Modern Corporate Governance Research Articles

Corporate governance effects of digital finance: Evidence from corporate tax avoidance in China

This paper tries to uncover the corporate governance effects of digital finance based on the corporate tax avoidance perspective. We find strong evidence that digital finance is negatively associated with corporate tax avoidance. The governance role digital finance plays is primarily mediated through the mechanisms of resource allocation and information governance effects. Further analysis shows that the negative effects of digital finance are more pronounced among higher profitability and non-state-owned firms. Additionally, multiple major shareholders and stronger internal control quality(corporate internal governance) as well as higher institutional investor shareholding and more analyst attention(corporate external governance) can strengthen their negative connection, manifesting the complementarity between digital finance and modern corporate governance mechanisms. Overall, this paper reveals the spillover effects of changes in the financial development environment on corporate tax avoidance strategies. It also contributes to enriching the literature on the corporate governance value of digital finance and the factors influencing corporate tax avoidance.

Independence Reconceived

What makes a director independent? Scholars, regulators, and investors have grappled for decades with the fleeting notion of director independence. Originally conceived as guardians of shareholder interests that could safeguard a corporate board’s ability to check management’s power, independent directors have become a marquee feature of modern corporate governance. But do the corporate actions of directors that are considered “independent” under current standards comport with what we think independence requires? In many cases, the answer would seem to be “no.” From a lack of observable financial impact to the unabated flow of corporate scandals, independent directors seem to keep failing at the job they were championed to do.
 This Article addresses this puzzling tension, offering a novel theoretical and practical reframing of the decades-old discourse around independent directors. The historical focus on the classical managerial agency costs paradigm emphasized that directors who lack ties to the management team can prevent managerial slack or value extraction. However, this approach overlooks the critical role directors also have in curbing managerial overzealousness. In today’s governance ecosystem, directors are not only tasked with preventing managerial slack. They are increasingly tasked with preventing managerial overreach and misconduct even when such overreach or misconduct is compatible with promoting shareholder value. This has important theoretical and practical implications.
 This Article makes two key contributions to the literature. First, it reframes the question of what makes directors independent by supplementing the focus on agency costs as the driver for independence. By identifying a need to prevent boards from rubber-stamping managerial actions—even those taken in good faith—this Article suggests that a simple lack of ties to management fails as a litmus test for independence. Second, by reconceiving independence, this Article also provides tangible credence to the value of diversity on boards, the value and perils of hedge fund activism, and to the emerging discourse regarding ESG and stakeholderism.

Board structure and risk-taking behavior: evidence from the financial sector of Pakistan

PurposeThe board structure (BS) is pivotal in modern corporate governance (CG). This study aims to investigate BS variables (BSIZE, BIND and chief executive officer [CEO] duality) and their correlation with risk-taking behavior indicators, enriching the understanding of how CG shapes financial institutions’ (FIs) decision-making in Pakistan.Design/methodology/approachBy scrutinizing data from 67 financial entities listed on the Stock Exchange of Pakistan spanning from 2011 to 2022 through panel data regression techniques, the research emphasizes that BS holds a substantial influence over the risk tendencies exhibited by these firms.FindingsKey findings suggest that board size has a positive influence, aligned with previous CG research. Smaller boards perform better and avoid excessive risk-taking, contrasting some negative relationship claims. More independent directors are recommended to curtail risk and financial disruption. Holding both CEO and chair roles reduces risk exposure, resonating with reputational and employment risk theory. It is essential to recognize that BS’s impact on risk-taking is nuanced and context-dependent.Practical implicationsPolicymakers, scholars, practitioners and investors working in the market for financial companies might greatly benefit from the empirical findings of this study. Imposing mandates on FIs to uphold adequate capital reserves functions as a safeguard against unforeseen losses, thereby diminishing the probability of unwarranted risk-taking.Originality/valuePrior studies in this domain predominantly focus on nonfinancial sectors. In addition, existing research often explores the relationship between BS and firm risk-taking solely within the banking sector, overlooking other FIs. This study contributes by using a comprehensive data set encompassing all types of FIs, thus extending the existing literature.

PAPEL DOS INTERMEDIÁRIOS DE INVESTIMENTO INSTITUCIONAL NO CONTROLE CORPORATIVO: UMA ANÁLISE CRÍTICA

Purpose: The study aims to critically analyse the role of institutional investment intermediaries in the corporate control of their investee companies in Anglo-Saxon jurisdictions. Theoretical framework: Critical analysis of the role of institutional investment intermediaries derived out of the theoretical basis of classical theory of separation of ownership from management, agency theory, agency cost, stewardship theory and the modern corporate governance. Method: This is theoretical research using the analogy of the different accepted theories of corporate law on corporate management and control into the underlying utility of emerging institutional investment intermediaries in corporate control. Result and Conclusion: The result of the study shows major inferences that the suitable engagement in corporate control by institutional investment intermediaries is the stewardship relationship with its investee companies. However, their stewardship role can be converted to agency role to protect their private interests, which can also be resulted in the threat of corporate control monopolization as well as horizontal corporate control. Research implications: The research indicates the need for prevention of stewardship relationship transposing to agency relationship for preventing corporate control monopolization as well as horizontal corporate control. Originality/value: The current legal framework so far didn’t expect the possibility for transposition of stewardship relationship to agency relationship and its adverse impacts. Hence, corporate law and its allied laws shall take precautionary deterrence measures to avoid such transposition.

Review of the conference book Corporate governance: An interdisciplinary outlook

This review covers the conference book titled “Corporate governance: An interdisciplinary outlook”, edited by Erik Karger and Alexander Kostyuk (Virtus Interpress, 2023; ISBN: 978-617-7309-22-1). The issue of corporate governance is becoming more important every day, both in business and in academic research. It has also evolved with the growth of sustainability studies. The international online conference Corporate Governance: An Interdisciplinary Outlook, held online on November 24, 2022, was a platform for sharing ideas on new trends that are currently shaping the concept of modern corporate governance. So, this book presents views on corporate governance from four different angles.

Balancing Profit and Morality: Confucian Insights into Financial Management and Corporate Governance

This study explores the integration of Confucian principles in modern financial management and corporate governance, offering a nuanced perspective on how ancient philosophical wisdom can inform contemporary business practices. By analyzing seminal Confucian texts and reviewing current literature, this research illuminates the alignment between Confucian ethics and ethical business conduct, emphasizing a balance between financial success and societal welfare. The findings reveal that Confucianism, with its core values of Ren (compassion), Yi (righteousness), and Li (propriety), advocates for a holistic approach to business. This approach prioritizes long-term societal benefits and ethical decision-making over immediate financial gains. The study contrasts and compares Confucian perspectives with modern financial theories, highlighting the relevance and applicability of Confucian ethics in today's business world. In financial management, Confucian principles encourage prudent investment strategies and respectful stakeholder relationships, aligning with aspects of portfolio theory and wealth maximization but with an added ethical dimension. In corporate governance, Confucianism promotes leadership based on moral integrity, advocating for a governance model that values trust, mutual respect, and social responsibility. This research contributes to the understanding of how traditional philosophical systems like Confucianism can complement and enrich modern business practices.

ПЕРЕДУМОВИ ПРОВЕДЕННЯ АНАЛІТИЧНИХ ПРОЦЕДУР АУДИТУ ФІНАНСОВИХ РЕЗУЛЬТАТІВ ПІДПРИЄ

The audit of financial results in companies with corporate governance has become a critical aspect of modern business practices. This study explores the prerequisites for conducting analytical procedures of audit of financial results in the context of corporate governance, emphasizing its role as a comprehensive tool ensuring efficiency, transparency, and sustainable development of the corporate sector. The relevance of this topic is underscored by the growing complexity of business environments, increasing regulatory demands, and the need for greater transparency in corporate operations. As companies face heightened scrutiny, the role of audit has expanded beyond traditional boundaries, becoming integral to strategic decision-making and risk management processes. This paper examines the regulatory framework for audit in Ukraine, which integrates both national and international standards. A key contribution of this research is the proposal of a hierarchical model of audit objectives. This model illustrates the multi-level nature of auditing activities, encompassing a spectrum of tasks from ensuring the reliability of financial statements to achieving strategic corporate governance goals. The study delves into the role of analytical procedures in audit, positioning them as powerful means of generating valuable information for strategic decision-making and business process improvement. This perspective highlights the evolving nature of audit, moving from a compliance-focused activity to a value-adding business function. In the context of investment attractiveness, the paper argues that quality audit is a key factor in building investor and stakeholder confidence. It plays a crucial role in protecting shareholder rights, especially those of minority shareholders, by ensuring transparency and accountability in management decisions. The paper concludes by positioning audit of financial results as an integral component of modern corporate governance systems. It argues that effective audit practices contribute significantly to enhancing the efficiency, transparency, and competitiveness of Ukrainian companies in the global market. This study contributes to the ongoing dialogue on the evolution of audit practices in the face of changing business landscapes and increasing stakeholder expectations, providing valuable insights for practitioners, regulators, and academics in the fields of auditing and corporate governance.

Innovation and Development of Company Capital System

Globally, the corporate capital system continues to innovate and develop. The transformation of countries with traditional statutory capital systems from statutory capital systems to authorized capital systems, and countries with authorized capital systems to further relax legal regulations on the use of corporate capital is a major challenge. The transformation of countries with traditional statutory capital systems from statutory capital systems to authorized capital systems, and countries with authorized capital systems to further relax legal regulations on corporate capital are two major trends in the world. The transformation of countries with traditional statutory capital systems from statutory capital systems to authorized capital systems, and countries with authorized capital systems to further relax legal regulations on corporate capital are two major trends in the world. To understand why the corporate capital system develops in these two ways, it is necessary to understand the concepts of capital credit and asset credit, as well as the conflict of interest between shareholders and creditors. The development of the corporate capital system is affected by the change in the understanding of corporate credit capabilities and the board-centrism trend of modern corporate governance. Therefore, it is undoubtedly an inevitable choice for the progress of company law to pursue the goals of improving the efficiency Therefore, it is undoubtedly an inevitable choice for the progress of company law to pursue the goals of improving the efficiency of company decision-making and operation, lowering the threshold for company establishment, and reducing excessive idleness and waste of funds.

Protection of the Minority Shareholders in Company Law Regime

This comprehensive article explores the critical role of minority shareholders and the legal frameworks and mechanisms established to protect the interests and rights of minority shareholders within the realm of company law and corporate governance. Minority shareholders, despite their smaller ownership stakes, hold a substantial influence in maintaining the equilibrium of power, ethical conduct, and financial integrity within the corporations. The safeguarding and empowerment of minority shareholders within the expansive domain of company law are not just legal obligations but also the basic ethical principle of corporate governance. This article engages in an exploration of the complex mechanisms and prosperous legal provisions designed to ensure the protection, participation, and prosperity of minority shareholders within the vast realm of company law and it also into understanding the role of minority shareholders as guardians of corporate democracy provides a foundation for appreciating their influence in the corporate world. The Minority Shareholders are not just shareholders but they are also the advocates for ethical conduct, transparency, and accountability of the Company. The neglect of the protection of the minority shareholders within a company can result in a range of adverse consequences, and the article explores the negative effects of not safeguarding the rights and interests of minority shareholders, including the erosion of trust and confidence, reduced investment, and diminished market value. The article highlights the paramount significance of these safeguards, examines the complexities of regulatory architecture, navigates potential challenges, and provides an exhaustive understanding of the comprehensive and evolving protection, rights, and opportunities extended to the minority shareholders in modern corporate governance.

Rethinking accountability in developing countries: an institutional pillars perspective

PurposeThis paper aims to fill gap in the literature and explore policy options for resolving the problems of accountability by framing three research questions. The research questions are (i) whether certain elements of Scott’s (2014) institutional pillars attenuate (accentuate) corporate and public accountability; (ii) whether the presence of ruling party-affiliated enterprises (RPAEs) create an increase (decrease) in the degree of corporate (public) accountability; and (iii) whether there is a particular form of ownership change that transforms RPAEs into public investment companies.Design/methodology/approachUsing a qualitative research methodology that involves term frequency and thematic analysis of publicly available textual information, the paper examines Mechkova et al.’s (2019 forms of government accountability. The paper analyzes the gaps between the de jure and de facto accountability using the institutional pillars framework.FindingsThe findings of the paper are three. First, there are gaps between de jure and de facto in all three (vertical, horizontal and diagonal) forms of government (public) accountability. Second, the study finds that more than three fourth of the parties that contested the June 2021 election did have regional focus. They did not advocate for accountability. Third, Ethiopia’s RPAEs are unique. They have regional focus and are characterized by severe forms of agency and information asymmetry problems.Research limitations/implicationsThe main limitation of the paper is its exploratory nature. Extending this research by using cross-country data could provide a more complete picture of the link between corporate (public) accountability and a country’s institutional pillars.Practical implicationsAcademic research documents that instilling modern corporate (public) governance standards in the Sub Sahara Africa (SSA) region has shown mixed results. The analysis made in this paper is likely to inform researchers and policymakers about the type of change that leads to better corporate (and public) accountability outcomes.Social implicationsThe institutional change proposed in the paper is likely to advance the public interest by mitigating agency and information asymmetry problems and enhancing government accountability. The changes make the enterprises investable, save scarce jobs, enhance diversity and put the assets in RPAEs to better use.Originality/valueTo the best of the authors’ knowledge, this is the first paper that uses the institutional pillars analytical framework to examine an SSA country's corporate (public) accountability problem. It demonstrates that accountability is a domestic and a (novel) traveling theory. The paper identifies the complexity of resolving the interlock between political institutions and business enterprises. It theorizes that it is impossible to instill modern corporate (public) accountability standards without changing regulatory, normative and cultural cognitive pillars of institutions. The paper contributes to the change management and public interest literature.

The role and importance of supervisory in joint-stock companies based on international corporate governance standarts

This article highlights the critical importance of the supervisory board in modern corporate governance mechanisms. Such mechanisms have become prevalent in many European countries, where they define the role of the supervisory board as an independent overseer, focused on monitoring the activities of the executive body.
 The wide range of duties and competencies of the supervisory board is discussed, including strategic planning, oversight of executive directors, consideration of corporate decisions, and ensuring adherence to corporate standards. It's crucial to note that the primary mission of the supervisory board is to protect shareholders interests, guarantee their rights, and ensure transparency in the actions of the joint-stock company.
 One of the key challenges the author examines is the dilemma of how executive managers perceive the supervisory board. Do they see this body as an ally that enhances work efficiency or as an obstacle in the way of making operational decisions? This aspect is vital for understanding internal corporate relations and the dynamics of interaction between management structures.
 The article also focuses on the OECD principles regarding corporate governance, emphasizing the importance of an effective structure of the supervisory board. Particular attention is given to the role of independent non-executive members of the board, who can act as a «braking mechanism», ensuring objectivity, independence, and a critical perspective on corporate decisions.
 In conclusion, in the corporate governance of joint-stock companies, the supervisory board emerges as a key element playing a strategic role in protecting shareholders' interests, ensuring transparency, objectivity, and accountability in company operations. The OECD principles underline the significance of including independent members in the supervisory board. This stance affirms the necessity to amplify the role and authority of the supervisory board in contemporary conditions, making the exploration of this issue particularly relevant and significant.

Mixed ownership reform, political connections, and overinvestment

AbstractThe study discovers that mixed ownership reform aimed at enhancing the performance and resource allocation efficiency of state‐owned enterprises may have unintended consequences in China. When the nature of state‐owned control remains unchanged, there is a risk of increased overinvestment due to misaligned interests between state‐owned equity representatives and companies. This incentive can be mitigated by introducing nonstate shareholders with political connections. The study employs a double machine learning method to analyze data from state‐owned listed companies that introduced nonstate shareholders through stock issuance between 2008 and 2019. The research underscores that modern corporate governance mechanisms are crucial for successful mixed ownership reform.

Sociology of corporate governance and the emerging disintermediation

Purpose This study aims to observe and discuss an emerging disintermediation in transportation, finance and health care, and explain how these three key areas depend on intermediary institutions that are the fruit of modern corporate governance conditions that find their roots in classical sociological theory. Design/methodology/approach The authors review and incorporate a diversity of research literature to explain the likelihood for the development and continuation of disintermediation. Findings The authors map two sociological perspectives (Emile Durkheim’s theory of interdependence and Herbert Spencer’s theory of contracts) to two modern corporate governance theories (resource dependence theory and agency theory). The authors then discuss the challenging social situation resulting from modern corporate governance and show how these conditions create the potential for a continuum of disintermediation across the specific and crucial economic sectors of transportation, finance and health care. Originality/value The implications of this theoretical integration can help organizational leaders navigate complex social and strategic issues and prepare for the consequences that may result from the emerging disintermediation.

CONVERGENCE OF TRADITIONAL CORPORATE GOVERNANCE AND MODERN CORPORATE GOVERNANCE REFORMS: IS KING II déja vu FOR BOARDS OF DIRECTORS OR IS IT A SET OF NEW PRINCIPLES?

Contrary to popular belief, corporate governance is not a new subject. In fact, corporate governance has been practised for as long as there have been corporate entities. Corporate governance has always been reflected in legislation such as the Companies Act, Insolvency Act, Insider Trading Act and similar legislation. However, some of the recent recommendations resulting from reforms in this area reflect the improvement of corporate governance standards. This article is an attempt to point out similarities and divergences between traditional corporate governance and modern corporate governance as suggested by the latest reforms, particularly in the King Report on corporate governance (2002).

Counterbalance effect of multiple major shareholders in Chinese listed companies: A strategic decision-making perspective

The ownership structure of multiple major shareholders is very prevalent among China’s listed companies and has a vital impact on corporate strategy. This study examines the influence of multiple major shareholders on corporate differentiation strategy in Chinese listed companies. The results show that multiple major shareholders promote the decision and implementation of enterprise differentiation strategy. Board capital width and depth play a mediating role. Financial redundancy and corporate competitive culture positively moderate the relationship between multiple major shareholders and differentiation strategy, while human resource redundancy has a negative effect. Further research shows that in enterprises with multiple major shareholders, differentiation strategy can improve performance. From the perspective of equity balance, this study examines the role of multiple major shareholders in emerging markets to provide insights for improving the modern corporate governance system and guidance for enterprises to implement competitive strategies.

Research on the Compensation Incentive System of Independent Directors in Chinese Listed Companies

The independent director system is one of the important components of modern corporate governance. The huge liability of independent directors in the Kangmei Pharmaceutical case in 2021 has once again become a hot topic of discussion. In the exploration of the causes of the failure of the independent director system, the motivation of independent directors to perform their duties and their incentives are also worth considering. Based on the relevant theories of independent director incentives, this paper conducts a comparative analysis of the incentive models of independent directors in China and other countries and concludes that the legislative level of incentives for independent directors in China is relatively low, and the remuneration forms, standards, and payment subjects are unreasonable and lack implementation. In addition, the establishment of independent directors’ associations and the gradual construction of independent directors’ reputation incentives were proposed.

Review of the conference book New outlooks for the scholarly research in corporate governance

This review covers the conference book titled “New outlooks for the scholarly research in corporate governance”, edited by Marco Tutino, Valentina Santolamazza, and Alexander Kostyuk (Virtus Interpress, 2023; ISBN: 978-617-7309-23-8). Modern corporate governance is indeed a dynamic and changing set of guidelines, practices, and procedures that are used to steer and manage a company forward. International conference New Outlooks for Scholarly Research in Corporate Governance held online on June 8, 2023, approached in investigating factors that are inherent in today’s discussions of corporate governance deviate

Responsible business: the path to sustainability

The authors emphasize the significance of corporate social responsibility as a modern corporate governance tool, guiding the economy on the ESG-agenda. The article reveals the model of corporate governance as a viceprinciple for accomplishing the goals of sustainable growth, passing to green economy, outlines the constituent elements relevant for integration into the business strategy of the company. The authors pointed out the value of financial and non-financial information provided to users for the decision-making purposes. This study highlights the key aspect of corporate governance - responsible business, intended, on the one hand, for improving the organization's financial performance, on the other hand, to reducing operating costs through resources saving, facilitating the environment, employees and consumers care.

Value-oriented approach in corporate governance

A volatile external environment, a high level of competition, globalization and digitalization of the economy require updating the established principles of corporate governance formation. At the moment, value-oriented corporate governance is becoming increasingly popular. In the article, the authors consider formal and informal mechanisms of corporate governance with an emphasis on values as informal mechanisms that are becoming crucial in modern corporate governance. Theoretical approaches to value-oriented corporate governance are analyzed, the relationship between the values approved in Russian companies and the general level of compliance with the principles of corporate governance is evaluated in the article. To achieve the goal, in the article are used the methods of analysis, comparison, and questioning, the methodology of the National Corporate Governance. Based on the results of the study, it was concluded that companies in which values become an essential part of business culture and practice, demonstrate a high level of corporate governance and high market capitalization. In the largest companies with the best corporate governance practices, documents such as the corporate governance Code, the code of ethics, regulations/policies for resolving corporate conflicts and conflicts of interest are adopted more often than in other companies. The approved business ethics and values of the company, the high level of trust of internal and external stakeholders in the corporate governance system are reflected in the decisions taken that determine the competitiveness and long-term sustainable development of the organization.

New generation free trade agreements as a driver of institutional change: A case of Vietnam

According to new institutional economics, institutional change is a precondition to economic change and is caused by multiple forces. In addition to path dependence, and strategic policy direction of the country, there are external forces which might have a path-breaking effect. This paper investigates the role of new generation free trade agreements (NGFTAs) in the process of institutional change using the case of Vietnam. It focuses on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA) as the most advanced trade agreements ever concluded between developed and developing economies. The findings are based on selected new generation provisions of the CPTPP and EVFTA that confirmed limited success in formal institutional change, no visible impact on the informal part of the institutional setting, and a lack of enforcement incentives. However, institutional change might be achieved by market shifts that activate businesses. These entities, for example, enforce intellectual property rights, modern corporate governance standards or labor rights protection that might cause the spill-over effect into a broader spectrum of economic actors. Thus, they might cause a shift in informal norms triggering incremental changes leading to successful institutional change. NGFTAs might be considered indirect facilitators of this process because they promote a friendly business environment and increase Vietnam‘s investment attractiveness.