Firm Corporate Governance Research Articles

Research on the Measures and Cost Benefits of Corporate Governance

Corporate governance is an important mechanism for protecting and promoting the interests of shareholders and promoting the healthy development of the companies. Corporate governance is a framework and principle of the internal organization management that aims to balance power among different stakeholders and to safeguard stakeholders' interests. Enterprises at different levels need effective corporate governance to maintain the positive development of the enterprise. Therefore, this paper analyzes corporate governance in firms through qualitative and theoretical analyses with the aim of exploring the measures that generate corporate governance, the costs, and benefits of these measures, and to make recommendations to improve corporate governance. Enterprises need to establish independent director accountability mechanisms to strengthen the regulatory awareness of the enterprise in the face of the problems of corporate governance. Meanwhile, it needs to establish incentive mechanism to encourage, optimize the equity structure and sound managerial market to help enterprises improve the management mechanism.

Corporate governance practices in a Parastatal: A case study of Zambia railways limited

The topic of corporate governance in firms and organisations has become a matter of serious concern among shareholders, regulators, and society. This study sought to assess the corporate governance practices of Zambian parastatals through a case study of Zambia Railways Limited (ZRL). The objectives of the study were to determine compliance with good corporate governance in terms of board structure and functions at the ZRL, to investigate challenges faced by ZRL in implementing good corporate governance practices and to explain the impact of ZRL's corporate governance structure on its operations. The study followed the mixed-method approach where data was collected using questionnaires and in-depth and semi-structured interviews. The case-study research design was employed. A convenient sample of 40 was employed. The study revealed that ZRL has a unitary board structure that is common in the Anglo-American model. The main challenges to good corporate governance include lack of internal controls, excessive political interference and lack of clear roles. The study further found that poor corporate governance negatively impacts operations. The study recommended for a very clear separation of the roles of shareholders and board of directors. The study also recommended for a clear legal framework. Besides, the research indicated the need for future research to investigate the role of Industrial Development Corporation (IDC) in the companies under its portfolio.

Corporate Governance Practices and Performance of Deposit Taking Sacco's in Nairobi City County Kenya

Good performance of SACCOs is a key ingredient for its continuous existence and sustainability. The financial intermediation function carried out by SACCOs is dependent on how well they perform. Over the years, there have been various concerns by policy makers and academician over the SACCOs' dismal performance in Kenya. Despite the various corporate governance initiatives and measures implemented by important organizations such as the Centre for Company Governance, the issue of firm corporate governance remains unresolved, despite the involvement of the Capital Markets Authority and SASRA. The aim of this research is to determine how the performance of deposit taking SACCOs in Nairobi is influenced by corporate governance. The research focused on how stakeholder involvement, board composition, organizational structure, and control environment affect Nairobi-based deposit-taking SACCOs’ performance. The study's base was stakeholder, agency, stewardship, and resource dependence theory. The study employed a descriptive design. A census approach was used whereby all the deposit taking SACCOs in Nairobi were included in the study. The target population was 47 CEOs, 47 Sacco officers, 47 heads of finance and 47 heads of credit department. Data was gathered using structured questionnaire. In this research, to evaluate the construct and content validity, the researcher did a pilot test. Both descriptive and multiple regression analysis were used to examine the data. The findings showed that corporate governance factors (board composition, organization structure, control environment and stakeholder involvement) had a correlation coefficient (R) of 0.691 with an R squared of 0.477. From the ANOVA table corporate governance had a significant effect on performance of DT Saccos (F=28.513; p= 0.000). From the regression, corporate governance (board composition, organization structure, control environment and stakeholder involvement) had a positive effect on performance of DT Saccos. This study concludes that corporate governance (board composition, organization structure, control environment and stakeholder involvement) has a positive effect on performance of DT Saccos in Nairobi, Kenya. The study recommends that management of DT Saccos improve their corporate governance for increased performance levels. There is need for similar research based on other factors influencing performance, other measures of the variables, other Saccos & institutions as well as adopting secondary data.

The audit committee and dividend policy: an empirical study of the post-SOX era

PurposePost-Sarbanes Oxley Act (SOX), the audit committee has been empowered greatly to play a central role in the corporate governance of firms. Embedded in agency theory, this study aims to examine the effect of the audit committee on the likelihood by firms to pay dividends.Design/methodology/approachThe study population is US firms in the Institutional Shareholder Services (ISS) database from 2007 to 2018. The authors apply the multivariate logit fixed-effect regression for the analyses after conducting the appropriate statistical tests.FindingsFrom the results of the research model, the authors find that there is a positive relationship between the size and gender diversity of the audit committee and the propensity to pay dividends suggesting that a larger audit committee with substantial women representation improve the information environment in firms leading to higher dividend distribution. The extent of busyness of the audit committee impacts negatively on the propensity to pay dividends. The results are driven by high-performing firms and not driven by specific levels of firm size.Research limitations/implicationsThe findings of the study give impetus to the audit committee as an important component of the corporate governance mechanism that advances the interest of stakeholders. Thus, efforts that seeks to promote the audit committee’s resourcefulness must be embraced by all stakeholders.Originality/valueTo the best of the authors’ knowledge, this study is the first to focus on audit committee and dividend payout policy of US firms post-SOX. The study demonstrates how the audit committee characteristics including its size, gender diversity and busyness affect dividend policy by mitigating information asymmetry problems.

Corporate governance transparency: Do firm‐level ethics policies and country‐level investor protections substitute or complement?

AbstractThis study empirically investigates the direct and interactive effects of firm‐level ethics policies and country‐level investor protection on firm corporate governance transparency. Using data on 9298 firms collected from the Bloomberg Terminal, we find that there is a positive relationship between country‐level investor protection and firm corporate governance transparency. The results also support the argument that firms with existing ethics policies exhibit greater corporate governance transparency. We also find that in countries with weaker investor protection, the impact of firm‐level ethics policies on corporate governance transparency is stronger. This study advances our understanding of the corporate governance transparency determinants, and the empirical evidence supports the notion that firm‐level factors such as ethics policies may compensate for the lack of formal national investor protection regulations.

Board composition and corporate governance performance: investigating the effects of diversity

ABSTRACT This study investigated the diversity of the BOD and explored its impact on corporate governance through quantitative empirical analysis. This study uniquely adopted Taiwan Stock Exchange Corporate Governance 100 Index (TWSE CG 100 Index) as the measurement of corporate governance performance. Five highly related indicators, i.e. gender, independence, education, legal, finance or accounting profession, and seniority to measure board diversity, which could be efficient variables on predicting the firms’ likelihood being listed in the TWSE CG 100 Index, were used as independent variables. The results showed that board independence and the seniority of directors have a positive impact on corporate governance. This study made several important contributions. First, this study shed light on the conflicting evidence on the relationship between board diversity and firm corporate governance performance for the Taiwan economy. Second, this paper uniquely adopted TWSE CG 100 Index, and the findings can contribute to giving investors predictions about the quality of corporate governance and can serve as an incentive for corporates to enhance superior corporate governance. Furthermore, this study can contribute to practice by providing optimization suggestions for BOD composition and nomination. At last, this paper demonstrated policy justifications and implications for Taiwan government.

Corporate governance in Kuwait: joining the dots between regulatory reform, organisational change in boards and audit committees and firm market and accounting performance

PurposeThis study aims to examine the link between boards and audit committees and firm performance in Kuwaiti listed firms in the context of recent and extensive corporate governance regulatory reform.Design/methodology/approachPanel data regression analysis with fixed effects and clustered standard errors of firm performance for 61–97 listed industrial and services firms in Kuwait over a seven-year period. The dependent variables are the returns on assets and equity, the debt-to-equity ratio and leverage and Tobin’s Q and the independent variables comprise board of directors and audit committee characteristics, including size, the number of meetings and the numbers of independent and outside board and expert committee members. Firm size, subsidiary status and cash flow serve as control variables.FindingsMixed results with respect to the characteristics of the board of directors. Board size and independent and outsider board members positively relate only to Tobin’s Q and insiders only to debt to equity. For audit committee characteristics, committee size, independence and expertise positively relate to the return on equity and committee size and expertise only to Tobin’s Q. Of the five performance measures considered, board and audit committee characteristics together best determine Tobin’s Q.Research limitations/implicationsData from a single country limits generalisability and control variables necessarily limited in a developing market context. Need for qualitative insights into corporate governance reform as a complement to conventional quantitative analysis. In combining accounting and market information, Tobin’s Q appears best able to recognise the performance benefits of good corporate governance in terms of internal organisational change.Practical implicationsThe recent corporate governance code and guidelines reforms exert a mixed impact on firm performance, with audit committees, not boards, of most influence. But recent reforms implied most change to boards of directors. One suggestion is that non-market reform may have been unneeded given existing market pressure on listed firms and firms anticipating regulatory change.Social implicationsKuwait’s corporate governance reforms codified corporate governance practices already in place among many of its firms in pursuit of organisational legitimacy, and while invoking substantial change to audit committees, involved minor change to firm performance, at least in the short term. Some firms may also have delisted in expectation of stronger corporate governance requirements. Regardless, these direct and indirect processes both improved the overall quality of listed firm corporate governance and performance in Kuwait.Originality/valueSeminal analysis of corporate governance reforms in Kuwait, which have rapidly progressed from no corporate governance code and guidelines to an initially voluntary and then compulsory regime. Only known analysis to incorporate both board of directors and audit committee characteristics. Reveals studies of the corporate governance–firm performance relationship may face difficulty in model specification, and empirical significance, given the complexity of corporate governance codes and guidelines, leads in changing firm behaviour and self-selection of firms into and out of regulated markets.

Impact of Shareholders’ Activism on the Performance of Banks in India: A Panel Data Application

There is a widespread uncertainty regarding the usefulness of shareholder activism (SA) as a part of corporate governance for firms and banks. SA has wide acceptance across the board among all the stakeholders’ participation. Since banks are the backbone of any economy, any endeavor (support to SA) creating difficulty may boomerang. Such actions do more harm than good; therefore, it is imperative to determine whether SA is beneficial to the banks or not. In this study, the SA index is built for Indian banks. The data relating to bank performance and valuation is gathered for 2016–2019. Panel data econometrics is applied to determine the impact of SA on banks performance. Results reveal that SA impacts bank performance. Furthermore, transparency and disclosure significantly moderates the association of SA with the performance. However, SA is not impacting bank valuation. It is a unique study of its kind to provide insights on SA for the banking sector.

Corporate Social Responsibility Rating, Corporate Governance, and Financial Distress: Evidence from China

AbstractThis study investigates the relationship between corporate social responsibility (CSR) and financial distress in China using theO‐score and a Chinese sample of 4202 observations between 2011 and 2017. The relationship is accordingly more pronounced in weak corporate governance firms with low levels of institutional shareholders and free cash flow and among non‐state‐owned enterprises and mandatory CSR disclosure firms. The findings are robust to endogeneity through robustness checks and the 2013 Sichuan Lushan earthquake as an exogenous shock to CSR. Ultimately, the study will help investors, shareholders, and policymakers appreciate the impact of CSR dimensions.

Voluntary Private Pension Funds and Capital Market Development

We examine voluntary private pension funds and their relationship to capital market development. Using data from Turkey, we analyse depth, efficiency and liquidity indicators of capital markets after the introduction of voluntary private pension funds in 2003. Overall, our findings indicate that the introduction of voluntary private pension plans are positively associated with indicators of capital market development, focusing on market depth (such as market capitalisation and trading volume) in both debt and equity markets. We also observe that indicators for other more recently established markets are also positively associated with the introduction of voluntary pension plans. In contrast, equity market turnover shows a negative association. These findings, along with the positive association with the corporate governance index, suggest that pension funds are important for capital market development and for corporate governance of firms as they are long-term investors. However, the introduction of state contributions in 2013 is not robust to alternative specifications.

The Digitisation of a Firm Process and Its Impact on Corporate Governance

Digitisation can be considered as the continuing convergence of both real and virtual worlds by transforming data from analogue to electronic format. This has been the primary driver of innovation and change in various sectors of the economy. The exponentially growing amount of data has made it essential for firms to transform them into digital format for ensuring better flow and sharing of information across the organisation. Digitisation has been referred to as the process of converting various diverse forms of information, such as text, images, sound or voice, into an electronic format that leads to improved operations and reduced costs for firms. The research paper has discussed this digitisation process of a firm and analysed its consequent impact on the corporate governance. In this regard, various articles have been explored for the purposes of understanding how digitisation can improve or threaten corporate governance of firms. Digitisation has created some big disruptive storms some of which have resulted in a reimagined manner of doing business, affecting demand and supply principles in any company. As a result, in order to gain market confidence, businesses must establish credibility and integrity.

Portability of firm corporate governance in mergers and acquisitions

We study the corporate governance portability from bidders to targets in Mergers and Acquisitions and its impact on bidder announcement returns. We find that the bidder’s cumulative abnormal returns are higher in acquisitions where the bidder’s corporate governance quality exceeds that of the target. This result suggests a positive valuation effect for bidder shareholders resulting from the portability of good firm corporate governance from bidders to targets. We also find that this effect is stronger when bidders are domiciled in countries with better corporate governance. The results pass several robustness tests, including alternative measures of firm corporate governance and different sample periods.

Does gender diversity in the workplace mitigate climate change?

We match firm-corporate governance characteristics with firm-level carbon dioxide (CO2) emissions over the period 2009–2019 to study the relationship between gender diversity in the workplace and firm carbon emissions. We find that a 1 percentage point increase in the percentage of female managers within the firm leads to a 0.5% decrease in CO2 emissions. We document that this effect is statistically significant, also when controlling for institutional differences caused by more patriarchal and hierarchical cultures and religions. At the same time, we show that gender diversity at the managerial level has stronger mitigating effects on climate change if females are also well-represented outside the organization, e.g. in political institutions and civil society organizations. Finally, we find that, after the Paris Agreement, firms with greater gender diversity reduced their CO2 emissions by about 5% more than firms with more male managers.

Role of corporate governance in moderating the risk-return paradox: Cross country evidence

This paper investigates the possible nexus between the 'risk-return paradox' and corporate-governance of firms in a cross-country cross-cultural setup. We use corporate governance as well as accounting risk and return data for a large dataset of 45,322 firm-years from 27 countries and show that the firm-level risk-return association may be a non-linear one, contingent on the firm performance. Firms which are below the industry median in terms of operating performance, exhibit an inverse relation in line with Bowman's (1980) ‘paradox' while those above-median exhibit a positive risk-return association. Further, we establish empirically that such risk-return association could be due to the rent-seeking actions of managers and that strong corporate-governance in a firm substantially moderates and reverses these effects. Our results are robust and hold strong through a number of robustness tests.

The influence of fraud triangle factors on real earnings management

This study aims to examine the relationship between factors of pressure, opportunity, and rationalization, and the occurrence of real earnings management among Malaysian public listed companies. The study used a sample of 557 Malaysian public listed companies between 2017 and 2019, comprising a total of 1,671 firm-year observations. Replicating a study by Khanh and Nguyen (2018), but not limited to external governance of audit quality, the study added to the knowledge of real earnings management by taking into account the effect of internal governance such as board independence and multiple directorships. And, following Roychowdhury (2006), real earnings management is measured by abnormal cash flow from operations, abnormal production costs, and abnormal discretionary expenditure. The results from regression analysis show that there is a negative and significant association between financial performance, measured by return on assets, and real earnings management. In addition, the results also show that there is a positive and significant association between audit quality, measured by audit firm size, and real earnings management. The findings of this study provide useful insights for the investors to reassess firm corporate governance, and for the regulators to reconsider the current regulations with regard to the practice of real earnings management.

The Effect of Corporate Governance Practices on Internal Control Efficiency: Study of Selected Firms

This study is an attempt to examine t he effect of corporate governance practices on internal control elements of risk assessment and monitoring activities. The study also seeks to determine the extent to which the act of good corporate governance affect the internal control measures in selected firms in Lagos Nigeria. In order to achieve the objectives of this study, a questionnaire was developed and distributed to a sample of top executives like directors, senior managers and accountants of the 226 selected firms. The total number of 226 questionnaires were returned out of which 210 were usable were returned and were valid for analysis this gives a response rate of 92% . Based on the results of the statistical analysis, the study indicated that corporate governance practices do contribute immensely to effective risk assessment and monitoring act to a high degree. The study also revealed that the commitment to risk assessment and monitoring activities strengthens the pillars of corporate governance at a high degree. These results show that the practices of corporate governance in firms have a significant effect in enhancing risk assessment and monitoring activities

The impact of corporate governance performance on the association between information asymmetry and opportunities' optimal levels: evidence from developed markets

PurposePrevious literature posits that corporate governance and information asymmetry are the main factors in making efficient investments. Meanwhile, a growing body of studies is of the opinion that corporate governance can also mitigate the problem of information asymmetry and consequently exerts significant impacts on the association between information asymmetry and investment efficiency. This study aims to analyze the impact of corporate governance and information asymmetry on investment efficiency. It also tests the moderating role of corporate governance in the relationship between information asymmetry and investment efficiency.Design/methodology/approachThe sample consists of 4,082 firms domiciled in 20 developed countries over the years from 2003 to 2019, including 33,812 firm-year observations. The bid–ask spread is used as a proxy for information asymmetry. To measure corporate governance performance, a proxy provided by ASSET4 is employed, and to determine the optimal levels of investments, we relied on the growth opportunity. To estimate the models, ordinary least squares and generalized method of moment are used.FindingsThe results reveal that information asymmetry is inversely related to investment efficiency, and, corporate governance mitigates this negative association.Originality/valueThis paper sheds light on the role of corporate governance in firms as a lever for mitigating information asymmetry and tries out information asymmetry and agency theories in relation to the impact of information asymmetry on investment efficiency. It also confirms the theory stating that corporate governance can be considered as a determinant of investment efficiency.

Bid-ask spread, corporate board and stock liquidity in emergent markets

PurposeThis study analyzes the relationship between governance and stock liquidity. It uses different variables of corporate board characteristics and test three proxies of a bid-ask spread. It also provides comprehensive and robust evidence for the association between the corporate board and stock liquidity in the pure order-driven Tunisian market.Design/methodology/approachThis study is based on a sample covering all financial firms in Tunisia (banks, insurances and leasing companies) from 2008 to 2019. It employs a panel data approach.FindingsThe author finds a negative relationship between board sizes, financial institutional members in corporate board and bid-ask spread (absolute, relative and effective spread). The author suggests that better-managed firms have greatly improved their stock liquidity and lower trading cost. The empirical results reveal that better corporate governance firms improve stock liquidity since it is associated with higher information disclosure.Practical implicationsThis research encourages Tunisian firms to develop their governance mechanisms and restructure their board organization to improve stock liquidity. It can support the regulators to simultaneously design appropriate governance recommendations, disclosure policies and trading regulations.Originality/valueThe author presents empirical evidence of the role of corporate board on the bid-ask spread in an emerging market. The research is the first to analyze the corporate board characteristics using seven variables representatives of the board of directors and without using the governance index.

How resilient are the Asia Pacific financial markets against a global pandemic?

This paper examines (i) the effects of the COVID-19 outbreak and subsequent government policy responses, and (ii) their firm-level determinants in the context of Asia Pacific financial markets. The study is built on 3278 companies from 7 countries. It is found that the declaration of the COVID-19 outbreak as a pandemic resulted in a significant negative impact on the stock returns (the cumulative average abnormal returns range from −7.35% to −26.21% for a [−5, 5] window period) with few exceptions. The results further indicate that although government stimulus packages somewhat calmed the markets, these policy responses, in general, failed to rebuild investors' confidence. The cross-sectional regression reveals that low leverage, low volatility, cash-rich, growth and good corporate governance firms were less vulnerable to the pandemic. However, firms' stock price responses to the crisis were invariant to their CSR engagement, features of the corporate board, and executive compensation structure.

Corporate Governance: Joining the Dots between Institutional Reform, Organisational Change and Firm Performance

Purpose — Examine the link between boards and audit committees and firm performance in Kuwaiti listed firms in the context of recent and extensive corporate governance regulatory reform. Design/methodology/approach — Panel data regression analysis with fixed effects and clustered standard errors of firm performance for 62–95 listed industrial and services firms in Kuwait over the period 2010–2017. The dependent variables are the returns on assets and equity, the debt to equity ratio and leverage and Tobin’s Q and the independent variables comprise board of directors and audit committee characteristics, including size, the number of meetings, and the numbers of independent and outside board and expert committee members. Firm size, subsidiary status, and cash flow serve as control variables. Findings — Mixed results with respect to the characteristics of the board of directors. Board size and independent and outsider board members positively relate only to Tobin’s Q and insiders only to debt to equity. For audit committee characteristics, committee size, independence and expertise positively relate to the return on equity and committee size and expertise only to Tobin’s Q. Of the five performance measures considered, board and audit committee characteristics together best determine Tobin’s Q. Research limitations/implications — Data from a single country limits generalisability and control variables necessarily limited in a developing market context. Need for qualitative insights into corporate governance reform as a complement to conventional quantitative analysis. In combining accounting and market information, Tobin’s Q appears best able to recognise the performance benefits of good corporate governance in terms of internal organisational change. Practical implications — The recent corporate governance code and guidelines reforms exert a mixed impact on firm performance, with audit committees not boards apparently of most influence. But recent reforms implied most change to boards of directors. One suggestion is that nonmarket reform may have been unneeded given existing market pressure on listed firms and firms anticipating regulatory change. Social implications — Kuwait’s corporate governance reforms likely codified corporate governance practices already in place among many of its firms in pursuit of organisational legitimacy, and while invoking substantial change to audit committees, ultimately involved little change to firm performance, at least in the short term. Some firms may also have delisted in expectation of stronger corporate governance requirements. Regardless, these direct and indirect processes both improved the overall quality of listed firm corporate governance and performance in Kuwait. Originality/value — Seminal analysis of corporate governance reforms in Kuwait, which have rapidly progressed from no corporate governance code and guidelines to an initially voluntary and then compulsory regime. Only known analysis to incorporate both board of directors and audit committee characteristics. Reveals that studies of the corporate governance–firm performance relationship may face difficulty in model specification, and ultimately empirical significance, given the complexity of corporate governance codes and guidelines, leads in changing firm behaviour, and self-selection of firms into and out of regulated markets.