Internal Governance Mechanisms Research Articles

On the measurement of corporate governance and its impact on bank profitability and credit risk: The case of Tunisian listed banks

AbstractThis paper explores the influence of corporate governance on the profitability and credit risk of a sample of listed banks in Tunisia. The methodology involves two main steps. Firstly, principal component analysis is employed to construct a novel governance index, assessing the quality of both internal and external bank governance. This index takes into account the degree of compliance and application of directives and laws mandated by the Tunisian Central Bank regarding banking governance. In the second step, panel data analysis is conducted to scrutinize the impact of internal and external governance mechanisms on the profitability and risk of Tunisian banks. The results reveal that as the governance index increases, the profitability of banks improves in terms of return on assets and stock market performance. Additionally, a higher governance index is correlated with a reduction in credit risks, as indicated by lower instances of non‐performing loans and an increased rate of coverage for classified debts. To enhance the robustness of our results, we calculate a standard governance score based on existing empirical literature. Furthermore, to account for potential endogeneity, we employ the two‐step system generalized method of moments.

How Board Monitoring and Mandated Clawbacks Shape Managers’ Use of Discretion: Experimental Evidence

ABSTRACT We use an experimental setting to examine how an internal governance mechanism—board monitoring—moderates managers’ use of discretion in response to a regulatory governance mechanism—mandated clawbacks. Our study addresses a significant gap in the literature that has largely examined the effects of different governance mechanisms in isolation. We predict and find that mandated clawbacks increase managers’ tendency to use operational discretion (relative to accounting discretion) when board monitoring is weak, but not when board monitoring is strong. Our results have important policy implications by demonstrating that a firm’s internal environment may be more effective than rules in curtailing manager’s opportunistic use of discretion.

Analyzing the Influence of Board Characteristics on Corporate Disclosure Practices: Insights from Listed Companies in Palestine

The objective of this research is to investigate how board characteristics impact the disclosure practices of corporations. The study applies it to listed companies in Palestine for the year 2023. The findings reveal a positive and significant correlation between corporate disclosure practices and specific board characteristics, such as board size, the presence of a governance committee, board insider representation, and the separation of CEO and Chairman of the Board (COB-duality). Furthermore, the study shows that the implementation of internal control governance mechanisms is associated with the highest level of corporate disclosure practices. In summary, the research highlights the influence of board composition and governance mechanisms on the transparency and extent of disclosures made by Palestinian listed companies.

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.

THE IMPACT OF INTERNAL CORPORATE GOVERNANCE MECHANISMS ON RELEVANCE OF THE VALUE OF ACCOUNTING INFORMATION FOR IRAQI BANKS LISTED ON THE IRAQI STOCK EXCHANGE

The research aims to study the impact of the internal mechanisms of corporate governance on the appropriateness of the value of accounting information. To achieve the research goal, the price model was used to measure the appropriateness of accounting information's value. The research community was also represented by commercial banks listed on the Iraqi Stock Exchange, while the research sample was represented by (10) Commercial banks listed on the Iraq Stock Exchange. The study concluded that there is a statistically significant effect of the independent variable, the number of board of directors meetings, on the appropriateness of the value of accounting information in commercial banks. The number of independent members also has a statistically significant impact on the appropriateness of the value of accounting information.

Pension funding gaps: do mandated external governance mechanisms matter?

PurposeThis study aims to examine whether and how the experience of specialized external governance mechanisms mandated by the Employee Retirement Income Security Act of 1974 – the actuary and auditor – affect pension plan funding.Design/methodology/approachThis study uses data from annual pension plan regulatory reports (Form 5500), Form 10-K filings, Form DEF 14A filings (company proxy statements) and publicly available data sources. The hand-collected data include information related to the pension plan’s actuary and auditor and various pension plan data disclosed in the company’s financial statement footnotes.FindingsThe author finds that more experienced actuaries and auditors are associated with better funded pension plans, especially when the company has higher financial risk or lower board independence. Additional analyses indicate that companies with more experienced actuaries and pension plan auditors are more likely to make higher annual pension plan contributions and hold fewer Level 3 fair value assets.Originality/valueThe dearth of pension plan governance research generally focuses on whether and how internal governance mechanisms affect pension plan funding. To the best of the author’s knowledge, this is the first empirical study of the relationship between external pension plan governance mechanisms and pension plan funding.

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.

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.

Governance and competitiveness evaluation of China's financial asset management corporations.

With the development of non-performing assets market and the requirement of maintaining national financial security and stability, asset management corporations (AMC) have set up in recent years, facing the dilemma of governance reform and competitiveness improvement. This paper puts forward the Governance-Performance-Competitiveness theory of asset management corporations, and constructs the comprehensive competitiveness evaluation index system of based on internal and external governance mechanisms, and studies the factors and degrees of internal and external governance affecting competitiveness by combining principal component analysis method and grey correlation analysis method. The empirical results show that the asset scale and profitability of asset management corporations directly determine their competitiveness level to a large extent, and the correlation between external governance mechanism and competitiveness is stronger than that of internal governance mechanism. Clustering and grouping are conducted based on the size of competitiveness, and China's local asset management corporation system presents a diamond structure. China's local financial asset management corporations should strengthen the top-level design of internal governance, attach importance to external governance, expand and strengthen the asset scale, and carry out full-chains business while implementing a differentiated development model to achieve sustainable development when adhering to the principal business of non-performing assets.

Application of Blockchain in Corporate Governance: Adaptability, Challenges and Regulation in BRICS

The digital revolution has changed many facets of daily life over the past few decades. Think about how personal computers and smartphones are becoming more powerful and smaller, how the Internet has spread throughout the world and led to the emergence of new forms of social interaction, and how there is always access to massive volumes of automated algorithms processing cloud-based data that is utilised in a number of settings. Similarly, it has been observed that blockchain technology has the potential to provide clever fixes for traditional inefficiencies of corporate governance, particularly in the dynamically evolving paradigm in the emerging economics like BRICS nations i.e., Brazil, Russia, India, China, and South Africa. This paper aims to explore the possibilities of adopting blockchain technology within the arrays of internal governance mechanisms while emphasizing on the redressal to legal and regulatory challenges. The paper also critically analyzes the implication and utility of this evolved technology in the corporate governance systems of BRICS nations.

The impact of internal governance mechanisms on environmental performance of Saudi firms

PurposeThis study aims to explore whether firms that have a sustainability committee operating on the board, publish separate sustainability reports that are externally assured by an independent external audit and have large and active boards are more likely to be engaged in environmental practices and have better environmental performance.Design/methodology/approachBased on a sample of firms listed on the Saudi Stock Exchange, covering the period 2014–2021, this study applies panel data models to examine the research hypotheses.FindingsThe findings show significant positive associations between the existence of a sustainability committee, the publication of separate sustainability reports and the independent external assurance of these reports and environmental performance. This study also finds that the composite internal governance index is significant and positively associated with environmental performance.Practical implicationsPolicymakers should support the creation of a sustainability committee on the boards of Saudi firms and review its role and responsibilities. The findings of this study inform regulators of the importance of the existence of independent external assurance of the sustainability reports of Saudi firms to enhance the credibility and reliability of these reports. Managers need to establish devoted committees committed to sustainability-related tasks that help coordinate communications between the firm and stakeholders.Originality/valueThe Saudi Arabian Government has implemented a range of policies and initiatives aimed at improving environmental performance, which is a main focus of Saudi Vision 2030 to achieve environmental sustainability. Therefore, this study provides unique evidence and new insights on the impact of internal governance on corporate environmental performance in the Saudi context.

REFORM AND INCENTIVE MECHANISM ON EQUITY STRUCTURE OF FAMILY ENTERPRISES

From the perspective of realizing “everlasting business”, how the founders of family enterprises in China can promote the reform on the ownership structure of the enterprises and establish an inclusive incentive mechanism, so as to take into account the inheritance of family wealth, to improve the technological innovation ability and the valuation (market value) of enterprises, is an economic and legal issue that is well fit for the current demand of China’s economic situation, and is also related to the long-term development of China’s economy. Its legal practice is worthy of in-depth study by Chinese legal scholars. This article reviews the transformation and development process of the ownership structure of family enterprises since China’s “Reform and Opening-up”, through interviews with the founders of family enterprises and field research in Fujian Province, a representative area of China’s family business economy. The article pays special attention to the practice under the current on-going “business succession period” between the first-generation entrepreneurs and the second-generation leaders. The article collects the relevant legal and economic issues in the internal corporate governance mechanism, and explores the relationship between properly coordinating and optimizing the ownership structure of family enterprises, incentive mechanism and maintaining the allocation of wealth resources under the tradition in Chinese family society.

Effectiveness of governance mechanisms on bank financial performance in a changing world: evidence from a Small Island Developing States

The unique Coronavirus has speedily spread all over the world distressing all economies around the globe. This epidemic is not simply a health issue because it has affected the whole world in diverse facets due to the governmental measures taken to combat against it such as lockdowns, movement restrains, and social distancing strategies. It has also caused substantial damage to each part of the banking system as well as its performance where Small Island Developing States (SIDS) is not an exception. Thus, this study contributes to the limited literature by providing the first empirical evidence on the impact of covid19 on the role of internal and external Corporate Governance (CG) mechanisms in relation to bank performance (BP) in a SIDS. The purpose of this study is to evaluate the effectiveness of governance mechanisms on BP during pandemic and also look for whether the covid19 as a moderator has affected the CG variables in relation to BP. To answer the research questions, all the 18 banks operating in Mauritius from the years 2020-2022 are considered. Mauritius because it is one of the strongest economies with a ranking of second among SIDS. As per the result of this study, there is sufficient evidence to conclude that CG mechanisms are effective as some explanatory variables such as OI, AUDC, and CEOD are helpful in anticipating BP as measured by ROA, ROE, and NIM during the pandemic. Therefore, Ho is not rejected. That is, governance mechanisms are effective in relation to BP in this changing world. The evidence suggests that the adherence to CG mechanisms lead to some improvement in performance. Therefore, it is possible to minimise the adverse impact of covid19 on BP through effective governance.However, the result from moderated multiple regression (MMR) has confirmed that the insignificant effects of BIND, BDIVER, and BoSIZE on performance of banks recorded from both fixed effect model regression and dynamic panel data estimation results were due to covid19.In order to curtail the adverse effect of covid19 pandemic, the organistaion and board should recognise opportunities and build new strategies to acclimate to the uncertainties caused by the covid19 pandemic. Banks should also adhere effectively to the code of CG and not just to fulfill the legal requirements.

Examining the intervening effect of earning management in governance mechanism and financial misstatement with lens of SDG and ESG: a study on non-financial firms of Pakistan.

In today's corporate world, a company's long-term viability and prosperity depend on its corporate governance practices. The present study investigates the interplay between financial misrepresentation, earnings management, and corporate governance within the context of Pakistan. To estimate the financial data of enterprises obtained from non-financial organizations listed on the Pakistan Stock Exchange a panel regression analysis was conducted. The analysis covered the time from 2009 to 2020 and employed quantitative data. The findings of the study show that the different aspects of corporate governance mechanisms have varying levels of influence. Specifically, remuneration paid to directors had a significant impact on financial misstatement, while the size of the board strongly impacts the earning management. The financial misstatement was also found affected by the earning management. The M score (statistical model used to predict the probability of financial misstatement) positively influenced when board diligence was incorporated in the mediation of earning management. It is important to note that this study only considers the internal governance mechanisms of firms, suggesting that future research could benefit from the inclusion of external governance mechanisms for a more holistic model. This study is aligned with the ESG's governance aspects and SDG-17, providing valuable insights for specialists, financial backers, policymakers, and experts. The results of this study catalyze further research in this area and can aid in achieving SDG 17 by raising awareness of the significance of good governance practices, ethical reporting that leads to sustainable firm performance, and ensuring long-term economic growth and development.

The impact of compliance, board committees and insider CEOs on firm survival during crisis

This study investigates the relationship between internal corporate governance mechanisms and firm survival during a financial crisis. Using a sample of FTSE 350 listed companies for the time period 2003–2010, our results show significant differences in the corporate governance mechanisms of firms that survived and those that failed during the 2007–2009 financial crisis. The findings indicate that compliance with the UK Corporate Governance Code is negatively associated with the survival of firms when they experience exogenous shocks. However, the existence of insider CEOs and a higher number of board committees in organisations increase the chances of survival during an economic downturn. These findings have policy implications and show that non-compliance with a prescribed code of corporate governance does not necessarily lead to poor governance. Moreover, the establishment of extra board committees and CEO succession planning are shown as important dynamics in firms' strategic decisions, as they have implications for the survival of firms during difficult economic conditions.

Internal Corporate Governance Mechanism and Credit Spreads: Evidence for the Bond Market in China

Internal Corporate Governance Mechanism and Credit Spreads: Evidence for the Bond Market in China

Characteristics Boards of Directors and Cash Dividend Policy

Purpose: The purpose of this study is to Explanation the relationship between the characteristics boards of directors (Board size, Board women's representation, Board independency, and Board diversity) and cash Dividend Policy. Design/Methodology/Approach: The study uses a firm level panel data set of sample included 13 banks and insurance companies publicly traded firms on the Palestine Stock Exchange between 2012 and 2021. Cash Dividend Policy have been measured by (dividends per share), and the data analyzed within the framework of OLS regression technique. Findings: The results of this study reveal no significant effects of all characteristics boards of directors on cash Dividend Policy at banks and insurance companies publicly traded on the Palestine Stock Exchange. The study recommended the need to control the application of corporate governance for commercial banks and insurance companies in Palestine. Research, Practical & Social implications: The results of this study differ somewhat from most previous studies. The study emphasizes the necessity of activating internal governance factors related to the characteristics of the board of directors to support the process of making a decision to cash dividend Policy because of their important reflection on the analyzes and expectations of investors in the Palestine Stock Exchange. Originality/Value: This study provides valuable insights to shareholders and stakeholders about activating internal governance mechanisms in the Palestinian financial sector and highlights the role of the characteristics boards of directors in making financial decisions, including cash dividend Policy, while giving a clearer picture to investors and analysts for building investment strategies.

Do International Trade Frictions Influence the Competitiveness of Entity Enterprises? Evidence from the Perspective of Financialization

International trade frictions have changed the business environment of enterprises. However, how do these changes influence the behavioral decisions of enterprises, and will this further affect enterprise competitiveness? Exploring these questions will help determine the influencing mechanism of external negative impacts, such as international trade frictions, on the competitiveness of entity enterprises. In this study, the influences of China-U.S. trade friction, which served as an exogenous research event, on the competitiveness of entity enterprises were empirically analyzed via a difference-in-difference (DID) model with semiannual report information of Chinese nonfinancial A-share listed companies in 2016 to 2020 as research samples. Research results show that the China-U.S. trade friction promotes enterprises to enlarge their financial asset investment by changing the business environment of enterprises. Moreover, this friction further weakens the enterprise competitiveness, an essential element of industrial investments. As revealed by further heterogeneity analysis, the China-U.S. trade friction has generated heterogenous influences on enterprise competitiveness in the aspects of investment motives, industry, competition status, and internal governance mechanism. In this study, two types of enterprise competitiveness elements—environment and resources—were included into the same research framework, and the category of theoretical research on the connotation of enterprise competitiveness was expanded. Moreover, this research provided new scenes and evidence for identifying the causal relationships of the impacts of exogenous negative events with the financial behaviors and competitiveness of entity enterprises, Furthermore, it rendered countermeasure paths and policy suggestions for scientifically coping with international trade frictions and enhancing the competitiveness of entity enterprises. Subject Classification Codes: F51; G31; G32; L25

Climate Risk, Stock Crash Risk, and Greenhouse Gas Emission Trading Scheme: Evidence From Korea

This study examines the relationship between climate risk and stock crash risk and the moderating effect of greenhouse gas emission trading scheme (ETS). Numerous studies have tested stock price crash risk measured by the negative skewness of return distributions in the areas of internal governance mechanism. While interest in environmental performance for sustainable growth of firms has increased, there are no studies on the effect of climate risk on stock crash risk. Thus, we find that climate risk (a firm’s greenhouse gas emissions and energy consumption) increases stock crash risk, and the positive effect of climate risk on stock crash risk is weakened after introduction of the emission trading scheme. This study theoretically extends the literature on the empirical determinants of stock crash risk, and practically provides investors with proven information about whether climate risk is worth considering during investment decisions. Furthermore, at the level of government policy, we can suggest that a monitoring system is needed to mitigate potential information asymmetry problems in firm with high climate risk.

CEO stability and enterprise total factor productivity from the perspective of dual carbon: a mechanism test based on green innovation

PurposeThrough this study, the aim is to provide reference for the improvement of CEO related theories, the reform of internal governance mechanisms and compensation systems in enterprises, and ultimately contribute to economic and social development and the achievement of dual carbon goals.Design/methodology/approachIn the context of accelerating the implementation of the “dual carbon” goal and promoting sustainable economic and social development, this paper builds a panel data model based on the panel data of 31 provinces in China from 2011 to 2019 to empirically test the impact of CEO stability on green innovation and total factor productivity of enterprises.FindingsThe results show that CEO stability has a positive role in promoting enterprise total factor productivity and green innovation and enterprise green innovation also has a positive role in promoting total factor productivity; Heterogeneity testing found that CEO stability has no significant impact on green innovation in state-owned enterprises. Corporate green innovation has a partial mesomeric effect between CEO stability and total factor productivity; The proportion of independent directors has a negative moderating effect on CEO stability and corporate green innovation, while equity incentive has a positive moderating effect on the relationship between CEO stability, corporate total factor productivity and green innovation.Originality/valueFirst, it develops the research on CEO stability and its economic consequences. Second, it expands the impact of CEO stability on heterogeneous enterprises. Third, provides new ideas for the reform of internal governance mechanism and salary system of enterprises.