Corporate Governance Legislation Research Articles

A novel legal analysis of Jordanian corporate governance legislation in the age of artificial intelligence

A novel legal analysis of Jordanian corporate governance legislation in the age of artificial intelligence

The Impact of BOD Characteristics considering the Rules of the Egyptian Corporate Governance Guide on the Financial Performance of Egyptian Companies: A Case Study on Industrial Sector’s Companies

The current study aimed to reveal the impact of the characteristics of the board of directors, which were (the number of non-executive directors – the number of board members – the number of board meetings) on the financial performance in Egyptian joint-stock companies in the industrial sector by measuring (return on assets – return on equity – return on sales – earnings per share). The study adopted the descriptive analytical approach based on analyzing data obtained from (5) companies listed on the Egyptian Stock Exchange in official databases during the period from (2018-2022), and the study used a linear regression model to analyze financial data as a statistical method. This study concluded many results as follows: There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors in light of the rules of the Egyptian Guide to Corporate Governance on the financial performance of Egyptian joint-stock companies in the industrial sector. There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors on the return on assets considering the rules of the Egyptian Guide to Corporate Governance. There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors on return on equity considering the rules of the Egyptian Guide to Corporate Governance. There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors on return on sales considering the rules of the Egyptian Guide to Corporate Governance. There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors on earnings per share considering the rules of the Egyptian Guide to Corporate Governance. The study recommended several recommendations, the most important of which are issuing a more stringent application of corporate governance legislation and activating the board of directors’ supervisory responsibility over management’s performance and behavior in managing the company’s financial operations by government and regulatory agencies. Keywords: BOD Characteristics – Corporate Governance Guide – Financial Performance

The Impact of BOD Characteristics considering the Rules of the Egyptian Corporate Governance Guide on the Financial Performance of Egyptian Companies: A Case Study on Industrial Sector’s Companies

The current study aimed to reveal the impact of the characteristics of the board of directors, which were (the number of non-executive directors – the number of board members – the number of board meetings) on the financial performance in Egyptian joint-stock companies in the industrial sector by measuring (return on assets – return on equity – return on sales – earnings per share). The study adopted the descriptive analytical approach based on analyzing data obtained from (5) companies listed on the Egyptian Stock Exchange in official databases during the period from (2018-2022), and the study used a linear regression model to analyze financial data as a statistical method. This study concluded many results as follows: There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors in light of the rules of the Egyptian Guide to Corporate Governance on the financial performance of Egyptian joint-stock companies in the industrial sector. There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors on the return on assets considering the rules of the Egyptian Guide to Corporate Governance. There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors on return on equity considering the rules of the Egyptian Guide to Corporate Governance. There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors on return on sales considering the rules of the Egyptian Guide to Corporate Governance. There is no statistically significant impact at the significance level (0.05) of the characteristics of the board of directors on earnings per share considering the rules of the Egyptian Guide to Corporate Governance. The study recommended several recommendations, the most important of which are issuing a more stringent application of corporate governance legislation and activating the board of directors’ supervisory responsibility over management’s performance and behavior in managing the company’s financial operations by government and regulatory agencies. Keywords: BOD Characteristics – Corporate Governance Guide – Financial Performance

Internal Corporate Governance Mechanism: A Review

Corporate governance (CG) is a comprehensive term that incorporates many distinct facets. Because of numerous financial scandals, public knowledge of CG has increased significantly, particularly in emerging countries like Malaysia. The effectiveness of organizations' adherence with CG legislation and standards is still in question, resulting in numerous incidents of accounting fraud. Furthermore, both internally and externally, company performance is contingent on the effectiveness of Corporate Governance procedures. The purpose of this study is to examine the determinants of internal corporate governance mechanisms and the affect towards financial statement fraud. A comprehensive study of the literature on corporate governance mechanism is carried out. Finally, new lines of research are identified for future study.

Corporate governance reform strategies for State-Owned Enterprises (SOEs): An integrated review of related literature

This review is centered on the corporate governance reform strategies for SOEs with a primary focus on Zimbabwean SOEs. The main objective of the review were to consider ways to enhance corporate governance practices by SOEs and corporate governance reform strategies adopted by SOEs. The authors also reviewed the literature on corporate governance of SOEs with the primary goal of identifying main strategies that may be used to reform SOEs that includes developing relevant corporate governance legislation. In fulfilling these objectives, authors used a qualitative literature analysis approach. The study reveals that corporate governance reform is necessary to rescue troubled SOEs who have been found under different situations of corporate governance malpractices. The authors recommended that in Zimbabwe there is a need for more SOEs corporate governance workshops. Researchers also laid out there is a need to carry out a further study on the effectiveness of corporate governance reform strategies being adopted by Zimbabwean SOEs that include the implementation of the PECG Act amongst other Acts of parliament that are meant to provide corporate governance of SOEs. Authors recommended that further studies on the corporate governance of SOEs would be most desirable as a way of addressing the pertinent problems currently bedevilling such SOEs in Zimbabwe.

Assessing the Impact of Corporate Governance Index on Financial Performance in the Romanian and Italian Banking Systems

Background: Our study aims to verify the impact of corporate governance index on financial performance, namely return on assets (ROA), general liquidity, capital adequacy and size of company expressed as total assets in the banking sector for both a developing and a developed country. In addition, we investigate the interactive effect of corporate governance on a homogenous and a heterogeneous banking system. These two banking systems were chosen in order to assess the impact of corporate governance on two distinct types of banking system: a homogenous one such as the Romanian one and a heterogeneous one such as the Italian one. The two systems are very distinct; the Romanian one is represented by only 34 banks, while the Italian one comprises more than 350 banks. Thus, our research question is how a modification in corporate governance legislation is influencing the two different banking systems. The research implication of our study is whether a modification in legislation, thus in the index of corporate governance, is feasible for two different banking sectors and what the best ways to increase the financial performance of banks are without compromising their resilience. Methods: Using survey data from the Italian and Romanian banking systems over the period 2007–2018, we find that the corporate governance has a significant, positive and long-lasting effect on profitability and capital adequacy in both countries. Results: Taking the size of the company into consideration, the impact of the Index of Corporate Governance (ICG) on a homogenous banking system is positive while the impact on a heterogeneous banking system is negative. Conclusions: Our study provides evidence of the impact of IGC on financial performance and sheds light on the importance of the size of the company. Therefore, one can state that the corporate governance principles applied do not encourage the growth of large banks in heterogeneous banking sectors, thereby suggesting new avenues of research associated with new perspectives.

Corporate law and governance: A case of Tunisia after the Arab Spring

This paper reviews the corporate governance practices of listed Tunisian companies. Besides that, the paper explores the evolution of corporate governance legislation between 2013 and 2017 in order to identify the changes caused by the revolution to accompany the current context’s needs and the democratic transition in Tunisia. Although the most of companies in Tunisia are dominated by family small and medium enterprises (SMEs) and very small enterprises (VSEs) we have chosen to focus on listed companies. These companies present more advanced practices of corporate governance given the legislation in force. Results of this paper shed light on several important features of the Tunisian corporate governance system, for example, interlocking directorates. It is interesting to notice that a limited number of directors control the majority of the market capitalization in Tunisia. The practice of interlocking directorates reflects the Tunisian way of economic lobbying. As for gender diversity, although there are no laws imposing a minimum quota of women directors, the proportion of female board members has slightly increased during the last years, moving from 7.87% in 2013 to 9.92% in 2017. In contrast to Arab and African countries, it should be noted that the majority of women directors sit on boards as members of the family controlling the company or because they are civil servants representing the state’s interests in state-owned enterprises

THE THEORIES OF CORPORATE GOVERNANCE AND SUGGESTED SOLUTIONS TO ITS LEGISLATION COMPLETION IN VIETNAM

Currently, there are three popular theories of corporate governance widely applied in the field of jurisprudence worldwide. They are Agency Theory, Stewardship Theory, and Stakeholder Theory. Based on these theories, the article focuses on clarifying legal issues about corporate governance, thereby suggesting solutions to the improvement of corporate governance legislation in Vietnam at present time.

Ownership structure and demand for independent directors: evidence from an emerging market

PurposeIn this study, we examine how ownership structure affects the use of independent directors in Vietnam – an emerging stock market.Design/methodology/approachWe develop logit and tobit regression models to investigate the effects of ownership structure on the propensity to use independent directors and the number of independent directors on the board, respectively. Insider ownership and the use of independent directors are proposed to have a non-linear relationship.FindingsWith a sample of 1,318 observations collected from 192 listed firms over the period from 2008 to 2017, we find that insider ownership and independent director appointment have a U-shaped relationship. It is positive when insiders hold a small proportion of shares, and turns out to be negative when insiders hold a large percentage of shares. In addition, both state ownership and foreign ownership are negatively related to firm decisions of appointing independent directors.Practical implicationsOur findings imply that minority shareholders should have appropriate actions to reduce agency costs and protect their own interests. In addition, policymakers should improve the effectiveness of corporate governance legislation to increase the presence of independent directors in order to protect minority shareholders. Moreover, government agencies also need to increase the number of independent directors in state-controlled firms as a means to improve their corporate governance. Foreign investors may be a substitute for independent directors; therefore, firms without independent directors are able to improve their corporate governance by attracting foreign investors.Originality/valueWhile the extant literature shows that independent directors can help firms decrease agency costs of equity in financial decisions and performance, there are relatively few studies investigating corporate decisions to use independent directors. This paper contributes to the literature of corporate governance mechanisms through independent directors in emerging markets.

Information technology governance framework for improving organisational performance

Background: Following the corporate failures of the 1990s, factors identified as evidence for these failures extended beyond just weak or ineffective corporate governance models, codes and legislation. Poor management and oversight of information technology (IT) systems were also identified as sources of failure as a result of organisations’ significant utilisation and reliance on IT. For more control and regulations, existing corporate governance codes of practice and the development thereof were reviewed and reformed. Information technology governance reforms were then incorporated into corporate governance codes, and IT governance established as a board-level responsibility. Over the years, studies into board-level IT governance have been limited, and thus the nature of board-level IT governance and its constitutional aspects are not fully known. Objectives: The aim of this study was to identify and assess aspects of IT governance implemented by the boards of companies listed on the Johannesburg Stock Exchange in South Africa. Method: In-depth, semi-structured interviews were conducted. Interview data was thematically analysed and key themes identified. Results: Boards have been effective in terms of IT investments and budgeting, which were identified as key factors in effecting IT oversight. Boards have delegated most aspects of their IT governance oversight to board-level risk and audit committees, thus limiting the level and depth of interrogation of IT oversight by the board. The oversight of board IT governance is weak in outsourced IT arrangements. Conclusion: The implementation of board-level IT governance goes beyond prescribed IT governance principles within corporate governance codes. In effecting their IT governance, boards consider IT projects that contribute to organisational sustainability and those that positively add value to stakeholders, such as employees and consumers.

Alternative Governance and Corporate Financial Fraud in Transition Economies: Evidence From China

How corporate governance mechanisms function in transition economies is a key topic for corporate governance researchers and policy makers. We propose that alternative governance mechanisms are in place to mitigate corporate fraudulent behaviors in the fluid state of transition economies where the establishment and enforcement of corporate governance legislation are presently insufficient. Drawing on the twin set of institutional logics—the institutional embeddedness logic and the institutional substitution logic—we posit that three salient types of prevailing alternative governance mechanisms (relational, administrative, and foreign governance) play important roles in transition economies because they are complementary to the institutional conditions at the time of the transition process. Conducting a bivariate probit analysis of a matched sample of corporate financial fraud cases in China, we find that strategic alliances, business group affiliation, nontradable state shares, local government ownership, use of foreign auditors, and foreign listing can deter corporate financial fraud, while foreign listing is also effective in detecting fraud. We also find that the deterrence effects of strategic alliances and business group affiliation become weaker as law development improves, while foreign listing and legal governance are completely substitutive. Our study provides a contextualized view of corporate governance that connects its effectiveness with institutionalization and the institutional state of a country. Our study also enriches our understanding of some unfamiliar forms of governance mechanisms that are in place and complementary to a country’s institutional conditions.

Assessment of Approximation of the Present Company, Corporate Governance, Accounting and Auditing Legislation and Existing Practices in Ukraine to EU Standards and Practices

The purpose of this Study is to review the Ukrainian legislation and practices on company law, corporate governance, accounting and auditing and to examine its current compliance level with the EU law requirements and standards. The Study also provides an update on the main changes in the respective sectors in 2014. Legal developments is a phenomenon that rarely occurs linear. Times of rapid changes are alternated with times of stagnation, reforms are followed by the times of digest. Ukrainian law does not deviate from this pattern. A few points in time over the last nearly 25 years have marked milestones in the process. These points in time are 1991 – the enactment of the Law on Business Association, 2004 – the adoption of Civil Code and Economic Code and 2008 – birth of the new Law on Joint Stock Companies. Now a new impulse for law reform became topical and politically valid: under the Association Agreement between the European Union and Ukraine that was signed in 2014 Ukraine undertook a legal obligation to bring its legislation in line with the requirements of the EU law. This Study contributes to the part of the Association Agreement concerning the company law, corporate governance, accounting and auditing. The global objective of the Study is to improve business climate in Ukraine by aligning its company, corporate governance, accounting and audit legislation with the EU standards and practices. The Study presents the assessment of current approximation level of relevant legislation of Ukraine to the EU Acquis as well as provides recommendations for its further harmonization. In addition, the Study reaches out to national jurisdictions of some European countries as well as to the US and attempts to learn from their corporate law reforms.

Efficacy of corporate social responsibility in corporate governance structures of family owned business groups in India

The concept of ‘Corporate Social Responsibility’ (CSR) has often relied on firms thinking beyond their economic interest despite the larger debate of shareholder versus stakeholder interest. India gave legal recognition to CSR in the Companies Act, 2013. CSR in India is believed to be different for two reasons: the dominance of family business and the history of practice of social responsibility as a form of philanthropy (mainly among the family business). This paper problematises the actual structure of business houses in India and the role of CSR in a context where the law identifies each company as a separate business entity while the economics of institutions emphasizes the ‘business group’ consisting of a plethora of firms as the institutional organization of business where capital owned or controlled by the family group is spread across the firms through the interlocked holding structures. Within this framework, the largest family firms, which are part of family owned business groups, top the CSR expenditure list. The governance structure of family firms allows family owned business group to show mandatory compliance of CSR even when they actually spend much less than what is prescribed by law. This aspect of the family firms is not addressed by the CSR legislation in particular or corporate governance legislation in general in India. The paper illustrates this with an empirical study of one of the largest family owned business group in India Reliance Industries Limited (RIL), which is well acclaimed for its CSR activities. The paper demonstrates how the business group through these series of shareholding network reduces its legally mandated CSR liability. The paper thus indicates the inadequacy of CSR legislation in India because the unit of compliance is an individual firm and it assumes that each firm is independent and only connected to each other through market dealings. The law does not recognize the inter-connections of firms (through common ownership and control) in corporate governance structures of family owned business group and hence is inadequate in its design to effect the threshold level of CSR expenditure. This is the central argument of the paper.

Corporate Reputation Decoded

Corporate reputation is a complex subject, and this book attempts to do justice to it by being expansive in its scope. Corporate Reputation Decoded covers a wide range of concepts and practices associated with reputation building, including reputation measurement, corporate governance legislation, leadership issues, government lobbying, crisis management, media handling and digital influencing, while situating it in the Indian context, illustrating the antecedents, processes and consequences of corporate reputation. Even as it provides an overview of key concepts and tactics for building, maintaining and restoring corporate reputations, the book refrains from drawing a road map of the process, allowing readers to assess and evaluate for themselves the benefits and drawbacks of various tactics.

Cosmetic Earnings Management before and after Corporate Governance Legislation in Canada

Cosmetic earnings management (CEM) occurs when income is rounded (manipulated) up by a relatively small increment to reach a key reference point for users, which creates a disproportionately more favorable view of the company than would have existed otherwise. Significant research shows this type of biased reporting occurred virtually worldwide prior to the corporate governance legislation enacted in many countries in the early-to-mid 2000s. However, more recent research provides evidence that CEM in the U.S. disappeared after implementation of the Sarbanes-Oxley Act (SOX) of 2002. Yet, outside the U.S., little research exists on this form of earnings management following the enactment of similar corporate governance legislation. Using Benford’s Law and digital analysis, the current study tests for CEM in Canada before and after Ontario Bill 198 and other corporate governance legislation in that country. The results reveal clear signs of CEM in Canada prior to this legislation but no indications of it afterward, thus suggesting the legislation contributed to the eradication of CEM in Canada much like SOX did in the U.S.

Corporate Governance in Practice. The Greek Case

This study investigates the characteristics of corporate governance in Greece today as illustrated through a thorough analysis of the Corporate Governance Statements of all public companies in the Athens Stock Exchange. We attempt to highlight various characteristics of the enforcement of corporate governance rules in the everyday practice of corporations. We identify idiosyncratic factors pertaining in the Greek market that present interesting features in the global context. On average firms comply with internationally accepted Corporate Governance Codes, as they have been adopted in Greece by the Hellenic Federation of Enterprises (SEV), even though the number of firms that gradually develop their own Corporate Governance Codes is increasing. Greek firms appear to have surprisingly low percentages of CEO – Chairman of Board duality phenomena. On the other hand, in relation with other corporate governance best practices, we find the relative absence of committees other than the Audit Committee, which is compulsory, while the majority of firms are directed by small Boards of fewer than eight members. On the negative side we also document low presence of women in Boards and a high percentage of main stock holder family members on companies’ Boards. When examining the distribution between executive and non-executive members in Boards it is found that the majority of Boards consist of executive and non-executive members, whereas independent non-executive members are constrained within the limits set by Greek corporate governance legislation. Our analysis further highlights that even though corporate governance implementation has been introduced to the local market for only approximately ten years, firms and authorities tend to be relatively strict relative to the level of conformity with internationally accepted corporate governance legislation.

The Impact of Regulation on the Internal Audit Function

The intent of this research is to determine if the IAF can add value to the organization in other ways besides corporate governance. The proposed project will demonstrate through an interpretive process study using case study research how the internal audit function can be a strategic business partner by highlighting its contribution ability in a dynamic, ever-changing, regulatory laden environment. This paper uses Punctuated Equilibrium Theory to explain the organizational transformation of the internal audit function from a professional bureaucracy to an adhocracy as an unintended consequence of corporate governance legislation over time. The study contributes to the literature by explaining the evolutionary change in the internal audit function from scorekeeper-and-watchdog to business-partner-and-change agent. This study analyzes how senior management benefits from utilizing the internal auditors’ experience as an organizational tool to address threats and opportunities.

White Collar Crime Penalty Enhancement

The last few years have seen some major scams and corporate collapses across the globe. A key aspect that is being debated in the corridors of India is whether we need major regular changes to improve corporate governance, or whether improved standards of corporate governance could be achieved through adoption of principle based standards of conduct. Perhaps the most vital corporate governance legislation in recent years is the Sarbanes-Oxley Act, 2002 of US which is becoming a global benchmark for internal best practices in corporate governance. The inclusion of White Collar Crime Penalty Enhancement Act, 2002 in the corporate reform package creates new substantive offenses, significantly enhances financial and incarceration penalties, and relaxes some procedural evidentiary requirements for prosecutors. White Collar Crime is not only a crime but a very serious crime with wide and often gory repercussions. Its seriousness can be gauged from the fact that effect of even a few White Collar Crimes on the economic fabric of society can be far more devastating. This paper outlines that it is high time for the Indian corporate sector to draw lessons from the experience of the functioning of the Act in US in order to cope up with the ongoing global reforms in corporate sector, regulatory framework and governance practices.

Unbundling the Relationship between Authoritarian Legislatures and Political Risk

A strong statistical association between legislative opposition in authoritarian regimes and investment has been interpreted as evidence that authoritarian legislatures constrain executive decisions and reduce the threat of expropriation. Although the empirical relationship is robust, scholars have not provided systematic evidence that authoritarian parliaments are able to restrain the actions of state leaders, reverse activities they disagree with, or remove authoritarian leaders who violate the implied power-sharing arrangement. This article shows that authoritarian legislatures, by providing a forum for horse trading between private actors, are better at generating corporate governance legislation that protects investors from corporate insiders than they are at preventing expropriation by governments. The statistical analysis reveals that the strength of authoritarian legislatures is associated with corporate governance rules and not expropriation risk.

Corporate Fraud and Internal Control: A Framework for Prevention. By Richard E. Cascarino, Wiley, 2013; 388 Pages. Price £50.00 / €60.00, ISBN 978-1-1183-0156-2

The publication Corporate Fraud and Internal Control contains essential guidance for companies to examine and improve their fraud programs: Corporate governance legislation has become increasingly concerned with the ongoing resilience of organizations and, particularly, with their ability to resist corporate fraud from the lowest levels to the upper echelons of executive management. It has become unacceptable for those responsible for corporate governance to claim, "I didn't know". Corporate Fraud and Internal Control focuses on the appropriateness of the design of the system of internal controls in fraud risk mitigation, as well as the mechanisms to ensure effective implementation and monitoring on an ongoing basis.