Improve Corporate Governance Research Articles

THE EFFECT OF ENVIRONMENTAL, SOCIAL, GOVERNANCE ON FINANCIAL DISTRESS IN COMPANIES LISTED ON THE IDX

General Background: Financial distress is a critical condition that companies experience before bankruptcy or dissolution, making its identification essential to prevent such outcomes. Specific Background: In recent years, aspects of Environmental, Social, and Governance (ESG) have gained attention as potential indicators of financial health, particularly in manufacturing companies. Knowledge Gap: However, limited research examines how ESG factors influence financial distress, especially in the context of emerging markets like Indonesia. Aims: This study investigates the impact of ESG disclosures on financial distress among manufacturing companies listed on the Indonesia Stock Exchange (IDX) during 2019–2022. Results: The results indicate that corporate governance disclosure has a significant negative effect on financial distress (p = 0.008), whereas environmental and social disclosures do not show a significant impact (p = 0.342 and p = 0.455, respectively). Novelty: This study highlights the distinct role of governance in mitigating financial distress, differentiating it from environmental and social disclosures, which have shown no significant effect. Implications: The findings suggest that corporate governance improvements may help companies avoid financial distress, while environmental and social factors may require further investigation for more comprehensive insights.

Related party transactions and tax avoidance: does government ownership play a role?

Purpose This study aims to examine the association between related-party transactions (RPT) and tax avoidance. The study further investigates whether government ownership improves scrutiny of tax aggressiveness activities among Taiwanese group companies. Design/methodology/approach The authors used 16,061 firm-year observations derived from the Taiwan Economic Journal Database (TEJ) from 2005 to 2021. The authors applied GLS fixed-effect regression. Additional tests, such as a difference-in-difference examination, propensity score matching (PSM) analysis and other tests were performed to obtain more robust results. Findings The results show different consequences between eliminated and non-eliminated RPT toward tax avoidance. RPT enhances tax benefits aligned with the efficient contracting hypothesis. Under varying degrees of government control, this paper empirically reveals that government ownership has a role in mitigating tax avoidance. This implies that government control improves corporate governance by balancing opportunistic and efficiency-based tax avoidance. Practical implications This paper provides substantial practical implications since using the strategy of reducing taxes through RPT will result in greater tax savings at the business group level. Therefore, RPT is beneficial for enhancing business efficiency. Furthermore, government control increases corporate governance quality, which could lead to balancing tax aggressiveness activity. Originality/value Using a unique setting for RPT reporting in Taiwan, this paper divides RPT into eliminated and non-eliminated RPT. The findings offer significant insight for policymakers, investors and managers regarding the utilization of RPT to enhance efficiency in business groups. Additionally, this paper highlights the role of government control in preserving a harmonious balance in tax planning practices.

The Impact of Corporate Governance and Fair Value Accounting on Debt Contracts

This paper investigates the theoretical relationship between corporate governance, fair value accounting, and debt contracts. It primarily examines the individual impacts of corporate governance and fair value accounting on debt contracts, while also exploring the influence of corporate governance on fair value accounting. The study emphasizes the importance of considering the interests and legal status of creditors in the context of debt contracts. The findings indicate that strong corporate governance can reduce the likelihood of debt default and that the company’s restructuring costs in the event of a default determine whether improved corporate governance will increase or decrease debt costs. Additionally, the study reveals that the strength of corporate governance affects the value relevance of fair value accounting. However, the impact of fair value accounting on debt contracts is not inherently positive or negative; for instance, companies may use fair value adjustments with manipulative intent to enhance performance. Ultimately, the research highlights that discussions about corporate governance should not prioritize shareholder interests exclusively but also consider the legitimate position of creditors.

Environmental, Social, and Governance-Based Artificial Intelligence Governance: Digitalizing Firms’ Leadership and Human Resources Management

The integration of artificial intelligence (AI) with environmental, social, and governance (ESG) factors is impacting the direction of enterprises and society in our swiftly expanding world. This collaboration has significant potential to tackle critical issues such as reducing the impact of climate change, fostering social integration, and improving corporate governance. Nevertheless, the implementation of AI gives rise to intricate matters and apprehensions, as it brings out a distinct array of hazards and ethical quandaries for ESG performance. The objective of the present research is to fill this gap by gathering and offering a contemporary evaluation of the influence of advancing technologies on the strategic leadership’s role in fulfilling the business goal within the context of ESG considerations. We used bibliometric analysis to investigate the study subject using R Studio version 4.2.0 and the bibliometric applications VOSviewer version 1.6.20 and Biblioshiny version 4.2.0. We obtained data from the Scopus database and used the PRISMA approach to suitably choose 205 research publications. The results suggest that it is essential to use AI and ESG to digitize the boardroom. Additionally, it is crucial to guarantee its security using an advanced detection system. Therefore, chief executive officers (CEOs) must give priority to the issues of transparency and cybersecurity to reduce risks and successfully inspire trust in business activities.

When R&D investment improves firm value: the role of board gender diversity

Purpose Agency theory postulates that research and development (R&D) investments are subject to managerial discretion and thus may not enhance firm value as expected. The inconclusive empirical findings in the literature is a testament of that. This paper aims to investigate the interplay between board gender diversity (i.e. women on boards) and value relevance of firms’ effort to innovate as indicated by firms’ R&D investments. Design/methodology/approach Through a sample of 1,626 US-listed firms from the period 2004 to 2019, the authors examine whether board gender diversity promotes or hampers value relevance of firms’ efforts to innovate. The authors use ordinary least squares as the baseline model and address potential endogeneity through instrumental variable two-stage least square, and selection bias through Heckman selection model. Finally, the authors use the financial crisis of 2008 as a natural experiment to investigate the effect of board gender diversity during the crisis period. Findings The results show that board gender diversity positively moderates the relation between R&D and firm value. In times of financial crisis, R&D does not destroy firm value in firms with gender diverse board. The results are robust to measurement error, endogeneity issue, particularly simultaneity and selection bias. Practical implications The findings in this study have several practical implications. Firms that invest heavily in R&D should be mindful of gender diversity in their board recruitment strategies to enhance innovation outputs and firm value. Current and potential investors (i.e. shareholders) should take into consideration board gender diversity in their investment decision-making processes as the results show that gender diverse boards promote more effective governance, which, in turn, leads to better alignment of R&D investments with shareholder value. Regulators aiming to improve corporate governance policies should encourage gender diversity on the boards. The results align with global initiatives such as the United Nations Sustainable Development Goals, particularly Goal 5 on gender equality. Policymakers may use the findings in this study to advocate for more gender diverse governance structures within corporations. Originality/value This study investigates the role gender diverse boards play in creating value from firms’ R&D activities.

Does enterprise digital transformation inhibit executives’ excess perks?—Evidence from China

ABSTRACT This study uses data on Chinese non-financially listed companies to examine the relationship between enterprise digital transformation and excess perks. We discovered that excess perks may be greatly mitigated by enterprise digital transformation and that these conclusions remain robust following a series of endogeneity and robustness tests. The mechanism test finds that reducing information asymmetry within firms is a path for enterprise digital transformation to suppress excess perks. Further analysis reveals the negative relationship between digital transformation and excess perks is more significant in firms with duality and lower institutional investor shareholdings. This study provides a theoretical basis for promoting enterprise digital transformation and improving corporate governance mechanisms.

The nexus between board audit committee attributes and financial performance of firms in Africa

This research aims to study the connection between the features of board audit committee of a firm and its financial performance in Africa, by looking at the board audit committees’ characteristics of publicly traded companies in the four (4) biggest African financial markets. This research conducted an empirical analysis of the committee features in the years following the global financial crisis and before the COVID-19 pandemic outbreak. The data covered the period between 2013 and 2019. We analyzed the data using correlation analysis, GLS (Fixed and Random Effect Models), and GMM. We used features of the committee as explanatory variables. These include an independent outside director as the chairperson of the committee, whether the committee guards the integrity of the financial reporting of a firm, whether the committee regularly meets and hears the recommendations and complaints of the firm’s external auditor, and whether the committee effectively monitors the management of the firm. Furthermore, for the dependent variable; ROE and ROA were utilized as the metrics of the financial performance of a firm. The results exhibit positive and significant relations between the board audit committee features such as; effective monitoring of management, guarding the integrity of financial reporting, an independent director as chairperson of the committee, regularly meeting and hearing the recommendations and complaints of the external auditor, and the firm’s financial performance measures. The findings are useful to corporate governance regulators who are seeking to improve corporate governance guidelines and minimize the corporate insolvency of firms in Africa.

Corporate governance codes: A controversial efficiency?

The pursuit of good governance by companies confronts a fundamental challenge: defining what constitutes “good governance”. Existing corporate governance codes and their implementation documents fall short of offering a clear answer to this crucial question. Despite the establishment of a reference framework years ago, the focus has shifted from defining the objectives of good governance to a consensus on the means of achieving these objectives. Unfortunately, this consensus often absolves stakeholders from providing detailed explanations. Achieving effective good governance necessitates a shift in focus towards the underlying goals of governance structures. Two potential approaches emerge in this context. While many companies rely on codes without explicitly outlining their objectives, there is a compelling case for urging or mandating them to articulate the purposes of the governance methods they employ in their reports. This level of specificity has the potential to enhance the reflective qualities of the transparency process, fostering a more comprehensive understanding of the governance landscape. Beyond merely discussing the objectives of corporate governance, the pursuit of good governance necessitates the implementation of instruments whose efficacy transcends reliance solely on market discipline. The aim is not to undermine the imperatives of transparency and justification. Instead, the intention is to recognize that these elements, while essential, do not independently ensure the effectiveness of soft law instruments, such as governance codes. Nowadays, it is crucial to assess the extent to which traditional corporate governance codes respond to the needs of companies in the era of digitalization and sustainability. Therefore, conducting a critical analysis of the existing corporate governance codes will contribute in shedding light on the gaps of these instruments to come up with recommendations for improvements. Aims and objectives: This article will focus on the following areas: Defining the role and purpose of corporate governance codes in enhancing corporate performance and accountability and discussing the challenges and limitations of corporate governance codes, including compliance issues and enforcement challenges. Presenting empirical evidence on the impact of corporate governance codes on corporate behavior and analyzing, through the principle of comply or explain, whether code adherence leads to improved corporate governance practices and financial performance. Discussing emerging trends in corporate governance and offering recommendations for improving the effectiveness of corporate governance codes.

Evaluating The Impact of ESG Integration on The Financial Performance of Pertamina Geothermal Energy: A Sustainable Growth Perspective

The global energy landscape is undergoing a significant transformation driven by the urgent need to mitigate climate change, increased regulatory pressures, and rising stakeholder expectations. This study aims to explore the impact of ESG integration on the financial performance of Pertamina Geothermal Energy (PGE), a subsidiary of PT Pertamina (Persero), which plays an important role in the energy transition in Indonesia. This study uses secondary data from financial statements, prospectuses, annual reports, and information from the PGE website. In addition, historical data on the stock prices of power generation companies and comparative analysis of the industry are used. The analysis was carried out using the Discounted Cash Flow (DCF) method to calculate the intrinsic value of the company, as well as an assessment of sustainability policies, community engagement programs, and improvement of corporate governance. The results show that ESG integration has a positive impact on PGE's sales growth, profitability, and return on investment. Improved sustainability policies, community engagement programs, and corporate governance contribute significantly to better financial performance. The integration of ESG principles in PGE not only improves financial performance but also shows that sustainability and profitability can go hand in hand. These findings provide valuable insights for the broader energy sector, suggesting that ESG integration can drive positive change and facilitate an era where financial growth and environmental responsibility complement each other.

The role of auditing in corporate governance practice in emerging economies: insights from South African state-owned enterprises (SOEs)

PurposeWithin the context of public sector accountability, the purpose of this paper is to examine South African state-owned enterprises (SOEs) auditing practices and how they have contributed to mitigating prevalent corporate governance issues in South African SOEs.Design/methodology/approachThis paper utilised a thematic content analysis of archival documents relating to South African SOEs. Firstly, to assess the extent to which the auditing dimension of the corporate governance codes, applicable to South African SOEs, conforms with best practices. Secondly, to determine the extent to which the audit practices of all the 21 South African SOEs listed in Schedule 2 of the Public Finance Management Act, have implemented the identified best audit practices.FindingsThe findings suggest that South African SOEs appear to have adopted and implemented best audit practices to enhance the quality of their accountability in relation to their corporate governance practices, as contained in their applicable corporate governance frameworks. However, despite the high levels of conformance, the observation that most South African SOEs continue to fail and require government bailouts, appears to suggest that auditing has no bearing on poor SOE performance, and that other corporate governance factors may be at play.Practical implicationsThe discussion and findings in this paper suggest that the auditing practices of South African SOEs are adequate. However, that SOEs in South Africa continue to be loss-making may imply that this has contributed little to mitigating their corporate governance problems. Thus, policymakers and standard setters, including the Institute of Directors South Africa and relevant oversight bodies should pay attention to better developing means by which to curtail fruitless and wasteful expenditures by South African SOEs through improved corporate governance practices.Social implicationsMost SOEs’ mission statements encourage SOEs to be socially responsible and utilise taxpayers’ monies efficiently and effectively without engaging in fruitless and wasteful expenditure. This study is conceived in this light.Originality/valueTo the best of the author’s knowledge, while acknowledging previous studies, this paper is the first to explore this topic in the context of SOEs and in the context of Africa.

The impact of executives' green experience on environmental, social, and governance (ESG) performance: Evidence from China

Corporate Environmental, Social, and Governance (ESG) performance reflects the alignment of firms with national strategies and macroeconomic development principles, and serves as a crucial foundation for achieving sustainable development. Investigating the factors driving corporate ESG performance has significant theoretical and practical implications. This study utilizes data from Shanghai and Shenzhen A-share listed companies in China from 2010 to 2022 and theoretically analyzes and empirically tests the effects and mechanisms of executives' green experience on overall ESG performance and performance on each element of ESG. The results indicate that executives' green experience enhances the efficiency of corporate green patent innovation, thereby improving environmental performance. In addition, green experiences foster environmental investment and charitable donations, leading to better social performance. Executives with green experience also attract green investors and analysts' attention, thereby improving corporate governance and ultimately positively affecting overall corporate ESG performance. The robustness of these findings is confirmed through alternative variable measurements, Propensity Score Matching(PSM) Tests, Entropy Balancing Tests, Instrumental Variable Tests, and controlling for the impact of significant public health events. Further analysis revealed that the positive effects of executives' green experiences on corporate ESG performance are more pronounced in non-heavily polluting corporations, non-state-owned corporations, and firms where executives have higher power. This study enriches research on the consequences of executives' green experiences and the determinants of corporate ESG performance, extending the boundaries of how executive characteristics influence micro-level corporate outcomes. It also provides valuable references for regulatory bodies promoting ESG practices and decision-making by capital market participants.

Does environmental, social, and governance rating affect firms’ real earnings management

We examine whether and how ESG ratings influence real earnings management (REM) in firm in the context of China. We find a significant negative correlation between ESG ratings and REM, suggesting that higher ESG ratings improve corporate governance and transparency, thereby reducing REM. Our findings also reveal that internal control quality, external supervision, analyst attention, and corporate governance enhance the negative impact of ESG ratings on REM. Our findings provide empirical insights for investors and policymakers in emerging markets on enhancing corporate transparency and governance through ESG performance.

Firm Level Attributes of Sustainability Disclosure Compliance: Moderating Role of Institutional Quality

Corporate Sustainability Disclosure Compliance (CSDC) has become increasingly important globally as stakeholders demand greater transparency and accountability from companies regarding their environmental, social and governance (ESG) practices. However, the extent to which companies comply with sustainability disclosure requirements can vary depending on the quality of the institutional environment in which they operate. In Nigeria, a country with a diverse economic landscape and varying levels of institutional quality, understanding how institutional factors influence firms' compliance with sustainability reporting guidelines is critical to promoting sustainable business practices and improving corporate governance standards. Therefore, the purpose of this study is to identify the factors influencing CSDC by examining the moderating effect of institutional quality using the rule of law as a proxy. Based on the theoretical framework of new institutionalism, a set of hypotheses was formulated and subsequently tested using a dataset of 118 listed companies from 2011 to 2017. The study found a statistically significant and positive relationship between the rule of law and CSDC in the Nigerian context. However, there was no statistically significant evidence to support the relationship between liquidity and the rule of law. In contrast, the relationship between industry type and the rule of law, as well as the relationship between leverage and the rule of law, were both positive and significant, suggesting better compliance with transparency in the presence of efficient legal systems. However, the interaction between taxation and the rule of law showed a negative relationship, highlighting the need for caution in interpreting its moderating role. This study contributes to existing knowledge, policy and practice by highlighting the moderating effect of the rule of law.

Impact of Corporate Governance on Voluntary Disclosure of Nigerian-Listed Industrial Goods Companies

This study investigates the impact of corporate governance on voluntary disclosure of Nigerian-listed industrial goods companies. Expo-facto was employed as the study's research design. For a period of fifteen (15) years, from 2007 to 2021, the study used data from secondary sources included in the yearly reports and accounts of the listed manufacturers of industrial goods. The population of the study consisted of thirteen (13) industrial product companies that are listed on the Nigerian stock exchange. As of December 31, 2021, a sample of 10 Nigerian industrial goods businesses that are publicly traded was used. Additionally, regression using Ordinary List Square (OLS) was used to analyze the data. The findings indicate that Board Independence, Board Gender, Board Experience, Board management ownership and chief executive officer duality have statistically significant and favourable effects on the voluntary disclosure of listed Nigerian industrial goods companies. However, it was discovered that there is statistically no positive link between VLD and any of the study's explanatory variables, with the exception of BEXP and BGND. According to the study's findings, improving corporate governance systems can encourage voluntary disclosure, which can increase corporate transparency and boost corporate accountability for Nigerian manufacturers of industrial goods. The results of this study are also helpful for market participants, such as investors, regulators, and others, in the Nigerian capital markets.

Tax Audit Strategy in Promoting the Improvement of Corporate Governance in the Field of Accounting

Tax Audit Strategy in Promoting the Improvement of Corporate Governance in the Field of Accounting

The Influence of Corporate Governance, Profitability, and Capital Intensity on Tax Avoidance in Manufacturing Companies Listed on the Idx in the Time Frame 2021-2023

Tax avoidance is a significant issue that can affect state revenues and fiscal fairness. Companies often use legal loopholes to reduce their tax liability, which while legal, is contrary to the primary purpose of tax laws. This study aims to find out and analyze corporate governance, profitability, and capital intensity affect tax avoidance in manufacturing companies in Indonesia. This study uses a quantitative approach with secondary data from the financial statements of manufacturing companies listed on the IDX. The independent variables in this study are corporate governance (audit quality and audit committee), profitability, and capital intensity, while the dependent variable is tax avoidance. Data analysis was carried out by normality, multicollinearity, heteroscedasticity, autocorrelation, and hypothesis test using the t-test and the F test. However, simultaneously, audit quality, audit committee, profitability, and capital intensity affect tax avoidance. The study implies that an increase in the number of audit committees and investment in fixed assets can reduce tax avoidance. These findings can be a reference for policymakers and corporate management in improving corporate governance to minimize tax avoidance practices.

Board sub-committee effectiveness, director attraction and director attrition: Do nomination and remuneration committees matter?

This study examines whether the effectiveness of board subcommittees is associated with director attrition and the attraction of new directors to boards. Using a sample of firms listed on the Australian Securities Exchange, we find that nomination and remuneration committee effectiveness is inversely associated with director attrition and positively related to new external directors joining boards. The results suggest the contribution of these subcommittees to improve corporate governance by strengthening the board's human capital through recruitment and retention of suitable talent. Furthermore, the influence of subcommittee effectiveness on attrition (attraction) is more pronounced in firms experiencing higher levels of information asymmetry, weaker governance quality and poorer performance. The results are robust to tests with alternative variables, entropy balanced matching, and additional controls. Overall, our findings show that improved governance through effective subcommittees helps maintain and enhance the human capital of boards.

Research on the Measures and Cost Benefits of Corporate Governance

Corporate governance is an important mechanism for protecting and promoting the interests of shareholders and promoting the healthy development of the companies. Corporate governance is a framework and principle of the internal organization management that aims to balance power among different stakeholders and to safeguard stakeholders' interests. Enterprises at different levels need effective corporate governance to maintain the positive development of the enterprise. Therefore, this paper analyzes corporate governance in firms through qualitative and theoretical analyses with the aim of exploring the measures that generate corporate governance, the costs, and benefits of these measures, and to make recommendations to improve corporate governance. Enterprises need to establish independent director accountability mechanisms to strengthen the regulatory awareness of the enterprise in the face of the problems of corporate governance. Meanwhile, it needs to establish incentive mechanism to encourage, optimize the equity structure and sound managerial market to help enterprises improve the management mechanism.

The Impact of Informationization Construction on Stock Price Synchronicity: Empirical Evidence from the "Pilot Zones of Integration of Information and Industrialization"1, a

Within the context of the rapid advancement of information technology, this study examines the effects of information construction in the "Pilot Zones of Integration of Information and Industrialization" on the synchronicity of stock prices. The research findings indicate that the development of information has a significant reducing effect on stock price synchronicity. This conclusion still holds after undergoing a series of robustness tests. Furthermore, the impact is more evident in enterprises with dual roles and in areas with lower levels of legal governance. Additional analysis suggests that information construction mitigates stock price synchronicity by improving corporate governance and ensuring the prompt and accurate representation of company-specific information. In conclusion, this research offers insights for policymakers regarding the promotion of informationization, the optimization of corporate governance frameworks, and the enhancement of capital market efficiency. It advocates for the strengthening of legal protections and oversight mechanisms to guarantee that informationization can effectively elevate corporate governance standards and market transparency.

CEO Power and Firm Value: Affirmative Action Implications

Objective: This research aims to reveal the critical role of CEO leadership and affirmative action policies, particularly those related to gender equality, in enhancing firm value. Research Design: This study employs a quantitative design by analyzing secondary data from the ESG Intelligence Dataset and publications of the Indonesia Stock Exchange from 2017 to 2021. Population and Sample: The population of this research comprises non-financial companies listed in the Kompas 100 Index in Indonesia. The sample was selected using a purposive sampling method, yielding 42 companies per year, resulting in a total of 210 observations. Methodology: The data were analyzed using multiple regression analysis to examine the influence of CEO power and affirmative action on firm value. Findings: The research findings indicate that CEO leadership has a positive and significant impact on firm value. Affirmative action policies related to gender equality also play a positive role in strengthening the effect of CEO leadership on firm value. Conclusion: This research provides in-depth understanding and offers an innovative perspective for companies to optimize the role of CEOs and affirmative action policies to enhance long-term firm value. The primary recommendation is that companies should consider implementing affirmative action policies, especially those related to gender equality, to help align the interests of stakeholders and improve corporate governance.