Corporate Governance Research Research Articles

Unsaid known in the boardroom: theorizing unspoken assessments of behavioral board dynamics

Effective board performance relies heavily on the smooth exchange of information and knowledge among members. However, the sociocognitive processes surrounding these information exchanges within boards, known as board dynamics, are often treated as a black box in corporate governance research. With the goal of advancing the understanding of communication-centered board dynamics, this paper develops a theoretical model of unsaid known in the boardroom. Drawing on the communication, psycho-dynamics, and governance literature, we theorize how board members jointly make sense through what they think and say and not say and offer propositions. We discern between the implicit theories of senders and listeners, shaping decision-making. Our conceptual model suggests that heightened collective awareness among board members regarding communication incongruences can improve decision-making. Addressing these discrepancies can enhance boards’ capacity for informed decision-making and optimize outcomes.

Editorial: Current issues on corporate governance, regulation, innovation, digital transformation, financial technology, corporate finance, and behavioral finance

We are pleased to announce that the first issue (special issue) of the Journal of Governance and Regulation has been released for 2024! This issue is comprised of 22 high-quality papers. Below we share the way papers in this issue contribute to the existing literature in the field. We hope it will enable the readers to outline the new and most challenging issues of research in corporate governance and related topics.

Board Response to Transnational Regulation on Corporate Governance: A Case Study on EU Banking Regulation

How does a board of directors respond to stringent transnational regulations on corporate governance? We explore this question in a case study that includes interviews with key governance actors of a bank dealing with regulatory changes in the European Union (EU) initiated in 2010 in response to the financial crisis of 2007–2008. Our findings suggest that transnational regulations introduced a conflicting prescription to the directors, who were caught between two needs: existing local governance practices and transnational regulatory compliance. Contributing to the international corporate governance research, our findings corroborate the resistance to transnational regulations and the distrust attributable to boards of directors’ role struggles and the invasive accountability mechanisms introduced by such regulations. We, therefore, contribute to the ongoing discussion on how the conflicting layers of corporate governance—local versus global—and how the discontinuities between competing existing practices and the prescriptions of transnational regulations can provoke micro-resistance.

Analysing Corporate Governance Research in the Pharmaceutical Industry: A Bibliometric Study

This study examines the current body of literature on Corporate Governance, aiming to provide an overview of publication metrics, collaboration patterns, key areas of focus, emerging trends in research, and potential future avenues for an investigation. To achieve the goals of this research, a range of bibliometric methods were employed. These included performance analysis, citation analysis, network analysis, trend analysis, and thematic mapping. These techniques were applied to a dataset of 303 documents sourced from the Scopus database, spanning the years 1987 to 2023.  The Biblioshiny application of the R-studio software was utilized for this purpose. Extensive investigations of Corporate Governance began in 2008. The United States is the leading contributor, followed by the United Kingdom, and the majority of the leading contributors collaborate. The research pinpointed the most prominent journals, authors, and publications within the field by conducting a thorough citation analysis. The study offers a crucial understanding of the current state of research and suggests avenues for future research to fill this research gap.

The role of female executives in capital structure decisions: evidence from a Southeast Asian country

Purpose This study aims to investigate how the presence of female executives on the board affects a company’s capital structure decisions. The critical mass of female executives on the board was also considered to observe their impact on capital structure. Design/methodology/approach Samples were taken from nonfinancial sector companies listed on the Indonesia Stock Exchange between 2012 and 2021 (3,707 firm-year observations). Capital structure was measured using four approaches, namely, debt-to-total asset ratio (DAR), debt-to-equity ratio (DER), short-term debt-to-total assets (STD) and long-term debt-to-total assets (LTD). The data were analyzed using panel data regression analysis, including a fixed effects model with clustered standard errors. Findings The presence of female executives on the board is significantly negatively related to capital structure as measured by DER and STD. The critical mass of women provided no evidence of a relationship with a firm’s capital structure. Robustness checks were performed, and the results were consistent with those in the main analysis. Research limitations/implications Female executives can be appointed to management boards when determining a strategy to achieve the capital structure desired by a company. Originality/value This study increases the diversity of research in corporate governance by synthesizing various indicators from female executives into a single study to determine their relationships with companies’ capital structures. In addition, this study stands out by incorporating four distinct indicators for assessing capital structure and diverging from the norm observed in many other studies, many of which rely on just two indicators: DAR and DER. Moreover, it strongly emphasizes the unique economic, legal, social and cultural landscapes of developing countries like Indonesia in comparison to their developed counterparts, particularly Western nations.

Corporate governance and family business: a perspective article

PurposeThe governance of family businesses has attracted considerable scrutiny among scholars and practitioners. This paper explores influences that have defined corporate governance practices in family firms in the last century and reflects on the possible direction of research and practice in the next century.Design/methodology/approachThis manuscript undertakes a literature review of past and recent literature investigating corporate governance practices within family businesses.FindingsThe evolution of corporate governance in the family business literature is underpinned by centralised decision-making structures, the need to overcome fundamental corporate governance challenges, the increasing relevance of family governance models and the recognition and adoption of contemporary trends in the corporate governance space. The review also suggests that corporate governance and family business research in the next century will be dominated by technology-based governance, sustainable governance, globalisation and the validation for multi-board structures, greater attention to succession planning and diversity, and channelling significant resources to innovation.Originality/valueThe paper synthesises developments in the corporate governance–family business literature and proposes a future perspective.

Good Corporate Governance Factors Toward Financial Performance

This research was conducted to examine the effect of Good Corporate Governance on the Company's FinancialPerformance. The purpose of this study is to determine the influence of Good Corporate Governance on theFinancial Performance of Companies listed on the IDX 80 IDX index for 2019 - 2021. Good financialperformance will affect many stakeholders because company performance is a picture of the company'scondition, if the company's performance is bad, it will affect stakeholder decisions. Factors can affect financialperformance are Good Corporate Governance. Good Corporate Governance research is proxied by thenumber of board of directors, the number of boards of commissioner meetings and managerial ownership. Thisstudy uses quantitative methods of secondary data with the population of companies listed in the IDX 80 indexin 2019 – 2021. The sample method is the purposive sampling method. The data used is the company's annualreport obtained through the Indonesia Stock Exchange website. The results of the study obtained the resultsare that the number of boards of directors does not have a significant effect on financial performance, thenumber of meetings of the board of commissioners has a significant positive effect on financial performance,managerial ownership has a positive effect on financial performance.

Tax‐Motivated Relocations of Headquarters: The Role of Affinity Bias among Socially‐Responsible Blockholders and CEOs

AbstractWhile socially‐responsible large shareholders have been shown to have a substantial impact on corporate leaders’ decisions on social responsibility, prior research remains silent on whether that impact is subject to bias among these two sets of actors. To shed light on this issue, we study the role of socially‐responsible blockholders as well as CEOs in the occurrence of tax‐motivated international relocations of corporate headquarters (HQs) – a key form of shareholder‐oriented behaviour. Drawing on stewardship theory and corporate governance research, we first hypothesize that responsible blockholders’ total equity stake in a firm is negatively related to a firm's propensity to undertake a tax‐motivated HQ relocation. Using complementary insights from social identity theory, we then propose that both socially‐responsible blockholders and CEOs tend to identify more strongly with compatriots than with foreigners. This leads us to hypothesize that (a) the stake of responsible domestic blockholders is more negatively related to a firm's relocation propensity than the stake of responsible foreign blockholders, and that (b) the stake of responsible blockholders that are compatriots of their firm's CEO is more negatively related to that propensity than the stake of responsible blockholders with a different nationality than the CEO's. Logit analyses of a sample of US firms covering the period 1998–2017 lend substantial support to our hypotheses, indicating that affinity bias among socially‐responsible blockholders and CEOs shapes the occurrence of a key form of shareholder‐oriented behaviour.

Corporate Boards with Street Smarts? How Diffuse Street Protests Indirectly Shape Corporate Governance

Though recent waves of large-scale street protests have not directly targeted the business sector, they can still represent a major development in a company’s external environment. Building on the literature on community embeddedness, this study extends activism-as-information theory to understand how and when companies respond to street protests that take place in their communities. We argue that for business leaders, the scale of protests serves as an information update regarding the changing relevance of the protested social issue in a community. Using data from 2017 to 2020 on Women’s March protests in the United States, we show that the scale of street protests in local communities is associated with the likelihood of subsequent female director appointments for corporations headquartered in those communities: larger-scale protests are associated with a higher likelihood of such appointments. Further, we show that this response to proximal protests is heightened for protests that occur in local communities least aligned with the protest movement and for companies least internally aligned with the protest goals. Our theory and findings extend research on social movements in markets, showing how and why organizations respond to diffuse community protests, and they enrich corporate governance research on the roles of communities and stakeholders in shaping board composition.

CORPORATE GOVERNANCE AND BOARD EFFECTIVENESS: A SYSTEMATIC REVIEW OF THE COMPANY SECRETARY ROLE

Background and Purpose: Company secretary roles are increasingly gaining attention and recognition globally. However, research on corporate governance and board effectiveness lacks a comprehensive and systematic review from the company secretary role. Most research to date has been focused on the role of other corporate governance actors, namely, CEOs, directors, and auditors. In this present systematic literature review, we address this deficiency.
  
 Methodology: This paper adopted a systematic literature review approach. We used two indexed databases, Scopus and Web of Science, to analyse the articles written on corporate governance, company secretary and board effectiveness. A total of 121 articles published in these fields were examined, and after rigorous analysis, only 18 articles from which met the inclusion criteria were included.
  
 Findings: Our findings reveal that only a few corporate governance research has investigated the role of company secretary in enhancing board effectiveness (board structure, board process and board practices). The thematic analysis conducted identified seven key roles of the company secretary. The roles are to: (1) support the chairman of the board; (2) provide advice and act as a confidant to the board of directors; (3) facilitate and manage the board of directors and board committee process; (4) liaise between the board and management; (5) manage information asymmetry and enhance transparency; (6) ensure compliance with laws, regulations, corporate governance code and best practices, and (7) manage company relations.
  
 Contributions: The analysis in this paper presents four key findings - types of articles, geographical location, theory, and company secretary roles that reflect the research gaps present in the corporate governance literature, thus highlighting significant future research avenues.
  
 Keywords: Board effectiveness, company secretary, corporate governance, roles, systematic literature review.
  
 Cite as: Halim, S. A. A, Lokman, N., & Othman, S. (2023). Corporate governance and board effectiveness: A systematic literature review of the company secretary role. Journal of Nusantara Studies, 8(TI), 209-234. http://dx.doi.org/10.24200/jonus.vol8issTIpp209-234

The tangled webs we weave: Examining the effects of CEO deception on analyst recommendations

AbstractResearch SummaryOrganizations are punished by analysts and investors when material deceit by their CEO is uncovered. However, few studies examine analysts' responses to deceptive CEOs before their deceit is publicly known. We use machine learning (ML) models to operationalize the likelihood of CEO deception as well as analysts' suspicion of CEO deception on earnings calls. Controlling for analysts' suspicion of deception, we show that analysts are prone to assigning superior recommendations to deceptive CEOs, particularly those deemed as All‐Star analysts. We find that the benefits of CEO deception are lower for habitual deceivers, pointing to diminishing returns of deception. This study contributes to corporate governance research by enhancing our understanding of analysts' reactions to CEO deception prior to public exposure of any fraud or misconduct.Managerial SummaryUndetected deception by CEOs can impact the stock market by influencing analysts' recommendations. Using an advanced ML model, our study measures the likelihood of deception more accurately than previous methods and identifies a tendency among financial analysts to favor deceptive CEOs, particularly high‐status analysts. However, deception is less effective with analysts who are repeatedly exposed to deception. These findings underscore the importance of awareness of potential deception in CEO communications and the need for continuous scrutiny, learning, and adaptability among analysts.

AUDIT COMMITTEE FEATURES, SUSTAINABILITY DISCLOSURE, AND CORPORATE PERFORMANCE IN CHARLOTTE FINANCIAL SERVICE COMPANIES

This study delves into the intricate relationships between Audit Committee (AC) characteristics, sustainability disclosure standards, and corporate performance within the domain of Charlotte's Financial Services Companies. The primary objective is to investigate the complex interplay between AC attributes and the extent of sustainability-related data dissemination among financial entities based in Charlotte. Leveraging a comprehensive dataset spanning 2016 to 2020, covering 537 organizations, the study endeavors to unearth the fundamental mechanisms that underlie the connection between AC characteristics and sustainable disclosure practices. The findings of this study hold significant potential for shedding light on sustainability disclosure practices within Charlotte's financial sector. The central claim posits that robust ACs, emblematic of effective governance processes, may serve as conduits for elevating sustainability disclosure standards. This study introduces a pioneering paradigm, bridging the pivotal role of audit committee characteristics with sustainability disclosure requisites and corporate performance. Empirical support underpins the hypothesis of a positive association between select AC characteristics and the extent of sustainability disclosure. These findings provide actionable insights for managers and practitioners to cultivate specialized governance approaches that bolster sustainable disclosure, ultimately enhancing overall business well-being. By elucidating the intricate interplay between AC characteristics, sustainability disclosure, and company performance in the unique context of Charlotte's Financial Services Companies, this study advances our current understanding and adds to the growing body of research in corporate governance and sustainability strategies. The implications extend beyond Charlotte, offering a conceptual blueprint for fostering sustainable practices through effective governance structures in the financial services industry.

Toward a knowledge‐based view of the board: Modeling board intrafirm knowledge networks

AbstractThis study introduces a conceptualization of board of directors' intrafirm knowledge network and a methodology for its construction, assessment, and analysis. We use network theory and analytical techniques to construct boards of directors' intrafirm knowledge networks based on directors' functional domain and committee affiliations. We demonstrate the utility of this approach for governance research by examining the intrafirm knowledge network of the board of directors of General Electric and offer testable propositions that link key director turnover with the properties of and the structural changes in the board's knowledge network and the firm outcomes of strategic change and innovativeness. Our approach bridges the human and social capital perspectives on boards of directors by considering the mechanisms through which turnover of key directors influences firm‐level outcomes. Directors are increasingly expected to not only fulfill their monitoring responsibilities but also provide firms with resources and service (e.g., involvement in strategy‐making). The enactment of these responsibilities is contingent on the effective collaboration within board intrafirm networks. Our conceptualization of intrafirm board ties as a knowledge network can help practitioners identify key directors, analyze the implications of director turnover, and develop succession plans. We make important contributions to corporate governance research and offer insights into understanding the knowledge dynamics in small team‐like settings, such as boards of directors and their impact on firm strategy and innovativeness.

The Development of Good Corporate Governance Research Around the World

The Development of Good Corporate Governance Research Around the World

China's Special Ownership Structure and Corporate Governance Research

This research discusses the impact of China's unique ownership structure and corporate governance on ownership concentration. China has a unique ownership structure with a large number of state-owned enterprises and concentrated ownership in the hands of a few controlling shareholders. This ownership structure has significant implications for earnings management and managerial opportunism. This paper aims to investigate the effects of corporate governance on ownership concentration in China, as well as the factors that influence ownership concentration. Numerous studies have shown that good corporate governance can mitigate the negative effects of ownership concentration on corporate performance by enhancing the effectiveness of internal checks and balances. The factors that influence ownership concentration include the level of state ownership, the presence of large controlling shareholders, and the lack of protection for minority shareholders. This paper concludes by discussing the implications of these research findings for policymakers and managers in China, emphasizing the need to strengthen corporate governance and promote equity diversification.

Corporate Purpose in Comparative Perspective: The Role of Governance

Corporate purpose has become a central part of doing business as usual and in the social movement to involve corporations in solving complex societal and environmental challenges. In this essay, I first deconstruct what corporate purpose means from a sociological perspective, and I submit that it is important to identify to whom that purpose is targeted. Second, I seek to make the point that corporate purpose is not universal in that there is not a one-rule-fits-all template on how to develop corporate purpose. I draw on comparative corporate governance, stakeholder management, and institutional theory arguments to illustrate how corporate purpose means different things in different societies and that the departure point of the emanation of corporate purpose varies across countries. This differential meaning is explained in part by the institutional setting as well as very different societal expectations of corporations. Finally, building on insights from existing corporate governance research, I argue that stakeholder engagement can be a useful tool toward effectively deploying corporate purpose.History: This paper has been accepted for the Strategy Science Special Issue on Corporate Purpose.

Towards a Psychology of Corporate Governance: Theoretical Insights on Non-Executive Director and CEO Performance

Generally, corporate governance research has been considered the preserve of economics, accounting, and finance scholars. However, attempts are being made to apply behavioral science knowledge in this domain that has traditionally been considered economics and finance. The purpose of this article is to further the efforts in establishing a tradition of behavioral science research in corporate governance. To accomplish this objective, the article establishes the gaps in the extant literature on corporate governance. The article argues from theoretical insights emanating from organizational psychology in particular and behavioral sciences in general. As a result, this article attempts to apply some of the existing theories in social and organizational psychology to explain factors influencing the performance of non-executive directors on boards as well as executive performance and remuneration. Principally, we utilized theories of motivation (expectancy and equity theories) and social influence theory (conformity) to highlight the potential contributions that the psychology of corporate governance can make to advance knowledge and practice. Further, applications and practical ways of testing derived assumptions are also discussed.

Corporate Governance Research in Asian Countries: A Bibliometric and Content Analysis (2001–2021)

Corporate failure suggests that weak corporate governance leads to frail institutions and exposes them to severe crises. Asian countries have faced financial crises in three different periods, most recently due to the COVID-19 pandemic. A crisis will trigger structural changes in corporate governance to enable firms to either respond to, or prevent, the reoccurrence of potentially similar events. The characteristic of corporate governance practice in Asian countries are also unique due to some institutional and informal factors. These will alter direction and future trend of research in corporate governance in Asian region. The objective of this study is to utilize a bibliometric analysis which focuses on research trends and themes, and citations (with additional inclusive visualization) and perform in-depth content analysis to trace the evolution and identify knowledge of corporate governance in Asian countries from 2001 to 2021. Following bibliometric analysis, a sample of 656 articles on corporate governance in Asian countries has been extracted and analyzed from the Scopus database. The results indicate that there is a growing of interest in corporate governance in Asian countries from 2001 to 2021. Eight major themes have been recognized: corporate governance, corporate social responsibility and financial performance, corporate strategy and performance, agency theory, corporate sustainability, audit and agency problems, firm size, and business ethics. Major findings, shortcomings, and directions for future research are also discussed in this study. In general, most cited articles related to corporate governance theme explain the importance of corporate governance in companies with the focus on preventing financial fraud, impact on earnings management, and cost of equity capital in the market and reporting methods.

Corporate Governance Research in the Digital Economy: New Paradigms and Frontiers of Practice

 Digital technologies are increasingly changing the nature of competition and generating externalities that impact society. While the growth of a digital and sustainable economy may increase firm performance, these new trends also raise potential challenges for companies pertaining to corporate governance structures. In this paper, the impact of digitalization on corporate governance practices is discussed from the perspective of developing technologies and institutionalization, revealing potential effects, transformations, and steps to take. Our findings indicate that the development of the digital economy can facilitate enterprise digital transformation, enhance agency efficiency, and increase online media attention, thereby significantly promoting CSR performance for local firms. Digital transformation has an effect on the information quality and corporate governance, reducing agency costs, improving internal control, and attracting more analysts’ tracking, so as to build an effective trust mechanism between firms and the external market. The research conclusion of this article is helpful in analyzing the policy effectiveness of current corporate information disclosure regulations, and also provides a basis for the subsequent formulation of relevant disclosure policies. In addition to its theoretical significance, this paper also has important policy implications.

Analisis Penilaian Kesehatan Bank Dengan Menggunakan Metode RGEC (Risk, Profile, Good Corporate Governance, Earning, Capital) Pada Bank Umum Syariah Tahun 2017-2021

This study aims to determine the soundness of Islamic Commercial Banks in 2017-2021 by using the measurement method regulated in Bank Indonesia Regulation, PBI No. 13/1/PBI/2011 through the RGEC method is a Risk Profile using credit risk (NPF), liquidity risk (FDR), Earnings (ROA and NIM), and Capital (CAR). In Good Corporate Governance research using data that has been processed and obtained from each Islamic bank. The object of this research is all Islamic Commercial Banks. The sample in this study used purposive sampling. This study uses a quantitative approach sourced from financial reports through the official websites of each Islamic Commercial Bank and OJK. The data used is Time Series data for 2017-2021. Analyzed using Microsoft Excel and formulas in ratios. Based on the results of this study, it shows that the health of commercial banks in terms of the Risk Profile aspect with the ratio of NPF and FDR during 2017-2021 is in a healthy condition, in terms of the GCG aspect of Islamic commercial banks in 2017-2021 is in a healthy condition, in terms of aspects Erning with ROA and NIM ratios for Islamic commercial banks in 2017-2021 is in a very healthy condition, in terms of Capital aspect with CAR ratios for Islamic commercial banks in 2017-2021 in very healthy condition.