Corporate governance in SMEs

Corporate governance can be defined as the “set of principles, policies, procedures, standards, and norms that are used to direct and control an entity of any nature, size or condition, in an ethical, equitable, and responsible manner. This set regulates the design, integration and functioning of the government bodies, reflecting the power relations between shareholders, directories and senior management.” ( ^{Casal, 2010}, p. 1)

The classic conceptual framework for corporate governance departs from the agency theory ( ^{Jensen & Meckling, 1976} ). In a context of large open capital companies with atomized property, conflicts arise between shareholders and management derived from the separation of property and control (principal-agent problem). However, in developing countries, the concentration of the property, in addition to weaker governance mechanisms, results in conflicts between majority and minority shareholders. This is known as principal-principal conflict ( ^{Young, Peng, Ahlstrom, Bruton, & Jiang, 2008)} . The principal-principal conflict derives from the extraction of richness from the minority shareholders by the majority shareholders through the assignment of unqualified personnel to key positions (friends and/or family), the acquisition of services or products at overvalued prices, or the sale of products at undercut prices to entities controlled by the same group of shareholders, and the development of strategies that favor personal, family or political interests.

Good CG practices would act through the mitigation of information asymmetries, thus reducing agency costs, which would translate into a better performance of the company. Different works find evidence in favor of this relation. For large companies in emerging markets, see ^{Campos, Newell, and Wilson (2002) Klapper and Love (2004)}, ^{Garay and González (2008)}, ^{Braga Alves and Shastri (2011)}, among others.

The empirical literature on CG in SMEs has been expounded upon mainly in developed markets. ^{Abor and Adjasi (2007)} indicate that the CG mechanisms in SMEs that receive the most attention are:

It is interesting to mention that, even if the mechanisms of the CG could be, in principle, similar to those of large companies, the empirical evidence in SMEs is not homogenous. For example, ^{Arosa, Iturralde, and Maseda (2013)} report that the size of the board of directors and the percentage of external directors negatively affect the performance of Spanish SMEs. These results would indicate the effects of the lack of coordination, flexibility, and communication in a large board of directors.

^{Brunninge, Nordqvist, and Wiklund (2007)} found that in the Swedish SMEs with the highest concentration of ownership there is a lower tendency toward strategic change, which would be associated with risk aversion and resistance to change. The presence of external directors and the number of members in senior management have a positive effect on strategic changes, and these two mechanisms act, to some extent, as surrogates to one another.

^{Dasilas and Papasyriopoulos (2015)} study SMEs and large Greek companies with open capitals, and find that the size of the board of directors has a negative effect on the short-term debt, even if this relation is weaker for smaller companies. This result would be explained by the higher participation of shareholders in the board of directors of smaller companies, which would decrease information asymmetries (from a principal-agent problem approach).

For Argentina, ^{Santolíquido, Briozzo, and Albanese (2014)} study the relation between CG, age and formation of the different organizational levels, and the financing and performance of the companies. The size of the board of directors negatively affects the period of indebtedness. It can be observed that there is a negative relation with the ratio of Total Liabilities to Sales for the age variable of the president of the board of directors, as well as the average age of the members of the board. A board of directors with a higher academic formation tends to acquire long-term debts, and is also associated with a better performance. Regarding the duality of the CEO, in 50% of the companies where the president of the board of directors has a degree in economic sciences, it is also the General Manager; while this percentage decreases to 10% for companies with a president of the board of directors without said training.

Gender and corporate governance

Among the CG mechanisms that emerge to prevent the agents from manipulating the accounting results using different principles and accounting methods, we found the figures of the directors and the external auditors. We are interested in analyzing the current situation of these mechanisms from a gender perspective, that is, evaluating the role of women in the same.

Interest on this subject can be traced back to ^{Daily, Certo, and Dalton (1999)} , who analyze how female participation progressed in the main management and directive positions in the 1990s. A series of investigations derive from this analysis that study the topic from different points of view and with different objectives. ^{Francoeur, Labelle, and Sinclair-Desgagné (2008)} attempt to determine how the performance of the firm is affected by having women in the board of directors and in the first line management from the perspective of the stakeholders² (interested parties).

They find that the firms in which women have management positions have a better performance, but that having more women in the board of directors does not ensure a higher market value. Consistently, ^{Farrell and Hersch (2005)} do not find a positive relation between the generic diversity of the Board of Directors and the market value, which leads them to conclude that the inclusion of women in directive positions is due to other factors (external pressure, image improvement, company objectives, etc.).

In order to know how to improve the performance of the firm through the inclusion of a higher percentage of women in the board of directors, it is important to consider how the investors respond to this phenomenon. In this sense, ^{Kang, Ding, and Charoenwong (2010)} prove that, in the case of Singapore, they answer positively to the addition of women to the board of directors, and attribute the results to different reasons: that the community of this country has a positive outlook on women having a high status in society and having an important role in the decision making process, that leading businessmen profess the benefits of diversified groups, and that the latter has its disadvantages (the time necessary for the making of decisions and reaching consensus increases), but that this mainly occurs in highly diverse groups (this is not the case of Singapore).

^{López Vergara, Gómez-Betancourt, and Betancourt Ramírez (2011)} study the factors that influence the participation of women in CG bodies in family companies in Colombia, and conclude that these are relevant motives for heritage conservation, professional growth, and the preservation of the family unit, the contribution to the development of the firm, and the generation of family communication spaces.

Similarly, it should be considered how this inclusion happens, which may due to different sources: external pressure, explicit company policies, and to improve the company image ( ^{Farrell & Hersch, 2005} ). These authors aim to explain the motive that may cause the incorporation of a woman to the board of directors, taking into consideration whether it is as a replacement when one of the members retires, and whether the person retiring is a man or a woman, in addition to attempting to model the probability of incorporating a woman as a replacement for a member or by increasing the number of people in the board of directors. The results of their analysis show that the probability of including a woman in the board of directors in a certain year is negatively related to the percentage of existing women in the same board in the previous year. They conclude that the gender influences the selection of the board of directors. According to the expected positive relation regarding female participation in the different bodies of CG, the following hypotheses are formulated:

Hypothesis 1. There is a positive relation between the participation of women in ownership and female participation in the board of directors.

Hypothesis 2. There is a positive relation between the participation of women in ownership and female participation in senior management.

Hypothesis 3. There is a positive relation between the participation of women in the board of directors and female participation in senior management.

Other studies focus on how gender affects the other CG mechanism: external audit ( ^{Ittonen, Vähämaa, & Vähämaa, 2013}; ^{O’Donnell & Johnson, 2001} ). The same start from the selectivity hypothesis³, and attempt to determine whether women and men auditors show differences based on gender regarding the resolution of different problems, proving that women perform better when it comes to complex problems (they take less time to solve them than men); however, men are more efficient when it comes to simple tasks. The results do not imply that one gender makes better decisions than the other, but that they focus their performance regarding time and complexity. According to the expected positive relation regarding female participation in the different bodies of the CG, the following hypotheses are formulated:

Hypothesis 4. There is a positive relation between the participation of women in ownership and the existence of a woman as an external auditor.

Hypothesis 5. There is a positive relation between the participation of women in the board of directors and the existence of a woman as an external auditor.

Hypothesis 6. There is a positive relation between the participation of women in senior management and the existence of a woman as an external auditor.

Gender and SMEs financing

The study on the impact of gender on the financing decisions of the SMEs has traditionally focused on the role of the owner-administrator. Following ^{Constantinidis, Cornet, and Asandei (2006)} , in this gender-financing relation, some factors associated with the demand of funds (the behavior of businesswomen vs. businessmen in financing decisions) and with the offer (the behavior of fund suppliers before businesswomen vs. businessmen) can be identified.

Regarding demand arguments, differential characteristics emerge in terms of women as decision makers (social vision of feminism), for example, a greater aversion to risk. In relation to this, women and men differ regarding the type of motivations to start a company, their abilities with business, the level of confidence in themselves, and their priorities in management tasks ( Johnsen & McMahon, 2005 ). Therefore, the differences in financing that exist in companies led by men and women would respond, in part, to the differences in the characteristics of the companies they lead, particularly regarding the sector, size, age, and structure of the property ( ^{Constantinidis et al., 2006} ). Women generally begin small business, in traditional sectors with low growth (mainly services and minority commerce), with single-owner structures. This would explain the lower amount of capital invested, and the fact that they are less attractive ventures for fund providers.

Regarding offer arguments, it is indicated that in terms of conditions equality, women suffer more obstacles than men when looking for external financing (liberal feminist view). The predictions of both approaches (demand and offer) are similar in terms of the results observed, that is, a reduced use of external financing by businesswomen. ^{Carter, Shaw, Lam, and Wilson (2007}, p. 428) indicate that “the evidence, considering gender, entrepreneurship, and bank credit, suggests that the financing profiles are distinctively different, which is attributable in great part (but not fully) to structural differences”.

Regarding the offer and demand arguments in terms of the role of the owner-administrator, the following hypotheses are formulated:

Hypothesis 7. Female participation in ownership is associated with a reduced indebtedness at a shorter term.

Hypothesis 8. Female participation in senior management is associated with a reduced indebtedness at a shorter term.

Regarding the role of other CG mechanisms in indebtedness, ^{Mínguez-Vera and López-Martínez (2010)} analyze this phenomenon in Spanish SMEs, and find that female representation in the board of directors generates a positive effect in the performance of the company (the positive effects of gender diversification exceed the negative). They confirm the assumption that women in the board of directors, being more averse to risk than men, are prone to work in companies with a lower debt ratio and bankruptcy probability. Based on this, the following hypothesis is formulated:

Hypothesis 9. Female participation in the board of directors is associated with a reduced indebtedness at a shorter term.

Lastly, ^{Ittonen et al. (2013)} confirm that the differences regarding aversion to risk, diligence, and conservatism between genders have an influence on the quality of the accounting reports, since female auditors are more precise and efficient in their production. This implies a greater security in the financial report, which could be associated to a higher confidence for undertaking a debt. Thus, it is expected that companies with financial statements audited by women are handled with higher levels of debts, and at a longer term. As such, the following hypothesis is formulated:

Hypothesis 10. The firms audited by women undertake more debt and at a longer term than those audited by men.

Temporal and geographical context

According to data from Grant Thornton International⁴, the participation of women in directive positions in Argentina is below the world average (19.4% vs. 22.2% for the period of 2011-2015). As presented in Figure 1 , the participation of women in management positions in private and public companies in Argentina was of 16% for 2015, which is consistent with 2007, year in which the measurement began. Increases in the percentages of participation were present during the period between the years mentioned, only to decrease in the last year analyzed. A similar analysis can be done regarding the world average of female employment in managerial positions. Regarding other Latin American countries, it is found that the tendency is consistent with the monthly average of Mexico, even though the participative percentage is superior to Argentina. A relevant factor is the significant decrease of the participation of women in Brazil, which in 2007 was of 42%, being one point below Argentina in 2015.

Source: Grant Thornton International.

Figure 1: Evolution of the participation of women in managerial positions. 

Some of the motives that would explain the low female participation are related to the economic slowdown of the countries in question, and to the difficulties for women with children, not only regarding the cost of childcare, but also the complex matter of family planning. In Argentina, the managerial positions filled by women are general managers, human resources directors and, to a lesser extent, company presidents or vice-presidents.

In the reports of Grant Thornton International, an increasing support manifests for the establishment of quotas, so that a greater number of women comprise the governing boards. The greatest impulse is shown by the European Union

The World Bank also generates information regarding female participation in ownership and high managerial positions through its World Enterprise Surveys, which includes companies with more than five employees. Table 1 shows that in Argentina, the participation of women in ownership is on average similar to the rest of Latin America, but when discriminating by the size of the company said participation decreases more clearly than for the rest of the countries, especially in the case of larger companies. Similarly, by analyzing female participation as a main directive of the company, the average is notably below that of the rest of the countries. In this aspect, women participation decreases with the size of the company in all the countries, but it is more pronounced for the case of Argentina.

Table 1: Female participation in the ownership of a business and in the main managerial position, by company size. 

Source: Banco Mundial (2010).

Concerning the norms on female participation, there are no laws in Argentina that regulate the participation of women in the board of directors of companies. In terms of politics, the National Law 24.012 governs since 1991. This law is also known as the female quota law, which requires party lists to fill national elective positions to be comprised of at least 30% women. This has been an important step not only for the development of women, but also from a social point of view, to address gender equality, the defense of women and children rights, among others. Despite the successful participation of women since the female quota law, this same law has not guaranteed profound transformations regarding gender equality.

Data

The universe studied is comprised by the SMEs that issue marketable securities from January 2011 to April 2014 in the Argentinian stock market. Only those companies registered as stock corporations are taken into consideration. The definition of SME corresponds to the General Resolution 582/10 of the National Securities Commission (CNV) (emissions 2011-2012) and Resolution 50/13 of the Secretariat for Small and Medium-sized Enterprises and Regional Development ( Secretaría de la Pequeña y Mediana Empresa y Desarrollo Regional ) (emissions 2013 and 2014)⁵.

The population is a total of 33 SMEs, three of which are equity issuers and the rest have only issued corporate bonds. The complete listing of companies is presented in the Annex, Table 7. The database of ^{Santolíquido et al. (2014)}, where they study CG and financing and performance variables, evaluated differentially according to the age and education of the different organizational levels. Unlike said work, the objective of this article is to analyze CG and financing from a gender perspective.

According to the Ministry of Industry of the Republic of Argentina, there are 603,000 SMEs in the country. The 33 companies that comprise the population of study, which are SMEs that do public offerings of their debt and/or capital securities, are a very small fraction of these companies. However, they are a group of great interest due to being companies that have entered the capital market and comprise a financing segment that the national public policies have looked to develop and promote for the SMEs. Similarly, as they are companies under the public offering regime, information about them is available freely to the public.

Under the Argentinian regulation, SMEs are exempt from having a collegiate supervisory body and an Audit Committee, and they are not required to present the Code of Corporate Governance. This means that the information on the CG of these companies is disseminated on the different public access documents presented by the companies to the CNV, such as statements, information from relevant events, and issuance prospects, among others⁶. Therefore, it was necessary to collect and systemize all this dispersed information into a single database in order to carry out this study. The CG variables correspond to the issuance prospects, while the financial data are measured at the time of issuance and the end of the fiscal year. Taking into consideration the complete information for all the companies, the sample comprises a total of 22 firms.

Statistical tools

The study carried out was quantitative and of a descriptive-correlational character. For the analysis of relations between variables the following methods are used:

The relations were also studied using multivariate analysis methods, but the global significance of the different regressions was low,⁷ due to the reduced sample size. In order to detect the possible presence of a spurious relation between CG, gender and financing, the relation with a group of control variables was also analyzed, as detailed in the following section.

Variables

Table 2 presents the operative description of the variables used in the analysis. The statistical analysis of these variables was done in two stages: