Corporate Governance Literature Research Articles

Shared Capitalism and Corporate Sustainability: Broad-Based Employee Share Ownership, CEO Ownership, and Corporate Environmental Performance

This research proposes that broad-based employee share ownership (ESO) affects corporate environmental performance (CEP). Drawing upon corporate governance literature, social exchange theory, and stakeholder utility theory, we propose that employees as owners adopt more favorable attitudes toward beneficial outcomes for CEP, and that the broad-based impact of ESO overwhelms the impact of CEO ownership. Also, we propose that these relationships are contingent upon trade union presence as a form of worker voice that amplifies the ESO influence on CEP. The empirical results from U.S. publicly traded companies from 2009 to 2016 indicate that broad-based ESO is linked to positive CEP by companies, and provides some support for all proposed hypotheses. This study provides scholarly and practical implications for the effects of shared capitalist modes of ownership and employee engagement on corporate sustainability.

Legislating Against Misinformation: Lessons from Australia’s Misinformation Bill

Abstract Misinformation is decried in today’s discourse. Governments have been tempted to attempt to restrict or outlaw it. This may not be possible where there are Constitutional protections for free speech. However, many countries lack rigorous protections. Australia shows us an approach where there are limited protections. It is a cautionary tale, exacerbating ‘agency conflicts’ both at the political and regulatory level and at the corporate level. The Australian government has attempted to curtail ‘misinformation’ and ‘disinformation’ through the proposed ‘Communications Legislation Amendment (Combatting Misinformation and Disinformation) Bill 2023’. But, in so doing, the proposed bill casts a wide net, has unintended consequences, and unnecessarily chills free speech and intellectual inquiry. Ironically, the Bill also exempts the government’s own communications from attempts to curtail misinformation. The Bill would also incentivize corporate overreach by penalizing firms for inadvertently allowing ‘misinformation’, but not penalizing them for suppressing true information. The corporate governance literature gives additional insights into the value destruction that such a Bill could cause. The Bill’s failures provide lessons for any government that seeks to legislate against misinformation.

CSR and ownership structure: Moderating role of board characteristics in an emerging country context

AbstractThe existing literature on the impact of ownership structure on corporate social responsibility (CSR) showed inconsistent results and disregarded the possibility of non‐linear patterns in the relationship. The present study examines the non‐linear relationship between ownership structure (family, foreign, institutional, and government) and CSR expenditure of listed non‐financial service sector firms in India. Further, the moderating effect of board variables, including board size, board independence, multiple directorships and gender diversity, is explored in the ownership structure‐CSR nexus. Based on a balanced panel dataset of 243 non‐financial service sector companies listed in India, the study observed an inverse U‐relationship between institutional ownership and CSR. The study also found that family, foreign, and government ownership positively influence the firm's social engagement. However, the study could find partial support for the moderating role of the four board characteristics; board size, board independence, multiple directorships and gender diversity in ownership‐CSR association. The study contributes to existing CSR and corporate governance literature by exploring one of the major factors (ownership structure) impacting CSR and the role of board variables in the association.

Female CEOs and SME’s financing decision: evidence from firm-level data

PurposeThis study investigates the relationship between female CEOs and SMEs’ financing decisions. The study also examined the moderating role of ownership structure (female, foreign, and state ownership) in female CEO-SMEs’ financing decisions.Design/methodology/approachThe study has applied Generalized Least Square (GLS) and Binomial Logistic Regression. The study has used firm-level data from 2,700 Small and Medium Enterprises (SMEs) in the Chinese economy.FindingsThe results suggest that female CEOs use debt financing. However, the financing decision of female CEOs varies if we account for female ownership, foreign ownership, state ownership, firm association with big firms, and the industry in which the firm operates. This study also provides robust evidence that female CEOs utilize debt financing under certain conditions and that female CEOs prefer long-term debt financing to short-term debt financing when considering debt maturity choices.Originality/valueRecent studies report a negative relationship between female CEOs and financing decisions based on the rationale that females are risk-averse and choose less risky financing compared to their male counterparts. This study posits new evidence that female CEO financing decisions are not always risk averse if we consider female ownership, foreign ownership, state ownership, firm association with big firms, and the industry in which the firm operates. Thus, we contribute to the corporate governance literature, and this study implies a corporate financing policy.

Board Diversity and Firm Value: Evidence From Nepalese Financial Institutions

The purpose of this paper is to provide empirical evidence on the relationship of board diversity of corporate board with the value of financial institutions in Nepal. The sample comprises 38 financial institutions listed in NEPSE with 380 firm-years observation for the period 2011/12 to 2020/21. Balance panel datasets were employed to investigate using multiple regression models to examine the relationship between board diversity (female and minority directors) and firm value measured by Tobin's Q and MBR. The result shows a significant positive relationship between firm value and the presence of both female and minority directors. Moreover, the evidence supports that the presence of female directors in the boardroom effect more in the firm market value than as compare to the minority directors. Furthermore, the study concludes that control variables like board size, presence of independent director and firm size have positive significant effect on firm value, but leverage has significant but negative relation with the firm market value of financial intuitions in Nepal. The study result has the practical implication for government, policy makers and regulating authorities in formation of diverse board that can increase the firm value and performance. It also provides additional insight to the corporate governance literature and helps to fill the gap on board diversity and firm value in Nepalese financial institutions.

Foreign Institutional Ownership and Earnings Management

This study investigates the relationship between foreign institutional ownership (FIO) and earnings management (EM) using 552 firms of non-financial sector companies that publish annual financial reports for 2015–2021. We use ordinary least squares (OLS) for equation estimation. The results show that, overall, FIO has a negative impact on earnings management. Tests were also conducted on the FIO group: banks, insurance, pension fund mutual funds, and securities companies. The test results indicate that each group of institutional investors has a negative effect except for securities companies, which positively impact earnings management. The positive influence of securities firms shows that securities firms are more focused on trading strategies than managerial controls. The findings of this study are expected to contribute to the corporate governance literature and the quality of financial reporting. Institutional ownership as a corporate governance mechanism is expected to control earnings management which can reduce the quality of financial reporting. Keywords: institutional ownership, earnings management, agency theory

Does board knowledge matter for ESG performance in the European banking industry?

AbstractThis study investigates the influence of the knowledge endowment of directors on the environmental, social, and governance (ESG) performance in the banking industry. Applying the generalized method of moments (GMM) two‐step analysis, we analyzed a sample of 115 banks listed in Europe between 2014 and 2022. Building on the Resource Based View and Resource Dependence Theory, we find empirical evidence that board knowledge in terms of cultural, industrial, and financial background affects ESG performance in the banking industry, providing several contributions to the extant knowledge management and corporate governance literature. The research is intended to stimulate the development of practical knowledge management strategies inside companies to improve directors' decision‐making toward corporate social responsibility‐oriented initiatives.

Beyond the bottom line: exploring the role of governance mechanisms in promoting corporate tax responsibility

Purpose Because of growing corporate tax scandals, there is an enhanced focus on corporate taxation by governments, institutions and the general public. Transparency in tax matters has been identified as critical for effectively managing and promoting socially responsible tax behaviour. This study aims to explore the impact of ownership structure, board and audit committee characteristics on corporate tax responsibility (CTR) disclosure. Design/methodology/approach This research collected data from the annual reports of Pakistani-listed firms over 12 years, from 2009 to 2020. Consequently, the data set encompasses a total of 1,800 firm-year observations. This study uses regression analysis to test the relationship between corporate governance and CTR disclosure. Findings The results show that board gender diversity, managerial ownership and audit committee independence promote tax responsibility disclosure. In contrast, family board membership, CEO duality, foreign ownership and family ownership negatively impact tax responsibility disclosure. Additional analyses reveal the specific information categories that produce the overall effects on tax responsibility disclosure and assess the moderating impact of family firms on the governance and CTR disclosure nexus. Practical implications Corporations can use the results to encourage practices that enhance transparency and improve the quality of disclosures. Regulatory authorities can use the findings to stipulate better protocols. Doing so will be vital for developing countries such as Pakistan to improve tax revenue and cultivate economic growth. Originality/value While this research represents, to the best of the authors’ knowledge, one of the first empirical investigations of the association between corporate governance and CTR, the results contribute to the corporate governance literature and offer fresh insights into CTR, an emerging dimension of corporate social responsibility.

Stock Liquidity, Corporate Governance and Dividend Payout: Evidence From Tehran Stock Exchange

The main goal of this article is the impact of Corporate Governance and Stock Liquidity on the Dividend payout. In order to test the hypotheses, a sample of companies accepted in the Tehran Stock Exchange was selected between 2016 and 2021, which was analyzed using R software. The research method is multivariate regression using panel data. According to the research findings, there is not a meaningful relationship between Corporate Governance, Stock Liquidity and Dividend payout. Companies finance through debt regardless of the stock liquidity, therefore, stock liquidity does not have a decisive role in financing. Better corporate governance mechanisms apply more supervision, so that these mechanisms prevent the opportunistic behavior of managers and preventing them from hiding and manipulating information. By testing the mutual effect of stock liquidity and the quality of corporate governance, a significant relationship was found with the dividend payout of companies accepted in the Tehran Stock Exchange. The study tries to contribute to the current literature of corporate governance and stock liquidity by providing new evidence on the causal impacts of stock liquidity and corporate governance quality on dividend payout. Also, this study contributes to the literature on stock liquidity, corporate governance quality and dividend payout by exploring the mechanism of corporate governance quality and dividend payout from equity financing and internal financing.

Geopolitical risk and corporate cash Holdings in China: Precautionary motive and agency problem perspectives

Using a sample of Chinese A-share listed companies, we investigate the relationship between geopolitical risk and corporate cash holdings, integrating two contrasting theories—precautionary motive and agency problems—into the analysis. To explore our core findings about the negative impact of geopolitical risk on cash holdings, we examine the cash flows of operating, investing, and financing activities. We find that corporations strategically reduce cash flow from financing activities and increase dividend distributions to alleviate agency problems when geopolitical risk rises. In contrast, geopolitical risk does not significantly affect the cash flow from operating activities, whereas the cash flow from investing activities increases. The overall adverse effect of geopolitical risk on cash holdings reflects the incentive to mitigate agency problems. This is valued by external shareholders, alleviating the negative impact of geopolitical risk on firm value. However, corporations also adopt precautionary actions by increasing their credit loans to defend against potential liquidity risk. Additionally, we document that corporations with high board independence and those in regions with high marketization diminish more cash when geopolitical risk rises, with non-state-owned corporations, overinvested corporations, and corporations with low financial constraints particularly negatively affected by geopolitical risk. Our results withstand rigorous robustness tests, shedding light on the intricate dynamics of corporate financial decisions amidst geopolitical risk and offering a fresh perspective to the corporate governance literature.

Complicating the Comparative Taxonomy: the Impact on Corporate Governance of the Dynamic Interaction of Creditors and Shareholders

The corporate governance literature often focuses on either equity-side or debt-side actors, taking one as a control variable to study the impact of variations in the characteristics of the other. This Article considers how the interplay between the nature debt and equity investments can be analyzed through a theoretical framework to further the understanding of differences in governance outcomes across jurisdictions. Therefore, it builds upon existing literature on controlling shareholders, financial intermediation, and creditor governance to analyze the mirroring setup between controlling and noncontrolling shareholders on the equity side, and private and public lenders on the debt side. It studies the dynamic interaction of these characteristics across jurisdictions where different combinations of debt and equity prevail, before evaluating how this framework can potently explain cross- and intra-jurisdictional variations in governance outcomes.

Reconnoitering the impact of corporate governance on carbon emission disclosure in an emerging setting

Purpose This study aims to determine the influence of corporate governance characteristics on carbon emission disclosure in an emerging economy. Design/methodology/approach The study is based on S&P BSE 500 Indian firms for the period of 6 years from 2016–2017 to 2021–2022. The panel data regression models are used to gauge the association between corporate governance and carbon emission disclosure. Findings The empirical findings of the study support the positive and significant association between board activity intensity, environment committee and carbon emission disclosure. This evinced that the board activity intensity and presence of the environment committee have a critical role in carbon emission disclosure. On the contrary, findings reveal a significant and negative relationship between board size and carbon emission disclosure. Practical implications The present study provides treasured insights to regulators, policymakers, investors and corporate managers, as the study corroborates that various corporate governance characteristics exert significant influence on carbon emission disclosure. Originality/value The current research work provides novel insights into corporate governance and climate change literature that good corporate governance significantly boosts the carbon emission disclosure of firms. Previous studies examining the impact of corporate governance on carbon emission disclosure ignored emerging economies. Thus, the current work explores the role of governance mechanisms on carbon emission disclosure in an emerging context. Further, to the best of the author’s knowledge, the current study is the first of its kind to investigate the role of corporate governance on carbon emission disclosure in the Indian context.

Bank intervention and firms’ earnings management: evidence from debt covenant violations

Earnings management has long been one of the main concerns in accounting and management literature, and the extent to which corporate governance mechanisms can discipline management behaviour and prevent earnings management has attracted increasing interest among policy makers and academic researchers. Differing from previous corporate governance literature that focuses mainly on the board and auditors, we explore the role of creditors in corporate governance. In particular, we examine the effect of bank intervention on earnings management via the lens of debt covenant violations, where control rights are transferred to creditors (banks). Using a Difference-in-Difference approach, we find that firms reduce both their accruals-based and real earnings management following debt covenant violations. The negative effect on earnings management is more prominent when banks possess greater bargaining and monitoring power and when firms are more financially constrained. By identifying a specific channel through which debt providers influence corporate financial reporting, our findings suggest that creditors can play an important role in governing organisations and disciplining management behaviour.

UPAYA MENINGKATKAN GOOD CORPORATE GOVERNANCE DENGAN PENETAPAN HOSPITAL BYLAWS/STATUTA DI AMAL USAHA KESEHATAN MUHAMMADIYAH/AISYIYAH JAWA TIMUR

This paper is a review of the literature and application of good corporate governance which is regulated through the Hospital Bylaws / Statute of hospitals in the Muhammadiyah charitable efforts, particularly in order to reduce conflicts of interest between the owners, founders, managers and implementers of the healthcare. Hospital By laws regulate care services authority, responsibility of three important organs, governing board, chief executive office (CEO) / director, the medical staff. The implementation based on the results of case studies in Amal Usaha Kesehatan Muhammadiyah / Aisyiyah East Java in centrally coaching by MKKM as the governing board of East Java region has been able to improve performance of Aumkes Muhamadiyah / Aisyiyah to be more advanced.

The moderating role of duality split on the relationship between CEO narcissism and earnings management

Purpose The purpose of this study is to examine the moderating effect of an exogenous corporate governance shock that curbs Chief Executive Officers’ (CEOs) power on the relationship between CEO narcissism and earnings management practices. Design/methodology/approach The authors performed a quasi-experiment using a differences-in-differences approach to examine Brazil’s duality split regulatory change on 101 Brazilian public firms during the period 2010–2022. Findings The main findings indicate that the introduction of duality split curtails the positive influence of CEO narcissism on earnings management, suggesting that this corporate governance regulation may act as a complementary corporate governance mechanism in mitigating the negative consequences of powerful narcissistic CEOs. Further robustness checks indicate that the results remain consistent after using entropy balancing and alternative measures of CEO narcissism. Practical implications In emerging markets, where governance systems are frequently perceived as less than optimal, policymakers and regulatory authorities can draw insights from this enforcement to shape governance systems, reducing CEO power and, consequently, improving the quality of financial reporting. Originality/value To the best of the authors’ knowledge, this is the first study to examine whether a duality split mitigates the influence of CEO narcissism on earnings management. Thus, this study contributes to the corporate governance literature that calls for research on the effectiveness of external corporate governance mechanisms in emerging markets as well as the CEO narcissism literature that calls for research on moderating factors that could curtail negative consequences of narcissistic CEO behavior.

The Compliance Model as an Instigation for Post-Financial Crisis Efficiency in Corporations

This paper examines how the compliance model improves corporate governance and efficiency post-financial crisis. This paper focuses on the goals of the compliance model, the strategies for its integration into corporate governance structures, as well as the results and conclusions. The compliance model prioritizes legal and regulatory compliance, ethical standards, and best practices in corporate governance. This methodology helps organizations prevent wrongdoing, enhance transparency, and build stakeholder confidence. Mixed methods study evaluates the compliance model. First, it reviews the theoretical and practical consequences of the compliance model. Next, a quantitative analysis compares pre- and post-compliance model performance metrics in a sample of firms. Finally, qualitative interviews with key stakeholders assess the impact of the model. This study shows that the compliance approach boosts post-financial crisis corporate efficiency. The approach improves corporate governance, malfeasance, and efficiency. Organizations with a culture of compliance, honesty, and responsibility gain stakeholder trust. The results show that the compliance model can help companies revive their corporate governance practices following financial crises. This methodology reduces risks, ensures legal and ethical compliance, and boosts efficiency and effectiveness. This study emphasizes the role of the compliance model in post-financial crisis corporate efficiency. It highlights the favorable effects of the model on corporate governance and organizational success. The report adds to the corporate governance literature and offers practical advice for companies trying to improve their governance in a complicated business environment.

Network Centrality and Dissent Voting by Directors on Boards

AbstractWe investigate how directors’ positions within board interlocking networks influence their monitoring behaviors from a social network perspective. We argue that the effectiveness of directors’ monitoring of a firm's management depends on their ability to overcome the information barrier and their motivation to develop a public reputation in the directorship market. We further contend that network centrality can supplement directors’ existing information set and facilitate reputation spillover, leading to an increase in the extent of their dissent on boards. We analyze the unique individual-director-level data of Chinese firms and find that directors occupying positions of greater centrality in the board interlock network are more likely to dissent. We then examine the underlying mechanisms of information and reputation through two moderators: firm transparency and media mention of a director. We also find that the effect of network centrality on dissent is weaker for independent directors. Our study advances the corporate governance literature by examining the micro-foundations of board monitoring and providing a social network perspective.

Board effectiveness and corporate investment in emerging markets: evidence from the gulf cooperation council countries

PurposeThis study aims to empirically examine the impact of internal corporate governance mechanisms (ICGM) related to the size of the board, board composition, CEO duality and audit committee independence as a single metric on a firm’s investment decisions.Design/methodology/approachThis study attempts to develop an internal corporate governance quality index comprising 10 items under four main ICGMs – size and independence of the board, CEO duality and audit committee independence – employing panel data analysis to investigate its impact on the investment decisions in 301 nonfinancial firms listed in six emerging capital markets in the Gulf Cooperation Council (GCC) member countries for the years 2015–2020. Data were extracted from sample companies' websites, stock markets, annual reports and Refinitiv database.FindingsThis study provides convincing evidence that effective ICGMs minimize inefficient investment and ultimately boost investment efficiency. The findings remain consistent even after considering the potential endogeneity bias.Originality/valueThis study provides empirical evidence on investment efficiency in the GCC region and emphasizes the importance of high-quality ICGMs in reducing inefficient investment. By examining the impact of ICGMs on investment inefficiencies, this study contributes to the corporate governance literature. The GCC region's unique economic and social contexts, with its growing economies, are considered to shed light on this issue.

Board Member Remuneration and Earnings Management: The Case of Portugal

This study draws on agency theory and evaluates the effect of the remuneration structures of board members on earnings management, proxied by discretionary accruals. To achieve the objective, this study uses a multiple regression model and a hand-collected dataset of Portuguese-listed firms from 2015 to 2019. This study suggests that fixed board remuneration is associated with lower levels of earnings management, as opposed to variable remuneration of board members, which is strongly associated with a higher level of earnings management. The findings based on this study provide useful information to investors and regulators in evaluating the effect of board compensation structure on earnings management. Additionally, this study expands the corporate governance literature by examining an under-researched mechanism to address the agency problem.

The schizophrenic board secretary: Embedded agent between multiple stakeholders and financial misconduct

While agency theory has emphasized the importance of corporate governance in preventing financial misconduct, monitoring bodies do not always function well, especially in transition economies. By integrating the stakeholder-agency perspective with prospect theory, this study provides a new explanation of such dysfunction by introducing an embedded agent concept that manifests in a “schizophrenic” status of agents who need to satisfy multiple stakeholders and their conflicting interests. Drawing on a sample of small-to-medium-sized enterprises (SMEs) listed on the Chinese National Equities and Exchange and Quotations system from 2014 to 2017, it is shown that having a board secretary did not help reduce financial misconduct as the government expected, due to an embedded agent problem. However, their dysfunctional status would largely disappear, and they would perform their monitoring responsibilities if given higher equity shares and stricter subnational regulations, two key contingencies that better align embedded agents’ interests with one group of stakeholders. Overall, this study contributes to the corporate governance literature by introducing the embedded agent concept and its theoretical boundaries, along with a focus on transition economies.