Abstract
Drawing upon agency theory, we address the limitations of best practice code in the context of emerging governance, emphasizing the role of concentrated ownership. While the code provisions were formulated in developed countries, the transfer of one-size-fits-all guidelines may not address the characteristics and challenges of emerging and post-transition economies. Specifically, we emphasize that provisions of corporate governance codes are aimed at solving the principal–agent conflict between shareholders and managers. These guidelines may remain limited in addressing principal–principal conflicts between majority and minority shareholders and have either a lesser effect on valuation or none at all. Using a unique sample of 155 companies listed on the Warsaw Stock Exchange during the period 2006–2015, with hand-collected data from declarations of conformity, we tested the hypotheses on the link between corporate governance compliance (with board) practice and company value. The period of 2006–2015 was chosen deliberately, due to the relative stability of corporate governance code recommendations over this time. The results of our panel model reveal a negative and statistically significant relation between corporate governance compliance and company value. We contribute to the existing literature providing new evidence on compliance practice in the context of concentrated ownership, and the limited effect of code provisions in addressing structural challenges of corporate governance in emerging post-transition economies and hierarchy-based control systems.
Highlights
The adoption of best practice codes has been one of the most influential trends in corporate governance in the last 20 years (Aguilera and Cuervo-Cazura 2004; Zattoni and Cuomo 2008; Cuomo et al 2016), being noted in both developed and emerging economies
This study indicates a positive effect for two categories: board composition and remuneration policy, while no impact on performance is reported for increasing compliance with the recommendations on risk management and internal controls
The goal of this study was to test for the link between compliance and company value in a specific context of concentrated ownership and post-transition corporate governance
Summary
The adoption of best practice codes has been one of the most influential trends in corporate governance in the last 20 years (Aguilera and Cuervo-Cazura 2004; Zattoni and Cuomo 2008; Cuomo et al 2016), being noted in both developed and emerging economies. The criticism of the one-size fits-all approach indicates the structural differences in ownership structure, cultural norms, and socializing patterns, which may result in problems of code implementation, such as an instrumental approach to adoption (Fotaki et al 2019), manipulation (Okhmatovskiy and David 2012), and decoupling (Martin 2010; Sobhan 2016). These issues may reduce compliance benefits and limit the effect of higher valuations
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