Second leverage reduces free cash flows available for managers discretionary expenses. Therefore, to test the endogeneity issue in the model, the DurbinWuHausman test was applied. The error terms contain two components, the fixed effect i and idiosyncratic shocks vit. Rev Econ Stud 58:277297, Baccar A, Ben-Mohamed E, Bouri A (2013) Managerial optimism, overconfidence and board characteristics: toward a new role of corporate governance. Implementing target-oriented internal corporate governance mechanisms such as board diversity, board independence, the board size, the board-level sustainability committee, the role of the CEO, ownership concentration, and the disclosure and transparency practice enables firms to implement target-oriented sustainability measures. Cambridge University Press, Cambridge, U.K. Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Its objective is to consolidate our knowledge in this field, examine its evolution, and propose avenues for future research. Pearson Prentice Hall Upper Saddle River, NJ, Hart OD (1983) The Market Mechanism as an Incentive Scheme. Due to shareholder concentrated economic risk, these shareholders have a strong encouragement to watch strictly over management, making sure that management does not engage in activities that are damaging the wealth of shareholders. Hence, overconfident managers have better in accessing debt rather than rational managers in the context of China that leads creditors to allow to follow and influence the firm investments through collecting information about the firm and supervise the firms directly or indirectly. Following the previous work in developed and emerging markets [product substitutability [31, 57], the current study measured using proxies of market concentration (HerfindahlHirschman Index (HHI)). CSMAR database is designed and developed by the China Accounting and Financial Research Center (CAFC) of Honk Kong Polytechnic University and by Shenzhen GTA Information Technology Limited company. Crisis management is increasingly relevant due to the high frequency and speed with which crises occur. Khurana R (2002) Searching for a corporate savior: The irrational quest for charismatic CEOs. [71] concluded that managerial overconfidence can significantly affect corporate activities and outcomes. Evidence from China. Expertise from Forbes Councils members, operated under license. The main source of debts is state-owned banks for Chinese listed companies [82]. It indicates how long a firm in the market and indicates firms with long age have long history accumulate experience and this may help them to incur better performance [8]. J Corp Finan 12(3):381402, Giroud X, Mueller H (2011) Corporate Governance, Product Market Competition, and Equity Prices J Finance 66(2):563600, Hair JF, Black WC, Babin BJ, Anderson RE, Tatham RL (2006) Multivariate data analysis. Acad Manag J 44:639660, Chen CH, Al-Najjar B (2012) The determinants of board size and independence: evidence from China. Asia Pacific Journal of Management 18(2):245263. Acting in tune with the companys stakeholders can increase trust in the ecosystem, reduce uncertainties and problems, and improve decision-making. At the same time, leaders should make sure that all actions are measured because what is not measured cannot be improved. Hypothesis 3 is supported, which proposes there is a positive relationship between ownership concentration and firm performance. These findings are consistent with agency theory, which suggests that the shareholders who hold large ownership alleviate agency costs and information problems, monitor managers effectively, consequently enhance firm performance [81]. Considering that each market US, Norwegian and Russian represents significant distinguishing features in their institutional framework, the paper provides an important research setting in which corporate governance mechanisms can be analyzed from the perspective of a countrys peculiar characteristics. The balance and effectiveness of the internal and external corporate governance practices can enhance a better corporate operational performance [21]. It also requires a healthy working relationship between the Board and the CEO. Part of Int Bus Rev 21(5):831846, Chen X (2019) Corporate Governance Structures, Corporate Entrepreneurship and Firm Performance. External corporate governance mechanisms like product market competition and debt financing are limited from emerging market CG literature; therefore, this study provided comprehensive empirical evidence. The model results show AR (2) test yields a p-value of 0.511 and 0.334, respectively, for ROA and TQ firm performance measurement, which indicates that the models cannot reject the null hypothesis of no second-order serial correlation. This shows us the controlling and supervising role of independent directors are less likely in the firms managed by overconfident managers than normal managers; conversely, the power of CEO duality is more salient in the case of overconfident managers than normal managers. Concentrated shareholders have a strong encouragement to watch strictly over management, making sure that management does not engage in activities that are damaging to the wealth of shareholders [80]. Pac Account Rev 29(2):204226, Nguyen T, Locke S, Reddy K (2014) A dynamic estimation of governance structures and financial performance for Singaporean companies. After applying all the above criteria, the study's final observations are 11,634 firm-year observations. https://doi.org/10.1186/s43093-021-00093-6, DOI: https://doi.org/10.1186/s43093-021-00093-6. Corporate governance is a system that guides the conduct of the people within an organization, as well as the direction of the organization itself. However, PMC has positive (=2.777) and significant relationships with TQs at 1% significance level. There are two competitive views about dual leadership in corporate governance literature. Opponents of purified shareholder primacy are also quick to point out that short-term thinking and profit-maximizing forms of governance lead to generally bad corporate behavior, which can create negative externalities like environmental degradation and social inequality. Broadly speaking, the BOD is responsible for dictating policies within the organization and determining plans and objectives (while also overseeing their implementation). When the CEOs are getting more powerful, boards will be inefficient and this situation will result in poor performance, due to high agency problems created between managers and ownerships. An internal control mechanism ownership concentration believes in the existence of strong control against the managers decisions and choices. The role of CG mechanisms is affected by different factors. Corporate governance is a system (or a function); its not a job title or a specific role. Every company exists in a dynamic environment, interacting with shareholders, employees, suppliers, communities, users, customers and other actors, and each company has effects on these people and on the spaces where it operates. Independent boards of directors are more believed to be effective in protecting shareholders' interests resulting in high performance [26]. The boards of directors as central internal CG mechanisms have the responsibility to monitor, control, and supervise the managerial activities of firms. Tables 3 and 4 indicate the p-value of Hansen test over-identification 0.139 and 0.132 for ROA and TQ measurement of firm performance, respectively, so that these models cannot reject the hypothesis of the validity of instruments. On the other hand, stewardship theory suggests that managers are good stewards of company resources, which could benefit a firm [9]. Webcorporate governance mechanisms in these countries have proved, in part, to be a major impediment to improving the competitiveness of firms. Thus, this study aims to investigate the influence of managerial overconfidence in the relationship between CG mechanisms and firm performance by using Chinese listed firms. WebCorporate governance systems Corporate governance mechanisms vary across institutional environments (Mayer, 1996). Economics of Planning, 34: 5372. Establishing a good compensation and remuneration system for board members and senior management can help to attract and retain the best talent and create a structure that appropriately incentivizes their collective and individual performance. Md. Many studies confirmed that a large firm has a large board of directors, which increases the monitoring costs and affects a firms value (Choi et al., 2007). The interaction of managerial overconfidence and CEO duality has a significant negative effect on operational firm performance (0.0202, p>0.05) and a negative insignificant effect on TQ. In line with this Khajavi and Dehghani, [44] found that as the number of internal board increases, the managerial overconfidence bias will increase in Tehran Stock Exchange during 20062012. The recent financial crises, the fast growth of privatizations, and financial institutions have reinforced the improvement of corporate governance practices in numerous institutions of different countries. School of Business, University of International Business and Economics, Beijing, 100029, China, You can also search for this author in The capability of the board composition and diversity may be important to control and monitor the internal managers' based on the nature of internal executives behaviors, managerial behavior bias that may hinder or smooth the progress of corporate decisions of the board of directors. Corporate governance mechanisms such as board composition and meeting frequency are often used as proxies for underlying corporate governance Therefore, the following hypothesis was proposed: Managerial overconfidence moderates the effect of product market competition on firm performance. Guluma, T.F. A system of direction and control within an organization. Therefore, the results of this study contribute to the theoretical perspective by providing an insight into the influencing role of managerial behavior in the relationship between CG practices and firm performance in an emerging markets economy. Similarly, having at least some independent Directors (meaning arms length from the company) generally lends itself well to conflict resolution and objectivity when it comes to other strategic and executive considerations that are material to a business. Even with the absence of agency conflicts and asymmetric information problems, there is evidence documented for distortions such as the case of corporate investment. In high competition, managers try their best due to fear of takeover [3], well-managed firms take over the market from poorly managed firms, and thus, competition helps to build the best management team. [8]). J Int Account Audit Tax 20:106114, Schmidt KM (1997) Managerial incentives and product market competition. California Privacy Statement, This result is also supported by the suggestion that overconfident managers have better in accessing debt rather than rational managers in the context of China because in Chinese listed firms most of the senior CEOs have a better connection with the external finance institutions and state banks to access debt, due to their political participation than rational managers. Board of directors and ownership concentration are the main internal corporate governance mechanisms and product market competition and debt finance also the main representative of external corporate governance suggested by many researchers in the literature that were used in this study. A relatively standard organizational structure typically looks like this: The C-suite is operational decision makers within the organization, with the CEO being the senior-most person. J Finan Econom 3(4):305360, Keasey K, Wright M (1993) Issues in corporate accountability and governance: an editorial. Table 2 presents the correlation matrix among variables in the regression analysis in the study. The biggest challenge is to design and implement compensation mechanisms that balance the performance of executives and board members with that of the company. This is all about identifying and capturing opportunities today in order to position for (and to create) enduring, The corporate governance function must support financial recordkeeping, as well as approve public stakeholder reporting (including financial statements, 10Ks, and sustainability and/or, This requires that leaders understand how to attract, retain, and improve human resources within the organization. According to Table 2 results, there is no multicollinearity problem among variables. It further examines the moderating effect of financial distress on the relationship between CG and CP.,The study used panel data of 102 J Emerg Market Finance 9(3):347381, Peng MW, Zhang S, Li X (2007) CEO duality and firm performance during chinas institutional transitions. The view of behavioral decision theory [94] suggests that overconfidence, as one type of cognitive bias, encourages decision-makers to overestimate their own information and problem-solving capabilities and underestimates the uncertainties facing their firms and the potential losses from proceedings related with maintains against them. The hallmark of good corporate governance is an independent-minded board of directors to oversee management and represent the interests of shareholders. Arellano and Bond [4] suggested that system GMM is a better estimation method to address the problem of autocorrelation and unobservable fixed effect problems for the dynamic panel data. Overconfident CEOs tend to think they have more accurate knowledge about future events than they have and that they are more likely to experience favorable future outcomes than they are [35]. statement and J Financ Econ 102(2):272292, Koke J, Renneboog L (2005) Do corporate control and product market competition lead to stronger productivity? To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. This study is a literature review on corporate governance. The author (I) read and approved the final manuscript. Issues 6(2):529537. It predicts that managerial overconfidence moderates the relation of product market competition and firm performance. Board of Directors. The compliance function is the means by which firms adapt behavior to legal, regulatory, and social norms. More recently, however, the growing popularity of Environmental, Social & Governance (ESG) as an analysis framework has put pressure on organizations (and their corporate governance functions) to consider the concept of stakeholder primacy more rigorously. Balancing power in an organization ensures that no one individual has the ability to overextend resources. The BOD is also responsible for designing the management teams compensation structure and overseeing their performance. This paper investigates the relationship between (a) corporate social responsibility (CSR) and earnings management (EM) and (b) examines whether corporate governance (CG) mechanisms can moderate the CSREM relation. Audits are an independent review of a companys business and financial operations. including employees, customers, supply chain partners, and members of the communities in which an organization operates (not just shareholders) should be considered in all strategic and operational decisions. 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