Shareholder Confidence Research Articles

CORPORATE GOVERNANCE, TAX AVOIDANCE, AUDIT DELAY DAN NILAI PERUSAHAAN (STUDI EMPIRIS PADA PERUSAHAAN PERBANKAN DI BEI PERIODE 2010-2014)

<p><em>Corporate governance is an issue related to the practice of tax avoidance and audit delay and will impact on the value of firm. Application of corporate governance expected to mitigate the asymmetry of information and increase the confidence of shareholders. This study aimed to examine the relationship of corporate governance and tax evoidance practices and their effect on audit delay and firm value. Samples were obtained through purposive sampling and as many as 130 observations, after deducting the data outliers, the final sample of 125 observations 2010-2014 of corporate banking listed on the Indonesian Stock Exchange. The data analysis technique used is multiple linear regression with SPSS version 17. </em></p><em>The results show that the first model: reputation, of KAP, audit quality, and audit committee has no effect on tax avoidance, while independent commissioner negative effect on tax avoidance; The second model suggests that tax avoidance and independent commissioner has no effect on audit delay, while the audit committee negatively affect audit delay; The third model shows that tax avoidance (negative) and the audit committee (positive) effect on the value of firm, while the independent commissioner has not affect on value of firm.</em>

English

This study investigated the influence of ownership structure on financial performance of privatized companies in Kenya for the period of 2007 to 2013. The study was informed by the property rights, the agency and the resource based theories. Data was extracted from prospectuses and financial reports of privatized companies, obtained from the Capital Markets Authority (CMA) and the Nairobi Stock Exchange (NSE). A unit root test was used to examine stationarity of data while a Hausman test determined the appropriate regression model. This study used a Fixed Effects (FE) regression model with a robust standard error option to control for heteroskedasticity and contemporaneous correlation which may lead to spurious results. The study found that ownership structure has a significant relationship with financial performance. Among individual variables, government ownership has a positive influence on Return on Assets (ROA) and the Tobin’s Q; but a negative effect on cost efficiency. Institutional shareholders have a positive influence on ROA and technical efficiency. Large individual investors have a positive influence on cost efficiency. Dispersed shareholders have a positive influence on ROA but a negative effect on cost efficiency. This study recommends that the Privatization Commission of Kenya should restructure ownership of privatized companies to reduce government and dispersed ownership further to pass more control and decision making to private investors. However, the government should retain some ownership in privatized firms to enhance shareholders confidence, protection of investments and managerial monitoring. A strategic institutional investor in each company should be identified and be allocated adequate ownership to enable privatized companies attract managerial and technical expertise crucial to improve governance and financial performance. Key words: Privatization, SOEs, ownership structure, financial performance, Kenya.

The Impact of Firm’s Level Corporate Governance on Market Capitalization

The examination of the influence of firm’s level CG on market capitalization is potentially important for managers to improve CG system in context of Bangladesh. The linear relationship between CG and market capitalization is recognized at one percent level of significance. A positive and significant relationship between board independence and market capitalization is identified. On the other hand, a negative and significant relationship between public ownership and market capitalization is detected by the model. The present practice of CG does not capable to bring back the eroded confidence of external shareholders. The study recommend some steps for improve the situation such as at least two independent directors or one-third whichever is higher, mandatory training for directors to improve their mindset, introduce audit review system, introduce VFM review mechanism, establishing a high powered financial reporting council (FRC) and so on.

Multiple Directorship & Interlock: An Empirical Study of its Impact on Firms' Financial Performance

Good and fair corporate governance is the need of the hour. Steady industrialization of the economies is one of the major reasons behind the gradual awareness of investors in good corporate governance practices, as investors in the developed world expect the companies in the developing world to be following the same practices as in their own economy. In the wake of several high profile corporate scandals that broke out in the last few years across the world, and dented the confidence of investors and common shareholders, transparency along with pro investor governance has taken the driver's seat. An incidence of multiple directorship and interlock of directorship can help increase the level of transparency and fairness in the conduct of companies. Interlock of directorship helps the companies by providing an effective mechanism of scrutinizing companies coupled with the fact that interlock also helps in co-opting external resources, which would be very expensive otherwise. It is also an effective mechanism of increasing the visibility and legitimacy of the relatively new firms. Emerging economies like India provide a unique setting for conducting interlock of directorship research because of the institutional context (comprises of formal rules, informal constraints, and execution characteristics) which is in sharp contrast to its developed counterparts.

Multiple Directorship & Interlock: An Empirical Study of its Impact on Firms' Financial Performance

Good and fair corporate governance is the need of the hour. Steady industrialization of the economies is one of the major reasons behind the gradual awareness of investors in good corporate governance practices, as investors in the developed world expect the companies in the developing world to be following the same practices as in their own economy. In the wake of several high profile corporate scandals that broke out in the last few years across the world, and dented the confidence of investors and common shareholders, transparency along with pro investor governance has taken the driver's seat. An incidence of multiple directorship and interlock of directorship can help increase the level of transparency and fairness in the conduct of companies. Interlock of directorship helps the companies by providing an effective mechanism of scrutinizing companies coupled with the fact that interlock also helps in co-opting external resources, which would be very expensive otherwise. It is also an effective mechanism of increasing the visibility and legitimacy of the relatively new firms. Emerging economies like India provide a unique setting for conducting interlock of directorship research because of the institutional context (comprises of formal rules, informal constraints, and execution characteristics) which is in sharp contrast to its developed counterparts.

Impact of Financial Risk Ratios on Profitability of Multinational vs. Domestic Pharmaceuticals in India

The impact of financial leverage on the profitability position of the business firms under different financing alternatives and with varying levels of overall profitability is one of the most crucial issues in modern finance to sustain continuous improvement in financial performance. In fact, framing an appropriate capital structure with flexible equity and disciplined debt financing is an integral part of the entire corporate strategy to gain shareholder confidence and stakeholder support to achieve long run sustainability. No firm can ignore this aspect in the context of today's high-tech competitive business environment. Unfortunately this issue has not been addressed with due importance in India and in particular, no significant study exists on the pharmaceutical sector comparing the linkage between financial leverage and profitability of multinational companies with that of the domestic companies. The pharmaceutical industry is acknowledged as one of the most promising industries in India; therefore this study should make a significant contribution to the practice. This paper examines the relationship between financial leverage and profitability of the Indian pharmaceutical industry during the period of March 2002 to December 2011 (N=20). The researcher compared the relationship between financial leverage and profitability of multinational companies with that of the domestic companies in the Indian pharmaceutical industry. The research found strong evidence of the negative contribution of financial leverage towards improving profitability for multinational and domestic firms. Hence, these results provide strong evidence of positive contribution of financial leverage towards improving profitability in a substantial portion of the sample companies during the study period.

Board effectiveness and firm performance of Canadian listed firms

An effective board of directors is central to agency theory's prescription to solving the problems of separation of ownership from control in the modern corporation. The shareholders' confidence in the board's ability to fulfil its duties is an important measure of the success or otherwise of this cornerstone of agency theory. The Board Shareholder Confidence Index focuses on the board of directors and is the standard by which Canadian governance best practices are measured. This paper investigates the relationship between board effectiveness and company performance.Using a sample of 699 firm year observations from 2003 to 2009, we find a positive association between the firm's measure of board effectiveness and the firm's contemporaneous and future market measure of performance, Tobin's Q. The results hold across a number of econometric models that control for different types of endogeneities.

Family ownership heterogeneity and audit committees independence and its implication towards the revised Malaysia code on corporate governance (MCCG, 2007)

This study examines the effectiveness of audit committee independence when moderated by firms’ family ownership. This is to investigate the implication of revised Malaysia Code on Corporate Governance (2007) that requires majority composition of independence directors in the audit committee. We study 1,206 firm-year observations between fiscal years 2004 to 2009 of firms listed in Bursa Malaysia. The findings suggest that independent directors are more effective in curbing earnings management when there is stronger ownership of family members. Our research offers insights on the important of family institutional structures on corporate governance reforms in Malaysia. Malaysian family firms are mostly traditional firms which have built their reputation and strength in the industry for many generations. The reputation built, improve shareholders confidence and reduce potential agency conflicts

The Shareholders Confidence and Effectiveness of the Joint Auditors: Empirical Validation in the French Context

The goal of our research work is to show the effect of the presence of joint auditors (BIG4) and a fewmechanisms of governance on the shareholders’ confidence. We are trying to explore the relationship betweenits different variables in the French context during the period 2005-2010.The empirical results show a positive and significant relationship between, on the one hand, the presence of twoauditors BIG4, the opinion of the auditors, the independence of the members of the audit committees and theboards of directors and the asset efficiency and the confidence of the shareholders of the counterpart. On theother hand, the audit fees, the collaboration period between the associate signatories, the size and the debts ofthe companies seem to have a negative and significant effect on the shareholders’ confidence.

Southwest's acquisition of AirTran: an analysis of short-term stock performance

This paper examines the short-term stock performance of Southwest Airlines and AirTran Airways using time series data consisting of daily and cumulative abnormal returns ± 60 trading days around the merger announcement and merger completion dates. The impact of Southwest’s announcement to acquire AirTran is positive. The daily abnormal returns of Southwest and AirTran, using the S&P 500 as index, are highly significant on the merger announcement date. The impact of the merger completion is mixed, however. Southwest’s share price drifted lower up to the merger date, underperforming the S&P 500, while the share price of AirTran generally drifted higher in a very narrow range. Southwest and AirTran, nevertheless, outperformed the AMEX Airline Index, suggesting that the higher fuel prices at the time of the merger may have influenced investor reaction to the merger, resulting in lower share prices of major airlines. The beta of Southwest improved after the merger announcement and completion of the merger, suggesting shareholder confidence in the merger and in Southwest’s financial performance, at least in the short-term.

Credit Risk and Shareholders’ Value in a Developing Economy: Evidence from Pakistani Banking System

The present study examines the role of credit risk in value creation process in banking system of Pakistan. This study here develops a conceptual model with three antecedents to credit risk. These antecedents are loan loss provision, advances, and capital adequacy ratio. The study analyzes the impact of these antecedents on accounting return on equity (ROE) and market return on shares (ROS). The data come from 20 banks listed on Karachi Stock Exchange (KSE) for 2004-2009. The study includes panel data analysis to analyze the relationship between the selected variables. The results of this study expose a minimal role of credit risk in value creation process in banking system of Pakistan. The results further reveal that banks with higher advances in their portfolio are successful in getting the confidence of shareholders.

The impact of financial crisis on accounting reform with special reference to the situation in the Republic of Serbia

The global economic crisis that first gripped housing market at the USA and then spread to the other parts of the world, pointed out to the necessity of the reforms in all areas. One of the areas where the reforms are necessary is the area of accounting. These reforms are important for all interested users in a way that they provide them with all the necessary information's at the right time. Accounting, as one of the main pillars of society, can strengthen or weaken the confidence of shareholders, institutional investors and economic policy makers of the country. So it is necessary that financial information are accurate and reliable. In order to eliminate the economic phenomena that have arisen as a result of the crisis, like the economic stagnation and reduction of financial resources, we must find out causes of their origin and manifestations. This is possible by using the well-defined economic policies and accounting regulations, which takes place at predefined and prescribed by IAS and IFRS. This paper will highlight the impact of the financial crisis on accounting and the International Accounting Standards, with particular reference to the situation in Serbia. One of the necessary conditions that Serbia has to fulfill to become a member of the EU is to harmonize its accounting policies and practices regulative to those applied in the EU.

Corporate governance and propensity to share information: The long-run effect

The optimal corporate governance system aims to give shareholders confidence that a company is managed efficiently, to create the highest possible profit and to preserve a firm’s reputation. The aim of the research is to find out if the lower level of information asymmetry in corporate governance systems in the Polish listed companies implies higher rates of return for shareholders in the future. We put forward a hypothesis that the impact of lower information asymmetry on company’s performance is overestimated and in reality no long-run effect on the higher abnormal returns occurs. Taking into consideration the initial level of propensity to share information index we analysed future buy-and-hold abnormal returns achieved by 61 companies during the next 3 years.

Shareholder interests vs board of director members' interests and company performance

Purpose – The purpose of this paper is to examine the relationship between board alignment with shareholder interests using a new measure of perceived board effectiveness, which is designed to capture the alignment of the directors with the interests of shareholders.Design/methodology/approach – Specifically, the paper looks at the Rotman/Clarkson (CCBE2) Canadian Board Shareholder Confidence Index as the measure of shareholder's perceptions of the board's efficiency as it relates to company performance. The index is ostensibly designed to capture the essential factors affecting shareholders' confidence in the boards' abilities to fulfill their duties. The CCBE2 Board Shareholder Confidence Index assigns scores to companies based on the consideration of the following three perspectives: potential of individual board members; potential of the board as a group and past practices of the board. The measure of performance is the firm's Economic Value Added™ (ER), which is a metric for a company's ability to ge...

Shareholder Interests versus Board of Director Members’ Interests and the Profitability of Firms

Closer alignment of board members interests with shareholder interests has been viewed as a key to unleashing the firm’s performance potential. However, empirical validation of the actual link between board alignment with shareholder interests and performance remains a matter of considerable debate. This study empirically tests the hypothesis that the closer alignment of board of director members’ interests with shareholder interests improves the economic profitability of firms. The hypothesis is tested by examining the relationship between operating earnings in excess of the cost of capital (ER) and a new “shareholder confidence” index that captures board of director alignment with shareholder interests for a sample of large publicly traded Canadian firms from 2002–2006. High shareholder confidence index values are generally associated with higher ER, although the relationship is not monotonic for higher-graded boards. This suggests that while highly-graded boards are generally beneficial, there may be diminishing returns to efforts to design “optimal” boards in the sense of their alignment with shareholder interests. The performance gap between firms with high vs. low expected agency costs as reflected in terms of higher differentials between board members’ interests alignments with those of shareholders amounts to almost 30%.

Discretionary Disclosure, Corporate Governance and Share Price Reaction: Aftermath of the October 2008 Financial Market Crisis

Research aims:The purpose of this research is to investigate the impact of the nature and extent of discretionary disclosure of Australian listed entities on share prices subsequent to a major financial market crisis. Further the proposed study also aims to investigate the moderating role of corporate governance on the above mentioned relationship. As a secondary aim, the study will also examine changes in the nature of the discretionary disclosure by Australian listed entities (namely, good vs. bad news and quantitative vs. qualitative data) as well as the medium of such communication (i.e. annual reports vs. website). Background and Justification for Study:The Financial market crisis that occurred in October 2008 wiped out billions of dollars from the stock markets world-wide, and the impact on business organisations is yet to be known. Nevertheless, organisations will need to gain shareholder confidence back and discretionary disclosure will be an important vehicle through which this can be achieved. Discretionary disclosure relates to voluntary release of financial and non financial information through annual report and other means over and above the mandatory requirements, either with regard to the company laws, professional accounting standards or any other relevant regulatory requirements (Dulacha et al. 2006). Prior studies on discretionary disclosure (otherwise referred as voluntary disclosure) by companies indicate a significant growth trend over the two decades. Previous studies on discretionary disclosures have been largely based on two schools of thoughts: Impression management and Incremental information. Impression management is a field of study that originates from social psychology which focuses on how individuals present themselves to others to be perceived favourably by others (Hooghiemstra, R, 2000). Incremental information by contrasty refers managers assumed to have economic incentives to engage in unbiased reporting as it enhances their reputation and compensation (Baginski et al.,2000).In relation to discretionary disclosures, the impression management school of thought, would predict that discretionary information would occur as a means to manage impressions of the organisation or the management (Abrahamson and Park,1994; Hooghiemstra, 2000, Aerts, 2005). In fact empirical results of the studies by Aboody and Kasznik suggest that a higher level of discretionary disclosure is made when firms deal with bad news prior to stock option award periods. However, no study to date has examined, the motivations for disclosure from both the preparers perspectives and as well as the users perspectives. In other words, further research is needed to determine the intentions and usefulness of discretionary disclosure from both these stakeholders - particularly as a result of the financial market crisis.The study will look also examine the impact of managerial dominance (i.e. CEO duality) and audit committee characteristics on discretionary disclosure from an impression management perspective. For example, during the period immediate to the financial market crisis, it is expected that firm experiencing changes in CEO might indulge in greater discretionary reporting as a result of impression management tactics. In addition, most studies on discretionary have focused on annual report (Jameson, D. 2000; Courtis, J.K. 2004b.), interim reports and prospectus (Courtis, J.K. 2004a.). This study will assess discretionary disclosure based on additional disclosure media, such as websites and conference calls to expand such analysis to electronic means of communication with investors. This will be an important contribution to the existing literature. From the users’ perspectives, this study proposes to look at how impression management may influence different type of users. This could be tested by asking categories of users of corporate report to rate examples of different impression management strategies.Finally this study will also investigate share market reaction to the discretionary disclosure made in different disclosure vehicles. A share market reaction in an efficient market can be expected only in the presence of new information (Ball & Brown,1969). It is predicted that there will be a significant relationship between share price reaction and discretionary disclosures levels in the period subsequent to the financial market crisis as much of the news will be bad and discretionary disclosures will better facilitate impression management.

Value Addition Through Good Governance in Corporate Sector: Role of Disclosure and Transparency

The purpose of corporate governance is to achieve a responsible, value oriented management and control of companies. Corporate governance rules promote and reinforce the confidence of current and future shareholders, lenders, employees, business partners and the general public in national and international markets. Corporate governance has evolved and grown significantly in the last decade. Numerous countries have issued corporate governance codes, and the recommendations of these codes, that typify good corporate governance, undoubtedly contribute towards increased transparency and disclosure. By striving for better governance, firms are able to reduce their cost of capital, mitigate risk, enhance investors’ confidence and enhance corporate valuation.

Anything But a Racket: Why Professor Richard Epstein's Attack on the Nature and Function of Deferred and Non-Prosecution Agreements Misses the Mark

In light of recent scandals involving companies such as Enron and Arthur Andersen, the need to impose criminal penalties on corporations has been on the rise. More and more often, however, federal prosecutors have utilized deferred and non-prosecution agreements in lieu of indicting and criminally prosecuting business entities. Despite the advantages that such agreements create for both prosecutors and companies, Professor Richard Epstein has vigorously attacked this practice in his recent article, The Deferred Prosecution Racket, contending that deferred and non-prosecution agreements do not serve the public interest because they do not help to restore shareholder confidence in the firm and undermine the principle of separation of powers. Epstein’s arguments are ill-founded, however, as deferred and non-prosecution agreements rebuild shareholder and public confidence in corporations while allowing companies to avoid certain death by indictment. Moreover, it is only by imposing or by threatening to impose criminal liability on business entities, rather than by solely charging individuals, that the government can effectively stop and prevent corporate crime. Advocating for the continuing usefulness and utility of deferred and non-prosecution agreements and against Epstein’s approach of wholly eliminating corporate criminal liability, this Article discusses the concept of corporate criminality, provides an overview of the definition and function of deferred and non-prosecution agreements, and contends that such agreements are the best, if not the only, means of preventing and addressing criminal conduct arising in the corporate context.

Corporate disclosure, cost of capital and reputation: Evidence from finance directors

The majority view of the executives interviewed is that disclosure reduces the cost of equity up to the point at which a good-practice level of communication has been reached, after which there is little further effect. Greater disclosure to rating agencies and lenders reduces the cost of debt. Attitudes towards more mandatory disclosure are mostly negative. The main perceived cost of disclosure is creating the information. The main benefits are promotion of a reputation for openness and of shareholder confidence, not a lower cost of capital. We suggest that a reputation for openness is valued because it enhances the company's overall reputation, which brings commercial benefits.

The key to widespread data encryption

The use of encryption is expanding rapidly as large organizations attempt to secure data across their extended enterprises. Network Computing predicted that data protection would be the number one priority for CIOs during 2006, with high profile incidences of data theft and growing regulatory pressures forcing businesses to protect the integrity, privacy and security of critical information. Any company that fails to meet industry privacy and governance regulations such as Sarbanes Oxley, HIPAA, Gramm Leach Bliley or PCI (Payment Card Industry) faces fines, loss of customer and shareholder confidence and even criminal prosecution.