Corporate Governance Failures Research Articles

The Interconnectedness of Earnings Management, Corporate Governance Failures, and Global Economic Stability: A Critical Examination of the Impact of Earnings Manipulation on Financial Crises and Investor Trust in Global Markets

This study critically examines the interconnectedness of earnings management, corporate governance failures, and their impact on global economic stability and investor trust. Focusing on the Enron (1993–1995) and Wirecard (2015–2019) scandals, the research identifies key financial and governance indicators that contributed to these collapses, including CEO duality, weak board oversight, and manipulated financial reporting. Data for the analysis were drawn from corporate financial reports, macroeconomic indicators sourced from the World Bank, and stock market data from MarketWatch. Financial ratio assessments and regression models reveal a statistically significant negative relationship between GDP growth and abnormal returns for Enron (p = 0.014), while inflation had a strong positive impact on abnormal returns in both cases (p < 0.001). Time series analysis was applied to assess the macroeconomic consequences of corporate collapses on global financial markets. The findings demonstrate how declining GDP growth and rising inflation amplify market responses to governance failures. Recommendations include enhancing corporate governance frameworks, intensifying regulatory enforcement, and fostering global regulatory cooperation to safeguard financial markets and restore investor trust.

The Rise and Fall of Chanda Kochhar: Icici’s Governance Breakdown and its Linkage to SDG 5, 8 and 16

Objectives: The primary objective of this paper is to explore how corporate governance failures can disrupt progress toward SDGs by eroding organizational commitment and sustainability. Theoretical Framework : This paper has adopted “The Stewardship Theory” model to align with the Corporate Governance practices at ICICI Bank and thereby highlight the flaws in the system. Method: Chanda Kochhar began her career at ICICI Bank in 1984 as a Management Trainee. After navigating through a fierce succession battle, she rose to the level of Managing Director in 2009. She became the first woman in Indian history to lead a mighty bank, succeeding the group Chairman K.V. Kamath. She was the face of Women Empowerment in India till one fine day when she was accused of corporate misconduct and quid pro quo for her involvement in questionable deals between her husband and Venugopal Dhoot, which were brought to light by whistle-blower Arvind Gupta, prompting an investigation. Results and Discussion: After preliminary hitches, the Central Bureau of Investigation thoroughly investigated this matter and found Chanda Kochhar guilty. This breakdown greatly impacted ICICI and had larger implications for achieving sustainability development goals (SDGs), predominantly those related to strong institutions & ethical leadership SDG 16, gender equality SDG 5 and decent work and economic growth SDG 8. Research Implications: It was brought to light by an autonomous investigation that ICICI Banks’ CEO had failed to adhere to the set rules, regulations, and policies of the bank. In fact, she had dishonored the bank’s norms. This episode demonstrates how corporate governance failures can disrupt progress toward SDGs by eroding organizational commitment and sustainability.

Board diversity and stock price crash risk: exacerbate or mitigate

As China is the largest emerging capital market, stock price crash risk (SPCR) due to corporate governance failures is a frequent phenomenon. The board of directors stands as the cornerstone of corporate governance, wielding a substantial influence on the SPCR. The influence of board diversity (BD) on SPCR remains a topic rife with unanswered questions. To fill this gap, we construct a multidimensional index system to capture BD and examine its impact on the SPCR based on companies listed on the Chinese A-share market from 2010 to 2020. Our findings show that BD mitigates SPCR rather than exacerbates it. The foundational findings remain intact even after addressing issues of endogeneity and executing thorough validity tests. We further identify four mechanisms to lower SPCR through influencing board monitoring, including reducing agency costs, alleviating inefficient investments, improving information disclosure, and appointing diverse executives. Overall, our research underscores the pivotal importance of BD within the capital market and provides new insights into the mitigation mechanisms of the SPCR.

National Stock Exchange: Failure of Corporate Governance

The case explores the corporate governance challenges that arose at the National Stock Exchange (NSE), India’s leading stock exchange. Chitra Ramkrishna served as the Managing Director and Chief Executive Officer (MD and CEO) of NSE from 2013 to 2016. In 2013, she was recognized by Fortune magazine as one of the most powerful women in business. In 2015, following a whistleblower’s complaint about preferential access given to certain brokers, Indian regulators launched investigations. Further allegations in September 2016 claimed that the appointment of Anand Subramanian, a close associate of Chitra Ramkrishna, violated the code of conduct. Anticipating potential dismissal over these alleged lapses, Ramkrishna resigned from the board in November 2016. Subsequent investigations revealed ongoing preferential access for select brokers during Ravi Narain’s tenure as NSE’s MD and CEO from 2010 to 2014. Narain had been a key mentor to Ramkrishna and strongly supported her appointment as CEO. It was also discovered that Ramkrishna continued to share confidential NSE information with Subramanian even after his termination. Despite these serious irregularities, the NSE board remained notably inactive. This case is significant as it highlights the NSE board’s failure to uphold its core responsibilities, allowing misconduct and irregularities to persist. It concludes by presenting the dilemma NSE’s new CEO and board of directors faced: how to address investor concerns while enhancing the organization’s leadership and governance structure.

The Big Bank Scam: Failure of Corporate Governance

The case deliberates the series of events exposing serious shortcomings in corporate governance and risk management practices of one of India’s oldest and most venerable financial institutions but also cast a glaring spotlight on various unfathomable issues of corporate governance such as weak institutionalisation of whistleblowing mechanism, ethical lapses and regulatory oversight within the banking sector. The case provides an opportunity to understand the key components of corporate governance structure and consequences of poor corporate governance. The case highlights the responsibility of the board of directors and audit committee and discusses the changes required in the corporate governance structure necessary to ensure that such incidents do not take place. The case attempts to unearth the weaknesses in the bank’s internal processes that led to a scam of this magnitude and why it remained ongoing and undetected for several years. We found that there is a need for banks to leverage the latest advancements in technology to upgrade their internal functions and processes and make them more accountable and transparent. Further, it also opens the debate on whether public sector banks and other financial institutions should be guided solely by the profit maximisation motive, or they also meet their social obligations.

Global Financial Crisis: Unravelling Corporate Governance Failures

The global financial crisis of 2007-2008, stemming from the United States subprime mortgage crisis, was a profound and widespread calamity with far-reaching implications for economies, enterprises, and investors worldwide. This essay posits that the root cause of this crisis lies in the failure of corporate governance, asserting that the outbreak unfolded through three stages: the accumulation, amplification, and outbreak of governance risks. Crucially, the first stage reveals a convergence of internal and external governance failures, marking the conjunction of internal governance lapses—specifically in risk management, executive compensation, board operations, and information disclosure—and external governance deficiencies in government regulation, legal requirements, and social accountability. The multifaceted impact of the crisis, leading to the bankruptcy of prominent financial institutions globally and unprecedented government interventions, underscored the urgency of addressing governance issues. Scholars and researchers globally have since dissected the crisis, identifying lessons and recommending reforms. This essay examines the intricate balance between internal and external governance, emphasizing the imperative of effective interaction. Proposals for improvement include enhancing board structures, implementing substantive disclosure rules, fortifying government regulation, and fostering international cooperation. The aftermath of the crisis, while posing challenges, also presents an opportunity for corporate governance reform. The lessons learned highlight the indispensability of robust governance mechanisms in protecting investor and shareholder interests. Effectively navigating the evolving landscape requires staying abreast of contemporary needs and embracing reforms that align with the dynamic nature of global finance. Ultimately, the financial crisis underscores the pivotal role of effective corporate governance in mitigating risks, fostering sustainable development, and safeguarding societal interests.

Corporate disclosure and earnings management: The moderating role of corporate governance mechanisms

Notwithstanding the enormous amount of regulation and standards governing the financial reporting process, corporate failures and prior research have strongly indicated that earnings management (EM) is becoming a regular business practice in most firms today. Although this practice is more common in developed economies, there is limited research on corporate governance (CG) failures that have occurred in East Africa’s emerging economies. In this study, therefore, we examine whether corporate governance mechanisms (CGM) moderate the association between corporate disclosure (CD) and EM using evidence from listed firms at the Uganda Securities Exchange (USE). We employ disclosure and corporate governance indices to measure the extent of CD and corporate governance. Additionally, we use the magnitude of discretionary accruals (DACC) obtained from the modified Jones model as a proxy for EM. We find that audit committee (AC) characteristics have a negative and significant moderating effect on the association between CD and EM. Our study contributes to the growing strand of literature on the moderating or complimentary effect of CGM in constraining EM in the context of an emerging economy.

The Curious Case of Nykaa’s Bonus Issue

Nykaa (FSN E-Commerce Ventures) distributed 2,373,563,075 bonus equity units of ₹ 1 on 12 November 2022. With Nykaa’s 5:1 bonus issue, questions have been raised about alleged weak governance practises at the firm that went public in November 2021. The timing of this bonus issue created concerns about the company’s motives and suggested to the market that it was attempting to manipulate the stock price and prevent a potential sell-off as the market grew more wary of the business models of new-age companies. The case study queries whether the controversial bonus issue of Nykaa represented a failure in corporate governance.

Tempering Financial Reporting Risk through Board Risk Management

Recent corporate governance failures have heightened stakeholder expectations that the board of directors engage in robust oversight of the firm’s risk management processes. This expectation is in line with widely embraced enterprise risk management frameworks, which assert that strong board risk management is a key component of an entity’s risk management process. We use a hand-coded measure of board engagement in risk management from the recent literature to measure the robustness of that oversight for a sample of large, publicly traded U.S. firms and examine the relationship between robust board risk management (board risk management) and firm-wide strategies for mitigating financial reporting risk. While controlling for board composition-related characteristics, we found a positive association between robust board risk management processes and two avenues for mitigating financial reporting risk (i.e., more effective internal control over financial reporting and the selection of industry specialist auditors). Our results indicate that firms with more robust board risk management are associated with fewer actual instances of materially misstated financial statements and less earnings management.

AN EMPIRICAL ANALYSIS OF THE AUDIT EXPECTATION GAP IN NIGERIA

The study assesses the roles, duties, and responsibilities of the auditor that led to the so-called audit expectation gap in Nigeria with a focus on the capital market. The objective of the studies is to assess if indeed audit expectation gap in Nigeria exists. The study uses the chi-square distribution to ascertain the argument. It was observed that the collapse of many companies across the world was occasioned by corporate governance failure as most financial statements prepared by these firms were satisfied okay by the auditors but yet the companies later went underground thereby resulting in the audit expectation gap argument. Among other things, the study recommends that the relevant professional bodies should collaborate with auditors and educate the users of financial statements to understand the duties and responsibilities of the auditor towards narrowing it performance gap. Also, audited financial statements should be presented manner that people can read and understand the reports.
 Keywords: Audit Expectation Gap; Auditors; Financial Statement; Prevention of Fraud; Nigeria

Combating Corporation-Induced Environmental Pollution in Nigeria vide Shari’ah Mechanism

The menace of environmental pollution is not limited to a particular clime. The scourge is being felt globally. Efforts to combat the menace are still ongoing at global, regional and national levels. Nigeria, as a sovereign nation, has suffered and is still suffering the menace of environmental pollution. The discovery of crude oil in commercial quantity gave birth to corporation-induced environmental pollution. National effort towards combating corporation-induced pollution gave rise to series of legal frameworks while the country continues to experience environmental degradation. Against this backdrop, this paper looks for options beyond the conventional corporate law vide Shari’ah mechanism. This paper, which employs the Qualitative Research Design, adopts both the doctrinal and nondoctrinal legal research approaches. For the doctrinal approach, content analysis was adopted to analyze the primary sources like texts of Fiqh and legislations as well as the secondary sources such as textbooks, journals, articles, reports, among others. With the aid of comparative analysis, the paper compares approaches to corporation-induced environmental protection under conventional law and Shari’ah. The paper further presents a visual representation of the various views using thematic analysis with the help of ATLAS.ti software. The paper contends that environmental pollution signifies corporate governance failure. It also argues that despite the availability of legal framework for environmental protection, the menace of corporation-induced pollution is persistent ow-ing to certain challenges. It is contended that Nigeria has never considered Shari’ah perspective in protecting its environment. Hence, Shari’ah approach is recommended for combating corporation-induced environmental pollution in Nigeria.

Board of Directors, Audit Committee and Firms’ Performance

This study explores the different attributes of audit committees and boards of directors' effect on firm performance. Mainly the board’s size and independence and the audit committee’s employment, size, independence, financial experience, and frequency of meetings. This paper also talks about resource dependency theory which considers that. Non-independent directors have a positive effect on firm performance. On the contrary, agency theory suggests that the more independent the board is, the better the performance. Many accounting scandals and worldwide failures in corporate governance have occurred in the past few decades, affecting stakeholders and taking a heavy toll on national and global economies. After many infamous corporates, the United States passed the Sarbanes-Oxley Act (SOX), which acted to heighten the responsibilities of the board of directors in corporations, promotes fairness to both shareholders and stakeholders alike by enforcing listed companies to employ independent, knowledgeable, and proactive audit committees and directors and ultimately set the utmost importance on the protection of investors and stakeholders.  Taking a sample of 96 companies, the results show that a more extensive and independent board positively affects business results, and the same applies to the implementation of an audit committee. However, our results found no link between the different characteristics of audit committees with firm performance. The findings above give us insight into how companies’ governance operates.

Kegagalan Penerapan Good Corporate Govermance Pada Bank Syariah

This article aims to examine the Failure of Good Corporate Governance (GCG) Implementation in Islamic Banking in Indonesia. GCG implementation, especially in v, is very important because it can increase company profits and shareholder profits in the long term. By using normative legal methods, this article shows: First; GCG is a concept that emphasizes the importance of the right of users of financial reports to obtain accurate and timely information; and the responsibility of corporate management to provide accurate information and live up to the company's fundamental values. Second; GCG implementation failed in Indonesia. This is because there are still many Islamic banks that are hesitant to fully implement GCG. Third, Indonesia does not need more laws. What is needed is a change in the legal culture that will implement these laws and institutions as they are designed to be used and a commitment in every aspect of professional life to implement GCG.

Corporate Governance Failures Due to Behavioral Factors

Corporate Governance Failures Due to Behavioral Factors

Corporate Governance and banking performance in Portugal: The impact of variable - RAC_IMP (Impairments)

Effective corporate governance practices are essential to achieving and maintaining societal trust in the banking system, which is essential for the smooth functioning of the financial sector and the economy.<br /> Much of the literature associated with Corporate Governance considers, in addition to concepts, the implementation cycle and the corresponding models. Corporate Governance cycles are related to corporate bankruptcies and the negligence of the board of directors, which are more common when a long period of economic expansion is followed by a period of crisis, which demonstrates failures in Corporate Governance. The main objective of the research is to analyze the impact of variables associated with governance, structure, and economy on the economic and financial performance of banking institutions in Portugal. In the model, a risk measure is used to determine whether Corporate Governance has an impact on a bank's risk-taking, the Impairment Ratio for Credit to Customers in relation to Assets.<br /> After performing the significance test for each of the variables (student t test), it is possible to determine that the following variables will be excluded: Bank Size (LNAT), Customer Deposits (LNDEP), Interest Rate (TXJUR). We accept the following variables Corporate Governance (CG); Financial Autonomy (CPAT); Return on Average Assets (ROAA); GDP Rate Variation (TXPIB) and Inflation Rate (TXINF).

Effect of Board Characteristics on Financial Performance of Non-financial Firms Listed at the Nairobi Securities Exchange

The incongruence between corporate governance and financial performance has resulted in the collapse, liquidation, and diminished profitability of several corporations in Kenya. Instructively, companies have been delisted from the Kenyan bourse as a result of irregularities and failures that curtail their profitability. Specifically, audits have pointed to failures in corporate governance, which highlight the lethargy of directors in addressing agency theory conflicts. In this regard, there is a need for evaluating the impact of board characteristics on corporations listed at the Nairobi Securities Exchange (NSE). Board characteristics such as size, independence, and diversity have a significant influence on a firm’s strategic direction. Globally, numerous studies have investigated the relationship between corporate governance and financial performance. However, there is limited scholarly research to ascertain the role of individual board characteristics on listed firms’ financial performance. Thus, this study’s main objective was to determine the effect of board characteristics on the financial performance of non-financial firms listed at the NSE. A quantitative research was conducted using 26 randomly selected non-financial firms listed on the NSE. Using historical financial data from companies’ financial statements, a correlational and regression analysis was conducted using Return on Equity (ROE) as the dependent variable. Notably, diagnostic tests such as the test for multicollinearity, autocorrelation, normality tests were conducted before the Pearson’s correlation test. Importantly, the Panel Data Model was use to determine the goodness of fit, while the Panel Least Square model was used to select the appropriate model for regression analysis. The Fixed Effect Model was the most suitable model. As a result, the findings showed that board size and independence had statistically insignificant effects on the dependent variable, while board diversity (gender diversity) had a statistically significant influence on the financial performance of non-financial firms listed on the NSE.

Costs of Corporate Governance Failures: Evidence from South Africa

Corporate governance (CG) failures, exemplified by noncompliance with laws, regulations and best practices, have pecuniary costs. Using agency theory, the study aimed to quantify costs of governance failures in South Africa’s FTSE/JSE Top40 listed companies and establish ultimate cost bearer. This differentiates this study from extant literature and makes both methodological and practice contributions by using Value at Risk procedures. Except for Steinhoff, which lost 85% of its value in six weeks, event study method was used to select the other eleven Top40 listed companies included in the study. Data on identified CG failures, published on the Stock Exchange News Service and announced by Regulatory Authorities between 2008 and 2016, was used. At 99.99% confidence level, up to 73.33% of revenue and 62 cents per R1 of market capitalisation were eroded because of governance failures. Due to ascertained losses, the study concluded that CG failures have pecuniary socio-economic costs incurred by principals and government through social expenditure. Theoretical implications suggest agency theory’s extension as agency costs underestimate potential costs by excluding socio-economic costs. The study recommended the use of behavioural theories for insights into agents’ behaviours leading to governance failures and losses. It also recommended that policymakers should strengthen the role of gatekeeping professions to curb the magnitude of ascertained costs.

An Analysis of Trends in Shareholder Activism in South Africa

There has been a progressive shift in shareholder activism in South Africa as shareholder demands for greater levels of accountability, reasonable executive remuneration and disclosure and transparency are increasing. Frustration with increasing high-profile corporate scandals and governance failures has also caused shareholder activism to gain momentum in South Africa. This article discusses the South African legal framework relating to shareholder activism and identifies trends in shareholder activism in South Africa. While the growing increase in shareholder activism is welcomed, this article contends that South Africa still has a long way to go compared to the level of shareholder activism in the USA, the UK and Australia. Recommendations are made to enhance shareholder activism in South Africa.

Watchdogs That Failed to Bark: Standards of Tax Review After Enron

You will come to a place where the streets are not marked. Some windows are lighted. But mostly they’re darked. A place you could sprain both your elbow and chin! Do you dare to stay out? Do you dare to go in? How much can you lose? How much can you win?Enron Corporation, which was the seventh-largest U. S. corporation prior to its collapse, will long be a case study on various corporate governance and ethical failures. But the most frightening aspect of Enron is that it was never designed or intended to be a massive fraudulent scheme from its inception, unlike many substantial financial frauds.It began by simply trading energy futures and eventually expanded to trading futures in commodities well beyond the company’s expertise. To continue its positive financial performance, the company required its advisors to develop “blowback” strategies ensuring continued stock price appreciation.

Corporate Governance and Corporate Financial Failures: Evidence From Pakistan Stock Exchange (PSX)

The purpose of this study is to look into the impact of corporate governance on corporate business failure among Pakistan's publicly traded companies. The study utilized the publicly available corporate governance characteristics data representing explanatory variables along with the three-year negative position in earning per share for the determinant of the business success and failure representing an explained variable. Paired sampling based on 55 successful companies and 55 business failed companies has been used and empirically tested through logistic regression for the period 2010 to 2020. The results reveal that corporate governance mechanisms based on CEO duality and outsider ownership significantly explain the likeliness of business failures of firms. The designed study provides more likeliness of the business failures for the presence of the firms which have the evidence of larger board size and CEO duality. The business failed firms also lack board independence and become a more dispensable activity in the context of agency and stewardship theory. The results of the study support the recent modifications on account of renowned corporate failures to strengthen the adequacy of corporate boards, and their neglected committees. This research lessens the possibility of corporate failures and highlights the proposal of policymakers to enhance board and committee effectiveness. The earlier studies skip the incorporation of a categorical variable to project the corporate failures through logit modelling. This study is the first in its contextual settings to predict financial failures by logit modelling across various industrial sectors that insinuates corporate decision-makers to avoid practices exposing firms to failures.