Corporate Governance Standards Research Articles

Analysis on corporate governance compliance standards in New Zealand – a qualitative study on disclosures using content analysis and interviews

PurposeThis paper aims to provide more insights into the standard of corporate governance in New Zealand. The study intends to uncover how a small country with a well-developed economy with a good system of law and order, good institutional set up and law enforcements and implements the principles contained in the FMA’s corporate governance guidelines in practice.Design/methodology/approachThe study is a mixed study one where it employs case study content analysis and augmented by conducting interviews. Large companies are selected to ascertain the level of compliance of NZ companies towards their obligations to report on corporate governance practices within the organisation. At the first stage, the study uses content analysis and looks at contents of company annual reports and publications on websites to determine whether they had disclosed as intended by New Zealand’s corporate governance guidelines.FindingsThe study found that a high compliance was recorded in areas such as board composition and board committees and low compliance recorded in areas involving costly implementation or when the issue is sensitive such as disclosures regarding remuneration details of directors and what non-audit work was undertaken and whether it compromises auditor independence. Being a small country, NZ has performed well in attracting foreign investment due to its strong tradition of law enforcement and respect for regulations. With greater awareness of the importance of corporate governance to investors, companies may see the benefit of greater compliance with the corporate governance guidelines. This is in line with the stakeholder theory and resource dependency theory where companies will voluntarily disclose information on corporate governance, social and environmental performance over and above mandatory requirements to appease and manage their stakeholders.Research limitations/implicationsThe sample size of this study represents 3 per cent of total listed companies in New Zealand, but the sample is approximately 10 per cent of local NZ listed companies (i.e. not dual listed in Australia). There are 36 large companies in the New Zealand stock market with market capitalisation of 1 billion and above. In addition, the companies selected for this study are well-known in New Zealand, and it is acknowledged that this can be a source of bias in my analysis.Practical implicationsAs was revealed during the interviews with company’s senior officials, Australian companies have achieved a higher level of compliance with the code of corporate governance. In this regard, New Zealand will have to step up and follow Australia’s lead to ensure greater compliance with the New Zealand corporate governance principles and guidelines. It would be in the best interest of the company’s stakeholders if full compliance is achieved.Originality/valueStudies on the level of compliance by New Zealand companies on their obligations to meet the full extent of disclosures as stipulated by the New Zealand corporate governance guidelines are rare. This study aims to ascertain the standard of corporate governance reporting in New Zealand and the company’s seriousness to comply or attempt to meet the requirements in the seven stipulated principles.

Report on Improving Corporate Governance in Hong Kong - A Comparative Based Study

The ‘Report on Improving Corporate Governance in Hong Kong’, commissioned by the Hong Kong Institute of Certified Public Accountants, assesses the strengths and weaknesses of Hong Kong’s corporate governance (CG) system, based on a study of the CG systems in the United Kingdom, the United States, Mainland China and Singapore. The objective of the study was to produce implementable recommendations to improve Hong Kong’s CG system in a manner consistent with overarching objectives of fostering regulatory efficiency and long-term market competitiveness. For this purpose, it was important to recognize that the CG system in each jurisdiction has emerged in consequence of developments and experiences, successes and failures shaped by historical, political, legal, market, and social and cultural contexts — what works, or fails, in one jurisdiction might fail, or work, in another. Divergences in the concept of CG and how to measure it were also discussed. Hong Kong’s dual responsibilities model in which the statutory regulator (SFC) and the stock exchange both have regulatory oversight of the listed market is somewhat unique. Overall, the model has worked well in response to significant developments including Hong Kong’s global position in the IPO market and the highly significant shift to the listing of Mainland enterprises that now account for the majority of market capitalization and trading. Yet, Hong Kong must do significantly better in a number of areas to protect its market and the shareholders who invest in it. The recommendations seek to address these concerns. Board processes and standards: While each jurisdiction studied is dealing with similar types of issues the experience in each jurisdiction is markedly different, with some reforms having a positive effect, others not. In some instances, the market response to reform can be to game it to bring about an alternative outcome from the one intended by regulators, thus producing unexpected consequences. Hong Kong should adopt better mechanisms to protect shareholders from potential abuses of the board by strengthening the functions of the audit committee and independent directors, and requiring greater CG-related transparency. Enforcement by shareholders: Shareholders’ rights are well established in Hong Kong law but are subject to important caveats as regards the ability of a shareholder to acquire information relevant to the identification of the infringement of a right, and to pursue that right in practice. Hong Kong has not followed the adoption by the UK and Mainland China of group/joint litigation. Shareholders also have no rights in relation to breaches of listing rule disclosure requirements, despite having (together with regulators) an expectation that directors and issuers will comply with them. This is important since breaches of CG standards in listing rules currently do not amount to legal causes of action, yet shareholders qua investors do consider the CG practices of an issuer in the total mix of information available to them. Enforcement by regulators: The weak position of shareholders is exacerbated by the existence of an enforcement lacuna between the stock exchange and the SFC, whose powers are either too weak and ineffective, or too strong and insufficiently graduated in relation to a wrongdoing that does not warrant (or may not give rise to) court action. This represents a serious shortcoming in regulatory efficiency as compared to all the other markets studied and leaves many important CG standards set by the listing rules subject to ineffective enforcement. A number of the recommendations would enable earlier behaviour correction via more effective and graduated means of consequence management without requiring changes to the dual responsibilities model of regulatory oversight. Non-Hong Kong incorporated companies: Cross-border enforcement issues and potential conflicts of law are not unique to Hong Kong. However, the preponderance of Mainland enterprises listed in Hong Kong lends a different emphasis to the problem and establishing more effective means of enforcement against these companies has become essential. Improving ex ante mechanisms of enforcement that provide for more effective early warning identification and correction mechanisms can work well in this regard. New cross-border enforcement arrangements with the Mainland specifically tailored to the public capital market may also need to be considered. CG system architecture and policy: The Report observed significant differences in the way policy is developed and enforced in the different jurisdictions, and notes that the development of the Hong Kong market has in various ways outpaced policies on market development. Many of the 28 recommendations made in the Report are relatively straightforward to implement, others require further work to be undertaken as to their more specific details and potential ramifications. A few specifically contemplate a further consultation or enquiry process. An important interim purpose is to generate discussion that may lead to an enhanced recognition and understanding of areas in need of reform when Hong Kong is examined against best practices internationally.

Legal Framework for Corporate Governance in Nigeria: An Appraisal of the 2018 Code of Corporate Governance

Corporate Governance deals with the decision-making structures of corporations and organizations and establishes a relationship between shareholders’ interests such as investors and owners of the issued shares of the corporation and other stakeholders’ interests such as employees, customers, suppliers, individuals where the corporation interacts, etc. Great corporate governance is necessary for setting standards required by corporations to establish a distinctive business environment. Over the years there has been no uniform code on corporate governance of general application to regulate and monitor corporate governance in Nigeria. Therefore the study seeks to undertake an examination of the historical background as well as the processes and structure of corporate governance. In particular, the paper will carry out a critical review of the 2018 Nigerian Code of Corporate Governance (NCCG), the latest legal framework on corporate governance unveiled by the Minister for Industry, Trade and Investment on January 15, 2019. The paper will rely on both primary and secondary sources of data. Primary sources are legislations and judicial decisions. Secondary sources are books, journal, online articles and periodicals. The paper concludes that 2018 NCCG is in line with international best practices as it primarily seeksto institutionalize the maximum standard of corporate governance in Nigeria and sensitize the public on the significance of upholding corporate values and principles. The paper recommends that regulatory authorities and all interested parties in the corporate world must collaborate to ensure adequate compliance with the code for the attainment of an effective system of corporate governance in Nigeria.

The Impact of Commitment Time Sharing Companies by Applying the Standards of Corporate Governance in Creating Sustainable Employment Opportunities in Jordan

The study aimed to introduce governance and its associated concepts, and the reality of the application of the concept of governance in the time- sharing companies and their impact on the creation of permanent jobs, and defined the time sharing companies and the laws governing them, and addressed the process for these companies and the statement of practice for the concept of governance and its impact on the creation of permanent jobs. To achieve the objectives and testing of hypotheses a questionnaire was developed especially for the collection of data from a study sample, the number of questionnaires analyzed are (87), By using appropriate statistical tests, results of the study showed that A set of results showed a huge impact of commitment of time sharing companies which applies corporate governance in creating sustainable employment opportunities in Jordan in the four areas related to the study questions, there is a statistically significant difference between the cumulative rates of all sections which relates to the personal variables of the sample of respondents in the study population. The study has provided a set of recommendations which includes encouraging this investment sector by the concerned authorities because of its great contribution to the creation of permanent jobs and consolidate the values and principles of governance in this type of companies (time-sharing companies) because of its strong impact in the creation of permanent jobs.

Board Involvement on Earnings Per Share (EPS)

This research aims to investigate the effect of board involvement on earnings per share. The current study uses the correlation and regression models to analyze publicly available data for a sample of 69 firms quoted in the Nigerian Stock Exchange for the fiscal year 2011. This indicates that the research made use of cross sectional data. Several diagnostic tests have been applied to justify the validity of the results. The empirical investigations reveal that director’ shareholdings, board size and board skills have significant impact on performance. Good corporate governance standards are very essential to every organization and should be encouraged and practiced for the interest of the investors, shareholders and other stakeholders. Is worthy of note, that from a developing country like Nigeria, especially in sub-Saharan Africa, this paper is the first of its kind and offers evidence on the effect of board involvement on earnings per share. The paper provides useful information that is of great value to policy makers, academia, corporate firms and other stakeholders.

'Disney' Goes Goofy: Agency, Delegation & Corporate Governance

In the wake of the corporate debacles that have occurred in the last decade, there has been an increasing legislative and judicial focus on the reform of corporate governance standards. Such reforms, including the Sarbanes-Oxley Act, sing the praises of independent directors in effectuating meaningful corporate governance. The Delaware courts as well have emphasized the importance of independent directors in the corporate governance framework. The Delaware Supreme Court’s decision in Disney seems to be a reaffirmance of the business judgment rule as applied to corporate directors; however, the court’s highly-publicized decision ignores a crucial component of the case: the Delaware Supreme Court implicitly holds that Michael Eisner, as CEO of Disney, had the authority to unilaterally terminate the number-two officer in the corporation and to authorize a severance payment of over $130 million without action from the board of directors. By expanding the unilateral power of the chief executive officer to bind the corporation to such extraordinary transactions, the Disney court’s holding thus slights independent director service on corporate boards. Indeed, under the court’s reasoning in Disney, the effect of independent directors on meaningful corporate governance is diminished.

Reducing risk in the emerging markets: Does enhancing corporate governance work?

This study examines emerging market firms that adopt corporate governance standards similar to those in the US. The investigation highlights the impact governance standards may have on corporate risk taking, as measured by stock return volatility, under varying political and socioeconomic regimes. In a cross-sectional time-series setting, the analysis reveals that enhanced governance standards are associated with risk reductions among US domiciled firms, cross-listed American Depository Receipt companies (ADRs) and non-cross listed emerging market (EM) firms. The effect of these governance standards on risk taking, however, does not deviate considerably between cross-listed ADRs that are exposed to Securities and Exchange Commission (SEC) mandated regulations and non-cross-listed EM firms that are not subject to the same regulatory constraints. Also, in some respects, Chinese firms seem to exhibit corporate behavior that is contrary to that of the rest of the world.

Banker-Directors and CEO Inside Debt

Using employment history of over 17,000 directors of non-financial firms, we find that boards with directors who have executive experience in a commercial bank compensate CEOs with higher inside debt. This result is consistent with arguments that professional experience shapes decision-making. The experience effect dominates the potential conflict of interest effect. In line with the experience argument, the result holds for both current and past bank executives and for directors from both banks which are and banks which are not the firm’s creditors. These results are robust to several specifications addressing potential endogeneity. The increase in inside debt associated with banker-directors moves the CEO’s incentives closer to the optimum in which agency costs of outside debt are minimized to benefit shareholders. In line with the monitoring role of bankers, we also find that the link between inside debt and banker-directors is stronger in firms with weaker corporate governance standards.

Does Transparency Pay Off in the Long-Run? Evidence from Stock Market Segment Switches in Brazil

We investigate the long-run effects of higher standards of corporate governance in the stock market. We consider Brazilian firms that switched from the traditional segment to the Nivel 1, Nivel 2 or Novo Mercado since 2000. We document that higher standards of governance result in significantly higher abnormal stock returns in the long-run, controlling for firm and time fixed effects. The positive impact has increased after the Global Financial Crisis, market microstructure improved, and the market impact is stronger for financially healthy firms. The evidence suggests that committing to higher standards of corporate governance paid off for Brazilian firms in the long-run.

The Relationship between Corporate Governance, Ownership Concentration and Firm Performance: Empirical Evidence from India

The paper seeks to examine the relationship between the corporate governance mechanisms (board size, board composition, board independence and CEO duality), ownership concentration (proxied by percentage of promoter's shareholding) and firm performance. The empirical analysis performed on the panel data of 178 non-financial National Stock Exchange-listed companies for 8 years, that is from 2008 to 2015. Firm performance has been measured using market-based measure Tobin's Q and accounting-based measure return on equity (ROE). Multiple regression analysis is performed using pooled ordinary least square regression and panel data regression models-fixed effect model and random effect model. The results of the study found that the impact of board size and board composition on the firm performance measures Tobin's Q and ROE is negative. Board independence is positively and significantly related to firm performance measures-Tobin's Q and ROE. The results revealed that ownership concentration has a positive and significant impact on firm performance. The positive influence of ownership concentration on firm performance implies that more substantial promoter stakes provide greater access to funds for initial investment and thereby lead to a larger scale of operation resulting in higher firm value. The study findings have significant implications for companies, researchers, academicians and policymakers engaged in corporate governance in emerging economies. The results of the study revealed that companies that comply with good corporate governance practices could expect to achieve higher financial performance and reduced agency costs. The results suggest that the policymakers should focus on increasing board independence, reducing board size to an extent and increasing the ownership concentration to the maximum level as stipulated by law to improve corporate governance standards.

Best Practice in Bank Corporate Governance: the Case of Islamic Banks

Islamic banks are growing rapidly with annual growth rates of 17.6% between 2009 to 2013 and 19.7% from 2014 to date. This level of growth is projected to continue into the future. Islamic banks now operate in more than 75 countries with a value of approximately $920 trillion of bank assets. Islamic banks are increasingly being seen as good long-term value propositions and are serving both Muslim and non-Muslim customers across international markets. Despite the rapid growth in Islamic finance, the underpinning corporate governance rules and regulations are at an embryonic stage of development with little attention having been paid to them. The purpose of this paper is to help fill that gap by exploring a conceptual model of corporate governance for Islamic banks based on both Islamic finance principles while fused with elements of corporate governance standards from Western theories and codes, primarily the UK, and thereby ensure that good governance is in place in Islamic banks. The paper links the predominant corporate governance theories of Principal/Agent, Stakeholder and Stewardship with practice based corporate governance codes and explores the potential of applying stewardship theory to Islamic banks. Islamic principles emphasis is on real assets rather than debt as is the case in Western Banks and as a consequence this paper offers the conclusion that the more prudent approach to banking used by Islamic banks could be used as a model for Western banks and thereby deliver a more sustainable future and maintain confidence in banks and substitute for the need for taxpayer support, such as the guaranteed deposit scheme, which acts as a backstop under the Western approach.

Law & Economics of Banks Corporate Governance in the Bail-In Era

The paper aims at introducing an in-depth analysis of Banks Corporate Governance in the after-crisis regulatory environment, going through theoretical and methodological specifications for starting an economic analysis of the post-crisis stream of reforms in the financial system, especially in the Eurozone. In a nutshell, this research has two main purposes: on the one hand, assess whether departures from standard corporate governance paradigms in banks are desirable; on the other hand, shed light on the impact of the rules on the resolution of distressed institutions on governance mechanisms. To achieve those goals, the paper carries out a survey the literature about Bank Governance and Bail-in Regulation in a functional manner to introduce the unexplored link between the new resolution regime and Corporate Governance, focusing the governance role of bail-inable creditors, as “potential residual claimers”. The literature review is supplemented and enriched by the necessary theoretical tools to properly set a Law & Economic analysis, both for what concerns specific agency relationships between corporate constituencies and the nature of financial regulation and bank insolvency. The paper concludes that the after-crisis reforms, and the bail-in regulation, in particular, represent the cornerstone for a new understanding of the relationship between corporate constituencies of banks. Moreover, the links between governance-related issues and the effectiveness of resolution mechanisms constitute a solid argument in favor of a positive role of Corporate Governance in addressing individual as well as systemic stability issues.

Judging the Public Benefit Corporation

This chapter examines the role of courts in the Delaware Public Benefit Corporation (“PBC”) context. In the traditional corporate law context, Delaware courts are an important mechanism for resolving disputes and communicating standards of corporate governance through common law adjudication. Delaware law functions as the de facto national corporate law for publicly traded corporations. To date, the Delaware courts have not been asked to resolve major disputes in PBCs and, accordingly, have not had occasion to communicate standards of corporate governance. Both as prediction and guidance, this chapter explores how the traditional function of Delaware courts might translate to the PBC context.

The Role of Cross-Border Mergers and Acquisitions in Foreign Direct Investment: Evidence from the Chinese Stock Market

In this treatise, we provide empirical evidence based on stock and operating performance measures to show how cross-border mergers and acquisitions (M&As) are different from domestic transactions from the perspective of foreign acquirers. We analyze the shareholder wealth effect from 663 domestic and international M&As announced by Chinese corporations between 1994 and 2006. We have uncovered some differences between national and cross-border M&As. We find that foreign acquirers experience significantly higher stock and operating performance than transactions carried out only by domestic firms. Higher target gains for cross-border transactions are consistent with the acquirer's ability to correctly value or capture synergies in cross-border takeovers. We also examine the source of wealth gains in Chinese targets of foreign acquirers. We find that the exchange rate and taxes are more important in justifying the target premium in foreign takeovers than in domestic takeovers. Taken together, our results suggest that the realization of synergy is the main motive behind foreign takeovers. We also analyze the role of corporate governance in cross-border M&As. Consistent with our hypothesis, the dummy for B shares or H shares is positively related with the takeover premium, indicating that strong corporate governance standards influence the valuation process in transition economies.

Factors Mitigating Firm-specific Information Asymmetry and Target Price Accuracy in India

Executive Summary Over the last decade, efforts have been made to improve the quality of financial reporting and corporate governance standards prevailing in emerging markets. Even after 20 years of globalization, emerging markets continue to trade as a separate class ( Bekaert & Harvey, 2014 ). On account of a weak regulatory environment, firm-specific information asymmetry is expected to be on the higher side as compared to developed markets. In such an environment, any factors which mitigate information asymmetry may help improve efficiency of information providers such as equity research analysts. The role of equity research analysts is to process financial information and provide estimates which may be used by investors to make informed investment decisions. This study investigates whether the factors which mitigate firm-specific information asymmetry improve analyst target price accuracy in India. We expect sophisticated financial intermediaries such as equity research analysts to produce more accurate target price forecasts for firms with higher frequency of corporate announcements, higher analyst coverage, and higher foreign institutional holdings. Past research suggests that these three factors reduce information asymmetry and this reduction could possibly help analysts produce superior results. Our results show that higher frequency of corporate announcements creates short-term noise which reduces target price accuracy at the end of one-year forecast horizon. Our findings reveal that higher analyst coverage leads to better flow of firm-specific private information and improves target price accuracy anytime during or at the end of one year. We report that higher foreign institutional holding possibly improves stock liquidity, attracting more traders, which eventually leads to better target price accuracy at the end of forecast horizon. Our key finding is that there is a reduction in firm-specific information asymmetry due to the presence of more number of analysts and higher percentage of institutional holding.

Rethinking of the Practical Existence of the Corporate Social Responsibility in Georgia Peer Review on Its Promotion via Georgia-EU Association Agreement

The scholarly article aims to give objective coverage of corporate social responsibility enhancement through the promotion of employee financial participation schemes in Georgian corporate practice. According to the “Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and Georgia, of the other part” corporate social responsibility is supposed to be promoted through an employment policy and social protection of employees, which consequently holds with the idea of alteration of corporate governance standards in Georgia. Due to the unsustainable level of Georgian stock market development and corporate practice, authors deem employee participation as an appropriate and relevant model in support of corporate social responsibility. With the aim of comparison, an analysis of foreign regulations is also represented.

The Current Rights of Minority Shareholders in Saudi Arabia

The preceding articles examined the legal framework of corporate governance in Saudi Arabia and the important elements of the institutional framework for Saudi corporate governance. The discussion in this chapter first focuses on government and government-regulated institutions established to enforce compliance and see that the actions of corporations are in line with corporate governance law. This chapter then examines minority shareholdings interests and rights and investigates minority shareholder protection under the CL. In addition, the board of directors is described, which controls and guides firm operations in compliance with corporate governance standards and regulations.

The role of corporate governance for acquisitions by the emerging market multinationals: Evidence from India

Acquisitions by emerging market firms of targets located in developed markets have increased drastically over the recent years. We use this setting to test Coffee's (1999) bonding hypothesis in a cross-border M&A context by examining whether acquirers adopt the corporate governance practices prevalent in the target's country. Using firm-level data spanning 2001–2010, we find that (i) ownership and board characteristics of Indian firms change significantly after acquiring developed market targets, (ii) the change in firm governance is more pronounced when the target countries have better investor protection and (iii) acquirers that exhibit changes in firm governance are associated with higher valuation after these transactions. These findings suggest that emerging market firms bond to higher corporate governance standards of the developed markets through cross-border acquisitions.

Directors’ Compensation and Insurance Firms’ Performance in Nigeria

Compensation is a complex and controversial subject. Researchers, academicians and consultants have devoted much time and efforts to understand the innumerable factors that underlie top management compensation. Of more importance to this study is how compensation imparts on firms’ performance. For some time now, executive compensation has been a matter of concern to corporate policy makers. Studies have shown that compensation is one of the most important strategies in human resource management; as it influences the productivity and growth of organizations. There is also a public outcry that insurance companies in Nigeria do not settle claims promptly; and in most cases only with the intervention of the regulatory bodies. There are many published issues on compensation that focus on organizational differences; there is little on whether compensation has any significant linkage with performance. Besides, improvement of corporate governance standards has been at the forefront of international debate in recent times. Compensation of directors and executives is one of the key issues in this debate. This study aimed at finding out if there is any relationship between remuneration and incentive systems on Nigerian insurance firms’ productivity. The net claims paid to contributors depict a measure of productivity as perceived by the insured, while the returns on assets depict productivity from the shareholders perspective. The two represent the dependent variable for study.

Corporate Governance 4.0: Facing Interdependency and Speed in a Complex World

Corporate governance faces growing criticism and calls for reform and regulation. Of course there are deep differences between governance models and the pressures for change they face. These differences have to be taken into consideration. Reforms and regulatory changes do provide frameworks to improve the standards of corporate governance but they fail to address major new challenges: put simply, speed and interdependency call for new rules of the game between boards and CEOs. Many of the crises we observe between boards and managers result from ignoring these challenges. When change was slow and linear the board‘s main role could be that of financial and fiduciary control, ex-post. Today the board’s role must shift to fostering entrepreneurial development, guiding long-term resource allocation under great uncertainty, setting strategic direction and exercising strategic control under shifting circumstances, a set of demanding responsibilities for which many boards are poorly prepared. This calls for new relationships with management, new priorities in both the choice of CEOs and the composition of the board, and new roles. In this paper we explore these. This paper briefly reviews the challenges of speed and complexity, analyzes their impact on the roles of boards, develops a contingency framework for specifying these roles, and draws some conclusions for governance, management and leadership for the next decade, and how these need to change.