Corporate Governance Reform Research Articles

АНАЛІЗУВАННЯ ІНВЕСТИЦІЙНОГО КЛІМАТУ УКРАЇНИ В ПЕРІОД ВОЄННОГО СТАНУ

For Ukraine, the investment climate is one of the main factors in ensuring its stable development, which means that all economic activities in the country are on a sustainable socio-economic development path. The investment climate is an important and determining factor in the decision of foreign or domestic investors to invest. It is a combination of investment attractiveness factors and investment risk factors. The article provides a detailed analysis of Ukraine's investment attractiveness for foreign investors. The problematic aspects of legislative and managerial nature in attracting foreign investment are highlighted. The real state of investment attraction in 2019–2022 is reflected. The index of investment attractiveness for 2019–2023 is investigated. The dynamics and structure of foreign direct investment in the economy of Ukraine by types of economic activity for 2019–2022 are presented. Foreign investment is undoubtedly one of the leading drivers of economic growth for many countries, including Ukraine. Foreign investment can increase competition in the market by investing in lagging enterprises, improve the welfare of citizens, and strengthen the competitiveness of recipient enterprises on the global stage. Studies have shown that the net inflow of foreign direct investment significantly exceeds the net outflow. Although the investment attractiveness index is still low, the number of top managers who believe that new investments in Ukraine will be profitable has almost doubled. The government continues to develop legislation to capitalize on this potential with numerous draft laws on corporate governance and other economic reforms aimed at bringing Ukraine in line with EU standards and regulations currently being advanced. In Ukraine, the most attractive sectors of the economy for foreign investors are financial and insurance activities, trade, and information and communications. Ukraine's increasing movement toward integration with the EU opens up potential opportunities for investors seeking access to the EU market. The support from the European community and the United States is significant. After Ukraine's victory, the investment attractiveness of our country will certainly increase.

The Effects of Corporate Governance Reforms on Distribution Inequality: Micro Evidence from Japan

The Effects of Corporate Governance Reforms on Distribution Inequality: Micro Evidence from Japan

ROLE OF INDEPENDENT DIRECTORS IN MITIGATING FINANCIAL STATEMENT FRAUD: INSIGHTS

The role of independent directors has gained increasing attention in corporate governance, particularly in their ability to mitigate financial statement fraud. This study investigates the relationship between board independence and the likelihood of financial fraud within Indian companies, using the Altman Z-score as a measure of financial health. The analysis explores how the proportion of independent directors on corporate boards impacts fraud detection and prevention, alongside other board attributes such as audit committee size, board size, and gender diversity. The findings suggest that a higher proportion of independent directors significantly reduces the likelihood of financial misreporting, enhancing transparency and accountability. The results highlight the critical governance role of independent oversight, emphasizing the need for stringent regulations and best practices to strengthen board independence in safeguarding financial integrity. These insights contribute to ongoing discussions on corporate governance reforms and provide practical recommendations for firms and policymakers to reduce fraud risk in emerging markets like India.

Cybersecurity in European Financial Institutions: New Grounds for Corporate Governance Reform

Cybersecurity, digital resistance to incidents, errors and cyberattacks attracted the attention of the European Union legislator, initially, from a public policy perspective. Today, cybersecurity concerns are dealt with as a part of EU Internal Market strategies, including those more closely linked to the financial sector. These pages focus on the new EU legislation to achieve Digital Resilience in the financial sector as well as on their impact upon the Corporate Governance of financial institutions. Compliance with corporate duties of cyber-governance, management of cyber risks, testing, continuous improvement, as well as reporting, communication, and transparency shape the new corporate governance landscape of the financial institutions in the European Union. Within and beyond what is already being legislated and proposed, Corporate Governance is called to play a fundamental role in facing the challenges of digital security. Cyber security, digital operational resilience, cyber risk management, financial sector, large ict supported infrastructures, critical ict providers, corporate governance reform, digital corporate governance, board duties, board commissions

Corporate governance reforms, societal trust, and corporate financial policies

While formal institutions are considered important in affecting corporate behaviors, little attention has been paid to the role of informal institutions in such relation. We employ the (formal) corporate governance reforms and the (informal) individual countries' trust levels to examine how the informal institution moderates the impacts of the formal institution on corporate financial policies. Using a sample of 88,929 firm-year observations across 35 countries, we document a positive effect of corporate governance reforms on corporate financing and investment. More importantly, we find that the positive effect of the formal regulatory reforms is more pronounced with lower levels of informal country-level trust. Further analysis shows that corporate governance reforms lead to both lower under- and over-investment, and the effect is also stronger in low-trust countries. Our study sheds light on the interactive relation between corporate governance and trust and indicates that countries can offset the negative lack-of-trust effect on economic outcomes through formal regulatory reforms.

Enhanced management information disclosure responsibilities and corporate risk-taking: Evidence from the accountability system for errors in China

Enhancing management's responsibility for information disclosure can improve a firm's risk-taking by improving its resource allocation efficiency, but it can also reduce firm risk-taking by increasing managers' risk aversion. After the regulation change from the China Securities Regulatory Commission to require the listed companies to establish an accountability system for material errors in information disclosure of annual reports (hereinafter referred to as the “accountability system for errors”) in late 2009, the risk of misreporting became substantially higher. This paper explores how the accountability system for errors with strengthened management's responsibility for information disclosure affects corporate risk-taking. We find that the accountability system for errors significantly reduces corporate risk-taking, especially idiosyncratic risk, and the impact is greater in firms with short-term CEO tenure and high-tech firms. The improved information environment and increased market pressure are the mechanisms by which the accountability system for errors reduces corporate risk-taking. Further research shows that after the policy change, firms reduce R&D expenditures and output and are more likely to diversify risk through fixed asset investment and diversified mergers and acquisitions. After establishing the accountability system for errors, the higher level of risk-taking will lead to lower CEO compensation and a higher probability of CEO dismissal. This paper enriches the research on corporate governance reform related to strengthening management responsibility. Our research also provides references and guidance for relevant regulatory authorities and listed companies in emerging markets to improve their corporate governance.

How the supervisory board was replaced by a monitoring board in the Healthcare unit

As a result of the simultaneous implementation of medical reform and corporate governance reform in Ukraine in the state and communal sectors of the economy, supervisory and supervisory boards appeared in medical enterprises. However, in 2022, supervisory boards were replaced by supervisory boards in the Fundamentals of Health Care Legislation. In order to consolidate this strange novel, the Ministry of Health of Ukraine prepared and presented for public discussion a draft resolution of the Cabinet of Ministers of Ukraine «On the supervisory board of a health care institution».
 In the article, based on the analysis of the current and prospective legislation of Ukraine, scientific and practical publications and court practice, the conclusion about the different legal nature, purpose of activity, procedure of formation and competence of the supervisory board and the supervisory board is substantiated, and the illegality of replacing supervisory boards with supervisory boards is proven. The author substantiates the conclusion that the promotion of the idea of a special status of supervisory boards in health care institutions is carried out by the Ministry of Health of Ukraine with the aim of creating a collegial body to control the activities of the executive body of health care institutions of the director (directorate, board) that provide specialized medical assistance However, the means by which such a goal is achieved do not meet the requirements of the law.

Corporate Governance Reforms and Analyst Forecasts: International Evidence

In this study, we examine the effect of worldwide corporate governance reforms on analyst forecasts using data on firms from 41 countries that have implemented such reforms. Employing a difference‐in‐differences design, we find robust evidence of a significant positive effect of these reforms, which mainly promote the independence of the audit committee and auditors, on analyst forecast accuracy. We also find significant improvements in post‐reform corporate governance structure and the quantity and quality of corporate disclosure, which validates the predicted economic mechanism of the impact of these reforms. Moreover, the reforms are effective in reducing analyst forecast bias and dispersion, suggesting an overall improvement in analyst forecast quality after reform implementation. Furthermore, we find a moderating effect of analyst general experience on the relationship of interest, which is consistent with the conjecture that improved corporate disclosures following reforms could be more beneficial for analysts with less experience. Overall, our findings shed new insights into how country‐level corporate governance reforms worldwide shape firms’ information environment.

РЕФОРМУВАННЯ КОРПОРАТИВНОГО УПРАВЛІННЯ ГІРНИЧОДОБУВНИХ ПІДПРИЄМСТВ

The article is devoted to the study of the peculiarities of reforming the corporate management of enterprises in the mining industry. Challenges facing the industry are indicated. The role of corporate management is disclosed, the principles of such management are summarized. The advantages of corporate governance policy are outlined. Among the advantages, the following are highlighted: the possibility of wider access to financing, ensuring the protection of investors, maintaining the stability of the company. It has been investigated that the Government has set the task of introducing and ensuring compliance with corporate governance standards at the ten largest state-owned enterprises ofUkraine. The largest company in the mining industry - JSC "Naftogaz of Ukraine" was chosen as the object of the study. Considered how the process of reforming corporate governance took place in this company. The key elements of proper corporate governance of NJSC "Naftogaz of Ukraine" are: availability of full-fledged and effective management bodies; clear division of powers; functioning of the internal control system; elimination of political influence; creation of equal market conditions with private companies. It was determined that the attention of international organizations was drawn to the reform of the company's corporate governance. Experts of the Organization for Economic Cooperation and Development implemented two important projectsthat contributed to the implementation of the reform. The implementation of the corporate governance reform in Naftogaz of Ukraine led to the following changes: changes were made to the Company's Charter, the Ownership Policy was approved, new members of the Supervisory Board were elected, and a new corporate strategy was announced. It was concluded that the initiated reform of improving corporate governance by business entities remains an important priority for Ukraine. The success of the reform will depend on: the construction of the stock market and the maximum approximation of Ukraine to world standards; creation of a centralized body for state property management; avoiding political influence on the activities of companies; availability of professional stock managers; strengthening of regulatory influence

FOSTERING ECONOMIC RESILIENCE THROUGH CORPORATE GOVERNANCE PRACTICES: EVIDENCE FROM MANUFACTURING SECTOR COMPANIES IN SRI LANKA

This study examines the role of corporate governance practices (CGPs) in fostering economic resilience within the manufacturing sector companies in Sri Lanka. Economic resilience is a crucial aspect of sustainable economic development, enabling organizations to withstand and recover from adverse events or disruptions. Corporate governance, on the other hand, represents the mechanisms and processes through which companies are directed and controlled, influencing their performance and stability. Using data from ten manufacturing companies (n=10) listed on the Colombo Stock Exchange (CSE) this research analyzes the relationship between corporate governance practices and economic resilience in the context of the manufacturing sector in Sri Lanka. The study utilizes quantitative measures, such as board size, board independence, board gender diversity, the existence of an audit committee, the existence of a nomination committee, board meetings, and CEO duality to measure CGPs, and manufacturing sector performance as a mediating variable. Economic resilience was used as the considered as the outcome variable. Relevant data were extracted from the annual reports of the chosen companies for the period from 2015 to 2019. Finally, 50 observations were used for the data analysis. The Pearson correlation test was executed to determine the relationship between CGPs, manufacturing sector performance, and economic resilience. Multiple regression analysis was performed to determine the explanatory power of the combination of these three segments. The findings highlight that manufacturing sector performance has a negative correlation with fiscal deficit to GDP which means that manufacturing sector performance increases and the budget deficit goes down which impacts on economic resilience of the country. The regression results suggest that board gender diversity has a significant relationship with manufacturing sector performance and the performance of the manufacturing sector. Moreover, the performance of listed manufacturing companies has a mediating effect on the economic resilience of the country and CGPs. The insights from this study provide valuable guidance for policymakers, regulators, and manufacturing sector companies in Sri Lanka, enabling them to prioritize and implement corporate governance reforms that enhance economic resilience.

Board reforms and innovation

We study the effect of board reforms on firms' research and development (R&D) investments utilizing a sample of 41 countries. Using a difference-in-differences analysis, we find that firms invest more in R&D following corporate governance reforms. Of these, two legal reforms — having an independent audit committee and board independence — have a greater impact on R&D investment. Additionally, we show that board reforms have a more pronounced effect on R&D investment in hi-tech industries and the health sector.

International Corporate Governance: Post-Covid-19 Prospects for “The 21st Century Revolution” and “The Global Compromise”

Abstract The paper speculates on possible post-COVID developments in two prospects for evolution of international corporate governance. The first, labelled “the 21st century revolution in ownership” would acknowledge the supremacy of a successful national model of corporate governance based on an emerging allegedly new type of ownership, which might be introduced worldwide. The second option, named “the global compromise” implies combining “good practice” elements from different national models into a commonly accepted global model. The economic impact of the recent crisis might accelerate trends that were present already in the pre-COVID-19 period. Rapid digitalization of society would help increase transparency in corporate governance and contribute to higher shareholder participation. The need for resilience would encourage corporate governance reforms leading to convergence to a more stakeholder-oriented model. However, differences among national models are likely to persist, so neither of the two options will be fully realized in the immediate aftermath of the crisis.

SOE Corporate Governance Reform in Lithuania - Explained & Еmpirically Tested

Following previous research on management efficiency of state-owned enterprises (SOEs) in Lithuania, this paper continues previous discussion via extension of the observed time period seeking to continuously analyze the impact of corporate governance principles to the management effectiveness of Lithuanian SOEs.For the purpose of this study, elements of corporate governance principles established in the initial reform of the SOEs in Lithuania are used as key dependent variables to measure and quantify the dynamics of corporate governance culture and its impact to the management efficiency of SOEs. Analysis performed is of a special importance as it covers the 10-year period (2010–2020) and could serve as a case study in analyzing practical implications of managerialism principles in public sector and SOEs specifically.New public management paradigm (Politt, 1993) combined with policy learning theory (Bennett, Howlett, 1992) are used as the theoretical background to explain the initiation and logical framework of SOE reform as well as the selection of variables used in this study. Additionally, principles of corporate governance established by OECD and other international organizations (OECD, 2015) are also used to enrich the analytical framework.The results of the analysis do not only prove that the implementation of corporate governance principles has a positive influence on the efficiency of management of SOEs, but also reveals additional factors that were not identified in the previous research – this impact is not static, but rather dynamic changing in accordance with the maturity of managerial practices within SOEs. The revealed dynamic nature of effects of the SOE policy should lead to the continuation of research seeking to expand it both geographically and vertically including other governmental organizations into the scope of future research.

Anti-corruption disclosure quality and earnings management in the United Kingdom: the role of audit quality

PurposeBuilding upon institutional pressures on firms to deal with corruption, this study aims to investigate the association between a firm's engagement with anti-corruption disclosure quality (ACD_Q) and earnings management (EM). Also, this study examines the moderating role of audit quality in the association between ACD_Q and EM.Design/methodology/approachThe authors constructed an ACD_Q index based on the 2010 UK Bribery Act and taking into account a wide range of rules on corruption and bribery, including those of the OECD, World Bank, UNCTAD, UNGC, UNCAC and GRI. Generalized method of moments and panel regression were used to examine the association between ACD_Q and EM.FindingsUsing a sample of 2,695 firm‐year observations of the UK’s FTSE-350 from 2008 to 2018, this study finds ACD_Q is negatively associated with EM. In addition, this negative relationship is contingent on audit committee independence and audit committee expertise. This finding is supported by additional robustness and sensitivity analysis.Practical implicationsThe empirical evidence reiterates the crucial need for more concerted efforts to ensure corporate engagement in anti-corruption practices with a view to reducing earnings manipulations.Originality/valueThis study contributes to the limited evidence that investigates how ACD Q influences EM in the UK after the introduction of the UK Bribery Act in 2010. Furthermore, by considering the period from 2008 to 2019, this study investigates the potential moderating role of UK corporate governance reforms in EM reduction. In particular, to the best of the authors’ knowledge, this study assesses for the first time the moderating effect of audit committee mechanisms on the ACD Q and EM nexus.

Disclosure of non-financial information in corporate accounting reports: a theoretical aspect

The corporate world is changing as a result of the expansion and social deepening of globalization processes. To be successful, companies need to be aware of international markets, a diverse range of stakeholders, and comply with ever-increasing non-financial disclosure requirements. Organizations should also analyze how their social and environmental impacts affect their stakeholders and, most importantly,the financial situation of their shareholders. Globalization continues to influence corporate governance reform and its structure in order to be able to respond to growing demand. A hallmark of this reform is corporate accountability and transparency. This has put tremendous pressure on companies to disclose non-financial information and, more specifically,social and environmental issues because they are critical to the survival of the firm. Organizations have voluntarily responded to this pressure, but there is a need for regulatory principles that would form the basis for disclosure of non-financial information in the organization. In this article, the author analyzes various aspects related to the disclosure of non-financial information in corporate accounting reports. The reason why non-financial disclosure is required is because users of the financial report, including employees, suppliers, management, shareholders, financial analyst, creditors, and the government, need these reports to make decisions. Thus, it is very important that published annual reports contain reliable information that is timely to enhance decision making.

Corporate governance mechanisms and efficiency of insurance firms: evidence from an emerging market

The paper assessed linkage amongst governance mechanisms and efficiency of insurers in Kenya over 8 year period from 2013 to 2020. The study estimated the efficiency of insurers using DEA approach in light of previous literature during the first stage. During the second stage, the bias-corrected efficiency scores were regressed against corporate governance (CG) proxies and control variables using SW (2007) approach on a sample of 53 insurers. Using this two-stage, bootstrapping SW approach, the study documents that the Kenyan insurers are technically inefficient. Overall, the paper presents evidence showing that CG variables influence technical efficiency of insurers in Kenya. Precisely, board independence, gender diversity and audit quality positively and significantly impact Kenyan insurers’ technical efficiency. Further, the paper finds that size of the board negatively affect Kenyan insurers’ technical efficiency. However, the study established insignificant relationship between CEO duality, intensity of board activities and technical efficiency. The paper makes contribution to the bourgeoning reservoir of empirical works on the insurers’ CG-efficiency nexus from an emerging market perspective. Particularly, the article offers empirical insights on some of the least studied CG proxies such as gender diversity, quality of audit and intensity of board activities. The research outcomes also have practical implications for regulators, academia, insurers, government policy makers, practitioners, shareholders and consumers of insurance products by raising their awareness on the influence of CG proxies on the efficiency of the insurers. This is especially beneficial in countries that are pursuing CG and efficiency policy reforms.

Institutional Divide, Political Ties, and Contested Corporate Governance Reform in Taiwan

AbstractThis study attempts to address the question of under what conditions political ties buffer firms from, or bind firms to, political pressure. We draw attention to the institutional divide between the executive and legislative branches of a presidential democracy. Using the case of Taiwan, a ‘third wave’ democracy with relatively strong state intervention, we argue that the two branches differ in their respective institutional roles, basis of legitimacy, and resources in a context in which the regime is seeking to fulfil its national agenda and please floating voters. We posit that corporate ties to these respective branches exert divergent influence on the adoption of government‐initiated but highly contested corporate governance reforms. Ties to the executive branch push firms to reform because they depend on the government for resources, while ties to the legislative branch act as a buffer to reform as legislators court the support of firms in pursuit of electoral gains. Empirical analysis of reforms to enhance board independence from 2002 to 2005 supports our thesis. Our study contributes to research on corporate political strategy and corporate governance reform, revealing how the structural fragmentation of the state can give rise to conflicting roles of political ties to different branches.

Blockchain Technology: the Beginning of a New Era in Reforming Corporate Governance Mechanisms

Blockchain Technology: the Beginning of a New Era in Reforming Corporate Governance Mechanisms

North Korean Corporate Governance Reform and the State‐Market Nexus

The question of economic reform has been one of the most debated issues in the study of North Korean political economy. Through examining the case of corporate governance reform under the Kim Jong Un government, we argue that existing discusions of North Korea reform rest on a problematic ontological separation of state and market that fails to capture the extent to which the state uses economic reform to embed itself in and in certain respects deepen market dynamics to ensure its own reproduction. As we argue, the Socialist Enterprise Responsibility Management System has sought to reduce the role of central planning, increase management rights and incentives, institutionalize SOE engagement with the market, and provide more scope for performance‐related pay for workers. In recognizing the role of private capital, it has placed enterprises' market activities on a firmer legal basis, albeit without fully legalizing private property rights. The measures represent not only the recognition of existing market dynamics but also their institutionalization, giving the reforms both a reactive and a proactive dimension. However, there are also strict limits placed on this process as part of the state's strategy of political control. While the state's policies can to a degree be seen as “pro‐market,” policy makers are reluctant to allow space for a genuine non‐state sector to emerge and accept the market only to the extent that it contributes to and strengthens the state sector.

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.