Corporate Governance Arrangements Research Articles

Research on Relationship Between Governance Structure and Corporate Performance of Chinese Technology Companies

In the post-pandemic age of 2023, the economy is in recovery. Despite the distinctive qualities of technology firms, such as quick development and high levels of innovation, they face problems such as economic downturns and funding issues. As a result, the corporate governance structure is critical to guaranteeing the firms' long-term viability. The purpose of this article is to examine 252 publicly traded technology companies and investigate the link between corporate financial performance and corporate governance arrangements. This article used Ordinary Least Squares (OLS) analysis to look at the link between board independence, Chief Executive Officer (CEO) duality, ownership concentration, and return on equity (ROE). The regression findings indicate a negative association between ROE and the proportion of independent directors. However, there is no substantial association between the duality of ROE and the CEO, and ROE has a U-shaped relationship with ownership concentration. The study's findings imply that corporate executives and regulators should adopt an effective monitoring mechanism to ensure the impartiality and reliability of independent directors' oversight. To ensure strong financial performance, organizations should maintain appropriate levels of independent director percentages and stock concentration.

Board monitoring and corporate disclosure: the role of the institutional environment and firm-level governance

PurposeThis article aims to answer two research questions that remain controversial in the accounting and corporate governance literature: (1) how corporate disclosure is related to board monitoring and (2) how this link is affected by the institutional environment and firm-level governance.Design/methodology/approachThe study is based on S&P data on corporate disclosure by Russian companies collected over 2002–2010 and supplemented by information from the SKRIN database. The dataset covers 125 non-financial companies, with 559 observations in total. We use three indicators of board monitoring: the percentage of non-executive directors, a dummy for two-tier boards, and a dummy for an audit committee. The firm’s governance is proxied by a dummy for single class stock, while the institutional environment is proxied by a dummy for ADRs/GDRs. We apply conventional methods of panel data analysis with several robustness checks, including the random- and fixed-effects models, 2SLS that addresses the potential endogeneity of board composition, alternative definitions of the dependent variable, and an extended list of controls.FindingsWe find a positive (complementary) relationship between the amount of disclosure and the proxies for board monitoring employed. This complementary relationship turns out to be the strongest among companies that have better internal governance but face a weaker institutional environment. There is little evidence of such complementarity under strong institutions.Practical implicationsThe findings may be of interest to investors and policymakers. As to the former, the results warn of firms that provide limited disclosure in the presence of strong corporate governance arrangements, such as independent boards, as these factors are not substitutes for each other. As to the latter, the results support comprehensive policies aimed at simultaneous improvements in both board governance and corporate disclosure in weak institutional settings.Originality/valueThis paper uses a unique setting and rich, partly proprietary data to extend the existing literature on the relationship between corporate disclosure and board monitoring, with an emphasis on the moderating role of the institutional environment and firm-level governance. It is also one of the very few studies of corporate disclosure in Russia, an important emerging economy of the early 2000s.

Corporate fraud and independent director's re‐appointment: Information hypothesis or favouritism hypothesis?

AbstractUsing the analytical framework of social identity theory, this paper explores how a special corporate governance arrangement in the Chinese capital market, i.e., independent directors' re‐appointment, affects corporate ethical behaviours. Using the bivariate probit model, we find that independent directors’ re‐appointment significantly increases corporate fraud propensity, indicating that the favouritism towards re‐appointed independent directors by firms generated from social identity plays a dominant role in the corporate governance outcome in a relationship‐based society. Our results remain consistent after using an exogenous shock to alleviate the endogenous problems. The policy implication of this paper is that the corporate arrangement of re‐appointed independent directors in the Chinese capital market may impair stakeholders’ benefit and weaken business ethics. Top‐level institutional design should be improved and consider thoroughly the effects of social identity on corporate governance outcomes.

Family Management and Historical Origins: The Italian Experience

ABSTRACTResearch Question/IssueThe purpose of this paper is to analyze the long‐run determinants of the corporate structure of Italian firms to explain the persistent role of a long‐run tradition of civic capital that has favored interpersonal trust, fostered cooperation outside of the narrow ties of family members and limited the diffusion of family businesses managed predominantly by family members.Research Findings/InsightsWe examined a large sample of Italian listed and not listed firms and identified those that operate in current municipalities that in the past used to be independent communes. Such firms featuring experiences of civic engagement are today less likely to be owned by a family and run by family management.Theoretical/Academic ImplicationsOur findings highlight the role of institutions as drivers of corporate governance and signal that long forgotten institutions, by modifying local social capital, may interact with family social capital and have important persistent effects on current corporate governance arrangements. Therefore, significant elements of path dependency may explain current patterns of unbundling of ownership and management.Practitioner/Policy ImplicationsPersistent corporate governance structures are difficult even for policymakers to modify. Our findings suggest that political measures should favor the accumulation of social capital at the local level when aiming to change ownership and management arrangements and limit the misallocation of resources due to family management.

Tax Avoidance Practice in Textile Company in Bangladesh and Impact of Social Media to Avoid This Problems

In Bangladesh's textile sector, tax evasion is a major problem, with businesses using a range of tactics to reduce their tax obligations. The purpose of this study is to look into tax evasion tactics used by Bangladeshi textile industries and to see if social media might help solve this issue. This study looks at the tactics used by textile companies to evade taxes, such as profit shifting, transfer pricing, and offshore tax havens, through a thorough examination of the literature and empirical evidence. The results indicate that tax evasion is a multifaceted matter that is impacted by various elements such as legal frameworks, corporate governance arrangements, and cultural standards. In order to take advantage of tax system weaknesses and reduce their tax liabilities, textile companies in Bangladesh frequently employ aggressive tax planning techniques. In addition to undermining government revenue, these actions also exacerbate social injustice and wealth inequality. The study also investigates how social networking sites like Facebook, LinkedIn, and Twitter might help reduce tax avoidance by encouraging accountability, transparency, and corporate responsibility. The results imply that social media can be an effective instrument for increasing awareness, revealing unethical behavior, and making businesses responsible for their tax duties. The efficient use of social media for tax transparency is hampered by issues like false information, privacy concerns, and regulatory loopholes. By illuminating the mechanics of tax avoidance in Bangladesh's textile industry and suggesting tactics for utilizing social media to combat this problem.

Directors’ Duties During the Green Transition under EU Law

In response to the climate emergency, the European Union seeks to establish a new model of inclusive growth and depicts this shift as a ‘green, fair and competitive transition’. The article examines the EU sustainable corporate governance initiative commenced in 2018 that has crystalized after four years in a Commission’s proposal for a Directive on corporate due diligence, which is expected to be adopted by early 2024. The focus herein is on why and how directors’ duties under company law are being discussed and potentially reformed in the EU through this new Directive. At stake are current corporate governance arrangements that have enshrined powerful norms regarding profit-maximization and shareholder primacy that can hinder the green transition. This inquiry aims to map, simplify and explain the vast and rapidly evolving EU regulatory landscape. Drawing on EU materials from 2018 to 2023, the article documents the ‘misunderstanding problem’ and the ‘incentives problem’ that create a dissonance between the legal norm advanced by company law and the business norm practiced by the corporate governance system. Currently mired by profound disagreements between the Commission and the Council, the EU has a rare opportunity to deliver an innovative and noteworthy reform of directors’ duties in company law by creating new legal and market incentives while remaining faithful to the core tenets of this body of law.

Does competition exacerbate investment inefficiencies? Evidence from Japanese firms

This paper investigates the implications of product market competition for the efficiency of managerial investment decisions. Using a sample of Japanese public corporations, we find that competition in the product market leads to overinvestment. We attribute this finding to the deleterious effects of competition on agency costs. Our hypothesis is supported by the fact that these adverse effects become more severe in environments with high agency costs, i.e., those with cross-shareholdings and interlocking business relationships, often referred to as Keiretsus, and those with weaker corporate governance arrangements. Our results are robust to the inclusion of firm-level characteristics, empirical specifications, and endogeneity of competition. Overall, our findings shed light on an important channel through which competition induces overinvestment namely, agency costs.

Corporate governance, political connection, and foreign ownership control: The property rights theory perspective

Over time, the reduction in foreign ownership in Indonesia has prompted questions about its causes. The country is still perceived to have low corporate governance standards and a high level of political connections. The aim of this study is to investigate whether corporate governance and political connections have an impact on foreign ownership. The study utilized manufacturing company data from 2018 to 2021, comprising 48 companies with 192 observations. The findings of the study indicate that foreign investors tend to decrease their investment in companies with strong corporate governance. The study reveals that a firm with robust corporate governance becomes an attractive target for local investors to acquire ownership. The findings provide evidence of a decrease in the proportion of foreign investors in such companies. Instead, foreign investors continue to view companies with political connections as potential concern for surveillance. This study uses another argument to explain how the structure of foreign ownership in Indonesia uses the property right theory. Policy-making authorities can make policies to support corporate governance arrangements and support to reduce the level of corruption so as to support the investment climate in Indonesia. This research can be used as a new insight to understand how the investment climate is, but has not considered aspects related to environmental and social issues

Does corporate governance improve integrated reporting quality? A meta-analytical investigation

Purpose The relationships between integrated reporting quality (IRQ) and corporate governance characteristics have been studied extensively, but the results are still inconclusive and, sometimes, contradictory. The purpose of this paper is to systematize the results of previously published studies on the relationship between corporate governance and IRQ. Design/methodology/approach This paper uses several complementary theoretical perspectives (agency, stakeholder and signaling theory). The relevant aspects of the corporate governance system are the attributes and composition of the board, the existence of a social responsibility committee, the quality of the audit committee, integrated report assurance and ownership structures. The sample consisted of 61 papers published in top journals between 2015 and 2021. Meta-analytic procedures were applied on bivariate and partial correlations between IRQ and the identified corporate governance characteristics. Findings The results confirm that director independence, the existence of a social responsibility committee, institutional ownership and the hiring of a Big 4 auditor are significantly correlated with IRQ. On the other hand, board gender diversity, audit committee independence and dedicated assurance have a positive but nonsignificant impact on IRQ. Chairperson-chief executive officer duality does not seem to impact report quality, while ownership concentration has a negative but nonsignificant impact on IRQ. Research limitations/implications Future research can improve the measurement of focal indicators by using a common set of variables for comparability, favoring disaggregate measures of corporate governance and updating the measurement of some indicators. Future research could also propose new indicators in the area of corporate governance and expand the theoretical domain of IRQ research. Originality/value The findings emphasize the need to explicitly consider the role of corporate governance structures and arrangements in improving IRQ. Through meta-analysis, the paper aims to provide a comprehensive and generalizable set of findings, suggesting that corporate governance indicators cannot be overlooked as predictors of integrated reporting.

Developments in Corporate Governance in Central and Eastern Europe

The countries of western Europe have seen far reaching corporate governance developments in recent years, ranging from the Cadbury Report in the UK to the Vienot Report in France. These developments have been discussed in toto in the report of the CEPS working party on corporate governance in Europe. However alongside the developments in western Europe, there are fundamental political and economic changes going on in the countries in Eastern and Central Europe (CEEC) which have significant implications for the development of corporate governance in these countries. In this paper we analyse the changes that have taken place in a number of CEEC countries, highlighting both the commonalities and the differences, and the way that these countries are developing in terms of their corporate governance structures. The demise of central planning, for example, has led to a shift of control, and we seek to examine such issues as where control now lies, the effects of privatisation, and the problems of development of institutional arrangements for corporate governance. Financial institutions have a key role to play in the changes in the CEEC and therefore the latter part of the paper places a special emphasis on the role of financial institutions, particularly banks, as monitors in the CEEC, and analyses the banks' role in firms' restructuring. The implications for the role of banks in any developing corporate governance system are immense, with banks playing a central role as monitors of corporate success. However the privatisation of banks and firms is not, per se, sufficient to ensure that these enterprises develop adequate corporate governance structures which are able to cope with problems endemic in the current framework, and are capable of evolving to take account of future changes. We examine the existing structures in several CEEC, and provide a taxonomy of changes that have occurred to date. We discuss likely future changes and conclude on the likely effects on corporate governance in the CEEC.

The Government as Institutional Entrepreneur in Corporate Governance Reform

Governments around the world have become prolific issuers of soft law regulation in the form of corporate governance codes. However, the strategies that governments pursue to ensure the diffusion of the codes have remained unexplored in the literature. Drawing from institutional and sociopolitical perspectives, I hypothesize that governments pursue a combination of different intervention strategies to bring the corporate governance arrangements of firms in line with the issued code. These strategies focus on the mobilization of material resources, the dissemination of rationales and legitimating accounts for corporate governance change, interventions in social structure and the establishment of new social relations. I test my hypotheses in the context of the issuance of the national corporate governance code in Germany and find general support for my hypotheses.

Private companies: the missing link on the path to net zero

ABSTRACT Global consensus is growing on the contribution that corporations and finance must make towards the net-zero transition in line with the Paris Agreement goals. However, most efforts have ultimately focused on public companies. This article argues that such a focus falls short of providing a comprehensive approach to the problem of climate change. It particularly examines the contribution of private companies to climate change and the phenomenon of brown-spinning. We show that one cannot afford to ignore private companies in the net-zero transition. Yet, private companies lack several disciplining mechanisms available to public companies, such as institutional investor engagement, certain corporate governance arrangements, and transparency through regular disclosure obligations. Nevertheless, along with some equally applicable generic regulatory instruments, private companies might be subject to external push by their financiers, banks. The article closes with policy implications. Primarily, we discuss and evaluate the recent push to extend climate-related disclosure requirements to private companies.

Corporate governance and the capital structure behavior: empirical evidence from France

PurposeThe purpose of this paper is to test the validity of dynamic tradeoff theory and argue that the speed of adjustment toward the target capital structure may vary depending primarily on some inherent firm characteristics.Design/methodology/approachThe objective of this article is to study the impact of the corporate governance arrangements on the capital structure behavior taken by listed French firms. The author measures the corporate governance arrangements in three different ways to capture its influences on the capital structure and analyze how it affects a firm's rebalancing behavior in the presence of relevant control variables. Assuming that costs related to deviations from the target leverage are positively correlated with the duration of the deviation, the author finds that firms with a strong governance system adjust at a faster rate because the longer the deviation lasts, the greater the loss in firm value. In addition, firms with more efficient governance structures face lower adjustment costs.FindingsThe author measures corporate governance quality in different ways by using several proxies. The results make a major contribution to the literature and show that the quality of the governance system is an important factor in helping the company achieve fatly its target leverage. The authors produces further support for the initial finding by showing that the two extreme leverage deviation groups are dominated by firms with weak governance. The author also shows that the rebalancing speed is faster for firms with strong governance systems.Originality/valueThe paper proposes that a firm characterized by a strong governance system will display a shorter-duration deviation from the target capital structure and a higher adjustment level than a firm with weak governance. In other words, the author argues that the deviation from the target capital structure and the adjustment level are related to the quality of corporate governance. The results indicate that firms with a stronger governance structure are characterized by shorter-term deviations from the target. The author also finds that firms belonging to the two subsamples where leverage deviation is at extremely high or low levels are characterized by a weak governance system. The results corroborate the hypothesis on the speed of adjustment toward the desired target leverage. Furthermore, the author empirically proves that the adjustment level of firms with stronger governance is higher in both extreme leverage situations. This paper extends the existing literature on capital structure adjustment by introducing the effect of corporate governance.

Management geographical proximity and stock price crash risk

PurposeThis study provides empirical support for the cultural economics model between executive team and firm performance and offers important implications for policy selection and appointment of managers in China.Design/methodology/approachFrom the perspective of relationship embeddedness, the authors explore the impact of management geographical proximity (GP) on stock price crash risk in China. Using archival data from China's unique dataset about birthplace culture, the authors find that management GP experiences a large increase in corporate stock price crash risk for the period 2009–2018.FindingsThe impact of management GP on stock price crash risk is more pronounced when the company is located in areas with weaker formal legal environment and stronger Confucian culture. Furthermore, the impact has a significant links with firm characteristics such as information transparency, over-investment and tax aggressiveness.Originality/valueFirst, the research extends the literature on the empirical determinants of stock price crash risk. These studies focus on formal institution, not on informal institution, such as relational culture. Second, the research provides evidence for economic consequences on relational governance from executive birthplace culture to explore the economic consequences of geographical relational governance but takes stock price crash risk to present executives' behavior strategies and market reaction via exploring asymmetrical variation of market stock price. Finally, the paper provides reference to corporate governance arrangement and executive appointment.

Respon Investor atas Tanggung Jawab Sosial Tata Kelola Perusahaan di Indonesia: Perspektif Resource Based View

This study aims to examine the effect of corporate social responsibility disclosure and corporate governance disclosure on firm value in Indonesia. This study uses a Resource Based View perspective which is still rarely used in testing firm value. This study uses data and information from manufacturing companies listed on the IDX from 2016 to 2019. After purposive sampling, the final sample that can be used is 260 observations. Testing the data using multiple linear analysis with panel data. The test results show that corporate social responsibility and corporate governance have no effect on firm value. The test results in this study indicate that the Financial Services Authority as the supervisor of issuers in the Indonesian capital market, needs to improve corporate governance and corporate social responsibility arrangements.
 Keywords: Governance; Sustainability; Disclosure; Firm Value.

Is the Journey more Important than the Destination? EU Accession and Corporate Governance and Performance of Banks

AbstractThis article examines how accession to and subsequent membership of the EU has influenced the dissemination of corporate governance characteristics and the financial performance of the banking industry. Using a hand‐collected, cross‐national dataset from EU member and candidate states the analysis indicates the candidacy period is associated with the better financial performance of banks than the latter period of EU membership. EU membership also has a significant negative influence on adopting some corporate governance arrangements. We infer this result is consistent with instrumental rationality explanations of Europeanization. While the process of accession has brought benefits, these are not always reinforced by subsequent EU membership.

The effect of board composition and managerial pay on Saudi firm performance

Using five empirical methodologies to account for endogeneity issues, this study investigates the effects of board independence and managerial pay on the performance of 169 Saudi listed firms between 2007 and the end of 2014. Studying board independence and managerial pay utilises the main internal governance mechanism in relation to firm performance; therefore, the effect of the 2009 exogenous regulatory shock on board independence was also examined to learn whether it impacted firm performance. The empirical results show that the board composition–performance relationship is endogenous. Strong evidence is found through the dynamic generalised method of moments estimation, which indicates that board composition has a positive relationship with return on assets, and poor past performance of listed firms has a negative impact on the current level of performance. The difference-in-differences approach results show a positive relationship between board composition, stock returns, and Tobin’s Q. The findings also reveal that managerial pay has a positive relationship with firm performance, although when endogeneity is considered, there is a smaller positive relationship and a decrease in significance levels. Thus, pay-for-performance in Saudi Arabia matters, and firms are not simply controlled by the government. The results of this study have implications for both policy makers and investors. In particular, policy makers and Saudi regulators can evaluate the impact of Saudi corporate governance arrangements and, in so doing, highlight changes in corporate governance arrangements that need to be made to achieve their economic objectives, such as Vision 2030. This study also contributes to the literature by showing the importance of considering endogeneity in studies.

Investigation of strategic human resources activity in corporate governance practices: A research with Artificial Neural Networks

Corporate governance, which is defined as the laws, rules and elements system controlling the activities in a business and whose principles are fairness, transparency, accountability and responsibility, is of great importance for all companies of national and international nature. The reasons that make corporate governance so important for all market mechanisms are financial crises and large-scale business scandals. Corporate governance, which is constantly regulated by taking into account its historical development and becomes more mandatory every day, is a form of strategic management based on holistic approach and sustainability. This research was interpreted by means of the BIST Corporate Governance Index data, which makes corporate governance arrangements, and the information obtained from the annual reports published on the websites of companies, institutions and organizations. The analysis was carried out with the data of 15 companies, institutions and organizations that can provide common data in the same time series. It is designed to investigate the effectiveness of HRM on 15 companies by applying Artificial Neural Networks (ANN) method, which is one of Artificial Intelligence methods. In the findings of the study, the classification success analysis of the model and the importance of independent variables were determined. It demonstrated that HRM is effective, the most important variable is the fact that it is 100% standardized importance and human resources policy, and 87.3% standardized importance and corporate governance compliance report.

Corporate environmental disclosure and earnings management—The moderating role of corporate governance structures

AbstractOur study examines whether internal corporate governance (CG) mechanisms moderate the relationship between a firm's engagement in corporate environmental disclosure (CED) and earnings management (EM) practices in an emerging economy. Using a sample of 100 Jordanian listed firms from 2010 to 2014 (i.e., 500 firm‐year observations), our findings reveal that while the relationship between CED and earnings manipulations is negative, the links between CG arrangements and EM are heterogeneous in that they might have either reduced or increased earnings manipulations in Jordan. Furthermore, some CG structures, such as board size, managerial, and institutional ownership structures have moderating effects on the CED‐EM nexus. Our research highlights the significance of considering internal CG mechanisms to explain the link between CED and EM in the context of emerging economies. Our results help to explain and place into setting the earlier mixed results on the association between CED and earnings manipulations and most importantly add to the debate about whether CG structures detrimental to the CED‐EM nexus. This study allows for a richer understanding of how managers respond to CED initiatives and CG reforms in relation to reducing earnings manipulations, which offers policymakers, board directors and managers, a set of context‐specific recommendations related to the crucial need for more concerted efforts to ensure corporate sustainability in emerging economies.

Addressing the Crisis of the Modern Corporation: The Duty of Societal Responsibility of the Board

A core element of most analyses of how capitalism is failing us is the shareholder primacy doctrine that has taken hold of corporate law and corporate governance. The doctrine has been developed in theory (among others through the agency theory) and practice (e.g. executive remuneration and takeover bids) resulting in the corporation becoming amoral. Any moral responsibility for the effects of one’s behaviour on others has to come from the outside, as an externality. Within the corporation only responsibility to create value for shareholders exists. It is striking to see how this corporate reality created by ourselves seems to have become a reality that is over and beyond us, as a matter-of-fact that cannot be contested, it is simply how it is. Insights of Weber and Fromm show how we have succumbed to self-made formal rationalization and alienation so that we no longer have any responsibility for this corporate reality. This human failure can only be conquered by turning to who we are in the corporate context. Proposals have been made to change this corporate reality, by reducing shareholders’ rights, by installing a broader corporate purpose and by involving other stakeholders in the governance of the corporation. In each of these approaches the role of the board is crucial. Without a board, without the people who make up the board, who commit the corporation to being a responsible citizen in society, nothing much will change. In this paper I argue that in order to generate such a commitment corporate law should introduce a duty of societal responsibility of the board. This involves being responsible for the impact the corporation has on human, social and natural capital, besides financial capital. Corporate law and corporate governance arrangements should elaborate on this duty, by applying principles of fair decision-making and by transforming board decision-making, board composition, organizational governance, executive remuneration and transparency. Such elaborations anchored in the duty of societal responsibility will bring to life a veritable and human commitment from within the corporation to conduct itself as a responsible corporate citizen in society.