Investor Protection Mechanisms Research Articles

CURRENT STATE AND DIRECTIONS OF FINANCIAL ARCHITECTONICS DEVELOPMENT

The article presents an analysis of the evolution of financial architectonics in the context of globalisation, identifying the principal avenues for its advancement in order to guarantee the stability and efficacy of financial systems. The topic is of great relevance in light of the necessity to reform the extant financial system in the context of economic globalisation and the interdependence of countries. The global financial crisis of 2008 and the crisis caused by the pandemic of 2019-2021 have demonstrated the deficiencies of the extant financial architecture and the necessity of modernising it to guarantee the stability and resilience of financial systems. The research methodology employed a combination of monographic, comparative, and content analysis techniques to examine a substantial corpus of scientific literature. This approach facilitated an in-depth investigation of the predominant methodologies for interpreting financial architectonics and a comprehensive analysis of the diverse experiences of countries in developing financial systems. The findings of the study indicated that the efficacy of financial architectonics is contingent upon the presence of active and stable risk markets that facilitate access to essential financial data and investor protection mechanisms. It was determined that contemporary financial systems frequently fail to satisfy the requirements of a globalised economy, thereby necessitating their reform. The development of new regulatory mechanisms for financial markets and institutions, as well as the creation of international standards and codes of conduct, have become the primary avenues for achieving financial stability. The practical value of this article lies in its capacity to inform the development of novel approaches to the management of financial systems at both national and international levels. The proposed recommendations for the development of financial architectonics can assist governments and financial institutions in responding in a more effective manner to global financial crises and ensuring stable economic development.

FDI IN INDIA: AN ANALYSIS OF LEGAL FRAMEWORKS AND INVESTOR PROTECTIONS

This paper provides a comprehensive analysis of Foreign Direct Investment (FDI) in India, focusing on the multifaceted legal frameworks and investor protection mechanisms that characterize the Indian investment landscape. As one of the world's fastest-growing economies, India presents significant opportunities for foreign investors seeking to tap into its vast market potential. However, the journey is not without challenges, including regulatory complexities, infrastructural inadequacies, and cultural differences that can impede investment processes. This study delves into various government initiatives aimed at fostering a conducive environment for FDI, including reforms that simplify regulations and promote transparency. Additionally, it examines the mechanisms in place to protect investors, such as the role of the Securities and Exchange Board of India (SEBI) and the establishment of grievance redressal systems. The findings underscore the importance of understanding both the opportunities and challenges inherent in the FDI landscape, offering valuable insights for potential investors and policymakers striving to enhance the investment climate in India.

Analysis and Governance of "Greenwashing" Behavior in China's Green Bond Market

With the Chinese government and leaders attaching great importance to the construction of ecological civilization and the green financial market, green bonds have become an important tool to promote green development. However, the problem of "green washing" in the market not only erodes investors' trust in the market, but also damages the credibility and actual effectiveness of green finance, posing a potential threat to the continuous promotion of ecological civilization construction. This article analyzes two typical behaviors of "greenwashing" in the Chinese green bond market: false labeling of green projects and opaque use of funds, and explores their causes, involving problems such as incomplete green bond standard formulation and certification system, weak regulatory crackdown, short-term interest driven corporate behavior, insufficient public green awareness and supervision. Targeted response strategies have been proposed: firstly, to improve the green bond standard formulation and certification system, ensuring the authenticity of green projects; Secondly, enhance regulatory efforts and punishment measures, and build a rigorous legal environment; The third is to improve the transparency of information disclosure, requiring enterprises to regularly disclose the progress of projects and the use of funds; The fourth is to establish a sound investor protection mechanism and safeguard the legitimate rights and interests of investors. Through these measures, it is possible to effectively regulate and curb "green washing" behavior, and promote the sustainable development of the green bond market.

Unveiling the ESG-dividend nexus: the moderating role of investor protection and regulatory enforcement

PurposeThe mounting focus on environmental, social and governance (ESG) factors in business has sparked substantial curiosity in understanding the nexus between ESG and the companies’ strategic decisions. This study aims to investigate the influence of firms’ ESG disclosure scores on their dividend payout. Furthermore, it examines the nuanced dynamics of this relationship by exploring the moderating role of the country’s investor protection regulations and regulatory enforcement.Design/methodology/approachThis study uses pooled ordinary least square regression with year, industry and country effects. It analyzes a balanced panel data set of 192 non-financial firms drawn from the primary equity indices of BRICS nations. This study examined the data of six years spanning 2015–2020.FindingsThe findings discover a significantly positive relationship between ESG scores and dividend payout ratio, conveying that firms with higher ESG scores allocate more of their profits as dividends. Furthermore, the finding reveals that country-level robust investor protection and effective regulatory enforcement mechanisms undermine the positive association between ESG ratings and payouts of dividends, suggesting that the ESG disclosure of firms operating in a setting characterized by enhanced investor safeguards and stricter regulatory oversight will exert less influence on their dividend decisions.Originality/valueTo the best of the authors’ knowledge, this is the first study to concentrate on the ESG–dividend nexus in the BRICS countries. Furthermore, this study used each country’s investor protection index and regulatory enforcement scores to comprehend the influence of country-level legal frameworks in shaping the relationship between ESG and dividend decisions, thus adding value to the existing literature on corporate sustainability.

Impact on Fast Growing Large Scale Industries due to the Stock Market Policies – An Empirical Research

India is one of the fastest-growing economies in the world and has made significant strides in developing its financial markets over the past few decades. The paper concludes by highlighting the key findings and implications of the study. It suggests that the stock exchange can play a critical role in promoting economic development in emerging markets by providing a platform for capital formation and investment. However, the development of the stock market must be supported by a conducive policy environment, strong regulatory framework, and investor protection mechanisms. The study also highlights the need for further research on the relationship between stock market development and economic growth in emerging markets, particularly in the context of the on-going financial globalization and integration. The stock exchange is a critical component of any economy, and its role in the economic development of emerging markets is particularly significant. An emerging market is a country that is in the process of transitioning from a developing economy to a developed economy. These markets are often characterized by high growth potential, but also high risk due to their volatile economies. It plays a critical role in the development of emerging markets by providing a platform for companies to raise capital, facilitating investment, providing liquidity, and improving corporate governance. One of the primary ways in which the stock exchange contributes to economic development is by mobilizing capital. Companies can raise capital by issuing stocks and bonds, which allows them to finance their projects and investments. This, in turn, leads to economic growth.

An optimal investor-state dispute settlement mechanism

Many investment treaties include investor-state dispute settlement (ISDS) provisions which are supposed to protect a foreign investor against opportunistic behavior of a host country. This paper scrutinizes the optimal design of ISDS provisions that solve the holdup problem. It shows that an efficient investor protection mechanism requires an arbitrator as established in investment treaties. However, this arbitrator does neither have to learn nor to evaluate the circumstances of the dispute. Furthermore, any ISDS compensation from the government to the investor should not be based on reductions in investor profits but on the host country’s welfare effects.

Challenges and Opportunities for Public Infrastructure REITs in China

With the enactment of the “Notice on Promoting the Pilot Work Related to Real Estate Investment Trusts (REITs) in the Infrastructure Sector” in 2020, China has opened a new era of public infrastructure REITs on the mainland jurisdiction. Based on this background, this paper summarizes the complex operational structure of public infrastructure C-REIT, analyzes the potential legal risks of the structure accordingly, and proposes corresponding suggestions for improving the investor protection mechanism of public infrastructure C-REIT

R&D intensity and firms dividend policy: evidence from BRICS countries

PurposeGiven the importance of both research and development (R&D) investments and dividend policy in the growth of firms, this paper examines the moderating effects of investor protection and other country-level governance mechanisms on the relationship between R&D investments and dividend payments in the firms from Brazil, Russia, India, China and South Africa (BRICS countries).Design/methodology/approachThis empirical study uses a sample of 22,073 firm year observations from the BRICS countries over a period of 2008–2020 and employs both ordinary least squared (OLS) and system generalized method of moments (GMM) estimation methods. The GMM estimation controls for unobservable heterogeneity and endogeneity and reduces estimation bias.FindingsThe findings indicate that although R&D intensity is negatively related with the cash dividend payments, with the interaction of investor protection and other country-level mechanisms the relationship between R&D intensity and dividend payments becomes positive. The results further show that investor protection has stronger impact on the relationship between R&D intensity and firm cash dividend payments than other selected country-level governance factors.Practical implicationsThe research findings should encourage the policy makers in BRICS countries to strengthen investor protection and enhance quality of their institutions to make a right balance between retaining their growth potential and maintaining the value of the firms.Originality/valueThis is the first study to provide evidence of the moderating effects of investor protection and other country-level governance mechanisms on the relationship between R&D investments and dividend payments using the data from BRICS countries.

The joint effect of internal and external governance on earnings management and firm performance

AbstractThis study examines whether shareholders use internal governance mechanisms (i.e., manager compensation, shareholder rights protection at firm level) to substitute for weak external governance (i.e., investor protection mechanisms at country level) in restricting earnings management. We find that the impacts of internal governance on earnings management are stronger in countries with weak external governance. Examining the consequence of earnings management on firm performance, we find that internal governance restricts earnings management more efficiently than external governance. This study extends prior literature by quantifying the impacts of internal and external governance on earnings management and firm performance. Our findings suggest that investors should pay more attention to internal governance than to external governance in controlling for earnings management.

The effect of the legal tradition on the law about public corporate governance - recommendations for Vietnam

Along with the process of integration and attracting international capital, the law about public corporate governance of Vietnam also includes the need to receive high standards of the regulations of other countries. However, to ensure the process of completing and exercising law enforcement effectively, helping to reduce enforcement costs for the corporation, the legal tradition of countries is a factor that needs to be considered adequately by the legal origin. The legal tradition has a profound influence on the reform and improvement of the country's modern legal system and is the source of the differences among countries' corporate governance legal systems. Legal traditions have a strong impact on investor protection mechanisms and corporate governance models. Within the scope of this article, the author generalizes the effects of legal traditions on the construction and consolidation of corporate governance laws of legal families in different countries. Simultaneously, the paper focuses on analyzing the case of Vietnam where there is a Civil legal tradition, but the corporate governance model is hybrid with the corporate governance model in countries with a Common law tradition. Consequently, the analysis shows the need to establish new values on the basis of legal traditions to modernize the law on public corporate governance in Vietnam. In addition, propose directions to improve the adjustment efficiency of Vietnam's public company governance law.

Minority investor protection mechanisms and agency costs: An empirical study using a World Bank–developed approach

This study aims to examine the impact of minority investor protection mechanisms on agency costs. All relevant indicators of minority investor protection adapted from the World Bank’s annual ‘Doing Business’ reports, along with concentrated government ownership, are employed with a panel data sample of 135 Vietnamese listed firms during the period 2014–2018. It is found that the following mechanisms are effective in mitigating agency costs and hence agency problems at the firm level: 1) review and approval requirements for related-party transactions; 2) minority shareholders’ ability to sue and hold directors liable for their duties; 3) minority shareholders’ access to internal corporate documents; 4) investors’ rights to approve major corporate investment and sale of asset decisions; and 5) disclosure in annual reports of salaries, bonuses and other forms of remuneration to directors and management. Interestingly, board independence and controlling government shareholders are not confirmed to play significant roles in addressing agency problems. To the best of the authors’ knowledge, this is the first attempt at testing for the impact of minority investor protection mechanisms developed by the World Bank on agency costs at the firm level, hence providing empirical evidence for the adoption of the minority investor protection mechanisms promoted by the World Bank. This study also provides policy implications for selecting effective mechanisms to mitigate agency conflicts between controlling shareholders and minority investors in order to enhance the financial performance of firms in an Asian emerging market.

IS THERE ANY CONTRAST BETWEEN FAIR AND EQUITABLE TREATMENT AND PUBLIC INTERESTS UNDER INTERNATIONAL INVESTMENT AGREEMENTS AND INVESTOR-STATE ARBITRATIONS?

Today, more than 3,200 international investment agreements (IIAs) have been concluded, and most of them address substantive and procedural protection mechanisms. One of the essential substantive standards is the standard of fair and equitable treatment and one of the procedural mechanisms is Investor-state Arbitration. Usually, when an investor investing in the host state, there can be no denying that there may be a conflict between the public interest and the investor protection mechanisms. The mechanism of fair and equitable treatment is one of the essential standards that may be harmed by the public interests, especially the protection of the environment. On the one hand, in accordance with this standard, the host states are obliged to create stable, fair, favorable and transparent conditions for investors. On the other hand, the states have a duty to the public interests of their countries and at a larger level the international community. Purpose: In this paper, we want to show whether there is a discrepancy between the substantive standard of fair and equitable treatment and public interest in the text of the IIAs or in the arbitration procedure? Methods: general scientific methods of theoretical knowledge, as well as general logical methods and research techniques are used in analyzing existing investment agreements and Arbitration awards. Results: Examining the text of many of the IIAs, we came to the conclusion that there is no difference in the text of the agreements, in other words, the agreement encourages governments to strike a balance between investor protection standards and the protection of the public interest. However, in the implementation of agreements by the states, there is a difference between the two areas of protection of public interest and the standard of fair and equitable treatment, and here the arbitral tribunals must resolve the differences.

Project performance in a toll road infrastructure with a public-private partnership scheme

Public-private partnership (PPP) models were employed, especially in the toll road sector, by many governments to boost the development of the infrastructure and build strong connections among regions. PPPs are chosen as a scheme to fill the financial gap. Good project governance is one of the crucial points that should be supported by several significant factors, which will significantly affect projects’ performance. This study analyzes the influence of projects’ intellectual capital, investor protection mechanism, and ownership structure on the implementation of good project governance and the implications for their performance. The data were obtained through questionnaires sent to 43 public-private partnerships in toll road projects in Indonesia. The partial-least-square structural equation model (SEM) was subsequently employed to analyze the data. The study findings showed that (1) projects’ intellectual capital and ownership structure affect the implementation of good project governance, (2) the implementation of good project governance affects projects’ performance, and (3) projects’ intellectual capital and ownership structure affect their performance through the implementation of good project governance. However, the other five hypotheses investigated, namely those concerning projects’ intellectual capital, investor protection mechanism, ownership structure in project performance, investor protection mechanism for the implementation of good project governance, and project performance through the implementation of good project governance, were not supported. This study provides a knowledge basis enabling decision makers to understand precisely the factors that affect project performance through the implementation of good project governance.

Mongolian Investment Regulation and Arbitration

The author of the study presents the Mongolian legal environment regulating foreign direct investment. The evolution of the rules governing this field is presented in a chronological order from the democratization of Mongolia in the early 1990s to the present day. The author remarks the changes in the rules over time, which show an evolution towards a more level playing field between foreign investors, who were initially in a privileged position when compared to domestic investors. Other changes concern the authorization requirements for foreign investments, which evolved in order to hinder the activity of foreign state-owned enterprises in Mongolia and also to safeguard Mongolian mineral wealth. Investor protection mechanisms are emphasized, such as state commitments to not modifying the taxation environment. The study analyses international arbitration case-law pertaining to foreign investment protection in Mongolia.

Minority Investor Protection Mechanisms and Agency Costs: An Empirical Study Using the World Bank-Developed Approach

This study examines the impacts of minority investor protection mechanisms on agency costs in Vietnam. All relevant indicators of minority investor protection developed by the World Bank are employed with a panel data sample of 135 Vietnamese listed firms during the period from 2014-2018. It is found that the following mechanisms are effective in mitigating agency costs and hence agency problems at the firm level: i) extent of disclosure; ii) extent of director liability; iii) ease of shareholder suit; iv) shareholders’ rights in major corporate decisions; and v) corporate transparency. Interestingly, it is found that the board independence and controlling government shareholder do not play significant roles in addressing agency problems. To the best of the authors’ knowledge, this is one of the first attempts at testing for the impact of minority investor protection mechanisms developed by the World Bank on agency costs at the firm level. This study also provides policy implications for selecting effective mechanisms to mitigate agency conflicts between controlling shareholders and minority investors in order to promote the financial performance of the firm in an Asian emerging market.

Corporate social responsibility, market reaction and accounting conservatism

PurposeNon-financial information disclosure may reflect the quality of corporate financial reports or disclosure policy choices. The authors examine the relationship between corporate social responsibility (CSR) and accounting conservatism and also investigate channels through which such effects are transmitted. The purpose of this paper is to explore how CSR, as non-financial information that has received widespread attention, affects choices regarding corporate financial policy.Design/methodology/approachUsing ordinary least squares regression, the authors analyze China CSR Score data for 2010–2018. They control certain influencing variables related to the nature and characteristics of enterprises and discover that CSR can effectively increase accounting conservatism. Then, they extract the components of market reactions to CSR and study the market reaction path of CSR as it affects financial policy. They also conduct a robustness test to ensure that the results are not accidental in a complex environment.FindingsThe results reveal the influence of non-financial information on firms’ financial policy. In addition, the results confirm the attraction of liquidity and investor attention as the major market reaction channels by which CSR significantly promotes accounting conservatism. Additionally, other critical paths of influence deserve further exploration. The results remain robust for alternate measures of accounting conservatism, different components of CSR, other proxies on CSR, endogenous testing and alternate estimation methods.Originality/valueThe study represents the first analysis of the influence of CSR information disclosure on accounting conservatism in emerging markets, and it undertakes a preliminary exploration to clarify the mechanism of CSRs’ role in accounting conservatism. The results also provide a policy reference for external supervision and internal governance of enterprises. Thus, the results can help company managers maintain a favorable corporate image and establish a high-level investor protection mechanism.

Investor protection and cost of debt: Evidence from dividend commitment in firm bylaws

AbstractResearch Question/IssueThis study seeks to explore a new type of investor protection mechanism—dividend commitment in firm bylaws—that has emerged from a new Chinese dividend regulation. Dividend commitment, forcing firms to make an explicit commitment to maintain a given dividend level, may affect the benefit and risk of debtholders and, accordingly, their required returns.Research Findings/InsightsUsing a sample of Chinese listed firms between 2006 and 2017, we find a significantly lower cost of debt for high‐commitment firms than for low‐commitment firms. The differences are pronounced for firms that actively respond to the regulation, those that operate in a weaker information environment, those that suffer from higher agency costs due to insider control, and those with lower debt ratios.Theoretical/Academic ImplicationsThis study provides empirical evidence of the economic consequences of dividend commitment. The results suggest that dividend commitment is associated with changes in the benefits and risks of debtholders and that such an association is conditional on firm‐level factors; thus, the findings contribute to investor protection theory.Practitioner/Policy ImplicationsThis study provides insights to policy makers interested in evaluating investor protection in an emerging economy. The results highlight the financial implications of an innovative investor protection mechanism.

Did mandatory IFRS adoption affect the cost of capital in Latin American countries?

This study investigates whether mandatory adoption of International Financial Reporting Standards (IFRS) has affected the long-term cost of equity and debt in Latin America, where the enforcement of accounting standards and investor protection mechanisms are weak in comparison to developed nations. Analyzing a sample of firms from Argentina, Brazil, Chile, Mexico, and Peru, we show that mandatory IFRS adoption led to reduction in the cost of equity even after controlling for firm-level reporting incentives. Test results also show that the cost of debt was reduced significantly after the IFRS adoption. Our results suggest that enhanced disclosure and comparability stemming from IFRS in comparison to previous domestic accounting standards helped to mitigate the information asymmetry problem, and resulted in positive economic consequences for Latin American firms.

Reframing Related Party Transactions in China's State-Owned Enterprises

This paper analyzes understudied aspects of related party transactions (RPTs) in China’s state-owned enterprises (SOEs). This paper defines the government as an “institutional controlling shareholder” of SOEs. In addition, this paper examines two types of RPTs in the SOE sector: “corruption-RPTs” and “policy-RPTs.” Corruption-RPTs are those associated with tunneling for the personal greed of SOE executives and party-government officials. Thus, from the standpoint of public investors, corruption-RPTs are always detrimental and generate cash-outflow wealth-transfers. Policy-RPTs are conducted by the government as a means of enacting public policy. In contrast to corruption-RPTs, policy-RPTs are associated with two opposite concepts—“institutionalized tunneling” (in favor of the controlling shareholder of SOEs, the government) and “propping” (to the detriment of the government). Although it is well known that investors in China are subject to the problem of insufficient investor protection, this paper finds that investors can sometimes benefit from policy-RPTs (e.g., investors of a propped SOE). Besides, this paper demonstrates that SOEs gain a variety of additional benefits from government policies in China that favor the financial interests of SOE investors. Accordingly, this paper shows that investors in Chinese SOEs are, to some extent, compensated and protected by an informal, extra-legal investor-protection mechanism. Moreover, this paper explores an overlooked topic in China’s SOE sector—how the political motivations of SOE executives and party-government officials function in the context of RPTs.

R&D investment, firm performance and moderating role of system and safeguard: Evidence from emerging markets

The relationship between R&D and firm performance is highly dependent on the external environment. Therefore, this paper examined the effects of country level investor protection (safeguards) and governance mechanisms (systems) on the relationship between R&D and firm performance. Using GMM estimation and elasticity testing of panel data for 423 firms from 12 emerging countries, we find that a country's safeguards tend to moderate the relationship between R&D and firm performance more than the system of a country. The results indicate that safeguarding is relatively more important for the relationship between R&D and firm performance than other country level governance mechanisms, as the former can easily attract outside capital when it is strong. These results have significant implications for innovation policy. In particular, managers may wish to strengthen investor protection to promote high R&D investment in order to increase firm performance.