Corporate Governance Quality Research Articles

Diverse Effects of Corporate Governance and Intellectual Capital on Audit Quality: A Quantile Regression Technique in Pakistan

In a world that has seen increased emphasis being placed on Corporate Governance (CG) and Intellectual Capital (IC) to determine the credibility of firms, this research seeks to establish the interrelation between CG, IC, and Audit Quality (AQ) of non-financial firms operating in the PSX. This study incorporates quantile regression to investigate the effects of the CG factors – Board Size (BS), Board Independence (BI), and Ownership Concentration (OC) – and the IC dimensions, including Research and Development (RD), Employee Training (ET), and Relational Capital (RC), on AQ. Interestingly, results indicate that solid board features and specific IC spending significantly boost AQ, which is more so at greater AQ. The positive increase in both BI and OC complements enhanced governance and oversight processes; good relational capital and adequate training of employees further speak to the need for strategic investment in improving sound audit practices.

Strategic management of the chemical complex taking into account the provisions of the ESG concept

The article presents the results of the analysis of the main characteristics of the development of chemical enterprises, which allowed us to conclude that there are positive trends in the development of the industry, which, according to certain indicators, is even significantly ahead of other industries that are more dependent on imported raw materials, materials, machinery and equipment. The article also notes that domestic enterprises have better development rates than foreign companies related to this sector of the economy. It is shown that in modern economic conditions, in order to ensure sustainable development of chemical enterprises in the strategic perspective, it is relevant to implement the provisions of the ESG concept, which includes principles related to a responsible attitude to the environment, which implies compliance with the requirements of environmental safety of production processes and consumption of products, as well as social responsibility and improving the quality of corporate governance of the enterprise. The article presents a system for monitoring the development strategy of chemical enterprises taking into account the provisions of the ESG concept, the formation of which will allow tracking the indicators of environmental safety of chemical industries, as well as assessing the effectiveness of the applied technologies for processing waste from production and consumption of chemical products, and making appropriate adjustments to the development strategy of the industry, if necessary.

Does Managerial Short-termism Affect Corporate Social Responsibility?

This study examines how managerial short-termism affects corporate social responsibility (CSR) engagement among Chinese listed companies, revealing important contextual variations across regions, ownership structures, and industries. Using 23,253 firm-year observations from 2007 to 2022 and employing textual analysis and regression techniques, this study examines the relationship between managerial myopia and CSR performance. Findings demonstrate that managerial short-termism negatively impacts CSR engagement, with corporate governance quality partially mediating this effect. The relationship exhibits distinct patterns. Eastern regions show heightened sensitivity compared with central and western regions; state-owned enterprises show greater vulnerability than non-state enterprises. Finally, polluting industries resist myopic effects while non-polluting ones show significant negative impacts. These heterogeneous effects underscore how institutional environments and organizational characteristics influence the relationship between managerial time horizons and social responsibility. Our findings advance understanding of CSR drivers in emerging markets and offer policymakers targeted insights for developing context-specific interventions to enhance corporate sustainability.

A Theoretical Study of the Impact of ESG Performance on the Cost of Corporate Debt Financing

With the increasing global attention to environmental protection, social responsibility and corporate governance (ESG) issues, the ESG performance of enterprises has become an important indicator for creditors to assess their non-financial performance. This paper analyzes the development status quo of ESG ratings in China and the situation of corporate debt financing, combines information asymmetry theory, principal-agent theory, contract theory and other in-depth discussion of the impact of corporate ESG performance on its debt financing costs, so as to put forward targeted recommendations to further enhance the attention of China's listed enterprises to ESG ratings, as well as to reduce the cost of corporate debt financing measures put forward to lay a more solid theoretical foundation, to help enterprises better achieve high-quality and high quality of corporate governance. It lays a more solid theoretical foundation for further improving China's listed enterprises' attention to ESG ratings and proposing measures to reduce the cost of corporate debt financing, and helps enterprises better realize high quality and sustainable development.

Every person has their price? Political corruption and CEO compensation

We provide evidence that local political corruption significantly and positively affects CEO compensation, and we demonstrate that this positive association is contingent on asset shielding mechanisms and corporate governance quality. Specifically, corruption appears to inflate CEO compensation to a greater extent in firms with higher cash holdings, paying out dividends, or absence of operating losses. Additionally, the positive correlation between corruption and CEO compensation is more pronounced in firms with less efficient monitoring. Further analysis reveals that, although higher compensation can enhance firm performance, this positive effect is significantly reduced in firms headquartered in more corrupt areas. These findings strongly support the rent extraction explanation of CEO compensation. Our results are robust across different measures of political corruption, variations in model specifications, and assessments of causality.

The relationship between audit committees, external auditors, and internal control systems: a literature review and a research agenda

Purpose This paper aims to focus on the relationship between audit committees, external auditors and internal control systems (ICS) and strives to point out mutual influences between the instances to provide an integrated perspective for firms’ multilateral monitoring mechanisms. Furthermore, this study emphasizes the incorporation of sustainability and fraud considerations into the traditional roles of audit committees and auditors. Design/methodology/approach This structured literature review is based on 71 empirical-quantitative studies published in high-quality journals between 2005 and 2022. Considering the classification of ICS into ICS quality and internal audit function, the studies are analyzed with regard to audit committees’ and external auditors’ characteristics, divided into incentives and competencies, as well as their mutual relationships. Findings This study highlights a dynamic trilateral network of relationships between monitoring authorities and primarily shows that audit committees equipped with adequate competencies generate a substitutive effect for external auditors by reducing their efforts, whereas ICS quality serves as a possible mediator in this network of relationships. The establishment of an integrative three-party coalition of competent and adequately incentivized monitoring parties is essential to guarantee sufficient and appropriate ICS and overall corporate governance quality. Practical implications The findings should prompt legislators and firms to ensure a deeper collaboration between audit committees, internal auditors and external auditors to generate synergy effects and economies of scale within the integrative monitoring process. Legislators should develop stricter requirements for competencies of audit committees and auditors. These should include a holistic triad of sustainability, fraud and digital expertise as well as mandatory forensic procedures performed by all monitoring bodies. Originality/value The authors contribute to prior research by highlighting the importance of an integrative three-party coalition of monitoring authorities to ensure corporate governance quality and to generate synergy effects within a dynamic multilateral monitoring process. Furthermore, the authors offer cutting-edge implications by stressing the need for consideration of sustainability and fraud aspects in the traditional work and profiles of audit committees and auditors.

Firm characteristics and corporate governance of state-owned enterprises: An analysis of an emerging market

This paper explores the relationship between firm-level factors and the quality of corporate governance of state-owned enterprises (SOEs) in an emerging economy, namely Vietnam. We employ a self-built corporate governance index (CGI) for SOEs and conduct an empirical analysis of data from 113 listed SOEs on the stock market of Vietnam from 2016-2020 using a fixed effect model (FEM) as suggested by the Hausman test. We find that firm-level characteristics such as firm age and tangibility of assets as well as macroeconomic factors such as the quality of the business climate and economic growth exhibit a statistically significant correlation with the corporate governance quality of SOEs. On the other hand, there is no established statistically significant relationship between other firm characteristics such as firm size, state ownership, financial leverage, growth opportunities and corporate governance. These results for an emerging economy like Vietnam are novel and provide implications for policymakers, regulators, shareholders and other stakeholders on the possibility of enhancing the quality of corporate governance of SOEs in an emerging market, a critical issue given the increasing role of SOEs in economies. Our research can be improved for future research in a couple of aspects. First, addressing the case of companies that do not disclose their governance practices in annual reports would help enhance the information for the corporate governance index. Second, extending the data to compare listed SOEs with other listed firms would provide a more comprehensive analysis.

The Impact of Financial Information Transparency on Corporate Governance Effectiveness

In today’s rapidly changing business environment, financial information transparency has become a key indicator for measuring the quality of corporate governance. This paper introduces the basic concept of financial information transparency, the relationship between financial information transparency and corporate governance, and focuses on the impact of financial information transparency on stakeholders, challenges and strategies to improve financial information transparency, and finally predicts the development trend of financial information transparency. It is hoped that the analysis of these issues will be helpful in improving the transparency of corporate financial information and promoting more effective and transparent corporate governance practices.

Revisiting the Corporate Governance–Firm Performance Nexus in Vietnam: Does Capital Structure Really Matter?

In this article, we investigate whether the capital structure moderates the corporate governance–firm performance nexus of Vietnamese firms. This study uses data from state-owned joint-stock companies to test the proposed hypotheses in two phases. In the first phase, we adopted and adapted the corporate governance quality (CGQ) index for the Association of Southeast Asian Nations (ASEAN) nations to design a questionnaire to evaluate the CGQ of state-owned joint-stock companies. In the second phase, we collected information from the company’s reports to assess CGQ, cross-check the data and finalise our evaluation. Then regression models were run to test two proposed hypotheses. Empirical findings show that CGQ exerts a positive impact on Vietnamese state-owned joint-stock companies’ performance. Moreover, our result confirms that firms’ capital structure moderates the CGQ–firm performance nexus. Our study implies that the government should promulgate legal frameworks and policies to establish superior legal infrastructure to build trust for investors and improve CGQ in state-owned enterprises. JEL Classification: M10, M12, M48, N40

Short selling and firms’ long-term stock return volatility: Evidence from Chinese concept stocks in Hong Kong

This paper examines the impact of short selling on the long-term volatility of firms' stock returns, highlighting the moderating effect of corporate governance quality. We analyze a sample of Chinese concept stocks listed in Hong Kong from 2015 to 2023, separating stock volatility into short- and long-term components with a GARCH-MIDAS model and differentiating between noisy and informed short selling. We provide evidence through portfolio and regression analyses that short selling increases stock return volatility, with the most significant impact observed in the long-term component, fueled in part by noisy short selling. However, this effect can be mitigated by managers who invest in improving their firms’ corporate governance quality. Implications of our findings for both research and practical applications are discussed.

Financial Factors and Beyond: A Survey of Credit Risk Assessment for VSBs by Moroccan Banks

This article analyzes the extent to which Moroccan banks adopt a holistic approach to credit risk assessment, incorporating criteria that go beyond simple balance sheets and financial ratios. To this end, Multiple Correspondence Analysis and advanced statistical techniques were employed using R software. A detailed questionnaire comprising 14 questions, was distributed to a sample of Moroccan bankers. The results of this analysis reliably confirm our initial hypotheses. They reveal a growing trend among Moroccan banks towards a more complex and nuanced assessment of credit risk. In addition to traditional financial aspects such as financial statement analysis, banks are increasingly considering non-financial criteria such as collateral requirements, quality of corporate governance, sustainability of business practices, and technological positioning. This diversified approach gives banks a more accurate and comprehensive view of a company's risk profile. It also enables them to make better-informed and more balanced lending decisions, considering the multitude of factors that can influence a company's ability to repay.

The Moderating Powers of Internal Audit Function on the Relationship between Corporate Governance and Financial Reporting Quality of Publicly Listed Companies in Developing Countries: A Propose Framework

The Moderating Powers of Internal Audit Function on the Relationship between Corporate Governance and Financial Reporting Quality of Publicly Listed Companies in Developing Countries: A Propose Framework

Relationship between corporate governance and audit quality in the industry sector: Moderating role of firm performance

This study explores the relevance of corporate governance mechanisms in determining audit quality, with a specific focus on the moderating role of firm performance in the Jordanian industrial sector. Audit quality is essential for ensuring transparency and accountability in financial reporting, making this analysis highly relevant for stakeholders aiming to strengthen corporate governance. The study sample included 64 manufacturing companies listed on the Amman Stock Exchange for the study period (2014–2022), with a total of 474 firm-year observations. The regression analysis is used to investigate the study hypotheses, including the key variables related to corporate governance, board performance, and audit quality. The findings show that company size has a significant positive effect on audit quality. There is no significant impact of CEO duality, independent directors, and ownership concentration on audit quality within the Jordanian industrial sector. The R² value of 0.067 indicates that approximately 6.7% of the variance in audit quality is explained by the study variables, while the F-value of 6.633, with a significance level of 0.00, suggests that the overall model is statistically significant, even though the explanatory power is relatively low. The study shows that company size is important to improve audit quality; other governance mechanisms may not have the same impact in the Jordanian industrial sector.

Do managers have more incentives to hoard bad news during panic? A study of terrorist attacks and stock price crash risk

We identify a robust and significant relationship, both statistically and economically, between the rise in a firm's stock price crash risk and the occurrence of terrorist attacks in the vicinity of the firm's headquarters. The empirical findings support the idea that terrorist attacks often trigger increased performance pressures and elevated investor sensitivities, thereby initiating the information manipulation activities of firm managers. Additionally, we examine the heterogeneous effects of corporate governance quality and firm transparency, indicating that firms with superior corporate governance and transparency are less vulnerable to the impact of terrorist attacks. We offer insights into the economic consequences of managerial behavior responses because of the traumatic shock of terrorist attacks.

Impact of Registration System Reform on the Quality of Public Companies in China

As the reform of the registration system continues to advance, it's been a year since China fully implemented its Registration System Reforms. Whether the registration system reform has promoted the high-quality development of China's public companies has become a hot concern. This article systematically analyzes the impact of the registration system reform on the quality of public companies. It is divided into two parts: the impact on the quality of corporate governance and the quality of company operations. Additionally, it examines the impact of the registration system reform on the quality of information disclosure and accounting information. It also considers the positive and negative impacts on company finances and their ability to innovate. The article starts from the impact of the registration system reform on the quality of public companies, and targets the relevant recommendations of the registration system reform, to promote the high-quality development of the capital market and deepen the registration system reform.

The bright side of controlling owners in emerging markets: the case of corporate fraud

ABSTRACT This paper sheds light on the monitoring effects of controlling ownership on shareholders’ fraud activities. Using a sample of Chinese listed firms for 2004–2019, our results indicate that the absence of controlling owners increases corporate fraud activities by non-controlling shareholders, but not by managers. The findings remain consistent when using bivariate probit model that incorporates undetected fraud. To establish causality, we conduct difference-in-difference analyses that rely on the ownership variation generated by the exogenous loss of controlling owners and M&A deregulation shocks, respectively. The 2SLS regression employing the collectivist culture as an instrument for control absence confirms our results. To explore the reasons for the increase in fraud due to the absence of controlling owners, we show that shareholders are not motivated to participate and vote in the general meetings when controlling owners are absent, resulting in lower corporate governance quality. However, analysts and short-sellers act effectively as external control mechanisms to prevent corporate fraud when controlling owners are absent.

Related party transactions and tax avoidance: does government ownership play a role?

Purpose This study aims to examine the association between related-party transactions (RPT) and tax avoidance. The study further investigates whether government ownership improves scrutiny of tax aggressiveness activities among Taiwanese group companies. Design/methodology/approach The authors used 16,061 firm-year observations derived from the Taiwan Economic Journal Database (TEJ) from 2005 to 2021. The authors applied GLS fixed-effect regression. Additional tests, such as a difference-in-difference examination, propensity score matching (PSM) analysis and other tests were performed to obtain more robust results. Findings The results show different consequences between eliminated and non-eliminated RPT toward tax avoidance. RPT enhances tax benefits aligned with the efficient contracting hypothesis. Under varying degrees of government control, this paper empirically reveals that government ownership has a role in mitigating tax avoidance. This implies that government control improves corporate governance by balancing opportunistic and efficiency-based tax avoidance. Practical implications This paper provides substantial practical implications since using the strategy of reducing taxes through RPT will result in greater tax savings at the business group level. Therefore, RPT is beneficial for enhancing business efficiency. Furthermore, government control increases corporate governance quality, which could lead to balancing tax aggressiveness activity. Originality/value Using a unique setting for RPT reporting in Taiwan, this paper divides RPT into eliminated and non-eliminated RPT. The findings offer significant insight for policymakers, investors and managers regarding the utilization of RPT to enhance efficiency in business groups. Additionally, this paper highlights the role of government control in preserving a harmonious balance in tax planning practices.

Firm-level political risk and corporate investments in the hospitality and tourism industry: The moderating role of asset tangibility and corporate governance quality

Firms in the hospitality and tourism (HT) industry need to continuously make capital investments to sustain their long-term growth. These investments occur under varying conditions, including levels of political risk. Hence, this study examines the effects of firm-level political risk on corporate investments of 251 U.S. HT over the period 2002–2022. It further explores the moderating role of asset tangibility and corporate governance. Using fixed-effect regression analyses, the study finds that firm-level political risk negatively impacts corporate investments in the HT industry. Results reveal that asset tangibility and ownership concentration help mitigate the negative effect of firm-level political risk, while institutional ownership exacerbates this negative effect. Given that corporate investments are the backbone of the sustainable growth of HT firms, this research provides important implications for policymakers and practitioners in their attempts to reduce the negative effect of political risk on corporate investments.

Towards better governance: creating a corporate governance index for South African firms

PurposeThe purpose of this study is to construct a robust index and subindices to measure the quality of corporate governance for 266 firms listed in South Africa from 2004 to 2021.Design/methodology/approachPublic information on the compliance of King Code of Good Corporate Governance is used to construct a main index predicated on provisions relating to board characteristics, accounting and auditing and risk management. These categories are transformed into three subindices. All constructs are scored with binary coding and equally weighted.FindingsCronbach’s alpha test reveals that the index and subindices are highly reliable measures of corporate governance. The principal component analysis supports the construct validity of all measures.Research limitations/implicationsThe index is limited to only three corporate governance subcategories and only focuses on South Africa.Practical implicationsThese corporate governance indices provide governing authorities, policymakers, investors and other market participants direct information on the quality of corporate governance in South African firms.Originality/valueAs South Africa lacks a formal corporate governance indicator, the development of an appropriate corporate governance index and subindices contributes towards understanding the quality of corporate governance in South African firms. To the best of the authors’ knowledge, this is the first paper to conduct robustness tests on corporate governance indices designed for South African companies.

The impact of financial feedback on the innovative activity of companies: the moderating role of corporate governance quality

ABSTRACT This research analyzes performance feedback and corporate innovative activity in the context of corporate governance quality. The research goal is as follows: to examine the influence of social and historical performance feedback on R&D intensity of a firm, and to determine whether governance quality strengthens interconnection between performance feedback and R&D intensity. The sample consists of panel data on 283 South-Eastern Asian public companies from the manufacturing industry sector. The sample covers seven countries during the time period from 2015 to 2020, providing 1698 firm-year observations. It was discovered that sample firms are sensitive to positive and negative social performance feedback and do not respond to historical feedback. A comparative analysis between types of feedback has shown that firms value social feedback more than historical feedback. It was also established that higher corporate governance quality decreases performance feedback sensitivity among firms, which weakens the relationship between the feedback and innovative activity. Firms with weak governance systems value social performance feedback more than companies with mature governance. The study of these types of feedback in combination with the quality of corporate governance can be used by company executives in corporate strategic planning and operational decision-making. CEOs should be ready to use performance feedback information in addition to their personal judgment.