess board-level controls this study developed two unique control indexes to assess the boards of 84 companies over three years. The study focuses on companies on the SRI index as they have a greater focus on sustainability and transparent disclosure of board-level controls including separation of duties, monitoring, goal-aligned remuneration and oversight. The first index uses 23 board-level control indicators (CI) and the second 19 board-level direction indicators (DI). The two indexes were assessed using fixed effects estimation methods against current and negatively lagged firm performance proxies. Results show that board-level controls matter as both indexes were positively related to return on assets (RoA), however, only DI was highly significant. Both indexes changed to a negative relationship to next year’s return on assets (NYRoA), again highly significant for DI. The change to a negative relationship suggests a timing and information asymmetry problem. CI was positively related to the natural log of enterprise value per share (LEV) with a low level of significance while the positive relation continues to the next year’s natural log of enterprise value per share (LNYEV) that was highly significant. The latter suggests that the controlling role of the board are continued to be valued by the market.

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