Racquteball and other physical fitness facilities

Racquteball  and other physical fitness facilities 

Cases

City RacQuteball Club (CRB) offers RacQuteball  and other physical fitness facilities to its members

There are four of these in clubs in the metropolitian area .each club has between 1800 and 2500 members revenue is derived from annual membership fees  are as follows

Individual                         $40

Student                            $25

Family                              $95

The Hourly Court  Fees vary from $6 to $10 depending upon the Season and time of day

The peak Racequetball season is considered to run from September through april  during this period

Court usage average 90 to 100 percent of capacity during prine time and 50 to 60 percent capacity during the remaining hours daily court usage the off-season averages only 20 to 40 percent of capacity

To complete Question See below 

2. LITERATURE REVIEW

2.1 Review of Literature on Corporate Governance

Corporate Governance has been a widely researched topic in the developed countries and has built sufficient empirical evidence as to its impact on an entity’s performance from an accounting perspective or entity valuation. However limited research has been performed for emerging/developing countries such as South Africa) to determine the relationship that exists between corporate governance and entity financial performance. Ntim (2009)’s studies were based on King Committee (2002), which was published in 2002. Enhancements have been performed on this King Committee (2002) (King II) report, in 2009 which is known as King Committee (2009) (King III) and in 2016 which is known as King Committee (2016) (King IV). Limited empirical research has been identified as been done since 2009 to determine the relationship that the enhancements to the King III: Code of Corporate Governance to the entity financial performance. This is also the period after the 2008 Global Financial Crisis.

(a) Board Leadership 

Prior empirical research has shown mixed bag or results when it comes to the correlation of the entity financial performance to board leadership, whether the board chairperson should be independent to the CEO (e.g. Rechner & Dalton 1991; Dahya et al., 1996; Ho & Williams, 2003; Donaldson & Davis, 1991 etc). 

Rechner and Dalton (1991)’s investigation on 141 large US corporations from 1978 to 1983 noted a positive relationship between a separate board chairperson and the entity’s financial performance even though the study was criticised based on its sampling, used only accounting measures. Dahya et al. (1996) using UK listed firms also identified a positive trend as that of Rechner and Dalton (1991). Haniffa & Hudaib (2006) report that entities that separated the two roles performed financially (ROA) better than those that vested the two roles in one person.

However, Ho and Williams (2003) using a sample of 84 South African listed firms reported a negative link between a firm’s physical and intellectual capital performance and role or CEO duality. This was also confirmed by a group of researchers that were able to identify the same negative correlation this supporting duality of the CEO and Chairperson’s roles (e.g., Donaldson & Davis, 1991; Boyd, 1995; Kiel & Nicholson, 2003 etc) The following hypothesis will be tested:

H1: Board leadership relates positively to entity financial performance. 

(b) Board Composition 

A board with a majority of independent and non-executive directors is meant to composition of help reduce the agency problem (Hermalin & Weisbach, 1991; Weisbach, 1988) A positive relationship is therefore expected between an entity’s financial performance and the proportion of independent/non-executive directors sitting on the board. Independent and non-executive directors are more likely to challenge the CEO. It is perhaps in recognition of the role of independent and non-executive directors that in South Africa that they must constitute the 6 majority of the board (King Committee, 2009), in the UK a minimum of three outside directors is required on the board; and in the US, the regulation requires that they constitute at least twothirds of the board (Bhagat and Black, 2001).

Empirical studies that have been performed to date have indicated conflicting results. Studies by Weisbach (1988) and Gupta and Fields (2009) have produced evidence in support of a positive role for outside directors on firm performance. Other studies have reported no evidence of a significant relationship between entity financial performance and the proportion of outside directors on the board (Bhagat and Black,1999, 2000; Hermalin and Weisbach, 1991; and Yermack, 1996).

Ntim (2009) has stated that recent studies carried out in developing countries by El Mhendi (2007) and Mangena & Tauringana (2008) report evidence, which is entirely consistent with prior research that boards dominated by independent and non-executive directors perform better for listed firms from developing countries , Tunisian and Zimbabwean respectively. The following hypothesis will be tested: 

H2: Board composition relates positively to entity financial performance. 

(c) Audit Committee

Limited empirical studies have been performed on the relationship of Audit Committees with that of the entity’s financial performance. Establishment of an audit committee is one of the corporate governance principles that is meant to improve the financial management of an entity and therefore its financial performance as well (Coleman, 2007). Markets react favourably to earnings report after the establishment of Audit Committees (Wild, 1994). Coleman, 2007’s result of the study on Audit Committees were mixed and could have been due cross-country sampling (Ghana, Nigeria, South Africa) that were utilised which distorted the result due to differences in business environment, culture etc. The following hypothesis will be tested: 

The research question that has been formulated the research is going to test the following directional hypothesis:

H3: Establishment of an audit committee relates positively to entity financial performance.

H4: Majority of audit committee are independent or non-executive directors relates positively to entity financial performance. 

2.2 Theoretical Stance

The Agency Theory (Berle & Means, 1932) and expounded by (Jensen & Meckling, 1976), has been the dominant framework for corporate governance but is not the only theoretical framework available. Studies have been performed which has used this framework on corporate governance principles/structure and firm performance (Bhagat & Black, 2002; Heenetigala & Armstrong, 2011, Klapper & Love, 2002). Jensen & Meckling, 1976 p 311, defined an agency relationship as a “contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating some decision-making authority to the agent”.

The agency theory highlights the responsibility of the principal and agent who are the shareholders and management respectively. This has been further emphasised by Fama,(1980) 7 who has assigned responsibilities based on the type of decisions assigned to the being, to the role players in the corporate governance web, which is management decisions and control decisions. The risk bearers who are the shareholders are responsible for making controls decisions which involve monitoring and ratification of management decisions but also come with responsibility of providing capital required for the operations. 

Generally, the interests of the principal are prudent management of their firms, growth and expansion of the firm and ultimately the profitability of their investment. However, this is not always the case due to agency problems brought about by information asymmetry and moral hazard challenges. To reduce these agency challenges, the Principals(shareholders) should appoint the board of directors, composed of independent and non-independent board members with a view of monitoring the activities of the management team (Jensen & Meckling, 1976; Peters & Bagshaw, 2014). To deal with the identified agency challenges, agency costs are incurred to ensure that the interests of the principal are aligned to the those of the agent (Jensen & Meckling, 1976), and these include monitoring expenses, bonding fees and the residual loss. 

The Agency theory has also had its fair amount of criticism due its assertion that managers will not get the job done without outside monitoring. In contrast to this general view, managers are motivated to serve the interests of their shareholders and be trusted with responsibility while being accountable (Donaldson & Davis, 1991). Donaldson & Preston (1998) who are proponents of the stakeholder theory have contended that it views company as an entity, where diverse participants come together to attain desired results. Chitayat (1985 articulates that one of the critical issues that influences organisational performance and shareholder returns is how the organisation is structured to allow managers to take effective action.

3. METHODOLOGY AND METHODS

The research study is going to be performed on listed entities on the main bourse of the Johannesburg Stock Exchange in South Africa. A random sample of 40 listed entities will be selected over a period of 5 years from 2011 to 2015, so my sample population will be 200 units. The Johannesburg Stock Exchange has the following industries; Oil & Gas, Basic Materials, Industrials, Consumer Goods, Health Care, Consumer Services, Telecommunications, Financials and Technology.

A longitudinal analysis of secondary data from the selected entities published annual reports over a period of 5 years. The annual reports will be downloaded from the respective websites or rest of the world filings of the Perfect Information Database in electronic format. Entities listed on the Johannesburg Stock Exchange are required to comply to the Code of Corporate Governance and therefore have to publish Annual and Integrated reports (King Committee, 1994, 2002, 2009, 2016) . These reports contain information and summary biographs on board members as well as audit committee membership. Financial information will be collected from DataStream to determine the accounting ratios and firm value.

The entities in our final sample should meet the following criteria; have the entity’s complete 5 years annual reports from 2011 to 2015 inclusive available and the requisite financial information for those years must be available on DataStream. An Ordinary Least Squares (OLS)regression analysis will be used on a presumed linear relationship and the independent variables will be the Board Leadership, Board Composition, and Audit Committee. The 8 dependent variable will be the financial performance indicators being the Return on Assets and Tobin’s Q. 

The information that is going to be used for this research is widely available and no ethical approvals are required to use or obtain the information. 

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