Emerald | Corporate Governance

Corporate Governance and Environmental Reporting: An Australian Study

Kathyayini Kathy Rao, Carol A Tilt, Laurence H Lester — 2012-04-06 00:00:00.0

Abstract

Purpose - The purpose of this paper is to investigate the relationship between Environmental Reporting and Corporate Governance attributes of companies in Australia. Design/methodology/approach - The paper adopts a quantitative analysis approach. It examines the 2008 annual reports of largest 100 Australian firms listed on the Australian Stock Exchange (ASX) to determine the amount of environmental reporting—these data will be compared with various Corporate Governance measures.Findings - Analysis found a significant positive relationship between the extent of Environmental Reporting and the proportions of independent and female directors on a board. The analysis did not, however, support a negative relationship between the extent of Environmental Reporting and institutional investors and board size as has been previously predicted, rather, it showed a positive relationship. Originality/value - This paper offers insights to both regulators and company strategists. Regulators such as the Australian Stock Exchange (ASX) could consider expanding its Corporate Governance Council guidelines to include consideration of the environment, which is increasingly considered to be an important aspect of corporate social responsibility, and one of the responsibilities of the board of directors. In addition, for companies which include a commitment to the environment in their mission and strategies, it suggests consideration of the impact of board structure and composition is important as both of these are shown to have a significant effect on the amount of environmental information disclosed by companies.

CEO Turnover and Firm Performance, Evidence from Thailand

Parichart Rachapradit, John C. S. Tang, Do Ba Khang — 2012-04-06 00:00:00.0

Abstract

Purpose - This paper seeks to examine the relationship between CEO turnover and firm performance and the moderating effects of ownership structure and board structure with respect to listed non-financial companies in Thailand.Design/methodology/approach - Logit model is employed to analyze the relationship between CEO turnover and firm performance.Findings - Both ownership and board structure has effects on the relationship between CEO turnover and firm performance. The probability of CEO turnover is lower when (1) the firm is controlled by family, (2) CEO is part of the controlling family, (3) board size is larger. Contrary to previous studies, sensitivity of CEO turnover to firm performance is higher with the presence of CEO duality and lower degree of board independence. When CEO continues to work beyond retirement age, the probability of turnover is not associated with firm performance.Originality/value - This study provides evidence that CEO duality and low independent board is not necessarily bad corporate governance practice for Thai companies and would be of interest to regulatory bodies, practitioners, and academic researchers.

INTERNAL CAPITAL MARKETS AND INVESTMENT DECISIONS

Hamadi Fakhfakh, Ghazi Zouari, Rim Zouari-Hadiji — 2012-04-06 00:00:00.0

Abstract

Purpose - This research attempts to explain the decentralization of investment decision. To do so, it highlights the role of the internal capital market in the allocation of decision rights and control as a factor explaining the effectiveness of investment management. We apply the theory of the organizational architecture to the investment decision to understand its complexity and its efficiency. Design/methodology/approach - An empirical test has been realized on a sample of 63 Tunisian firms using the canonical correlation method as well as the cross tabulations method. Findings - Even if organizational complexity has a linear and negative impact (opposite sign to what is expected) on investment decision decentralization which creates value, it appears that there is a positive association with the uncertainty of the environment, and a negative one with the scarcity and sharing of financial resources between units on the internal capital market.Originality/value - We show that the role of internal capital market in the creation of value through the establishment of a centralized organizational structure.

Performance, Valuation and Capital Structure: A Survey of Family Firms

Ana Paula Matias Gama, Jorge Galvão — 2012-04-06 00:00:00.0

Abstract

Purpose - Most countries often have public companies with large controlling owners, typically a family (e.g., La Porta et al., 1999). This empirical evidence contrasts with the classical view of the largest dispersed firm presented by Berle and Means (1932) and challenges the findings by Bhattacharya and Ravikumar (2001), who predict that the shares held by families will decrease if an efficient financial market is put in place. Therefore, family firms represent an important group in the stock market today. Thus, the purpose of this paper is analysing the effect of the family as a controlling owner on firms’ performance, valuation and capital structure.Design/methodology/approach - The objective of this paper is to review current literature related to how family (taking into account specific governance characteristics such as family ownership, family control and family management) affects firms’ performance and value. Findings - The literature review showed that founder family control and professional (outside) management increase performance, whereas excess control via control enhancing mechanisms (such as dual class shares and pyramidal structures) and descendent management produce both lower valuation and performance. This evidence suggests that families have the incentives and the power to systematically expropriate wealth from minority shareholders. Practical implications - Originality/value - Previous research show that family firms on average perform better than non-family firms. But this is a non-linear relation due the fact that the relationship between family ownership and performance cannot be identified without distinguishing between control and cash-flow rights. Thus, the literature review as a whole emphasizes that the incentives for the controlling shareholder to engage in expropriation are a function of the institutional framework in which the firm operates. So, for further research, it is important to investigate how family firms perform in different corporate governance system. A policy implication is the necessity to improve minority shareholders protection from the risk of expropriation by large shareholders.

A review of the influence of corporate governance on the banking crises in the United Kingdom and Germany.

Andrew Ross, Kenny Crossan — 2012-04-06 00:00:00.0

Abstract

Purpose - The purpose of this paper is to provide an overview of corporate governance structures in the UK and Germany addressing the extent to which corporate governance structures may have been a contributory factor to the recent banking crisis. Following a review of shareholder and stakeholder theories of corporate governance and a comparative overview of corporate governance codes in the UK and Germany, we provide some country level macroeconomic data and performance related data for a small number of large banks in the UK and Germany. Findings suggest that while corporate governance in banks would appear to have been a significant factor in the recent banking crisis, based on the performance data, it cannot be said that a corporate governance approach based on either shareholder capitalism (UK) or stakeholder capitalism (Germany) is more at fault than the other. However, it is clear that UK and German corporate governance structures were not adequate to prevent the recent banking crisis and only time will tell whether the remedial actions taken have been sufficient.Design/methodology/approach - The rest of this paper is structured as follows. Section 2 reviews the existing literature that underpins the stakeholder vs. shareholder debate within corporate governance. In section 3 the current codes of conduct and governance structures implemented by UK and German banks is reviewed. An analysis of the extent to which the banking crises can be attributed to failures in governance is presented in section 4 and finally some conclusions and recommendations are outlined in section 5. Findings - Our findings, in line with those presented in the Walker report (2009) suggest that the codes of conduct in both countries were not adequate to deal with the complex issues caused by the financial crisis and that changes need to be implemented. We fully acknowledge that corporate governance only played a part in the financial crisis and in order to try to stop a repeat of this, the whole regulatory environment in both countries needs to be strengthened. Research limitations/implications - There main limitation of the study lies with a lack of complex analysis undertaken to support the findings. Practical implications - The findings from the study suggest that, regardless of the type of governance in operation, current corporate governance rules were not adequate and that a new set of rules are need in both the UK and Germany. The findings also suggest that the stakeholder/shareholder debate may not be as important as previously claimed and that regulators need to find good governance rules, regardless of theoretical underpinnings.Originality/value - The paper is original as it is the first attempt to discuss the corporate governance failing and the banking crises from a shareholder/stakeholder perspective.

UK, RUSSIA, KAZAKHSTAN AND CYPRUS GOVERNANCE COMPARED

Jokull Johannesson, Iryna Palona, Franciso Salazar, Michael Fock — 2012-04-06 00:00:00.0

Abstract

Purpose - Purpose – The purpose of this paper is to compare and contrast the corporate governance standards of Cyprus, Russia, and Kazakhstan to those of the United Kingdom (UK) to facilitate investment decisions. The paper aims to discover governance gaps creating a potential for alignment to UK standards. Design/methodology/approach - Design/methodology/approach – The paper is a qualitative case study of four countries based on the OECD criteria of 118 corporate governance measures.Findings - Findings – The findings indicate that the corporate governance standards in Cyprus match 92% of the UK standards; Russian standards match 75%, and Kazakhstan ones 63%. The greatest contrast to the UK standards were for Cyprus in the area of Disclosure and Transparency category, Russia’s was in the area of Responsibilities of the Board, and Kazakhstan’s was highest in the two areas mentioned above and low overall. Research limitations/implications - Research limitations/implications – The paper identifies areas of governance that could be aligned to UK standards. Further research is needed to compare the governance standards of the countries studied to international standards other than those of the UK’s. Practical implications - Practical implications – The paper provides insight on governance for investors in the three countries and aids effective investment decisions.Originality/value - Originality/value – The originality of the paper lies in identifying gaps in governance among the four countries. Thus the paper provides information for investors as to the corporate governance they are likely to experience, and facilitates development in governance regulation.

Convergence of Corporate Governance Practices in the Post-Enron Period: Behavioral Transformation or Box-Checking Exercise?

Richard Bozec, Mohamed Dia — 2012-04-06 00:00:00.0

Abstract

Purpose - The objective of the study is to analyze corporate governance practices of Canadian companies in the post-Enron period. The attempt is to investigate whether the convergence phenomenon evidenced in prior studies is limited to the minimum mandatory requirements imposed by regulators or reflects a real behavioral transformation.Design/methodology/approach - Changing governance structure might be slow except in times of financial crisis, increase public scrutiny and reforms. These conditions are met in the post-Enron period (2002 to 2005) where major reforms have been launched including the Sarbanes-Oxley Act (SOX) in the US and Bill 198 in Canada. We expect changes in corporate governance to be more important during this period, therefore, enhancing the robustness and reliability of our results. We measure corporate governance on a global scale, relying on the ROB index published by the Globe and Mail. The index distinguishes between four blocks of corporate governance, namely, board composition, compensation, shareholder rights, and disclosure. Findings - Our results show signs of convergence. However, Canadian companies improved their corporate governance practices in the post-Enron period mainly in areas mandated by regulation. This includes provisions related to the composition, attributes and working of the board of directors and board committees. No significant improvement is found in non-regulated governance best practices. Research limitations/implications - Overall, the findings suggest a lack of real behavioral change in our corporate leaders. Instead, convergence in corporate governance appears to be the result of a box-checking exercise. Practical implications - If corporate governance is about ethical conduct and stems from the culture and mindset of management, our results show that corporate governance cannot be regulated by legislation alone.Originality/value - This study goes beyond the minimum mandatory requirements and looks into compliance of non-regulated provisions as well. Examining the evolution of corporate governance practices on these two fronts helps to further investigate the extent and nature of convergence.

CORPORATE GOVERNANCE REGULATION IN NIGERIA

EMMANUEL ADEGBITE — 2012-04-06 00:00:00.0

Abstract

Purpose - Whilst taking Nigeria’s peculiar institutional configurations into consideration, this paper critically evaluates the Nigerian corporate governance regulatory system, which is characterised by endemic corporate corruption, and explores how regulatory policy responses can be strategically formulated to ensure corporate vitality and prevent market failures. The paper investigates the antecedents of effective corporate governance regulation in Nigeria.Design/methodology/approach - This paper employs research method triangulation in order to provide an informative and comprehensive account. The following data collection methods were employed to conduct a survey of corporate governance professionals in academia, in practice (including board directors, managers, current and former CEOs and chairmen across different industries, as well as members of professional accounting and audit associations), and in the Nigerian polity: in-depth interviews, focus groups, direct observations and case studies. Findings - This study has provided some evidence to support the view that a country’s peculiar institutional arrangements influence its predominant model and style of corporate governance regulation. These institutions may be regarded as integral and inseparable constituents of any particular nation, which can either aggregate to facilitate the success of regulatory initiatives and promote good corporate governance or constitute barriers to the implementation of good governance principles.Originality/value - This paper primarily adds to the literature on corporate governance in sub-Saharan Africa, whilst extending our knowledge on the dynamics of corporate governance regulation in different institutional contexts. The paper further points out some transnational challenges, and suggests more caution, in the diffusion of corporate governance regulatory principles across different institutional environments. This further brings to the fore the need for countries to fashion out their corporate governance regulatory strategies in ways which deal with peculiar challenges, albeit within an umbrella of accepted principles of responsible corporate behaviour.