Form Of Corporate Governance Research Articles

Is corporate governance and intellectual capital disclosure related? a Sri Lankan case

This study investigates the association between corporate governance and intellectual capital (IC) disclosure, controlling for firm age and leverage, for a sample of 150 Sri Lankan listed firms. The independent variables comprise various forms of corporate governance attributes: board size, board independent, board meetings and CEO role duality. IC disclosure is measured by a disclosure index. Empirical analysis is conducted using correlation and linear multiple regression analysis. Findings from the empirical analysis indicate that associations between the corporate governance and IC disclosure are generally mixed. There is still no established and generally accepted Sri Lankan framework for IC disclosure, which could be a reason for inconsistency. Results of this study provide useful information for the accounting profession, the regulators and corporations on the effective exercise of corporate governance.

Soft Shareholder Activism

This paper studies communications between investors and firms as a form of corporate governance. Activist investors cannot force their ideas on companies; they must persuade the board or other shareholders that implementing these ideas is beneficial to the firm. I show that the threat of voice (i.e., launching a public campaign) facilitates communication, whereas the option to exit facilitates communication if and only if the proposal is risky relative to the status quo or voice is ineffective as a governance mechanism. The analysis identifies factors that contribute to successful dialogues between investors and firms.ReceivedMay 31, 2017; editorial decision September 4, 2018 by Editor Francesca Cornelli.

BASF goes to China, once again!

A key to understand the evolution of an economy is the property rights institution and the contracting institution that the government set up to shape the business environment of private firms. Focusing on China during its crucial two decades of transition (from the early 1990s to the early 2010s), this paper documents how the country's business environment and the characteristics of entrepreneurs evolved, along with the role played by local governments. Relying on multiple comprehensive data sets, the paper shows that many aspects of local business environments improved: infrastructure, development of the court system, and access to external finance. Meanwhile, the share of politically connected private firms remained large, and their advantage in accessing key resources increased. Under this dual-track private sector development, private firms became larger and more innovative and adopted more formal corporate governance mechanisms. Entrepreneurs became better educated, with more diverse sectoral experiences. Market competition increased over time, especially after China's World Trade Organization entry. The paper offers suggestive evidence that this dual track development had negative consequences, such as a lower tendency to innovate by politically connected firms.

In the Eye of the Beholder: Global Analysts’ Coverage of Family Firms in an Emerging Market

How do analysts make decisions about which firms to cover? Previous research has not considered how such decisions can be influenced by cultural understandings about appropriate forms of corporate governance. Drawing upon the institutional logics perspective, we propose that analyst firms’ home-country institutional logics of corporate governance can shape analyst perception of coverage risks for family firms. Specifically, we argue that given the negative view towards family governance in shareholder-based logic, family firms are less likely to be covered by analyst firms from shareholder-based countries than by those from stakeholder-based countries. Furthermore, the coverage divergence between shareholder- and stakeholder-based analyst firms will be greater for family firms featuring higher risks of value assessment and expropriation. We test our framework in the context of global analysts’ coverage of publicly listed firms in Taiwan between 1996 and 2005 and find empirical support. Our study contributes to the institutional logics perspective by establishing the implications of corporate governance logics for analyst coverage and providing a boundary condition for agency theory. We also uncover a less-noted source of institutional variation among the analyst community.

The Reintroduction of Jewish Covenantal Theory as a Form of Corporate Governance

The Reintroduction of Jewish Covenantal Theory as a Form of Corporate Governance

Struktura akcjonariatu jako determinanta polityki dywidend – analiza na podstawie spółek giełdowych

The decision on the payment of dividends by a company is determined by many factors. One of them is the separation of ownership and management, associated with this form of supervision in the enterprise. The control mechanism of the share holders over the managers is share holding structure that reflects the level of ownership’s concentration. The purpose of this article is to verify the research hypothesis, according to the degree of concentration of ownership, and whether the related form of corporate governance have an impact on decisions concerning net profits allocation and dividends payment. The research covers the community of 117 companies. The analysis covers the 2013–2015 period. The study confirmed the validity of the formulated hypothesis.

The corporate responsibility to respect human rights: a status review

Purpose– The purpose of this paper is to discuss a wide range of significant developments that have emerged in the wake of the UNs endorsement of the Guiding Principles on Business and Human Rights (GPs) in June 2011. In particular, the paper offers a preliminary assessment of how the GPs’ corporate responsibility to respect human rights has been interpreted and to what extent it has been operationalised through government action, business behaviour and the praxis of other social actors.Design/methodology/approach– The paper provides a comprehensive assessment of a number of key developments related to Pillar 2 of the GPs – concerned with the corporate responsibility to respect human rights. More specifically, the paper considers a range of elements relating to corporate human rights due diligence, including: establishing a corporate human rights policy; the undertaking of human rights impact assessment; integrating findings of impact assessment, and; corporate human rights reporting.Findings– Based on the assessment of recent developments and initiatives, the paper suggests that the corporate responsibility to respect human rights, as expressed in Pillar 2 of the GPs, embodies the culmination of significant progress in the sphere of corporate accountability. In doing so, the paper documents a plethora of innovations in regulation and praxis, led by actors in government and the corporate sector, civil society organisations, labour unions and others, in the areas of human rights due diligence, impact assessment and reporting. Yet overall, change is slow and partial and the results achieved are still unsatisfactory. Severe business-related human rights abuses remain endemic in many industry sectors and in many countries.Research limitations/implications– The implementation of the GPs is at a key stage of development, with a multitude of initiatives and actors attempting to develop and influence new forms of corporate governance. This paper provides an overview and assessment of these key developments.Originality/value– This paper provides an important assessment and synthesis of key developments related to corporate responsibility for human rights.

Corporate Governance and Risk Management at Unprotected Banks: National Banks in the 1890s

We examine bank governance and risk choices from the 1890s, a period without distortions from deposit insurance or other government assistance to banks. We link differences in managerial ownership to different corporate governance policies, risk, and methods of risk management. Formal corporate governance and high manager ownership are negatively correlated. Managerial salaries and self-lending are greater when managerial ownership is higher and lower when formal governance is employed. Banks with high managerial ownership (low formal governance) target lower default risk. High managerial ownership, not formal governance, is associated with greater reliance on cash instead of equity to limit risk.

Corporate governance and risk management at unprotected banks: National banks in the 1890s

We examine bank governance and risk choices from the 1890s, a period without distortions from deposit insurance or other government assistance to banks. We link differences in managerial ownership to different corporate governance policies, risk, and methods of risk management. Formal corporate governance and high manager ownership are negatively correlated. Managerial salaries and self-lending are greater when managerial ownership is higher and lower when formal governance is employed. Banks with high managerial ownership (low formal governance) target lower default risk. High managerial ownership, not formal governance, is associated with greater reliance on cash instead of equity to limit risk.

Shareholder Protection: The Role of Multiple Large Shareholders

AbstractManuscript TypeEmpiricalResearch Question/IssueThis paper addresses the effect of having multiple large shareholders on shareholder protection. More specifically, we examine to what extent this effect depends on whether such large shareholders are beneficiary or fiduciary.Research Findings/InsightsAnalyzing longitudinal, hand‐collected data covering Swiss listed companies, we find that having several large shareholders leads to overall higher shareholder protection (i.e. adoption of more formal corporate governance mechanisms). This is because large shareholders have an interest in putting more formal governance mechanisms in place when there is another large shareholder that might try to extract rents at the expense of others. Moreover, we find that this effect is driven by the presence of several beneficiary shareholders, i.e. shareholders that invest their own wealth in the company in contrast to dispersed ownership and fiduciary shareholders, i.e. shareholders acting on behalf of others.Theoretical/Academic ImplicationsBuilding on recent developments in agency theory, this paper contributes to the corporate governance literature by empirically showing that potential “principal‐principal” conflicts among large shareholders lead to overall better shareholder protection in terms of more formal governance mechanisms being adopted. This finding contrasts with situations in which there is only one large shareholder that does not have an interest in strengthening formal corporate governance. Our findings imply, however, that the characteristics of the large shareholders matter: Fiduciary shareholders in the Swiss setting are mostly passive buy‐and‐hold shareholders and therefore do not engage extensively in improving shareholder protection. Beneficiary shareholders, in contrast, directly intervene in the governance of the firm (i.e. governance by voice), so that in the presence of multiple beneficiary shareholders, more formal governance mechanisms help to monitor not only management but the other large shareholders as well. In addition, more formal governance mechanisms serve as a platform to coordinate their diverging objectives.Practitioner ImplicationsWe demonstrate the influence of a second (or several) large beneficiary shareholder(s), on corporate governance and the benefit to all shareholders. In addition, we propose the strengthening of governance mechanisms as a platform to reconcile conflicting interests among prominent shareholders and contribute to the debate on the allocation of certain voting privileges to long‐term shareholders.

State as an Entrepreneur: A Study of the Investment Contractual Terms and Level of Control of Chinaas Sovereign Wealth Fund in its Portfolio Firms

In recent years, the increasing cross-border investments by sovereign wealth funds have aroused high profile controversies, particularly over the strategic motives behind them and the potential control they could exert over target firms. Using a hand-collected dataset consisting of 51 MA and it is a rule rather than exception that CIC is generally not represented in targets’ boards. Except for one Chinese company in which CIC is the second largest shareholder, there is no evidence of CIC pursuing shareholder activism by exercising its voting rights or bringing up proposals, neither in shareholder or board meetings of the portfolio companies.Although CIC does not seem to have actively exercised its formal control rights, a further examination of the related business dealings happened pre-and-post CIC investments across the networks of CIC and its targets suggests that practically, it is often not necessary for CIC to possess or use formal corporate governance tools to exert control over them. Rather, there are plenty of opportunities where CIC could still extract indirect private control benefits by virtue of the long-term post-investment relationships with the target firms. These findings question the necessity and efficacy of regulatory proposals forcing SWFs to remain passive in the corporate governance realm by, for example, asking them to suspend their voting rights. Countries hosting SWF investments should thus consider carefully before directing any new regulation at SWFs as a particular group of investors, and guard against those proposals rushed out of short-term fad or political pressure, which may backfire for protectionism in the long run.

Disclosure by Indian companies following corporate governance reform

Purpose– The purpose of this paper is to investigate Indian companies’ compliance with the mandatory and voluntary corporate governance disclosure requirements of the Stock Exchange Board of India’s Clause 49.Design/methodology/approach– The authors develop a corporate governance disclosure index and sub-indices based on Clause 49. Annual reports of listed Indian companies are scored according to their disclosures in two periods – pre and post amendments to Clause 49.Findings– Indian companies are highly compliant with corporate governance disclosure requirements of Clause 49. Disclosure increases significantly after amendments to Clause 49 as the penalties for non-compliance increase in severity. Government controlled firms disclose significantly less than privately owned firms.Research limitations/implications– The findings are consistent with bonding theory and the authors note that the presence of an independent regulator (with powers to take action against violators) provides corporate India with additional incentives to comply with corporate governance reform.Practical implications– These findings have important implications for policy makers and regulators as they contribute to the debate on the choice between formal corporate governance regulation versus informal self-regulation. The study also has implications for understanding factors associated with the adoption of disclosure practices in general.Originality/value– This is the first study to examine disclosure compliance in a major developing country pre and post amendments to mandatory corporate governance requirements. Prior evidence indicates a low level of disclosure in India but our results demonstrate an improvement in line with our theoretical predictions that suggests, India is converging towards an Anglo-Saxon model of corporate governance.

Changing Board Dynamics: The Impact of Board Evaluations

In the past decade formal corporate governance codes, laws and practices have started to focus on responsible board behavior and transparency in the boardroom. Negative board dynamics have been observed as contributing to business performance issues, damaging corporate behaviors and negative signals to stakeholders. This paper provides an integrated view on board dynamics combining the key theories and concepts from the practical corporate governance literature, the behavioral economics and the neurosciences fields into a comprehensive board dynamics framework. The aim is to help board members/advisors/governance committees to develop better board evaluation practices, by studying new evaluation techniques and theoretical insights into board dynamics. The “fill-out-the-form” board evaluation practices are slowly changing and new trends aim to create long-term value from board governance.

Financial Regulation, Exchange Rate Exposure, and Hedging Activities: Evidence from Korean Firms

ABSTRACTIn this article, we attempt to estimate whether firm-specific exchange rate exposures affected by hedging activities can be improved through financial regulation or supervision. To analyze this, we compose three-step estimations by using a sample of KOSPI 200 firms during 1,803 trading days between 2005 and 2012. We first estimate the relationship between exchange rate exposure and hedging activities and see whether financial regulation had any effect on hedging activities. Furthermore, using TSLS analysis, we estimate the effect of hedging activities on exchange rate exposure, which is caused by tightened financial regulation in the form of corporate governance. We report the following findings. First, firms are less likely to be exposed to exchange risk with more hedging activities. Second, corporate governance has a strongly positive effect on the hedging activities. Firms use more hedging tools when they have a strong structure of shareholder’s protection, clear outside ownership, and a better monitoring system; but the relationship becomes weaker in times of crisis.

The Reintroduction of Jewish Covenantal Theory as a Form of Corporate Governance

Stewardship theory is offered as an alternative to principal-agent based control systems of governance. A foundation for this stewardship system of governance is to establish covenantal relationships (Davis, et al., 1997; Hernandez, 2012). In this paper, we further expand upon the notion of a covenantal community by examining the religious and philosophical roots of covenantal relationships. We focus on the history of the Jewish community and the teachings within the Torah as it provides an institutional context of covenantal relationships, how they are modeled in Jewish history, and how they may be manifested in today’s organizations.

Shareholder Opportunism Theory: Four Thought Experiments

What I call shareholder opportunism theory holds that our shareholder-centric form of corporate governance creates incentives for shareholders to opportunistically breach their implicit contracts w...

The association between CEO incentive rewards and earnings management

Purpose – The purpose of this paper is to investigate whether or not there is a link between CEO incentive-based compensation and earnings management and to examine how institutional environment's features influence such link. Design/methodology/approach – To test the predictions, the authors use a panel of 1,500 American, Canadian, British, and French firm-year observation over the period 2004-2008. Findings – The authors find a significant association between earnings management and CEO incentive-based compensation. Moreover, the analysis provides evidence that institutional factors are strong determinants of this association. Specifically, the results show that firms from countries within the Anglo-American corporate governance model, which provides greater protection of shareholder rights, ensures strict enforcement of law, and scores high on board oversight, tend to have lower level of earnings management. The analysis shows however, that beside the formal corporate governance quality, it is relevant to consider weaker shareholder protection and lower law enforcement indexes to explain earnings management in firms from countries within the Euro-Continental corporate governance model. Originality/value – This paper is the first to provide insights regarding the extent to which CEO incentive rewards imply management discretion and to indicate how much institutional features matter. The analysis contributes to two distinct strands of research. It extends prior research on the association between executive compensation and earnings management and adds to the literature demonstrating a relationship between institutional factors and financial decisions.

To Be or Not To Be: The Existential Issue for National Governance Bundles

AbstractManuscript TypeConceptualResearch Question/IssueThe article addresses the issue of whether governance bundles which include both formal and informal governance mechanisms should be classified and compared on the basis of national identity.Research Findings/InsightsThe governance bundle affecting each firm has formal components which are frequently based on national legislation, but also includes social and moral dimensions, and behavior in words and action that may differ widely within nations and may derive from relationships with firms and communities in other countries or even globally; only the formal component of the governance bundle may be national. The development of governance bundles is a long‐term process that reflects the culture and ethical demands of the societies in which companies operate; formal institutions and laws develop and are respected – or not – in light of how informal governance mechanisms create the behavior in society. The continued existence of a mixture of familiar and different governance mechanisms in emerging markets is throwing doubt on the convergence hypothesis that development will lead all governance to a consistent model.Theoretical/Academic ImplicationsThe role of informal institutions – also as substitutes for corporate governance mechanisms – is central to understanding the functioning of corporate governance. Theory needs to consider the individual company and different company types (e.g., size, industry, ownership) in order to illuminate the interaction of formal corporate governance and informal institutions and other forces which constrain the company and those who control it. There needs to be more attention to the issue of sub‐national and supra‐national bundles together with “hybrid situations” where multinational corporations operate alongside local companies.Practitioner/Policy ImplicationsThe acceptability of corporate governance regimes depends on implementation at firm level; as there are substantial differences in the informal mechanisms amongst them, which may vary according to factors such as size, industry, ownership, organization or region, policy measures should have the flexibility and sophistication to take account of these.

National Bank Examinations and Operations in the Early 1890s

We use information from examination reports to enrich our understanding of both the examination process and bank operations for National Banks in the early 1890s, the height of the National Banking Era. We describe the examination process and its frequency, as well as the information contained in the examinations relating to bank ownership and corporate governance, the composition and quality of the loan book, dividend payments made by the banks, and the use of different types of liabilities. Our sample of banks is from the larger cities, including several reserve cities, which allows us to compare similar banks in different regions of the country. There are clear regional differences in banks' examination experiences, structure, and behavior. On average, banks further West tended to be examined less frequently, displayed higher percentages of manager ownership, employed less formal corporate governance arrangements, made riskier loans, paid higher rates on certificates of deposit, and paid higher dividends less often.

Hybrid Corporate Governance: The Case of Asia

Hybrid Corporate Governance: The Case of Asia Ji-Yong LEE Abstract Asia’s economy has undergone a number of changes in corporate ownership and financial structure in the last several years. This paper addresses the evolving patterns of corporate governance among Asian countries since the crisis in 1997. Based on institutional theory, the discussion in this article is intended to illuminate in particular the notion of hybridization of institutional change in the form of corporate governance. The paper shows how Asian economies are reshaping their corporate governance features, leading to a diversity of corporate governance forms. Our empirical analysis suggest that the current Asian model can be described as being in a ‘hybrid model,’ with a mixture of new market-oriented elements and old practices of the Asian model Full Text: PDF DOI: 10.15640/rcbr.v3n3-4a2