Corporate governance in emerging markets: A survey

This paper reviews recent research on corporate governance, with a special focus on emerging markets. It finds that better corporate governance benefit firms through greater access to financing, lower cost of capital, better performance, and more favorable treatment of all stakeholders. Numerous studies show these channels to operate at the level of firms, sectors and countries—with causality increasingly often clearly identified. Evidence also shows that voluntary and market corporate governance mechanisms have less effect when a country's governance system is weak. Importantly, how corporate governance regimes change over time and how this impacts firms are receiving more attention recently. Less evidence is available on the direct links between corporate governance and social and environmental performance. The paper concludes by identifying issues requiring further study, including the special corporate governance issues of banks, and family-owned and state-owned firms, and the nature and determinants of public and private enforcement.     

Sectoral Analysis of Corporate Capital Structure Choice–Emerging Market Evidence from Sri Lanka

ABSTRACT

This paper empirically investigates the overall corporate capital structure of the Sri Lankan-listed companies, the determinants in general and the inter-industry differences in particular. The impact of ten determinants has been analyzed cross-sectionally, both for the market as a whole and for each individual industry, to observe any sectoral differences. Though the long-term debt utilization is relatively low in the financial structure of Sri Lankan firms, the variables of capital structure choice are not significantly different from those located in developed markets signaling a positive move towards a market-driven economy. Yet, variations could be seen across industry classes to some extent in terms of their capital structure decisions, confirming the evidences of literature.     

The institutional determinants of private equity involvement in business groups—The case of Africa

This study examines the governance attributes of post-IPO (initial public offering) retained ownership of private equity in business group constituent firms in contrast to their unaffiliated counterparts, in 202 newly listed firms in 22 emerging African economies. We adopt an actor centered institutional-theoretic perspective in rationalizing institutional voids and the advantages of maintained governance by both business angels (BA) and venture capital (VC) private equity. Our findings reveal private equity retain higher post-IPO ownership in business group constituents compared to unaffiliated firms and that this is inversely moderated in the context of improving institutional quality – where this is particularly strong in case of foreign VC as opposed to domestic VC or BA. Our result adds to the literature on multifocal corporate governance mechanisms and the institutional determinants of private equity investment.     

Capital structure of Chinese listed SMEs: an agency theory perspective

Prior work examining the antecedents of capital structure for small and medium-sized enterprises in emerging markets is limited. This paper sheds light on how the corporate governance mechanisms adopted by firms on the newly established Growth Enterprise Market (GEM) in China influence their use of debt. We find that the financial leverage of GEM firms is positively influenced by executives’ shareholding and their excess cash compensation. Ownership concentration appears to reduce leverage, whereas the percentage of tradable shares increases leverage. In contrast, institutional investors’ shareholding does not influence the level of debt. Traditional factors such as tax and operating cash flow are insignificant in explaining the debt levels among GEM firms.     

Corporate governance in publicly traded small firms: A study of Canadian venture exchange companies

Most evidence regarding the determinants and effects of corporate governance practices is based on large firms. Herein, we explore these issues in the context of small publicly traded Canadian companies. We exploit the fact that such firms were not subject to corporate governance guidelines prior to 2005 and thus analyze the determinants of voluntary governance practice choices, as well as the effects of those practices on firm performance. Using a unique data set, we construct a corporate governance index for each firm. We measure performance by two variables: quality of accounting earnings and financial performance. The results indicate that corporate governance does matter for smaller traded Canadian firms. We find that both accounting and financial performance are positively related to corporate governance; however, their underlying mechanisms may differ somewhat. Given this result, it would be natural to expect all firms to choose higher levels of governance. However, our results also suggest small firms face resource constraints that limit their choices. We conclude that good governance is an important driver of small firm performance that cannot be neglected by the owners and managers of these firms.     

Sanctions against Iran,political connections and speed of adjustment

This study examines the effect of intensifying economic sanctions against Iran on speed of adjustment (SOA) in firms listed on Tehran Stock Exchange during 2001–2018. We find evidence that firms adjust their leverage toward the target at a lower speed in high-intensity sanctions than low-intensity sanctions. Moreover, we indicate that the negative impact of the intensification of sanctions on SOA is stronger for politically connected firms than other firms. Our results are robust to an alternative set of leverage determinants, two alternative definitions for sanctions intensity, an alternative measure for political connections, and an alternative two-step process for hypotheses testing.     

Corporate Governance in Brazil

Corporate governance is an issue of growing importance in developing economies, as many firms pass through significant transformations due to the combined forces of sociopolitical changes, technological progress and economic trends toward globalization. These elements, along with the structural characteristics of developing economies such as less developed capital markets and governmental interventionism, draw a picture for corporate governance practices that may, in some aspects, be fundamentally different from the practices found in European or North American contexts. In this paper we review and discuss the state of corporate governance practices in Brazil, focusing on how the governance structure of Brazilian firms has been subjected to important changes in the recent past and how even more changes are expected to happen.     

The role of corporate governance in FDI decisions: Evidence from Taiwan

There has been a considerable literature on the determinants of why firms undertake foreign direct investment (FDI), but very little on whether firms with different governance characteristics are more or less likely to venture overseas. For example, are family-controlled firms more predisposed to FDI than firms, with similar attributes, but different forms of ownership? Does the presence of institutional shareholders suggest a greater propensity to invest abroad? Does the composition of the Board of Directors have an impact? Most extant studies of corporate governance focus on the impact of governance factors on firm performance. However, these performance outcomes are a function of the strategic decisions made by the firms, which suggests it might be useful to consider the relationship between corporate governance factors and particular strategic decisions. One example is the decision to undertake foreign direct investment. The two main strands of IB literature on the determinants of FDI have little or nothing to say about how corporate governance factors might affect the FDI decision. Both internalisation theory and the resource-based view see FDI primarily as a means by which firms can appropriate rents in overseas markets from the exploitation of their idiosyncratic resources and capabilities. This paper extends this literature by investigating the effects of governance factors on the decision to undertake FDI. In particular, we want to assess the impact upon the FDI decision of (a) the extent of family control, (b) the presence of domestic and foreign institutional shareholders, and (c) the composition of the Board of Directors. We investigate these effects using a sample of 228 publicly listed firms in Taiwan, and our results clearly indicate that family control and share ownership by domestic financial institutions in Taiwanese firms are associated with the decision to undertake FDI. We also find that corporate governance impacts in different ways with regard to Taiwanese FDI in China in comparison to Taiwanese FDI in the rest of the world.     

The political determinants of executive compensation: Evidence from an emerging economy

In regulated economies, corporate governance mechanisms such as executive compensation are less driven by market-based forces but more subject to political influence. We study the political determinants of executive compensation for all listed Chinese firms in the context of an exogenous shock that removed market frictions in share-tradability. Under strong political constraints, state ownership reduced the managerial pay levels and increased pay-for-performance sensitivity (to asset-based benchmarks). Board independence and compensation committees do not curb managerial pay, and market-based factors do not have a significant influence. However, these effects reversed following the governance shock (removal of market frictions in share tradability).     

Are Stock Options Grants to CEOs of Stagnant Firms Fair and Justified?

Prior research has examined several ethical questions related to executive compensation. The issues that have received most attention are whether executives’ pay is fair and justified by performance. Since more recent studies show that stock options grants constitute the single largest component in executive compensation, we examine the relations of these grants to economic determinants and corporate governance for firms in the stagnant stage of their lifecycle. We find that, on average, stock options grants comprise a significant portion of annual CEO compensation (26.4%) for stagnant firms. We also find that economic (corporate governance) factors explain less (or more) of the cross-sectional variation in stock options grants for stagnant firms than for growth firms. Furthermore, we document lower pay-performance sensitivity (i.e., weaker incentive alignment) and no improvement in future firm performance from past stock options grants to CEOs of stagnant firms. In particular, our study provides empirical evidence on some inefficiencies associated with stock options grants to CEOs of low potential (stagnant) firms, a long-standing concern of business ethics researchers (Moriarty, 2005; Nichols and Subramaniam, 2001; Perel, 2003). Our results also provide support for the corporate governance reforms discussed in Matsumura and Shin (2005), especially those proposed provisions that curtail the power of CEOs in the governance of firms.     

Private Firms and Corporate Governance: An Integrated Economic and Management Perspective

This article provides a definition of corporate␣governance and highlights the challenges in adapting understanding of governance to the privately-held firm. We emphasize the need to develop the scope of governance in privately-held firms beyond the traditional agency theory focus in the financial economics literature relating to large publicly-listed corporations. There is a need to draw on and integrate an array of theoretical perspectives from both economics and other social science disciplines as well. We present a schematic model of corporate governance which places the contributions presented in the special issue in context and which serves as a guide to highlighting gaps in the research base. We review the principal issues relating to corporate governance in privately-held firms which relate to: governance in different organizational contexts (institutional context; the industrial sector within which the firm finds itself, the ownership context of the firm, and the stage within the firm’s life-cycle); the scope of corporate governance; and other internal governance mechanisms to be considered We identify areas for further research on corporate governance in privately-held firms with respect to processes of governance, organizational contexts, assumptions about the owners, executive remuneration, financial reporting, the nature of the dependent variable relating to the expected outcome of different approaches to governance and various methodological issues. We suggest a need to develop governance codes for privately-held firms that are flexible enough to take account of the different types of governance needs of firms at different stages in their life-cycle.      

The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey

We study the corporate governance practices of Turkish public firms from 2006 to 2012, relying on hand-collected data covering the vast majority of listed firms. We build a Turkey Corporate Governance Index, TCGI, composed of subindices for board structure, board procedure, disclosure, ownership, and shareholder rights. TCGI predicts higher market value (with firm fixed effects) and higher firm-level profitability with firm random effects. The principal subindex which predicts higher market value and profitability, and drives the results for TCGI as a whole, is disclosure subindex. We also study the determinants of firms' governance and find that most firm-specific factors have little effect on firms' governance choices.     

The Relationship between Family Firms and Corporate Governance*

This paper contributes to the agency theory literature by identifying relations between family control and corporate governance structure. Emerging literature supports the notion that family control creates strong incentives that have potentially competing influences on the manner in, and extent to, which internal corporate governance mechanisms are utilized. A sample of 100 listed companies (evenly divided between family and nonfamily firms) is used to test the hypotheses that corporate governance structures are different between family and nonfamily firms; and that family firms adopt optimal corporate governance structures. This research finds evidence that suggests that family firms utilize substantially different corporate governance structures from nonfamily firms and that these differences lead to performance differentials. Indeed, results suggest that family control creates, rather than negates, agency costs and future research may be well rewarded by pursuing this latter notion further.     

Do financial constraints in an unstable emerging economy mitigate the opportunistic behavior of entrenched family owners?

Prior research is not conclusive whether information asymmetries or managerial discretion are the cause of observed investment-cash flow sensitivity. This paper examines the effect of family firms' governance heterogeneity on firm's investment-cash flow sensitivity in Brazil. The Brazilian economic and corporate governance context present several idiosyncratic features, including weak minority shareholder protection, an underdeveloped capital market, macro-economic uncertainties, the presence of controlling shareholders (especially families), and the excessive use of control-enhancing mechanisms, allowing us to explore in greater detail the drivers of investment-cash flow sensitivity. We find that investment is more sensitive to cash flow for firms with a highly entrenched family presence (divergence between corporate control and voting rights coupled with family management) than in less entrenched family firms. This result emerges primarily due to financial constraints from asymmetric information, rather than agency problems of free cash flow from abuse of managerial discretion. Our findings shed new light on the role of excessive control rights in investment decisions, allowing family managers to reallocate capital to cope with financial constraints in times of economic uncertainties.     

中国保险公司资本结构的影响因素及调整速度——产险公司和寿险公司的比较

本文利用1998—2010年中国大陆地区财产保险公司和人寿保险公司的业务数据和财务数据,在部分调整模型的基础上,通过差分GMM方法对二者资本结构的影响因素进行实证研究。本文发现,中国产险公司和寿险公司的目标资本结构与公司规模、公司成熟度的关联显著为正,与产品分散化、地理分散化、产品收支间隔期的关联不显著,而再保险利用只对产险公司影响显著。平均而言,每一年度中国产险公司和寿险公司分别可以调整目标资本结构缺口的42.1%和28.5%。     

East meets west—Corporate governance in Asian emerging markets: A literature review and research agenda

This review examines how corporate governance mechanisms in the Asian emerging markets (AEMs) context affect firm-level outcomes. Literature about characteristics of the main corporate governance actors (boards and owners), their effects on firm-level outcomes, and contingency factors in AEMs offers interesting first insights. I synthetize these results and develop a research agenda that proposes how AEM corporate governance research should extend (but not ignore) agency theory, how AEM research about firm effects of corporate governance could take a stakeholder-oriented perspective, and how research could utilize the AEM institutional context to model contingency factors and extend our theoretical understanding of corporate governance.     

我国家族企业治理结构演进研究

作为家族企业发展的核心问题,我国家族企业治理结构演进路径是以中国传统文化为基础,适当吸收外部企业文化为方向。从"家文化"和"家族泛化"角度分析家族企业制度变迁的文化根基,从资本结构、人力资本、信任结构等方面阐述影响我国家族企业治理结构的主要因素,从企业形态、关系治理和公司治理等维度分析我国家族企业治理结构的演进路径。     

Does Good Governance Matter to Institutional Investors? Evidence from the Enactment of Corporate Governance Guidelines

Corporate governance guidelines are a mechanism that a firm can enact which should reduce agency costs and better align the interests of boards and the suppliers of capital. This study examines stock price reactions primarily attributable to institutional investors occurring when corporations announce the enactment of corporate governance guidelines. A final sample of 77 firms was derived from the first announcement of corporate governance guidelines exclusive to the SEC-EDGAR database. The results indicate that good governance does matter. Firms that announced the enactment of corporate governance guidelines experienced increased stock prices following the announcements. There was an immediate (days 1–4) reaction for firms that provided all or part of the guidelines’ substance; a delayed (days 8–10) reaction occurred for those firms that only referenced the guidelines’ enactment. Additionally, firms with either a potentially greater following or that had a previous history of acrimonious relations with stakeholders were rewarded by the announcement of the enactment of guidelines.     

公司治理结构的多变性

公司治理结构是由某一特定具体公司治理系统的要素--物质资本所有者与人力资本所有者竞争协同谈判的结果,它受市场环境影响,随着企业发展阶段不同而动态演进。模式本身不是一成不变的,它必然呈现多样性,因此立法及实践中应为公司治理结构的多元化提供必要的空间。     

The Organization of Production

The organization of production depends on both technical and governance factors. The integration of recent advances in cost theory into production theory makes it easier to appreciate the joint effects of transaction and coordination costs interacting with wages and capital costs in the decision-making of firms. The corporate function, integrating the production function and the governance function, facilitates the joint analysis of the full array of factors including the effects of interrelatedness and complementarities of new technologies and of pecuniary economies of scale. The corporate function and pecuniary economies of scale also provide new elements in the understanding of the ever present variety of firms in industrial structures and the role of historic time in the theory of the firm.