The investment opportunity set and the voluntary use of outside directors: New Zealand evidence

Mahmud Hossain; Steven F. Cahan; Michael B. Adams

doi:10.1080/00014788.2000.9728944

The investment opportunity set and the voluntary use of outside directors: New Zealand evidence

Mahmud Hossain
, Steven F. Cahan
, Michael B. Adams

Research output: Contribution to journal › Article › peer-review

60 Scopus citations

Abstract

This study examines whether the composition of boards of directors differs between high and low growth firms. Based on prior research, we hypothesise that firms with greater investment opportunities require more monitoring because managers in these firms have more discretion both in selecting investments and allocating resources between investments. Because outside directors can be more effective monitors than inside directors, we predict that outsiders will make up a larger proportion of the board in high growth firms than in low growth firms. Using a cross-sectional sample of 77 New Zealand firms, our results suggest that the percentage of outside directors is related to growth for two of the four measures of investment opportunities which we employ. As expected, the percentage of outside directors is also related to a composite measure of investment opportunities.

Original language	English
Pages (from-to)	263-273
Number of pages	11
Journal	Accounting and Business Research
Volume	30
Issue number	4
DOIs	https://doi.org/10.1080/00014788.2000.9728944
State	Published - 2000
Externally published	Yes

Bibliographical note

Funding Information:
‘Mahmud Hossain is Assistant Professor at Nanyang Technological University. Steven F. Cahan is Professor at Mas-sey University. Michael B. Adams is Professor at the University of Wales-Swansea. The authors appreciate the comments of workshop participants at University of Exeter, Macquire University and Nanyang Technological University. Financial support received from the Massey University Research Fund is also very much appreciated. Correspondence should be addressed to Professor Adams at the European Business Management School, University of Wales-Swansea, Singleton Park, Swansea SA2 8PP. E-mail: [email protected] The final version of this paper was accepted in March 2000. lothers question the ability of outside directors to objectively monitor corporate decisions. For example, Patton and Baker (1987) point out that outside directors are usually nominated and appointed by top management, and often hold only a trivial fraction of the firm’s shares.

ASJC Scopus subject areas

Accounting

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10.1080/00014788.2000.9728944

Cite this

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title = "The investment opportunity set and the voluntary use of outside directors: New Zealand evidence",

abstract = "This study examines whether the composition of boards of directors differs between high and low growth firms. Based on prior research, we hypothesise that firms with greater investment opportunities require more monitoring because managers in these firms have more discretion both in selecting investments and allocating resources between investments. Because outside directors can be more effective monitors than inside directors, we predict that outsiders will make up a larger proportion of the board in high growth firms than in low growth firms. Using a cross-sectional sample of 77 New Zealand firms, our results suggest that the percentage of outside directors is related to growth for two of the four measures of investment opportunities which we employ. As expected, the percentage of outside directors is also related to a composite measure of investment opportunities.",

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AB - This study examines whether the composition of boards of directors differs between high and low growth firms. Based on prior research, we hypothesise that firms with greater investment opportunities require more monitoring because managers in these firms have more discretion both in selecting investments and allocating resources between investments. Because outside directors can be more effective monitors than inside directors, we predict that outsiders will make up a larger proportion of the board in high growth firms than in low growth firms. Using a cross-sectional sample of 77 New Zealand firms, our results suggest that the percentage of outside directors is related to growth for two of the four measures of investment opportunities which we employ. As expected, the percentage of outside directors is also related to a composite measure of investment opportunities.

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The investment opportunity set and the voluntary use of outside directors: New Zealand evidence

Abstract

Bibliographical note

ASJC Scopus subject areas

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