Corporate Governance Regulations Research Articles

Say on pay determinants in Brazilian public companies

This article examines how performance, compensation, and corporate governance are related to the rejection of compensation proposals in Brazil. Regulatory changes have expanded the disclosure of compensation and introduced distance voting, providing new information which was hand collected from 895 minutes of shareholders' meetings and 1,074 voting tables. The sample consists of data from 179 Brazilian companies between 2015 and 2018. Rejection dependent variables were regressed using logit models that considered random effects panel data as well as Bernoulli’s method of quasi-likelihood. The percentage of companies with rejected proposals is below 3%, which is as low as the figure reported internationally. Performance coefficients are positive relative to compensation proposal rejections. Perhaps investors believe that good performance encourages majority shareholder abuse. Certain aspects of compensation are more important than the total amount in explaining rejection rates, which may indicate a certain investor ability to analyze beyond the total compensation figure. The quality of corporate governance is positively associated with rejections while the concentration of control is negatively associated with rejections. The difficulty of rejecting a proposal may explain this result. The findings indicate that these investors are aware of the perverse incentives that good performance can represent, analyze various aspects of the remuneration proposal, and may vote against it under more favorable governance environments. This last aspect suggests that improving corporate governance regulation and expanding opportunities for participation are effective paths for increasing the voice of shareholders.

Are Reshoring Decisions Influenced by External Stakeholders and Country‐Level Environmental Regulation?

AbstractThe rationale behind reshoring activities remains unclear. Multinationals reshore their subsidiaries when regulations in the host country become too costly or difficult to manage. However, it is unclear whether the positive association between the propensity for reshoring subsidiaries and the host country's regulations applies to all types of subsidiaries (i.e. majority or minority owned) and whether it is moderated by other factors. We suggest that external stakeholders play a crucial role in strengthening the relationship between the decision to reshore and the host country's regulations. Within the context of international business, we examine the reshoring decision of a panel of subsidiaries controlled by UK multinationals located in 39 countries and focus on a specific set of environmental and corporate governance regulations. Our findings suggest that reshoring amongst minority‐owned subsidiaries is more likely to happen in countries with weak protection of shareholders and mandatory environmental disclosure. Such a relationship is also strengthened by the presence of external stakeholders, namely, foreign directors sitting on subsidiaries’ boards. We contribute to the reshoring literature by showing the role of external stakeholders and the impact of institutions and regulatory requirements on reshoring decisions.

Russian practice of corporate governance regulation in different types of joint-stock companies

The article examines issues of joint-stock companies corporate governance regulation in Russia. The country has a system of norms on various aspects of corporate governance (laws and regulations, internal documents, written recommendations). Law enforcement and business practice are of great importance. Subjects that own the corresponding blocks of shares have a significant influence. Corporate governance in private organizations is generally less regimented than in state ones. Differences exist in federal and regional joint-stock companies. Authorities independently build corporate governance regulation systems there. In general, Russia has a fairly large number of norms in the designated area, but some of them complicate process of corporate governance. It doesn’t always lead to a desired result.

Governance Related Challenges in the Operation of Mobile Telecommunication Industry in Bangladesh

The mobile telecommunication Industry in Bangladesh is conquered by only four players: Grameenphone, Banglalink, Robi Axiata and finally the state-owned company Teletalk. The oligopolistic nature of this industry in Bangladesh offers a fascinating prospect to study. Bangladesh positioned 5th in Asia Pacific Region and 8th globally in terms of market size for the inimitable mobile subscriber. The mobile telecommunication industry contributed GDP is 1.8% of the country through their voice call and internet. The mobile telecommunication industry is in gush for the increasing demand of smartphone as time progress. This industry is also contributing 30% job opportunities in the country. The aim of this paper is to highlight the main governance related challenges being faced by the companies operating in this industry. The data were mainly collected by captivating interviews with the company CEO, Company Secretary, Internal Audit Head, External Audit, Independent Directors and BTRC Chairman. Also, some secondary data were collected from company websites, annual reports, other related publicly available documents. The pragmatic evidence discovered area specific governance challenges such as lack of formal training for the board members, absence of cyber security introduction, no presence of institute directors of Bangladesh, lack of in-house program, absence of robust succession planning, lack of formal compliance and ethics programs in-house and industry level etc. Also, the various sub-committees (i.e. audit committee, nomination committee, remuneration committee etc.) were found ineffective to some extent. The study proposed some recommendations to overcome these lacking. The findings to the study are expected to have significant policy implication in reforming the corporate governance regulations in Bangladesh and Mobile Telecommunication industry in particular.

Factors Affecting Listing of Small and Medium Enterprises on LuSE Alternative Investment Market in Zambia: A Case of Lusaka Business District

Economic growth in both developed and developing nations is strongly linked to the growth of alternative investment markets. Alternative markets for the listing of start-up companies have been established and launched by many exchanges in order to assist small and medium businesses in raising finance through initial public offers and listing their shares for trade. The rise of these alternative markets has been slow, particularly in poorer countries. The study’s major goal was to discover the characteristics that influence SMEs’ ability to list on the Lusaka Stock Exchange Alternative Investment Market (LuSE AIM). Examine whether information accessibility is a critical factor in determining SMEs listing on the Alt-M; determine if regulatory requirements are a factor to consider when SMEs decide to register on the AIM; determine if corporate governance is an important factor in determining SMEs listing on the AIM; and determine if SMEs support platforms are important factors in determining SMEs listing on the AIM. The study used a quantitative cross-sectional design using a survey as the research approach to attain this goal. The approach was deemed appropriate and useful towards assessing of the elements influencing listing of SME firms on the securities exchange. The population of the study included all 1663 SMEs registered under Zambia Chamber of Small and Medium Businesses Association in Lusaka. Stratified sampling technique was used for the study where random sampled quotas were selected from each industry. The sample size of SMEs derived 322 companies and only 161 SMEs successfully participated in the study as respondents. Primary data were used to obtain information in this study using closed-ended questionnaires. To identify the characteristics that influence the listing of SMEs on the stock market, the study used quantitative analysis and factor analyses. The parameters that determine the listing of SMEs on the Alternative Securities Market were identified using factor analysis. Factor I (information accessibility), Factor II (regulatory needs), Factor III (business governance), and Factor IV (corporate governance) identified as the four elements (SMEs support platforms). Information accessibility, enabling legislative requirements, sound corporate governance, and SMEs support platforms were identified as the barriers to small and medium firms receiving finance through the LuSE Alternative Investment Market, according to the conclusions of the research study. The findings of the study suggest that availability to information is critical to listing, and that a regulatory environment that is friendly to small and medium firms will encourage them to list. Furthermore, while corporate governance is not a prerequisite for SMEs to list, good corporate governance practices have been proven to promote SMEs to list. According to the survey, relevant authorities should educate SMEs on the critical information required for securities market listing so that they may make educated judgments. Policymakers should make it easier for SMEs to expand by enacting favorable policies and making it easier for them to list on the AIM. Corporate governance regulations should be tailored to the structure and environment of SMEs by policymakers. The government should develop an atmosphere that includes support systems tailored to SMEs. Putting support platforms in place increases SMEs’ desire to list.

Analisa Yuridis Penerapan Good Corporate Governance Pada Usaha Asuransi Mutual (Studi Terhadap Asuransi Jiwa Bersama Bumiputera 1912)

This study aims to identify and analyses the regulation and implementation of Good Corporate Governance or good corporate governance for mutual insurance companies in Indonesia. And to find out what the responsibilities of the statutory manager appointed by the OJK that are to restructure AJB Bumiputera towards the application of good corporate governance principles. This research was conducted using a normative juridical approach because it uses library materials as the main material, namely primary legal materials consisting of basic norms or rules, provisions of laws and regulations relating to the principles of Good Corporate Governance, especially in insurance companies. The results show that the application of the principles of Good Corporate Governance at AJB Bumiputera has been carried out in accordance with the company's articles of association, but it is still not optimal and adequate due to the absence of regulations that specifically regulate the Mutual Insurance Business in Indonesia. The statutory manager's responsibility for implementing the principles of good corporate governance has been carried out with maximum efforts, although it has not been in line with expectations. Because until now, AJB Bumiputera has not been able to make payment of claims that are due to policyholders, which is a violation of the principles of fairness.

Role of corporate governance in human resource management with reference to Hindustan Shipyard Limited

Corporate governance is a critical component of effective human resource management practices. Since nothing can be said about the appropriate function of corporate governance regulations and standards without mentioning HRM, which are one of the grounds for achieving the organization’s planned objectives. In this context, it is necessary to consider an organization’s human resources, which include both corporate governance and employees, and can think of them as a subset of the settings where a business would try to boost investments in order to accomplish added value. In this purpose the present paper aims to study the role of corporate governance in human resource management with reference to employee perceptions in Hindustan Shipyard Limited. In this purpose a purposive sampling method has been followed to collect data from the selected respondents working in study organization. To reach the objectives of the study and test the hypothesis, descriptive and regression analyses have been done. Thus, the findings demonstrate corporate governance and human resources are interdependent, with each influencing and being influenced by the other.

Board Attributes and Bank Performance in Light of Saudi Corporate Governance Regulations

This study investigates the relationship between various attributes of boards of directors on bank performance in light of Saudi corporate governance regulations. The data set of this study is extracted from the annual reports of all 12 banks listed on the Saudi Stock Exchange (Tadawul) over a period of 10 years from 2009 to 2018. To test the study hypotheses, check the robustness of the results, and address potential endogeneity issues, this study applies different statistical methods, including FGLS, OLS, RE, PLCSE, and 2SLS, using STATA version 17. The results of multivariate analysis show that board size has a significant positive influence only on operational bank performance (ROA). For board composition, the results show that while board independence has a significant negative impact on accounting-based performance (ROA and ROE), it affects positively and significantly the market-based performance (Tobin’s Q). Regarding board education, the results indicate that board members with at least a Bachelor’s degree have a significant negative impact on ROA and ROE. In contrast, PhD holders on the board have a significant positive impact on ROA and ROE, while Master’s holders affect positively and significantly all measures of bank performance. With respect to board diversity, only the CEO nationality has a significant positive effect on ROA and ROE. Board IT experience is found to be significantly and positively associated with ROA and ROE, while board meeting attendance has a significant positive influence only on ROE. These findings have important implications, especially for Saudi regulatory authorities to assess the current practice and compliance with the Saudi corporate governance regulations (SCGRs) and the principles of corporate governance for banks operating in Saudi Arabia (PCGB) regarding board characteristics and provide insights to improve board effectiveness and corporate governance practice in general.

Random Walk of Socially Responsible Investment in Emerging Market

Emerging markets offer some of the world’s most impactful investment possibilities for investors concerned with addressing global climate and socioeconomic issues. Sophisticated investors conjectured that socially responsible investment (SRI) or environmental social and governance (ESG) might give greater returns than investing in conventional stocks in an emerging market. At the same time, the investors favour conserving the environment while generating long-term economic growth. Being able to earn greater returns is an indication of an inefficient market. This paper investigates the random walk (weak-form of the efficient market) of SRI/ESG indices in the emerging market (based on IMF emerging market criteria). We use the daily data as a sample. Random walk is tested using an Augmented Dickey–Fuller (ADF) Unit Root test, Variance ratio test and Hurst exponent test. The findings report that all the indices are not following a random walk. Lack of ESG disclosure, inadequate corporate governance regulation and behavioural bias might be reasons for market inefficiency. Its implications for investors to reap abnormal market returns by identifying the undervalued stock in the emerging economies. The regulator’s approval of operational guidelines and the licensing of exchanges and clearing houses help maintain the markets’ fairness. Then, the regulator should intensify corporate governance enhancement, implementation and enforcement continuously; enhance the market and institutional infrastructure, and focus policy on encouraging a more significant and more diverse investor base.

Research on the impact of mixed ownership reform on innovation of state-owned enterprises: Evidence from Chinese industrial enterprises

This article focuses the research sample on Chinese State-Owned Enterprises (SOEs), using the Beyond-logarithmic Stochastic Frontier Production Function and the ordinary fixed effect model to examine, and evaluates the influence of mixed ownership reform on the innovation of SOEs from the perspective of incentive and constraint mechanisms. Our study investigates the impact of the corporate governance, policy burden, and environmental regulation. The main conclusions are as follows. First, mixed ownership reform can enhance the innovation capability of SOEs. Second, mixed ownership reform stimulates innovation of SOEs by optimizing corporate governance and reducing policy constraints on enterprises which regulate enterprise decision-making behavior. Third, the environmental regulation also affects SOEs’ innovation. This study can provide a reference for the government to further deepen the reform, optimize the living environment of SOEs, improve environmental regulations and promote the sustainable development of economy.

The effect of individualism on bank risk and bank Performance: An international study

Employing an international sample of banks spanning 2009 to 2018, this paper investigates the effect of individualism on bank risk. We find that individualism is negatively associated with bank risk. We then find that managers’ (individual) risk preference as internal corporate governance and bank regulation as external corporate governance exhibit a mediation effect in explaining the relationship between individualism and bank risk. We further test the effect of individualism on bank performance, including bank efficiency and profitability. Our baseline results remain valid after carefully considering various robustness tests and endogeneity concerns.

The Antecedents of Corporate Sustainability Performance: A Study on Generic and Sustainability-Related Corporate Governance Mechanisms

This study aims to investigate the antecedents of corporate sustainability performance, focusing on corporate governance mechanisms. The growing diffusion of sustainability-related corporate governance regulation raises a legitimate question about the effectiveness of these mechanisms in fostering sustainability performance. While extant research has separately taken into consideration different mechanisms related to corporate governance and sustainability, in this study, we investigate the combined effect of generic governance mechanisms, such as board size and board independence, and sustainability-related governance mechanisms, such as the presence of a sustainability committee and sustainability targets in executives’ compensation schemes, on corporate sustainability performance. Based on a dataset of 185 companies listed in the most important European markets, our results indicate that both generic and sustainability-related governance mechanisms enhance corporate sustainability performance. More specifically, the presence of independent directors and the inclusion of quantitative sustainability targets in executives’ compensation schemes contribute to corporate sustainability performance.

Approaches to the Application of Corporate Governance Regulations

To enhance good corporate governance practices, companies, as well as countries, have adopted and promulgated regulations and codes of best practices. To implement these regulations and practices, regulators adopt various approaches which can be broadly classified into voluntary, mandatory, and hybrid. This study examined the aforementioned approaches with particular attention to their strengths and weaknesses. The study employed a qualitative methodology using the doctrinal research method. The doctrinal method relied on primary and secondary sources. The primary sources included legislations and corporate governance codes while the secondary sources included books, e-books, journals, and articles. This methodology was deployed in appraising, interpreting, and applying these various sources of material used in the study. The study found that there are different variations and modifications to the approaches to the application of corporate governance regulations and practices. To facilitate a more efficient and effective corporate governance regime, a combination of the rule-based and principle-based approaches to the application of corporate governance is required.

A Progressive Turn on Corporate Ownership in the Second Republic of Korea

This study traces the evolution of corporate governance and state regulation in the context of Korean chaebols during and after the state led industrialisation of the 1960s. A description of changes in corporate ownership and control structures in response to progressive measures towards corruption and wealth concentration by the state reveals the establishment of new corporate and political networks which facilitated the persistence and growth of surviving chaebols. This study also illustrates the trajectory of family control of chaebols consequent to strong inheritance regulation and financial liberalization.

An empirical evaluation of the impact of agency conflicts on the association between corporate governance and firm financial performance

PurposeThe study aims to predict and understand the conditions under which the association between corporate governance and a company's financial performance is positive or meaningful by empirically accounting for agency conflicts. This study is motivated by the fact that the separation between ownership and control creates agency conflicts between company owners and managers. Therefore, strong corporate governance systems are expected to align the interests of conflicting parties whereby companies become more likely to improve their financial performance. However, previous research did not yield consistent results in this regard.Design/methodology/approachGiven the latent nature of corporate governance and agency conflicts, this study uses principal component and exploratory factor analyses to proxy for corporate governance and agency conflicts, respectively. Using dynamic panel data modelling, the authors estimate the change in the relationship between corporate governance and a company's financial performance as a function of the change in the level of agency conflict using data from the UK on 78 non-financial companies listed in the Financial Times Stock Exchange 100 (FTSE100) index between 1999 and 2014.FindingsThe corporate governance quality of companies is significantly differed. Moreover, companies operating at high levels of agency conflict outperform the companies' counterparts operating in low levels of agency conflict only when the former improves the corporate governance quality. This implies that financial performance improves by approximately 11% if companies improve corporate governance quality due to an increase in the level of agency conflicts.Research limitations/implicationsLack of data on ownership structure for the study period (1999–2014) was the main reason the authors excluded it from the analysis. Additionally, the lack of reliable and quantifiable corporate governance data on small-medium sized enterprises limits findings on large non-financial companies.Practical implicationsThe authors propose a framework/tool for the impact of the level of corporate governance compliance on financial performance conditional upon the level of agency conflicts whose importance has largely been neglected by the empirical literature. By providing the right “lens” to de-fragmentise the corporate governance mechanisms and estimate empirically the unobserved agency conflicts, researchers, practitioners and investors are able to get further insights on the composing elements of financial performance and evaluate it more objectively. Managers can allocate companies' resources more efficiently and thus improve financial performance. The auditors can get further background information when they compile their report on company's directors. The study's findings offer valuable suggestions for accounting and corporate governance regulators to further put forward and improve accounting standards so as to enhance existing regulations and internal mechanisms which, in turn, could decrease the scope for managerial opportunistic behaviour as the latter can be empirically estimated through our framework.Social implicationsThe findings point out the need for a revised framework accounting for the principal-agent (mis)alignment and the engrained information asymmetries. By acknowledging the level of corporate governance compliance and agency conflict, managers and shareholders should actively strive for the effectiveness of companies, the efficiency of the stock markets and the minimisation of the agency costs. Furthermore, policymakers can look into the development of a code of corporate governance to effectively regulate firms rather than enforcing rigid laws that may not be value relevant. With all these settings in place, the likelihood of corporate failures, corporate scandals as well as corporate violations with the ensuing penalties is set to be reduced. Hence, valuable resources, social capital and effort can be directed into more productive activities.Originality/valueThis study adds to the existing literature by offering empirical and explicit evidence on the dynamic association between corporate governance, agency conflicts and financial performance against a backdrop of high demand for strong corporate governance practices/codes. To the best of the authors' knowledge, there is no study that has yet empirically examined the moderating effect of the level of agency conflicts, given the level of corporate governance compliance on financial performance for listed and internationally aligned companies.

Internal Audit Systems under Corporate Governance Regulations: A Comparison between Kuwait and New York Stock Exchanges

الأهداف: تستهدف الدراسة الوصول إلى نتائج وتوصيات، تسهم في تطوير التشريعات الكويتية الخاصة بنظم التدقيق الداخلي للشركات المدرجة في البورصة؛ مما ينعكس على التطور والتنمية الاقتصادية لدولة الكويت بشكل خاص والمنطقة بشكل عام. المنهج: المنهج القانوني المقارن التحليلي (Comparative Legal Analysis) هو أداة الدراسة، وهو في مجمله أسلوب يساعد الباحثين في الاطلاع على قوانين الدول الأخرى، والمقارنة بينها وتحليلها بهدف الاستفادة من خبراتها وتجاربها. تتناول هذه الدراسة موضوع نظام التدقيق الداخلي للشركات المدرجة في الكويت مع مقارنتها بالتشريع الأمريكي؛ لما له من تاريخ وخبرات في مجال التدقيق الداخلي للشركات المدرجة. النتائج: توصلت الدراسة إلى عدد من النتائج، منها: (1) أن مبدأ “نظم التدقيق الداخلي” هو نظام تدقيق داخلي يساعد الشركة المدرجة على تحقيق أهدافها. (2) من الواقع العملي نجد أن هناك نقصاً في المعرفة حول هذا النظام وحول الطريقة المثلى لتطبيقه من قبل الشركات المدرجة والبورصة وهيئة أسواق المال الكويتية؛ مما نتج عنه اختلاف في وجهات النظر وتفاوت في الالتزام بهذا المبدأ. الخاتمة: اختتمت الدراسة بعدد من التوصيات، من أهمها: ضرورة الاستفادة من خبرات بورصة نيويورك وتجاربها في مجال “نظم التدقيق الداخلي” للشركات المدرجة في البورصة.

The main trends in the regulation of corporate governance in Russia and abroad

Subject. This article discusses the development of corporate governance systems and new threats and opportunities for corporations. Objectives. The article aims to analyze the activities of regulators in the field of ecology, social responsibility, and corporate governance. Methods. For the study, we used analysis and synthesis. Results. Based on reviews of analytical materials, scientific articles, and data of international organizations and national regulators of Russia, the USA, Germany, and Japan, the article determines the features of the development of corporate governance in developed countries. Conclusions. The main trends in the regulation of corporate governance in developed countries, despite local differences, have common features related to the implementation of the principles of sustainable development and social responsibility of business.

When does audit committee busyness influence earnings management in the UK? Evidence on the role of the financial crisis and company size

We investigate the impact of audit committee busyness on earnings management in FTSE350 companies between 2007 and 2013, a period that includes the global financial crisis and its immediate aftermath. Using a range of busyness measures and examining the impact on both accruals and real earnings management, we find that the busyness of audit committee members has a negative impact on earnings quality, which suggests that members with more board seats are less effective monitors of managers’ desire to manipulate earnings. Our findings are more pronounced in FTSE250 than in FTSE100 firms. We also find that the detrimental impact of busy audit committees is more pronounced during the financial crisis and, in the case of real earnings management, is not observed afterwards. Our findings raise important questions for corporate governance regulators, who have not previously sought to address audit committee busyness and its potential impact on audit committee effectiveness. Our results also emphasize the need for researchers to appreciate the wider economic circumstances in which studies are undertaken, the lack of homogeneity between larger and smaller listed firms, and the importance of jurisdiction in governance-related studies.

A Revisit to Research on Corporate Governance Using Systematic Literature Review

The purpose of this paper is to systematically review the emergence and structure of corporate governance in Indian context. Accounting scandals like Enron, Waste Management, Worldcom, Tyco, Satyam, etc. have shaken the investors’ confidence. The need of the hour is to have corporate governance regulations to be practically applicable according to the country specific situations. The motivation behind this study is that in spite of having impressive growth pattern in India, the published academic work on Corporate Governance is less as compared to other developing countries of the world. The present study is going to examine the relationship between the elements of board composition on the financial health of a firm, which may provide useful insights into the factors that may be taken into consideration. The paper will help the regulators, policymakers, stakeholders, and the academicians in this direction and provide a future scope of action.

Corporate Governance, Financial Accounting Information and Control Mechanisms: A Way to Combat Corruption

Purpose: Corporate governance has recently attained huge attention in corporate law and is considered an antidote to combat corporate corruption. The study aims to examine the relationship between; accounting information, corporate control mechanisms and corruption.
 Design/Methodology/Approach: It conducts a critical evaluation of the relevant literature that interrogates the contribution of good corporate governance of the financial accounting information as the use of externally reported financial accounting data in both direct and indirect ways.
 Findings: Results suggest that corporate control mechanisms are the most effective tools for reducing corruption from the supply side. These mechanisms are essential for improving the operation of securities markets, which in the uncertain environment of this era seek accurate and reliable information based on transparent financial statements.
 Implications/Originality/Value: This study will help to understand the significance of implementing corporate governance regulation, corporate control mechanisms and accounting information that can help eradicate corporate corruption. The use of transparent financial accounting information in corporate control systems improves the governance process efficacy, avoiding corporate corruption. It will suggest that corporate governance and control procedures can curb the offence of bribery and fraud by acting as a deterrent to corruption.