Strength Of Corporate Governance Research Articles

Enhancing Financial Stability in Ghana's Universal Banking Sector: A Governance Perspective and Practical Insights

Purpose: This study investigates the impact of corporate governance structures on financial distress within the universal banking sector in Ghana.
 Methodology: The research systematically gathers data from 19 banks spanning 10-year period. Financial distress indicators were extracted from financial statements, while corporate governance measures were obtained from annual reports. The data was analysed through regression analysis and counterfactual analysis through an endogenous switching regression model.
 Findings: Key findings reveal that profitability, liquidity, and effective risk management are critical factors influencing financial distress in both strong and weak governance environments. The results also showed that improving the strength of Corporate Governance has a positive influence on Altman Z Scores, contributing to a potential reduction in financial distress.
 Unique contributor to theory, policy and practice: The study provides valuable insights for policymakers, regulators, and banking institutions in Ghana, emphasizing the need to prioritize and strengthen governance practices for a resilient banking sector. Limitations include data unavailability, reliance on unbalanced panel data, and a narrow focus on board characteristics.

Does institutional ownership affect corporate social responsibility? Evidence from China

This paper assesses the correlation between institutional ownership and corporate social responsibility (CSR). Our results indicate that institutional ownership is positively associated with firms' CSR scores, which is largely driven by pressure-resistant institutions rather than pressure-sensitive institutions. Moreover, we find that the positive association is stronger for firms with state-owned, poorer initial CSR performance, and located in regions with a higher level of marketization. Further analyses imply that the beneficial effect on CSR scores has a smaller with an increase in institutional ownership concentration, whereas the strength of corporate governance can alleviate the damaging influence of institutional ownership on CSR performance. Finally, we identify two potential mechanisms through which institutional ownership affects CSR projects: Financial constraints and analyst attention.

Driving businesses towards a better climate: Macro and micro mechanisms to protect the planet

AbstractThis study examines whether corporate commitment to climate change is driven by country‐level factors related to cultural values and the legal system (LS) of a country. We also investigate the impact of corporate governance strength on climate change commitment and the extent to which there are moderating effects between corporate governance and cultural and LS influences. We use a large dataset of 21,564 firm‐year observations of companies operating in the United States, UK, and China for the period 2013 to 2020 and develop a unique measure for climate change commitment using different proxies for measuring climate change practices. We find variations in climate change commitment among the three countries and that cultural values and LSs affect corporate commitment to climate change. Companies located in a socially oriented society, which are transparent and characterized by long‐term orientation, are more strongly involved in climate change actions. The strength of corporate governance increases corporate commitment to climate change. Corporate governance also moderates some of the detrimental cultural influences on climate change commitment. These findings have implications for managers as they reveal that macro‐level factors affect behavior and that corporate governance can help to moderate these factors.

The role of financial distress and fraudulent financial reporting: A mediation effect testing

Research aims: This study examines the determinants of fraudulent financial reporting with financial distress as an intervening agent.Design/Methodology/Approach: The banking companies listed on the Indonesia Stock Exchange (IDX) between 2017 and 2020 comprised the study's population. One hundred-four companies comprised the entire sample, which was chosen using purposive sampling. The approach employed in this study was partial least squares (PLS)-SEM.Research findings: The results of this study found that financial targets and audit quality significantly affected financial distress. Financial distress had a significant effect on fraudulent financial reporting. Financial targets and audit quality had no significant effect on fraudulent financial reporting. Furthermore, audit quality significantly affected fraudulent financial reporting through financial distress. Financial targets did not significantly influence fraudulent financial reporting through financial distress.Theoretical contribution/Originality: This study provides literature on the role of financial conditions and good corporate governance in preventing fraudulent financial reporting in banking companies. This study can be an insight for practitioners and academics in Indonesia and internationally. Apart from that, this study contributes to the literature on the occurrence of fraudulent financial statements mediated by financial distress, which is not widely discussed, specifically in the context of the banking industry in developing countries.Practitioner/Policy implication: The practical implication in this research is the importance for investors and creditors to be more vigilant and pay attention to corporate governance and financial conditions to reduce errors in decisions based on financial reports. In addition, the strength of good corporate governance indicates that the supervision carried out by management will take the information conveyed to stakeholders free from material misstatement so that the implementation of good corporate governance can prevent fraud. Research limitation/Implication: This study exclusively includes companies in the banking sector listed on the Indonesia Stock Exchange (BEI) between 2017 and 2020. Out of 46 companies, only 26 may be used as research objects according to the purposive sampling method.

The Strength of Corporate Governance Metrics on Organizational Performance of Nepalese Telecom Industry

The purpose of the study was to understand and analyze the strength of corporate governance (CG) on organizational performance (OP) of the Nepalese telecom industry from the employees' perspective. It adhered to a descriptive study approach and employed an organized questionnaire survey instrument. Two market-leading telecommunication service provider companies of Nepal, Ncell and Nepal Telecom, and their employees were considered the object of the study. It collected 387 responses through a random sampling method. The survey instrument included 18 items and was divided into three segments to collect required data that was processed with the help of SPSS and AMOS software. The study identified nine observable CG performance metrics inside two latent variables, management and leadership (ML) and management competency (MC), to evaluate CG performance and revealed that each performance metric offers a partial explanation for the synergistic effects on OP. The study's findings provided evidence to previous studies that CG performance positively and significantly affects the OP. In addition, the results of the study would deliver useful suggestions for comprehending the primary drivers of CG performance metrics in the Nepalese context.

Examining the Relationship Between National Culture and Earnings Management

This study investigates the relationship between national culture and the incidence of earnings management across thirty-one nations while controlling for the strength of corporate governance and type of legal system. The results indicate the importance of national culture in explaining the difference in the incidence of earnings management across nations. Earnings management is found to be higher in countries with low scores on the Individualism dimension and high scores on the Uncertainty Avoidance and Long-Term Orientation dimensions. This study confirms the relationship between national culture and earnings management and contributes to the literature through the inclusion of the Long-term Orientation and Indulgence dimensions of national culture. The potential impact of national culture on earnings quality highlights the need for caution in assuming that the harmonization of accounting standards alone will lead to comparability and consistency of financial reporting.

The Impact of Corporate Governance Factors and the COVID-19 Pandemic on the Publishing Date of Annual Reports of UK Listed Companies

The aim of the current study is to examine the role of corporate governance structure and the COVID-19 pandemic on the issuing date of annual reporting of UK non-financial institutions. The corporate governance factors that were examined are: audit committee; board characteristics; ownership structure. To achieve the study objective, the sample’s data was collected from the financial reporting of companies listed on the London Stock Exchange during the period 2008 to 2021. To examine the effect of COVID -19, the sample was spilt into two groups: before and after 2019. The data collected was analysed by using the panel regression random effect method; the issuing date of annual reporting was measured by counting the number of days that passed between year-end and the date of the issuing of financial reports. The study’s findings show that there is a significant relationship between board size, independency of board, audit independence, audit experience, and the issuing date of annual reports. Moreover, after splitting the study’s sample, the empirical results supported that the COVID -19 pandemic has a negative effect on the corporate governance mechanisms that enhance the issuing date of annual reports. The study extends prior studies with evidence that demonstrates a relationship between issuing date (timeliness) of annual reports and the strength of corporate governance during the COVID-19 pandemic, and consequently, these findings confirm that corporate governance factors and auditing process enhance annual reporting quality.

AUDIT ROTATION AND STRENGTH OF CORPORATE GOVERNANCE AND ITS EFFECTS ON AUDIT QUALITY

AUDIT ROTATION AND STRENGTH OF CORPORATE GOVERNANCE AND ITS EFFECTS ON AUDIT QUALITY

Corporate social responsibility and future bankruptcy

PurposeThis study aims to investigate the cross-sectional differences on the association between corporate social responsibility (CSR) and future bankruptcy along the dimensions of political connection and corporate governance strength. This study intends to provide evidence on the tangible benefits for firms to invest in social capital of CSR activities and offer insights on what firms may benefit more from CSR expenditure.Design/methodology/approachRunning a logistic regression on the determinants of bankruptcy model after controlling for financial stress factors based on prior literature, this study examines the moderating effect of political connection and corporate governance on the association between corporate social responsibility and future bankruptcy.FindingsCurrent study documents that the negative association between corporate social responsibility and future bankruptcy is only significant for politically connected firms, but insignificant for non-politically connected firms. Specifically, the authors find that one standard deviation increase of CSR expenditure significantly reduces the propensity of future bankruptcy by 53.20% for politically-connected firms. Conversely, the negative relation between CSR only exits for firms with weak corporate governance but do not exit for firms with strong corporate governance.Research limitations/implicationsCurrent study provides evidence on the tangible benefits for firms to invest in social capital of CSR activities and offers additional insights on what firms may benefit more from CSR expenditure.Originality/valueCurrent study extends the research to examine the cross-sectional variations in the negative association between CSR performance and the propensity of bankruptcy. The positive moderating effect of political connection on CSR and bankruptcy suggests that political connection and CSR are complements in reducing the propensity of future bankruptcy. A more pronounced negative association between CSR and bankruptcy for firms with weaker governance suggests that firms with weak corporate governance benefits more in engaging CSR activities than firms with strong corporate governance.

Economic consequences of bargain purchase gains under ASC 805: evidence from banking industry

ABSTRACT I examine whether bargain purchase gains (previously known as negative goodwill) reported under FASB’s Accounting Standards Codification 805, Business Combinations (ASC 805) in FDIC-assisted transactions represent economic gains to the acquiring banks and thereby qualify as part of banks’ Tier 1 capital. In a sample of 135 publicly-held U.S. banks that acquired failed banks in the period January 2009-April 2012, I find that bargain purchase gains are positively associated with acquirers’ future stock market and operating performance. Also, bargain purchase gains appear to capture expected future gains, including and beyond the FDIC subsidy. Specifically, the component of bargain purchase gains that is less likely related to the FDIC subsidy is positively associated with acquirers’ future short-run and long-run stock market performance and accounting operating performance. Finally, the factors, such as agency problem, internal control strength, and corporate governance strength, that affect the reliability of financial reporting matter for the reliability of bargain purchase gain estimation. Overall, the results imply that fair value accounting as implemented under ASC 805 enables bargain purchase gains to reliably reflect expected future economic gains, rather than measurement error or agency problem.

Impact of executive compensation on corporate tax aggressiveness: evidence from India

PurposeThere is growing empirical evidence in context of the developed countries that greater tax aggressiveness of companies is associated with higher incentives to their executives. However, the same cannot be extended to emerging economies like India due to their distinct compensation practices. The present study, therefore, aims to bridge this gap by exploring the relationship between executive compensation and corporate tax aggressiveness in context of the Indian economy.Design/methodology/approachThe sample comprises a subset of the S&P BSE 500 Index companies for FY 2014–15 through 2018–19. A fixed effects panel model has been used to discern the impact of executive compensation on corporate tax aggressiveness with and without the moderating effect of a proxy for corporate governance strength.FindingsThe econometric analysis evinces a significant negative impact of the fixed executive compensation on tax aggressiveness, specifically with the moderation of corporate governance strength which was found to have a positive effect on the said relation. In addition, no significant relationship was observed between variable compensation and tax aggressiveness. These results were robust to an alternate specification of the corporate governance strength proxy as well as the system generalised method of moments estimation employed to deal with endogeneity.Originality/valueThe study provides insights on a poor interest alignment between shareholders and managers in India owing to an insignificant amount of variable pay in the total executive compensation.

Impact of corporate tax aggressiveness on firm value: evidence from India

PurposeThere is mixed evidence in the extant literature on the firm value implications of corporate tax aggressiveness in the developed economies. There are, however, limited studies that discuss this relationship in the case of emerging economies. The present study aims to bridge this research gap by exploring the relationship between corporate tax aggressiveness and firm value in context of the Indian economy.Design/methodology/approachThe sample comprises 547 S&P BSE 500 (Standard and Poor's Bombay Stock Exchange 500) Index companies for Financial Year (FY) 2009–10 through FY 2018–19. A fixed-effects panel model has been used to discern the impact of corporate tax aggressiveness on firm value with and without the moderating effect of a proxy for corporate governance strength.FindingsThe results highlight a significant negative relationship between corporate tax aggressiveness and firm value in India, whilst the analysis on the moderating effect of corporate governance strength on this relationship revealed a mix of significant and insignificant results. These results were robust to an alternate specification of the corporate governance strength proxy, the system GMM estimation employed to deal with endogeneity and a change in the Corporate Social Responsibility (CSR) regulation brought into effect by the Companies Act, 2013.Originality/valueThe study reveals a firm value discount associated with corporate tax aggressiveness in India which is likely due to its ability to increase opportunities for wealth expropriation by managers. This can further be attributed to the ineffective corporate governance mechanisms that make agency problems more severe in the case of emerging economies like India.

Impact of Corporate Governance on Dividend Policy: Evidence from Pakistan

Purpose: The objective of the paper is to examine the impact of corporate governance on the dividend payout policy of firms listed on the Pakistan stock exchange during 2010-2020. As Pakistani investors face issues regarding their return in the shape of dividends and depend upon the firm’s corporate governance strength. To test whether changes in firm code of corporate governance have a significant influence on dividend policy.
 Design/Methodology/Approach: The panel data has been used for the period 2010-2020 and panel least square has been applied. Further, to test the association, following factors such delisting risk, government tenure, political connection with institutional shareholding as many political firms hold corporate shares which influence the decision to pay dividends.
 Findings: Findings from the fixed effect model show that corporate governance has a negative impact on dividend policy while government tenure, politically connected firm has a positive impact on the dividend. The study also concludes that firm size, profitability, tax, asset turnover, leverage, and firm shareholding also influence firm dividend payment behavior.
 Implications/Originality/Value: The implication of study reveals that firms must focus on strong their governance and include more independent directors on the board which leads to favorable strategies regarding investors. The investor must invest in those firm where lower political connection, pay continuous dividend either high or low decease/increase delisting chances, strong corporate governance and firm specific factors also lead to make decision of dividend payment.

Corporate Governance Strength and Leverage: Empirical Evidence from Jordan

Corporate Governance Strength and Leverage: Empirical Evidence from Jordan

Product Market Competition, Corporate Governance and ESG

This paper examines whether product market competition is associated with Environmental, Social, and Corporate Governance (ESG) and whether corporate governance moderates the effect of product market competition on ESG. Analysis involving 22,897 firm-year observations from 37 countries shows that companies with higher product competition have lower ESG and those with higher corporate governance have higher ESG. The results also indicate the moderating effect of corporate governance, as the negative relationship between product market competition and ESG diminishes for companies with higher corporate governance. The results remain robust in additional analysis using alternative measures for product market competition and corporate governance. The findings support the joint effect of product market competition and corporate governance in determining corporate performance in ESG. The findings reflect the various pressures influencing ESG practices, and on how the strength of corporate governance plays a vital role in ensuring strategic ESG being employed for the sustainable performance of companies. The findings have implications on companies that want to factor ESG into their plans especially to reinvent their companies for the period that follows the COVID-19 pandemic.

Voluntary adoption of AAOIFI disclosure standards for takaful operators: the role of governance

PurposeThis paper aims to determine the role governance plays in the voluntary adoption of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Disclosure Standards by Islamic insurance (takaful) operators in the Southeast Asia (SEA) and the Gulf Cooperation Council (GCC) regions.Design/methodology/approachThis study uses a sample of 44 takaful operators in the SEA and the GCC regions. While corporate governance (CG) strength is measured by the use of the frequently examined variables of the board of directors and audit committee, Shari’ah governance strength is measured by the characteristics of the Shari’ah Supervisory Board (SSB). Content analysis is used to extract disclosure items from the 2014 annual reports. Agency theory, stakeholder theory and political economy theory are argued to support the hypotheses.FindingsThe results show that CG strength has a positive and significant effect on the voluntary adoption of AAOIFI Disclosure Standards by takaful operators, indicating that CG plays an important role in the disclosure of information in the annual reports of takaful operators. However, the results show a lack of association between SSB strength and voluntary adoption of AAOIFI Disclosure Standards. Our results suggest that the SSBs may not be as involved as the other CG mechanisms (such as a board of directors and audit committees) in reviewing financial reports. On another note, the level of the political right and civil liberties has a negative and significant effect on the voluntary adoption of AAOIFI Disclosure Standards, providing an indication that stakeholders in a community with greater freedom tend to be more active in pressuring takaful operators to provide more information to justify their existence in the community. Similar to SSB strength, the legal system is also found to have no significant association with the voluntary adoption of the AAOIFI disclosure standards.Practical implicationsThis study provides stakeholders with a tool to evaluate the effectiveness of the governance role in increasing the transparency of takaful operators by examining the governance factors using a self-constructed disclosure index.Originality/valueOur study is among the first to provide an in-depth analysis of voluntary adoption of AAOIFI Disclosure Standards for takaful operators in these two regions; therefore, this study has implications for regulators and standard setters. The findings of this study are expected to provide information to regulators and standard setters on the role of governance in improving the transparency of takaful operators.

Capitalisation of R&D and the informativeness of stock prices: Pre- and post-IFRS evidence

We examine whether requiring (IFRS) versus allowing (UK GAAP) conditional capitalisation of development expenditure affects the extent to which capitalisation conveys more information about future earnings, relative to expensing. We show that capitalisation results in current returns incorporating more future earnings information than expensing under UK GAAP but not under IFRS. i.e., the amount of information incorporated into market prices of capitalisers is the same as that from firms expensing R&D under IFRS. This result holds irrespective of a firm’s earnings management incentives or strength of corporate governance for the period under IFRS. We argue that this is because investors experience greater uncertainty regarding the realisation of future economic benefits associated with the development costs capitalised in the post-IFRS period. Consistent with this, we do find a positive association between capitalised R&D and future earnings variability in the post-IFRS period only, as well as short-term positive abnormal returns for capitalisers relative to expensers in the pre-IFRS period only. Overall, these findings suggest that when moving away from a standard that offers an overt option to capitalise or expense, capitalisation comes with greater uncertainty, which is resolved only in the long term.

The Role of Corporate Governance on the Relationship Between IFRS Adoption and Earnings Management: Evidence From Bangladesh

Purpose: This study investigates the relationship between IFRS adoption and earnings management (EM) i.e. discretionary accruals (DA) and real earnings management (REM) in developing economy like Bangladesh. Moreover, the study examine the relationship between corporate governance (CG) strength and EM as well as moderating role of CG strength on the relationship between IFRS adoption and EM.Design/methodology/approach: The study employs 94 firms listed in Dhaka Stock Exchange (DSE) for 6 years i.e. 564 firm years observation, over two time period as pre (2004-06) and post (2013/14-15/16) adoption of IFRS. Underpinning theory of the study is agency theory which explained the relationship among variables. Based on earlier literature a CG index is developed to measure the strength of CG. The study uses random effect GLS with robust regression in a balanced panel data.Findings: The results show that IFRS and CGI both have significant negative relationship with EM. Moreover, it is documented that the CG strength significantly moderates the relationship between IFRS and REM. It implies that the presence of good CG may help to attain the objectives of IFRS adoptionOriginality/value: To the best of the author’s knowledge, this is one of the first empirical attempts at providing evidence about the role of CG on the relationship between IFRS adoption and EM in Bangladesh. The findings of this study can be beneficial for the member of the regulatory bodies and researchers to formulate new policy and enhance corporate governance practices in Bangladeshi companies as well as develop a better framework for all stakeholders involved in financial reporting. Future studies may also investigate the interacting effect of corporate governance strength on other related variables which may influence the level of earnings management.

Listing advantages around the world

Using the firm-level data of 33 countries over 10 years (2008–2017), we find that the listed firms have lower returns on assets than the similar unlisted firms, in most countries. The result is associated with a higher capital-labor ratio of listed firms, implying that the listed firms face less financial constraints. Moreover, we investigate the institutional factors that exacerbate or mitigate the listing advantages (i.e., ROA difference) across the countries. Compared to English origin law, countries with German and Scandinavian legal origins strongly narrow the listing advantages but the French legal origin shows mixed results. Overall, the listing advantages seem narrowed with stronger creditor’s rights but show unclear associations with the strength of corporate governance.

Internal corporate governance strength as a mechanism for achieving sustainable development goals

AbstractThis paper explores the strength of internal corporate governance as a determining factor in a firm's addressing the sustainable development goals (SDGs) proposed by the United Nations. Using a European sample of analysis from 2016 to 2017, the paper examines CEO independence, board composition and board attendance as internal corporate governance factors that affect a firm's commitment to sustainable development. By employing several regression analyses, the evidence supports the assertion that greater corporate governance strength, from an internal perspective, increases the propensity to report SDGs in firms' sustainability reports. In addition, results confirm that CEO non‐duality and board independence act individually as determinants of a firm's contribution to the 2030 Agenda.