Mandatory Corporate Governance Research Articles

기업지배구조 의무공시가 기업가치에 미치는 영향

기업지배구조 의무공시가 기업가치에 미치는 영향

A decade of corporate governance in Brazil: 2010-2019

We take advantage of the Brazilian mandatory corporate governance (CG) reporting system to build an overall Brazil Corporate Governance Index (BCGI) and subindices (CGIs), and track changes in firms' scores over the 10-year period from 2010-2019. We show that overall CG level improved significantly between 2010 and 2019, with most of the improvement over the first part of this period. The improvement has two sources: an increase in the proportion of high-standard listings (Novo Mercado and Level 2, NML2) versus low-standard listings (Level 1 and regular, L1R), and within-firm improvement in CG practices. In the first half of the sample period, both NML2 and L1R firms improved CG practices considerably. Overall improvement in the second half of the sample period reflects an increasing proportion of NML2 firms, plus gradual improvement in L1R CG levels; with nearly constant NML2 levels. Improvements were stronger for Board Procedure and Disclosure subindices. Firms in both listings improved their CG. Overall improvement was stronger in NML2 than in L1R, but was concentrated in the period from 2010-2015.

A Firm##x2019;s Compliance Status with 15 FSC Mandated Core Governance Indicators and Credit Ratings: Focusing on Mandatory Corporate Governance Report Disclosure

A Firm##x2019;s Compliance Status with 15 FSC Mandated Core Governance Indicators and Credit Ratings: Focusing on Mandatory Corporate Governance Report Disclosure

A Comparative Study on Corporate Governance Practices in Public and Private Companies in India

An efficient, effective and futuristic corporate governance is considered the hallmark of sound business management. Corporate governance encompasses the internal and external dynamics of controlling and directing business. The purpose of this study is to compare public and private sector levels of corporate governance as per clause 49 with disclosure in financial reporting by size, profitability, the extent of international operations and nature of the industry. The main findings are that there is no difference between public and private sector mandatory corporate governance disclosure based on return on equity, return on assets, and nature of industry while a difference exists between public and private sector on the basis of size and extent of international operations.

Bank ownership and governance quality in India: Evolution and detection of convergence clubs

Utilizing a novel panel dataset for the period from 2009 to 2018, this paper investigates how the corporate governance of Indian banks has evolved since the post-global crisis and identifies convergence clubs among banks in distinct ownership groups. It also presents optimal policy priorities for specific aspects of corporate governance. To assess the quality of bank corporate governance, we used a non-parametric “Benefit-of-the-Doubt” (BoD) approach to create a bank-wise composite index of corporate governance based on 48 governance norms. Empirical results have shown that while Indian banks have made remarkable progress in adhering to the mostly mandatory corporate governance norms in the past few years, but their current level of governance isn’t adequate to characterize it as a “socially-efficient” structure. A typical public bank generally prioritized maintaining adequate disclosure and transparency, by and large, while a private bank focuses more spotlight on audit function, followed by risk management and board quality. The results based on Phillips and Sul’s (2007, 2009) clustering and merging algorithms reveal two convergent clubs in the private banking segment and a sole club in the public sector banking segment.

Comply or Explain 방식의 기업지배구조 공시와 기업가치

In order to improve the effectiveness of the best corporate governance standards, Korea introduced the corporate governance disclosure system of the “Comply or Explain” method. According to the Corporate Governance Disclosure System, companies disclose the Corporate Governance Report that explains the fact if they apply the Best Corporate Governance Standards (Comply) and explains why if they do not apply the Best Corporate Governance Codes (Explain). The purpose of this system is to enhance corporate competitiveness and to contribute to enhancing mid- to long-term corporate value by improving the transparency of corporate governance. The Comply or Explain method of corporate governance report was voluntarily disclosed until 2018, and has been made mandatory only for large-scale securities-listed companies from 2019. Compliance with the 15 core indicators suggested by the authorities is indicated in the form of O and X. This study examines the compliance status of core indicators of companies with mandatory corporate governance disclosure, and analyzes how the degree of compliance with key indicators disclosed in the form of O and X affects corporate value. The sample of this study is about 326 company-years that disclosed compliance with core indicators in the corporate governance report in the form of O and X in 2019 and 2020. The analysis results of this study are as follows. First, large-scale securities listed companies in Korea only comply with 8.4 out of 15 core indicators, suggesting that more active efforts to improve governance are needed. When looking at the core indicators by category, the shareholder-related core indicators compliance rate was the lowest at about 32%, and the compliance rate of the audit organization-related core indicators was the highest at over 70%. Among the 15 individual core indicators, it is found that the number of companies that adopted the concentrated voting system is the lowest. Second, the higher the compliance ratio of the core indicators, the higher the firm value was, which means that the higher the compliance ratio of the core indicators, the higher the investor’s evaluation of the corporate governance structure. Third, it was found that the higher the compliance ratio of core indicators related to the board of directors and monitoring organizations had a significant positive effect on the firm value, while compliance ratio of the shareholder related indicators did not have significant relationship with firm value. Finally, it appears that the adoption of the cumulative voting has a significant negative effect on the firm value. This is a result consistent with corporate concerns that the adoption of cumulative voting threatens management rights, so it seems necessary to consider whether it is appropriate as a core indicator. This study contributes that it is the first study to study the relationship between compliance of core indicators of corporate governance reports using Comply or Explain method and firm value. In addition, while previous studies have studied the relationship between corporate governance status and firm value of major organizations such as the board of directors and audit committees, this study is based on the quantified level of governance that includes shareholders, board of directors, and audit organizations. It is different from previous studies in that it studied the relationship between corporate values. This study supports the government’s policy to expand the disclosure of corporate governance reports to all companies listed on securities by 2026. Corporate management does not simply disclose corporate governance reports according to legal obligations, but seeks the most desirable governance model for enhancing firm value in the long term.

Does Public Enforcement Work in Weak Investor Protection Countries? Evidence from China*

ABSTRACTWe examine the efficacy of public enforcement in weak investor protection countries by examining the outcomes of a comprehensive public enforcement campaign in China. The campaign, launched in 2007, was designed to help enforce China's first mandatory Corporate Governance Code, issued in 2002. The 2007 campaign was characterized by several important features: (i) the campaign required firms to identify their problems before the securities regulators conducted on‐site inspections; (ii) the campaign provided a detailed checklist of the status of a firm's compliance with the Code; (iii) the campaign was transparent with regard to the disclosure and correction of identified problems; and (iv) the campaign threatened penalties for firms that failed to correct the identified governance problems in a timely manner. Our empirical analyses suggest that the 2007 campaign was effective in improving publicly listed firms' corporate governance. The corporate governance improvement was associated with a reduction in earnings management, higher earnings response coefficients, and higher operating accounting performance. In addition, we find preliminary evidence that the detailed checklist is partially responsible for the efficacy of the campaign. Our results suggest that public enforcement, if properly implemented, works in increasing shareholder value in weak investor protection countries.

Mandatory Dividend Policy, Growth, Liquidity and Corporate Governance: Evidence from Chile

Chilean publicly listed companies are required by law to pay out a minimum 30% of distributable earnings after taxes as dividends on common stock. The study extends Lintner’s [Lintner, J (1956). Distribution of incomes of corporations among dividend retained earnings and taxes. American Economic Review, 46, 97–113.] model of dividend smoothing and Banerjee [Banerjee, S, VA Gatchev and PA Spindt (2007). Stock market liquidity and firm dividend policy. Journal of Financial and Quantitative Analysis, 42(2), 369–398.] logistic model of the likelihood of a firm paying a dividend to investigate the signaling, liquidity, corporate governance, and information risk-based theories of dividends. The results show that Chilean firms’ excess dividends are smoothed in relation to the prior period level of excess dividends, and lagged earnings do not drive excess dividends even though the mandatory minimum dividend is defined in terms of lagged earnings. This insight establishes that dividend decisions regarding the size of the excess dividend and the likelihood of paying an excess dividend are distinct from the mandatory dividend payment. Additionally, the size of excess dividends and their likelihood are higher at firms with higher growth opportunities, a result consistent with the use of excess dividends as a signaling device. Results also demonstrate that greater transparency is associated with a greater likelihood of paying an excess dividend, but transparency does not drive policy regarding the size of the excess dividend. Moreover, the corporate governance mechanism creditor monitoring influences the size of excess dividends but not the likelihood of paying excess dividends. These results have implications for securities regulators evaluating the pros and cons of a mandatory dividend policy to protect minority shareholders in emerging markets.

Gendering merit: How the discourse of merit in diversity disclosures supports the gendered status quo on Canadian corporate boards

• Gender diversity disclosures of Canadian public companies are analyzed. • “Merit” and “diversity” are socially constructed to largely exclude women. • Many companies focus on “merit” to justify having fewer women directors. • Disclosures of companies referring to merit are less readable. • Patriarchal structures are revealed in the language of diversity disclosures. The diversity disclosures by Canadian corporations are examined to show how references to ‘merit’ and ‘diversity’ are used strategically by many corporations to support the gendered status quo and to resist pressures to increase the representation of women on boards. References to ‘merit’ and ‘diversity’ in the first mandatory corporate governance diversity disclosures of a sample of corporations from the Toronto Stock Exchange are analyzed using critical discourse analysis to assess the extent to which these disclosures are used to legitimize current board recruitment practices and to maintain the gendered status quo. We find that corporations referring to merit in their disclosures tend to have fewer women directors than corporations that do not mention merit. In addition, we assess the readability of the disclosures. We find that those referring to merit tend to be less readable, suggesting efforts to obfuscate. This research highlights the patriarchal power structures underlying corporate board appointments and shows how these power relationships are revealed in the language corporations choose to use in their diversity disclosures. ‘Gender’, ‘diversity’ and ‘merit’ are socially constructed concepts. Until the gendered roots of the language of merit-based policies are acknowledged, corporations have little incentive to challenge the status quo and engage substantively with diversity. Overcoming corporate resistance to change may require a range of innovative practices by corporations and regulators, up to, and possibly including, mandating levels of women’s representation on corporate boards.

Mandatory Corporate Governance Rules and Auditor Behavior: The Case of Greece

This study examines the impact of the first mandatory corporate governance regulation in the Greek environment on audit quality. Audit quality is operationalized with the number of audit qualifications, the monetary amount of audit qualifications, audit hours, and audit fees. It also utilizes the full content of the Greek audit report and constructs new audit quality proxies while it is the first that examines the association between corporate governance and actual audit hours. The findings suggest that following the implementation of the new regulation, auditors became more independent during the audit opinion process. Furthermore, the audit fee increases without audit hours showing a respective increase. It is concluded that the audit fee increase does not reflect differentiation in the delivered audit quality, as auditors do not exert more audit effort. The audit fee increase could reflect a risk premium due to the increase in auditors’ perceived business risk as a result of the increased spending and additional liability of listed companies under the new regulation.

Pengaruh Pengungkapan Tata Kelola Perusahaan terhadap Akurasi Harga Saham pada Perusahaan yang Terdaftar di Bursa Efek Indonesia Tahun 2013-2017

This study was conducted to analyze the effect of corporate governance disclosure to Share Price Accuracy. The variables of corporate governance disclosure in this study are divided into two namely Mandatory Corporate Governance Disclosure and Voluntary Corporate Governance Disclosure.
 The data obtained in this research is secondary data. The Secondary data used are financial statement data and company annual report data. Secondary data can be downloaded from Indonesian stock exchanges official website via www.idx.co.id. The number of companies used as research samples are 393 companies. The study period began from 2013 to 2017. The data obtained were as many as 1965 data. 
 The conclusion of this study prove that both of the independent variables have a significant effect to Share Price Accuracy.Mandatory Corporate Governance Disclosure has a significant positive effect to the Share Price Accuracy partially.Voluntary Corporate Governance disclosure also has significant effect to the Share Price Accuracy partially.

Critical Analysis of the International Standards on Corporate Governance and Its Compliance

Critical Analysis of the International Standards on Corporate Governance and Its Compliance

The Effects of IPO Mandatory Lockups and Corporate Governance on Underpricing: Evidence From the Australian Securities Exchange

In Australia, initial public offering (IPO) firms not satisfying profit or asset tests are permitted to list on the securities exchange with mandatory lockups (MLs) imposed on insiders’ shares. We investigate whether such lockups, and the lockup periods, are associated with underpricing. We find that the incremental effect of the association between longer ML periods and higher underpricing is stronger for firms with higher insiders’ equity ownership subject to MLs relative to firms with lower insiders’ equity ownership subject to MLs. This suggests that the extent and length of insiders’ equity ownership subject to MLs convey information regarding IPO firms’ risk. We also find that good corporate governance reduces IPO underpricing for firms with MLs. It moderates the IPO underpricing for firms with higher and longer insiders’ equity ownership subject to MLs. Our findings are informative for regulators in understanding how MLs can assist in allowing smaller and younger firms with inadequate financial strength and performance to publicly raise equity capital, while morally protecting investors and preserving market integrity.

The Impact of Corporate Governance Moderating Effects on the Performance of REITs in Asia

Corporate governance can have an effect on the organizational behavior of real estate investment trusts (REITs). We examine the moderating effects of corporate governance on Asia REITs' performance. We find significant corporate governance moderating effects on the performance of Asian REITs. Corporate governance could either act as a positive or a negative moderator that could enhance and accelerate performance, return on assets (ROA), return on equity (ROE), and REIT return, and reduce agency costs in Asian REITs. The findings imply that there is a need for transformation and reform in REIT corporate governance. The findings contribute towards Asian REITs' public policy development as REIT corporate governance is found to complement the institutional legal setting and externally managed REITs in Asia. Regulatory bodies of Asian REITs should enforce mandatory and absolute stringent corporate governance regulations on REITs.

The Impact of the Mandatory Corporate Governance Disclosures on the Banking Growth in UAE: Islamic Versus Conventional Banks

The aim of this paper is to measure the degree of mandatory corporate governance disclosure and examine its impact on the bank’s growth using annual data for listed banks on the UAE financial markets during the period 2003-2013. Our empirical results show that the degree of mandatory corporate governance disclosure of conventional banks is significantly higher than the Islamic banks. In addition, the degree of mandatory corporate governance disclosure is significantly and positively related to the growth of deposits for both Islamic and conventional UAE listed banks

Corporate governance effect on firms’ performance – evidence from the UAE

PurposeThe purpose of this paper is to show the effect of the corporate governance (CG) on firms’ performance in the United Arab Emirates (UAE). The governance mechanisms employed in this study are board size, board independence and audit committee’s (AC) characteristics. The examined AC characteristics are: AC member’s independence, number of financial experts in the committee, ratio of meetings held during the year, and the incentives received by the AC members.Design/methodology/approachThis paper uses all the public listed corporations in the UAE financial markets. The secondary data for four years are used starting from 2010 where the mandatory corporate governance code had been mandated.FindingsBoard independence has been found to negatively affect firms’ performance. AC meetings and financial experts’ ratio did not affect firm’s performance, while AC incentives and AC independence negatively affected firms’ performance.Originality/valueThis study is supposed to fill the gap of the lack in CG studies based on fast growing economy which is UAE. Besides, this research investigates the AC’s characters’ effect on firms’ performance which was rarely covered in literature.

Why Do Firms in Weak Institutional Environments Adopt Strong Corporate Governance? The Role of Government Regulation

This study identifies one potential benefit of mandatory investor protection laws in weak investor protection countries neglected by the extant literature: laws help reduce firms’ bonding costs to strong corporate governance. We argue that corporate insiders (outside investors) have little incentive to voluntarily supply (demand) strong corporate governance in weak legal regimes because such voluntary bonding is not a credible commitment. However, once a corporate governance provision is mandated by law, it can serve as a more credible bonding mechanism at lower costs. Hence, firms that expect to benefit more from such bonding should be more likely to comply with the corporate governance provisions in the mandatory regime. Using two different and complementary corporate governance proxies, we find supporting evidence for our hypothesis. We also find that stock market investors react positively to firms’ adoption of such mandatory corporate governance provisions.

Are Investors Concerned by Annual Corporate Governance Reports? Some Evidence from the Spanish Stock Market

While prior research has generally shown a positive price reaction to voluntary declarations of compliance with codes of corporate governance, this is the first paper to examine how investors react to the release of mandatory corporate governance reports. Positive reactions to declarations of compliance are generally interpreted in terms of signalling effects for those companies more committed with transparency. However, once corporate governance reports are mandatory, such signalling effects make no sense anymore. In the current context, the market would react according to the relevance of the information conveyed by the report. While prior related research has examined market reactions only through the behaviour of returns, we use three indicators: returns, price volatility and trading volumes. Our main result would be the lack of a significant market reaction to the release of corporate governance reports. This finding is robust as it is reported for each indicator of market reaction. However, for some subsamples of firms we show some weak reactions in the lines suggested by the agency theory. Our results might have some implications for regulators and policy makers when designing corporate governance regulations.

Audit fee premium: The potential effect of King III

In the wake of corporate scandals at world-renowned companies such as Enron (in 2001) and WorldCom (in 2002), public confidence in the role of the auditing profession was eroded. Consequently, in the United States, the Sarbanes-Oxley Act of 2002 (SOX) introduced a raft of mandatory corporate governance initiatives; in the United Kingdom measures included expanding the role of the Financial Reporting Council, the updating of the Combined Code in 2003 and the 2005 Company Law Reform Act; while in France, the Financial Security introduced provisions which were deemed to be very similar to SOX. In South Africa, corporate reforms included the introduction of the King I to III codes of corporate governance, the Companies Act No.71 of 2008 and the Auditing Profession Act No. 26 of 2005. In particular, King III introduced the concept of integrated reporting (IR) which recommends that companies report holistically on both financial and sustainability (economic, social and environmental) issues. In contrast to SOX, however, the application of King III is voluntary, operating on an ‘apply or explain’ basis. The introduction of SOX was postulated to have increased compliance costs and created fee opportunities for the audit profession, giving rise to questions as to whether or not the introduction of IR in King III had introduced similar opportunities for the auditing profession in South Africa, resulting in audit firms charging an audit fee premium1.In this study, multiple regression analysis was conducted on two sets of models to test two hypotheses: (i) that the BIG42 audit firms potentially charged an audit fee premium in response to the recommendations of King III on IR, and (ii) that audit fees are related to non-audit service fees. Results of the research do not show any evidence to suggest that the advent of King III was related to audit fee premiums, yet a strong relationship was found between audit3 and non-audit service fees4. Further, certain of the BIG4 audit firms were found to obtain an audit fee premium. The findings of this study add a South African dimension to the existing body of knowledge on the relationships between audit fees and governance initiatives in this context.

Corporate Governance Reporting in Bangladesh: A Study of Selected Listed Private Commercial Banks of Bangladesh

Corporate Governance (CG) largely determines how well the interests of the stakeholders are being maintained. This study has been opted for in-depth inquiry into the corporate governance disclosure practices in the annual reports of the selected listed banking companies in Bangladesh. The study finds that all the sample companies disclose corporate governance information as per regulatory requirements laid down in Clause 1.5 of the SEC Notification, 2012. The focus of this study was to empirically examine the mandatory corporate governance disclosure and the relationship between various corporate attributes and with the level of that mandatory disclosure of the banking companies of Bangladesh. The study revealed that Bangladeshi banking companies have high level of compliance to the mandatory corporate governance disclosure and the variables of board size, ownership, board composition, and profitability have significant impact in the corporate governance disclosure. However, the inclusion of the separate section of Corporate Governance Reporting in the annual reports and suggested guidelines for mandatory list of items to be included in the report is a milestone for Bangladesh. For the purpose, the study has developed a questionnaire based on recent literature survey and have gathered the opinions of the executives of three sample banks under the framework of likerts 5 point scale. The gathered primary data have been properly analysis by a number of descriptive statistics, such as, Mean, Standard Deviation, ANOVA and Post hoc multiple comparison tests.