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Learning the Relationship Between Corporate Governance and Company Performance Using Data Mining

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Machine Learning and Data Mining in Pattern Recognition (MLDM 2015)

Part of the book series: Lecture Notes in Computer Science ((LNAI,volume 9166))

Abstract

The objective of this paper is to identify the relationship between corporate governance variables and firm performance by employing data mining methods. We choose two dependent variables, Tobin’s Q ratio and Altman Z-score, as measures for the companies’ performances and apply machine learning techniques on the data collected from the components companies of three major stock indexes: S&P 500, STOXX Europe 600 and STOXX Eastern Europe 300. We use decision trees and logistic regressions as learning algorithms, and then we compare their performances. For the US components, we found a positive connection between the presence of women in the board and the company performance, while in Western Europe that it is better to employ a larger audit committee in order to lower the bankruptcy risk. An independent chairperson is a positive factor related to Altman Z-score, for the companies from Eastern Europe.

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Acknowledgments

This work was co financed from the European Social Fund through Sectoral Operational Program Human Resources Development 2007–2013, project number POSDRU/159/1.5/S/134197 and POSDRU/159/1.5/S/142115, Performance and excellence in doctoral and postdoctoral research in Romanian economics science domain” and from UEFISCDI under project JustASR - PN-II-PT-PCCA-2013-4-1644.

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Authors and Affiliations

  1. Faculty of Economics and Business Administration, Babeş-Bolyai University, Theodor Mihali 58-60, 400591, Cluj-Napoca, Romania

    Darie Moldovan & Simona Mutu

Authors
  1. Darie Moldovan
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  2. Simona Mutu
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Correspondence to Darie Moldovan .

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Editors and Affiliations

  1. IBaI, Leipzig, Germany

    Petra Perner

Appendix A

Appendix A

Variable

Description

Tax

Tax burden for the last 12 months

Interest

Interest burden for the last 12 months

Asset

Amount of sales or revenues generated per dollar of assets. The ratio is an indicator of the efficiency with which a company is deploying its assets

Fincl l

Financial leverage. Measures the average assets to average equity

Oper ROE

Normalized ROE. Returns on Common Equity based on net income excluding one-time charges

Dvd P/O

Dividend Payout Ratio. Fraction of net income a firm pays to its shareholders in dividends, in percentage

Board Size

Number of Directors on the company’s board

% Non Exec Dir on Bd

Percentage of the board of directors that is comprised of non-executive directors

% Indep Directors

Independent directors as a percentage of total board membership

CEO Duality

Indicates whether the company’s Chief Executive Officer is also Chairman of the Board, as reported by the company

Indep Chrprsn

Indicates whether the company chairperson was independent as of the fiscal year end

Indep Lead Dir

Indicates whether the company has an independent lead director within the board of directors

Frmr CEO or its Equiv on Bd

Indicates whether a former company chief executive officer (CEO) or person with equivalent role has been a director on the board

% Women on Board

Percentage of Women on the Board of Directors

Ind Dir Bd Mtg Att

Percentage of board meetings attended by independent directors

Unit or 2 Tier Bd Sys

Indicates whether the company’s board has a Unitary (1) or Two Tier (2) system. Marked 2 when board system has separate boards for Supervisory/Commissioner board and Management board

Prsdg Dir

Indicates whether the company has a presiding director in its board of directors

% Feml Execs Feml CEO or Equiv

Number of female executives, as a percentage of total executives. Indicates whether the company Chief Executive Officer (CEO) or equivalent is female

Age Young Dir

Age of the youngest director on the company board in years

BOD Age Rng

Age range of the members of the company board in years, calculated by subtracting the age of the youngest director on the company board from the age of the oldest director on the company board

Age Old Dir

Age of the oldest director on the company board in years

Bd Avg Age

Average age of the members of the board

Board Duration

Length of a board member’s term, in years

Board Mtgs #

Total number of corporate board meetings held in the past year

Exec Dir Bd Dur

Length of an executive director board member’s term, in years

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Moldovan, D., Mutu, S. (2015). Learning the Relationship Between Corporate Governance and Company Performance Using Data Mining. In: Perner, P. (eds) Machine Learning and Data Mining in Pattern Recognition. MLDM 2015. Lecture Notes in Computer Science(), vol 9166. Springer, Cham. https://doi.org/10.1007/978-3-319-21024-7_25

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  • DOI: https://doi.org/10.1007/978-3-319-21024-7_25

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