Implications For Corporate Governance Research Articles

Board Diversity as Firms’ Adaptation to Stakeholder Norms: The Roles of Social Embeddedness in India

Stakeholder norms influence firms’ board composition including board diversity. However, less is known on how firms in emerging economies, specifically India—a heterogeneous institutional context where selection of directors exhibits distinct social embeddedness in firm-related network relations as well extra-network affiliations (e.g., religion/caste). Bridging the stakeholder perspective with the institutional perspective, we study Indian firms’ board diversity as a strategic adaptation to stakeholder norms from developed economies. Using panel regression analyses on 842 firm-year observations between 2013 and 2018, we find that in the Indian institutional environment, such an adaptation is subject to social embeddedness in ongoing relationships between firms and governments/public agencies, as well as firms’ positions in the interlocking network. The findings have important implications for corporate governance in emerging economies.

When Shareholders Disagree: Trading after Shareholder Meetings

Abstract This paper analyzes how trading after shareholder meetings changes the composition of the shareholder base. Analyzing daily trades, we find that mutual funds reduce their holdings if their votes are opposed to the voting outcome. Trading volume is high even when stock prices do not change, peaks on the meeting date, and remains high up to four weeks after shareholder meetings. The results support models based on differences of opinion that predict that shareholders’ beliefs may diverge more after observing voting outcomes. Hence, trading after meetings creates a more homogeneous shareholder base, which has important implications for corporate governance.

Customer and tax behaviour: how customer concentration affect suppliers’ tax avoidance

ABSTRACT This study discusses, from the perspective of the supplier-customer relationship, whether and how firms’ customer concentration affects corporate tax avoidance in the context of China. The results indicate that firms with higher customer concentration are more likely to engage in tax avoidance. Higher customer concentration increases firms’ operational risks, and hence, they tend to conduct more aggressive tax activities to meet the increasing demand for internal liquidity. Additionally, we find that the positive association between corporate customer concentration and tax avoidance is stronger in non-state-owned enterprises. Moreover, when firms face more cash flow volatility, less cash holdings, and a poorer external legal environment, aggressive tax activities induced by concentrated customers are more pronounced. Our findings not only extend the growing literature on the consequences of customer concentration for firms, but also provide new evidence on their motivation for corporate tax avoidance, with significant implications for supply chain management and corporate governance.

The corporatization of healthcare organizations internationally: A scoping review of processes, impacts, and mediators

AbstractCorporatization, the conversion of state‐owned enterprises into semi‐autonomous, legally independent entities, has gained in popularity internationally since the 1980s. This review suggests that usage of the term has become entangled with other definitions of corporatization, and other organizational reforms associated with new public management, and appears consequently to have lost its distinctiveness in many contemporary studies of corporatization. Through a scoping review of literature on corporatization of healthcare organizations internationally, we develop a typology of four perspectives on corporatization (as managerialism of medical work, as institutional level reform to encourage market‐like behavior, as corporate governance implications of legal independence, and as private sector colonization) and analyze the specific processes, impacts, and mediators associated with each approach. This typology can aid conceptual clarity in future research on corporatization and orient practitioners to particular management and policy questions within the complex field of reform signified by this term.

Board Gender Diversity: A Review

Gender diversity has gained significant attention in accounting, finance, corporate governance, and corporate social responsibility (CSR) literature. This literature will enlighten the readers regarding the valuable understandings obtained from these studies, and to define knowledge holes and potential research paths. Though many papers are examining the determinants and consequences of gender diversity, however, this review suggests that organizations with weak corporate governance have a tendency to respond to the call of gender diversity regulations to capture the need of society. Additionally, the firm’s determinants and consequences of gender diversity vary across the countries based on local/regional demand, demographic attributes, and the nature of gender regulation. Most of the reviewed papers explore the consequences of firm gender diversity studies, and we classify these into (i) accounting implications, (ii) financial implications, and (iii) corporate governance implications (iv) CSR implications. This review indicates that corporate gender diversity has significant influences on organizations' financial reporting and corporate disclosures, financing, corporate investment, cash holding and dividends decisions, on overall corporate governance and socially responsible behavior. In analyzing the growing body of corporate gender diversity literature, this paper identifies critical flaws of past researches, and recommend suggestions for future studies.

The Dynamics of Shareholder Dispersion and Control in Australia

There is ongoing academic interest in understanding share ownership and control dynamics in publicly listed companies, given the corporate governance and regulatory implications arising therefrom. This article presents a new dataset and analysis of shareholder information, focusing on the largest 50 publicly listed companies in Australia, filling a striking 12 year gap in the existing literature. Specifically, the following issues are addressed: 1. The level of institutional ownership within the largest 20 shareholders in each of the 50 companies; 2. The concentration of that ownership based on the percentage of issued capital owned by the largest three shareholders; 3. The control of that ownership, to determine whether ownership and control diverge; and 4. Where ownership and control diverge, substantial shareholding information is collected and analysed, in order to provide a more complete picture of share ownership patterns in the Australian context. The study findings provide a clear indication of the concentration of share capital in the hands of institutional shareholders in Australia. Yet, in relation to shareholder dispersion, all of the 20 largest publicly listed companies can be classified as widely held (versus 13 in the 1999 La Porta et al study) at the 20% level of control. Additionally, the results have a preliminary bearing on the relevance of common ownership theory within Australia. Regarding the ‘Big Three’ index funds, these institutions comprise 33.33% of the substantial shareholding positions across the ASX 50. Notably, 87.1% of these substantial holdings are in companies within the financial sector. The key implications arising from the findings are that managerial agency costs and the agency costs of institutional investors are of fundamental importance in the Australian context. Based on this understanding, there are two central messages for regulators and policy makers. First, corporate governance regulation must evolve in parallel to changes in share ownership and distribution. Second, there is a need for complementarity between shareholder patterns and regulation which incentivises potential governance actors and mitigates identified agency costs.

Early warning indicators: An empirical investigation in Italian context and first implications for corporate governance

The aim of this paper is to map the exposure to the risk of financial distress and insolvency of Italian companies during 2019 by monitoring the five early warning indicators defined by the National Council of Chartered Accountants and Accounting Experts (CNDCEC) and approved by the Italian Ministry of Economic Development, in accordance with the provisions of the “Crisis and Insolvency Code” (IC-Code). The methodology used to conduct these investigations consists of comparing the average value of each early warning indicator for companies belonging to a specific commodity-related sector to the threshold value established for each sector, in order to capture signs of potential financial distress. The results of the analysis show that Italian limited liability companies (LLC) and joint-stock companies (JSC) (listed and unlisted) in 2019 did not show particularly worrying signs of financial distress and insolvency. The results of the survey are relevant to national regulators, managers, investors, lenders and, more generally, market participants as they shed light on the type of commodity-related sectors in which economic and financial difficulties are more likely to occur. Moreover, the continuous monitoring process of the early warning indicators’ average values can provide valuable support to the CNDCEC to verify whether and how to modify/refine their thresholds, thus improving their ability to report foreseeable states of financial distress

Covid-19: Implications for Corporate Governance and Corporate Social Responsibility (CSR) in Africa

The novel coronavirus disease (COVID-19) has undoubtedly brought a lot of disruptions into the world order—lives, livelihoods, national, and international economies and imposed what is now permeating as the “new normal” in all aspects of human activities. In Africa, the combination of severe health and economic crisis has forced governments to resort to issuing different fiscal and monetary measures as they grapple with the debilitating effects of COVID-19 pandemic on their people and economies, struggle to manage economic recessions, and prepare for a post-COVID-19 regeneration. For businesses, the impacts have not been less disruptive as the shocks and waves of uncertainties continue. As corporations battle to survive and sustain business continuity, the rates of corporate bankruptcy and insolvency mid and post COVID-19 remain speculative and uncertain. Yet the strategic roles of modern corporations in the socio-economic development of society, given the sheer volume of their economic resources alone—something that now makes some corporations more economically powerful than some states, have long been established. Drawing insights from the stakeholder’s theories of corporate governance and corporate social responsibility (CSR), this article examines the implications of COVID-19 for corporate governance and CSR, as well as the responses of corporations in Africa to deal with, support, and complement governments’ efforts in combating the pandemic’s menaces. It attempts to outline some of the challenges and significant improvements that are necessary to shape the future of corporate laws and legal reforms in Africa. The article concludes that sound corporate governance practice and corporate investment in CSR can help to shape the performance and resilience of corporations in Africa to adverse shocks such as the present COVID-19 pandemic.

Human resource reporting: Implications for corporate governance

The major research question of this study is how boards of directors can monitor human resource reporting, especially with emerging reporting requirements from the U.S. Securities and Exchange Commission (SEC) for all domestic and foreign public companies listed on U.S. stock exchanges. Boards can develop advising and monitoring practices to help their companies meet the SEC’s human capital reporting requirements, as shown by the following topics discussed and analyzed in this paper: criticisms of the modernization of Regulation S-K by using principle-based versus rules-based disclosures; a way forward on the modernization of Regulation S-K; sustainability accounting standards; human resource accounting; board responsibility for white-collar crime risk; and collegiality conundrums. We find that a possible way forward in modernizing human capital reporting would be to combine a rules-based approach with a principles-based approach. We recommend boards to closely follow the United Nation’s Sustainable Development Goals and create opportunities to steer their companies towards a sustainable future. We also research the newly developed accounting standards to address human resource risks and promote sustainable human capital reporting. In addition, we identify the strategies for boards to monitor the risk of white-collar crime and highlight the balance between collegiality and effectiveness in the boardroom. Future research could use case studies and interviews of company boards to investigate how they have developed strategies and procedures to facilitate human resource management and reporting

The Clash of ‘E’ and ‘S’ of ESG: Just Transition on the Path to Net Zero and the Implications for Sustainable Corporate Governance and Finance

Climate change is one of the highest-ranking issues on the political and social agenda. Vulnerabilities of the world ecosystem laid bare by the COVID-19 pandemic and the potential damage for the human and business life made the need for urgent action clear once again. Corporations are one of the main actors that will play a major role in the decarbonisation of the economy. They need to put forward a net zero strategy and targets, transitioning to net-zero by 2050. Yet, an important but rather overlooked stakeholder group in the sustainability debates can pose a significant stumbling block in this transition: employees. Although climate action has huge benefits by ameliorating adverse environmental events and is expected to have overall positive impact on employment, net zero transition in companies, especially in certain sectors and regions, will cause substantial adverse employment effects for the workforce. This has the potential to slow down or even derail the necessary climate action in companies. In this regard, just transition is a promising concept, which calls for a swift and decisive climate action in corporations while taking account of and mitigating adverse effects for their workforce. If well implemented, it can accelerate net zero transition in companies. This potential clash of environmental (E) and social (S) aspects of ESG agenda, materialised in the companies’ net zero transition, and its potential remedy, just transition, have important implications for corporate governance and finance, especially for directors’ duties & executive remuneration, sustainability disclosures, institutional investors’ engagement and green finance.

Corporate governance in India from the internal stakeholder’s perspective

The underlying aim of the research paper is to evaluate the internal stakeholders’ perceptions of the current corporate governance regime in India. In order to analyze the internal stakeholder’s perception towards current corporate governance regime, regulations and issues, a structured questionnaire has been prepared covering various aspects of corporate governance like components and performance implications of corporate governance in India, major issues in corporate governance, corporate governance strategies and practices, key players etc. The majority of the respondents perceive that there is a need to make the internal and external corporate governance better, enhance the standards of accounting, audit and disclosures, prohibit or check related party transactions, improve relation between board and management, publicize corporate governance ratings of companies, strengthen stock exchanges to ensure transparency, improve access to new capital etc. The findings of the study has contributed to the future development of corporate governance regulations in India. It will aid regulators, policy makers, stock exchanges and think tanks to rethink their priorities and develop rules to incorporate best practices on corporate governance. Keywords: Corporate governance, Corporate governance practices, Regulatory framework, Listing agreement, Securities markets.

Audit Quality and Its Influence on Stakeholder Trust: A Qualitative Analysis

This qualitative study aims to explore the intricate relationship between audit quality and stakeholder trust in financial reporting. Through in-depth interviews with auditors, investors, regulators, and corporate executives, insights were gathered regarding perceptions, experiences, and expectations concerning audit quality and its influence on stakeholder trust. Thematic analysis revealed key dimensions of audit quality, including auditor independence, competence, objectivity, adherence to professional standards, and perceptions of audit effectiveness. Stakeholders emphasized the importance of transparent disclosure practices, accountability in corporate governance, credibility of auditors and financial statements, and regulatory oversight in fostering trust in financial reporting. The findings underscored the pivotal role of regulatory bodies, such as the PCAOB and SEC, in promoting audit quality, deterring fraudulent behavior, ensuring auditor accountability, and maintaining market confidence. Overall, the study contributes to a deeper understanding of the mechanisms shaping stakeholders' perceptions of audit quality and trust in financial reporting, with implications for market efficiency, investor protection, and corporate governance.

Corporate performance and sustainability: Evidence from listed firms in Portugal and Spain

We examine the impact of various factors on the quality of environmental disclosure using a sample of listed companies in Portugal and Spain for the period 2010–2017 using the generalized method of moments (GMM) and adding a sustainability index created through principal component analysis (PCA). The econometric model has been used to show the practical implications of gender corporate governance (CG) indicators and the proposed index over the market and accounting-based performance measures. The study focuses on factors related to the strategy and vision of the firm, diversity within boards, and environmental factors. Results highlight that the presence of women on board increases both financial performance and sustainability practices, highly visible through market-based measures. Sustainability initiatives also increase financial performance which works also in the other way around. Still, sustainability practices by companies are highly dependent on their financial situation casting doubts on the effectiveness of the regulations obliging to insert certain types of measures within the company. Results are useful for regulatory parties, companies, and stakeholders. Companies should still be aware of the pressure posed by both shareholders and stakeholders regarding sustainability practices, and the increased gender diversity may have an intermediate role between CG, sustainability, and financial performance.

Value Creation and Corporate Governance

Shareholder value maximization has been severely criticized in recent years, but it is not clear what, if anything, is to take its place. In this paper, we review three models of corporate value creation – shareholder value, stakeholder value, and company purpose achievement – and their implications for corporate governance. We first discuss shareholder value and how it is implemented through dispersed financial ownership, facilitation of takeovers, stock options and other mechanisms. Secondly, we discuss stakeholder value and its implementation through cooperatives, mutuals, employee representation and ESG indicators. Thirdly, we consider the more recent idea of a company purpose, which calls for responsible long-term ownership, management continuity and financial conservatism. We conclude that the purpose view may be the most promising alternative because it addresses weaknesses in the two other models by providing a clear social objective that is consistent with constrained profit maximization. However, we argue that agency problems and tensions with the broader interests of society are likely to persist regardless of value creation model.

Effect of Bank Performance on Good Corporate Governance Implications on Corporate Social Responsibility (Case Study on Banking Sub-Sector in IDX Period 2018)

The purpose of this study is to examine and analyze the effect of bank performance on good corporate governance implications of corporate social responsibility (study case in banking sub sector BEI periode 2018). Sampling method in this reseach was using purposing sampling. Research population as a many as 45 banking industries ( as of 1 april 2019) listing 2 october 2019. Analyze methode in this reasearch was using structrual eqution modeling with WarpPLS software. And the result of this research is showing that variable of capital adequation ratio (CAR), non performing loan (NPL), Net interest margin (NIM) significant positive effect on good corporate governance (GCG). meanwhile, capital adequacy ratio (CAR) has significant positive on corporate social responsibility and non performing loan (NPL), Net Interest Margin (NIM) doesn't emphaze on corporate social responsibility. Good corperate governance is most influential variable on Corporate Social Responsibility

Activist hedge fund success: The role of reputation

AbstractResearch SummaryActivist hedge funds are the new breed of corporate raiders, yet we know little about how the management and board of target firms respond to activist investors. Using a behavioral perspective, we propose that an activist's reputation for being confrontational conveys information to the target company as to what they are likely to encounter in an activist campaign. To avoid the potential adverse consequences of engaging in such a contest, we propose and find that target companies are more likely to settle with an activist known for being confrontational. Our study contributes to corporate governance research by providing insight into the importance of the social context surrounding activist campaigns and the role of reputation in influencing how companies respond to activist investors.Managerial SummaryGiven that hedge fund activism is having a major impact on firm's strategic and financial decision‐making, it is important to understand how these activist investors influence companies. An activist campaign is a highly disruptive event leading to considerable ambiguity and uncertainty as to what is likely to transpire. Given this information void, our study finds that the board and management respond based on the reputation of the activist investor that has taken a stake in the company. That activist investors with a reputation for being hostile are more successful may be a defensive response on the part of management in order to avoid the potential adverse consequences of a hostile campaign. This has implications for corporate governance and the fiduciary duty of the board.

Personal and Organizational Higher Purpose, Corporate Governance and Shareholder Value: Survey Results

This paper reports the findings of a recent survey of 1019 individuals to learn about their commitment to and perceived value from personal and organizational higher purpose, and examines the implications of the findings for corporate governance and the stated corporate goal of shareholder value maximization. We found that personal higher purpose promotes personal well-being, including greater happiness and lower stress from COVID-19, and this effect was stronger when the purpose statement was written down. This notwithstanding, while many individuals stated that they have a personal higher purpose, very few had a written statement of purpose. The incidence of written higher purpose statements is higher among organizations than among individuals. Employees of organizations with higher purpose statements were happier and prouder of their organizations. Two of the findings have potentially important implications for corporate governance: (i) The effects we documented were stronger when the purpose statement was written down and tied to society, employees, and customers, rather than shareholders; and (ii) employees trusted their leaders to make better business decisions when they endorsed the social value of the corporate higher purpose.

Governance by Constraint: The Corporate Governance Implications of an Anomaly

We study the corporate governance implications of the anomaly, generated by the fact that major equity investors overweight their portfolios toward high-beta stocks because of leverage constraints. We hypothesize that the resulting higher portfolio concentration will increase the monitoring incentives of investors and reduce the agency costs of the firms they own. We test this hypothesis by quantifying a measure of leverage constraint of mutual funds and relating it to their monitoring behavior and the portfolio firms' governance quality. We find that leverage-constrained funds monitor more actively – vote more often against management in contentious proposals and are more likely to induce CEO turnovers. Consequently, the portfolio firms have a higher value of cash holdings, lower need to alleviate agency problems through payouts, and higher investment efficiency. These effects are more pronounced as the beta anomaly becomes more acute, i.e., when the security market line gets flattened. We identify a causal effect using extreme fund outflows and the number of nearby banks as instruments for fund leverage constraints.

The DAO Controversy: The Case for a New Species of Corporate Governance?

This paper reviews the recent case of The DAO “hack” in June 2016 and analyzes The DAO's response in its time of crisis, and its implications for corporate and IT governance. There was no human-led governance in The DAO. Instead, The DAO placed its trust in the smart contract they had built together on the blockchain, which became its governance mechanism. The events that follow allow us to see hitherto unobservable organizational behaviors that are unique to trustless organizations, and hence The DAO gives us a glimpse at a new species of corporate governance. This paper explores the implications of these ideas: we propose the emergence of a spectrum of organizations based on the alienation of trust, we consider the economic impact and legality of decentralized autonomous organizations (DAOs), smart contracts, work and job design, and what happens when corporate governance is managed solely by IT governance.

Has Financial Reporting Quality Converged Under IFRS? International Differences in Conditional Conservatism

Using a large sample of firms that report under mandatory IFRS from 51 countries, this study examines the association between conditional conservatism, institutional quality, and Big 4 audits. We hypothesize and find that the degree of conditional conservatism is higher in countries with better institutional quality. In contrast to popular belief, we provide evidence that Big 4 audits are not associated with the degree of conditional conservatism. Finally, we show that reporting differences between high and low institutional countries have not diminished over time. Thus, our findings suggest that the implementation of IFRS remains predictably uneven. These findings have implications for investors, standard-setting bodies, and corporate governance.