Internal Corporate Governance Research Articles

Women on Board and ESG Performance: Insights from the Italian Utilities Sector

The purpose of this paper is to investigate the relationship between gender diversity and environmental, social and governance (ESG) performance in the Italian utilities sector. The study examines whether the presence of women on the board of directors (BoD) is related to ESG dimensions. We analyzed a sample of 482 utility companies for the period 2018-2022 and we developed an econometric model applying unbalanced panel regression data with firm fixed effects and controls per year. Within a multivariate regression model, the authors considered the ESG score provided by Refinitiv Eikon to test the research hypotheses. Findings show that the presence of women on board of directors improves ESG performance when a critical mass of female board members (at least three) is reached. A critical threshold of female directors also positively influences the scoring of environmental and social pillars. From a managerial perspective this study draws attention to BoD composition encouraging utility companies to define internal corporate governance mechanisms thoroughly. The overall findings support managers, policy makers and regulators on how to improve ESG performance through gender diversity on BoD. This paper offers an in-depth examination of the ESG practices of utility firms, and it attempts to bridge the gap in prior literature on the determinants of ESG performance in the Italian utilities sector. This study is the first that investigates the relationship between board gender diversity and ESG performance in such a context exploring how a critical mass of women on BoD affects ESG dimensions.

CEO foreign experience and corporate financial investment

Using a hand-collected sample of CEOs' foreign experience data for Chinese listed firms from 2008 to 2018, we investigate the impact of CEO foreign experience on corporate financial investment behaviors. We find a significantly negative association between CEO foreign experience and risky financial investment and a significantly positive association between CEO foreign experience and safety financial investment, suggesting CEOs with foreign experience can help constrain their firms' risky investment. The result is robust to Heckman two-stage analysis, instrumental variable approach, propensity score matching, and other robustness tests. Further analyses reveal that CEOs with foreign experience act as a key role of inhibiting the risky financial investment when firms have suffered poor internal or external corporate governance. Moreover, the relation between CEOs' foreign experience and financial investment is more pronounced when CEOs have financial background or CEO's tenure is shorter. The relation between CEOs' foreign experience and financial investment is more significant when CEO's overseas background belongs to a common law country or region. After replacing the dependent variable, this paper finds that CEO's overseas background also inhibits firm's share price risk and business risk. Finally, this conclusion is consistent with the CFO's overseas experience as the research object. Overall, the findings suggest that CEO foreign experience matters for corporate financial decisions in emerging markets.

Challenges faced by CEOs in executing turnaround strategies in state-owned enterprises in South Africa

Purpose: Building on theories of the firm, this research examines the challenges faced by chief executive officers (CEOs) in executing a turnaround strategy in the state-owned enterprises (SOEs) in South Africa.Design/methodology/approach: This is a qualitative study conducted within 10 of the 21 SOEs classified as Schedule 2 (major public institutions) in the Public Finance Management Act (PFMA) that previously embarked on a turnaround. The study comprised 24 semi-structured interviews with CEOs, chief financial officers (CFOs), chief operating officers (COOs), boards, union representatives, regulators, and shareholders as the key players in a turnaround of a SOE. Thematic analysis was used to analyse data.Findings/results: This research suggests that political landscape and power struggles, inappropriate practices of board, politicians and shareholders, inefficient internal operations, leadership instability, legislation and corporate governance hinder the execution of turnaround strategies in the SOEs. This research is consistent with public choice, agency and resource dependence theories.Practical implications: State-owned enterprises need to be free from political interference to be able to turn around. Government, board, shareholders, communities, regulators, service providers and unions need to relook at how they portray the CEOs of SOEs, and rethink how they deal with them.Originality/value: This research contributes to policy, theory, practice, economy and society by expanding the theories of the firm, capturing real-life challenges the CEOs of SOEs face in executing a turnaround strategy and solutions to tackle the challenges. A roadmap to assist SOEs in executing a turnaround strategy successfully is recommended.

Dimensions of corporate culture and financial performance: Evidence from Chinese publicly listed companies

Corporate culture is the soul of the enterprise and plays a vital role in creating corporate cohesion and improving business performance; in many cases, the role of corporate culture on business performance is not direct, but there are a series of intermediary influencing mechanisms. Most of the current academic circles have studied the influencing mechanism between corporate culture and business performance from the perspective of dynamic matching. Still, there is a lack of research results based on the theoretical perspective of Edgar H. Schein's corporate culture dimensions. Based on Edgar H. Schein's theoretical perspective of corporate culture dimensions, this study explores the influencing mechanism between corporate culture and the business performance of Chinese listed companies from the dimensions of corporate governance culture in the external environment and corporate governance culture in the internal environment. It conducts empirical research using the data of A-share listed companies in China's Shanghai Stock Exchange and Shenzhen Stock Exchange as samples. The results are twofold. First, the adaptability of the enterprise's external environment has a significant and positive effect on the Weighted average return on net assets in the financial dimension; it has a substantial and positive impact on customer satisfaction in the non-financial dimension. Second, internal corporate governance culture has a significant and positive effect on weighted average return on net assets, Debt-to-Equity Ratio, Earnings per share in financial dimensions, Percentage of highly educated employees, customer satisfaction survey, and non-financial dimensions. Percentage of highly educated employees, Customer Satisfaction, Customer retention rate, and R&D investment as a percentage of operating income in non-financial dimensions have significant positive effects. The findings of this study provide theoretical and practical guidance for Chinese listed companies to strengthen the construction of external environment adaptive culture and internal corporate governance culture.

Integration of Environmental, Social and Governance (ESG) Factors in Financial Reporting: A Global Perspective

The integration of Environmental, Social and Governance (ESG) considerations in financial reporting is increasingly receiving significant attention, driven by increasing investor demand and corporate social responsibility. Internal factors in an organization, such as the composition of the board of directors, financial performance, internal control system, corporate governance, and institutional environment, have a significant influence on ESG integration. This research analyzes the role of internal factors in influencing ESG practices, highlighting the importance of diverse leadership, financial stability, effective control systems, disclosure transparency, and a stable institutional environment. By paying attention to these factors, companies can improve their ESG practices, reduce risks, and make a greater contribution to sustainable economic, social, and environmental development.

Determinants of Global Banks’ Climate Information Disclosure with the Moderating Effect of Shareholder Litigation Risk

This paper explores the influence of a country’s institutional factors and internal corporate governance on banks’ voluntary climate finance disclosures. The analysis focuses on the world’s top 100 banks, examining the institutional and governance factors that shape TCFD disclosure practices. From an institutional perspective, the research reveals a heightened level of climate financial disclosure in banks located in countries where investor protection is strong under the common law system and environmental performance is commendable. On the internal governance front, it is observed that the independence and diversity of the board of directors play a facilitating role in promoting such disclosure. Additionally, in countries where shareholder litigation is easily pursued, a moderating effect is observed wherein board independence paradoxically inhibits TCFD disclosure. This study stands as the first to explore the determinants of climate financial disclosure in global banks, confirming the driving forces behind such disclosures through institutional and stakeholder theories and providing crucial empirical evidence to enhance research on voluntary disclosure.

The Internal Auditors’ Perception of Blockchain Technology Implementation in Companies’ Business Activities

Nowadays, business activities of every company deal with numerous challenges related to various microeconomic, national, and global aspects. Information and communication technologies’ (ICTs’) developments have been crucial in that context, as they disrupt internal business processes, ways of communication, tax services, risk and regulatory functions, and other business aspects. A key game changer new technology, with concrete application in companies, is blockchain technology (BCT). BCT enables automation, acceleration, transparency, traceability, and increased security of numerous business processes. BCT and related disruptions in the ways of working do not bypass internal audit function, as an internal corporate governance monitoring mechanism, either. As a result, contemporary internal auditors must be adaptable, agile, and proactive to be able to audit and consult about BCT enabled companies’ business activities. Thus, the research problem was related to internal auditors’ perception of implementing BCT in their companies’ business activities. Based on the conducted critical literature review, we developed the following research hypothesis: internal auditors who work in a company where BCT is already implemented in its business activities will have a favorable view of the implementation of BCT in the company’s business activities compared to internal auditors whose company does not currently use and have no plans to implement BCT in the following years. To test research hypothesis, survey research was conducted among internal auditors in Croatia. We obtained responses from 77 internal auditors from different sectors. Collected data were analysed by applying multiple regression analysis. Obtained results indicated that there exists a statistically significant relationship between internal auditors’ perception of implementing BCT and companies’ application level of BCT.

Institutional investors' corporate site visits and firm-level climate change risk disclosure

This study examines whether and how institutional investors' site visits affect firm-level discretionary disclosure of climate change risk. Using a sample of Chinese listed companies on the Shenzhen Stock Exchange from 2013 to 2021, we find that site visits by institutional investors significantly promote corporate climate change risk disclosure (CCRD). This positive correlation is robust to a series of sensitivity tests, including alternative measures of institutional investors' site visits and corporate CCRD, alternative samples, a firm fixed effects model, one-year lag of the independent variable, an instrumental variable method, and a propensity score matching procedure. Mechanism analyses indicate that the positive impact of institutional investors' site visits on corporate CCRD is primarily driven by increased corporate information exposure. Further analyses demonstrate that the effect of site visits on firm-level CCRD is more pronounced in firms with weaker internal corporate governance or external governance. This study extends the existing literature on the economic consequences of institutional investors' site visits and the driving factors of corporate discretionary disclosure regarding climate change risk, providing insightful implications for corporate managers, investors, and regulators.

Unveiling the influence of institutional quality on board gender diversity and corporate environmental, social, and governance disputes in China

AbstractThis paper unravels an unprecedented interplay between board gender diversity (BGD) and corporate environmental, social, and governance (ESG) disputes among Chinese A‐share‐listed nonfinancial companies from 2017 to 2021. Framed within a knowledge‐based and sensemaking perspective of institutional frameworks, the research not only illuminates the profound impact of internal (corporate governance ratings) and external (regional institutional development) institutional factors on this intricate relationship but also brings to light a paradigm‐shifting revelation. The study employed a diverse set of empirical tests, ranging from ordinary least squares regression to advanced methods such as the generalized method of moments, two‐stage least squares, and propensity score matching, providing a nuanced and comprehensive analysis. The findings highlight the pivotal role of female directors in significantly mitigating ESG disputes. A mechanism analysis further uncovers that internal and external institutional quality are potent positive moderators in shaping the BGD–ESG dispute dynamic. This research has profound implications, providing valuable insights for stakeholders, policymakers, and scholars, offering a comprehensive understanding of how gender diversity fosters sustainability while unravelling the intricate tapestry of internal and external institutional dynamics that shape ESG outcomes.

Blockchain mania: A perspective on corporate executive opportunism

This study investigates whether investors' overreactions to blockchain-related announcements is driven by corporate executive opportunism in the Chinese capital market. We manually collect blockchain-related announcements made by Chinese listed firms over 2016–2022 and conduct an event study to estimate market reaction. The announcements are further categorized as value-driven and speculation-driven announcements. Although both announcement types elicit positive short-term market reactions, the long-term reactions to speculation-driven announcements fade and even reverse, while the value-driven ones remain positive. Additionally, we determine that speculation-driven announcements are followed by seasoned equity offerings, negative news releases, and reductions in the stockholdings of large shareholders and executives, suggesting corporate executive opportunism. Finally, we demonstrate the efficacy of internal and external corporate governance in reducing corporate executive opportunism. Our study sheds light on market reactions to blockchain-related announcements from the perspective of executives’ opportunism.

When MNEs bribe more? The role of managerial discretion

PurposeThis paper builds upon managerial discretion literature to study the relationship between foreign ownership and bribery intensity.Design/methodology/approachBuilding on World Bank’s data of 9,386 firms from 125 countries over the period 2006–2018, this paper uses Tobit regression, ordered probit and logit models to empirically test the hypotheses.FindingsThis paper finds that firms have higher bribery intensity when executives have a higher level of managerial discretion. Smaller firms with slack financial resources tend to bribe more when they face more government intervention, munificent and uncertain industrial environment.Originality/valueExtant corruption literature has addressed the effects of external institutional settings and internal corporate governance on bribery offering among multinational enterprises (MNEs). How much, and under what condition do top executives matter in bribery activities are yet to be answered. This paper integrates the concept of managerial discretion with corruption and bribery literature and offers a potential answer to the above question. In addition, prior corruption and bribery literature have primarily studied bribery through either micro- or macro-level analysis. This paper adopts multiple-level of analyses and elucidates the foreign ownership and bribery relationship from the organizational and industrial levels.

System Identification of Enterprise Innovation Factor Combinations—A Fuzzy-Set Qualitative Comparative Analysis Method

High-tech manufacturing enterprises, as innovative entities, are a key focus of national attention. Currently, such enterprises are facing both internal governance pressure and external institutional pressure. Unlike traditional studies that mostly use regression equations, this article uses the fuzzy-set qualitative comparative analysis method to examine how high-tech manufacturing enterprises can coordinate their internal governance mechanisms and external institutional pressures to achieve optimal innovation. This improves the complex mechanism of the multiple factors jointly explaining corporate innovation, and also helps to elucidate the nonlinear relationship between internal governance factors, external institutional factors, and corporate innovation, effectively enriching research methods and results. However, there has not been any research on the issue of enterprise innovation from the perspective of coordinating the two, which urgently needs to be addressed. This article examines how high-tech manufacturing enterprises can reconcile their internal governance mechanisms with external institutional pressures to achieve optimal innovation. The results showed that (1) a single factor cannot constitute the necessary conditions for innovation in high-tech manufacturing enterprises, but executive and shareholder governance have universality in the innovation in high-tech manufacturing enterprises; (2) in the absence of political advantages, high-tech manufacturing enterprises should focus on the coordinated development of internal governance, making board, executive, and shareholder governance the core conditions for innovative development; (3) with political advantages as the main focus and market attention as a supplement, high-tech manufacturing enterprises promote innovative development by combining executive and shareholder governance. This finding indicates a significant substitution effect between government legitimacy and board governance, and confirms that the importance of obtaining government legitimacy for high-tech manufacturing innovation is higher than market legitimacy. This article enriches the research on enterprise innovation by linking internal corporate governance with external institutional pressure, expands the research on the coordination relationship between institutional pressure and corporate governance, and has enlightening significance in revealing the collaborative path for innovation in high-tech manufacturing enterprises.

Returnee directors and green innovation

This study examines the effect of returnee directors, defined as local directors who have studied or worked in foreign countries, on a firm’s green innovation. Utilising robust econometric modelling, we examine a large sample of A-share nonfinancial firms listed on the Shenzhen and Shanghai stock exchanges. Our findings reveal a positive and significant relationship between returnee directors and green innovation. Interestingly, this association remains consistent across both environmentally sensitive and non-sensitive industries. However, it becomes more pronounced when returnee directors are non-executive, function within state-owned enterprises, number more than one on the board, or operate in firms with poor internal and external corporate governance environments. Furthermore, we demonstrate that returnee directors, armed with foreign education or work experience, increase green innovation. The results withstand a series of robustness checks, including the Heckman two-step sample selection model and propensity score matching. Overall, the results suggest that returnee directors drive green innovation.

Board effectiveness and corporate investment in emerging markets: evidence from the gulf cooperation council countries

PurposeThis study aims to empirically examine the impact of internal corporate governance mechanisms (ICGM) related to the size of the board, board composition, CEO duality and audit committee independence as a single metric on a firm’s investment decisions.Design/methodology/approachThis study attempts to develop an internal corporate governance quality index comprising 10 items under four main ICGMs – size and independence of the board, CEO duality and audit committee independence – employing panel data analysis to investigate its impact on the investment decisions in 301 nonfinancial firms listed in six emerging capital markets in the Gulf Cooperation Council (GCC) member countries for the years 2015–2020. Data were extracted from sample companies' websites, stock markets, annual reports and Refinitiv database.FindingsThis study provides convincing evidence that effective ICGMs minimize inefficient investment and ultimately boost investment efficiency. The findings remain consistent even after considering the potential endogeneity bias.Originality/valueThis study provides empirical evidence on investment efficiency in the GCC region and emphasizes the importance of high-quality ICGMs in reducing inefficient investment. By examining the impact of ICGMs on investment inefficiencies, this study contributes to the corporate governance literature. The GCC region's unique economic and social contexts, with its growing economies, are considered to shed light on this issue.

Does ESG report greenwashing increase stock price crash risk?

ABSTRACT From the perspective of non-financial information greenwashing, this paper investigates the impact mechanism of environmental, social and governance (ESG) report greenwashing on stock price crash risk. The results indicate that ESG report greenwashing increases the stock price crash risk. In high earnings management companies, ESG report greenwashing is positively correlated with stock price crash risk, and ESG report greenwashing and earnings management are complementary. Further analysis shows that better internal and external corporate governance can suppress the impact of ESG greenwashing. In addition, in the voluntary disclosure and private enterprise samples, ESG report greenwashing has a greater impact on the stock price crash risk. Mechanism analysis found that the greenwashing of ESG reports intensified the information asymmetry，which increased the stock price crash risk. Overall, our evidence is consistent with the masking effect of socially responsible information, and that ESG greenwashing increases the stock price crash risk.

Internal corporate governance and cash holdings: the role of external governance mechanism

Internal corporate governance and cash holdings: the role of external governance mechanism

Income smoothing in Brazilian credit unions: the effects of default

Purpose: This research aims to analyze whether credit unions manage their accounting results in order to smooth them through the provision for doubtful accounts (income smoothing), from a default perspective.
 Methodology: The sample reaches 938 unique cooperatives considering the period from December 2010 to December 2018, with data from the Central Bank of Brazil, tested using the multiple regression statistical technique, in quarterly panels.
 Results: The variation in the stock of credit operations and the adjusted net income were not statistically significant in the model, however it was not possible to accept the hypothesis that credit unions use the allowance for loan losses (PCLD) as a mechanism for managing results. The interest rate implicit in the result of income from credit operations was significant, and therefore related to the PCLD variation, while the condition of free admission did not show statistical significance. The variation in default was significant in the model, with a negative coefficient, implying consistency with the earnings management hypothesis, since in a scenario of higher default (risk) the relationship is negative and, therefore, PCLD levels are lower, avoiding potential negative results.
 Contributions of the Study: The results indicate the absence of earnings management by PCLD in the sample and period, contributing to the discussion of the relationships between earnings management variables. This enables credit unions to reflect on their internal corporate governance structure. In addition, the evidence contributes to the progress of the literature on earnings manipulation in credit unions, for which there are few studies available and play an important role in the Brazilian market, ensuring funding flows to economic sectors not served by traditional banking institutions.

Egregious separation payments The role of internal and external corporate governance

Egregious separation payments The role of internal and external corporate governance

Does Effectiveness of Internal Corporate Governance and Top Management Influence Corporate Performance The Role of Ownership Concentration

Does Effectiveness of Internal Corporate Governance and Top Management Influence Corporate Performance The Role of Ownership Concentration

Corporate social responsibility oriented boards and triple bottom line performance: A meta‐analytic study

AbstractIn this article, we aim to investigate the effect of corporate social responsibility (CSR)‐oriented boards on triple bottom‐line (TBL) performance and whether internal corporate governance exhibits a facilitating role in achieving the sustainable development goals by enhancing the performance indicators of the TBL. Specifically, this article aims to shed light on this issue by meta‐analyzing the relationship between good governance and both social and financial performance, using a global sample to facilitate this analysis taking into account the incidence of the institutional characteristics of different countries and their impact on the relationship studied, by means of eight meta‐analyses. For this purpose, we conducted a meta‐analytic study on a sample of 289 articles published between 1997 and 2021. The results show that CSR‐oriented boards have a direct effect on corporate social performance (CSP) indicators and that their impact on financial outcomes is mediated by CSP strategies. Board size, gender diversity, and board independence present a facilitator profile of CSP, while only gender diversity enhances financial outcomes. The influence of CSR‐oriented boards is more acute in countries with greater protection for stakeholders and stronger environmental awareness.