Disclosure and corporate governance: Evidence from Russian companies

Abstract

Purpose: this article aims to provide new evidence on the role of several potential drivers of corporate disclosure that have been insufficiently studied or remain controversial in the literature on accounting and corporate governance such as one-tier vs. two-tier corporate boards, having grey directors on the board, direct vs. indirect government ownership and the ownership stake of second-largest shareholders. Methodology: the study uses rich and unique data on transparency and disclosure by Russian firms collected by the S&P agency from 2002 till 2010 and obtained by the authors under a confidentiality agreement. The analysis is based on conventional techniques of regression analysis for panel data. Findings: there is strong evidence of complementarity between corporate governance and disclosure. In particular, disclosure is enhanced by boards with a higher proportion of truly independent directors (compared to grey directors, whose role is less clear-cut), is higher in companies with a two-tier board and those with a greater stake of the second largest shareholder. It is also found that direct government ownership is associated with reduced disclosure. In contrast, no such effect is observed for indirect ownership by the state. Originality and contribution: the analysis uses detailed data from a country with a relatively poor corporate governance environment in general and low standards of mandatory disclosure, which helps observe relationships that would be hard to detect in better institutional settings. It is also one of the first studies that scrutinizes disclosure practices of publicly traded companies in Russia. The obtained findings emphasize the risks of reduced mandatory disclosure requirements, which Russian government allowed in response to the Western sanctions, on the background of a significant exodus of qualified independent/foreign directors from the corporate boards. Given the complementarity between disclosure and corporate governance, this may amplify the risks of poor corporate governance and performance of Russian firms.