Type: Research Essays
Sample donated: Chester Franklin
Last updated: August 22, 2019
Meeting frequency 3.1 Conceptual framework H1 Banks directors’ attendance Meeting fees H2 Gender diversity H3 Figure 3.1 Conceptual FrameworkThe conceptualframework is use to clarify the relationship between the factors that influencethe directors’ incentive to attend board meeting. Figure 3.1 shows that thefactors such as meeting frequency, meeting fees and gender diversity as theindependent variables.
These three independent variables will determine thedependent variable, which is the bank directors’ attendance.3.2 Research hypotheses3.
2.1 Meeting frequencyIn this prior research, the number ofboard meetings has been used as a control variable. In Adams and Ferreira(2009) and Jiraporn et al. (2009) no relationship is found between the numberof board meetings and director attendance problems (attendance rate less than75 percent). However, Adams and Ferreira (2008) find a negative relationshipbetween the number of board meetings and director attendance problems. Thissuggests that more meetings are associated with better attendance.
If boards that hold more meetingsappoint directors with better-expected attendance records, possibly becausethey have more spare time or better time management skills, then we expect apositive relationship between the number of meetings and attendance rates (selectionhypothesis). If boards only schedule additional meetings when most, if notall, directors are available to attend, this could also result in a positiverelationship between the number of meetings and attendance rates (schedulinghypothesis). In addition, if directors do not view all meetings as havingequal importance and are more likely to attend meetings that they perceive as beingmore important, such as additional board meetings or monitoring committeemeetings, then we also expect a positive relationship between meeting frequencyand attendance(important meeting hypothesis). These three hypotheses areindistinguishable in our testing and suggest that average attendance rates arehigher at higher levels of meetings. In this paper, we overcome theselimitations by using a richer dataset where the actual number of board andcommittee meetings held and attended by each director is disclose. We test forthe relationship between meeting frequency and attendance rates in both ageneral sense, effectively assuming that all board meetings and all types ofdirectorships are equivalent. This allows us to calculate the actual attendancerate for each director and to estimate the relationship between meetingfrequency and attendance without bias.
We propose that directors have a finiteamount of time. Directors have a duty to attend board and committee meetingsbut there is potential for overburden when companies have too many meetings. Wedo not know the length of meetings but assume that each meeting involves effortto attend. The greater the number of meetings the more likely that directorswill miss meetings in a systematic manner, for example, absences will not bedue to random events. While there is potential relationshipbetween meeting frequency and attendance rates we hypothesize that, in general,a greater number of meetings places a greater burden on directors, whichresults in lower attendance rates than expected based on random absences. Thishypothesis is consistent with directors having a limited amount of time andenergy to devote to their directorships.
(Ferris et al., 2003; Harris andShimizu, 2004; Fich and Shivdasani, 2006; Jiraporn et al., 2009). Therefore, weexpect to find a negative relationship between the frequency of meetings andattendance rates. For example, Adams and Ferreira (2008) find a negativerelationship between the number of board meetings and director attendanceproblems, which suggests that more meetings are associated with betterattendance. Hypotheses 1: There is a negative relationship betweenfrequency of meeting and the banks directors’ attendance. 3.
2.2Meeting fee According to the studyof Daniel Ferreira (2003), and Frey and Jegen (2001), some organizations mayhave a higher demand for attendance than other organizations. Theseorganizations might signal that they value attendance more by offering highermeeting fees. Because they wish to make a good impression, directors attendmore not because they care about the fee, but because they learn from thesignal that their organization cares about attendance. This explanation suffersfrom all the usual problems of signalling stories. For example, it is notessentially clear why organizations should choose meeting fees as signals.However, it is consistent with a positive correlation between meeting fees andattendance. A director that have good attendance records selectto work hard for the corporate with paying high meeting fees.
It is because thebank directors wanted to protect their reputation from being a dedicateddirector. However, bank director will attend more board meeting regularly inorder to have a good record of attendance and not just because of the meetingfees. On the other hand, not attending a meeting may impose many costs on adirector as well.
For instance, their reputation as a dedicated director willbe damage, lose an opportunity to influence key decisions, put theirre-election in risk, etc. On top of all this, directors will lose their meetingfees if they do not show up. A higher meeting fee would therefore tilt thebalance towards attending the meeting, increasing the likelihood of attendance.Therefore, the meeting fees have greater incentive effects if changes inmeeting fees affect the attendance behaviour of directors (Daniel Ferreira,2003). The meeting fees have greater incentive effects ifchanges in meeting fees affect the attendance behaviour of directors. The SEC’srequirement from the Ferreira (2003) states that the firms detecting thedirectors’ names who attended are less than 75% of the meetings that they weresupposed to attend during the previous year. Therefore, needs to examine thosedirectors with relatively severe attendance problems.
The findings shows thatas the board meeting fees increase, the better the attendance records. It ismainly driven by an incentive effect of changing director’s attendancebehaviour in response to changing in meeting fees rather than by selection ofdirectors with good attendance records to firms that pay high meeting fees. Gneezy and Rustichini (2000a) find that theintroduction of a monetary fine for parents who arrived late to pick up theirchildren at day-care centers led to a significant increase in the number oflate-coming parents. They interpret their findings as being consistent with theidea that parents view the fine as a price: by putting a monetary price onlate-arrivals, parents could more easily justify their behaviour.
In ourcontext, it is not hard to imagine that similar considerations could affect thebehaviours of directors with respect to attendance at board meetings. In firmsthat do not pay meeting fees, directors might be compelled to attend out of asense of duty. In firms that do pay meeting fees, however, directors can assigna monetary price to missing a meeting, which is the value of the meeting fee.Thus, attendance might be lower in firms that pay meeting fees becausedirectors perceive the price of skipping a meeting as being low. Gneezy andRustichini (2000b) provide experimental evidence that although individualscommonly perform better when paid more rather than less, they also performbetter if not paid at all rather than paid only a small amount.
Thus, monetaryrewards are only effective when they are large “enough.” In our context, meetingsfees appear to be very small relative to directors’ wealth. Thus, it isplausible that firms that pay such low meeting fees might end up having worseattendance records than the ones that do not pay fees.A totally different story can also explain apositive correlation between meeting fees and attendance. Suppose thatdirectors anticipate whether they will have attendance problems or not. Sincedirectors, to some extent, set their own compensation, the boards that expectfew or no attendance problems may choose to pay higher meeting fees. Meetingfees may be justified to outsiders as a means of providing subsidies forattendance, but since no attendance problem is expected, meeting fees mayreally just represent a disguised increase in director pay.
Hypotheses2: Thereis a positive relationship between meeting fees and banks directors’attendance.