Firm Corporate Governance Research Articles

Director attributes and institutional investor choices: evidence in Latin America

PurposeThis paper examines how the board of directors' attributes in terms of educational and professional backgrounds –that is board capital-, and demographics influence institutional ownership across listed companies in Latin America.Design/methodology/approachBased on unique hand-collected information of directors' educational and professional attributes across 427 firms in Latin America, the authors analyze the effects of directors' educational attainment, professional experience and demographic diversification on institutional investors' holdings.FindingsResults show that grey investor ownership favors directors with graduate studies and diverse boards regarding gender and nationality. Independent investors value the directors' professional experience like former founders of a firm. Grey investors are more concerned with firm corporate governance mechanisms, consistent with the agency view. In contrast, independent institutional investors focus on business opportunities following the board of directors' resource-based view.Research limitations/implicationsThis study shows that board capital becomes a key determinant for institutional ownership in emerging markets.Originality/valueThis study extends previous literature on institutional investor preferences by providing empirical evidence that firm board capital becomes a collective asset that is central for institutional investors' investment choices for an emerging market case.

Label information and consumer behaviour: evidence on drinking milk sector

The purpose of the research is to evaluate the impact of different kinds of information disclosures of milk labels, investigating the interest among consumers based on their consumption behaviours and characteristics. In this research, all the actions which lead to a healthiness, become expressions of a production process, among which consumers’ food choices, purchase, preparation, and also self-production. Therefore, in the “health creation” production process, information and knowledge about food become “investments”. In this context, label disclosures become a tangible expression of this kind of “investment”. The research question is: what impact do purchase preferences and consumers’ characteristics have on their interest towards the label information provided? Several information disclosures, both mandatory and voluntary, are investigated. Therefore, some choice attributes will be analysed as indicators of the consumer’s behaviour in relation to his investment in food information. The methodology used for the analysis is an Ordered Logit. The analysis of the consumer’s behaviour has been performed by transposing Ménard’s analysis of firm corporate governance (Ménard, Agribus. 34:142–160, 2018) to the consumer as producer of welfare equity. The reduction of information asymmetry is a cost for the producer, and this research may be able to measure how much it would be convenient to invest in this reduction, based on the analysis of the consumer’s behaviour toward his personal investment in food information acquisition.

Environmental and Social Concerns of Stakeholders and Corporate Governance in Germany

This study explores the overall effects of corporate governance practices and features of board effectiveness on the environmental and social (ES) concerns of stakeholders in Germany. The research presents ES concerns through ES indices. The study uses the data of listed firms in Germany for the period 2004-2017. The study finds that overall measurement of corporate governance in firms in Germany decreases the ES concerns of stakeholders. However, when various features of corporate boards are used as measures of corporate governance, it finds that if the chairman is an ex-CEO, there are significantly higher ES concerns for stakeholders in Germany.

CAPITAL STRUCTURE AND CULTURE IN MALAYSIA: A STUDY FROM ETHNICITY AND RELIGION PERSPECTIVES

Conceptualization from New Institutional Economics of Williamson (2000), the study looked at the issue of formal and informal institutional factors on financial decision making. This study first investigated the informal embedded culture such as “ethnicity and religion” that could influence the decision in a firm's capital structure. Secondly, the influence of culture informal institutions such as “Shariah and Non-Shariah compliant firms on capital structure decisions was investigated. Previous observations showed Chinese have high individualism and low uncertainty avoidance. Whereas, the Malay has low individualism and high uncertainty. These dimensions affect firm’s decision behaviour towards capital structure decision. This study aimed to confirm whether culture could explain trade-off and pecking order theory of capital structure decision. The study adopted a New Institutional Economics framework to understand how cultural divergence rationality interferes on caporal structure decision, where traditional finance only emphasises on economic responsibility that strives resources maximization. The study applied a longitudinal approach, where 187 sample firms of data covering a sample period from 2015 to 2019. The firms consisted of Bursa 90 best corporate governance firms awarded by Minority Shareholders Watch Group (MSWG) in 2017 and 2018; also randomly selected 97 PLCs of non-winner firms where both panels data balance in term of Board independence and Number of Shariah Compliance PLCs. A secondary data collection approach was adopted to obtain the CEO’s ethnicity and religion. Data from the extract of an annual report and Shariah-compliant list were adopted. This study made significant contributions to explain the relationships of informal (culture as ethnicity and religion) on capital structure; formal institution (policies as firm’s shariah compliance) on capital structure decision.

Solving the Double Jeopardy of Cross-Border Acquisitions with Corporate Governance Bundles

This study is focused on the associations between corporate governance of firms and value-creation in cross-border acquisitions. Studies suggest that firms prefer high economic growth and low corruption in host countries. Yet the practice of international business shows that neither fast economic growth nor limited corruption are sufficient for value-creation in cross-border acquisitions. Instead of choosing between high economic growth or low corruption, firms must strike a balance between the two. However, corporate governance studies show that top executives regularly struggle with guiding firms to successfully find that balance. We argue that these two challenges pertaining to host countries and to top executives of firms constitute a ‘double jeopardy’ that can be resolved through corporate governance bundles consisting of complementary mechanisms. Based on fuzzy-set qualitative comparative analysis of 738 cases, we developed a middle-range theory of how acquirers achieve value-creation in cross-border acquisitions by successfully resolving the ‘double jeopardy’ through well-designed corporate governance. Our results show that given strong corporate governance of cross-border acquirers, high economic growth is a necessary condition for value-creation while low corruption is not. Ours is a study that joins the dynamic stream of literature focused on the links between corporate governance of firms with performance.

The Impact of Tightly Contested Governance Proposals on Firms' Narrative Disclosures: Evidence from a Regression-Discontinuity Design (RDD)

Corporate governance and firm disclosure are endogenously determined. We exploit locally exogenous variations in corporate governance created by “close-call” governance-related shareholder proposals, using a fuzzy RDD and text analytics to examine whether better corporate governance causally affects the narratives in corporate disclosures. We find that although better corporate governance in firms leads to more disclosure in their 10-K filings, the passage of “close-call” governance proposals also significantly increases the complexity and the boilerplate nature of such disclosures. These results are robust to several robustness tests, alternative RDD bandwidths, and different specifications, and amplified when the investors are undistracted.

Group-affiliated Firms and audit fees: Evidence from India

This study analyzes the role of auditors and affiliation to a business group in corporate governance of firms by examining the audit fees charged to group-affiliated and independent firms. Agency problems in firms may be mitigated by the monitoring provided by controlling investors of firms affiliated to business groups. On the other hand, concentrated ownership may also result in higher agency costs because of inefficient profit distributions, tunneling, and complicated ownership structures. Audit fees are determined by the effort expended and the risks faced by auditors. We examine the relationship between audit fees and Group-affiliation for Indian firms. We find that the audit fees paid to BigN auditors are lower for Group-affiliated firms than non-Group-affiliated firms, but audit fees paid to non-BigN auditors are significantly higher for Group-affiliated and non-Group-affiliated firms, consistent with the idea that BigN auditors recognize the role of Group-affiliation in mitigating the agency conflicts.

The Effects of Directors’ and Officers’ Liability Insurance on Key Auditing Matters

ABSTRACTThe purpose of this paper is to examine the impact of directors’ & officers’ (D&O) liability insurance on the number of key audit matters (KAMs) presented in the company’s financial statements, which are employed as a measure of the risk from the corporate governance of firms. Our empirical results show a significant positive relationship between the number of KAMs and the amount of D&O liability insurance. Our findings suggest that although D&O liability insurance may provide directors and supervisors with important protection, it may also lead to increased moral hazard. As a result, a relatively large number of KAMs are disclosed by the auditor in accordance with increased operating risk after the D&O liability insurance is purchased.

Corporate governance reform and family firms: Evidence from an emerging economy

We investigate the comparative effectiveness of board independence in constraining Real Earnings Management (REMs) in family and non-family firms in the context of corporate governance reform in Bangladesh. In contrast to the pre-reform period, we find that independent directors are more effective in restricting REMs in family firms compared to non-family firms, post reform. Further, we find that the relationship between family ownership and REMs varies significantly between strong and weak corporate governance firms during the post-reform period. This nuanced impact of regulation extends the literature and may be generalised to similar domains with weaker institutions and investor protection.

THE EFFECT OF CORPORATE GOVERNANCE ON STOCK RETURNS BY PVAR: AN INVESTIGATION IN BIST / Kurumsal Yönetimin Hisse Senedi Getirisine Etkisinin PVAR Analizi İle Ölçülmesi: BIST’te Bir Araştırma

In this study, the effect of corporate governance practice on stock returns is examined. The research was analyzed within the framework of public disclosure and transparency, shareholder, stakeholders and board of directors, which has both corporate subheadings and corporate governance total score. The study was analyzed by using Panel Vector Autoregressive (PVAR) model for 2009-2016 periods. According to the results, corporate governance practice in Turkey is not effective in buying stocks of investors. The corporate governance of the companies is reflected negatively in the long term returns. Investor profile in Turkey is not interested in how the company is generally managed, investors are more care about short-term returns. It is thought that the corporate governance of firms should be introduced more in order to become a long-term preference for the investor.

Determinants of good governance practices: the role of board independence

ABSTRACT This study contributes to broadening our knowledge of the corporate governance of firms. In particular, we consider board independence as a fundamental variable in the explanation of good governance practices. For this purpose, we analyse the Annual Corporate Governance Reports of the Spanish listed companies on the Continuous Market of the Madrid Stock Exchange during the period 2010–2016. The results for all companies reveal that firm size, ownership dispersion and board independence have a positive relationship with good practices, and the relationship between board independence and good governance practices is moderated by ownership dispersion. When we distinguish between firms that comply with board independence recommendation and those that do not, however, the results differ substantially, in terms of sign, magnitude and significance level. This highlights the importance of board independence in explaining good governance practices.

Board characteristics and earnings forecasts accuracy in IPO prospectuses

Abstract Using a sample of 104 companies that conducted initial public offering (IPO) on the Warsaw Stock Exchange between 2006 and 2016, we investigated the relationship between the accuracy and bias of the earnings forecast disclosed in the IPO prospectus and the firm corporate governance attributes. Applying multiple Ordinary Least Squares (OLS) regressions models, we focused on the role of the board size, the percentage of women on the board, the board age diversity measure, and the proportion of shares owned by the members of the board. Generally, our findings show that some characteristics of management and supervisory board improve the usefulness of earnings forecasts’ credibility. Especially, a more diversified board in terms of age and higher management ownership results in more accurate forecasts. This is the first study giving an insight into the role of supervisory and management board characteristics on precision of earnings forecasts revealed in the prospectus by Polish IPO companies.

The relationship between corporate governance and the dynamicity of capital structure in firms enlisted in Tehran Stock Exchange

Big corporate companies with lots of stockholders have a direct effect on countries' economy. Thus, studying such firms is an inevitable requirement to study on the national economy of countries and to remove the problems and to improve the performance and strategies utilized. Due to the effect of decisions related to capital structure and changes in it on the achievement of the firm's goals, several studies have been carried out regarding the effect of corporate governance mechanisms on decisions related to capital structure. But there has not been any experimental studies done regarding the effect of corporate governance on the modification speed of capital structure towards optimal capital structure. Thus, the present research has been carried out to supply evidences regarding the role of corporate governance variables and their quality in the speed of modification of capital structure towards optimal capital structure. Methodology: The dependent variable in this research is the dynamicity of capital structure and the independent variable is corporate governance that is comprised of three elements as: institutional stockholders, board members' independence, and the existence of internal audit. To test the research hypotheses we have used the historical data of the years between 2009 and 2013 related to 139 firms enlisted in Tehran Stock Exchange and by using Chang et al. (2014) model. To study about the normality of research data we have done tests related to skewness and pulling and normality and in order to observe lack of self-correlation of the data we have used Durbin-Watson tests. Also in order to test the linear correlation amount between the two variables we have used Pearson's correlation coefficient. Finally the data were adjusted by multiple regression method to approve or reject the research hypotheses within the models proposed. Results: The research results showed that corporate governance quality affects the dynamicity of capital structure Conclusion: and based on findings we can accept that speed coefficient of the changes in financial leverage has been meaningful in both groups of strong and weak corporate governance firms and this variable has affected the dynamicity of capital structure.

Impact of corporate governance index quality on correction speed of capital structure in firms enlisted in Tehran Stock Exchange

Big corporate companies with lots of stockholders have a direct effect on countries' economy. Thus, studying such firms is an inevitable requirement to study on the national economy of countries and to remove the problems and to improve the performance and strategies utilized. Due to the effect of decisions related to capital structure and changes in it on the achievement of the firm's goals, several studies have been carried out regarding the effect of corporate governance mechanisms on decisions related to capital structure. But there has not been any experimental studies done regarding the effect of corporate governance index on the modification speed of capital structure towards optimal capital structure. Methodology: Thus, the present research has been carried out to supply evidences regarding the role of corporate governance variables and their quality in the speed of modification of capital structure towards optimal capital structure. The dependent variable in this research is the dynamicity of capital structure and the independent variable is corporate governance that is comprised of three elements as: institutional shareholders, board members' independence, and the existence of internal audit and They have been used to measure corporate governance index. To test the research hypotheses we have used the historical data of the years between 2009 and 2013 related to 139 firms enlisted in Tehran Stock Exchange and by using Chang et al. (2014) model. To study about the normality of research data we have done tests related to skewness and pulling and normality and in order to observe lack of self-correlation of the data we have used Durbin-Watson tests. Also in order to test the linear correlation amount between the two variables we have used Pearson's correlation coefficient. Finally the data were adjusted by multiple regression method to approve or reject the research hypotheses within the models proposed. Results: The research results showed that corporate governance quality affects the dynamicity of capital structure Conclusion: and based on findings we can accept that speed coefficient of the changes in financial leverage has been meaningful in both groups of strong and weak corporate governance firms and this variable has affected the dynamicity of capital structure.

Analysis of the compliance of Brazilian firms with good corporate governance practices

Purpose: Studies report that the adoption of good corporate governance practices tends to improve firm value. However, the results of such adoption seem to be conditioned by specific institutional and legal characteristics of each country. This study aims to analyze compliance with good corporate governance practices in the context of publicly traded companies in the Brazilian market.
 Methodology: The sample is made up of 1336 annual observations of 167 companies listed on the B3 (Brasil, Bolsa, Balcão) in the period 2010-2017. The practices recommended by the main corporate governance codes in Brazil were used as benchmark. Tests for the difference in means (t-test) and in proportions (z-test) were used to compare the observed situation in the group of firms and the recommendations in the Brazilian market.
 Results: Despite the adoption of many of the best practices recommended, there is still space for advancement in the Brazilian firm corporate governance. The results indicate noncompliance of the Brazilian firm with the recommendations regarding the audit committee and fiscal council, which may particularly weaken transparency and control of firm’s internal activities. In addition, adherence to distinguished market segments is associated to a greater trend to observe the suggestions emanating from the codes, which may be due to the perception of a favorable cost-benefit ratio of the adoption of corporate governance practices.
 Contributions of the Study: The work provides additional contribution by presenting a detailed analysis of the current scenario of the Brazilian firm corporate governance captured from the evaluation of the degree of adoption of each practice recommended individually.

The Impact of Sustainable Development Report on Firm Performance in Thailand

This paper examines the impact of sustainable development report (hereafter called SDR) on firm performance (hereafter called FP) in the Stock Exchange of Thailand on the year 2016. The questionnaires of Global Report Initiative are used for evaluation of SDR, while the FP is measured by both market and accounting performances. This paper finds that the relationship between SDR and FP is significantly positive for excellent corporate governance firms. The results are useful to regulators since they could make decisions about adjust regulations or give some incentives to encourage listed firms to perform better corporate governance and sustainable development practices

Effects of corporate governance on the decision to voluntarily disclose corporate social responsibility reports: evidence from China

ABSTRACTThis article investigates effects of corporate governance on the decision to voluntarily disclose corporate social responsibility (CSR) reports. By using a unique longitude data set of Chinese publicly traded manufacturing firms from 2010 to 2016, this study finds that ownership structure and board characteristics are significantly associated with firms’ decisions to voluntarily disclose CSR reports. In particular, our study finds that state ownership, institutional ownership, managerial ownership and board size are positively and significantly associated with the decision to voluntarily disclose CSR reports. However, board independence is not related to the decision. We also find CEO duality is negatively and significantly related to the decision. Our findings highlight the role of corporate governance in firms’ transparency by influencing the voluntary disclosure of additional information on firms’ CSR activities.

The moderating effect of internal audit on the relationship between corporate governance mechanisms and corporate performance among Saudi Arabia listed companies

<p>This study primarily aimed to assess the internal audit function’s ability to detect and self-report fraud. The paper investigated the moderating role of internal audit on the relationship between corporate governance mechanisms and corporate performance (ROA) and the direct effect of corporate governance characteristics and internal audit characteristics on corporate governance of firms listed in the stock market of Saudi Arabia. one hundred and eighty-eight observations obtained from forty-seven Saudi financial firms were used in this study for the years 2014-2017. The study used the FGLS regression to test the variables relationships and to test the moderating effects of internal auditor on the corporate governance characteristics and corporate performance. The obtained empirical results supported a significant positive relationship between non-executive board, audit committee size, audit committee independence and internal audit profession, and corporate performance. Negative significant findings were also observed between the board size, internal audit size and internal audit education, and corporate performance. As for the moderating effects, the results supported a significant moderating role of internal audit size on the size of the board and its relationship with corporate performance. This study extends past studies dedicated to testing the agency theory and resource dependence theory as underpinning theories in examining the relationship between corporate governance and corporate performance. The study is expected to contribute to conceptual and theoretical studies by highlighting issues concerning corporate governance practice in Saudi listed firms. The study focused on the internal audit committee characteristics, corporate governance characteristics and the corporate governance best practices that practitioners can utilized when it comes to the role of internal audit committee.</p>

The Effect of Corporate Governance on Firm Stock Volatility in Asia

ABSTRACTThe authors examine whether firm corporate governance (CG) contributes to lower stock-return volatility. Using the panel data of 1,252 public listed firms in Asia across 11 countries for 15 years, the authors document international evidence that CG has a stabilizing effect on firm stock-return volatility. The authors further examine whether increasing information efficiency, reducing foreign exposure, and a lower cost of capital contribute to the stabilizing effect of firm CG on stock-return volatility. The result implies that better CG will only reduce stock-return volatility for firms that have less foreign exposure.

Corporate Tax Avoidance, Debt Ratio, and Corporate Governance: Evidence from Japan

This study examines whether tax avoidance is associated with corporate debt policy. Specifically, this study investigates the influence of bond investors and financial institutions such as the banks, which are long-term loan owners, on corporate governance (CG) to determine comprehensively the relationship between tax avoidance and debt ratio. Note that, the financial institutions in Japan have a larger role in indirect finance policies, relative to in the European and U.S. financial markets, and that the financial institutions of the other Asian nations seem to take on the same level of responsibility as those of Japan. This study firstly investigates the association between debt ratio and corporate tax avoidance. Secondly, we examine the influence of effectiveness of debt governance on debt ratio and CG. Thirdly, we focus on the representative tools, such as outside directors and auditors for CG and corporate tax avoidance. Finally, we test the influence of the main banks on this effect because, in addition to their monitoring role, main banks also play a significant advisory role and are thus likely to be in a better position to make superior decisions about a firm's optimal debt and capital structure mix. According to the main result of this study, it seems that the debt enhancement effect is more dominant than the debt substitution effect in Japanese firms. When tax avoidance increases, firms’ profitability rise. Thus, considering the ability to afford a loan from a financial institution, the firms can borrow more. With regard to interactive effects among CG, debt policy, and tax avoidance, we find the CG of firms strengthens when they carry out tax avoidance. If the outside director ratio increases, then the monitoring function of the debtholders improves due to the enhancement of CG functions, and our result suggests that the financial institutions in Japan achieve an effective monitoring function.