Corporate Governance Of Financial Institutions Research Articles

Key Determinants of Corporate Governance in Financial Institutions: Evidence from South Africa

The purpose of this study was to examine the key determinants of corporate governance in selected financial institutions. Using South African financial institutions as a unit of analysis, namely insurance companies and banks, the study employed a panel generalised method of moments (GMM) model using a data set for the period from 2007 to 2020, to assess key determinants of corporate governance proxies identified for the study. The study sampled 21 South African financial institutions composed of Johannesburg Securities Exchange (JSE) listed and unlisted banks and insurance companies. To measure corporate governance, the study developed a composite index employing the principal components analysis (PCA) method. The findings revealed a positive and significant association between the corporate governance index and its lagged variables. Furthermore, a significant and positive link was found between the efficiency ratio and corporate governance index and capital adequacy ratio (CAR); corporate governance index and firm size; corporate governance index and leverage ratio (LEV); and corporate governance index and return on assets (ROA). However, a negative and significant correlation was found between financial stability and the corporate governance index. The link between return on equity (ROE) and corporate governance was insignificant. A small cohort of financial institutions was excluded because it was challenging to obtain complete annual reports to extract the required data. The study was limited to only five corporate governance measures, namely board diversity, board size, board composition (independent non-executive directors and non-executive directors), and board remuneration. The findings are anticipated to persuade developing countries to pay special attention to how corporate governance is measured.

Cybersecurity in European Financial Institutions: New Grounds for Corporate Governance Reform

Cybersecurity, digital resistance to incidents, errors and cyberattacks attracted the attention of the European Union legislator, initially, from a public policy perspective. Today, cybersecurity concerns are dealt with as a part of EU Internal Market strategies, including those more closely linked to the financial sector. These pages focus on the new EU legislation to achieve Digital Resilience in the financial sector as well as on their impact upon the Corporate Governance of financial institutions. Compliance with corporate duties of cyber-governance, management of cyber risks, testing, continuous improvement, as well as reporting, communication, and transparency shape the new corporate governance landscape of the financial institutions in the European Union. Within and beyond what is already being legislated and proposed, Corporate Governance is called to play a fundamental role in facing the challenges of digital security. Cyber security, digital operational resilience, cyber risk management, financial sector, large ict supported infrastructures, critical ict providers, corporate governance reform, digital corporate governance, board duties, board commissions

Impact of corporate governance and related controversies on the market value of banks

Effective corporate governance of financial institutions, particularly in the banking sector, is vital for the stability of the financial system and the prevention of financial crises. Thus, this study examines the impact of corporate governance and related controversies on the market value of banks. For this purpose, we utilized Refinitiv’s corporate governance scores, including management, shareholder value, and corporate social responsibility (CSR), as well as its corporate governance controversies scores to analyze their impact on the market value of 242 banks in 43 countries. Using Refinitiv’s ESG database from 2017 to 2021, we conducted a path analysis and found a positive and statistically significant relationship between the CSR strategy scores and the market value of banks as well as between the management scores and the market value of banks. Moreover, there is a statistically significant relationship between the corporate governance controversies scores and the market value of banks.

The Effects of Blockchain Technology on Corporate Governance: Evidence from Emerging Economy

Abstract Modern developments in digitization have completely changed business structures and operating procedures. The core structure of a database can be built using the distributed technology known as blockchain, which combines data blocks and hash chains. Blockchain has been recommended by academics as one of the foundational elements of corporate governance. Though previous studies examined the impact of blockchain on firm numerous extents, few study has investigated the impact of blockchain technology on corporate governance. We examined the effects of blockchain technology on corporate governance of financial institutions in Nigeria. We use multiple regression over 121 responses. Samples were collected using a random sampling method. Results indicates that blockchain technology has positive impact on corporate governance suggesting the removal of agents as intermediaries in corporate governance through code, peers’ connectivity, and collaboration. Our results help managers transform the regulatory, financial, and entire governance structure of financial institutions.

Corporate governance and the Dodd-Frank $10B threshold

The financial crisis of 2007–2008 resulted in major changes to the financial industry including the passage of the Dodd-Frank Act in 2010. While the emphasis of Dodd-Frank was on systematically important banks that are “too big to fail”, the act also placed several conditions on financial institutions with assets greater than $10B. Hogan and Burns (2019) show that Dodd-Frank imposed higher non-interest expenses on financial institutions, especially smaller institutions. Bouwman, Hu, and Johnson (2018) look at how financial institutions modified their behavior following passage including delaying crossing the threshold. Agrawal and Knoeber (2001) find that firms in more regulated industries are more likely to have politically connected board members. This article examines whether the corporate governance of financial institutions with assets just below the $10B asset threshold affected their willingness to cross that threshold. Results indicate that firms with staggered boards and smaller boards took longer to cross the threshold while higher levels of ownership by the chief executive officer (CEO) resulted in faster crossings. Financial institutions were much quicker to pass the threshold in the later years of the study due to changes in the economic and regulatory environment.

The impact of governance improvement of institutional shareholders on firm value

ABSTRACT In this study, we investigate whether the measures to improve corporate governance of financial institutions promoted by the Chinese authorities in 2013 have contributed to the positive growth of the values of institutional investments in firms. Given the regulatory changes about financial institutions in 2013, we hypothesise that the improvement of corporate governance of financial institutions has a spillover effect and increases the performance of the companies that the institutions invest in. Our results are robust in supporting the hypothesis, even after we address for reverse causality issue. In particular, we verify that the spillover of governance, arising from the improvement of corporate governance in financial institutions, can strengthen the positive association between institutional ownership and firm value.

Shari’ah Scholars’ Insight on Shari’ah Governance Framework for Islamic Banking Institutions in Pakistan

Shari’ah Scholars’ Insight on Shari’ah Governance Framework for Islamic Banking Institutions in Pakistan One of the major reasons behind the financial crises generally and the 2008 crises especially, was the poor corporate governance in financial institutions. For ensuring good Islamic corporate governance as well as Shari’ah compliant environment in Islamic banking institutions (IBIs), Shari’ah governance framework (SGF) was developed in many countries including Pakistan. This study is conducted to evaluate the SGF, its implementation level, and the challenges facing the IBIs in the implementation of the SGF in Pakistan. For this purpose, the insight of the Shari’ah scholars is taken on SGF by following the qualitative research approach with semi-structured interviews of the scholars. The respondents included Shari’ah Board’s (SB) members and Incharges of Shari’ah Compliance Department (SCD) in various IBIs in Pakistan. The researchers used Nvivo12 software for the analysis of the interviews data. The study discovered some important issues faced by Islamic banks in the implementation of SGF. It is evident from the research that there are shortcomings and weaknesses in the implementation of Shari’ah governance framework which requires improvements such as interpretation and quantification of the provisions of the SGF, approval from Shari’ah Board (SB) for all minute requirements, reporting line issues, and communication gap between the board of directors (BODs) and the members of SB. This research work suggests that the State Bank of Pakistan (SBP) should revisit the SGF in the light of the present study and further improve its provisions as well ensure the implementation of SGF in true letter and spirit. Keywords: : Shari’ah governance framework, Shari’ah scholars, Implementation, Islamic banking institutions

The Audit Committee Effectiveness: An Empirical Work on Turkish Financial Industry

The major aim of this empirical work is to examine Audit Committee Effectiveness (ACE) from the perspective of financial institutions listed at Borsa Istanbul (BIST) and regulated by Banking Regulation and Supervision Agency (BRSA). A questionnaire is designed by using the Likert Scale with the principle of measuring attitudes by asking the professionals working in the board of directors, audit committees, risk committees, risk management, compliance units, internal audit, and/or internal control functions of financial institutions in Turkey. This questionnaire is developed to analyze their response to a series of statements about the characteristics of Audit Committee Effectiveness (ACE). Structural Equation Model (SEM) approach is used for the survey data and policy recommendations are made depending on the empirical results. The research findings reveal that the characteristics of an effective audit committee are an essential instrument for the board of directors. The empirical findings challenge key public expectations of Audit Committees, including the notion of ‘management oversight and performance evaluation’. The study highlights the potential for corporate governance in financial institutions to consider the contribution of audit committee members within the context of promoting the best corporate governance practice.

Handbook on Corporate Governance in Financial Institutions

Handbook on Corporate Governance in Financial Institutions

EU Regulatory Measures Following the Crises: What Impact on Corporate Governance of Financial Institutions?

Purpose: This study investigates the relevance of certain EU regulatory measures introduced in response to the financial and sovereign debt crises for corporate governance and their possible impact on the modalities of company operation, notably in terms of risk assessment and management. Design/Methodology/Approach: The contribution is based on a review of literature and an analysis of EU legislative and soft law measures agreed in 2008 onwards pertinent to corporate governance, notably of financial institutions due to their systemic relevance. The applied research methodology includes a combination of theoretical and analytical methods. Findings: It is submitted that there is an observable trend of extending the power of shareholders and of regulation in the public interest at the cost of the management power. Moreover, certain aspects of corporate governance seem to steadily evolve from code-based 'soft law' norms to mandatory rules. Practical Implications: EU regulatory-corrective measures constitute ‘grosso-modo’ a desirable progress towards a more transnational approach. However, there can be no single blueprint for reforms given the differences between national systems of corporate governance, including their scope, contents, and means of implementation. Hence, the potentials of an incentive-oriented approach should be better exploited in both national and EU level regulatory activities. Originality/Value: The study offers an updated account of the most recent EU legislative activity in the area up to the end of the 8th term of the European Parliament. It may be used for corporate governance practitioners allowing for informed adapting to the new regulatory framework and trends in the foreseeable future.

Private Disclosure and Corporate Value Creation

The major aim of this paper is to investigate the content of disclosure using crucial case study. Private disclosure has content structure and it is useful in processing value creation. By doing private disclosure, the information of intellectual capital gets perceived by market participants. Disclosure Transformation Theory (Alberti ‐ Alhtaybat, Hutaibat, & Al ‐ Htaybat, 2012) was tested through the observation and analysis of the private disclosure functions. This study also expands the view of how the narrative of the corporate value creation is structured and how the corporate knowledge becomes an important part of the dynamic response of the disclosure that changed over time. This study observes new findings regarding intellectual capital disclosure as well as disclosure content in PT. Bank Negara Indonesia Tbk (BNI). BNI has disclosed information value creation in three processes; hierarchy, horizontal, and network by organizing private disclosure media in order to respond on user information needs. This agenda uses analysts as information mediators. Other findings are that private disclosure is a source of information that creates information toward a market context of participants to interpret the information in a more appropriate way, the information in private disclosure has superior knowledge in the initial formulation, and in controlling the portfolio risk of assets allocation to the analyst. Private disclosure has important implications for regulatory policies regarding insider information, corporate disclosure, and corporate governance in financial institutions.

An assessment of corporate governance in financial institutions in Barbados

The objective of this paper is to provide an assessment of corporate governance in selected financial institutions in Barbados. The instrument used for measuring corporate governance practice is derived from the Central Bank of Barbados (CBB) Corporate Governance Guidelines (2013) and the OECD Principles of Corporate Governance (OECD, 2004). A corporate governance index is developed to best fit the domestic financial system. The results indicate that the five financial institutions are highly compliant with the corporate governance guidelines. The corporate governance index ranges from 75 to 92 on a scale of 0 to 100 in ascending order of good corporate governance. Commercial banks obtained the highest corporate governance rankings. This result is not surprising since the banks operating in Barbados are affiliates of foreign-owned and domiciled financial institutions. They are therefore monitored by multiple local, regional and international regulatory agencies. This paper is the first such research effort for the Barbadian economy. The findings should be beneficial to many persons, including top management (CEO, Chairman, Board of Directors), shareholders and other stakeholders, regulators and future researchers.

Art-based initiatives and corporate governance of financial institutions: European evidence following the revised OECD corporate governance framework

Financial institutions and the arts have been a historical and natural duo since the Middle Ages, when bankers supported the arts sector and artists. This paper investigates the corporate governance (CG) characteristics of today’s financial institutions that engage more extensively with art-based initiatives (ABI). Using a sample composed of the 42 largest European listed financial institutions and manually collected ABI information, the results indicate that, overall, companies with higher levels of CG quality or higher proportions of female directors and entities with greater ownership dispersion, engage more extensively with ABI. This evidence shows that firms with well-implemented CG structures and especially those with a significant presence of women on the board, are more likely to support initiatives aimed at developing and/or preserving cultural heritage. The findings have implications for the arts sector because they provide arts institutions with a better understanding of the companies and people within them that could be their best interlocutors when developing long-term partnerships. They may also encourage “arts-sensitive” investors to target their investment decisions towards institutions with some specific CG attributes.

Culture, Board Composition and Corporate Social Reporting in the Banking Sector

This paper contributes to the debate on the corporate governance of financial institutions, by studying the effect of different board characteristics on the level of corporate social responsibility (CSR) disclosures of banks. For that, we use a sample composed by 159 banks over the period 2004–2010. We found that independent directors and gender diversity favor the disclosure CSR information in baking sector. But, these results are moderated by the national cultural system; concretely, previous positive effects of independence and diversity of banks’ boards on CSR reporting are reduced in countries with a weaker cultural system, that is, individualist, masculine and vertically stratified societies, that are little indulgent and short-term oriented and show high levels of uncertainty avoidance.

The impact of the European Banking Union’s Single Supervisory Mechanism on corporate governance practices in European banks

Weak corporate governance in financial institutions has been a contributing factor of the financial crisis. The topic has, therefore, become the key priorities of banking supervision, because one of the takeaways was that. The article gives an overview about the newly established European Banking Union and about its structure focusing on the first pillar, the Single Supervisory Mechanism (SSM). In a second step, the focus is laid on the recent regulatory changes regarding corporate governance, the related supervisory practice and implications for European banks. Overall, the conducted changes in the regulatory framework, especially regarding corporate governance, seem to meet the objective of ensuring safety and soundness of the European banking system. Room for improvement is found regarding proportionality and transparency of the supervisory practices as well as its influence on banks’ profitability.

Current Issues and Analysis on Corporate Governance of Financial Institutions in Korea

Current Issues and Analysis on Corporate Governance of Financial Institutions in Korea

Editorial: Challenging issues and fundamental concepts of corporate governance

The recent volume examines several relevant topics in the international framework such as the role of corporate governance in financial institutions both in Italy and in international contexts, the governance system in Italy, with a specific focus on the adoption of gender quotas and on risk disclosure. Two very interesting researches that highlight, respectively, the determinants of the voluntary disclosure and the importance of international accounting standards in South America, complete the issue.

Understanding the Role of Corporate Governance in Financial Institutions: A Research Agenda

After the 2008 financial crisis, a substantial part of the blame for the numerous bank failures that occurred as a result of the crisis has been put on corporate governance. Consequently, regulation and supervision have been enhanced both as a complement to the corporate governance of financial institutions and as a substitute for the same in areas where governance failures appear more evident. In this paper, I argue that the swinging of the pendulum between corporate governance and financial regulation may have gone too far, as a result of the ‘nirvana fallacy’ that often affects reformers. I suggest, therefore, that corporate governance should recover some of the lost grounds, possibly through spontaneous enhancement of the role of boards by financial institutions and cautious deregulation of the governance mechanisms by supervisory authorities. I also suggest that proposals to reform corporate law for financial institutions, for instance by restricting the scope of the business judgement rule, should be rejected, as this would affect entrepreneurship and stifle innovation in the financial sector.

On the role of the chief risk officer and the risk committee in insuring financial institutions against litigation

PurposeIn most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the governance has been cited as an influential factor that contributed to the financial crisis of 2007-2008. Various legislative and regulatory bodies have pressured financial firms to improve their risk governance structures to better weather potential future crises. Assuming that CROs and risk committees are given sufficient power to influence the corporate governance of financial institutions, can CROs and risk committees protect financial institutions from violating litigable securities law? Can they improve bank performance? The paper aims to discuss these issues.Design/methodology/approachThe authors employ a principal component analysis to construct a single measure that captures various aspects of RM in a firm. The authors compare the risk governance characteristics of sued firms with their non-sued peers and consider one of the final outcomes of risky behavior: shareholder litigation. The authors compute ROA and buy-and-hold abnormal returns to capture operating and stock performance and examine whether risk governance improves bank performance by reducing litigation risk.FindingsProper risk governance reduces a firm’s litigation probability. The addition of the RM factor to models that have been previously proposed in the literature improves the accuracy of those models in identifying companies that are most susceptible to class action lawsuits. Better RM improves the financial and stock price performance of financial institutions.Research limitations/implicationsThe data collection is laborious as the information about CRO governance has to be hand-collected from the 10-K report. A broader sample employing, e.g., non-US banks may provide additional insights into the relationship between RM practices, shareholder litigation, and bank performance.Practical implicationsThe study shows that a bank’s RM functions play a critical role in improving bank and operating performance and in reducing shareholder litigation. Banks should emphasize the RM function.Originality/valueThis is the first study to examine the mechanism behind the positive association between RM and bank performance. The study shows that better RM improves overall bank performance by decreasing litigation risk.

Corporate Governance of Financial Institutions According to CRD IV & MiFID II: Preliminary Draft

The days when the corporate governance of financial institutions was exclusively a matter of domestic company law, supplemented by self-regulation, now seem well and truly over. CRD IV and MiFID II introduce strict corporate governance rules under public law for investment firms, bank-investment firms, market operators and data reporting services providers, with compliance being monitored by the financial supervisors. This paper discusses the corporate governance of financial institutions according to CRD IV & MiFID II.