Sound Corporate Governance Research Articles

Does the change of income tax rates lead to income smoothing practices in a sound corporate governance environment?

Income smoothing alters revenues from one year to another due to several motivations. Prior research has documented that taxation issues may motivate a company to smooth its income. Furthermore, it has been well documented that corporate governance can avoid income smoothing practices. However, on the contrary, we did not find that the change of income tax rates in Indonesia and Singapore leads to income smoothing in both countries. Furthermore, we also conclude that only selected corporate governance mechanism serves as an effective barrier to income smoothing practices. We also found several contrary findings of corporate governance mechanism that may be caused by a big number of publicly listed family companies both in Indonesia and Singapore.

Does the change of income tax rates lead to income smoothing practices in a sound corporate governance environment?

Income smoothing alters revenues from one year to another due to several motivations. Prior research has documented that taxation issues may motivate a company to smooth its income. Furthermore, it has been well documented that corporate governance can avoid income smoothing practices. However, on the contrary, we did not find that the change of income tax rates in Indonesia and Singapore leads to income smoothing in both countries. Furthermore, we also conclude that only selected corporate governance mechanism serves as an effective barrier to income smoothing practices. We also found several contrary findings of corporate governance mechanism that may be caused by a big number of publicly listed family companies both in Indonesia and Singapore.

Changes in stakeholder dynamics and salience during a mining disaster

The objective of the study was to illustrate the consequences of management oversight, as an element of poor corporate governance, of timeous stakeholder identification and engagement during a South African mining crisis. A secondary objective was to apply Quantitative Narrative Analysis (QNA), a methodology thus far mainly used in sociological research, to the understanding of this governance problem.An historical event in the South African platinum mining industry, the Marikana mining disaster, served as the unit of analysis for this case study. By utilising QNA, changes in stakeholder dynamics and salience were identified, based on available narrative from South African and UK newspaper articles spanning the period 1-24 August, 2012. The historical timeline of events and consequences were plotted, the main actors identified and the relationships between the actors and the events, mapped. A stakeholder analysis took the form of graphical stakeholder models, facilitating meaningful interpretation of the effects of the events that occurred. A typology of stakeholder categorisation was used to plot how the classification of stakeholders changed during the course of 24 days.The methodology used lays foundations for future methodological applications of QNA within stakeholder theory and presents opportunities for improved understanding of the impact of stakeholders on a company and on each other during a crisis event. The study contributes, practically, to an understanding of the importance of stakeholder identification and engagement during times of crises in order to assist leaders in engaging appropriately and timeously with different stakeholders groups, thereby promoting sound corporate governance.

Effects of Corporate Governance on Accounting Education and Enterprise Value in High-Tech Industry

Corporate governance, an important study on enterprise operation and management, aims to have an enterprise effectively supervise organizational activity and operation through favorable management and supervision systems or mechanisms. When a company presents sound corporate governance, the managers would maximize corporate value and shareholders’ equity to enhance the business performance and corporate value. Listed high-tech industries in Shanghai are sampled for this study. The data are acquired from China Economic and Financial Research Database. The research results conclude 1.significantly positive correlations between corporate governance and Accounting Education, 2.remarkably positive correlations between Accounting Education and enterprise value, 3.notably positive correlations between corporate governance and enterprise value, and 4.mediation effects of Accounting Education between corporate governance and enterprise value. The results could provide reference for managers in domestic high-tech industries making investment decisions and governmental authorities formulating relevant regulations. Good match with corporate governance allows a company thoroughly developing the benefit of capital expenditure to further create higher corporate value.

Auditors’ Perceptions of Corporate Governance in Hong Kong

Corporate governance system plays an important role in the contemporary accounting and management literature. The purpose of this study is to examine the auditors’ perceptions on corporate governance in the Hong Kong market. 92 experienced professionals of Big 4 audit firm auditors are interviewed to summarize the ideas of how to maintain an efficient corporate governance system. Results of the study show that effective corporate governance should avoid family directors to dominate the board. Second, effective audit committee plays a crucial role in order to maintain sound corporate governance. The study would be advantageous for listed companies in HK to adopt a better corporate governance structure in the firm.

The strong influence of sound corporate governance on economic Growth: evidence from Zimbabwe

The study examined the impact of sound corporate governance on economic growth in Zimbabwe using an econometric model. A multiple linear regression analysis was employed to examine the relationship. Secondary data for the period 1968 to 2015 was collected from World Bank’s Worldwide Governance and World Development Indicators databases. It was found that sound corporate governance is significantly correlated to economic growth in Zimbabwe in a positive and negative manner with a p-value of 0.000023235 at 5% level of confidence. On one hand, control of corruption is negatively significantly related to economic growth and, on the other hand, political stability and absence of violence/terrorism positively significantly related to economic growth. Government effectiveness, regulatory quality, rule of law and voice and accountability are insignificant in influencing economic growth in Zimbabwe at 5% level of significance. The findings from this article will assist policy formulation, policy implementation and future research. This article, however, is of great importance to government, private sector and the academia.

Does hometown advantage matter? The case of institutional blockholder monitoring on earnings management in Korea

This study uses a large sample of Korean firms to examine institutional blockholders’ influence on corporate earnings management. The Korean market is an interesting setting to study institutional monitoring because it is dominated by chaebols, which are characterized by ineffective internal governance mechanisms. We find evidence that institutional blockholders deter opportunistic financial reporting, and such activities are the most evident among domestic institutional blockholders. Foreign institutional blockholders, especially those with short-term investment objectives, lead to more discretionary reporting. Our findings are robust to various empirical models and endogeneity checks. Moreover, this study offers new insight into the proximity advantage of domestic institutional investors with regard to monitoring information. It also highlights institutional investors’ roles in shaping corporate governance in emerging markets, in which sound corporate governance has become increasingly important for firms’ long-term sustainability. One important policy implication is that regulatory authorities should aim to promote institutional investors’ participation in these markets.

How to explain non-performing loans by many corporate governance variables simultaneously? A corporate governance index is built to US commercial banks

This paper aims to combine the principal component analysis and GMM dynamic panel data methods in order to estimate the effect of corporate governance system on non-performing loans. The first method is meant to construct a corporate governance index for US commercial banks. The second one allows us to study the relation between the built index and non-performing loans. The advantage of the combination of these methods is reducing the number of corporate governance variables into a single one and ensuring the consistency of GMM estimates, given that a high number of variables leads to an increase in the number of GMM instruments, which in turns results in biased estimators. Applying these methods to US commercial banks, for a period including the financial crisis years, we find that small banks are characterized by a sound corporate governance system that reduces their non-performing loans. In opposition, the corporate governance fails to protect medium and large US commercial banks from excessive risk-taking that damages their loans’ quality and even leads to enormous losses especially during the global financial crisis.

Does investing in sound corporate governance pay? A South African study

Despite increased recognition of the importance of sound corporate governance practices in emerging markets, previous researchers reported inconclusive evidence on the association between corporate governance and financial performance. Authors that predominantly focused on board-related variables might, however, have failed to reflect the complex nature of corporate governance. The financial performance measures employed in the majority of previous studies also ignored the potential risk-reducing benefits that sound corporate governance could hold for emerging market firms. The purpose of this article was thus to investigate the relationship between a comprehensive measure of corporate governance and the risk-adjusted performance of selected South African companies. A unique corporate governance database was compiled by conducting content analysis on the considered companies’ annual reports over the period 2002 to 2010. Aspects related to nine corporate governance categories were taken into account. In addition to the accounting and market-based performance measures that were employed in previous studies, South African companies’ risk-adjusted performance was also taken into account. The capital asset pricing model and the Fama-French three-factor model were employed to estimate risk-adjusted abnormal returns for four corporate governance-sorted portfolios. Both estimations revealed that the portfolio comprising of companies with the highest corporate governance scores managed to significantly outperform the market.

CORPORATE AND RISK GOVERNANCE: KEY-DRIVERS FOR VALUE-CREATION AND GROWTH. THE CASE OF CREDIT COOPERATIVE BANKS.

ABSTRACT Our research is a theoretical study in which we identify and discuss the role of Corporate Governance and Risk Governance of Italian Credit Cooperative Banks, as key-drivers for growth and value-creation, not only for the bank itself, but for the local community in which they operate. As sound corporate governance and internal controls have become the determinant elements for the stability of every single institution and of the overall financial system, by drafting a Corporate Governance and Risk Management model, we evaluate its adequacy and compliance with the laws and the new regulatory requirements, imposed by the European Central Bank and the Basel Committee and transposed into the Italian legislative context by Banca d'Italia. Furthermore, we analyse how those banks enhance growth and value-creation. Finally, we consider the interaction between Corporate Governance and Risk Governance in order to strengthen the role of a robust communication throughout the organisation, which is important for the development of a corporate and risk culture, fundamental for setting and achieving strategic objectives. Keywords credit cooperative banks, Corporate Governance, Risk management, value-creation, growth

Can Sound Corporate Governance Alleviate Corporate Failure? A Study of the Zimbabwean Financial Services Sector

This study, using the Ordinary Least Squares (OLS) Regression Model, investigated the extent to which good corporate governance practices can minimise or alleviate corporate failure in the Zimbabwean Financial Services Sector. The results of the study reflected that sound corporate governance has a positive effect on corporate success and can alleviate corporate failure. It is thus recommended that financial institutions continuously adhere to sound corporate governance practices to guarantee corporate success and alleviate the collapse of financial institutions as has been witnessed in the past. The findings of the study will assist policy makers, regulators and players in the financial services sector to adhere to sound corporate governance practices, given its impact on corporate success. Further research could be carried out with regards the implementation of sound corporate governance in parastatals, quasi-government institutions and private sector companies in other sectors other that the financial services sector and how it can be monitored or enforced.

Can Sound Corporate Governance Alleviate Corporate Failure? A Study of the Zimbabwean Financial Services Sector

This study, using the Ordinary Least Squares (OLS) Regression Model, investigated the extent to which good corporate governance practices can minimise or alleviate corporate failure in the Zimbabwean Financial Services Sector. The results of the study reflected that sound corporate governance has a positive effect on corporate success and can alleviate corporate failure. It is thus recommended that financial institutions continuously adhere to sound corporate governance practices to guarantee corporate success and alleviate the collapse of financial institutions as has been witnessed in the past. The findings of the study will assist policy makers, regulators and players in the financial services sector to adhere to sound corporate governance practices, given its impact on corporate success. Further research could be carried out with regards the implementation of sound corporate governance in parastatals, quasi-government institutions and private sector companies in other sectors other that the financial services sector and how it can be monitored or enforced.

Analyzing Performance Implications of Selected Audit Committee Characteristics: A Study of Indian Corporate Sector

The present research work mainly focuses on the audit committee as a key to ensure a sound corporate governance framework in the companies. The insights from the present research work are a novel attempt to figure out the influence of selected audit committee characteristics on the performance of companies listed in India. Results suggest that audit committee size has a curvilinear effect on firm market valuation having an inflexion point of four directors comprising the members of the audit committee. Furthermore, the independent directors on the audit committee start contributing toward better firm accounting performance only after they constitute more than the majority. The audit committee activity has also demonstrated a significant relationship with firm performance in a nonlinear fashion. The above findings have been robust to the several alternative empirical tests and modifications. It also reveals that the findings solely based upon the linear testing of influence of audit committee characteristics are not conclusive in nature. Moreover, the findings generated from the characteristics of audit committee–firm performance association in this study are contingent upon the nature of performance measure being adopted. In relation to it, suitable implications and propositions have been quoted in the last section so as to offer directions to the interested parties.

Agency costs and organizational architecture of large corporate farms: evidence from Brazil

Drawing inspiration from American institutionalism and new institutional economics, this paper discusses the rise of large corporate farms as the transition from the classic capitalist firm to the corporate form of organization based on the separation of ownership and control. Three case studies from the Brazilian cerrado show the rise of large corporate farms to be enabled and impelled by the advance of agricultural production technologies and the search for scale economies. The key finding from the case studies is that complex technology not only necessitates large-scale farming but also generates technical and organizational solutions to the potentially pervasive agency problems. In addition to the use of sound corporate governance practices, these solutions include organizational architecture encompassing computer-aided accounting and budgeting systems, incentive-based compensation, clear definition of performance goals, and delegation of operational decisions to farm managers. Furthermore, organizational architecture has been shown to promote a culture of trust and accountability, which counteract the opportunistic tendencies of farm managers and workers.

Do Large European Banks Benefit from Sound Corporate Governance in Good and Bad Times?

Anastasia N. Stepanova - National Research University The Higher School of Economics 
 E-mail: anstepanova@hse.ru
 Ivantsova Olga Mikhailovna - expert: Faculty of Economics, Research and Training Laboratory of Corporate Finance, HSE.
 E-mail: oivantsova@hse.ru
 This paper aims to investigate the effect that internal corporate governance mechanisms have on the performance of commercial banks, how it differs for developed and emerging European markets, and whether it has changed as a result of the financial crisis. The key statistical tool used in the paper is the panel data analysis of the sample of 150 banks from 27 countries, over the period 2004-2011. We document the evidence partially supporting the effectiveness of smaller boards of directors, while the board independence seems to be negatively associated with the strategic performance of banks, especially in emerging markets and in times of a crisis. In emerging markets, state-owned banks appear to be more market-efficient, while high ownership concentration is considered by market players to be a negative signal. Studying the 2008 financial crisis period provides the evidence for structural movements in nonfinancial performance drivers.

Earnings management in Libyan commercial banks: perceptions of stakeholders

The issue of earnings management has continued to be problematic in the financial reporting context. It has proved to be an important topic that concerns a wide range of stakeholders, including regulators, investors and preparers. The objective of this paper is to examine the perceptions of different stakeholders with regard to the financial reporting quality of Libyan commercial banks (LCBs) by addressing the issue of earnings management. The paper adopts a qualitative approach in order to investigate the topic of earnings management. It considers motives for, and techniques of, earnings management as well as the role and potential role for accounting standards and improved corporate governance in addressing the issue. The paper reports on 28 semi-structured interviews with different stakeholders of LCBs. It is found that financial reporting quality is perceived to be impaired as a result of earnings management. It also provides prima facie evidence of some fraudulent activity in the management of earnings. IFRS/IAS as well as a sound corporate governance system is perceived to have an important potential role in improving financial reporting quality. Some confusion and ambiguity in the understanding of the term earnings management was also identified.

When the Employer Neglects his Contractual Obligation Push and Pull Factors for Employees to Come to Work Which is not Paid: A Case of Zimbabwean Parastatals

The paper establishes the reasons why employees from selected parastatals continue coming to work even though they have not been paid their salaries for months. A qualitative study was conducted using 2 different interview guides, one for employees and the other one for human resource managers who acted as key informants. Twenty employees, 10 from each pararstatal were interviewed and 4 key informants, 2 from each organization also took part in the study. Participants were selected using purposive sampling. Data were analysed using thematic analysis. It has emerged from the study that employees in parastatals continue reporting for duty for different reasons which included desire for professional growth, hope that the fortunes of their respective organisations may turn for the better, abuse of organisational resources and vending at the workplace. Some participants also highlighted a number of social reasons such as seeking company from fellow workmates, avoiding lengthy periods with spouses who were deemed to be demanding and difficultly to handle. As recommendations, it is argued that organisations value and prioritise the welfare of their employees and engage in sound corporate governance decisions.

Independent Directors, Corporate Governance and Company Performance - India

This study suggest that the independent directors role needs to strengthened to achieve the desired goal of corporate governance. In india, despite being listed, there is family ownership structure. This has an important influence on the priorities set by the board, and that these priorities will determine the firm performance and corporate governance, despite independent director monitoring, It is found that where independent directors enjoying good trust with the family councils and have financial experience could ensure success to the best interest of the widely dispersed shareholders and stakeholders. Understanding the influence of family and role of independent directors on the board of directors in turn on firm performance requires greater sensitivity to how corporate governance affects different aspects of effectiveness for different stakeholders and in different contexts. Hence a framework on the interaction between ownership, corporate boards and firm performance could help. This paper looks into the current scenario in Indian Corporate Sector and examine the role of Independent Director in Corporate Governance, in particular. We are looking at Companies Registered in India and how the role of Independent Directors brings about better corporate governance and whether this brings about improved company performance. Recourse to independent directors by private equity investors per se is not tied to performance increases. . Our study shows that independent directors impact the rate of return only on deals which require very specific skills, i.e. turnaround and buyout investments. Besides, busy independent directors do not seem to affect negatively the internal rate of return. Finally, independent directors tend to resign when performance is unsatisfactory and consent to shave losses when performances are negative. We are aware that Independent Directors (IDs) play a critical role in implementing sound corporate governance practices in companies.

Corporate Governance and Firm Performance: Empirical Evidence from India

The paper attempts to analyze inter-linkages between corporate governance, ownership structure, capital structure and firm performance in India. The study employs a panel data of all CNX Nifty companies from 2008 to 2012. Using LSDV panel data models and 2SLS model the study reveals that that good corporate governance practices adopted by companies is positively related with financial performance. Board independence, number of board committees, and director remuneration are found to have positive relationship while larger board size, ownership by promoters and financial leverage have negative relationship with performance. There is existence of bi-directional relationship between corporate governance and financial performance. Companies with sound financial performance are more likely to conform to corporate governance norms and standards and implement sound corporate governance system. In addition, the findings reveal that corporate governance practices adopted by the listed firms depend on their ownership structure. Ownership concentration is found to effect corporate governance negatively.Journal of Business and Management Research, Vol. 1 (2), 2016, pp. 48-65.

The 'pay ratio' provision of the <i>Dodd-Frank Act</i> 2010 and presentation of the Paulo–Le Roux Index

Orientation: This article addresses the issues of executive remuneration and whether it was excessive or not.Research purpose: On 05 August 2015, the US Securities and Exchange Commission (SEC) adopted a rule to operationalise Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 (Dodd-Frank or the Dodd-Frank Act 2010), the ‘pay ratio provision’, as part of a process to ensure sound corporate governance and shed light on assertions that corporate executive remuneration was excessive and detrimental to the economic wellbeing of the USA. This pay ratio rule will be operative starting from 2017 and requires public firms to publish the ratio of chief executive officer (CEO) remuneration to the median remuneration of all its employees. Hence, it is a measure of income distribution. It does not reveal the relationship between executive compensation and the value added to the firm by executives. In anticipation of this rule becoming mandatory and as part of a quest to quantify the value of executives to the firm, Paulo and Le Roux (2014) developed an approach to measure the value executives add to the firm, drawing from audited financial statements and thereby demonstrating that the value added by executive management could be measured according to the requirements of sound research methodology and rigorous epistemology.Motivation for the study: Statutory enactment of the pay ratio provision provided the impetus to create an index, the Paulo–Le Roux Index, that shows how much executives are paid in relation to how much value they add to the firm.Research design, approach and method: Paulo and Le Roux (2014) developed an approach to measure the value executives add to the firm, drawing from audited financial statements and thereby demonstrating that the value added by executive management could be measured according to the requirements of sound research methodology and rigorous epistemology. Statutory enactment of the pay ratio provision provided the impetus to create an index, the Paulo–Le Roux Index, that shows how much executives are paid in relation to how much value they add to the firm. The value added to the firm is a composite of the value drivers, sales, growth, capital requirements (CR), operating profitability (OP), and the discount rate in the form of a weighted average cost of capital (WACC).Main findings: Discussions that hitherto have been normative regarding executive remuneration, and unrelated to the value created by executives, can now be based on rigorous valuations that draw from audited financial statements.Practical/managerial implications: Numerous advantages accrue from the use of this index for all stakeholders, managers, organised labour, investors, as well as for asset allocation and corporate restructuring, the risk incurred in adding value, and the strategies applied. This index can be used for any enterprise, division, functional area, or project, and for any financial period for which audited financial statements are available.Contribution: Using the index ensures sound corporate governance and shed light on assertions that corporate executive remuneration was excessive and detrimental to the economic wellbeing.