Long-term Shareholder Value Research Articles

EXAMINING BOARD CHARACTERISTICS AND INTEGRATED REPORTING QUALITY: INSIGHT FROM ESG-FOCUSED FIRMS IN INDONESIA

This research aims to look at Indonesian firms and see whether there's a connection between board traits and the quality of their integrated reporting. This study analyzes 52 listed firms from the environmental, social, and governance (ESG) index between 2019 and 2022 using linear regression with panel data to test its assumptions. The data was acquired from annual reports of Indonesian corporations. The acquired empirical data clearly shows that gender diversity appears to significantly improve the integrated reporting quality. Also noteworthy is that board size, independence, and CEO duality are not significantly related. This study has several practical implications in addition to its theoretical implications. Managers, shareholders, and policymakers should take note of these findings, as they are particularly relevant. Therefore, stakeholders should evaluate the precision of disclosure when deciding on the best reporting approach. A more accurate assessment of risk, less stock volatility, more long-term value for shareholders, and an improved company reputation are all outcomes of this. Corporate social responsibility and sustainability literature is lacking, which this article seeks to remedy. It fills a gap in the literature by providing more information about ESG company-specific integrated reporting and corporate governance. This study has important implications for professionals and practitioners who want to raise the bar on the quality of their integrated reports.

Upholding Financial Stability: Exploring Corporate Governance Compliance in Banking

The banking system is essential for a country's growth and development, well-managed banking industry is a prerequisite for the upward trajectory of a country, and good corporate governance is necessary for safeguarding the institution's financial stability. Corporate governance's primary objectives are to maximize long-term shareholder value in a morally and legally responsible manner, safeguard the interests of other stakeholders while expanding shareholder value, and ensure fairness, respect, and dignity in all business dealings with clients, partners, investors, competitors, the government, and the general public both inside and outside the bank. This paper explores corporate governance compliance in banks, its necessity in the banking sector, the history of corporate governance in India and around the world, the best practices of corporate banking established in India, the steps taken by various banks to put these principles into practice, as well as recent developments in this area in the banking sector.

Effect of Corporate Governance on Financial Performance in China

Purpose: The aim of the study was to assess the effect of corporate governance on financial performance in China. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: The study indicated a positive correlation between strong corporate governance practices and improved financial outcomes for companies. These practices typically include transparent decision-making processes, effective board oversight, and alignment of management incentives with long-term shareholder value. Study suggests that companies with robust corporate governance structures tend to experience higher profitability, better risk management, increased investor confidence, and enhanced access to capital. Additionally, strong corporate governance is associated with lower instances of financial misconduct and improved overall corporate reputation, which can further contribute to sustainable financial performance over time. Implications to Theory, Practice and Policy: Agency theory, stewardship theory and resource dependency theory may be used to anchor future studies on assessing the effect of corporate governance on financial performance in China. Implement best practices in corporate governance that align with empirical findings and theoretical insights to optimize financial performance. Advocate for regulatory frameworks and policies that incentivize effective corporate governance practices and align them with desired financial performance outcomes.

Shareholder theory, stakeholder theory, and the capital budgeting decision

This paper constructs a capital budgeting framework within which shareholder theory and stakeholder theory are complements, not substitutes. Shareholder theory focuses managerial attention on a single goal: the maximization of a firm’s long-term value. Stakeholder theory identifies the necessary prerequisites for long-term value maximization. In particular, to create long-term value for shareholders, a firm must first create value for current and future customers and employees, and it must not do so at the expense of the broader community, or society as a whole. The new model is unique in that encourages managers making capital budgeting decisions to explicitly consider tail risks, defined as events that, while unlikely, could have a significant impact on a firm’s operations and valuation. Within this framework, the net present value (NPV) rule provides an objective decision rule to constrain managerial discretion and to balance the interests of competing stakeholders in the project selection process.

Helping Finance Students Think About the Shareholder Value Maximization Objective

One of the most contentious debates in the field of financial management involves the relative merits of a “shareholder”versus a “stakeholder” focus. While there are often-overlooked common elements in the “shareholder” and “stakeholder”arguments, clearly there are sharp differences between the two as well. Business school professors have the often-difficult taskof describing these differences for their students. This paper describes possible approaches to this issue, both at a surface levelfor an introductory finance course, and in a more applied manner for an advanced course.
 The author proposes an approach of enlightened self-interest, in which corporate management observes its fiduciaryresponsibility to shareholders by pursuing long-term shareholder value maximization, and at the same time realizes that thispursuit is likely to be fruitless if other constituencies are neglected. However, it is hoped that the teaching suggestions offered inthis paper will be helpful, both to those who agree with this approach, and to those who hold a different view.

The Value of Organizational Purpose

Broadening the organizational purpose of a firm beyond narrow short-term profit maximization may enhance long-term shareholder value. This result obtains when firms generate unpriced externalities and face difficulties in achieving ex ante incentive alignment with stakeholders through contract or have the ex post possibility of altering stakeholders’ perceptions through virtue signaling (i.e., cheap talk or greenwash). As each of these conditions is ubiquitous in practice, discussion of organizational purpose (beyond narrow short-term profit maximization to encompass stakeholder’s harmonious pursuit of a common higher goal or meaning) should shift from why management might pursue it to how managers obtain and maintain it as well as the value creation and distribution implications of doing so. Drawing on a value-based stakeholder theory of strategic management, I argue that attentiveness to the most salient issues of a firm’s most powerful stakeholders related to the attainment of this higher goal more closely aligns stakeholder and shareholder value in the long term, thereby building and sustaining relational contracts with stakeholders. A firm with strong relational contracts across its nexus of stakeholder relationships increases the likelihood of harmony among its stakeholders, including shareholders. An important challenge to realizing this outcome is that of measurement. As a result, research on organizational purpose should turn its attention from legal and moral foundations to empirical research on externalities, stakeholder opinions, and managers’ self-representations of their organization’s purpose. The availability of such data lowers the transaction costs associated with a nexus of relational contracts and enhances societal welfare.History: This paper has been accepted for the Strategy Science Special Issue on Corporate Purpose.

Camouflaged Compensation: Do South African Executives Increase Their Pay through Share Repurchases?

Increasingly, researchers in developed economies are associating the exponential growth in share repurchases with executives’ desire to increase company share price and thus the value of their own share-based compensation. As research on this topic in emerging economies is sparse, this paper investigates the relationship between share repurchases and executive share-based compensation in South Africa. Certain weaknesses in South African corporate governance relating to share repurchases exacerbate the risk of camouflaged rent extraction and unethical behaviour. Regression analyses were executed, using data on share repurchases and executive share-based compensation variables for listed South African companies for the period 2002–2017. Statistically significant positive relationships were identified between share repurchases and executive share-based compensation. The results support the proposition that South African executives may be repurchasing shares in a bid to increase the value of their share-based compensation (in line with the managerial power theory), rather than maximising long-term shareholder value. This paper emphasises the need for improved corporate governance relating to share repurchases in South Africa. Given the income inequality in South Africa, the findings also have social justice implications.

ESG-based remuneration in the wave of sustainability

ABSTRACT By investigating ESG-based remuneration in the UK FTSE 350 companies, this article finds that in practice, ESG-based remuneration may depart from its expected role in promoting corporate sustainability, whereas being adopted as a tactic for impression management or managerial rent extraction. Due to the unmeasurable effects of most ESG factors on shareholder value and their subjective nature, ESG-based remuneration is vulnerable to exploitation for symbolic and self-serving purposes. For companies aiming to promote long-term shareholder value, extending the assessment period of financial performance is a less costly and risky option compared to ESG-based remuneration. Differently, for companies oriented by a stakeholder purpose, ESG-based remuneration may play a part in incentivising executives to achieve plural stakeholder interests. To mitigate the risk of exploitation, this article proposes rule tightening in the current disclosure and monitoring frameworks for executive remuneration.

Role of Performance-Related Pay in the Global Financial Crisis

The global financial crisis has been fiercely debated. Researchers have proposed several reasons ranging from weak regulatory mechanisms to fiscal policies as leading to the ultimate crash of the financial markets. In this article, we discuss how performance-related pay1 (PRP) played a crucial role. This article argues that PRP encouraged quantity over quality, and shorttermism over long-termism thereby affecting the stability of the financial system. Furthermore, pay design was structured in a manner that it was insulated from long-term shareholder value and losses to capital contributors other than shareholders, which led to executives indulging in risk taking because their focus was short term. This is not to say that one can negate other factors responsible for the crisis, such as regulatory shortcomings2 with regard to risk taking and capital requirements, and asset bubbles due to global factors making the operational environment of the companies riskier

Sustainable Governance: Evaluating the Symbiotic Relationship Between CSR and Corporate Governance

Corporate governance and corporate social responsibility (CSR) are critical concerns for modern businesses. CSR and corporate governance play a crucial role in ensuring the success and sustainability of organizations in the long run. By integrating social and environmental considerations into a company's business strategy, CSR can enhance its adaptability and resilience, enabling it to address evolving environmental concerns and societal expectations. Corporate governance involves managing organizations to generate long-term value for shareholders while considering the interests of other stakeholders and broader societal concerns. This paper analyzes the correlation between corporate governance mechanisms and corporate social responsibility (.CSR) initiatives. Specifically, it explores how governance structures impact the implementation, execution, and efficacy of CSR procedures within businesses. This paper examines the motivations that prompt companies to engage in corporate social responsibility activities, the importance of stakeholders in this context, and how effective governance practices can facilitate the integration of environmental and social considerations into corporate decision-making. Through a thorough investigation, the goal is to deepen our understanding of the complex connection between CSR and corporate governance. This document proposes integrating corporate social responsibility initiatives and corporate governance to benefit corporations, the environment, and society. It will provide significant insights for policymakers, practitioners, and academics to promote ethical business conduct.

Are all activists created equal? The effect of interventions by hedge funds and other private activists on long-term shareholder value

The allegation that activist investors demand changes that increase short-term stock prices at the expense of long-term shareholder value (“short-termism”) has led to extensive research on interventions by hedge funds. Few studies include other private (non-hedge fund) activists, even though we find they constitute almost half of interventions. Using a 20-year sample that includes over 2000 interventions by each type of activist, we find that short- and long-window abnormal returns are positive and economically significant around ownership announcements for each activist, and they do not reverse. Importantly, positive returns are observed for both sale and most other (non-sale) demands. Demands to sell all, or part, of the targeted firms earn especially sizable returns, and interestingly, sale demands are made more frequently by other private activists than by hedge funds. Despite the sizable returns, informed users do not regard the equity as overvalued. Analysts' recommendations become more favorable—a reversal of the pre-announcement trend—and long-term, “dedicated” institutional investors increase their ownership. We also find post-intervention improvements in operating performance (ROA) and firm valuation (Tobin's Q), further justifying the positive response by market participants. Our study provides new evidence that activism increases long-term shareholder value and opens an avenue for a line of research on other private activists.

Let's Get Digital: Does Digitial Transformation Spur Long-term Performance?

Scholarly literature posits that systematic change activities are vital for firms to create and sustain competitive advantage. One of these activities is digital transformation. Prior studies have focused on the short-term performance effects of digital transformation, but its effects on long-term competitive advantage have remained unclear. This study draws on the dynamic capabilities view and offers new theory and empirical evidence on the long-term performance implications of digital transformation as a systematic change activity. Accounting for the benefits and costs of a firm’s digital transformation activities, we theorize that the relationship between digital transformation and long-term performance is more complex than previously assumed; we believe it follows an S-shaped functional form across the three stages of variation, selection, and maturity. To test our theorizing, we use state-of-the-art techniques in machine learning, text-based data on corporate digital transformation activities that synthesize scholarly literature and consultancy reports, companies’ annual reports, and recent methodological advances in capturing long-term performance. We assemble a unique longitudinal data set of 17 years with 30,456 firm-year observations. Our regression analyses confirm the presence of an S-shaped functional form that rises in the variation stage of digital transformation, declines in the selection stage, and rises again in the maturity stage. Our study suggests that a more holistic and nuanced assessment of systematic change activities is warranted. Given that so many companies are intensifying their digital transformation activities, this study is of interest to practitioners seeking to understand the effects of those activities on long-term shareholder value.

Board characteristics and integrated reporting quality: evidence from ESG European companies

PurposeThe aim of this study is to analyze the possible relationship between board characteristics and integrated reporting quality in an international setting.Design/methodology/approachTo test the study's hypotheses, the authors applied linear regressions with a panel data, and the authors collected data from the Thomson Reuters database (ASSET4) and from the annual reports from European companies to analyze data of 253 listed companies selected from the environmental, social and governance (ESG) index between 2010 and 2019.FindingsThe reached empirical results prove to indicate well that both of the board size, independence and diversity appear to have a significantly positive effect on the integrated reporting quality. Noteworthy, also, is the fact that the appointment of an independent nonexecutive chairman is positively associated with the integrated reporting related quality, and holds for firms with a nonindependent chairman.Practical implicationsBeyond the theoretical implications, our study also has several practical implications. These findings are particularly relevant for managers, shareholders, and policymakers. Thus, stakeholders should consider the accuracy of disclosure in determining the optimal reporting strategy (reducing risk estimation, returns' stock volatility, increasing long-term shareholder value and reputation of the firm).Originality/valueThis article is motivated by the low number of works in the context about the corporate social responsibility and sustainability issues. It makes an important contribution to the academic literature by adding to the limited body of research on integrated reporting and corporate governance in an ESG company setting. The study is also important for practitioners seeking to improve the quality of their integrated reports.

ESG Importance for Long-Term Shareholder Value Creation: Literature vs. Practice

This article aims to detect how ESG adds value to the long-term shareholder value creation and to discover whether businesses are aware of positive ESG effects and, therefore, whether they will become more ESG-conscious. By conducting a qualitative content analysis on the academic literature, this article firstly aims to determine if shareholders’ value is positively affected by corporate ESG awareness. Secondly, to test whether companies are becoming more conscious about the importance of ESG, the mission statements of publicly listed Central and Eastern European (CEE) companies are compared to their decade-old versions. This analysis allows us to conclude on whether companies have shifted their attention to the ESG factors as a part of their purpose of existence and, therefore, for long-term shareholder value creation, which is one of the main goals of the exchange-listed enterprises. The content analysis results show that companies with higher sustainability awareness ensure shareholder value creation via improved financial performance, management quality as well as reduced risk metrics. Additionally, qualitative nonfinancial factors such as reputation, stakeholder trust, employee satisfaction and engagement provide an even more significant effect on the long-term value than the pure financial matters. The theoretical trend is found to be supported by the fact that sustainability practice and consumer-oriented keywords dominate the mission statements of CEE companies, while keywords related to shareholders and profit experienced the most significant decrease from 2012 to 2021. The present research is unique as it looks at how companies tend to become more ESG aware, integrating the sustainability perspective into their mission statements in response to the global sustainability trend.

Noteworthy diversity efforts and financial performance: Evidence from DiversityInc's top 50

This study provides evidence that diversity efforts are associated with improved organizational performance. We explore the benefits of diversity by analyzing long-term shareholder value (Tobin's q) and short-term performance (return on assets) of companies cited for being leaders in the area of diversity. Tobin's q is significantly higher for companies included on the DiversityInc Top 50 list than other companies, implying that diversity efforts increase long-term shareholder value. Companies on a DiversityInc list also have significantly better short-term financial performance, return on assets, than similar companies in their industry. We also conduct a Granger causation analysis, and the results are consistent with our interpretation that appearance on the DiversityInc list increases Tobin's q. Our study contributes to the literature by comparing companies notably recognized for diversity efforts to companies not recognized, and examining the long-term benefits of those efforts.

ANALISA PENERAPAN PRINSIP GOOD COORPORATE GOVERNANCE (GCG) STUDI KASUS PADA SEKOLAH TINGGI TEKNOLOGI MIGAS BALIKPAPAN

Good Corporate Governance (World Bank) (Tangkilisan; 2003) is a collection of laws, regulations and rules that must be fulfilled that can encourage the performance of company resources to work efficiently, resulting in long-term sustainable economic value for shareholders and the surrounding community. overall. Then according to Zarkashi (2008). Good Corporate Governance (GCG) is a structure used by stakeholders, shareholders, commissioners and managers to formulate company goals and means to achieve company goals, as well as a means to achieve these goals and monitor performance. There are five principles for Good Corporate Governance in Indonesia: transparency, accountability, responsibility, independency, and fairness. content analysis, which is a method of collecting research data through observation and analysis techniques of the content or message of a document (including: advertisements, reports, employment contracts, journals, magazines, or newspapers. The purpose of content analysis is to identify the characteristics or specific information contained in a document to produce an objective and systematic description (Bambang, 1999).

Do Activist Directors Add Value?

Since the financial crisis and with the help of large passive investors, activist hedge funds, who initially served as a catalyst in resolving agency conflict, have increased influence beyond their concentrated stock holdings advocating for board representation. We study the performance of companies with activist directors using a hand-collected dataset and attempt to fill a void in the emerging study of corporate activism. Our data covers a complete list of activist hedge fund directors, their tenure, and operating performance and returns associated with their board service. Additionally, our findings provide context for the ongoing policy debate on the attributes of activism and corporate governance. We find scant statistically significant evidence that activist hedge funds that nominate directors by winning a proxy contest or by consulting with management generate long-term value for shareholders in the form of superior operating performance and outsized monthly returns during their board tenure.

Does Corporate Sustainability Create Long-term Shareholder Value? Evidence from Public Listed Companies in Indonesia

Corporate sustainability is a business approach that creates long-term shareholder value by exploiting opportunities and managing risks created from economic, environmental, and social activities. The purpose of this study is to analyze the influence of corporate sustainability and corporate governance on a firm’s value. The population in this study comprised all the firms which are registered on the Indonesia Stock Exchange (IDX) and that were also registered as participants of the Indonesian Sustainability Report Awards (ISRA). Using the purposive sampling technique, 75 observations were selected. From the hypothesis testing results, it was concluded that the company’s sustainability index and corporate governance variables have a positive but not significant effect on the firm’s value. The results of this study are in agreement with previous research (Eccles et al., 2014; Lourenco et al., 2012; and Wagner, 2010). The result also recommends that companies must be more actively involved in the sustainability reports with regards to the economic, social, and environmental aspects. This will affect the performance of the company and its output in the context of sustainable development.

Corporate Sustainability and Profit Maximisation in the Land of Unicorns

Promotion of sustainability is a key issue for political and corporate leaders as well as for society at large. Attention has turned to the question of the corporate purpose and a number of prominent scholars have argued that companies should adopt a broad, stakeholder-oriented purpose in order to promote corporate sustainability. Against the background of the statutory profit maximisation purpose set out in the Swedish Companies Act this article contributes to the ongoing debate by discussing the successful reconciliation of both high sustainability and shareholder centricity in Sweden. Sweden has the second largest concentration of billion-dollar companies per capita in the world while simultaneously ranking in the very top of global sustainability league tables. Consequently, the Swedish setting can offer valuable observations and insights for scholars, practitioners and politicians alike. The article critically examines, inter alia, the problem of short-termism, the main corporate governance theories, the specific features of the Swedish corporate governance system, the interpretation and application of the Swedish profit maximisation purpose and corporate sustainability from a Swedish perspective. The study indicates (i) that the profit maximisation purpose in the Swedish Companies Act is fully compatible with the promotion of corporate sustainability, and (ii) that the corporate purpose forms part of and should be consistent with inter alia the relevant corporate governance system in order to be effective. Another important finding is that there are in general quite strong arguments for a model like the Swedish one, where the stakeholders are provided with strong protection primarily through statutory rules and where the directors are bound to protect and work for the long-term shareholder value. As the corporate purpose can only be understood when viewed through the lens of a particular legal framework, caution should however be taken with respect to legal transplants. Any convergence in the field of corporate governance must consider factors such as the structure of corporate governance system, the shareholder-structure, the enforcement rules and the political economy.

Does mandatory CSR provide long-term benefits to shareholders?

PurposeMandatory corporate social responsibility (CSR) aims to protect the long-term benefit of shareholders; therefore, this study aims to seek empirical evidence for the benefit of mandatory CSR from the perspective of shareholders.Design/methodology/approachConsistent with the objective of this study, the long-term shareholder benefit is measured using the sustainability perspective. Companies listed on the Indonesia Stock Exchange that have at least five years of CSR implementation, as its mandate and have retroactive earnings data for minimum six years before the observation year are selected as the study’s sample.FindingsThe findings support that mandated CSR protects long-term shareholder value; there is a significant association between CSR and sustainable shareholder value. Industry profiles are an essential aspect of the association model. The results are robust through testing the association for various scenarios of time.Research limitations/implicationsThis study uses a single measurement of shareholder value based only on accounting measurement. Further, due to limitations in accessing internal company data, this study relies on annual reporting information to measure CSR implementation.Originality/valueThis study is the first to provide empirical evidence of the long-term benefit of mandatory CSR from the shareholders' perspective. This study also contributes to the existing literature by evaluating the success of mandatory CSR in developing countries. Those that successfully implemented mandatory CSR can serve as a model for other developing countries interested in creating similar policies to encourage socially responsible companies.