Higher Levels Of Corporate Governance Research Articles

Escolhas contábeis na demonstração dos fluxos de caixa em companhias listadas no novo mercado da B3

Este estudo investigou quais fatores podem estar relacionados às escolhas contábeis na DFC realizadas em 112 companhias abertas não financeiras listadas no Novo Mercado da B3 no período de 2010 a 2015. A principal contribuição deste estudo é fornecer um panorama sobre a forma como as empresas consideradas com alto nível de governança corporativa no Brasil estão evidenciando seus fluxos de caixa no que tange à comparabilidade e, também, ao gerenciamento da DFC, fazendo escolhas que impliquem em um aumento do fluxo de caixa operacional. Este estudo oferece evidências de que a maioria das empresas apresenta a DFC pelo método indireto e segue as recomendações de políticas contábeis contidas no CPC 03 para classificar juros e dividendos pagos e recebidos. Além disso, o tamanho da empresa e as oportunidades de crescimento parecem ter relação com as escolhas de classificação de juros pagos e dividendos recebidos, respectivamente. Os resultados no contexto brasileiro diferem de achados anteriores em outros mercados, provavelmente por implicações do ambiente institucional em que as empresas se inserem.

THE NEED FOR HIGH CORPORATE GOVERNANCE IN NIGERIAN ZAKĀH AND WAQF INSTITUTIONS

Since the collapse of the Sokoto Caliphate at the hands of the British imperial power, zakāh and waqf in Nigeria have remained underdeveloped. In 1999, when the Zamfara State government declared the implementation of Shariah, these institutions were reestablished. Since then, laws have been enacted for these institutions; particularly between 2000 and 2003. However, annual reports presented since 2000 till date have not been impressive. Owing to this low performance, it is certain what is missing is a high level of corporate governance that protects the interest of all stakeholders, which can help facilitate a institutions’ success. Therefore, zakāh and waqf cannot be neglected. It is against this background that this research examines the corporate governance of Nigerian zakāh and waqf institutions within the context of their existing laws, primary and secondary sources of Islamic law, and contemporary studies on the subject. The methodology applied in this study was a qualitative research method using library materials and the internet. This paper concludes that the zakāh and waqf sectors will perform better and actualize their inherent objectives if high levels of corporate governance are entrenched in these institutions.

Does better corporate governance increase operational performance?

PurposeThis study aims to examine the association between the adoption of corporate governance practices and operational performance in companies listed on the Brazilian Stock Exchange.Design/methodology/approachThe sample comprises the 80 largest companies in market value present in the Brazil Stocks Index in 2014. Principal component and cluster analyses techniques are used to evaluate performance and capital structure, and a regression model is applied to identify the relationship between key variables.FindingsThe findings show that the incidence of a high level of corporate governance in Brazil occurs among smaller companies with less desirable operational performance, rather than the biggest (blue chip) companies. Using a regression model with the return on assets as a dependent variable, a dummy variable for “governance”, and the size of the companies as a control variable, the authors find no association with good practices of corporate governance and operational performance for the companies in the sample.Practical implicationsNewer companies are more likely to exhibit a higher level of corporate governance because of the actions of foreign investors who demand the adoption of stronger corporate governance practices. Although there is demand from wealthy local institutional investors, many older traditional firms could still restructure to achieve higher levels of governance, especially in the case of emerging economies with less mature stock exchangesOriginality/valueThis study contributes to the recent debates in the literature by identifying evidence for an association between operational performance and corporate governance rather than a causal relationship.

Complexity and corporate governance: an analysis of companies listed on the BM&FBOVESPA

ABSTRACT In light of the need to develop mechanisms of control, protection, and transparency regarding the relationships between principal and agent, and with the aim of eliminating or reducing the agency problem, corporate governance has emerged. Based on Agency Theory, separation of ownership and control of activities derives from the complexity of organizations. In this context, this study aims to analyze the relationship between dimensions of complexity and corporate governance in companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA), in which contingency factors might influence organizational characteristics. The investigation gathers data from a sample of 162 companies listed on the BM&FBOVESPA. The following statistical tests were used in the data analysis: Factor Analysis, Multiple Linear Regression, Correspondence Analysis, and Correlation Analysis. For measuring complexity, contingency variables such as age, size, diversification, and internationalization were adopted; and, to assess corporate governance, a representative index of the adoption of good governance practices was used. The results show that organizational complexity is explained by the size and diversification variables, whereas operational complexity is explained by the size, diversification, and internationalization variables. It was observed that in the two dimensions of complexity - organizational and operational - corporate governance was influenced by the diversification, internationalization, and age variables, with the latter involving an inverse relationship. It is concluded that companies displaying more complexity, in its two dimensions, record a higher level of corporate governance, which confirms the research hypothesis.

Corporate governance, social responsibility information disclosure, and enterprise value in China

Social responsibility information disclosure relates to the long-term development of enterprises. All social layers pay increasing attention to social responsibility of enterprises, especially those in heavy-pollution industries that are listed on stock exchanges. This study takes Chinese companies in heavy-pollution industries that were listed during 2008–2014 as objects of study to test the relationships among corporate governance, social responsibility information disclosure, and enterprise value. The study finds that there is a declining level of social responsibility information disclosure of listed enterprises in heavy-pollution industries. In addition, different corporate governance factors affect the social responsibility information disclosure of listed companies in heavy-pollution industries to a certain extent. Furthermore, we find that social responsibility information disclosure is not beneficial for the short-term profit of an enterprise but can increase its long-term value. Generally, a high level of corporate governance is favorable for legitimacy management as well as disclosure of social responsibility information.

Decisões de Financiamento das Companhias Listadas nos Diferentes Segmentos de Governança da BM&FBovespa Segundo a Teoria de Pecking Order

Among the various theories about capital structure is Pecking Order theory, which establishes a hierarchy of preferences for sources of funding due to the existence of information asymmetry. In this paper, we seek to verify if this theory applies to the financing decisions of Brazilian companies that are listed in the different segments of corporate governance of BMF&Bovespa, analyzing whether, in the 2010-2014 period, a higher level of corporate governance implies lower adherence to this theory. Descriptive analysis and panel data models are used. The main finding is that Pecking Order theory works better in the traditional segment, confirming that greater information asymmetry leads to greater reliance on debt to finance deficits in the flow of funds. While the results found with respect to the traditional segment provide some support to Pecking Order theory, evidence suggests that the theory exerts less influence on the Novo Mercado segment, represented by the companies with the highest level of corporate governance and lowest degree of information asymmetry. There is evidence, therefore, that Pecking Order theory does not explain the financing decisions of Brazilian companies that have highly differentiated standards of corporate governance.

Outsourcing the Corporate Governance Officer (Potential Business Model)

In the last decades, the legal industry has experienced a global paradigm shift in the delivery model for legal services. This new model, known as legal process outsourcing (LPO), transfers the work of attorneys, paralegals and other legal professionals to external vendors located domestically and overseas. Legal outsourcing (both onshore and offshore) is transforming law practice as law firms and corporate legal departments seek to minimize costs, increase flexibility and expand their in-house capabilities. In this new decade, we have to prepare, with the legal services outsourcing, that we will become more sophisticated, with higher value of legal work, at higher level of quality and speed, and dramatically lower cost. In the Article authors deal with the process of the transformation of legal service into a legal good and point on some dilemmas during that process. This paper argues that outsourcing ultimately will have a positive effect on the legal profession and development of the quality of legal services. In the second part of the paper authors also stress out some information about different possibilities, how to organize virtual law firms for low budget legal services in the Slovenian case and also include some information about the possibility how to organize corporate governance in companies through the corporate secretary as outsourcing, because the corporate secretary is the chief governance officer and provides leadership for the corporation to implement a high level of corporate governance.

How Does XBRL Affect the Cost of Equity Capital? Evidence from an Emerging Market

ABSTRACT Applying path analysis, we examine how eXtensible Business Reporting Language (XBRL) in China affects the cost of equity capital. Using a one-group pre- and post-test design, we find that XBRL reduces the cost of equity capital and that XBRL strengthens the direct linkage of the inverse relationship between financial reporting quality and the cost of equity capital but not the indirect linkage via the mediation of information asymmetry. Our findings also show that XBRL adoption leads to a greater reduction in the cost of equity capital, when there is a high level of corporate governance. Our study contributes to research on XBRL and to practice by documenting how XBRL affects the cost of equity capital.

Multidimensional configurations of the organizational climate construct

This study describes the creation and validation of a multidimensional model which assesses the level of employee satisfaction based on international theoretical models. It utilizes data collected from a sample of 518 public and private company employees during the year 2009 in the city/state of São Paulo, Brazil. In the first stage of the study, 15 independent dimensions were theoretically obtained. In the second stage, five different multiple dimensions were confirmed using structure equation modeling (SEM) technique, thus characterizing general configurations of the organizational climate construct denominated motivation, management philosophy, leadership, people management and nature of work. It is hoped that the model can contribute by enhancing managerial best practices of an organization by attending a major demand for those listed on stock markets, since these companies must periodically provide information on job satisfaction of their employees to maintain or achieve higher levels of corporate governance.

Firm risk and performance: the role of corporate governance

We established a set of corporate governance assessment indices for examining the potential intermediary role of corporate governance in the relationship between firm performance and risk; furthermore, we identified the key corporate governance variables associated with both firm performance and risk based on 2008–2012 empirical evidence from Taiwan. The results indicate that corporate governance has a suppressed mediating effect on the relationship between firm performance and risk both during and after the financial crisis. Moreover, especially during a financial crisis, corporate governance has a negative moderating effect on the relationship between firm performance and risk; therefore, it acts as a risk buffer to protect companies. Our empirical results also provide evidence that listed companies in Taiwan with higher levels of corporate governance report high firm performance and low firm risk. Based on the findings, we recommend that decision makers considering both value creation and risk control focus on formulating corporate governance strategies, with particular attention paid to annual general meetings participation, chairperson and chief executive officer split, board of directors composition, director remuneration and discipline, and transparency of board structure and ownership information.

Corporate governance and innovative success: An examination of the moderating influence of a firm’s life cycle stage

In this study we examine whether corporate governance influences a firm’s innovative success and if so, how this association is moderated by the life cycle stage of the firm. Innovative success is a broad term and is difficult to measure. Based on Mansfield (1981) we trichotomize ‘innovative success’ into three components, namely, technical (measured by number of patents received), commercial (measured by sales growth) and economic success (measured by Tobin’s Q as based on Mansfield (1981)). We use a sample of electronic firms in Taiwan which invested in research and development covering the years 2001–2009. We find that higher levels of corporate governance have a significant effect on two components of innovative success, namely, patent productivity and a fir m’s value but not on commercial success as measured by sales growth. We also find that the influence of corporate governance on the three components of innovative activity is most pronounced when the firm is in the stagnant stage of its respective life cycle and least pronounced when the firm is in the growth stage. Our study adds to the discussion on the importance of corporate governance by showing that while it has a positive influence on innovative activity, its impact is contingent on the stage of the firm in its respective life cycle.

How Does Diversification Impact Bank Stability? The Role of Globalization, Regulations, and Governance Environments

AbstractThis paper examines the impact of bank diversification on stability, using bank‐level data for 22 Asian countries over the period from 1995 to 2009. We empirically investigate whether country characteristics, economic structure, regulatory and governance environments, and globalization have affected the degree of banking stability in Asia. This study takes on two measures for banking diversification ‐ asset and income diversities ‐ and adopts a broad set of variables as a proxy for bank stability. We apply dynamic panel data techniques and show different results from the U.S. and Europe. Our results first reveal that in Asia asset diversity is not sufficient enough to improve bank stability. However, bank stability can be enhanced through a strategy of income diversity. Second, a higher degree of globalization decreases bank stability through income diversity, but stability rises through asset diversity. Third, a country with a higher level of corporate governance reduces the agency problem, thus further increasing stability through diversity. Finally, a country with a higher level of economic development will support asset diversity so that banks can obtain higher profit accompanied by lower risk.

How Does XBRL Affect the Cost of Equity Capital? Evidence from an Emerging Market

Applying path analysis, we examine how eXtensible Business Reporting Language (XBRL) in China affects the cost of equity capital. Using a one-group pre- and post-test design, we find that XBRL reduces the cost of equity capital and that XBRL strengthens the direct linkage of the inverse relationship between financial reporting quality and the cost of equity capital but not the indirect linkage via the mediation of information asymmetry. Our findings also show that XBRL adoption leads to a greater reduction in the cost of equity capital, when there is a high level of corporate governance. Our study contributes to research on XBRL and to practice by documenting how XBRL affects the cost of equity capital.

SHAREHOLDER VALUE ADDED AS A VALUE CREATION MEASURE IN NON FINANCIAL BRAZILIAN COMPANIES: AN EXPLORATORY STUDY

ABSTRACT The Shareholder Value Added – SVA represents the economic profit generated by a company above the minimum return required by the capital providers. The comparison with other performance measurements based on accounting data has been historically considered as the most useful one for the business managers, not the shareholders. The SVA, differently from the conventional measurements, emphasizes the amount of capital invested in the investment. The calculation methodology involves the difference between the market, debt and equity capital values in each period. This study aimed to calculate the SVA for Brazilian companies of open capital from 2000 to 2010, which came to belong to the New Market of the BM&F Bovespa, in order to analyze whether such companies would add more shareholder value before or after opting for the high level of corporate governance. In order to do so, the SVA methodology was used as being the discount by the capital cost, in perpetuity conditions, of the EVA variation in the period analyzed. As a result, it was found out that, in general terms, there was a destruction of the shareholder value of each company of about 51,799.50 million of reais, that is, in the average, the companies created 30% less value after the change. The conclusion points to a high interest rate along with the recurrent crises in the financial system as the main responsible factor for the performance presented by the companies. Keywords Shareholder Value Added (SVA), Brazilian Companies, New Market.

Corporate governance and access to interest bearing debt

PurposeThe purpose of this paper is to extend the growing body of literature on the impact of corporate governance on debt contracting by examining if better governance is associated with access to interest bearing debt. The paper aims to explore whether no‐debt companies have governance structures that are qualitatively different to debt companies within a market with a distinct corporate finance structure, such as Australia.Design/methodology/approachThe analysis is portioned into two stages. The first stage focuses on univariate analysis which includes descriptive statistics and analysis of variance (ANOVA). The second stage introduces multivariate analysis, in the form of a probit regression model, to test the relationship between corporate governance and access to interest bearing debt.FindingsThe results suggest that companies with higher levels of corporate governance are more likely to access interest bearing debt relative to no‐debt companies. However, the unexpected finding is that only resource companies that implement higher governance are more likely to access interest bearing debt. The core driver is that resource companies with no‐debt have systematically lower governance than all other companies.Research limitations/implicationsThe cross – sectional design of the study is limited in its ability to shed light on the question of causality. One potential avenue is to develop an event study around the timing of governance and debt access changes.Originality/valueThe paper contributes to the extant literature by investigating the relationship between governance and access to interest bearing debt in the understudied Australian debt market.

Governança Corporativa e Velocidade de Incorporação de Informações: Lead-Lag entre o IGC e o IBrX

Com base em dados intradiários em frequência de 15 minutos, o presente estudo investiga a relação entre o mercado de Governança Corporativa Diferenciada (IGC) e o Mercado Tradicional (IBrX). A hipótese testada é de que um melhor nível de Governança Corporativa reduz os custos associados à incorporação de novas informações aos preços dos ativos da empresa. Assim, empresas com melhor nível de governança teriam maior velocidade de incorporação de informações. A relação de cointegração entre as séries foi testada com o uso do método Engle-Granger, em dois estágios. O Vetor de Correção de Erros (VECM) e o teste de causalidade de Granger não permitem a rejeição da hipótese de maior velocidade de incorporação de informações do Mercado de Governança Diferenciada. Para estimativa do VECM, utilizou-se um modelo GARCH bivariado BEKK. Os resultados sugerem que o IGC encontra seu preço de equilíbrio mais rapidamente e que o IBrX converge para a relação de equilíbrio apontada pelo IGC.

“Independent” Consultants' Role in the Executive Remuneration Design Process under Restrictive Guidelines

ABSTRACTManuscript Type: EmpiricalResearch Question/Issue: This study explores the remuneration consultant–client relationship in a non‐Anglo‐American context, focusing on what consultants do under heavy political remuneration guidance.Research Findings/Insights: A qualitative social constructivist approach was adopted, drawing on interviews with the CEO and “independent” chairman of the board of 23 Finnish state‐owned enterprises, as well as four leading consultants. The research context considerably differs from that of the US, since the State takes an active role in providing remuneration guidelines. Finland also represents a country with a high level of corporate governance and low level of corruption. Nonetheless, our results strongly support the managerial entrenchment perspective fraught with problems and filled with game playing, where “specialized” consultants and CEOs play the major roles, resulting in increased salary levels, slack, an emphasis on share‐based incentives, and public outrage. The effectiveness of these guidelines would be hard, even impossible, to understand, without proper analysis of human interaction related to it.Theoretical/Academic Implications: The study questions the definition of consultant independence based on external data. Second, routine practices commonly bypass rules, leading to the unintended consequence of forced change. Third, the structure of consultancy markets and long consultant–client relationships play an important role in the services offered by consultants.Practioner/Policy Implications: The findings show that restrictive remuneration guidelines can be ineffective and lead to standardized pay designs without providing competitive advantage. Shareholders should request greater transparency concerning remuneration design. The role of consultants should be considered proactively in the guidelines, even by limiting the length of the consultant–client relationship or increasing their transparency.

Does corporate governance matter to technical, commercial and economic success?

This study examines how corporate governance influences the technical, commercial, and economic success of a firm’s R&D activity. We use a sample of Taiwanese electronics firms which made investments in R&D in the study period. We find that in the presence of innovation, corporate governance does not equally influence the technical, commercial and economic success of firms’ R&D investments. We affirm that higher levels of corporate governance are positively associated with technical success, but in the presence of technical success innovative activity, higher levels of corporate governance do not impact sales growth that represents commercial success. Overall, our study demonstrates that corporate governance essentially plays a contributory role in enhancing the value for an innovative firm. Key words: Commercial success, corporate governance, economic success, technical success.

Large Share Price Movements, the Disclosure of News and Corporate Governance: Implications for Disclosure Rules

Purpose - This study examines the link between firm-level large share price movements, firm specific company announcements and corporate governance. Stock market regulation in the UK requires firms to disclose new Price Sensitive Information (PSI) immediately via official news providers. We investigate whether large share price movements are accompanied by firm disclosure. We also investigate whether corporate governance attributes influence the degree of disclosure by firms. Design/methodology/approach - We construct our disclosure measure by identifying the largest abnormal daily stock returns for sample firms, and then we search for firm specific announcements in the three day window centered on the abnormal return day. We then collect corporate governance variables known to influence disclosure practice, and test whether these variables influence disclosure for positive and negative (good and bad announcements) abnormal returns. Findings - Large share price movements are accompanied by an official share price movement in 45.2% of cases. This rises to 62.9% when new analyst or newspaper articles are included as potential drivers of the abnormal share price return. The higher the proportion of non-executive directors and CEO/ Chair duality lead to a higher incidence of bad news disclosure, suggesting increased scrutiny works. The higher the level of CEO and board ownership the lower the level of disclosure. Finally, institutional ownership concentration appears to negatively influence the level of disclosure. Originality/value - Higher levels of corporate governance is shown to lead to better firm disclosure. At the same time we find that in almost 40% of large abnormal share price returns no information has come to the market, to drive the share price. Thus, the paper has important messages for regulators, who need to investigate why prices often move a long way without accompanying news. Shareholders, particularly institutions, should ensure high levels of disclosure by company directors.

The association between corporate governance and earnings quality: Further evidence using the GOV-Score

Abstract This paper reexamines the relation between corporate governance and quality of earnings using a summary governance measure. Prior research has used many surrogates for corporate governance including size and composition of board of directors, existence and composition of audit committee, and extent of institutional ownership. However, the criticism of the extant research has been that corporate governance comprises many facets and is not uni-dimensional. In this study we fill this void by using the Gov-Score developed by Brown and Caylor [Brown, D., and Caylor, M.L., (2006). Corporate governance and firm valuation. Journal of Accounting and Public Policy 25, 409–434.] to measure corporate governance. In the post-Sarbanes–Oxley period, we find evidence of a significant inverse relationship, namely higher levels of corporate governance are associated with lower absolute discretionary accruals and higher quality of earnings. Furthermore, our results suggest that only firms in the highest category of corporate governance experience significantly improved quality of earnings. Finally, as a test of robustness, we document that corporate governance is negatively associated with small earnings surprises. This implies that firms with weak corporate governance are more likely to manage earnings in order to meet or beat analyst forecasts.