The Impact of Corporate Governance and Ownership Structure on Managerial Myopic Behavior: Evidence from Emerging Market
Abstract
Short-term orientation aimed at maximizing current period profits at the expense of long-term corporate performance and survival has become an emergent issue in corporate world. The current study has examined factors affecting managerial myopia from corporate governance and ownership structure perspective. For the purpose, the study has used listed firms in Pakistan stock exchange as a population and followed a stratified random sampling method and collected data from 319 firms listed in Pakistan stock exchange from 2010 to 2019. The study has used various proxies to measure managerial myopia i.e. negative changes in the capital expenditures, market and sale expenditures while reporting positive profits in those years. Insider-outsider CEO and variation in the management team. The study has used corporate governance variables as an explanatory variable such as board size, board independence, independence of audit committee, and external audit quality. The ownership structure variables include managerial ownership, institutional ownership and foreign ownership while control variables include age, size growth and leverage of the firm. The results of the study showed that among the corporate governance variables board size, board independence, independence audit committee and external audit quality is found to have negative effect on the changes in capital expenditures and sale and market expenditures. The insider-outsider regression results showed that board size, board independence and external audit quality has negative effect of the changes in capital expenditures and sale and market expenditures. Similarly, managerial ownership is found to have negative effect on the changes in capital expenditures and sale and market expenditures and outsider CEO. Whereas, institutional ownership has positive and significant effect the changes in capital expenditures and sale and market expenditures outsider-CEO. However, foreign ownership has positive but insignificant effect on the changes in capital expenditures and sale and market expenditures and CEO-outsider. In case of variations in the management team the board size, board independence, and external audit quality have significant and positive effect on the management team size. Moreover, managerial ownership is found to have negative but institutional ownership is reported to have positive effect on the management team size.
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