Corporate Governance Reform Research Articles

Governance quality and sustainability: Uncovering the moderating role of commitment and assessment

Corporate governance reform in Indonesia after the Asian financial crisis and global scandals shows a lag in effectiveness, with the lowest governance rating of 33.6 in 2020. Despite regulatory improvements, weak leadership commitment and failure of governance implementation hinder improvements. In-depth evaluation and reform are needed for significant improvement. Governance quality and commitment are important for sustainability, but the study has limitations. This, raises violations in governance and sustainability, which requires further exploration of external variables and factors. This study integrates RBV to understand the effect of governance assessment and quality on corporate sustainability on the Indonesia Stock Exchange. This study assesses the effect of Commitment (M1) and Governance Quality (X) on Sustainability (Y) to show significant results. This study explanatory uses a survey with a Likert Scale to evaluate commitment, governance, and sustainability involving management with a higher education background, using a questionnaire distributed via email and WhatsApp. This study uses the SEM-PLS procedure with SmartPLS 3.2.9 to test the relationship between variables and construct validity, as well as model evaluation. This study shows that Commitment (M1) and Governance Quality (X) have a significant influence on Sustainability (Y), with T Statistics of 6.494 and 3.431, and p-values of 0.000 and 0.001. In contrast, Assessment (M2) has no significant influence, with T Statistics below 1.96 and p-value greater than 0.05. The blindfolding analysis model shows a Q² for Sustainability (Y) of 0.539, with R² of 0.756 and R² Adjusted of 0.744. Future research should explore additional factors or different methodologies to deepen understanding.

PwC Involved in Evergrande Financial Scandal: An Ethical Crisis for the Auditing Profession?

This article discusses PricewaterhouseCoopers' (PwC) involvement in the Evergrande financial scandal and its implications for the audit profession. The scandal exposed PwC's failure to detect and report significant financial discrepancies that led to the collapse of Evergrande, one of China's largest property developers with more than $300 billion in debt. The findings highlight weaknesses in the audit process as well as a lack of effective regulatory oversight. PwC, as one of the Big Four accounting firms, faced severe sanctions in the form of a $62 million fine and a six-month ban on operating in China. The article also explores how the scandal exacerbated the loss of public trust in the auditing profession, which is perceived as failing to maintain the integrity of financial reporting. This analysis offers important lessons about the need to strengthen ethical rules, auditor independence, and accountability in the audit process. In addition, the research recommends reforms in oversight and corporate governance to prevent similar crises in the future. This article is expected to contribute to efforts to improve audit quality and restore public confidence in the global financial system.

The Effects of Governance-Related Regulatory Reform: Ownership Structure and Earnings Management in Vietnamese Listed Firms

The purpose of this study is to examine how the influence of the internal corporate governance mechanism, namely ownership structure, on firms’ earnings management (EM) practices and insider choices between accrual-based and real EM changed after regulatory reform in Vietnam. The author considers the role of three ownership types, managerial, state and foreign, and assess how the relation between ownership structure and EM was affected by the Code of Corporate Governance reform. The study relies on a comprehensive sample of 4,408 firm-year observations of 596 firms listed on either the HOSE or HNX between 2008 and 2016. The study finds a significant effect of the reform on the relation between ownership structure and EM. Thus, the reform mitigated agency problems of managers and foreign investors in Vietnamese listed firms. The study contributes to the literature as it provides a more complete picture of the effects of managerial, state and foreign ownership on EM where the protection of minority investors is generally weak and legal enforcement is low in a developing economy.

Two-tier corporate board structure, corporate governance reforms and financial performance of firms listed on the China stock market

Two-tier corporate board structure, corporate governance reforms and financial performance of firms listed on the China stock market

Corporate Governance Reforms and the Quality of Financial Information of Listed Non-Financial Services Firms in Nigeria

The increasing demand for high quality financial information by the relevant users of financial report has become a serious concern and inevitable on the management of listed non-financial services firms in Nigeria. The primary objective of this study is to examine the nexus between corporate governance reforms and the quality financial information of listed non-financial services firms in Nigeria. Using an ex-post facto as the research design for the study, data was obtained from the secondary sources through the extraction method from the annual financial reports and accounts of the listed firms for 276 firm-year observations, from 2018 to 2023 period. Out of the seventy-five (75) listed non-financial services firms in Nigerian Exchange Group as at 31st December, 2018, a sample size of fourty-six (46) listed firms were used with aid of purposive filter sampling technique. The Feasible Generalized Least Square (FGLS) regression was used as the model estimation technique for the study. Based on the regression analysis, it was found that board size, assurance services and transparency have positive significant impact on financial information quality of listed non-financial services firms in Nigeria. However, sustainability was statistically found to have insignificant impact on quality of financial information of listed non-financial services firms in Nigeria. Therefore, it is recommended that the board of directors of listed non-financial services firms in Nigeria ensure that more members are nominated to participate in the board’s decision. This is because of the fact that larger board sizes are more likely to create avenue for cross-fertilization of ideas thereby, making decisions that can safeguard, uphold and enhance the quality of the financial information of the listed non-financial services firms in Nigeria. The results also underscore the relevance of corporate governance codes and their impacts on FIQ and transparent disclosure. This study offers policy implications to regulatory agencies and standard-setters in their oversight function over the quality of financial information disclosed in annual reports.

CORPORATE GOVERNANCE REFORMS IN THE BANKING SECTOR: ENHANCING STABILITY AND PROTECTING DEPOSITORS& INTERESTS

The global financial crisis of 2008 exposed significant weaknesses in the corporate governance practices of banks, leading to excessive risk-taking, lack of oversight, and eventual failures. In response, corporate governance reforms have been implemented in the banking sector to enhance stability, restore public confidence, and protect the interests of depositors. Effective corporate governance ensures that banks are managed responsibly, aligning the interests of various stakeholders. Key areas of focus for these reforms include board composition and effectiveness, risk governance and management, remuneration policies, internal controls and auditing, transparency and disclosure, and stakeholder engagement. Reforms emphasize the importance of having a diverse and independent board, robust risk management frameworks, aligning executive compensation with long-term performance, strengthening internal controls and auditing processes, enhancing transparency and disclosure requirements, and engaging with stakeholders, including depositors. Initiatives such as the Basel Committee on Banking Supervision's guidelines and the European Union's Capital Requirements Directive IV (CRD IV) have aimed to strengthen governance frameworks and promote best practices within the banking industry. These reforms mandate the establishment of dedicated risk committees, stress testing practices, clawback provisions in remuneration structures, and the implementation of effective compliance and auditing functions. Effective implementation of corporate governance reforms is crucial for enhancing financial stability, mitigating systemic risks, and protecting depositors' interests. By promoting responsible and ethical practices, strengthening oversight mechanisms, and aligning incentives with long-term sustainability, these reforms aim to restore public confidence in the banking industry and contribute to the overall resilience of the financial system. Keywords: Corporate Governance, Banking Regulations, Risk Management, Transparency, Financial Stability

CORPORATE GOVERNANCE REFORM AND SUSTENANCE OF STATE-OWNED ENTERPRISES (SOES) IN ZIMBABWE

The study sought to ascertain corporate governance reforms that foster sustenance of the SOEs in Zimbabwe and how such reforms can be implemented. This study has used a mixed-methods technique and a pragmatist philosophy. A cross-sectional survey design was employed, whereby structured questionnaires and interviews were used to collect data. Top and middle management, board members, board chairpersons, and CEOs of Zimbabwe’s SOEs made up the target population. For quantitative data, a sample size of 351 people was obtained using the sample process created by Krejcie and Morgan (1970). Interviews were done with sixteen (16) people until saturation was achieved. Stratified random sampling was used in the study to choose respondents for the quantitative data collection. To choose interview subjects for the qualitative data, purposeful sampling was applied. The quantitative and qualitative data were analyzed using SPSS version 23 and NVivo version 12, respectively. According to the study, the primary corporate governance reforms for the survival of the SOEs in Zimbabwe included the following: open nomination processes for the SOEs; removal and resignation of directors who did not comply with best corporate governance practices; limitations on board member compensation; and changes to the executive directors’ terms of service. This research has shown that best corporate governance practices in the SOEs are brought about by reforming the Board Appointments Board (RAB). In order to ensure that corporate governance reforms are implemented effectively, the present study has suggested that term limits, with a maximum of ten (10) years, in Chief Executive Officer Employment contracts be strictly enforced.

Personal Networks, Board Structures and Corporate Fraud in Japan

We examine the impact of corporate governance and personal networks on corporate fraud in Japanese companies, using panel logit and Cox proportional hazard models to analyze fraud occurrence and detection. This study focuses on the effects of Japan’s recent corporate governance reform and explores the unique influence of personal networks. Our key findings indicate that recent changes in corporate governance in Japan have been effective in preventing the occurrence of fraud and accelerating its detection. Additionally, stronger personal networks among board members help prevent fraud concealment, highlighting cultural differences in the effectiveness of personal networks in corporate governance compared to findings from Europe and the US.

Corporate governance and firm performance: Evidence from political instability, political ideology, and corporate governance reforms in Pakistan

AbstractWe examine impact of corporate governance on firm performance following the implementation of the changes to the Code of Corporate Governance of Pakistan in 2012. Our sample period from 2008 to 2022 include periods of political instability and shifts in Pakistan's political landscape, providing an opportunity to examine the effectiveness of corporate governance mechanisms in enhancing accounting‐ and market‐based firm performance measures. We find significant improvements attributed to reforms in the regulatory framework surrounding corporate governance practices particularly from expanded scope and composition of boards and audit committees. This led to broader capabilities and effective controls, thus improving firm performance and investor confidence more so during periods of political instability and changes in political ideology.

The Role of Human Talent Capital in Shaping Firm Value: Evidence from Non-Financial Sector of Pakistan Stock Exchange (PSX).

Purpose- This study examines the relationship between human talent capital and firm performance, focusing on firm value, growth opportunities, and volatility. The interaction effect of firm size on this association is also explored. Study Design/methodology/approach – This quantitative study uses a fixed effects model; the study analyzes data from 290 firms over 11 years (2013-2023). Diagnostic tests are employed to ensure the robustness of the results. Findings- The findings of the study reveal a significant positive impact of human talent capital on firm value and growth opportunities. Supported by quantitative measures, larger firms show greater utilization of human talent capital. Moreover, human talent capital mitigates cash flow volatility, highlighting its role in firm risk management. Profitability, liquidity, and innovation also significantly affect firm value and growth. Research limitations/implications – The study has several limitations. Firstly, the generalizability of the findings may be constrained by the focus on a specific industry and geographic region. Secondly, the reliance on quantitative data and fixed effects model might overlook qualitative factors influencing the human talent capital phenomenon. Thirdly, external factors such as macroeconomic conditions and regulatory changes could impact the study's findings, deserving further exploration. Research Practical Implications- The study advocates for corporate governance reforms and policy interventions to prioritize human talent capital investments. Financial strategies such as maintaining liquidity and managing leverage are recommended to stabilize firm volatility. Originality/value- This research highlights human talent capital as a key determinant of firm performance, encouraging strategic investments in human talent capital and financial management practices to enhance organizational success.

Unpacking sustainability reporting dimensions: the impact of board characteristics

Purpose This paper aims to document international evidence of the impact of a board-level governance bundle [size, independence, CEO duality, gender diversity and sustainability committee (SC)] on sustainability reporting (SR) and, separately, on its three dimensions (economic, environmental and social). Design/methodology/approach The sample includes 370 listed firms from 50 countries. A GRI standards-based disclosure index was constructed to quantify SR across various reporting media. Findings The baseline findings show that SC positively affects SR and its three dimensions. Board size also has a significant and positive impact on SR and two of its dimensions (economic and social). Similarly, board independence and CEO duality have a significant but negative association with SR and the same two dimensions. Finally, board gender diversity has no significant impact on SR and all its three dimensions. Practical implications The findings that only SC significantly influences SR, and its three dimensions, have important implications for corporate governance reforms internationally to improve SR in countries where such committees are not yet part of the board of directors’ sub-committees. Originality/value Overall, this study contributes to board characteristics–SR literature and holds significant theoretical and practical implications.

Foreign institutional investors’ certification and domestic minority shareholders’ mistrust

AbstractUsing hand‐collected data from China's split share structure reform (SSSR) program, we show that foreign institutional investors’ certification mitigates domestic minority shareholders’ mistrust of controlling shareholders’ reform plans and facilitates the implementation of the SSSR. Domestic minority shareholders cast fewer dissenting votes, complete the SSSR more quickly but with lower compensation, and achieve higher stock return reactions in reforming firms with higher foreign institutional ownership. Foreign institutional investors’ prestige is a key factor in aligning domestic minority shareholders toward seeking long‐term payoffs. Our work reveals the positive role of foreign institutional investors’ certification in a salient reform of corporate governance.

How Audit Fees Impact Earnings Management in Service Companies on the Amman Stock Exchange through Audit Committee Characteristics

The primary objective of this research was to investigate the potential moderating role of audit fees in the relationship between audit committee characteristics and earnings management. Specifically, this study aimed to establish connections between audit committee features, such as committee size, member independence, and financial expertise, and the practice of earnings management. To address these research questions, a convenient sample of 46 service providers listed on the Amman Stock Exchange between 2016 and the subsequent year was employed. Descriptive statistical methods were applied to characterize the variables under investigation, while a multiple regression model was utilized to assess the study’s hypotheses. The findings of the study revealed that there was no significant correlation between the size of the audit committee and earnings management. However, a negative correlation was observed between the audit committee’s independence and the financial expertise of its members. Importantly, when audit fees were introduced as a moderating variable, the relationships between committee member independence and earnings management, as well as between committee member financial expertise and earnings management, were found to be weakened. These results have potential implications for policymakers and regulators in Jordan. They may offer valuable insights into corporate governance reforms that could assist Jordanian businesses in enhancing their earnings management practices.

Has Japan’s corporate governance reform reached a turning point? Some cautionary notes

ABSTRACT Japan has identified corporate governance as an important element in its attempt to reform its economic system. A combination of political will and sustained implementation by civil servants has produced a corporate governance code and associated mechanisms to sustain and refine the changes that have been introduced in order to raise corporate profitability and stimulate the whole national economy. Meanwhile, the direction of reform has shifted from an initially principles-based approach towards an increasingly proscriptive, rules-based one, favouring the interests of investors over those of other stakeholders. Whether this will achieve the desired results is increasingly being questioned within Japan and runs counter to experience from markets where shareholder primacy already prevails. Japan’s own prior experience of trying to transplant laws and institutions from these markets suggests a need for caution.

ESG disclosure in G7 countries: Do board cultural diversity and structure policy matter?

AbstractThe aim of this paper is to investigate the impact of board cultural diversity (BCDIV) and board structure policy (BSP) on environmental, social, and governance (ESG) disclosure. The sample of this study includes 2988 companies from G7 countries during the 2015–2022 period. Our empirical results reveal that boards with heterogeneous cultural directors and the existence of BSP improve overall ESG scores. Further analysis shows that BSP is a crucial determinant of the governance dimension, one of the pillars of ESG disclosures, whereas BCDIV affects the social dimension more. The findings of this paper offer policy insights, highlighting the importance of BCDIV and BSP for better ESG disclosure. Policymakers should therefore establish regulations that encourage BCDIV and BSP and promote ESG disclosure. Corporate governance reforms that aim to improve the effectiveness and efficiency of boards are critical in order for companies to attain both financial and sustainable development.

Corporate governance and Islamic bank risk – do the directors’ and the Shariah board’s diversity attributes matter?

PurposeThis study aims to investigate the effect of the diversity of the board of directors (BOD) and the shariah supervisory board (SSB) on credit risk, insolvency, operations, reputation, rate of deposit return risk (RDRR) and equity-based financing risk (EBFR) of Islamic banks (IB).Design/methodology/approachThe study uses 68 IBs from 19 countries covering 2009 to 2019. BOD and SSB diversity attributes data were hand-collected from the annual reports. Financial data were collected from the bankscope database. The robustness test and two-step system generalized method of moment estimation technique were used to address potential endogeneity issues.FindingsThis study provides evidence that diversity in the experience and cross-membership of board members decreases the risk. Gender diversity increases the risk, but the BOD’s education level diversity has no relationship with risk. More interestingly, influences in the experience and cross-membership of the SSB’s members positively influence risk. However, members’ education levels and gender diversity have not been proven to affect risk.Practical implicationsThe paper recommends that Islamic banking authorities play a stronger role and make a greater effort in driving corporate governance reform. Also, determining individual characteristics of the board is a requirement to become a member of a BOD or an SSB.Originality/valueThis paper expands the commitment literature through the diversity of the BOD’s and the SSB’s members in terms of their education levels, experience, cross-membership and gender. This study expands the list of potential risks for IBs, by including the RDRR and EBFR.

Corporate governance reforms and voluntary disclosure: International evidence on management earnings forecasts

This study examines whether and how a country’s implementation of corporate governance reforms affects the propensity and properties of management earnings forecasts. We propose competing hypotheses that the implementation of corporate governance reforms will either increase or reduce the likelihood of management earnings forecasts. Our sample includes public firms from 22 countries spanning from 2004 to 2009. Using a difference-in-differences (DID) research design and logistic regressions, we compare the change in earnings forecast practices between firms domiciled in countries that implemented corporate governance reforms and firms domiciled in countries that did not. We find that the implementation of corporate governance reforms in a country increases the propensity of firms in that country to issue earnings forecasts. However, the implementation of corporate governance reforms in a country does not significantly influence the quality of earnings forecasts issued in the post-reform period. Also, the effect of reforms on the level of earnings forecasts issued by firms is greater for countries adopting the comply-or-explain type of reform, for firms in countries with a weaker level of pre-reform corporate governance, and for countries with a common law legal origin. Overall, our findings shed light on how strengthened corporate governance affects firms’ voluntary disclosure practices.

Pluralism and corporate governance reform

PurposeThe article considers the utility of a pluralist perspective in the context of current debates around UK corporate governance reform. Oxford School pluralism advanced both a description of how industrial relations (IR) operated in practice plus a prescription for how it should operate. Whilst economic conditions are different today, a pluralist framing provides not only a useful way of understanding interests in firm governance (description) but also a solid grounding for a pragmatic reform agenda (prescription).Design/methodology/approachDrawing from key texts in the field, the article considers core concepts within pluralist discourse and discusses their relevance to contemporary policy debates.FindingsThe article provides a short outline of recent economic and political developments and considers how a pluralist framing helps explain firm-level interests, challenging the dominant narrative of shareholder primacy. It then asks what policy interventions might flow from this analysis of capital and labour investments, and how feasible they are in the current UK context. This allows a discussion of levels of analysis (evident in materialist theories such as “radical pluralism” and the “disconnected capitalism thesis”). Finally, it reflects briefly on the links between corporate governance and wider patterns of inequality, suggesting the pluralist position is consistent with a Durkheimian sociology focusing on the potential in state-led regulatory interventions to tackle anomie and strengthen social solidarity.Originality/valueThe article brings together literature from what are often treated as relatively discrete areas of enquiry (employment relations and corporate governance) and also considers the public policy implications of these connections.

Global Financial Crisis: Unravelling Corporate Governance Failures

The global financial crisis of 2007-2008, stemming from the United States subprime mortgage crisis, was a profound and widespread calamity with far-reaching implications for economies, enterprises, and investors worldwide. This essay posits that the root cause of this crisis lies in the failure of corporate governance, asserting that the outbreak unfolded through three stages: the accumulation, amplification, and outbreak of governance risks. Crucially, the first stage reveals a convergence of internal and external governance failures, marking the conjunction of internal governance lapses—specifically in risk management, executive compensation, board operations, and information disclosure—and external governance deficiencies in government regulation, legal requirements, and social accountability. The multifaceted impact of the crisis, leading to the bankruptcy of prominent financial institutions globally and unprecedented government interventions, underscored the urgency of addressing governance issues. Scholars and researchers globally have since dissected the crisis, identifying lessons and recommending reforms. This essay examines the intricate balance between internal and external governance, emphasizing the imperative of effective interaction. Proposals for improvement include enhancing board structures, implementing substantive disclosure rules, fortifying government regulation, and fostering international cooperation. The aftermath of the crisis, while posing challenges, also presents an opportunity for corporate governance reform. The lessons learned highlight the indispensability of robust governance mechanisms in protecting investor and shareholder interests. Effectively navigating the evolving landscape requires staying abreast of contemporary needs and embracing reforms that align with the dynamic nature of global finance. Ultimately, the financial crisis underscores the pivotal role of effective corporate governance in mitigating risks, fostering sustainable development, and safeguarding societal interests.

Minority shareholders and tax avoidance

This paper examines whether and how external country-level corporate governance devices affect corporate tax avoidance. Using a panel of public firms across 33 countries, I show that laws empowering minority shareholders hinder corporate tax avoidance, consistent with shareholder protection laws spilling over to tax avoidance through reduced income diversion. I corroborate the validity of these findings using a major corporate governance reform in Italy. In cross-sectional tests, I further document that firms in countries with stricter transfer pricing rules and stronger tax enforcement reduce tax avoidance to a larger extent. Finally, through path analysis, I provide evidence consistent with firms shifting less income to foreign countries in response to stronger minority shareholder rights. Overall, these findings suggest that minority shareholder protection laws can safeguard outside investors and the government against expropriation by insiders.