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Financial performance and corporate governance in the European football industry.

Introduction

The issue of corporate governance has been considered within the research and regulatory agendas as a crucial issue almost over a decade. Tricker (1993) and De Barros, Barros, and Correia (2007) argue that the main role of corporate governance is to ensure management cohesion towards protecting the interests of shareholders and various stakeholders and enhancing corporate value (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 2002; Shleifer & Wolfenzon, 2002). Also empirical studies on this field report evidence that support the view that improved governance leads to enhanced firm financial performance and increased probability in investing in shareholder value creating projects (MacAvoy & Millstein 2003; Shleifer & Vishny 1997).

In addition, the issue of efficient corporate governance practices has received increased attention by many sport associations and confederations across the world (Hoye & Cuskelly 2007) yet no specific provisions have made within the football industry which has witnessed several cases of scandals off and in the field. A recent paper by the Football Governance Research Center (FGRC, 2005) documents that football clubs are not so effective in protecting the shareholder's (and stakeholder's) interests, despite the fact that UEFA policies are centered around a stakeholder network that influences the decision-making procedures (Holt, 2007). The recent cases of sports clubs' financial mismanagement actually verifies the aforementioned assertion and the voices of the crisis that characterizes football in Europe and in the rest of the world are becoming more and more intense (Kesenne, 2010; Hamil & Walters, 2010). Bosca, Liern, Martinez, and Sala (2008), Lago, Simmons, and Szymanski (2006), Ascari and Gagnepain (2006), Frick and Prinz (2006), Barros (2006), Barajas and Rodriguez (2010), Szymanski (2010), and Dimitropoulos (2009, 2010) are some distinctive studies that indicate the size of financial crisis and instability that characterizes football clubs and leagues across Europe.

This fact urged UEFA (2010) regulators to introduce the "Financial Fair Play" regulation, which scope was to initiate more discipline and rationality of clubs finances, to encourage clubs to spend according to their revenues and perform long-term investments on the infrastructure, to ensure the liabilities settlement on a timely basis, and finally to protect the long-term viability of European football clubs. It is believed that the above-mentioned regulation will help alleviate the financial inconsistencies of many EU football clubs through the implementation of rationality and rigor within clubs' finances. However, the financial criteria set by UEFA for club licensing are all set within the boundaries of managers' discretionary choices. According to Shleifer and Vishny (1997) the lack of corporate governance mechanisms may lead to substantial diversion of assets by managers and on decisions that are not value enhancing for the firm. Therefore, the main question that this paper actually introduces is whether the aforementioned regulation will be enough to tackle with the problem of economic instability. Put differently, corporate governance mechanisms may provide the assurance to stakeholders and regulators that the decisions within the board will be better monitored and towards sustaining the financial viability of the football clubs. Our point of view is that through the creation of a transparent and reliable corporate environment the new UEFA regulation will be more efficiently implemented and that is why the issue of clubs' governance becomes even more crucial under the new UEFA regulation.

The motivation behind this study lies in the arguments by Franck (2010) and Eliasson (2009) that football clubs today have transformed to public companies and their functions have several similarities compared with regular profit-seeking corporations. However, football clubs present some peculiarities relative to the other corporations that accordingly make the issue of good governance more important for football clubs (Michie & Oughton, 2005; Anagnostopoulos, 2011). Also Michie (2000) questions the governance quality of European football clubs, arguing that managers quite often engage in activities that are against the interests of shareholders and stakeholders. Thus the issue of reliable and transparent corporate governance has been raised by several researchers in Europe, despite the fact that the European football industry is perceived as more regulated and organized as argued by Foster (2000).

Additionally, another reason that warrants the examination of corporate governance quality and its impact on financial performance and viability within football clubs refers to debt contracting and the role of financial performance on this issue. When football clubs negotiate the terms of debt capital, lenders demand the assurance that the firm is committed to provide accurate information about its financial position and additionally, to prove their ability to repay principal and interest. Therefore, football managers have incentives to improve their financial status, otherwise they will be excluded from financing. This issue is more critical for unlisted football clubs if someone considers that the money market (beyond internal equity or confederation funding) remains the last available source of financing. Therefore, football clubs may wish to incorporate effective governance mechanisms so as to improve their financial performance and also to avoid debt covenant violations and regulatory scrutiny.

Therefore, the scope of this study is to shed further light on the issue of corporate governance and financial performance of football clubs which specifically operate within the EU by responding to calls for additional research made by Dimitropoulos (2010) on how efficient corporate governance mechanisms can be employed in order to protect shareholders' interests and sustain the financial viability of football clubs. Also our aim is to point that the new UEFA fair play regulation may not be enough to mitigate insolvency within European football without implementing effective measures of governance and monitoring of manager's decisions. As Michie (2000) argues, there is an urgent need to consider alternative forms of ownership and governance for football clubs and the reason is because directors' behavior many times suggests that they are more interested in their personal financial benefits or social status and less for the interests of their stakeholders.

We selected a sample of 67 football clubs (7 listed and 60 unlisted) from 10 EU countries with full financial and governance data for the period 2005-2009. The empirical evidence documented that corporate governance quality (higher managerial and institutional ownership, increased board size and independence, and the separation of the CEO and chairman roles) leads to greater levels of profitability and viability. Further analysis based on clubs' profitability and viability indicates that sound governance mechanisms are also important for those clubs with intense problems of insolvency and low financial performance.

The rest of the paper is organized as follows: The next section discusses the relevant literature on the issue of governance quality and its impact on financial performance and states the main research hypotheses. The third section describes the data used in the study and analyzes the methodological framework. The fourth section is dedicated to the empirical results and the sensitivity analysis, while the last section presents the main conclusions and offers policy implications and fruitful avenues for future research.

Literature Review & Hypotheses Development

According to the agency theory which was developed by Jensen and Meckling (1976), the separation of ownership and control may create self-interested actions by the managers. In that case, there may be conflicts between managers and stakeholders, leading to the deterioration of firm value. Under these circumstances corporate governance provisions allow shareholders to monitor the performance of firm directors in order to reduce any instances of unethical behavior. Ceteris paribus, greater control over managerial actions should reduce agency problems and enhance firm performance. Thus, there is a need to monitor managers' behavior so as to protect stakeholders' interests and shareholders' rights.

Shleifer and Vishny (1997) argue that corporate governance provides the necessary monitoring mechanisms for protecting the interests of creditors and investors. Specifically the board of directors is considered as the most crucial internal corporate governance mechanism which has the responsibility to ensure the viability of the firm and enhance corporate performance. Previous studies on this field provide significant evidence that corporate financial performance is higher in companies with effective mechanisms of corporate governance (Yermack, 1996; Brown & Caylor, 2009; Kaserer & Moldenhauer, 2008; Rose, 2007; Lehmann, Warning, & Weigang, 2004; Elsayed, 2007). Also in the sport industry, De Barros et al. (2007) provide evidence on the existence of principal-agent problems in the Madeira sport clubs and declare that governance provisions must be incorporated in the clubs' daily operations so as to protect the interests of clubs' stakeholders. Therefore, we believe that football clubs that have established more effective governance mechanisms within the organization will provide enhanced performance results and sustain their future viability. Consequently, following previous literature we predict a positive association between financial performance and viability and efficient corporate governance measured by the size of the board of directors, the level of board independence, the level of managerial ownership, the existence of institutional investors, and a negative association of financial performance and viability with the role of the CEO as the chairman of the board.

Board Size

The size of the board of directors has been considered extensively by empirical studies on the field of corporate governance as a significant mechanism that affects the firm's financial performance (Adams, Hermalin, & Weisbach, 2010; Kini, Kracaw, & Mian, 1995; Raheja, 2005). Yermack (1996), Eisenberg, Sundgren, and Wells (1998), and Jensen (1993) argued that smaller boards are associated with higher market valuation and profitability consistent with the idea that the benefits of increased monitoring by larger boards may be outweighed by poorer decision making. Also, Fistenberg and Malkiel (1994) argue that smaller boards are more likely to reach consensus and may allow members to communicate in genuine debate and interaction, leading to enhanced decision making and improved financial performance. These arguments have been verified by Coles, Daniel, and Naveen (2008) and Boone, Field, Karpoff, and Raheja (2007). Alternatively, larger boards provide an increased pool of expertise, greater management monitoring, and access to a wider range of contracts and resources (Goodstein, Gautam, & Boeker, 1994; Psaros, 2009; Reddy et al., 2010; Cheng, 2008). Nevertheless, Forbes, and Milliken (1999), Yawson (2006), and Pye (2000) argue that larger boards suffer from increased agency problems due to the fact that it is more difficult to coordinate its members and face significant obstacles in making value-maximizing strategic decisions.

In total, the empirical findings relative to the role of board size on financial performance are quite vague with one group, arguing that larger boards perform more thorough control on managers' decisions, while on the contrary other studies argue that smaller corporate boards are more efficient monitors than large boards and this is because they have a higher level of membership coordination and communication efficiency and a lower incidence of intense free-rider problems (Dimitropoulos & Asteriou, 2010). However, related studies on the football industry are scarce with only one relevant report published in Greece, which indicates that the mean size of the board of directors is between seven and 10 members, which is higher relative to the mean board size of listed corporations (Naftemporiki, 2010). This fact may have a positive impact on clubs' profitability due to enhanced decision making or the opposite may also be true. Yet no effort has been made to examine the impact of board size on the financial performance of football clubs, which still remains an open empirical question. The only study on this field is by Dimitropoulos (2011), who documents that football clubs with small board size report financial statements of enhanced quality. However, there is no empirical evidence to point a direction of impact between governance and financial performance. Therefore, based on the above discussion, we form our first research hypothesis in the null form as following:

H1: Board size is associated to the level of financial performance and the viability of the football clubs.

The Role of Outside Directors

Since 2002 in the majority of developed economies and within the EU, legislators issued codes and guidelines to both listed and unlisted corporations requiring the induction of independent and non-executive directors in the operation of corporate boards. Independent are those directors that are free from any business or other relationship which could materially interfere with the exercise of their independent judgment (Boone et al., 2007). This trend towards greater board independence stimulated a wave of research studies on the impact of board independence on firm financial performance. However, the empirical findings have been inconsistent.

The majority of studies on this issue has been conducted within the US capital market and suggests that board independence enhances corporate performance through more efficient monitoring of managers actions and improved decision making (Baysinger & Butler, 1985; Schellenger, Wood, & Tashakori, 1989; Pearce & Xahra, 1992; Daily & Dalton, 1992). These findings have been corroborated by several studies in Asia and Europe. Dehaene, Vuyst, and Ooghe (2001) in Belgium; Hossain, Prevost, and Rao (2001) in New Zealand; Krivogorsky (2006) in continental Europe; Choi, Park, and Yoo (2007) in South Korea; and Luan and Tang (2007) in Taiwan among others all document that board independence improves financial performance and viability.

On the contrary, Agrawal and Knoeber (1996), Muth and Donaldson (1998), and Kiel and Nicholson (2003) document a negative association between board independence and financial performance. According to Zahra and Pearce (1989), the reasons for this conflicting evidence are differences in time frames, samples, performance measures, and sometimes the operational definition of independent directors. In the football industry, the study by Michie and Oughton (2005) document that the 52% of both listed and unlisted football clubs in England have one or more non-executive directors on the board. Referring to listed clubs only, the relative percentage reaches 8%, yet this numbers is below the standard required by the corporate governance code. However, the significance of board independence as a monitoring mechanism of corporate decisions has been unexplored within the football industry. Therefore, following the aforementioned discussion and taking into consideration the contradictory evidence from previous literature regarding the effect of outside directors on firm's performance, we form our second hypothesis in the following null form:

H2: Board independence is associated to the level of financial performance and the viability of the football clubs.

Managerial Ownership

The first studies investigating the relationship between managerial ownership and firm performance are those of Morck, Shleifer, and Vishny (1988), Schranz (1993), and McConnell and Servaes (1990). All papers found a positive association between performance and inside ownership (yet non-monotonic). Their results are attributed to the interest alignment hypothesis, which states that as the ownership of insiders (officers and directors) increases there will be better alignment with shareholders' goals (Jensen & Meckling, 1976). As the managerial proportion of equity increases, their interests coincide more closely with those of outside shareholders, reducing any conflict of interest or agency problems and improving financial performance.

The majority of studies on this field have documented a positive association between managerial ownership and performance. For instance, Mehran (1995) finds consistent evidence which verify the interest alignment hypothesis and his results are further corroborated by evidence in New Zealand provided by Elayan, Lau, and Meyer (2003) and Hossain et al. (2001). Additionally, studies conducted in European firms also verify the previous arguments. Davies, Hillier, and McColgan (2005) document that insider ownership is positively associated to corporate performance. For Japan and Switzerland, Chen, Guo, and Mande (2003) and Beiner, Drobetz, Schmid, and Zimmermann (2006), respectively, argue that as managerial ownership increases the interests of managers are further aligned, which leads to shareholder value maximizing decisions. Referring to the European football industry, Peterson (2009) argues that the majority of football clubs in the major European football leagues are either completely controlled by few shareholders (managers and institutions) or have a majority shareholder with more than 75% of voting rights. For instance, only three of the 38 German and English football clubs presented a dispersed ownership structure, including a majority shareholder with a stake lower than 3%. Therefore, taking into consideration the fact of increased managerial ownership of European football clubs and the previous empirical findings of a positive association between managerial ownership and financial performance, we will form our third hypothesis as follows:

H3: Managerial ownership is positively associated to the level of financial performance and the viability of the football clubs.

Institutional Ownership

The importance of institutional shareholders for the credibility of the entire corporate governance system has been recognized by international organizations such as the OECD (2004) and the Cadbury Committee (1992). As Mallin (2008) argues, active institutional investors contribute towards the transparency of managerial decisions and the protection of shareholders interests. The reason is that not only do institutional investors have greater incentives to monitor managerial decisions, but they also have greater expertise in monitoring firms at lower costs than small individual investors. Several empirical studies on this issue have verified the above-mentioned assumption by documenting a positive association between financial performance and institutional ownership. Chaganti and Damanpour (1991), Clay (2001), Han and Suk (1998), and Tsai and Gu (2007) all point that as institutional ownership increases the more efficient monitoring of managerial actions is performed, which in turn leads to enhanced decision making that enhances shareholder's value, improves financial performance and sustains corporate viability. These findings have been partially verified by Rose (2007) in Denmark and Shin-Ping and Tsung-Hsien (2009) in Taiwan, who all argue that performance is enhanced when the ownership of banking and financial institutions increases while the governmental ownership is reduced.

The intuition for the aforementioned findings lies on the argument made by Hill and Jones (1992), who argue that when investors have a high stake in a firm (in the form of assets or shares) they will demand more comprehensive incentive mechanisms and governance structures so as to safeguard their investments (Senaux, 2008). Put another way, the higher the share of institutional investors in a firm, the higher the incentives for establishing sound principles of corporate governance. Considering the fact that European football clubs are characterized by high ownership concentration either from managers or institutions, we believe that the higher the institutional ownership in a club, the stronger the governance monitoring and the lower the incident of shareholders' wealth appropriation by the managers (hence improved corporate performance). Therefore, we formulate the fourth research hypothesis as follows:

H4: Institutional ownership is positively associated to the level of financial performance and the viability of the football clubs.

The Impact of CEO Duality

There is a long debate on whether the CEO should serve as the chairman of the board of directors. On the one hand, a dual role of the CEO may enhance firm's financial performance since the CEO has a thorough knowledge of the strategies and the operations of the firm (Donaldson & Davis, 1991; Davis, Schoorman, & Donaldson, 1997). On the contrary, when corporate insiders are absent from a majority independent board then the directors depend heavily on the CEO for inside information (Chang & Sun, 2010). As Mitchell (2005) argues, the critical information is often hidden from the directors (or even falsified), so the CEO may influence the decisions of the board. Under this framework several studies have tested empirically the link between corporate financial performance and the duality of the CEOs but with inconclusive evidence. While some studies support the positive impact of CEO duality on firm performance (Donaldson & Davis, 1991; Lin, 2005), others like Rechner and Dalton (1991) and Pi and Timme (1993) document that duality leads to inferior shareholder value.

According to Boyd (1995), both theoretical perspectives are correct under different circumstances. Consequently, CEO duality may be negatively associated to corporate performance under some circumstances and positively related in others. This notion is supported by Brickley, Coles, and Jarrell (1997), Rhoades, Rechner, and Sundaramurthy (2001), and Elsayed (2007), who argue that CEO duality may have differential impacts on financial performance depending on the context of the study and the industrial sector under research. The impact of CEO duality on the financial performance within the football industry remains unexplored since the study by Michie and Oughton (2005) states that 82% of football clubs in England have separated these two roles, while on the contrary the relative percentages in Greece are even smaller and up to 50% (Naftemporiki, 2010). Therefore, taking into consideration the contradictory evidence from previous studies regarding the impact of CEO duality on financial performance, we will state our fifth and final hypothesis in the null form as follows:

H5: CEO duality is associated to the level of financial performance and the viability of the football clubs.

Data and Research Design

Data Selection Procedure

Our sample includes data from 67 football clubs (7 listed and 60 unlisted) from 10 EU countries (Belgium, Denmark, France, Germany, Italy, Netherlands, Sweden, Spain, Greece, and UK) for the period 2005-2009, summing up to 335 firm-year observations. Our initial sample included 79 football clubs but we removed those which did not provide complete accounting and governance data for every year between 2005 and 2009, thus limiting the final number to 67 clubs. All football clubs in the sample have the legal form of the limited liabilities or public company where their capital and assets are divided in shares held by the owners which can be freely traded on the market. Clubs with legal form of mutually structured corporations were excluded from the sample. The selection of clubs from the aforementioned 10 countries elite divisions was made due to the fact that they represent the majority of clubs with the highest capitalization in the European Union and also because clubs from those countries are in the forefront of the elite division and due to their frequent participation in the UEFA competitions, which further attracts the interest of the public, regulators, fans, investors, and other stakeholders. The main criteria that each club must fulfill in order to be included in the sample is to have full financial data published in their annual financial statements (audited by a certified chartered accountant), provide details on corporate governance (mainly board and ownership structure) and to close their fiscal year on June. Specifically, we extracted data regarding clubs' net income, total assets, shareholder's equity, net sales, and total debt. The research sample is restricted only in clubs participating within the first division of each country's official championship for all years under investigation. The reasons are that we wanted to mitigate any biases arising from the relegation of football clubs to lower divisions and because clubs on the first division attract greater publicity, have increased chances for external financing, and their financial statements provide greater reliability since they are permanently audited by certified chartered accountants. All data were hand collected from each club's annual reports and further we trimmed the top and bottom 1% of the data distribution in order to reduce any biases arising from the existence of significant outliers in our sample variables.

Research Design

A basic methodological issue that researchers need to deal with when they try to explain the causes and effects of corporate governance and financial decisions is endogeneity. According to Brown, Beekes, and Verhoeven (2011) the earlier studies on this field based their inferences using cross-sectional OLS regressions (Yermack, 1996; Vafeas, 1999) and treated corporate governance as an exogenous variable in their models. As Brown et al. (2011) argue, these studies documented a positive relation between performance and corporate governance, suggesting that an improvement in the governance framework of the firm can lead to enhanced financial performance. However, causality may run in both directions, meaning that the explanatory variables in the regression model will be endogenous and correlated with the residuals. Therefore the OLS methodology is biased and can yield misleading and inconsistent results. To eliminate the effect of endogeneity we will employ a panel data OLS regression with firm fixed effects (Brown et al., 2011). In order to test whether this approach is necessary we employed the Chow test, which examines the null hypothesis that all intercept dummy variables have the same coefficient. The null was rejected at the 5% and less (F-stat equals 6.78), therefore we cannot assume that all intercepts are the same across the cross-sectional units. Also, the Hausman test rejected the null hypothesis of no correlation between fixed effects and the explanatory variables. Therefore, the panel methodology adopting a fixed effect estimator is the preferred approach. In addition, the fixed effect methodology was also proposed since we have a balanced sample and there is significant variation in the dependent and independent variables across and within clubs and over time. This variation was proved by applying the Levene (1960) test, which examines the equality of variances between series. The test for both dependent variables provided a highly significant F-statistic (285.06 for ROA and 282.68 for SR highly greater than the respective points of F- distribution), which resulted in the rejection of the null hypothesis that the variances between the series are equal. Consequently, there exists significant variation in all variables (both dependent and independent) that warrants the application of the panel methodology instead of the standard OLS regression method.

In order to examine the validity of the aforementioned hypotheses we have employed two accounting measures of financial performance and corporate viability, namely return on assets (ROA) and the solvency ratio (SR). ROA is measured as the ratio of net profit divided by total assets at the end of the fiscal year and SR is estimated as the ratio of after tax profit plus depreciation divided by total liabilities (short term liabilities plus long term liabilities). The higher the SR the lower the probability of insolvency, thus the higher the club's viability. The reason for selecting the ROA (rather ROE) as the financial performance measure is because it mainly reflects operating results rather than capital structure decisions as Schmalensee (1989) and Elsayed (2007) argue. Also the solvency ratio has been preferred due to the fact that it provides a fraction of football clubs viability based on strict accounting terms and also offers uniformity between listed and unlisted football clubs. On the contrary, the popular Altman's Z-score has been considered extensively by previous research due to its more efficient prediction of insolvency, yet was not feasible for unlisted clubs which constitute the majority of our sample firms. Therefore, these two measures were introduced respectively as the dependent variable in the following fixed effect panel regression model:

[ROA.sub.it] ([SR.sub.it]) = [a.sub.0] + [a.sub.1] [BIND.sub.it] + [a.sub.2][BDSIZE.sub.it] + [a.sub.3][MOWN.sub.it] + [a.sub.4][IOWN.sub.it] + [a.sub.5][CEODUAL.sub.it] + [beta][Controls.sub.it] + [gamma]Year dummies + [delta]Country dummies + [e.sub.it] (1)

BIND denotes board independence and is estimated as the ratio of independent and non-executive directors to the total number of directors serving on the board. Independent directors are defined as (1) those who are not an active or retired employee of the firm, (2) do not have any close business ties, and (3) are not representatives of a major shareholder of the firm (Hossain, Cahan, & Adams, 2000). BDSIZE is the total number of directors serving on the board at the end of the fiscal year (Peasnell, Pope, & Young, 2005) and captures board size. According to H1 and H2 we expect the coefficients of BIND and BDSIZE to be statistically significant but we cannot infer any indication about the sign of the impact of board independence and board size on financial performance and viability due to the contradictory empirical evidence discussed in the previous section.

MOWN is the level of managerial ownership estimated as the percentage of share capital owned by the directors of each football club at the end of the fiscal year (Beiner et al., 2006). IOWN is the level of institutional ownership estimated as the percentage of share capital owned by institutional investors of each football club at the end of the fiscal year (Rose, 2007). Following the work by Rose (2007), we considered institutional investors as those corporations which operate within the financial sector (banks, mutual funds, and insurance firms) and also are trusts and asset management firms. If H3 and H4 are true then the relative coefficients on the MOWN and IOWN variables are expected to be positive and significant, suggesting that increased share ownership by insiders and institutions will improve the interest alignment between managers and shareholders, thus leading to enhanced financial performance and viability. Our last corporate governance variable is CEODUAL, which captures the dual role of the CEO as the chairman of the board. It is a dichotomous variable receiving (1) if the CEO is also the board's chairman and (0) otherwise. According to H5 the impact of CEO duality on financial performance may be controversial; therefore, we cannot predict the sign of this coefficient.

In model (1) we included additional control variables that have been proved significant determinants of financial performance and viability by previous research. Specifically, we controlled for football clubs size measured as the natural logarithm of each club's total assets at the end of the fiscal year (SIZE). According to Orlitzky (2001), firm size is positively related to firm performance and viability because it may lead to economies of scale in operations, greater control over external stakeholders and resources, and in the case of football clubs, larger FCs can attract better athletes and playing talents, a fact which can further increase their financial performance. Therefore, we expect SIZE to have a positive impact on financial performance and viability. Additionally, we control for the impact of firm leverage (LEV). Singh and Faircloth (2005) document that high leverage adversely affects a firm's future investment opportunities, which in turn can lead on a negative impact on the long-term operating performance and solvency. Also Shin-Ping and Tsung-Hsien (2009) argue that financial leverage can be affected by firm-specific real characteristics which shape the firm's demand for debt. According to Garcia-del-Barrio and Szymanski (2009), European football clubs seem to be more win maximizers than profit maximizers and are willing to resolve on debt financing and sustain severe losses for enhancing their on-field performance. Therefore, we believe that leverage (as measured by the ratio of total debt to common equity) will have a negative relation with financial performance and viability of European football clubs.

Our last control variable captures the different performance characteristics between publicly listed and unlisted football clubs. DLIST is a dichotomous variable receiving (1) if a football club is listed on the stock market and (0) otherwise. According to Bianco and Casavola (1999), listed firms are characterized by a more dispersed ownership structure relative to unlisted corporations and these firms present higher levels of return on investment and sales contributing on enhanced levels of financial performance and viability. Therefore, on the issue of football clubs, listed clubs are expected to present higher levels of profitability not only due to the more dispersed ownership, but also due to the fact that listed clubs sustain greater regulatory scrutiny from the exchange commission (thus face pressures on sustaining a profitable profile) and because they are able to raise more funds relative to their unlisted counterparts and invest those funds in playing talents or infrastructure, which in turn will enhance their profitability and viability. Also considering the argument by Benkraiem, Le Roy, and Louhichi (2011), many football clubs have delisted in recent years due to lack of liquidity and low profitability. Therefore, listed clubs are expected to be more profitable and viable, thus we expect the DLIST variable to have a positive and significant coefficient.

Empirical Results

Descriptive Statistics and Correlations

The following Table 1 presents the descriptive statistics of the sample variables over the period 2005-2009. As we can see the mean ROA is negative and equals to -12.7% and the mean SR is 15.7%, suggesting that European football clubs were unprofitable during the period of investigation and have and increased probability of insolvency since their net income covers the 16% of their total liabilities. These findings verify previous arguments concerning the financial instability that characterizes the European football industry (Bosca et al., 2008; Dimitropoulos, 2010). Also, the European football clubs' capital is owned by 47.4% by insiders (managers and officers) and 48.9% from institutional investors. Therefore, football clubs in our sample have concentrated ownership, verifying the argument by Peterson (2009). Also the mean board of FC's includes nine members where the 46.6% of them are independent. Therefore, football clubs in Europe present increased board independence and seem to have aligned their actions according to the modern governance principles. On the contrary, in the majority of the European FC's the board chairman's also hold the position of the CEO since the CEODUAL dummy has a mean value of 92.5%. Finally, EU football clubs are small in size, are highly leveraged (1.109), and only 11.6% of them are listed in the stock market.

The following Table 2 presents the Pearson correlation coefficients among the sample variables over the period 2005-2009. ROA and SR are positively correlated (0.341), something which is quite logical since more profitable firms are more solvent. Additionally, ROA is positively correlated with board size (0.102) and negatively correlated with CEODUAL (-0.095), suggesting that football clubs with increased board size and those where the roles of CEO and board chairman are separated achieve greater levels of profitability. Also profitability is positively related to firm size (0.160) and negatively related to leverage (-0.192). Moreover, the football clubs' viability is positively related to board size (0.178) and board independence (0.200), verifying previous arguments that independent directors can perform a more enhancing monitoring role on managerial decisions and mitigate any expropriation of shareholder's wealth by the managers. Furthermore, listed football clubs are related with higher values of the solvency ratio, therefore, presenting small probability of default relative to their unlisted counterparts. Additionally, listed football clubs are characterized by higher board size and board independence compared to unlisted FC's.

Empirical Analysis and Findings

Table 3 presents the results from the estimation of our empirical model including the return on assets (ROA) and the solvency ratio (SR) as the dependent variables. As we can see the coefficients on the MOWN and IOWN variables are both positive and significant as expected, suggesting that the sample football clubs which have increased levels of managerial ownership and institutional ownership are associated with enhanced levels of profitability and with lower possibility of insolvency. Consequently, these evidence verify hypotheses H3 and H4 and corroborate previous evidence from Chaganti and Damanpour (1991), Clay (2001), Han and Suk (1998), Chen et al. (2003), Beiner et al. (2006), and Tsai and Gu (2007), who all point that as institutional and managerial ownership contribute to more efficient monitoring of managerial actions and the alignment of managers' and shareholders' interests, which in turn leads to enhanced decision making, which augments shareholder's value, improves financial performance, and sustains corporate viability.

Additionally, the coefficient on BIND was found positive and significant, suggesting that football clubs with increased board independence are more profitable and viable compared to football clubs with low board independence. That result verifies hypothesis H2 and provides support for the majority of the studies on this issue which suggest that board independence enhances corporate performance through more efficient monitoring of managers actions and improved decision making (Baysinger & Butler, 1985; Schellenger et al., 1989; Pearce & Xahra, 1992; Daily & Dalton, 1992; Dehaene et al., 2001; Hossain et al., 2001; Krivogorsky, 2006; Choi et al., 2007; Luan & Tang 2007). In addition, board size seems to have a significantly positive impact on a club's performance and viability since the coefficient BDSIZE was found positive and significant for both dependent variables (ROA and SR), thus providing support to our first hypothesis (H1). This result corroborates a specific stream of research arguing that larger boards provide an increased pool of expertise, greater management monitoring, and access to a wider range of contracts and resources (Goodtein et al., 1994; Psaros, 2009; Reddy et al., 2010), leading to enhanced decisions making, profitability and viability.

Our last governance variable is the duality of CEO (CEODUAL), which was found negative and significant for both dependent variables, providing support to our fifth hypothesis (H5), and indicates that in football clubs where the roles of the board's chairman and the CEO are separated and not assigned into a single person, boards perform a more efficient monitoring role on managerial decisions, which may lead to inferior shareholder value, enhanced profitability, and viability (Rechner & Dalton, 1991; Pi & Timme 1993). Taking into consideration that almost 93% of the EU's football clubs have embraced a CEO dual role (see Table 1 descriptive statistics) and in accordance the intense financial problems that EU club's are facing (Bosca et al., 2008), we can argue that the separation of these two key positions within the football clubs can provide a useful tool for efficient monitoring of managers and alignment of interests within the firm. Finally, referring to the control variables, only the SIZE was found positive and significant as expected, suggesting that clubs with increased total assets are more profitable and solvent compared to smaller size clubs since larger FC's can attract better athletes and playing talents, a fact which can further increase their financial performance. This finding corroborates arguments by Orlitzky (2001) that firm size is positively related to firm performance and viability because it may lead to economies of scale in operations, greater control over external stakeholders, and resources. The coefficients of the other two control variables have the expected sign, yet there were insignificant within conventional levels.

Sensitivity Analysis

In order to examine the robustness of our results, we performed several sensitivity tests related to the specification of the empirical models and the research design used in the study. Firstly, we controlled for the argument made by Elsayed (2007) that the relation between corporate performance and viability with governance may vary according to the level of performance and viability. This assertion is attributed to the findings of Finkelstein and D'Aveni (1994), who document that weak firm performance creates pressures to the CEO and board members to engage in specific actions in order to invert the existing status quo. In other words, stakeholders may exert additional pressures on the board and require the implementation of stricter governance mechanisms for monitoring managerial decisions. This argument is verified in a recent paper by Bhagat and Bolton (2008), who document that given poor firm performance, the probability of disciplinary management actions is positively correlated with board independence. Stated differently, if the purpose of board independence is to discipline the management of poorly performing firms then board independence has a merit as a control mechanism and will be more significant for this cluster of firms. Consequently, in order to explore this argument for all our corporate governance mechanisms, we divided our sample into sub-groups of high and low profitability and viability based on the median value of ROA and SR for every year under investigation. So clubs with above medial values of ROA and SR for every given year were assigned to the high ROA and SR groups and vice versa. Model 1 was re-estimated for every sub-group of the dependent variables and the relative results are shown on the following Table 4.

The results present some differentiation among the two sub-groups for every dependent variable. Being more specific, for clubs with increased profitability (ROA) only board size was found positive and significant, suggesting that larger boards contribute to improved profitability. On the contrary, the rest of the governance variables have the expected sign, yet there are insignificant within conventional levels. Also the [R.sup.2] is low (35.9%), suggesting that the specific governance provisions are not so effective on enhancing financial performance within high profitable football clubs. In contrast, the results for the low profitability sub-group were quite different. As we can see, three of the five governance variables have the expected sign and are significant, namely board independence, managerial, and institutional ownership, suggesting that for those clubs with below average levels of profitability, modern governance provisions can provide a significant monitoring assistance to shareholders and various stakeholders for controlling key decisions within the organization and avoid any appropriation of wealth by the managers. Additionally, the [R.sup.2] has doubled compared to the high ROA group and is up to 70.2%. Taking together these evidence suggest that sound governance principles seem to be more beneficial to less profitable football clubs, thus supporting previous arguments made by Dimitropoulos (2010) that sound corporate governance mechanisms can be employed in order to alleviate agency conflicts within FC's and enhance corporate performance.

Turning to the solvency ratio sub-groups, the results are even more interesting. For the high SR sub-group (clubs with above median level of solvency ratio) none of the governance variables is significant within conventional levels and the [R.sup.2] is low and up to 22.8%. In contrast, for those football clubs with increased probability of insolvency, all governance provisions (beyond CEODUAL) were statistically significant and with the expected sign. Also the [R.sup.2] increased to 70.8% relative to the high SR subgroup. This evidence suggests that the impact of efficient corporate governance on clubs' viability is more significant for those clubs with increased problems of insolvency. In total, the separation of our sample clubs into sub-groups based on ROA and SR provide an additional support into our initial evidence and suggests that clubs with increased probability of insolvency and losses can benefit from the incorporation of sound governance principles within the organization so shareholders and stakeholders be equipped with the necessary mechanisms for protecting their interests, avoiding expropriation of wealth from the managers, and ultimately for maximizing the clubs' economic results and social return.

Our second sensitivity test aimed at re-controlling for the issue of endogeneity. According to Demsetz (1983), ownership endogeneity implies that the conditions under which the firm is operating determine the best ownership structure for the shareholders. Thus, no systematic relationship between ownership structure and firm performance should be expected. Despite the fact that this view has been challenged by Agrawal and Knoeber (1996), we re-examined for the possible impact of endogeneity by applying an instrumental variable two-stage least square regression on model 1 for both dependent variables. Also the 2SLS methodology provides an additional control for sample selection bias. As we can see in Table 5, the coefficients in the governance variables have the same sign as those presented in Table 3. The only difference compared to Table 3 is the coefficient on the leverage (LEV), which was found negative and significant for both dependent variables, indicating that more leveraged clubs are less profitable and viable. In total, the initial results remain robust after this methodological modification.

Furthermore, the basic model was re-estimated following a seemingly unrelated regression (SUR) methodology with club fixed effects (Zellner, 1962) so as to avoid any bias arising from the correlation of the residuals, since we use two different but complementary financial performance measures as the dependent variables and include the same independent variables. The relative results are depicted in Table 6. As we can see, the ownership variables are positive and significant in the SR equation; however, managerial ownership becomes insignificant in the ROA equation. Also board size and independence coefficients found positive and highly significant in both measures of performance and finally the CEO duality variable sustains a negative and significant coefficient as expected. Relative to the control variables SIZE presents a positive and significant coefficient while LEV has a negative coefficient for both dependent variables, verifying the evidence of the 2SLS regression results in Table 5. Consequently, the results under the SUR specification remain qualitative similar with those presented in Table 3.

Additionally, we performed robustness checks using alternative performance measures and control variables' definitions. The related results are presented in Table 7. Specifically, we re-estimated model 1 altering the profitability variable (ROA) with other measures of financial performance, namely return on equity (ROE), profit margin, return on shareholders' funds, and return on sales, but the results were unchanged compared with those in Table 3. Also, we substituted the SIZE variable using the logarithm of players' contracts (as disclosed in the clubs' annual reports) instead of the total assets, but the results remain qualitatively unchanged. Finally, we restricted our sample to listed firms only and re-estimated model 1 by substituting the solvency ratio with Altman's Z-score, but the overall results remain unaffected relative to those presented on Table 3.

Moreover, we performed an additional check on the impact of corporate governance mechanisms on the variation of financial performance and variability. This test is based on the arguments by Heslin and Donaldson (1999), who state that low financial performance may trigger the installation of a more independent board, which will induce a more risk-averse governance structure within the firm. This fact may lead to lower firm performance variance and thus lower risk, which in turn can improve the short-term economic value and the long-term growth and profitability prospects of the firm. In order to control for this argument, we re-estimated model (1), including the annual percentage change of ROA and SR as the dependent variables instead of their levels. Based on the aforementioned discussion, improved corporate governance (mainly higher board independence and separation of the CEO and boards chairman's roles) can contribute to lower financial performance variation. The related results are presented in Table 8. As we can see, board size and independence have negative and significant coefficients, indicating that higher board size and independence contributes to lower financial performance variation. Also higher institutional and managerial ownership reduce significantly the variance of the solvency ratio, but their impact on the variability of ROA is marginally significant at the 10% level. Finally, football clubs with dual leadership seem to be more volatile and induce greater risk relative to clubs where these powers are assigned to separate individuals. Evidence from this test verify our initial results, suggesting that sound governance principles can contribute significantly in the improvement of financial performance of our sample football clubs.

Finally, we included interaction effects in the estimations by adding a multiplicative combination of board size and board independence in the fixed-effect regression model so as to control for the simultaneous impact of board structure on clubs' financial performance and viability. We created a dichotomous variable DBIND, which receives unity (1) if a club has board independence above the sample median for every year and (0) otherwise and that variable was interacted with board size. The results are presented in Table 9 and verify our previous findings. Being more specific, the interaction term was found positive and significant for both dependent variables with a higher value relative to DBIND and BDSIZE, indicating that clubs with simultaneously higher board size and independence are more profitable and viable. Therefore, the inclusion of both governance mechanisms on the organizational structure of football clubs could be proved beneficial for sustaining a profitable and viable future.

Conclusions

The aim of this study was to investigate the issue of corporate governance and its impact on the financial performance and viability of publicly listed and unlisted European football clubs. We respond to calls for additional research made by Dimitropoulos (2010) on how efficient corporate governance mechanisms can be employed in order to protect shareholders' interests, sustain the financial viability of football clubs, and further enhance operational performance. Our sample includes governance and financial data from 67 football clubs from 10 European countries over the period 2005-2009. The evidence supports the view that the incorporation of efficient corporate governance mechanisms, and specifically increased board size and independence and the separation of the CEO and chairman roles, can lead to greater levels of profitability and viability. Also, the increased ownership by managers and institutions that characterize the clubs in our sample seems to contribute positively on their financial performance and viability. Further, by splitting our sample clubs into sub-groups of low and high profitability and viability, we documented that clubs with increased probability of insolvency and lower operational performance can benefit from the incorporation of sound governance principles within the organization so as the shareholders and the stakeholders to be equipped with the necessary mechanisms for protecting their interests, avoiding expropriation of wealth from the managers and finally for maximizing the clubs' economic results and social return.

Our findings could be proved useful to football managers and regulators. Managers must understand that governance mechanisms could be a useful tool for improving the financial performance and the solvency of their clubs, a fact which may impact positively on the financial market (since most clubs are unlisted and the only source of financing is the banking sector, which will require a relative profit stream and signs of solvency in order to secure their principal and interest). In addition, regulators must include the issue of efficient corporate governance of football clubs on their official agenda. Especially, the issue of board independence and the separation of the roles between the CEO and the chairman of the board must be considered seriously by regulators on a possible future clubs' governance reform and allow the participation of various stakeholders (fans, supporters, local representatives, etc.) in the decision and monitoring process of football clubs' corporate boards. In particular, the UEFA regulators must consider the issue of governance since the efficiency of the new licensing system heavily depends on the structure and quality of clubs' corporate governance; therefore, a reform on that direction may help clubs to balance the needs of the business and the success on the pitch, while simultaneously bring significant benefits to stakeholder groups (Michie & Oughton, 2005).

However, there are two limitations that have to be mentioned. Firstly, the data set is restricted within a specific region (EU) covering a single sport activity (football) and secondly the data span a relatively short time period. Therefore, future research can extend the present findings by examining the relation between governance and corporate performance in other professional sport sectors (e.g., basketball) with increased interest from the public and within different world segments (e.g., US or Australia). Finally, the UEFA Financial Fair Play regulation itself creates some fruitful avenues for future research like the examination of player contract accounting and its impact on clubs' assets and liabilities or the selection of IFRS vs. Local GAAP as the base for the preparation of financial statements and the effect of this selection on the quality of published accounting information.

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Panagiotis E. Dimitropoulos (1) and Athanasios Tsagkanos (2)

(1) University of Peloponnese

(2) University of Patras

Panagiotis E. Dimitropoulos, PhD, is a teaching and research associate in accounting in the Department of Sport Management. His research interests include financial and managerial accounting, sport finance, and financial management.

Athanasios Tsagkanos, PhD, is a lecturer in the Department of Business Administration. His research interests include financial management, quantitative methods, and applied economics.
Table 1: Descriptive Statistics of Sample Variables (2005-2009)

Variables Mean St.Deviation Minimum Maximum

ROA -0.1272 0.2417 -0.9145 0.5273
SR 0.1571 0.3816 -0.8790 0.9572
BDSIZE 9.4925 7.1539 3 33
BIND 0.4660 0.2338 0.1000 0.9541
MOWN 0.4744 0.3960 0.0000 0.8965
IOWN 0.4899 0.4038 0.0000 0.9021
CEODUAL 0.9253 0.2631 0 1
SIZE 8.1705 1.7722 3.8887 12.9825
LEV 1.1097 1.9559 0.0428 11.1953
DLIST 0.1166 0.2374 0.0000 1.0000

Note: The sample includes data from 67 football clubs from 10 EU
countries over the period 2005-2009. Seven clubs are publicly
listed and 60 unlisted. ROA is the ratio of net income over total
assets at the end of the fiscal year, SR is the solvency ratio
estimated as after tax net income plus depreciation divided by
total liabilities (short-term and long-term liabilities), BDSIZE is
the total number of directors serving on the board, BIND is the
ratio of independent directors to the total number of directors
serving on the board, MOWN is the percentage of shares owned by the
directors and managers, IOWN is the percentage of shares owned by
institutional investors, CEO-DUAL receives (1) if the CEO is also
the chairman of the board and (0) otherwise, SIZE is the natural
logarithm of total assets at the end of the fiscal year, LEV is the
ratio of total debt to common equity, DLIST is a dummy receiving
(1) if a club is publicly listed and (0) otherwise.

Table 2: Pearson Correlation Coefficients of Sample
Variables (2005-2009)

 BD
Variables ROA SR MOWN IOWN SIZE

SR 0.341
MOWN 0.039 0.004
IOWN 0.066 -0.017 -0.441
BDSIZE 0.102 0.178 -0.138 0.153
BIND -0.024 0.200 0.088 -0.051 -0.057
CEODUAL -0.095 0.002 0.121 -0.142 0.083
SIZE 0.160 0.010 -0.281 0.186 0.197
LEV -0.192 -0.195 -0.088 0.101 -0.062
DLIST 0.033 0.115 -0.046 0.005 0.141

 CEO
Variables BIND DUAL SIZE LEV

SR
MOWN
IOWN
BDSIZE
BIND
CEODUAL -0.114
SIZE -0.288 0.037
LEV 0.033 0.034 -0.208
DLIST 0.230 0.072 0.309 -0.057

Note: Coefficients in bold indicate statistical significance at the
5% level or more (two-tailed test).

The sample includes data from 67 football clubs from 10 EU
countries over the period 2005-2009. Seven clubs are publicly
listed and 60 unlisted. ROA is the ratio of net income over total
assets at the end of the fiscal year, SR is the solvency ratio
estimated as after tax net income plus depreciation divided by
total liabilities (short-term and long-term liabilities), BDSIZE is
the total number of directors serving on the board, BIND is the
ratio of independent directors to the total number of directors
serving on the board, MOWN is the percentage of shares owned by the
directors and managers, IOWN is the percentage of shares owned by
institutional investors, CEODUAL receives (1) if the CEO is also
the chairman of the board and (0) otherwise, SIZE is the natural
logarithm of total assets at the end of the fiscal year, LEV is the
ratio of total debt to common equity, DLIST is a dummy receiving
(1) if a club is publicly listed and (0) otherwise.

Table 3: Fixed Effect Regression Results of Governance on
Profitability and Viability

Variables Expected Sign ROA SR

Constant ([a.sub.0]) +/- -0.2606 ** -0.1227
 (-1.98) (-0.39)
BIND ([a.sub.1]) +/- 0.0129 ** 0.2948 *
 (2.18) (2.69)
BDSIZE ([a.sub.2]) +/- 0.0030 ** 0.0099 *
 (1.72) (3.86)
MOWN ([a.sub.3]) + 0.0654 ** 0.0641 **
 (1.72) (1.97)
IOWN ([a.sub.4]) + 0.0098 ** 0.0690 **
 (2.24) (2.06)
CEODUAL ([a.sub.5]) -0.1002 ** 0.0332 **
 (-1.83) - (-2.38)
SIZE (1) + 0.0209 ** 0.0072 **
 (2.37) (2.36)
LEV (2) - -0.0178 -0.0382
 (-0.80) -(0.37)
DLIST (3) + 0.0342 0.0886
 (0.59) (0.12)
Regression F-stat 5.47 * 6.08*
[R.sup.2] - overall 57.80% 65.34%
Year and country Included Included
 dummies

Note: *, ** indicate statistical significance at the 1% and 5% level,
respectively (t-statistics with two tailed test in the parentheses).

[ROA.sub.it] ([SR.sub.it]) = [a.sub.0] + [a.sub.1] [BIND.sub.it] +
[a.sub.2][BDSIZE.sub.it] + [a.sub.3][MOWN.sub.it] +
[a.sub.4][IOWN.sub.it] + [a.sub.5][CEODUAL.sub.it] +
[beta][Controls.sub.it] + [sub.[gamma]]Year dummies + [delta]Country
dummies + [e.sub.it] (1)

The dependent variables are ROA and SR. ROA is the ratio of net
income over total assets at the end of the fiscal year, SR is the
solvency ratio estimated as after tax net income plus depreciation
divided by total liabilities (short-term and long-term
liabilities), BDSIZE is the total number of directors serving on
the board, BIND is the ratio of independent directors to the total
number of directors serving on the board, MOWN is the percentage of
shares owned by the directors and managers, IOWN is the percentage
of shares owned by institutional investors, CEODUAL receives (1) if
the CEO is also the chairman of the board and (0) otherwise, SIZE
is the natural logarithm of total assets at the end of the fiscal
year, LEV is the ratio of total debt to common equity, DLIST is a
dummy receiving (1) if a club is publicly listed and (0) otherwise.

Table 4: Fixed-Effect Regression Results of Governance on
Profitability and Viability Separating the Sample on Sub-Groups
of Low and High Profitability and Viability

Variables Expected Sign High ROA Low ROA

Constant ([a.sub.0]) +/- 0.1687 * -0.5796 *
 (2.59) (-4.59)
BIND ([a.sub.1]) +/- 0.0661 0.0386 **
 (1.58) (1.61)
BDSIZE ([a.sub.2]) +/- 0.0017 ** 0.0005
 (1.70) (0.21)
MOWN ([a.sub.3]) + 0.0045 0.0950 **
 (0.20) (2.02)
IOWN ([a.sub.4]) + 0.0105 0.0999 **
 (0.45) (2.50)
CEODUAL ([a.sub.5]) -0.0262 -0.0371
 (-0.98) (-0.54)
SIZE (1) + 0.0043 0.0257 *
 (0.90) (2.61)
LEV (2) - -0.0054 -0.0019
 (-0.32) (-0.34)
DLIST (3) + 0.0028 0.0041
 (0.22) (0.85)
F-stat 3.05 * 5.87 *
[R.sup.2] - overall 35.9% 70.25%
Year and country Included Included
 dummies

Variables Expected Sign High SR Low SR

Constant ([a.sub.0]) +/- 0.5940 * -0.3257 **
 (4.79) (-1.98)
BIND ([a.sub.1]) +/- 0.0326 0.1212 **
 (0.43) (1.77)
BDSIZE ([a.sub.2]) +/- 0.0009 0.0117 *
 (0.48) (3.46)
MOWN ([a.sub.3]) + 0.0630 0.0185 **
 (1.30) (2.29)
IOWN ([a.sub.4]) + 0.0080 0.0725 **
 (0.16) (2.23)
CEODUAL ([a.sub.5]) -0.0004 -0.1213
 (-0.01) (-1.59)
SIZE (1) + 0.0262 * 0.0049
 (2.88) (0.39)
LEV (2) - -0.0103 ** -0.1458 *
 (-1.76) (-5.70)
DLIST (3) + 0.0077 0.0044
 (0.45) (0.23)
F-stat 4.06 * 10.30 *
[R.sup.2] - overall 22.8% 70.8%
Year and country Included Included
 dummies

Note: *, ** indicate statistical significance at the 1% and 5%
level, respectively (t-statistics with two tailed test in the
parentheses).

[ROA.sub.it] ([SR.sub.it]) = [a.sub.0] + [a.sub.1][BIND.sub.it] +
[a.sub.2][BDSIZE.sub.it] + [a.sub.3][MOWN.sub.it] +
[a.sub.4][IOWN.sub.it] + [a.sub.5][CEODUAL.sub.it] +
[beta][Controls.sub.it] + [sub.[gamma]]Year dummies + [delta]Country
dummies + [e.sub.it] (1)

The dependent variables are ROA and SR. We have created two sub
groups for each dependent variable based on the sample median for
every year. Firms with high ROA or SR are those with observations
above the sample median for every year and vice versa. ROA is the
ratio of net income over total assets at the end of the fiscal
year, SR is the solvency ratio estimated as after tax net income
plus depreciation divided by total liabilities (short-term and
long-term liabilities), BDSIZE is the total number of directors
serving on the board, BIND is the ratio of independent directors to
the total number of directors serving on the board, MOWN is the
percentage of shares owned by the directors and managers, IOWN is
the percentage of shares owned by institutional investors, CEODUAL
receives (1) if the CEO is also the chairman of the board and (0)
otherwise, SIZE is the natural logarithm of total assets at the end
of the fiscal year, LEV is the ratio of total debt to common
equity, DLIST is a dummy receiving (1) if a club is publicly listed
and (0) otherwise.

Table 5: 2SLS Regression Results of Governance on Profitability
and Viability

Variables ROA

 Unstandardized T-stat
 Coefficients

Constant ([a.sub.0]) -0.1854 ** -1.85
BIND ([a.sub.1]) 0.0085 ** 1.96
BDSIZE ([a.sub.2]) 0.0028 ** 1.84
MOWN ([a.sub.3]) 0.0547 ** 2.05
IOWN ([a.sub.4]) 0.0105 * 2.69
CEODUAL ([a.sub.5]) -0.076 ** 1.73
SIZE (1) 0.0107 ** 1.88
LEV (2) -0.0214 ** -1.71
DLIST (3) 0.0215 0.86

F-stat 5.02 * 5.87 *
[R.sup.2] - adjusted 55.28% 62.35%
Year and country Included Included
dummies

Variables SR

 Unstandardized T-stat
 Coefficients

Constant ([a.sub.0]) -0.084 -0.58
BIND ([a.sub.1]) 0.215 * 2.84
BDSIZE ([a.sub.2]) 0.0118 * 2.99
MOWN ([a.sub.3]) 0.0701 ** 1.83
IOWN ([a.sub.4]) 0.0514 ** 1.77
CEODUAL ([a.sub.5]) -0.0418 ** 2.16
SIZE (1) 0.0088 * 2.55
LEV (2) -0.0418 ** -1.67
DLIST (3) 0.0458 0.51

F-stat
[R.sup.2] - adjusted
Year and country
dummies

Note: *, ** indicate statistical significance at the 1% and 5%
level, respectively.

[ROA.sub.it] ([SR.sub.it]) = [a.sub.0] + [a.sub.1][BIND.sub.it] +
[a.sub.2][BDSIZE.sub.it] + [a.sub.3][MOWN.sub.it] +
[a.sub.4][IOWN.sub.it] + [a.sub.5][CEODUAL.sub.it] +
[beta][Controls.sub.it] + [sub.[gamma]]Year dummies +
[delta]Country dummies + [e.sub.it] (1)

The dependent variables are ROA and SR. ROA is the ratio of net
income over total assets at the end of the fiscal year, SR is the
solvency ratio estimated as after tax net income plus depreciation
divided by total liabilities (short-term and long-term
liabilities), BDSIZE is the total number of directors serving on
the board, BIND is the ratio of independent directors to the total
number of directors serving on the board, MOWN is the percentage of
shares owned by the directors and managers, IOWN is the percentage
of shares owned by institutional investors, CEODUAL receives (1) if
the CEO is also the chairman of the board and (0) otherwise, SIZE
is the natural logarithm of total assets at the end of the fiscal
year, LEV is the ratio of total debt to common equity, DLIST is a
dummy receiving (1) if a club is publicly listed and (0) otherwise.

Table 6: Seemingly Unrelated Regression Results of Governance on
Profitability and Viability

Variables ROA

 Coefficients Z-stat

Constant ([a.sub.0]) -0.1140 -0.77
BIND ([a.sub.1]) 0.0203 ** 2.33
BDSIZE ([a.sub.2]) 0.0032 ** 1.79
MOWN ([a.sub.3]) 0.0628 0.63
IOWN ([a.sub.4]) 0.1225 ** 2.27
CEODUAL ([a.sub.5]) -0.1057 ** 2.13
SIZE (1) 0.0190 ** 2.14
LEV (2) -0.0177 * -2.67
DLIST (3) 0.0328 0.54

[Chi.sup.2] 28.66 * 44.70 *
[R.sup.2] 57.88% 71.77%
Year and country Included Included
dummies

Variables SR

 Coefficients Z-stat

Constant ([a.sub.0]) -0.1761 -0.78
BIND ([a.sub.1]) 0.3385 * 3.59
BDSIZE ([a.sub.2]) 0.0096 * 3.39
MOWN ([a.sub.3]) 0.1929 ** 2.25
IOWN ([a.sub.4]) 0.1837 ** 2.23
CEODUAL ([a.sub.5]) -0.0187 ** 2.24
SIZE (1) 0.0080 ** 1.85
LEV (2) -0.0379 * -3.65
DLIST (3) 0.0538 0.57

[Chi.sup.2]
[R.sup.2]
Year and country
dummies

Note: *, ** indicate statistical significance at the 1% and 5%
level, respectively.

[ROA.sub.it] ([SR.sub.it]) = [a.sub.0] + [a.sub.1][BIND.sub.it] +
[a.sub.2][BDSIZE.sub.it] + [a.sub.3][MOWN.sub.it] +
[a.sub.4][IOWN.sub.it] + [a.sub.5][CEODUAL.sub.it] +
[beta][Controls.sub.it] + [gamma]Year dummies + [delta]Country
dummies + [e.sub.it] (1)

The dependent variables are ROA and SR. ROA is the ratio of net
income over total assets at the end of the fiscal year, SR is the
solvency ratio estimated as after tax net income plus depreciation
divided by total liabilities (short-term and long-term
liabilities), BDSIZE is the total number of directors serving on
the board, BIND is the ratio of independent directors to the total
number of directors serving on the board, MOWN is the percentage of
shares owned by the directors and managers, IOWN is the percentage
of shares owned by institutional investors, CEODUAL receives (1) if
the CEO is also the chairman of the board and (0) otherwise, SIZE
is the natural logarithm of total assets at the end of the fiscal
year, LEV is the ratio of total debt to common equity, DLIST is a
dummy receiving (1) if a club is publicly listed and (0) otherwise.

Table 7: Panel Regression Results of Governance on Profitability
and Viability Using Alternative Measures of Financial Performance,
Viability and Club Size

Variables ROE PM RSF

Constant ([a.sub.1]) -0.157 ** -0.054 ** -0.005
 (-1.85) (-1.66) (-1.32)
BIND ([a.sub.1]) 0.010 ** 0.018 * 0.021 **
 (1.74) (2.79) (2.48)
BDSIZE ([a.sub.2]) 0.002 ** 0.008 ** 0.012 *
 (1.66) (1.98) (2.69)
MOWN ([a.sub.3]) 0.054 ** 0.039 ** 0.065 *
 (1.80) (1.89) (2.88)
IOWN ([a.sub.4]) 0.011 ** 0.018 ** 0.021 *
 (2.18) (2.22) (3.09)
CEODUAL ([a.sub.5]) -0.096 ** -0.074 ** -0.108 **
 (-1.90) (-1.87) (-2.29)
SIZE (1) 0.018 ** 0.009 ** 0.011 **
 (2.12) (1.91) (2.09)
LEV (2) -0.009 ** -0.004 -0.008
 (-1.93) (-1.55) (-1.07)
DLIST (3) 0.021 0.005 0.012
 (1.09) (0.54) (1.03)
F-stat 4.89 * 6.22 * 10.54 *
[R.sup.2] - overall 25.84% 48.59% 65.22%
Year and country Included Included Included
dummies

Variables ROS Z-Score

Constant ([a.sub.1]) -0.021 ** -0.007
 (-1.72) (-1.28)
BIND ([a.sub.1]) 0.028 * 0.014 **
 (2.87) (1.70)
BDSIZE ([a.sub.2]) 0.004 ** 0.008 **
 (1.75) (1.82)
MOWN ([a.sub.3]) 0.044 ** 0.027 **
 (1.82) (1.78)
IOWN ([a.sub.4]) 0.017 ** 0.009 **
 (1.89) (1.69)
CEODUAL ([a.sub.5]) -0.048 ** -0.032 **
 (-1.92) (-1.84)
SIZE (1) 0.008 ** 0.009 **
 (1.94) (1.83)
LEV (2) -0.012 ** -0.007 **
 (-1.69) (-1.75)
DLIST (3) 0.007 0.004
 (0.67) (0.49)
F-stat 7.44 * 5.04 *
[R.sup.2] - overall 55.08% 29.55%
Year and country Included Included
dummies

Note: *, ** indicate statistical significance at the 1% and 5%
level, respectively (t-statistics with two tailed test in the
parentheses). The "Z-score" column refers to the estimation of
model (1) using only listed football clubs.

[ROE.sub.it] ([PM.sub.it], [RSF.sub.it], [ROS.sub.it],
[Z-Score.sub.it]) = [a.sub.0] + [a.sub.1][BIND.sub.it] +
[a.sub.2][BDSIZE.sub.it] + [a.sub.3][MOWN.sub.it] +
[a.sub.4][IOWN.sub.it] + [a.sub.5][CEODUAL.sub.it] +
[beta][Controls.sub.it] + [sub.[gamma]]Year dummies +
[delta]Country dummies + [e.sub.it] (1)

The dependent variables are ROE is the ratio of net income over
common equity at the end of the fiscal year, PM is the profit
margin estimated as net income to revenue, RSF is the return on
shareholder's funds measured as [(Net profit after taxation +
preference dividend) / (Ordinary share capital + Reserves)], ROS is
the return on sales measured as the ratio of net income over net
sales, Z-Score is the Altman Z-score of bankruptcy risk. BDSIZE is
the total number of directors serving on the board, BIND is the
ratio of independent directors to the total number of directors
serving on the board, MOWN is the percentage of shares owned by the
directors and managers, IOWN is the percentage of shares owned by
institutional investors, CEODUAL receives (1) if the CEO is also
the chairman of the board and (0) otherwise, SIZE is the natural
logarithm of player's contracts at the end of the fiscal year, LEV
is the ratio of total debt to common equity, DLIST is a dummy
receiving (1) if a club is publicly listed and (0) otherwise.

Table 8: Fixed-Effect Regression Results of Governance on the
Variability of Financial Performance and Viability

Variables ROA SR

Constant ([a.sub.0]) 0.1254 0.0528
 (0.85) (0.88)
BIND ([a.sub.1]) -0.0109 ** -0.0521 **
 (-1.82) (-2.09)
BDSIZE ([a.sub.2]) -0.0037 ** -0.0118 **
 (-1.68) (-2.17)
MOWN (a3) -0.0018 *** -0.0418 **
 (-1.55) (-1.73)
IOWN (a4) -0.0051 *** -0.0092 **
 (-1.62) (-1.87)
CEODUAL (a5) 0.0099 ** 0.0182 **
 (1.99) (2.25)
SIZE (x) -0.0182 ** -0.0108 **
 (-1.83) (-2.11)
LEV (2) 0.0065 ** 0.0054 **
 (1.80) (1.96)
DLIST (3) -0.0027 -0.0036
 (-0.95) (-0.25)
Regression F-stat 9.88 * 10.07 *
[R.sup.2] - overall 35.28% 40.19%
Year and country dummies Included Included

Note: *, **, *** indicate statistical significance at the 1%, 5%,
and 10% level, respectively (t-statistics with two tailed test
in the parentheses).

[ROA.sub.it] ([SR.sub.it]) = [a.sub.0] + [a.sub.1][BIND.sub.it] +
[a.sub.2][BDSIZE.sub.it] + [a.sub.3][MOWN.sub.it] +
[a.sub.4][IOWN.sub.it] + [a.sub.5][CEODUAL.sub.it] +
[beta][Controls.sub.it] + [sub.[gamma]]Year dummies +
[delta]Country dummies + [e.sub.it] (1)

The dependent variables are ROA and SR. ROA is the annual
percentage change of the ratio of net income over total assets at
the end of the fiscal year, SR is the annual percentage change of
the solvency ratio estimated as after tax net income plus
depreciation divided by total liabilities (short-term and long-term
liabilities), BDSIZE is the total number of directors serving on
the board, BIND is the ratio of independent directors to the total
number of directors serving on the board, MOWN is the percentage of
shares owned by the directors and managers, IOWN is the percentage
of shares owned by institutional investors, CEODUAL receives (1) if
the CEO is also the chairman of the board and (0) otherwise, SIZE
is the natural logarithm of total assets at the end of the fiscal
year, LEV is the ratio of total debt to common equity, DLIST is a
dummy receiving (1) if a club is publicly listed and (0) otherwise.

Table 9: Fixed-Effect Regression Results of Board Structure
Interaction Effects

Variables ROA SR

Constant ([a.sub.0]) -0.1632 -0.1679
 (-1.14) (-0.78)
DBIND ([a.sub.1]) 0.0967 ** 0.3714 *
 (2.19) (5.58)
BDSIZE ([a.sub.2]) 0.0059 ** 0.0168 *
 (2.41) (4.53)
DBIND*BDSIZE ([a.sub.3]) 0.1056 * 0.4146 *
 (2.64) (2.75)
MOWN ([a.sub.4]) 0.0860 ** 0.2702 **
 (1.85) (1.77)
IOWN ([a.sub.5]) 0.1458 ** 0.2707 **
 (2.49) (1.84)
CEODUAL ([a.sub.6]) -0.1010 ** -0.0131
 (-2.03) (-0.18)
SIZE (1) 0.0225 ** 0.0008
 (2.51) (0.05)
LEV (2) -0.0170 ** -0.0357 *
 (-2.50) (-3.50)
DLIST (3) 0.0470 0.0187
 (0.75) (0.20)
Regression F-stat 3.66 * 7.77 *
[R.sup.2] - overall 56.70% 71.54%
Year and country dummies Included Included

Note: *, ** indicate statistical significance at the 1% and 5%
level, respectively (t-statistics with two tailed test in the
parentheses).

[ROA.sub.it] ([SR.sub.it]) = [a.sub.0] + [a.sub.1][DBIND.sub.it] +
[a.sub.2][BDSIZE.sub.it] + [a.sub.3]]DBIND.sub.it]*[BDSIZE.sub.it]
+ [a.sub.4][MOWN.sub.it] + [a.sub.5][IOWN.sub.it] +
[a.sub.6][CEODUAL.sub.it] + [beta][Controls.sub.it] +
[sub.[gamma]]Year dummies + [delta]Country dummies + [e.sub.it]

The dependent variables are ROA and SR. ROA is the ratio of net
income over total assets at the end of the fiscal year, SR is the
solvency ratio estimated as after tax net income plus depreciation
divided by total liabilities (short-term and long-term
liabilities), BDSIZE is the total number of directors serving on
the board, DBIND is a dichotomous variable receiving (1) if the a
club's board independence is above the sample median for every year
and (0) otherwise, MOWN is the percentage of shares owned by the
directors and managers, IOWN is the percentage of shares owned by
institutional investors, CEODUAL receives (1) if the CEO is also
the chairman of the board and (0) otherwise, SIZE is the natural
logarithm of total assets at the end of the fiscal year, LEV is the
ratio of total debt to common equity, DLIST is a dummy receiving
(1) if a club is publicly listed and (0) otherwise.
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Author:Dimitropoulos, Panagiotis E.; Tsagkanos, Athanasios
Publication:International Journal of Sport Finance
Article Type:Industry overview
Date:Nov 1, 2012
Words:14340
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