Corporate Governance Ratings Research Articles

Italian corporate governance rating model: Is it useful in testing all types of corporate governance?

In our empirical analysis the evidence found fully reflects the theoretical characteristics studied in small and medium-sized enterprises rather than large enterprises. The dominant role of the shareholder in small and medium-sized enterprises and the type of ownership composition and structure are fundamental. The analysis of multi-case studies, also, explains the higher scores obtained from the listed companies under the heading of Shareholders protection. These enterprises should be able to provide the means to communicate and should have greater ability to protect shareholders

An Empirical Analysis on the Association between Corporate Governance Rating and Firms’ Characteristics: Evidence from MAI Thailand

An Empirical Analysis on the Association between Corporate Governance Rating and Firms’ Characteristics: Evidence from MAI Thailand

Corporate Governance Quality and CSR Disclosures

Given the increasing importance attached to both corporate social responsibility (CSR) and corporate governance, this study investigates the association between these two complimentary mechanisms used by companies to enhance relations with stakeholders. Consistent with both legitimacy and stakeholder theory and controlling for industry profile, firm size, stockholder power/dispersion, creditor power/leverage, and economic performance, our analysis of the annual reports for a sample of 222 listed companies suggests that firms providing more CSR information: have better corporate governance ratings; are larger; belong to higher profile industries; and are more highly leveraged. Our findings support the limited prior research suggesting a link between corporate governance quality and CSR disclosure in company annual reports and suggest that, rather than mandating specific disclosures, regulators might be better served focussing on corporate governance quality as a way of increasing CSR disclosures.

Creating value through governing IT deployment in a public/private-sector inter-organisational context: a human agency perspective

Harnessing value from Information Technology (IT) has long been a focus of research, but evidence is lacking about how effective practice of Information Technology Governance (ITG) contributes to creating value for stakeholders in inter-organisational contexts. This is especially so for public/private sector partnerships. In this study we used ISO/IEC 38500:2008, the corporate governance of IT standard, to direct analysis of how ITG was practised in deployment of a large IT project in an inter-organisational public/private sector context. The findings demonstrate that ITG strategies related to human agency contribute to the realisation of value for participating stakeholders, particularly through pre-emptive stakeholder participation in evaluating IT functionality of the old system and iteratively in deployment of the new system. Further, our investigation shows that ISO/IEC 38500:2008 has merit as an analytical framework to objectively evaluate corporate governance of IT, although there is need for some enhancement.

Does Working Capital Affect Corporate Profitability?

We examine the determinants of corporate profitability for publicly listed Australian firms by using three measures of corporate profitability, namely, net profit, economic value added and return on assets. Through dynamic panel estimation, we test the determinants of corporate profitability. Using panel least squares and median regression, we control for sectoral effects and conclude that the determinants of corporate profitability varies across Australian sectors. By controlling firm’s fundamentals (working capital, corporate governance ratings and performance), we find evidence supporting that the determinants of corporate profitability of firms in extreme portfolios are heterogeneous. We report that firms with the worst working capital deficit and poor corporate governance ratings exhibit negative debt ratio. We document that profitable firms hold positive cash holdings, whereas non- profitable firms hold negative cash holdings.

Seasonal Anomalies: A Closer Look at the Johannesburg Stock Exchange

We examine seasonal anomalies in Johannesburg daily stock returns from January 1973 to September 2012. This paper focuses on three seasonal effects: day-of-the-week, beginning-of-the-month and month-of-the-year. We found no compelling evidence for either a January or December effect in the South African market. Instead, our results support the presence of strong Monday and Tuesday effects, whereby the returns on Monday and Tuesday are significantly lower than the return on the benchmark day of Wednesday. Moreover, the beginning-of-the-month effect is quite pronounced in which second and third trading day returns are significantly larger than returns in other trading days. Nevertheless, these strong day-of-the-week and beginning-of-the-month seasonal effects disappear in the post-2008 period following the global financial crisis. It appears that the South African stock market may have filtered out seasonal anomalies and become more efficient in the aftermath of the recent global financial crisis. Keywords: Seasonal anomalies, market efficiency, global financial crisis, Johannesburg Stock Exchange JEL Classifications: G14, C12 To cite this document: Hsin-An Su, Chin Hsien Hsieh, Chih-Yang Chang, and Fengyi Lin "Corporate Governance Rating System in Taiwan with Multi-Criteria Decision Making Methods", Contemporary Management Research, Vol.9, No.1, pp.3-12, 2013. Permanent link to this document: http://dx.doi.org/10.7903/cmr.10629

Corporate Governance Rating System in Taiwan with Multi-Criteria Decision Making Methods

governance has been the subject of extensive research due to high-profile scandals associated in well-known companies. Examining the existed governance rating system in Taiwan, we find that little attention has been paid to the role of corporate governance rating systems and the rating scores are poor predictors in predicting the multiple dimensions of firm performance. This study proposes to use multi-criteria decision-making methods, notably SAW, TOPSIS, and VIKOR, as refined scoring models for a corporate governance rating system. The results show that VIKOR, for its ability to obtain more precise scores, outperforms both the existing methodologies and the other two MCDM approaches. Keywords: Governance, Multi-Criteria Decision Method, Related-Party Transaction To cite this document: Hsin-An Su, Chin Hsien Hsieh, Chih-Yang Chang, and Fengyi Lin Corporate Governance Rating System in Taiwan with Multi-Criteria Decision Making Methods, Contemporary Management Research, Vol.9, No.1, pp.3-12, 2013. Permanent link to this document http://dx.doi.org/10.7903/cmr.5510

Influence of the Environmental, Social and Corporate Governance Ratings on the Economic Performance of Companies: An overview

Over the past years there has been a significant growth in corporate reporting of environmental,social and corporate governance (ESG) factors. This study assesses whether ESG ratings are related to firmperformance. Through a multivariate analysis we have confirmed differences between the ESG scores used toevaluate environmental, social and corporate governance factors of rated companies. We checked that although there is a significant correlation between them, companies do not rank equally and therefore their economic results might vary among the indicators. We found that selected US companies in the bottom 25% (Worst In Class, termed WIC) of their industries according to ESG scores perform significantly better than those in the top 25%, (Best In Class, termed BIC). We also found that BIC companies have significant higher revenue per employee and cash flow per share compared the industry medians. Attending to these results, it seems that extreme strategies on ESG issues produce better economic results than those strategies that are in line with the industry.

Corporate Governance Practices: Dissemination on Turkish Web Sites

As Information and Communication Technologies (ICTs) evolve, we have started to feel their significant impact on our professional lives. Recent corporate scandals in developed economies have also underscored the importance of adopting appropriate corporate governance practices. This study aims to explore web site design and content features of Istanbul Stock Exchange (ISE) listed firms. While our analysis has revealed that the utilization of design features and the type and extent of the corporate information content do not differ much among the studied industries, we found some statistical differences based on Corporate Governance Ratings (CGRs). Turkish firms seem to be in their early stages of using ICTs in corporate governance practices.

Which Does More to Determine the Quality of Corporate Governance in Emerging Economies, Firms or Countries?

Scholars of corporate governance have debated the relative importance of country and firm characteristics in understanding corporate governance variation across emerging economies. Using panel data and a number of model specifications, we shed new light on this debate. We find that firm characteristics are as important as and often meaningfully more important than country characteristics in explaining governance ratings variance. These results suggest that over recent years firms in emerging economies had more capability to rise above home-country peer firms in corporate governance ratings than has been previously suggested. In fact, 16.8% percent of firms in emerging economies have been able to exceed the 75th percentile of corporate governance ratings in developed economies and 45.5% of firms in emerging economies have been able to exceed the 50th percentile of corporate governance ratings in developed economies.

Understanding the Determinants of RiskMetrics/ISS Ratings of the Quality of UK Companies' Corporate Governance Practice

AbstractWe examine the determinants of RiskMetrics/ISS Ratings of the quality of UK companies' corporate governance practice and investigate whether corporate governance mechanisms and firm specific characteristics affect these ratings. We also investigate the association between firms' financial distress and these ratings. Using data for nonfinancial Financial Times Stock Exchange (FTSE) 250 firms over the 2003 to 2009 period, we find that board independence, managerial ownership, institutional ownership, firm size, and profitability are associated with firms' corporate governance ratings. In addition, we find that more independent directors on the board, more institutional ownership, and larger size lead to a high level of board‐related ratings. Finally, we find no association between corporate governance ratings and financial distress. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.

An Empirical Examination of the Relationship between Corporate Governance Ratings and Listed Companies’ Performance

This study examines the relationship between corporate governance ratings and firm performance, includingboth a global measure of corporate governance and four sub-indices corresponding Audit, Board Structure,Shareholder Rights and Compensation, provided by Institutional Shareholder Services (ISS). The corporategovernance ratings represent a proper approximation of the quality of corporate governance practices from insidethe companies. This fact determines the investors which seek to hold shares in certain companies for a long termto be interested in the quality of corporate governance practices related to those companies. Using thecross-sectional multiple linear regression model for a random sample of 155 U.S. companies listed at New YorkStock Exchange, NASDAQ and NYSE Amex Equities, belonging to twenty industries, in 2011, our researchemphasizes a negative relationship between corporate governance global rating and firm performance. Also, wefind a negative relationship between corporate governance sub-indices and firm performance, with someexceptions. However, when we removed the companies from financial and real estate sectors, respectively 29companies, resulting another sample of 126 companies, the results support the same findings. This study revealsthat the commercial corporate governance ratings, like Governance Risk Indicators (GRId), provided byInstitutional Shareholder Services (ISS) are affected by measurement errors. This research is important to theshareholders and investors globally, who are using commercial corporate governance ratings, in order to identifyand quantify the risks of their investments. Our study suggests that shareholders and investors should not baseentirely on commercial corporate governance ratings in their investment decisions, because they couldn’t takethe proper investment decision each time.

Does Competition Matter for Corporate Governance? The Role of Country Characteristics

We investigate the empirical relation between competition and corporate governance and the effect of country characteristics on this relation. We find that competition is associated with lower corporate governance ratings in developed countries. In developing countries, firms from competitive industries have, on average, higher corporate governance ratings than firms from less competitive industries. We next examine the impact of corporate governance on firm value. We show that corporate governance is positively associated with greater firm value, but only in less competitive industries from developed countries. For developing countries, the evidence suggests that corporate governance is valuable mostly in competitive industries.

Beta-convergence and sigma-convergence in corporate governance in Europe

This paper tests for beta-convergence and sigma-convergence in the corporate governance models, using a sample of corporate governance ratings for 198 European corporations listed on the FTSE Eurofirst 300 index. A piecewise linear regression is deployed to select a model and the Poisson pseudo-maximum likelihood estimator is also applied to estimate an exponential model. It concludes that there is statistical evidence of beta- and sigma-convergence within countries and the results suggest that institutional differences between countries are statistically relevant.

Commercial corporate governance ratings: an alternative view of their use and impact

The rise in the popularity of commercial corporate governance ratings is at once a source of dismay and a cause for alarm: the former because they do not appear to give accurate predictions of corporate performance and the latter because they add to the pressure on corporations to adapt their governance structures to a benchmark model that takes no account of the conditions in which they operate. This paper gives an alternative view of the potential use and impact of the commercially marketed governance ratings. It argues that their importance to institutional investors lies in providing them with information that accurately summarises corporate loyalty to shareholders rather than accurately predicts corporate performance. It goes on to argue that the commercial governance ratings can bring benefits to an economy by contributing to a new type of managerial control mechanism that is not only more efficient than hostile takeovers and stock options but also helps to reduce the governance role of these instruments.

Does payment method matter in cross-border acquisitions?

In this study, we focus on 1300 completed deals (545 cross-border and 755 domestic deals) by Canadian acquirers between 1993 and 2002 to examine the effect of payment methods in the context of cross-border M&A deals. Our results show a significant and positive effect for stock-financed deals in the cross-border acquisitions. This result is robust to a set of commonly used control variables in the literature. In order to find a justification for such positive reactions for stock financed deals, we investigate the long-term operating performance of cross-border cash- and stock financed deals. Our results do not show any significant difference. It appears that market is overenthusiastic about the cross-border stock financed deals and overestimates the synergy gains. Market corrects for this overreaction for cross-border stock financed deals in the subsequent periods. We carry out a detailed buy-and-hold abnormal return (BHAR) analysis to evaluate the long term stock returns for these firms. Our results show that cross-border stock financed deals significantly underperform in the long-run compared to the cross-border cash financed deals. Further, we examine the role of stock payment in mitigating information asymmetry in cross-border deals and alleviating the risk arising from making acquisitions in a foreign market with lower corporate governance rating. Our results show that stock payment is viewed as a possible remedy for reducing information asymmetry and lowering corporate governance related risk in cross-border acquisitions.

Facilitating Investor Engagement and Stewardship

Facilitating Investor Engagement and Stewardship

The Usefulness of Corporate Governance Ratings

This paper investigates the usefulness of commercial corporate governance ratings from a market perspective. For two large European economies, Germany and the UK, we document a positive association of ISS governance ratings with firm value. However, when we decompose the rating into its two components, publicly available governance information, and information added through the rating vendor’s proprietary rating technology, only the former component turns out significant in the firm value regressions. This finding is not moderated by the institutional diversity of our setting, i.e., the German stakeholder-oriented system versus the UK shareholder-oriented system, and leads us to rule out that our findings are driven by measurement error on behalf of the rating agency. Rather, our results suggest that the economic vindication of governance rating agencies may not derive from their expertise in converting public data into aggregated ratings, but, e.g., from comparative advantages in collecting governance data, or from other factors.

Predicting corporate governance in emerging markets

This paper investigates what predicts corporate governance in emerging markets. Specifically, we examine what predicts governance changes and the level of governance itself. To conduct this study, we utilize a unique dataset from AllianceBernstein that consists of monthly firm-level corporate governance ratings for 24 emerging market countries for almost seven years. Since the AllianceBernstein ratings are time-series data, they allow us to determine the direction of change in a firm’s corporate governance, and the timing of these changes. Using these data, we find two main results. First, as firms grow they are more likely to improve their governance. Second, the level of political risk where the firm resides is negatively and significantly related to the level of firm governance but positively and significantly related to changes in firm governance. Hence, firm governance is better in countries with lower political risk but firms are more likely to improve their governance in countries with higher political risk.

Are the Corporate Governance Standard in Banks in the CEE Countries Low Hanging Fruit?

The dominance of foreign capital in banking sector in the CEE countries created vulnerabilities that have been a contributing cause of recent financial crisis in the region. The question is whether the corporate governance structure of banks seemed to constrain or rather stimulate the potential unfavourable scenario, in which the controlling investors would be improving their difficult financial situation at the cost of their subsidiaries during the financial crisis of 2008. The aim of the study is to evaluate corporate governance practices in banks that were listed on stock exchange during the financial crisis 2007-2009 in selected CEE countries: Czech Republic, Hungary and Poland. Those three economies managed to maintain relatively strong position of banking sector during the recent financial crisis in contrast to many Western and some Eastern countries. The quantitative and qualitative analysis focuses on structure and practice of supervisory board based on data gathered from survey sent to the banks, their financial statements, reports on corporate governance and supervisory boards’ report on their activities. The results of the research may be of interests not only to academics, but also to managers, in particular in banks, and regulators. The research confirms that banks in CEE continue being role models for non-financial companies in implementing good standards of corporate governance. The findings reveal that bank’s supervisory boards in the selected CEE countries during the financial crisis of 2008 met the high standards of corporate governance with regard to the number of independent members, appointing independent member on the position of the chairman and chairman of audit committees. The study shows that during the crisis banks in the CEE countries themselves strived for improving corporate governance practices and they made some effort to implement post-crisis recommendations related to establishing risk and remuneration committees and appointing Chief Risk Officer. Banks listed in the Czech Republic and Hungary lag behind those listed in Poland with respect of frequency of audit committee meetings and supervisory board’s engagement in risk management. Increasing number of board committees with larger number of seats for independent board, provided that they do not have majority votes, can be implemented fairly quickly and relatively inexpensively. However the factual improvement of corporate governance of banks depends on professional qualities of the independent board members, their level of engagement in committee activities as well as their ability and willingness to challenge the existing contractual arrangements, in particular those that undermine the position of minority shareholders or other stakeholders such as depositors. It seems that implementing high corporate governance standards with regard to board composition and its committees is just low hanging fruit and could not have significant impact on the potential unfavourable scenario, in which the controlling foreign investors would be improving their difficult financial situation at the cost of their subsidiaries based in Poland. Implementing regulation recommended by the international organization such as European Commission that are well suited for large widely held corporations will not improve corporate governance standards of banks in countries where their ownership structure is closely held.