Effective Governance Mechanisms Research Articles

ПЕРСПЕКТИВИ РОЗВИТКУ КОРПОРАТИВНОЇ СОЦІАЛЬНОЇ ВІДПОВІДАЛЬНОСТІ В СИСТЕМІ ПУБЛІЧНОГО УПРАВЛІННЯ

Intensive development of technologies, international relations, promotion of democratic values and implementation of effective governance mechanisms in public administration in Eastern Europe forms new trends in public life, entrepreneurship, public sphere and local self-government. The desire for sustainable development forces not only business organizations to change. At the same time, the institutions of public power are being transformed. Social responsibility extends to all spheres of public life. Corporate social responsibility of business, having one of the stakeholders as institutions of public administration, promotes the development of public-private partnership, activation of civil society, as well as gradually implemented in the activities of public authorities. Revision of the principles of the organization, taking into account stakeholders, including staff, becomes inherent in the public sector. The combination of the country's development strategies, the pursuit of sustainable development goals, public administration reform and local self- government are becoming key factors in the comprehensive and systematic development of corporate social responsibility in the public administration system. The article examines the fundamental content of corporate social responsibility in general, as well as the specifics and perspectives of its implementation in the activities of public administration and state enterprises.

The impact of board of directors’ characteristics and remuneration on companies’ performance in Malaysia

This study aims at investigating the impact of board size, board independence, CEO duality, board gender diversity and board remuneration on the performance of public listed firms in Malaysia. Using the fixed effect and random effect models, the result showed that board independence and board remuneration have positively influenced firm performance respectively to ROA and TQ. However, board gender diversity was negatively associated with ROA. These results imply that higher number of board independence and higher amount of board remuneration can enhance firm performance. Though the Malaysian Code of corporate governance, the importance of having more female on board with the quota of 30% has been stressed with the result apparently presented that many female representations on the board may not enhance but deteriorate firm performance. The result of this study supported the notion of board remuneration and board independence that act as effective governance mechanisms to mitigate agency cost. With these results, firms must carefully design the director remuneration and determine appropriate numbers of independent director and female director on the board since they can influence firm performance.

PENGARUH CORPORATE SOCIAL RESPONSIBILITY DAN CORPORATE GOVERNANCE TERHADAP AGRESIVITAS PAJAK

This study aims to find out the influence of corporate social responsibility (CSR) and corporate governance (CG) with tax aggressiveness. Sample in this study is 42 with criterias: companies in Indonesia whichprovide sustainability reports in 2014 and obtain positif profit. Analysis were conducted byusing multiple regression analysis. The result shows that CSR significantly influencetax aggresiveness. The more extensive CSRdisclosures, it seems that companies tend to be more aggressive in applyingtax. On the other hand, this study finds that corporate governance (CG) does not significantly influence tax aggressiveness. A good corporate governance score doesnot mean an effective corporate governance mechanism in combating un ethical behavior of managers in managing taxes.

Do politically connected independent directors create or destroy value?

We investigate whether politically connected independent directors (PCIDs), compared with other independent directors, create or destroy firm value and the channels through which they create or destroy firm value. Based on an exogenous regulatory change, we find that PCIDs—especially high level PCIDs—destroy firm value compared with non-PCIDs. The value-destroying effect is a net effect of: (i) PCIDs are less effective than non-PCIDs in monitoring managers, (ii) PCIDs do not differ from non-PCIDs in monitoring controlling shareholders, and (iii) PCIDs can divert political resources to a firm. However, PCIDs' value-destroying effect can be attenuated by effective external governance mechanisms (i.e., high levels of marketization and analyst coverage). Our results make a significant contribution to the literature and have important policy implications.

Differential Effects of Bilateral Norms on SMEs’ Export Relationships: A Dynamic Perspective

Prior research has established the pivotal role of bilateral norms in relationship marketing, identifying them as effective relational governance mechanisms that firms can use to manage their international alliances with overseas intermediaries. Unfortunately, few studies have examined differential effects of specific norms on positive and negative behaviors, let alone norms’ effectiveness in the harsh export context of resource-constrained small and medium-sized enterprises (SMEs). To address these gaps, the authors explicate the effects of three norms (continuity expectations, equity, and cooperation) on both dysfunctional and productive behaviors of foreign distributors. Using two consecutive data collections, the results indicate that norms curb importer opportunism and help improve importer role performance and that continuity expectations and cooperation increase the chances of the survival of export ventures. The study further scrutinizes relational norms’ effects on opportunism in the context of exporting SMEs’ realities and tests relevant moderating effects. The findings indicate that while exporter dependence reduces the shielding effect of norms against opportunism, psychic distance and competitive intensity strengthen the protecting effect of relational norms. The results of this study underscore the heterogeneous nature of relational norms and suggest that norms such as continuity expectations play a leading role in structuring the ideology of a business dyad.

Promoting equitable global health research: a policy analysis of the Canadian funding landscape

BackgroundRecognising radical shifts in the global health research (GHR) environment, participants in a 2013 deliberative dialogue called for careful consideration of equity-centred principles that should inform Canadian funding polices. This study examined the existing funding structures and policies of Canadian and international funders to inform the future design of a responsive GHR funding landscape.MethodsWe used a three-pronged analytical framework to review the ideas, interests and institutions implicated in publically accessible documents relevant to GHR funding. These data included published literature and organisational documents (e.g. strategic plans, progress reports, granting policies) from Canadian and other comparator funders. We then used a deliberative approach to develop recommendations with the research team, advisors, industry informants and low- and middle-income country (LMIC) partners.ResultsIn Canada, major GHR funders invest an estimated CA$90 M per annum; however, the post-2008 re-organization of funding structures and policies resulted in an uncoordinated and inefficient Canadian strategy. Australia, Denmark, the European Union, Norway, Sweden, the United Kingdom and the United States of America invest proportionately more in GHR than Canada. Each of these countries has a national strategic plan for global health, some of which have dedicated benchmarks for GHR funding and policy to allow funds to be held by partners outside of Canada. Key constraints to equitable GHR funding included (1) funding policies that restrict financial and cost burden aspects of partnering for GHR in LMICs; and (2) challenges associated with the development of effective governance mechanisms. There were, however, some Canadian innovations in funding research that demonstrated both unconventional and equitable approaches to supporting GHR in Canada and abroad. Among the most promising were found in the International Development Research Centre and the (no longer active) Global Health Research Initiative.ConclusionPromoting equitable GHR funding policies and practices in Canada requires cooperation and actions by multiple stakeholders, including government, funding agencies, academic institutions and researchers. Greater cooperation and collaboration among these stakeholders in the context of recent political shifts present important opportunities for advancing funding policies that enable and encourage more equitable investments in GHR.

How do Independent Directors Influence Corporate Risk‐Taking? Evidence from a Quasi‐Natural Experiment

AbstractMotivated by agency theory, we explore the effect of independent directors on corporate risk taking. To minimize endogeneity, we exploit the passage of the Sarbanes–Oxley Act as an exogenous shock that raises board independence. Our difference‐in‐difference estimates show that board independence diminishes risk‐taking significantly, as evidenced by the substantially lower volatility in the stock returns. In particular, board independence reduces total risk and idiosyncratic risk by 24.87% and 12.60%, respectively. The evidence is consistent with the notion that board independence represents an effective governance mechanism that prevents managers from taking excessive risk. Additional analysis based on propensity score matching also confirms our results. Our research design is based on a natural experiment and is far more likely to show causality, rather than merely an association.

Corporate Board Structure and Foreign Equity Investments in Weak Institutional Regimes

This study explores how corporate board structure gives the ability to firms to attract foreign equity investments in economies affected by weak institutional regimes taking India as the experimental setup. Concentrated ownership, along with the absence of effective external governance mechanisms, weak legal enforcement and pervasive corruption, resulted in the aggravation of Type II agency problems in these countries. Moreover, the increased presence of controlling owners on corporate boards exerts significant influence thus increasing the severity of the said agency problem. Using a sample of large publicly listed Indian firms between the periods 2010–2014, our study reveals that in a setting where institutional framework is not well developed and Type II agency problems are believed to exist in a large measure, the board plays a vital role to inform foreign investors about possible chances of being expropriated which influence their investment decisions in terms of having equity ownerships in firms.

Mitigating Effects of Gender Diverse Board in Companies with Aggressive Management

Prior literature posits that overconfident managers pursue aggressive investment and risk-taking strategies, and effective governance mechanism can help to restrain such behavior. We examine whether gender-diverse board helps to mitigate negative impacts of overconfident managers, and consequently improve firm performance. Specifically, we argue that women directors have different viewpoints and skill sets vis-a-vis their male counterparts – qualities that are necessary to achieve a more nuanced approach to corporate decision-making in an otherwise aggressive boardroom setting. Using data on 1500 S&P firms we find support for our main hypothesis. Further, we find that presence of only independent women director – neither gray nor insider – drives our result. Also, interestingly, we find that the positive effects of a gender-diverse board in companies headed by overconfident managers are limited to the only pre-SOX period and only limited to those firms that were SOX-non-compliant prior to the passage of SOX. Our results imply that implementing simpler governance-improving mechanism rather than imposing elaborate regulation may be in many cases equally effective in achieving desirable changes in management behavior.

How Do Independent Directors Influence Corporate Risk-Taking? Evidence from a Quasi-Natural Experiment

Motivated by agency theory, we explore the effect of independent directors on corporate risk taking. To minimize endogeneity, we exploit the passage of the Sarbanes–Oxley Act as an exogenous shock that raises board independence. Our difference‐in‐difference estimates show that board independence diminishes risk‐taking significantly, as evidenced by the substantially lower volatility in the stock returns. In particular, board independence reduces total risk and idiosyncratic risk by 24.87% and 12.60%, respectively. The evidence is consistent with the notion that board independence represents an effective governance mechanism that prevents managers from taking excessive risk. Additional analysis based on propensity score matching also confirms our results. Our research design is based on a natural experiment and is far more likely to show causality, rather than merely an association.

Governance Through Contract and the Environmental Impact of Supply ChainssStill Waiting for a Rana Plazaa Moment of Global Recognition

Most recent focus on supply chain governance mechanisms has been on contractually organized supply chains from business (e.g. cost management or R&D) or labor perspectives. Relatively little focus has been on the governance of environmental contingencies in contractually organized supply chains. In this paper I argue that recent developments in contractual governance mechanisms, such as the Accord on Fire and Construction Safety in Bangladesh, would provide functional examples for implementing effective supply chain wide governance in relation to environmental contingencies such as scope 3 emissions. A key requirement of any effective governance mechanism is representation. In business to business contexts, such as supply chain wide cost management or R&D, supply chain companies would have an interest in participating in any governance mechanism. In labor context, labor representatives ditto. With such contractual representation, a key additional motivating factor for effective governance is that it may allow lead firms to use contractual governance mechanisms not only to extend effective governance but also to control the liabilities potentially arising out of this extended governance. Without such control, the added governance may translate to major tortious liabilities that are not easily mitigated. However, in environmental contexts the question of representation is more challenging. Environmental NGOs and other similar actors could be seen as potential representatives that increase the legitimacy of environmental governance through their participation as parties to governance contracts. However, they typically do not have power to bind environmental interests in a way that would allow lead firms to control any environmental liabilities arising out of their governance efforts. While this may be offset by the current challenges of tort litigation in relation to scope 3 emissions, the situation is bound to change with the development of climate tort litigation. The question then becomes to what extent the increased legitimacy derived from incorporating NGOs or other actors representing environmental interests can be used to counter the increased liabilities arising from supply chain wide governance of scope 3 emissions, or whether other factors, such as positive image effects or regulatory requirements could offset any new liabilities. In sum, the effective governance of environmental contingencies, in particular scope 3 emissions, is very much possible in global supply chains following recent developments in contractual governance mechanisms. Involving actors such as environmental NGOs as parties in contractual governance mechanisms might help in this regard. From a lead firm perspective, the key challenge is balancing the liabilities potentially ensuing from such governance in a way that makes the implementation of effective governance attractive.

Do Investors Care About Director Tenure? Insights from Executive Cognition and Social Capital Theories

Governance scholars debate the value of directors as an effective governance mechanism. We suggest that this value varies with director tenure. We study both how shareholder assessments of the value of individual directors vary with director tenure and whether director tenure actually makes a practical difference to governance effectiveness. Using data from abnormal stock price reactions to the sudden deaths of 274 outside directors, and integrating executive cognition and social capital perspectives applied to the dual roles of director monitoring and advising, our results confirm a curvilinear relationship between the assessed value of directors and tenure. We find that directors are more highly valued by investors over a tenure period between 7 and 18 years, moderated by director involvement on key committees. Further, in examining the S&P 1,500, we find that a one standard deviation increase in the percentage of outside directors in this prime tenure period strengthens the CEO pay-performance linkage by 2.5%, suggesting that directors in this tenure period are more effective in aligning CEO and shareholder interests. Our results demonstrate that individual director tenure makes a difference in governance effectiveness, and shareholders accurately assess this difference. Additionally, our findings provide important boundary conditions for when theories of executive cognition and social capital may be more/less applicable regarding director tenure.

Governance and Adaptation to Innovative Modes of Higher Education Provision (GAIHE)

The Governance and Adaptation to Innovative Modes of Higher Education Provision (GAIHE) project tackles one main area for reforms of the EU2020 strategy, namely to create effective governance mechanisms in support of excellence. The emergence of these new modes of provision has sparked a strong debate about how to maintain the quality of higher education worldwide. As such, this project ties in with the European Commission’s objectives to enhance the quality of higher education in an environment where globalisation and the attractiveness of the European higher education area need to be reinforced (Europa 2010, 34).

Investment decisions and bank loan contracting

PurposeThe purpose of this paper is to examine how a firm’s investment behavior relates to its subsequent bank loan contracting.Design/methodology/approachUsing a sample of US firms during the period 1992-2011, the authors examine the association between overinvestment (underinvestment) and three characteristics of bank loan contracts: loan spread, collateral requirement, and loan maturity.FindingsThe authors find that overinvesting firms obtain loans with higher loan spreads. Additional tests show that the effect of overinvestment on loan spreads is generally more pronounced in firms with lower reputation, weaker shareholder rights, and lower institutional ownership. The effect of overinvestment on collateral requirement is mixed, and investment efficiency has no significant relation to loan maturity.Research limitations/implicationsThe results are subject to the following caveats. First, while the study provides empirical evidence that investment efficiency affects bank loan contracting terms, especially the cost of bank loans, the underlying theory is not well-developed. The authors leave it up to future research to provide a theoretical framework to clearly distinguish the cash flow and credit risk effects of past investment behavior from those of existing agency conflicts. Second, due to data limitation, the sample size is small, especially when the authors control for corporate governance measured by G-index and institutional ownership.Practical implicationsThe finding that overinvestment is costly to corporations suggests that managers should consider the potential trade-offs from such investment decisions carefully. The evidence also alerts shareholders and board members to the importance of monitoring management investment decisions. In addition, the authors find that corporate governance moderates the relationship between investment decisions and cost of bank loans, suggesting that it would be beneficial to design effective governance mechanisms to prevent management from empire building and motivate managers to pursue efficient investment strategies.Originality/valueFirst, the findings enhance understanding of the potential economic consequences of overinvestment decisions in the context of a firm’s private debt contracting. The evidence suggests that lenders perceive higher credit risk from overinvestment than from underinvestment, likely because firms squander cash in the current period by investing in (negative net present value) projects that are likely to result in future cash flow problems. Second, the study contributes to the literature on the determinants of bank loans by identifying an observable empirical proxy for uncertainty in future cash flows that increases credit risk.

Strategic role of corporate transparency: the case of Ukrainian agroholdings

The paper argues that transparency of large corporate farms operating in transition economies is the factor that affects their competitive position as it helps to preserve access to international equity markets and to reduce uncertainty that arises from imperfect local input markets. We demonstrate that the corporate transparency of large farms is an issue of both public interest and private investor interest and decompose the construct of transparency respectively. Because firms tend to exhibit heterogeneous transparency strategies when facing common sets of pressures, we draw upon four case studies of different Ukrainian agroholdings using the suggested decomposition of the transparency construct. We find that large farms may benefit substantially in the long run if they establish effective corporate governance mechanisms and provide more evidence that they contribute positively to corporate social responsibility and rural development.

CEO Overconfidence and Fair Value Reporting-the Moderating Effect of Corporate Governance

This project examines whether CEO overconfidence affects firm's fair value reporting. Moreover, prior literature indicates effective corporate governance mechanisms ameliorate the adverse impact of CEO overconfidence. Thus, this paper further investigates whether effective corporate governance will mitigate the association between CEO overconfidence and level 3 fair values. Using a US sample drawn from 2008 to 2011, the results of this paper show that firms with higher CEO overconfidence report more Level 3 fair values and gains from Level 3 fair values. The results also indicates that the positive relationship between higher CEO overconfidence and Level 3 fair values reporting is attenuated for firms with high corporate governance.

Intellectual Capital: A Review from the Literature

Purpose - The purpose of this paper is to get a clear concept about intellectual capital and reports on intellectual capital in different entities based on the literature review. Research design, data, and methodology - This study was mainly written in a way of descriptive research. The current studies deal with the theoretical and reporting aspects on intellectual capital. Thus, this research is developed on the basis of previous descriptive and empirical research papers. Results - This study finds that intellectual capital is the combination of human capital, structural capital and relational capital but there is no unique measurement system or process to define intellectual capital. The findings also indicates that the measurement for intellectual capital varies based on the measurement process, time period, firms, industries and country to country perspectives. It can be also observed that firms have the tendency not to disclose the intellectual capital information. Conclusions - This study recommends that intellectual capital should be presented in a fixed format and human, relational and structural capital should be included as intellectual capital. Additionally, it suggests that mandatory requirement of legislation, effective corporate governance mechanism and stock exchange listing requirement might increase the quality of intellectual reporting.

Anti-misconduct policies, corporate governance and capital market responses: International evidence

Using a sample of 5486 observations from 25 countries between 2009 and 2013, we investigate the signaling effects of anti-misconduct policies on market valuation, and address the roles played by internal corporate governance mechanisms and external institutional environments. The results show that effective corporate governance mechanisms lead to higher-quality anti-misconduct policies. Furthermore, we find that although anti-misconduct policies alone do not affect market valuation in general, they do improve market valuation in countries with stronger legal and regulatory environments.

Controlling shareholders’ ownership structure, foreign investors’ monitoring, and investment efficiency

This study examines the effect of control-ownership wedge (the difference between control rights and cash flow rights) on investment efficiency. Subsequently, the authors analyze how the level of foreign investor monitoring influences the association between control-ownership wedge and investment efficiency. The results of the analyses show that investment efficiency deteriorates as control-ownership wedge increases. This, in turn, suggests that when this wedge increases, agency problems and information asymmetry between controlling and minority shareholders become more severe. The authors also perform an analysis by dividing the samples into four groups based on foreign investor ratio from the least to the greatest. The result shows that control-ownership wedge deteriorates investment efficiency in the group with the least foreign investor ratio. The result reveals that foreign investor monitoring is effective corporate governance mechanism to monitor the controlling shareholders’ investment decisions. We also find that higher control-ownership wedge with over-investment tendency negatively affects firm performance, which implies an inefficient investment behavior. This result suggests that as controlling shareholders’ ownership increases, controlling shareholders becomes more and more reluctant to assume a loss of firm value as a result of reduced investment efficiency. This study provides additional evidence that the greater control-ownership wedge decreases investment efficiency, while recent studies on the relation between control-ownership wedge and investment efficiency suggest mixed evidence. In addition, the results show that foreign investors play an effective monitoring role when controlling shareholders are in position of exercising exclusive power. The results indicate the importance of external investors’ monitoring over investment decisions. Keywords: control-ownership wedge, foreign ownership, investment efficiency, over-investment, under-investment. JEL Classification: G32, M41

Corporate Governance of SOEs and Performance in Transition Countries. Evidence from Lithuania

This paper investigates whether and to what extent corporate governance mechanisms affect the efficiency of State Owned Enterprises (SOEs) operating in transition economies. Furthermore, it examines the relationship between corporate governance practice and its impact on both wholly state run SOEs and majority state run SOEs. We employed a unique dataset of corporate governance ratings (related to quality of transparency, quality of board, and quality of strategic planning, implementation and control) of commercial Lithuanian SOEs relating to the period following the introduction of the corporate governance reforms in the years 2012-2013. In order to investigate our research hypotheses, we set-up a two stage empirical research strategy that combined a non-parametric efficiency estimator (i.e., Data Envelopment Analysis) with a bootstrapped truncated regression. We built two aggregate indexes of corporate governance ratings to represent one dimension of corporate governance quality. We then ran a battery of regressions using both the aggregated and the single corporate governance indexes as independent variables. First, the paper finds that the wholly state ownership model of SOEs is positively correlated to efficiency (i.e., wholly SOEs are more efficient than majority SOEs). Moreover, overall corporate governance practices are efficiency-enhancing; more specifically, board quality and strategic planning seem to be effective internal governance mechanisms in promoting overall organizational efficiency. Interestingly, we uncovered that there exists a relationship between concentration of ownership and corporate governance practices, but this mitigated efficiency enhancement in wholly state run SOEs compared to majority state run SOEs. This effect was driven by the lower quality of the board. Overall, our findings illustrate that corporate governance reforms have enhanced efficiency, but wholly SOEs require a better implementation in order to achieve full efficiency gains.