Corporate Governance Recommendations Research Articles

The impact of indigenous culture and business group affiliation on corporate governance of African firms

AbstractResearch Question/IssueThis is a study of the relationship between business group ownership and constituent firms' adoption of Anglo‐American shareholder value governance in African firms at the undertaking of an initial public offering (IPO).Research Findings/InsightsWe find business group ownership to be associated with lower Anglo‐American corporate governance adoption by constituent firms. However, this association is reversed in the institutional context of higher tribalism, while correspondingly being exacerbated in the context of lower tribalism.Theoretical/Academic ImplicationsWe theorize that the influence of business group ownership on firms' adoption of Anglo‐American corporate governance is better understood when considering the institutional context. We highlight how informal cultural institutions are heterogeneous and thus shape the indigenous political economy and impact business groups. Specifically, we argue institutional contexts with higher tribalism are associated with more in‐group favoritism and nepotism. This association makes it critical for business group constituent firms to escape the constraints of the political economy of tribalism when attracting outside funding, leading to a higher inclination to adopt Anglo‐American governance. Contrastingly, in lower tribalism contexts, there is more universal trust across societies and an increased availability of domestic funding.Practitioner/Policy ImplicationsGiven the proliferation of business group ownership within economies worldwide, the study provides a useful framework with which to gauge the influence of business group ownership on a constituent firm's adoption of Anglo‐American governance best practice. In particular, the study emphasizes that the interdependence of formal institutional architecture and tribalism—both fundamentally associated with the demographic shape and with the incentive structures embedded within the underlying national political economy—calls for careful considerations when making national corporate governance recommendations.

The impact of female directors on earnings management and the moderating effect of board quality: enabler or deterrent?

Purpose The authors motivate this research on the gender diversity of the board because of the recent increases in the number of women in top executive teams (Francis et al., 2015), which has probably been the result of the adoption of legislation for gender quotas as well as the establishment of corporate governance recommendations for gender diverse boards in several countries. The purpose of this study is to consider the quality of board directors when examining the effect of female directors on earnings management. Design/methodology/approach The analyses follow the system generalized method of moment to address endogeneity concerns (e.g. a board with higher quality is more likely to have female directors on board and vice versa). Besides the lags of the endogenous variables, the authors use the female industry ratio as an additional instrument (Liu et al., 2014), as female directors might be inspired by other female directors according to industrial sectors (measured by the two-digit industry codes), where competitors are likely to follow gender diversity practices of other firms within the same industrial sector. Findings The authors’ findings show a negative and significant association between board gender diversity and earnings management (EM), suggesting that independent female directors are the drivers of such effect. High-quality boards decrease the incidence of EM but hinder the potential involvement from female directors towards reducing EM. The incumbent effect of high-quality boards on female director’s contribution on EM reverses with less powerful CEOs. Originality/value The authors contribute to the extant literature by recognizing that the effectiveness of a female director on decreasing EM is a function of the environment in which decision-making takes place (i.e. board quality/powerful CEOs).

The relationship between the structure of the board of directors and firm performance in family versus non-family firms

This paper investigates the impact of four characteristics of the board of directors (board size, board independence, leadership structure and board meetings) on firm performance (Tobin's q). Accordingly, four hypotheses have been developed. The analysis is based on data (objective variables) from 221 firms operating in three countries (Spain, Portugal and Italy) and differentiates between non-family-controlled businesses (NFCBs) and family-controlled businesses (FCBs). Considering the cross-sectional (three countries) and the time series (six years) nature of the data, we used a panel data estimation approach. Our findings show that, although corporate governance recommendations advocate larger, more independent and proactive boards, as well as structures that ensure the separation of the chairperson and CEO roles, these board features do not always result in more effective boards. Indeed, smaller, less independent and less active boards and dual leadership structures are tied to better performance by the FCBs in our sample as compared with the NFCBs.

Does corporate governance have a differential effect on downside and upside risk?

AbstractWe investigate whether corporate governance has differential effects on downside and upside risk. Intuitively, strong corporate governance should decrease the downside risk but increase the upside risk. However, using a large panel of 1164 non‐financial Australian firms from 2001 to 2013, we find that strong corporate governance relates negatively not only to downside risk but also to upside risk. These findings are robust to alternative risk‐taking and corporate governance proxies and alternative sample specifications. We also show that our main results are unaffected due to endogeneity bias by using firm and industry‐year fixed effects, lagged independent variables, generalized method of moments and entropy balancing estimation techniques. In additional analyses, we document that our main results are homogeneous across different industries and for firms with varying levels of boardroom gender diversity. However, we find that our main results are driven by firms with lower ownership concentration as well as by older and more mature firms. Finally, we document that while reducing risk‐taking (downside and upside risk), corporate governance reduces firm value. From a regulatory perspective, these findings raise questions on the design of monitoring‐focused corporate governance recommendations and have implications for risk management.

Relationship Between Social Responsibility and Financial Performance: Evidence from Indonesia

This empirical theoretical study investigates the two-way relationship between corporate social responsibility and financial performance in Indonesian businesses. The theoretical underpinning for the conceptual model is based on agency, stewardship, resource reliance, and stakeholder theory. The social behavior index is made up of four components: participation in global reporting initiatives, inclusion of Green Index firms, good compliance, Corporate Governance Recommendations, and signatories to the Global Compact. The study's findings reveal a positive relationship in both directions: social benefits and positive feedback that social policies increase financial resources. Increased financial success, on the other hand, boosts the social and economic benefits of enacting rules that encourage board-level components to seriously consider spending more money. As a result, this research motivates social behavior members to contribute globally to the betterment of society

Održivo finansiranje - stvarno mađarsko zakonodavstvo u okviru EU

In this paper, after a systematic presentation of the theoretical background of the European Union regulation, we examine the Hungarian regulation and legal practice (using the websites of five listed Hungarian companies and the Budapest Stock Exchange Corporate Governance Recommendations) in connection with the identification of shareholders by the company, the verifiability of the exercise of shareholder's rights, the remuneration policy and reporting of the public company limited by shares and the approval of legal transactions concluded with related party. We also focus on financial governance and certain viewpoints of product governance, with special attention to product approval process and the issue of greenwashing. We chose to emphasize these issues since one cannot find verbatim, translations of legal acts of European Union on these fields with respect to Hungarian legislation. The other reason is that there are available practical experiences in connection with them, therefore we reflect on different anomalies. Our aim is to highlight the need to transpose and implement a legal instrument with such wide-ranging implications as sustainable finance into a thoughtful and coherent set of rules that permeate the legal system.

Determinants of board diversity policy implementation by companies listed on the Warsaw Stock Exchange

Research background: Diversity management is one of the hot topic issues present in current public discussions. Board diversity requirements are quite new for Polish public companies. The companies listed on the Warsaw Stock Exchange have to publish a statement on the company's compliance with the corporate governance recommendations and principles included in ?Best Practice for GPW Listed Companies 2016?. This regulation is based on the 'comply or explain? principle, thus the company may decide whether to comply with every rule included in the code, but decision on not implementing one or more rules should be explained by the company. Some of the recommended rules regard the board (supervisory and management) diversity policy implementation, where diversity refers to such dimensions as gender, education, age and professional experience.
 Purpose of the article: This study aims to investigate determinants of board diversity policy implementation by domestic companies listed on the WSE. It also documents explanations provided by companies that do not apply board diversity policy.
 Methods: The research sample covers 268 non-financial domestic companies listed on the Warsaw Stock Exchange between 2016 and 30 November 2018. The companies? current reports on company compliance with the corporate governance codes and information issued on companies? websites were analyzed in order to identify those that announced implementation of board diversity policy. This study uses logistic regression analysis to identify the firm-level characteristics that may influence the implementation of board diversity policy.
 Findings & value added: This is the first study analyzing the drivers of board diversity policy implementation by Polish companies listed on the WSE. It shows that large companies, companies with larger management boards and companies with women acting as presidents of the supervisory boards are more likely to take actions seeking to achieve management and supervisory board diversity.

Satyam Fraud: A Structural Functional Approach to Corporate Governance Reform

The paper uses Satyam Computer Services Limited as a prototypical case of corporate governance failure and recommendations for reforms. In making recommendations for corporate governance best practices, the paper analyzes Satyam’s corporate governance framework and management controls through a structural functionalist lens. The case is based on materials obtained from the news and print media, published articles, and interviews given by experts who commented on the case. Corporate governance data were obtained from the Securities and Exchange Commission’s (SEC) Edgar database. The findings suggest that corporate governance best practices should not be separate from the discrete parts of the organization. A wider context that encapsulates socio-cultural factors must not only be part of corporate governance mandates; but, also integral in the operational logistic of the corporation. As part of this discussion, the paper explicitly reviewed the governance structure and the make-up of the board of directors that were in place at Satyam prior to the resignation of Chairman Ramalinga Raju and his admission that he was involved in financial statement irregularities. Particular emphasis was placed on how management control systems and cultural controls in companies can shape corporate governance mandates to build effective governance framework.

Who Cares About the Future? Short- and Long-Term Performance Measures and Their Impact on Firm Success

Finding an incentive system that optimally controls managerial effort and improves firm performance is an evergreen issue in both research and practice. Corporate governance recommendations and practical implementations aim at preventing short termism and promoting broad yet individual effort assessment. Nevertheless, their benefits are less clear and might reverse in reality. This paper presents comprehensive evidence for the interference of short- and long-term performance measures based on panel data from German public companies’ remuneration reports. The findings show that short-term orientation is not necessarily harmful, but individually negotiated goals can encourage managerial selfishness to the detriment of the firm.

Board diversity: female director participation and corporate innovation

Purpose This study aims to examine the impact of board female participation on Australian firms’ innovation. Design/methodology/approach Data are from the 500 largest Australian Securities Exchange (ASX)-listed companies for 2004–2015. Measures of innovation concern input (research and development expenditure and intangible assets) and output (patents registered) indicators. Findings A positive and significant association exists between female director participation and firm innovation activity. This association exists across industry classifications independent of technological importance and is particularly driven by materials and health-care sectors. Findings support calls for more board diversity in line with board female membership positively influencing innovative investment and development activities. Practical implications The economic efficacy of the latest revisions to the ASX Corporate Governance Council principles and recommendations (“ASX CGC revisions”) is supported. Diverse boards are a strong source of innovation. Regulators and corporations can use the findings to establish principles and practices that promote female board diversity. Originality/value This study is the first to examine the link between board diversity and corporate innovation in Australia where there is under-representation of women on corporate boards and in key management positions. Also lacking are formal legislative or governance policy mandates on board gender diversity. Beyond confirming a positive association between board diversity and levels of corporate innovation, this paper provides new findings that this relationship is driven by women who are non-executive (independent) directors, independent of the underlying technology intensity of firms and moderated by the nature of firm-level profitability and growth opportunities.

Board of director attributes and CSR engagement in emerging economy firms: Evidence from across Asia

This study investigates the relationship between the board of director attributes and corporate social responsibility (CSR) engagement across a sample of Asian emerging economy firms. We find a statistically positive relationship between CSR engagement and several directors' attributes including their political influence, international experience, business expertise, other directorships held and independence from management. These empirical results indicate that while corporate governance recommendations designed for developed economy firms are relevant for emerging economy firms, additional director attributes are also important in encouraging CSR engagement in emerging economy firms given the divergent institutional and resource dependency issues they face.

Board Gender Diversity and Corporate Financial Performance: Is there an Economic Case in Australia?

The main objective of this study is to understand the relationship between board gender diversity and financial performance. Australia offers a unique context as board quotas are not mandated and the governance code is principle-based rather than rule-based. Corporate firms in Australia are subject to corporate governance recommendations issued by the Australian Securities Exchange (ASX) in 2003. Additionally, ASX diversity initiatives introduced in 2010 require listed firms to incorporate additional recommendations from 2011. The Australian economy is characterised by large resources and financial sectors with each of these two dominated by a few large businesses. The gender pay gap is still considerable in Australia. Given these contextual considerations, an examination of the association between gender diversity of corporate boards of directors and corporate financial performance in Australia is likely to offer additional insights into the debate on the importance of gender diversity in the corporate sector. The sample of firms is derived from the constituents of S&P ASX 300 Index for the period from 2004 to 2016. At an aggregate level, empirical findings provide evidence that board gender diversity is not positively associated with corporate financial performance. However, a closer examination of the study period before and after gender diversity initiatives by ASX and consideration of sectoral differences shows that the association between gender diversity and financial performance varies over time and across sectors. In particular, board gender diversity has a significant positive association with financial performance of Australian firms in the financial and services sectors specifically after the diversity initiatives were introduced by ASX in 2010. In the resources sector, there is no evidence that gender diversity has a positive association with financial performance. This study therefore offers some support for an economic case for gender diversity initiatives particularly in the financial and services sectors.

Board of directors structure and firm financial performance: A qualitative comparative analysis

Previous research about the effects of board structure and process on the firm financial performance is based on conflicting theoretical perspectives, and empirical results, mostly based on regression analysis, are inconclusive. Building from Complexity Theory and configurational analysis, this study offers clarity to inconclusive previous empirical results about the link among several board features and firm financial performance. From a sample of 295 non-financial firms from Southern Europe for the period 2001–2010, and by using fuzzy set qualitative comparative analysis, findings of this study show that firm financial performance depends on a complex configuration of several board features (board size, board independence, leadership structure and board activity) and several corporate characteristics (firm size, firm leverage and firm age). This paper has implications for academics. Despite different theoretical arguments and inconclusive results of the wide empirical literature addressing the effect of board characteristics on the firm performance, building from Complexity Theory this paper adds to our knowledge because it empirically explores under which circumstances different board features should contribute positively or negatively to firm performance. The results of this study have also implications for policy makers and practitioners by providing some useful hints to the controversial relationship between corporate governance and financial performance. In this sense, general corporate governance recommendations must be rethought.

Too little or too Much Freedom? – A Comparative Analysis of Corporate Governance Codes in the UK and Australia

The purpose of corporate governance codes is to ensure that directors do not abuse their power to the disadvantage of the company’s shareholders or creditors, while at the same time affording them enough freedom to allow the company to operate in a competitive way and generate profits. This article evaluates the UK Corporate Governance Code and the Australian Corporate Governance Principles and Recommendations in order to ascertain the extent to which they strike an appropriate balance between preventing abuses of power by the board while affording them sufficient freedom to pursue innovation and entrepreneurship. The article concludes that the codes in both countries propose advanced approaches to corporate governance which to a significant extent protect the interests of the shareholders while encouraging board members to pursue innovation and entrepreneurship in a safe manner, through the adoption of appropriate risk management measures.

Central banks' supervisory guidance on corporate governance and bank stability: Evidence from African countries

This paper focuses on the identification of the causal relationship between central banks' supervisory guidance and individual bank stability. We propose and test the hypothesis that this causal relationship is mediated by the degree to which banks comply with their central bank's corporate governance recommendations. Specifically, we exploit the fact that there is considerable cross-country heterogeneity in providing supervisory guidance. Our recursive two-equation system is equivalent to an endogenous treatment effect model in which the treatment is the provision of supervisory guidance. We find that institutional factors, in particular the legal family of origin, political stability, contract enforcement and strength of investor protection promote provision of supervisory guidance. If a central bank has published supervisory guidance, local banks show better internal governance and higher stability.

Corporate governance practices in Portugal

Corporate governance is not a new topic but has become more relevant in the last years due to the financial crisis of 2008, when diverse companies went to bankruptcy, and investor’s protection was weakened. Thus, diverse countries have revised corporate governance mechanisms and recommendations to restore the confidence of investors and the transparency of companies’ financial reports. This work aims to explain the evolution of corporate governance practices in Portugal. We provide information on corporate governance’ legal framework. Then we explain ownership structures and board of directors’ and directors’ remuneration practices. Shareholders’ rights and activism are also explained. Finally, we linked the topic of corporate governance and companies’ performance and social responsibility. This work contributes to increasing literature review on corporate governance practices, by presenting the evolution of corporate governance practices in a specific country, Portugal.

Impact of ASX corporate governance guidelines on sustainability reporting

PurposeThis paper aims to examine the impact of the Australian Securities Exchange Corporate Governance recommendations on the breadth (amount of items covered) of (environmental and social) sustainability reporting by the firms in the Top 100, around the change from G3.1 to G4 disclosure regimes.Design/methodology/approachThis paper undertakes comparisons of means and regression models to investigate the changes between disclosure scores of 98 listed entities from the 2013 G3.1 to the 2015 G4 disclosure regimes.FindingsThis paper finds that average disclosure levels did not change. Nonetheless, disclosure practices did vary by entity size and performance. Analysis of 2015 disclosures contingent on 2013 disclosure practice indicates that disclosure changes are consistent with a pattern of mean reversion.Practical implicationsEvidence that low disclosers increased disclosure and high disclosers reduced disclosers is consistent with the idea that sustainability disclosure is not so much driven by any ethical considerations, but rather by a desire to not be a disclosure outlier. Reliance on voluntary disclosure to achieve a socially desired level of disclosure is unlikely to bear fruit.Originality/valueThis paper contributes to the literature on sustainability by examining firm responses to change in disclosure regimes, and concluding that size and peer relativities drive the disclosure process.

Executive remuneration: the power and dominance of human greed

PurposeThe paper aims to examine the role of human greed in the determination of executive remuneration in the UK.Design/methodology/approachThe paper reviews the past and existing regulation and corporate governance recommendations on executive remuneration.FindingsThe paper demonstrates that the failure of regulatory mechanisms to curb excessive executive remuneration can be justified on the grounds of human greed. Greed is facilitated by the potential conflict of interest that exists as a result of the executives’ position in the company. The position of the law has given greed the opportunity to manifest, making it quite difficult for executive remuneration to be effectively regulated.Originality/valueThe paper adds to the existing debate on excessive executive remuneration by demonstrating that human greed is the basis of excessive executive remuneration on which limited literature exists.

Do Corporate Governance Recommendations Apply to U.S. Agricultural Cooperatives?

A limited inquiry into cooperative governance and performance suggests that best practices from corporate governance literature may not apply uniformly to cooperatives. The rarely addressed issue of endogeneity limits confidence in recommendations for corporations and cooperatives alike and inference of recommendations for cooperatives is complicated by availability of appropriate performance measures. By accounting for the most commonly recognized sources of endogeneity and measuring overall cooperative performance, expectations of better performance by larger cooperatives with smaller boards are confirmed, while limited evidence is obtained on the expected positive effects of seating outside experts on the board.

The Mediating effect of Corporate Social Responsibility and Dividend Policy on the Effect of Corporate Governance Mechanism on Firm Value among Publicly Listed Companies in the Philippines

— Corporate social obligation has become an vital part of commercial company exercise during the last decade or so. In fact, many businesses dedicate a phase of their annual reports and company internet web sites to CSR activities, illustrating the importance they attach to such sports. On the opposite hand, Good company governance exercise has a number of observable outcomes on economic results of the company. Corporate governance recommendations are strongly associated with income quality or the quantity to which the firm’s disclosed economic basic performance reflects its right performance. This have a look at investigates in the main the mediating effect of Corporate Social Responsibility and Dividend Policy on the impact of corporate governance mechanism on firm value amongst publicly listed organizations inside the Philippines. It examined forty seven publicly indexed businesses inside the Philippines for a four-yr period from 2013 to 2016. A structural equation modeling (SEM) approach changed into used for the evaluation. Results show that Corporate Social Responsibility does not act as a mediating variable with regards to company governance mechanisms to firm rate. It manner that CSR does now not act as a variable so one can give a boost to corporation governance mechanisms that during developing the charge of the commercial enterprise corporation. Also, dividend coverage does no longer act as mediating variable at the effect of enterprise governance mechanisms on company value. Finally, the end result confirmed that there is a terrible but large effect of dividend price on business enterprise value.