Country-level Corporate Governance Research Articles

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.

The Effect of Financial Innovation on Bank Profitability: Assessing the Role of Country-Level Corporate Governance in Asian Countries

The Effect of Financial Innovation on Bank Profitability: Assessing the Role of Country-Level Corporate Governance in Asian Countries

Do sustainability ethics explain the impact of country-level corporate governance on financial stability in developing economies?

ABSTRACT The study presents an empirical evidence on how sustainability ethics affect the relationship between country-level corporate governance and financial stability in developing countries. Employing the dynamic system Generalized Method of Moments on a panel dataset of 137 developing countries over the period, 2006–2019, the study found that the positive effect of country-level corporate governance framework on financial stability is not instantaneous. We find that internal and external corporate governance frameworks have a strong positive synergistic effect on financial stability. We confirm that corporate governance measures substitute sustainability ethics to yield a desirable outcome of financial stability. Finally, the study finds evidence to support that sustainability ethics reduce the negative impact of country-level corporate governance on financial stability. The study recommends that the build-up of quality sustainability ethics can help tame the reductive effect of the country-level corporate governance framework on financial stability in developing countries.

Impact of Country Level Corporate Governance on Profitability of Banks in India

In the recent years, there has been an uptick in the level of concern over corporate governance. This is mostly attributable to the widespread collapse of major corporations in both the local and international arenas. Both proactive and reactive actions have been adopted by governments in reaction to the growing number of instances of financial crisis in an effort to achieve stability in the sector. Nevertheless, the stability of banking operations continuesto be questionable despite the interventionist responsibilities played by the government. The primary objective of this research is to investigate the effect that corporate governance at the national level has on the profitability of Indian banks using a representative sample of 33financial institutions, including 21private and 12 public banks. Descriptive statistics, correlation analysis, and regression analysis of two-way variable intercept random effect model, and robustness checks including robust regression are utilized in the study. The purpose of study is to assess; via the use of empirical research methods, the impact that good corporate governance has on the profitability of the banking sector in India. Return on Equity (ROE), Return on Assets (ROA)and Net Interest Margin (NIM)were accepted as proxies for profitability in the banking industry.The empirical evidence presented in the paper demonstrates that good corporate governance has a considerable influence on the profit performance of the Indian banking sector. In the context of India's status as a developing economy, this study offers new research that establishes a relationship between country-level corporate governance and the profitability of banking institutions.

Empirical analysis of the impact of country-level corporate governance on starting a business in Asian countries

The purpose of this study is to investigate the impact of corporate governance on starting a business in some Asian countries over a period from 2012 to 2017. Nine Asian countries on the basis of availability of data for the research period were selected for this study. Corporate governance is measured by the Worldwide Governance Indicators of the World Bank and starting a business is measured by the score of starting business reported by the Ease of Doing Business Report of the World Bank Group. The findings of the present study reveal that voice and accountability, political stability and absence of violence and regulatory quality have statistically significant effect on starting a business in the selected countries. While both political stability and absence of violence and regulatory quality are found to have statistical significant positive influence on starting a business, voice and accountability exhibits a significant negative effect on starting a business. However, the results reported that both government effectiveness and control of corruption exhibit an insignificant negative effect on starting a business, rule of law is found to have an insignificant positive impact on starting a business.

Country-Level corporate governance and Foreign Portfolio Investments in Sub-Saharan Africa: The moderating role of institutional quality

Country-Level corporate governance and Foreign Portfolio Investments in Sub-Saharan Africa: The moderating role of institutional quality

Board gender diversity, firm performance and corporate financial distress risk: international evidence from tourism industry

PurposeThis paper examines contextual factors that affect the association between board gender diversity and firm performance.Design/methodology/approachThe authors use a global sample of listed firms in the tourism industry in 30 countries from 2015 to 2020.FindingsFirst, firm performance is positively associated with the proportion of female directors on a board. Second, the positive association between firm performance and the proportion of female directors on the board is higher in (1) countries with stronger shareholder rights, (2) countries with stronger securities law regulation stipulating disclosure of board diversity, (3) countries with stronger economic empowerment of women, and (4) during the COVID-19 crisis. Third, corporate financial distress risk is lower in firms with higher proportion of female directors on the board. Fourth, the negative association between corporate financial distress risk and the proportion of female directors on the board is more pronounced in (1) countries with stronger securities law regulations stipulating disclosure of board gender diversity, (2) countries with stronger economic empowerment of women, and (3) during the COVID-19 crisis.Originality/valueThe results indicate that contextual factors (comprising country-level corporate governance structures, economic empowerment of women and economic crisis) can affect the association between board gender diversity and firm performance.

Does global climate risk encourage companies to take more risks?

This paper employs a large international sample of 167,923 firm-year observations across 43 countries spanning 2001–2016 and finds that both annual and long-run climate risks have significantly positive impacts on corporate risk-taking, which is regarded as value-enhancing. Compared to long-run climate risk, annual climate risk plays a more dominant role. Moreover, we find high individualism and low uncertainty avoidance contribute to the positive effect of climate risk on corporate risk-taking. Compared to larger firms, smaller firms are more motivated to take on more risks when exposed to climate risks. Insurance provides protection for companies to take more risks. Also, country-level corporate governance is found to enhance the positive impacts of climate risks on corporate risk-taking. In addition, after taking endogeneity issues into account and conducting robustness tests, our primary conclusions remain.

Corporate Governance Spillover through Bootstrapping and ASEAN Bidder CBMA Success

This study aims to examine whether the difference in country-level corporate governance between ASEAN bidding and the target country could explain the performance change (Tobin’s Q) following a Cross-border merger and acquisition (CBMA); hence, the CBMA success. Using 142 CBMAs involving ASEAN firms as the bidder over the period 2002 to 2013, the study found that the difference in country-level corporate governance could result in corporate governance spillover through bootstrapping. This has resulted in the improvement of ASEAN bidder corporate governance and positively affected the CBMA success. However, the improvement must be large enough to outweigh the high acquisition cost.

Corporate governance features among European Union countries – an exploratory analysis

This study investigates European Union countriesí di§erences and similarities referring to corporate governance treated as (1) an external tool to overcome the conáict of interest described by the agency theory, and as (2) a result of an institutional environment. We conduct a cluster analysis and uncover an increased cross-country heterogeneity. Our Öndings might be of interest to European capital market investors. Differentiating between low-level corporate governance countries and high-level corporate governance countries may also be of regulatorsí interests who should search for other means to improve country-level corporate governance practices.

Foreign bank and banking stability in Africa: does strong and weak corporate governance systems under different regulatory regimes matter?

PurposeThe purpose of this paper is to examine the effect of foreign bank assets (FBA) and (FBP) presence is examined on banking stability in the economies with strong and weak country-level corporate governance (CLCG) in Africa between 2006 and 2015.Design/methodology/approachUsing a Prais–Winsten panel data model of 86 banks in about 30 African economies, findings on how FBA and presence influence banking stability in strong and weak corporate governance economies under different regulatory regimes are reported for the first in Africa.FindingsThe findings show that foreign bank presence (FBP) and assets promote banking stability. However, the positive effect of FBA and presence is enhanced in economies with strong CLCG, whereas the positive effect of FBA and presence is weakened in economies with weak CLCG. After introducing different regulatory regimes, it is observed that the enhancing effect of FBP and assets on banking stability in the full sample and economies with strong and weak CLCG systems is deepened or improved under the loan loss provision regulation regime. However, under the private and public sector-led financial transparency regulations, the reducing effect of FBP and assets on banking stability in economies with weak corporate governance systems is further dampened.Practical implicationsThese findings show that the relationship between FBP and assets is deeply shaped by corporate governance systems and regulatory regimes in Africa. Hence, policymakers must build strong corporate governance and sound regulatory regimes to enhance how foreign bank operations promote banking stability.Originality/valueThis study presents first-time evidence on how FBA and presence influence banking stability under strong and weak governance systems while considering different regulatory regimes.

Country-level corporate governance and lines of credit

Agency problems related to country-level investor protection are important determinants of corporate liquidity management. This paper extends the work of Dittmar, Mahrt-Smith, and Servaes (2003) on country-level governance effects on corporate liquidity but with a focus on line of credit. Since both line of credit and cash constitute integral elements of a company's liquidity policy, a complete understanding of how country-level governance affects liquidity management requires that we also examine its impact on firm-level utilization of line of credit. Using a large sample of international firms from 44 countries, we find that in economies where investor protection is strong, the likelihood and the magnitude of line of credit obtained is higher. We also show that the substitutability of the line of credit and cash holding is stronger in these countries. Our study implies that minority owners in countries with strong investor protection can force corporate managers to disgorge cash and increase their reliance on monitored liquidity through line of credit.

Foreign Bank Assets and Presence on Banking Stability in Africa: Does Strong and Weak Corporate Governance Systems under different Regulatory Regimes Matter?

This study examines the effect of foreign bank assets and presence on banking stability in the economies with strong and weak country-level corporate governance in Africa between 2006 and 2015. Employing a Prais-Winsten panel data model on 86 banks in about 30 African economies, the findings on how foreign bank assets and presence influence banking stability in strong and weak corporate governance economies under different regulatory regimes are reported for the first time in Africa. The initial findings show that foreign bank presence and assets promote banking stability. However, the positive effect of foreign bank assets and presence is enhanced in economies with strong country-level corporate governance, while the positive effect of foreign bank assets and presence is weakened in economies with weak country-level corporate governance. After introducing different regulatory variables (regimes), it is observed that the enhancing effect of foreign bank presence and assets on banking stability in the full sample and economies with strong and weak country level corporate governance systems is deepened or improved under loan loss provision regulation regime. However, under the private and public sector-led financial transparency regulations, the reducing effect of foreign bank presence and assets on banking stability in economies with weak corporate governance systems is further dampened. These findings show that the relationship between foreign bank presence and assets is deeply shaped by corporate governance systems and regulatory regimes in Africa. Hence, policymakers must build strong corporate governance and sound regulatory regimes to enhance how foreign bank operations promote banking stability.

Empirical Analysis of the impact of Country-Level Corporate Governance on Starting a Business in Asian Countries

Empirical Analysis of the impact of Country-Level Corporate Governance on Starting a Business in Asian Countries

Impact of country-level corporate governance on entrepreneurial conditions

The present study examines the effect of country-level corporate governance (CLCG) and Directors’ Liability (DL) on Entrepreneurial Framework Conditions (EFCs) across 52 countries from 2014 up to 2017 using balanced panel data and Panel Correction Standard Error estimation. The results revealed that the CLCG has a significant impact across EFCs dimensions. Further, the results declared that the impact of DL is significant and positive in countries that have a high score of DL, but this impact is statistically negative in countries that have a low score of DL. The findings have momentous implications for entrepreneurs, policymakers, regulators, international organizations, and academicians. The study makes novel contributions to the strand literature underpinning country-level governance and the role of directors’ liability with EFCs. It brings a useful insight into a previously undocumented area of research highlighting the importance of CLCG dimensions and DL as important factors and determinants for better entrepreneurial conditions.

Firm-level and Country-level Corporate Governance: Does One Substitute or Complement the Other?

In this paper, I examine whether firm-level and country-level corporate governance substitute or complement each other. In contrast to previous multi-country studies, I address this question using a within-country framework and show that the effect of firm-level corporate governance on performance decreased following major country-level investor protection reforms in Israel in 2011. Using a difference-in-differences design, I find that firms with poor governance prereform, reduced the volume (in NIS) and number of their related-party transactions and increased in value post-reform, thereby minimizing the differences between them and the wellgoverned firms. Moreover, using a two-stage approach I provide evidence that the decrease in the related-party transactions among the firms with the pre-reform poor governance was a possible channel for their post-reform increase in value. These findings are consistent with the substitution hypothesis. The rationale is that the reforms set a unified higher standard of investor protection that substituted for the governance mechanisms in the poorly governed firms. Accordingly, these firms curtailed shareholder expropriation and increased in value.

Country-level corporate governance and protection of minority shareholders’ rights

PurposeThis paper aims to examine how country-level corporate governance structures influence the level of protection of minority shareholders’ rights in the context of Africa.Design/methodology/approachData are collected from the world competitiveness report for the period 2010-2015. To examine the validity of the study’s hypotheses empirically, the authors use ordinary least squares with correlated panel-corrected standards error (PCSE).FindingsThis paper offers additional empirical evidence on the level of protection of minority shareholders’ rights in Africa. It highlights that country-level corporate governance structures such as efficacy of corporate boards, strength of investor confidence, regulations of securities exchanges and the operation of the Big 4 accounting firms have significant positive impacts on the level of protection of minority shareholders’ rights.Research limitations/implicationsThis paper fails to include all African countries because of non-availability of a report for some African countries. Thus, the findings on the level of protection of minority shareholders’ rights in a country are applicable to the countries used in this study.Practical implicationsThis paper emphasizes on the relevance of country-level corporate governance structures to ensuring a reasonable level of protection of minority shareholders’ rights.Originality/valueThis paper partially fills the gap regarding the absence of an empirical cross-country study on how country-level corporate governance structures influence the level of protection of minority shareholders’ rights.

Country-level corporate governance and foreign direct investment in Africa

PurposeThe purpose of this study is to examine the link between country-level corporate governance and foreign direct investment in African economies for the period 2009-2015.Design/methodology/approachThe authors use annual panel data of 40 African economies over the period of the study and use the system generalized method of moments (GMM) to establish the relationship between country-level corporate governance and foreign direct investment.FindingsThe authors find that African economies characterized by firms with high ethical values tend to attract a great deal of foreign direct investment. In addition, they highlight that when an economy is associated with effective corporate boards, it tends to attract much foreign direct investment. Further, this study reveals that the level of minority shareholders’ interests’ protection in an economy has a significant positive relationship with foreign direct investment. Finally, they document a negative relationship between effectiveness of regulation of securities and exchanges and foreign direct investment.Practical implicationsIt is advised that sound and implementable corporate governance structures devoid of political interferences should be put in place in African economies, if the aim of using foreign direct investment to mitigate poverty by 2015 as part of the Millennium Development Goals is to be attained.Originality/valueEmpiricists have devoted considerable effort to estimate the factors that influence the level of foreign direct investment into African economies without taking into consideration the corporate governance structures in these economies. However, this paper seeks to examine the relationship between country-level corporate governance structures and foreign direct investment in African economies.

Universal Corporate Governance

A widely accepted principle in finance is that good corporate governance is associated with higher firm value. However, what is “good governance” and whether the same set of good governance practices can be universally adopted are fiercely debated. In this paper, we construct various measures of firm- and country-level corporate governance, including a “global entrenchment index”. We then test their relation with firm value on a large sample of more than 20,000 firms across 47 countries. We find substantial heterogeneity in the relation between some governance practices—especially those related to corporate rules constraining insider entrenchment—and firm value across countries, which is contingent on firms’ ownership structure and institutional environments. In contrast, higher institutional ownership is unconditionally correlated with higher firm valuation. Our results cast doubt on the universality of rule-based corporate governance practices.

National corporate governance, GMI ratings and earnings management

PurposeThe purpose of this paper is to assess the association between country-level corporate governance and earnings management (EM). It aims to investigate whether the Governance Metrics International (GMI; acquired by Morgan Stanley Capital International in 2014) rating for national corporate governance on a country level is a significant explanatory variable for the country-level EM score or otherwise.Design/methodology/approachIn a sample of 280 country-year observations during the period from 2000 to 2009, the paper measures national corporate governance quality using GMI ratings scores and whether the corporate governance model is Anglo Saxon or otherwise.FindingsThe findings of this study show that corporate governance is a significant indicator of lower EM levels in a country.Practical implicationsCorporate governance rating firms play a vital role in public markets. GMI provides country-level corporate governance ratings to assess the quality of corporate governance in several countries. The findings of this study show preliminary evidence that GMI ratings of corporate governance provide good guidance to investors on the quality of corporate governance in a country.Originality/valueThis paper is the first empirical attempt to examine the association between country-level corporate governance, GMI ratings for country-level corporate governance and EM.