Changes In Corporate Governance Research Articles

Triggering changes in corporate governance: before and after external whistleblowing

PurposeThe purpose of this paper is to investigate whether a change of corporate governance occurs after financial crimes in Canada revealed through external whistleblowing.Design/methodology/approachBased on the methodology of Smaili and Arroyo (2019), the authors implement a qualitative research framework to examine 11 alleged Canadian corporate financial statement fraud cases publicly exposed during the 1995–2012 period.FindingsThe analysis suggests that firms had a weak traditional corporate governance mechanism before the external whistleblowing occurred. In almost every case, the chief executive officer (CEO) was also the chair of the board of directors. Although the reports by Dey and Saucier recommend that independent directors make up at least 75% of Canadian boards, we note that the percentage of independent directors was under 70% in six cases. Moreover, only two firms had a whistleblowing policy in place, and seven firms had a major shareholder. Regarding the consequences for corporate governance after whistleblowing, the analysis shows that the companies that survived the whistleblowing had enhanced their internal corporate governance by the third year after the whistleblowing. In fact, at all the surviving companies, the CEO was no longer the chair, and the percentage of independent directors had increased to 80%. However, for those survival companies that did not have a whistleblowing policy before the event, the situation did not change quickly, and they only implemented a policy after the enforcement of the new regulation in the year 2003.Originality/valueThis paper adds new insights to the research on financial crime by investigating the relation between corporate governance and whistleblowing.

Board structure changes after accounting fraud: the case of Schneider Electric

Theoretical basis The impact of corporate governance on internal controls and quality of financial disclosures. Research methodology Analysis of a real financial fraud event for a non-US multinational corporation. The case relies on accessing and analyzing annual reports for the firm, both before and after the fraud. Additional information on industry governance characteristics are provided in the case itself so that students can compare the firm to the industry. Case overview/synopsis This business case is centered on the analysis of Schneider Electric, a French multinational corporation, which had to restate their financial statements in 2011 because of accounting fraud. Following this event, Schneider undertook major changes in their board structure to improve internal control mechanisms. This pedagogical business case familiarizes students with international differences in ownership and board structure and emphasizes potential corporate governance changes after financial statement fraud. Complexity academic level Managerial finance, corporate finance, international finance, auditing. This case is more appropriate for upper-level undergraduate and graduate courses.

STRATEGIC DIRECTIONS OF PERSONNEL MANAGEMENT DEVELOPMENT

The article examines changes in corporate governance at the turn of the millennium. According to the author, these shifts are undoubted of a strategic nature, and their reasons are the globalization of the market and sectoral structure, the optimization of the workforce at enterprises, the orientation of the owners towards high incomes, rapid and constant organizational and technological changes. The author believes that the changes will affect not only the business as a whole but also the organization of work of personnel in individual corporations.

Trends and Changes in Corporate Governance and in Corporate Social Responsibility Policies

Trends and Changes in Corporate Governance and in Corporate Social Responsibility Policies

Corporate cultural characteristics of startups in developed countries and recommendations for vietnamese small businesses

In the situation of globally connected digital economy, changes in organizational structure and smart corporate governance are placing the entrepreneurial structures in the face of unprecedented decisions on building and developing corporate culture. By the method of literature review, desk review on the basis of secondary data is a typical study case on the cultural characteristics of startups in the United States of America (USA), China, Korea, Japan, Singapore and European Union. Based on the experiences from developed countries, some recommendations has been proposed for small business founders in Vietnam. It is expected to contribute an additional perspective on digital business in the era of globalization.

Banks as Delegated Regulators of Technology

Canada’s largest banks rely on private developers of regulatory technology (RegTech) to comply with the requirements of the Office of the Superintendent of Financial Institutions (OSFI). RegTech’s algorithms allow banks to organize unstructured data, identify, assess, and mitigate risk, and generate and submit reports. While the use of RegTech significantly facilitates financial reporting and compliance, it also presents risks. The unsupervised process of translating the language of regulations into computer code may lead to the misinterpretations of regulatory requirements. Also, due to the opacity of private algorithms, mistakes of RegTech instruments may go unnoticed, resulting in systemic failures. In light of these risks, this Article examines the potential of Canada’s federally regulated banks to act as delegated regulators of RegTech. Drawing on OSFI’s previous initiatives, this Article suggests that the regulator create RegTech quality standards and delegate the enforcement of these standards to banks through outsourcing contracts. These contracts should contain publicly mandated RegTech specifications and clauses that reserve the banks’ right to monitor, audit, and punish non-compliant RegTech companies and share information with OSFI. This Article also discusses the benefits and policy implications of delegated regulation of RegTech. First, by imposing a public duty on the banks, delegated regulation causes changes in corporate governance. Second, it allows the under-resourced regulator to use banks as regulatory resources. Third, it extends the application of public norms to those RegTech companies that otherwise would have avoided public oversight. Fourth, it reshapes the market for RegTech services by forcing banks to develop in-house technology that, in the long term, may be a cheaper and less risky alternative to outsourcing. In conclusion, this Article addresses the arguments that may be levelled against the delegated regulation of RegTech and discusses opportunities for more direct involvement of the regulator in technology-driven reporting and compliance.

The Rise of International Corporate Law

Comparative corporate governance has focused either on prevailing differences across legal systems, or on spontaneous legal transplants of foreign institutions in response to global competition. This essay argues that corporate law today is not only a product of the invisible hand of the market, but also of the soft (and not-so-soft) hands of international organizations and standard setters. By tracing the emergence of international corporate law (ICL) since the Asian crisis of the late 1990s, it shows how the IMF, the OECD, the World Bank, and the United Nations, among several other international players, have helped shape legal reforms and corporate governance developments around the world. The observed influence of ICL ranges from the impulse for independent directors and the control of related-party transactions, to the growth of ESG investment factors and human rights policies. The rise of ICL responds to interjurisdictional externalities and nationalist bias of domestic regimes that have been largely neglected by prevailing theories, which failed to predict and notice the strong push for international coordination and standard setting in the field. ICL has also gone beyond merely prescribing an Anglo-Saxon model of corporate governance to also promote legal innovations that place the United States in the receiving end of international pressure. Legal implants from ICL, rather than legal transplants from a foreign jurisdiction, are an increasingly relevant force behind corporate governance change. While ICL has been influential, its efficacy and normative vision face challenges. The time has come to move beyond an exclusively comparative focus to also scrutinize the potential and limits of corporate lawmaking at the international level.

Technology vs Ideology: How Far will Artificial Intelligence and Distributed Ledger Technology Transform Corporate Governance and Business?

Artificial Intelligence (‘AI’) and distributed ledger technology (‘DLT’) are referred to as the new ‘Corporate Technologies’ or ‘CorpTech’ (Enriques and Zetzsche, 2019), currently watched in terms of their potential for change. Specifically, we are watching for the extent to which the organisation, structures and processes, and institutions of economic life, especially those under the aegises of corporations, would shift in response to the advent of AI and DLT. We also need to consider if such shifts warrant responses from the law. We discuss AI and DLT as different domains of technological advancements but they also interface at certain points. The different treatment we give to AI and DLT is essential as their impact on change is different. However, as we will engage in theoretical treatment of how technological change impacts institutions and corporate law more generally, we refer to ‘CorpTech’ as an umbrella term where relevant. We make two distinct but interrelated contributions to the literature on CorpTech. First, we advance an analytic framework, which we term as ‘incremental/facilitative’, ‘radical/disruptive’ and ‘fundamental/structural’, to promote a nuanced understanding of the development of AI and DLT and their effects on business processes, organisation and management, particularly on corporate governance. Second, we develop a theory of how CorpTech will shape corporate law and governance by examining the drivers for institutional change combined with the drivers for corporate law and governance. We argue that CorpTech is unlikely to radically alter the power structures and incentive mechanisms of shareholders, directors and managers, and hence, any fundamental/structural changes to corporate governance is not likely in the near future. After providing a critical overview of AI and DLT and their effect on business practices and corporate governance through this three-level framework, our second contribution is to demonstrate that the major power groups influencing corporate law and governance norms are likely to mobilize old ideology with technological spins in order to achieve incremental institutional changes aligned with their incentives and interests. We suggest it would be unlikely that institutional change would be achieved to facilitate radical/disruptive or fundamental/structural changes to the extent that it denudes extant power structures of their power. To make this argument, we first explore the key theoretical drivers of institutional change. Subsequently, we explain how these drivers are connected to the theoretical drivers for changes in corporate law and governance, specifically the role of shareholders and directors/managers within the context of different economic systems and ownership structures. Finally, we apply this combined theoretical framework to the three-level framework of technological change we discussed. We predict that directors and shareholders will embrace incremental/facilitative AI and DLT to render the board and general meeting decision-making process more efficient and effective. AI is, however, unlikely to fully replace directors or managers, let alone companies, in the foreseeable future. Thus, the idea of self-driving companies is unlikely to become a mainstream economic phenomenon. We are also doubtful that DLT will result in full disinter-mediation as powerful corporate organs will prefer to manage and subsume its use to be compatible with their incentives and preferences.

Testing for efficiency in the Saudi stock market: does corporate governance change matter?

We study the informational efficiency of the Saudi stock market (SSM), while accounting for corporate governance change, based on single, multiple, and variance ratio-based WALD tests and runs test. The main findings indicate that when the whole period is considered, the random walk hypothesis is rejected, but when divided into two sub-periods separated by the pre-corporate governance and the period marked by corporate governance change, the analysis demonstrates sub-period improvement in weak-form efficiency for the examined series. Robustness of results is verified by analysis using sector indices, which point to market efficiency. Interestingly, Hurst Exponent estimates evidence long-range dependence which suggests the predictability of stock prices and the prospect of speculative opportunities.

Changes in corporate governance: Externally dictated vs voluntarily determined

Using the 2003 SEC regulations (following the Sarbanes–Oxley Act) on board independence as an identification for externally imposed governance changes, I compare its influence on firm performance to the effect of voluntarily conducted adjustments. I use publicly listed US firms between 1998 and 2009. In a triple-difference (dif-in-dif-in-dif) analysis setting, I explicitly interact the dictated change in board independence with the identifiers of the shock and non-compliant firms. Controlling for companies with voluntary changes, firms forced to modify their governance by increasing board independence experience a decrease in ROA, asset turnover, and sales growth. Testing the joint influence of dictated and voluntary adjustments in board independence on performance through a cross-sectional logistic-regression model, and controlling further for potential endogeneity through an instrumental variable (IV) regression model, I obtain consistent results. The findings are robust for other mandated provisions and stronger for bigger changes; small, single-segment firms operating in wholesale, retail, and high-tech industries; and constrained companies with financial distress, high leverage, low cash, high volatility, high growth and R&D expenses.

Reconsidering Creditor Governance In A Time Of Financial Alchemy


 
 
 For many years corporate lenders have been a crucial force in the boardroom, providing a check on management and con- tributing to firm governance. However, as this Article docu- ments, lenders’ influence has receded in recent years for a large and important class of corporate borrowers. The culprit is a familiar one in a less familiar guise: the sale of loans by origi- nating banks for securitization—like that which gained noto- riety with pre-financial crisis mortgage-backed securities, but now are deployed in the market for corporate loans. As this Ar- ticle points out, the shift from relationship lending to arms- length securitization has the potential to intensify moral haz- ard, leading banks to provide less monitoring for their highly securitized clients. Recent data supports this narrative of debt governance dereliction with potentially enormous conse- quences: it heralds the disappearance of an important source of fiscal discipline and governance at a moment when U.S. cor- porations carry more debt than at any time in history (totaling half of U.S. gross domestic product), and an economic crisis threatens to expose companies whose debt has been poorly managed.
 
 
 
 This Article presents a theoretical and empirical examina- tion of the dramatic change in creditor corporate governance and its implications. It shows how the diminishment of lend- ers’ role in governance is a predictable result of a confluence of forces in the financial markets, in particular, the use of struc- tured finance to securitize loans, which in turn has driven a lending market with diminishing checks on borrower profli- gacy. It also shows how this new market is weakening govern- ance norms in ways that are harmful to borrowing companies, lenders, and society as a whole.
 The Article makes two contributions to the literature. First, it empirically documents the decline of lenders’ corporate gov- ernance interventions, cataloging original data on all borrower loan covenant violations—a primary mechanism by which lenders intervene in governance—from 2008 through 2018. Second, although many scholars have written about lenders’ role in corporate governance and securitization separately, this Article brings the two together. It thereby adds a missing com- ponent to an important literature by showing how corporate governance and the financial system affect each other, and pro- posing solutions to bolster both.
 
 
 
 
 

Nonstationarity in the relationship between corporate governance and accounting conservatism

AbstractNoe and Rebello (2012) argue that a firm's environment is not stationary and, as a result, the relationships between corporate governance and firm behavior change to adapt to changes in its environment. We provide evidence that a legal shock (Sarbanes–Oxley Act) and an economic shock (2007/2008 financial crisis) induced changes in the relationships between different corporate governance features and a firm's tendency to report conservatively. Additionally, we provide evidence on the weakness of fixed effects panel regressions to fully understand the effects of various corporate governance features on a firm's tendency to report conservatively.

Internal Diversity in German Corporate Governance: A QCA Analysis

We investigate the set of conditions leading to major employee turnover in the governance of large listed German companies further to labour market liberalization for non-standard employment. Using the Qualitative Comparative Analysis (QCA) approach, we illustrate that substantial employee turnover in the core manufacturing sector occurs under the restrictive context of high debt as a necessary condition. In the non-manufacturing sectors, in contrast, downsizing programmes take place under a set of permissive, and alternative, combinations of sufficient conditions driven by shareholder value maximisation objectives: the presence of ownership diffusion in the ownership structure of companies, the importance of highly financialized investors (hedge funds/private equity), or the presence of CEOs with an educational background in law and/or business management. We provide important insights for understanding patterns of change in corporate governance by integrating the QCA approach with theoretical perspectives stressing the characteristics of actors’ identities in combination with their external business environments. The diffusion of new practices in contested contexts will be characterised by the presence of necessary, and restrictive, conditions whilst more favourable contexts will be associated with the presence of non-competing (i.e. alternative) sets of sufficient conditions.

Toward Fair Gainsharing and a Quality Workplace for Employees: How a Reconceived Compensation Committee Might Help Make Corporations More Responsible Employers and Restore Faith in American Capitalism

In the three decades after World War II, workers and stockholders shared equitably in the nation’s growing wealth. But, during the last several decades, this fair gainsharing has diminished as the power of the stock market, in the form of institutional investors, has grown, and the comparative voice and leverage of workers has declined. As a result of these and other factors, a much greater share of the gains from increased corporate profitability and productivity has gone to stockholders and top management, on the one hand, and much less to employees, on the other. Contributing to this divide has been a push to tie top management pay to total stockholder return and to create incentives for management to deliver returns to stockholders, even if that requires decreasing the share that the workers primarily responsible for corporate success get. The resulting economic insecurity and inequality have caused demands for serious change in corporate governance to give greater weight to the interests of workers. In this Essay, we focus on one practical way to move toward that worthy end: reconceiving the compensation committee. That is, a reconceived compensation committee would focus on the company’s entire workforce, not just senior management, and have the responsibility for overseeing management’s implementation of an effective system to compensate workers fairly, ensuring they receive a fair share when corporate productivity and profitability increases, and analyzing what allocation of compensation within the company’s workforce will provide the most motivation to encourage corporate success. To accomplish this, compensation committees would be expected to understand the nation’s, the industry’s, and the company’s traditional gainsharing practices among workers, stockholders, and top management and develop and implement a corporate strategy to ensure that gainsharing is equitable. By doing so, compensation committees will also be able to more rationally set top executive compensation and establish metrics for top management and key personnel involved in gatekeeping functions that are tied to good EESG practices and not just to stock price. And the reconceived compensation committee should also be the committee charged with compliance and EESG responsibilities in the areas most important to workers, including not just worker pay and benefits, but also safety, racial and gender equality, sexual harassment and inclusion, and training and promotion policies. Not only that, the reconceived compensation committee should monitor company practices in its supply chain to ensure that the company’s adopted policies regarding fair treatment of workers extend to those workers who work for company contractors. By this evolutionary means that builds on the existing American corporate governance system, important strides can be taken toward making our capitalist system work better for the people most critical to its success: workers.

Do Higher-Rated or Enhancing ESG of Firms Enhance Their Long–Term Sustainability? Evidence from Market Returns in Korea

In this study, we investigate the effects of the level and changes in environmental, social and corporate governance (ESG) rating, an index developed to represent a firm’s long-term sustainability, on the stock market returns of Korea Composite Stock Price Index (KOSPI) listed firms over the period 2011–2018. We find that the changes in ESG ratings have statistically significant short-term effects on their abnormal returns. However, their impacts on short-term abnormal returns decrease some days after the disclosure and become negative in the third year. The results imply that investors in the Korean stock market do not view corporate social responsibility activities as a means of supporting their long-term sustainability, judging from the firm value for a long period after their rating. Rather, based on the effects of the changes on coefficient signs over the period—positive in the year and the year after, no effects in the following year, and negative in the third year and later—we can infer that the short-term oriented market sentiments of investors might worsen their long-term stock performances, thus deteriorating their sustainability and growth opportunities.

Financialisation and the ‘supply-side’ face of the investment-profit puzzle

The high level of profits along with low levels of gross physical investment has been characterized as a puzzle in heterodox economics. One of the most extended answers at the firm level is that changes in corporate governance have altered the objectives of the firm toward profits, rather than growth. However, once it is acknowledged that investment becomes the basis upon which companies supply commodities as well as compete with other firms, an ever decreasing rate of investment should not be compatible with permanent high levels of profits. This is what we call the ‘supply-side’ face of the investment-profit puzzle. The article builds on the post-Keynesian theory of the firm and its investment decision and explores different answers already linked to the financialisation literature such as changes brought about by production outsourcing, increased market power, the attack on labor conditions and financial accumulation. Once these solutions are critically assessed, an extension to the theory is proposed in order to show that firm’s profitability has been detaching from its physical investment decisions.

Diversidad de género en los consejos de administración: El efecto de la normativa en la presencia de mujeres en las empresas españolas cotizadas

Purpose: This paper studies the implication on Spanish listed companies´ corporate governance structures of regulations that aim to promote gender diversity on boards- code of good governance, Spanish national quota legislation and the proposal of Directive of the European Commission-. Design/methodology: We analyze the changes in corporate governance, using statistical techniques for related samples and panel data that relate to gender diversity for Spanish listed companies from 2003-2016. Results: The results show a slow positive trend of women in corporate governance of Spanish listed companies as well as a positive effect of gender diversity on boards’ regulation, although not for all variables studied. In fact, the percentage of women executive directors, Chairwoman and women CEOs, and the percentage of women in executive committees are very low over all the studied period. Besides, the effect on women presence in corporate governance structures is higher for national normatives, code and quota, than for the threat of the European Directive. Research limitations/implications: The main paper limitations are associated to the sample used (listed firms) and to the institution context (the Spanish case). The quota approved by the Spanish Equality Act affects large firms, not just quoted firms. Spanish institutional environment and its characteristics may affect the effects associated to the law. In different institutional environments, the results could differ The paper reveals the positive effect on women’s presence in corporate governance structures of legislation that promotes women on boards. Nevertheless, there still remains a long trend to achieve parity. Gender diversity on corporate governance structures has important implication for corporate reputation. Originality/value: We analyze the impact of gender diversity regulation on women presence on boards of directors. We extend the analysis considering directors’ typology and other corporate boards i.e. board committees and TMT.

Market governance, financial innovation, and financial instability: lessons from banks\u2019 adoption of shareholder value management

As the economy has grown increasingly financialized, the relationship between financial innovation and instability has attracted more attention. Previous research finds that the proliferation of complex financial innovations, like asset securitization and new financial derivatives, helped to erode the market governance arrangements that kept excessive bank risk-taking in check, inviting instability. This article presents an alternative way of understanding how financial innovations and market governance arrangements combine to shape instability. Market governance arrangements also shape how financial firms receive innovations, leading to greater or lesser instability at particular times and places. I illustrate this argument by tracing the effects of changing corporate governance arrangements at large US banks in the 1990s and 2000s. Like non-financial firms in the preceding decade, banks adopted reforms associated with the shareholder value model of corporate governance. These changes to internal bank governance arrangements affected the agendas of bank executives in ways that encouraged expanded use of securitization and derivatives. Drawing from this case, I argue that a full understanding of instability in the financialized era requires closer attention to the (institutionally-structured) interests of financial innovation users—not just to features of financial innovations themselves.

Insider trading restrictions and earnings management

We study whether firms that voluntarily restrict insider trading have lower incentives for earnings management. Using a large sample of US firms, we measure these restrictions based on the extent to which insider transactions happen shortly after quarterly earnings announcements. We find that the adoption of insider trading restrictions is associated with a reduction of 9.92% in absolute discretionary accruals. Our findings are robust to controlling for changes in corporate governance, and we do not find evidence of a substitution effect between accruals and real earnings management, target beating or timeliness of loss recognition. Taken together, our results indicate that the voluntary adoption of blackout periods that limit insider trading improves the quality of financial reporting.

Insider Trading Restrictions and Earnings Management

We study whether firms that voluntarily restrict insider trading have lower incentives for earnings management. Using a large sample of US firms, we measure these restrictions based on the extent to which insider transactions happen shortly after quarterly earnings announcements. We find that the adoption of insider trading restrictions is associated with a reduction of 9.92 percent in absolute discretionary accruals. Our findings are robust to controlling for changes in corporate governance, and we do not find evidence of a substitution effect between accruals and real earnings management, target beating or timeliness of loss recognition. Taken together, our results indicate that the voluntary adoption of blackout periods that limit insider trading improves the quality of financial reporting.