Non-financial Firms Research Articles

On the determinants of derivatives disclosure – an emerging markets perspective

Purpose To ascertain how JSE-listed companies use derivatives to hedge. Aim Determine whether JSE-listed companies apply established rationales for corporate hedging practices. Design/Methodology/Approach This empirical study uses data from the Johannesburg Stock Exchange (JSE), South Africa, as a proxy for emerging markets. Main findings Binomial logistic regression, applied to the 200 largest non-financial firms (by market capitalization) on the JSE from 2005 to 2017, indicates that larger firms, higher leveraged firms, ones with better growth prospects, and less information asymmetry between directors and management are more likely to use derivatives to hedge. Practical implications The findings suggest that some traditional determinants for corporate hedging practices apply in an emerging market context, but local conditions still remain an important consideration. Novelty/Contribution By confirming the applicability of traditional hedging theories in an emerging market context, the study extends the theoretical understanding of corporate risk management. It supports the notion that established hedging rationales, such as reducing financial distress costs and addressing information asymmetry, are relevant across different economic contexts.

Narrative disclosure and earnings quality: what is the nexus? Evidence from emerging countries

PurposeNarrative disclosures offer further elucidation of a company's financial performance beyond what is presented in numerical format. This can assist stakeholders in gaining a deeper comprehension of the elements that impact reported earnings, thereby improving the quality of financial information. The current research explores the impact of narrative disclosure on the earnings quality of firms listed on the Amman Stock Exchange (ASE).Design/methodology/approachAppropriating an index to measure the narrative disclosure level in the research sample firms, the research utilizes an analysis of the textual content of nonfinancial reports and statements issued by the management of the ASE-listed nonfinancial firms between 2013 and 2022. The financial statements issued in the annual financial reports are also adopted to extract data on earnings quality and the controlling variables. The analysis of the data and attainment of the findings necessitate using the panel data.FindingsIt is indicated that narrative disclosure affects earnings quality. To be precise, the greater the narrative disclosure, the lower the absolute value of the voluntary discretionary accruals and thus the higher the quality of accounting earnings.Research limitations/implicationsThe findings contribute to new research on disclosure issues, particularly narrative disclosure, which enhances reader confidence in financial and nonfinancial reports and prevents misleading and manipulated information.Originality/valueThis research helps decision-makers understand the relationship between reports, statements and earnings quality in a firm. It's unique in exploring this relationship, especially in developing countries. The study is the first of its kind in Jordan, known for its economic stability and strategic location in the Middle East, making its findings applicable to similar environments.

The Moderating Effect of Ownership Structure in the Relationship between Corporate Governance and Value of Non-Financial Firms Listed at the Nairobi Securities Exchange

The Moderating Effect of Ownership Structure in the Relationship between Corporate Governance and Value of Non-Financial Firms Listed at the Nairobi Securities Exchange

Impact of Board Committee Characteristics on Social Sustainability Reporting in Sub-Saharan Africa: The Moderating Role of Institutional Ownership

The corporate strategic planning of businesses in sub-Saharan Africa (SSA) largely focuses on immediate financial performance with minimal credence to social sustainability. Thus, studies on the linkage between corporate governance (CG) and sustainability reporting have focused on developed economies. This study therefore investigated the role of institutional ownership in the impact of board committee characteristics on social sustainability reporting. This study involved strongly balanced panel data with 1969 observations of 275 publicly listed non-financial firms in SSA within the timeframe of 2012 to 2021. Data were analyzed using STATA 14.1. The hypotheses were tested using the two-step system of the generalized method of moment (GMM) using the Arellano–Bond dynamic panel data estimation method. The rate of social sustainability reporting was 39.4%. Relatively, Mauritian and South African firms had the most effective board committee characteristics and higher levels of social sustainability reporting. Although institutional ownership had no significant effect on social sustainability reporting, it moderated the effect of sustainability committee independence and sustainability committee gender diversity on social sustainability reporting. This paper presents a new perspective on the corporate governance and social sustainability literature by examining the effect of institutional ownership on board committee characteristics and social sustainability reporting in SSA. In terms of policy implication, there is the need for mandatory regulatory and legal CG framework that is regularly updated at national and regional levels in SSA to motivate listed firms to establish sustainability committees with efficient characteristics to promote social sustainability reporting.

Corporate governance effectiveness and firm performance in global crisis: evidence from GCC countries

Purpose This study aims to examine the impact of corporate governance (CG) effectiveness measured by board and audit committee index on firm performance of nonfinancial listed firms in Gulf Cooperation Council (GCC) countries, pre- and during the global crisis of COVID-19. Design/methodology/approach The analysis used 2,238 observations from nonfinancial firms listed on GCC countries' stock exchange, covering the period from 2017 to 2022, using a fixed effect panel regression model. The data for this study were manually collected from the annual reports of 373 GCC-listed firms. Findings The results demonstrate that the board's effectiveness index has a positive influence solely on accounting-based performance (return on assets) pre- and during the COVID-19 crisis. However, in terms of audit committee effectiveness, the results show a positive impact on market-based performance (Tobin’s Q) both pre- and during the COVID-19 crisis. Additional analysis indicates that the effectiveness of both the board and audit committee is more notable in larger firms compared to smaller firms. Practical implications This study is crucial for investors, regulators, managers and governments tackling the financial impacts of global crises like COVID-19. Its comprehensive evaluation of board and audit committee effectiveness guides policymakers and practitioners in enhancing CG for profit and wealth maximization. Originality/value This study offers novel evidence detailing the impact of CG effectiveness on firm performance over an extended period, encompassing the COVID-19 period and using a comprehensive index. In addition, this study was conducted in a unique CG setting, focusing on six emerging GCC countries.

Earnings management in the family business groups of Pakistan: the role of corporate governance

Purpose This paper aims to examine the role of corporate governance (CG) in the earnings management (EM) of affiliated companies in family business groups (FBGs) listed on the Pakistan Stock Exchange (PSX), using principal–principal agency theory. Design/methodology/approach The sample of 327 nonfinancial firms of the PSX, consisting of 187 group-affiliated firms and 140 nonaffiliated firms has been used in this study for the period of 2010 to 2019. The study uses different regression models for analysis, with robustness tests of various alternative measures of EM and FBG affiliation. In addition, endogeneity is controlled with the propensity score matching method. Findings The findings show that EM is less prevalent in affiliated firms compared to nonaffiliated companies. The results show a negative and significant relationship between FBGs affiliated firms and EM. Moreover, the results also show a positive relationship between EM and the interaction term of the CG index and group affiliation. It refers to the fact that effective governance cannot reduce EM in affiliated companies of FBGs as well as in the nonfinancial companies of the PSX. In addition, the quality of CG is higher in affiliated companies compared to its counterpart in nonaffiliated firms. The findings support the principal–principal agency theory that CG cannot mitigate the expropriating behavior of controlling shareholders against minority shareholders by reducing EM in emerging markets due to the ownership concentration phenomenon. Research limitations/implications This research study has implications for small investors, government agencies and regulators. The findings of the study show that CG code should make it mandatory for companies to reveal information about their complex ownership structure and ownership information about affiliated companies and directors. Furthermore, it is suggested to revisit the code of CG in the Pakistani context of principal–principal conflict instead of the agent–principal explanation of agency theory based on Anglo–Saxon countries. Originality/value This research study has contributed to the CG and FBG literature in relation to EM in idiosyncratic settings of Pakistan. One of the prime contributions of the paper is the development of a comprehensive CG index. This research study used detailed, manually collected novel data on affiliated firms of FBGs in Pakistan.

Patent strategies in the digital revolution: How businesses use digital technology patents to optimize resource allocation efficiency

This study assesses how digital technology patents affect resource allocation efficiency in China's nonfinancial firms (2009–2021) using a benchmark regression model. It finds that both the quantity and quality of these patents significantly improve allocation efficiency, especially in highly digitalized sectors. The analysis suggests that patents enhance efficiency via better innovation but their impact varies across enterprise types. Recommendations are made based on these findings.

Do the fraud triangle components fuel complex financial fraud? A study of nonfinancial firms in Pakistan

Purpose Financial fraud is a severe corporate fraud committed for achieving various objectives, like attaining financial targets, lowering debt and providing good signals to the market. Such financial fraud deceives stakeholders and results in substantial financial losses. This study aims to detect financial fraud using the modified Beneish M-Score, the most appropriate forensic tool for fraud detection. Furthermore, the current study also examines the influential role of the fraud triangle’s elements (pressure, opportunity and rationalization) on financial fraud in nonfinancial firms during 2018–2021, offering insight for understanding and mitigating fraudulent activities in the corporate world. Design/methodology/approach Financial fraud is treated as a dependent variable measured through a modified Beneish M-score, while the fraud triangle elements (pressure, opportunity and rationalization) are measured through six proxies, which are financial stability, leverage, financial target, nature of the industry, the effectiveness of supervision and auditor changes. Findings The study's finding proclaimed that fraud triangle elements result in financial fraud. Findings unveil that all elements (pressure, opportunity and rationalization) of the fraud triangle significantly influence financial fraud. The study confirms that these elements must be considered to protect investors and provide a safe environment for investment. Originality/value Rare literature found addressing the detection of financial fraud and its nexus with the fraud triangle specifically in Pakistan where deficient governance is notably prevalent. This study attempts to fill such a gap and contribute to knowledge.

Ownership Structure and Firm Performance. A Panel Regression Study from Poland

This paper explores the relationship between ownership structure and firm performance, using the framework of agency theory. Given a sample of 126 Polish non-financial firms listed on the Warsaw Stock Exchange between 2016-2021, we applied fixed and random effects panel regressions with robust standard errors, tested for specification, endogeneity, cross-sectional heteroskedasticity, and serial autocorrelation. Our models identify several significant associations of adopted ownership structures with firm performance measured by accounting and market-based measures. We find that ownership concentration by the largest shareholder is negatively related to enterprise market-measured performance. Additionally, our results indicate the significance of shareholder heterogeneity.

Information asymmetry and investment efficiency: the role of blockholders

PurposeThis study aims to examine the extent to which information asymmetry affects investment efficiency and whether the presence of blockholders moderate this relationship.Design/methodology/approachWe employ the data of firms listed on the Malaysian stock exchange for the period 2010–2018, to compose our sample. Our final sample includes the 100 largest non-financial firms based on market capitalization. Collectively, these 100 companies contribute 84.2% to the total market capitalization (MYR 1,730bn) which is representative of the whole market. The ordinary least squares regressions were used as the main estimation technique. The system generalized method of moments, two-stage least squares and propensity score matching were also used, to address potential endogeneity concerns.FindingsWe document a positively significant association of information asymmetry with investment inefficiency. These results imply that information asymmetry reduces investment efficiency and enhances sub-optimal investments. We also document that blockholders negatively moderate the relationship of information asymmetry with investment inefficiency. Further analyses show that investment inefficiency is higher in low-growth firms than in high-growth firms because of higher information asymmetry.Research limitations/implicationsWe focus on Malaysia, which is a predominantly common-law Anglo-Saxon country. Graff (2008) documented that the investors are treated differently across legal systems and there are differences between the continental European and Anglo-Saxon countries. La Porta et al. (1999) documented that investors tend to have more legal protection in Anglo-Saxon countries. Therefore, our results may not be generalized to countries with different legal systems.Practical implicationsAn important implication of our findings is that stakeholders may encourage the presence of blockholders and give them a voice to weaken the positive relationship between information asymmetry and investment inefficiency.Originality/valueThis study contributes to the contingency literature by investigating the moderating effect of an important governance mechanism, i.e. the presence of blockholders on information asymmetry-investment efficiency nexus. Despite being important, this moderating effect has been largely overlooked in the literature. Our study contributes by providing an understanding of how blockholders can influence investment decisions, offering insights for academics, investors and policymakers focused on improving the efficacy of investment decisions and governance structure.

Ownership Structure and Financial Reporting Quality of Listed Non Financial Firms in Nigerian: The Moderating Role of Audit Committee

The aim of this study is to evaluate the moderating role of audit committee on the relationship between ownership structure and financial reporting quality of listed non-financial firms in Nigeria. The study used annual reports from 41 listed non-financial firms in Nigeria between 2010 to 2021 period. The study used causal research design approach. The analysis was done using descriptive statistics and multiple regression technique using Generalised Method of Moment (GMM). The findings of the study show that there is significant relationship between ownership structure and financial reporting quality and audit committee can effectively moderate their relationship. The study therefore, rejects all the null hypotheses formulated. The implications of the study are that regulators and policy makers, may encourage more shareholders representation in audit committee of listed companies and mandate financial expertise to all audit committee members. The study concludes that presence of institutional, managerial and foreign ownerships as well as sound audit committee are important for improving firms' financial reporting quality. The study therefore, recommends that in order to enhance the reporting quality, management of listed non-financial firms in Nigeria should ensure that they have effective and functional audit committee. The ownership structure should also be strengthened in order to assist in improving financial reporting quality and also improve relevance and reliability of annual reports and make it easier for the stakeholders to make appropriate decisions relevant to their needs.

Institutional determinants of dividend policy of African listed firms

ABSTRACT This paper examines the institutional determinants shaping the dividend policy of 357 non-financial firms listed across 13 African markets. Utilising panel data estimation techniques, our findings indicate that weaker investor protection, increased financial development, high GDP growth, and greater press freedom are linked to higher dividend payouts, while corruption and property rights protection show no significant effects. Notably, financial market development positively impacts dividend policy, whereas the development of financial institutions does not. Policymakers should prioritise several key areas: strengthening investor protection to encourage diverse value creation and improve governance; enhancing financial market development to increase capital access and market efficiency; supporting press freedom to promote transparency and accountability; and fostering GDP growth to improve firm performance and boost dividend distributions. A balanced approach integrating financial development, press freedom, and economic growth is essential for optimising dividend policies and advancing sustainable economic development in Africa.

The Savings of Corporate Giants

Abstract We construct a novel panel data set to provide new evidence on how the largest nonfinancial firms manage their financial assets. Our granular data show that, over the past decade, bond portfolios have grown to be at least as large as cash-like instruments, driven by the meteoric rise of corporate bond holdings. To shed light on the drivers of this growth, we conduct a pair of event studies around the 2017 tax reform and the 2020 liquidity crisis. We find that large holdings of marketable securities are primarily driven by cross-border tax incentives, while cash-like instruments are driven by liquidity motives. (JEL G32, G35, G11, E440)

Granger Causality Model of Retained Earnings and Financial Performance of Non-Financial Firms Listed on the Nairobi Securities Exchange (NSE), Kenya

Non-financial firms are central to economic development of nations, producing goods and services and alleviating unemployment by creating numerous job opportunities. Despite this potential inherent in non-financial firms, evidence shows that the non-financial firms listed on the Nairobi Securities Exchange (NSE) experience challenges in their financial performance, which lowers their capacity to invest. Although retained earnings have been used as a source of funding among listed non-financial firms, there is a paucity of research on the predictive power between retained earnings and the financial performance of these firms. Therefore, this paper focuses on addressing this paucity by modeling Granger causality between retained earnings and financial performance measured through Return on Assets (ROA) of non-financial firms listed on the NSE. The Wald tests revealed that the financial performance of non-financial firms Granger-causes retained earnings, but retained earnings do not Granger-cause financial performance. The conclusion drawn from these findings is that financial performance of non-financial firms listed on the NSE allows forecasting of future retained earnings. However, future research should leverage emerging advances like Network Granger causality to determine whether bidirectional Granger causality is viable between the two variables.

The Relationship between Family Firms and Tax Avoidance: A Quantile Regression Approach

The study examined whether firms that are family-owned avoided more taxation in contrast to the firms that are not owned by families. The study’s sample consisted of non-financial firms listed on the Pakistan stock exchange during the period of 2011 to 2020. The quantile regression approach was used to find the results. The findings showed that firms that were owned by families engaged more in avoidance of tax activities as compared to the other firms. The problems of tax avoidance in the family businesses can be explained mainly because of the agency issues. Additionally, the study also utilized the firm-specific characteristics which were the age of the firm, liquidity, leverage and size. It was found that the firm characteristics variables exhibited a significant influence over the avoidance of tax. The study’s findings have important implications for companies and policy makers in order to address the tax avoidance problem.

Impact of Gender Diversity on Real Earnings Management: Evidence from BRIC Public Listed Non-Financial Firms

Weak corporate governance (CG) practices have been cited as a major factor that causes financial disasters. However, gender diversity (GD) is considered one of these factors that can reduce the effects of such crises. This study, uses 712 publicly listed firms from 2017 to 2022, to investigate the effect of GD on real earning management (REM). Control variables such as firm size, leverage, current ratio, and state-owned enterprises are also used in this study. The findings of this study report that there is a statistically significant relationship between REM with GD. It means that companies having a female on board less engage in REM. Furthermore, the findings of this study can help policymakers, practitioners, and researchers create focused interventions and strategies that will support GD and sustainable business practices in the BRIC economies. Therefore, results suggest encouraging GD in the board to reduce the level of REM.

Conditional Effect of Independent Directors on Dividend Payout Ratio: A Moderated Moderation Model of Shariah Compliance and Concentrated Ownership

The study has been conducted to investigate the conditional effect of independent non-executive directors (INED) on dividend payout ratio (DPR) in Pakistani equity market when firms have concentrated ownership (CO) and are shariah-complaint (SC). The world has witnessed some huge financial debacles like Enron due to different agency problems. The study employed Hayes (2017) moderated moderation model to examine the conditional effect. The data included 250 non-financial firms 2010-2021 from Pakistan equity sector. Results suggest that INED negatively affects dividends, CO has a negative conditional effect on INEDs, and SC positively moderates the negative moderating conditional effect of CO on INEDs and DPR. Sectoral variations can introduce additional layers of complexity in the analysis and interesting outcomes. Therefore, it is suggested that future research should attempt to draw conclusions from different emerging sectors and economies such as China, India, Sri Lanka and Pakistan etc.

Leverage ratio and corporate performance: Do marginal cost and marginal benefit of debt matter

This study examines leverage ratio and firm performance considering marginal benefits and marginal costs of debt to a firm. A total of 16 non-financial firms over a 15 year period (2001-2015) were randomly selected for the study. The panel data were subjected to Panel Least Square, Fixed Effects, and Random Effects regression estimations to test the formulated models in the study. Also the study employed Hausman Test to ascertain whether random effects model is the appropriate model or if fixed effects model is the appropriate model. The results shows that long term debt ratio (LTDR) have positive and significant influence on performance of Nigerian firms measured by Return on Asset (ROA) and Return on Equity (ROE). Short term debt ratio (STDR) on the other hand, established negative and significant effect on ROA, and negative and insignificant impact on ROE. STDR accounting for 75% mean value of the total debt ratio of the sampled firms, the researcher therefore, infer that financial structure has negative and significant influence on the performance of Nigerian firms. This outcome is attributed to mismatch of funds and high risk investment (asset substitution effect) resulting to marginal benefits of monitoring and bonding activities less than the marginal costs as noted by agency cost theory. The study therefore concludes that debt is valuable in reducing the agency costs of equity in professionally managed firm but at the same time debt is costly as it increase the agency cost of debt.

Do family ownership and supervisory board characteristics influence audit report lag? A view from a two-tier board context

This study investigates the impact of family ownership and supervisory board characteristics on audit report lag in Indonesia. The study relies on a balanced panel dataset and matched-pair sample of 124 listed non-financial firms (2017–2019) in a two-tier board context, drawing on Type II agency theory and the entrenchment/alignment implications of ownership concentration. First, we find a positive and significant association between family ownership and audit report lag. Second, we find evidence that the size of the supervisory board (locally referred to as the board of commissioners) and the frequency of meetings are negatively associated with audit report lag. Further analyses reveal that firms with a larger proportion of family members on the supervisory board experience longer reporting lag. This finding highlights the family’s entrenchment and their domination of the board of commissioners. Additional analysis considering the commissioners’ backgrounds reveals that audit report timeliness worsens when there is a larger proportion of community leadership. This suggests that some commissioner profiles could further lead to entrenchment behaviors. Our findings contribute to the literature and to policy by highlighting the potential and limits of a two-tier board policy on accounting outcomes, particularly in the context of dominant family structures in emerging economies.

ESG scores and stock returns during COVID-19: an empirical analysis of an emerging market

PurposeThe COVID-19 pandemic resulted in a dramatic downturn in the global stock markets. Investors look for safe stocks that can provide better risk-adjusted returns. Stocks with higher Environmental, Social, and Governance (ESG) scores can be good choices for investors. This study focuses on this argument by examining the relationship between ESG indicators and stock returns while considering financial and macroeconomic variables.Design/methodology/approachIn this study, 39 non-financial firms listed in Nifty-50, for which data is available, have been included. Panel data from 2018 to 2021 is collected to examine this relationship in the presence of COVID-19. Additionally, the panel regression method is used.FindingsThe empirical findings indicate a positive relationship between ESG scores and stock returns. This relationship holds even when the control variables like Return on Assets (ROA), Gross Domestic Product (GDP), Return on Equity (ROE), age, size, leverage of the firm, inflation, and crisis period are used in the model.Originality/valueThis study contributes by examining the linkage between ESG indicators and stock return while controlling the impact of the financial and macroeconomic variables in Indian markets, which has not been undertaken so far. Moreover, this is the first study to use the ESG score data of S&P Global, which gives more weight to the material factors of a firm.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-10-2023-0819.