Board governance and corporate performance

We examine the link between the monitoring capacity of the board and corporate performance of UK listed firms. We also investigate how firms use the flexibility offered by the voluntary governance regime to make governance choices. We find a strong positive association between the board governance index we construct and firm operating performance. Our results imply that adherence to the board‐related recommendations of the UK Corporate Governance Code strengthens the board's monitoring capacity, potentially helping mitigate agency problems, but that investors do not value it correspondingly. Moreover, in contrast to prior UK findings suggesting efficient adoption of Code recommendations, we find that firms at times use the Code flexibility opportunistically, aiming to decrease the monitoring capacity of the board, which is followed by subsequent underperformance. This finding questions the effectiveness of the voluntary approach to governance regulation followed in the UK and in many countries around the world.     

Board structure and corporate risk taking in the UK financial sector

This paper examines the relationship between board structure and corporate risk taking in the UK financial sector. We show how the board size, board independence and combining the role of CEO and chairperson in boards may affect corporate risk taking in financial firms. Our sample is based on a panel dataset of all publicly listed firms in the UK financial sector, which includes banks, insurance, real estate and financial services companies over a ten year period (2003 − 2012). After controlling for the effects of endogeneity through the application of the dynamic panel generalized method of moments estimator, the findings of this study suggest that the presence of non-executive directors and powerful CEOs in corporate boards reduces corporate risk taking practices in financial firms. The negative relationship can be explained within the agency theory context, where managers are regarded as more risk averse because of the reputational and employment risk. An increased power concentration is therefore expected to enhance the risk aversion behaviour of directors. The findings however, do not show any significant effect of board size on corporate risk taking in financial firms. As this study covers recommendations of the UK Corporate Governance Code on the role of corporate boards in managing firms' risk, the empirical evidence could be useful for corporate governance regulation and policy making.     

Ranking Corporate Governance of Australia's Top Companies: A Decade On

The Horwath/University of Newcastle (UoN) Corporate Governance Reports commenced in 2002 and were among the first to assess Australia's largest companies on their corporate governance structures and policies. Initiated prior to the release of the 2003 Australian Securities Exchange Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations, and at a time of increased focus on corporate governance failures, the reports attracted much attention from both the media and stakeholder groups. This paper reports the findings of applying the Horwath/UoN methodology to the relevant corporate governance disclosures of the 2012 annual reports of Australia's top 200 companies. Comparison to the original analysis of 2002 annual report disclosures shows a significant improvement across all areas of corporate governance by Australia's top companies. However, there remain some areas of concern, particularly in respect to board diversity, risk management and insider share trading policies.     

Comply or Explain: Investor Protection Through the Italian Corporate Governance Code

Nearly 86% of listed Italian companies now claim to be in formal compliance with the provisions of the Italian Corporate Governance Code, which, like many codes in EU countries, give companies the option to either comply or explain their decision not to do so. But in the wake of the recent financial crisis, the effectiveness of such self‐regulatory corporate governance codes has been subjected to increasing skepticism. In particular, critics wonder whether such governance codes actually encourage the adoption of best practices and promote better governance. This article presents a governance indicator (CoRe) devised by the authors that attempts to assess the actual, or effective, levels of compliance with the Italian Corporate Governance Code in terms of listed companies' procedures for dealing with related party transactions (RPTs). The authors report that the companies' level of effective compliance with regard to RPTs is considerably lower than their publicly reported levels of formal compliance. The authors also report that higher levels of effective compliance tend to be found in companies where (1) minority shareholders have appointed one or more directors; (2) independent directors serve on important committees; and (3) there are significant holdings by institutional investors—particularly foreign investors—who participate in general shareholder meetings.     

The impact of corporate governance on corporate performance: Evidence from Japan

Employing a unique data set provided by Governance Metrics International, which rates firms using six different corporate governance dimensions, we analyze whether Japanese firms with many governance provisions have a better corporate performance than firms with few governance provisions. Employing an overall index, we find that well-governed firms significantly outperform poorly governed firms by up to 15% a year. Using indices for various governance categories, we find that not all categories affect corporate performance. Governance provisions that deal with financial disclosure, shareholder rights, and remuneration do affect stock price performance. The impact of provisions that deal with board accountability, market for control, and corporate behavior is limited.     

Does compliance with corporate governance increase profitability? Evidence from an emerging economy: Pakistan

Corporate governance reforms have evolved over time, but few studies have addressed firm compliance with corporate governance standards in the context of an emerging market like Pakistan. We build a Corporate Governance Compliance Index for public firms in Pakistan for 2008–2018. Our index consists of six subindices based on the key parameters of governance outlined by the Code of Corporate Governance of Pakistan. Our analysis shows that increased compliance predicts higher firm performance but entails greater compliance costs. Board Structure and Functions & Responsibilities of Audit Committee drive the compliance-performance relationship, which is affected by levels of managerial ownership and ownership concentration.     

Corporate Governance and Earnings Management: The Implications of Corporate Governance Best-Practice Principles for Taiwanese Listed Companies

This study investigates whether corporate governance characteristics, mandated by the Corporate Governance Best-Practice Principles (CGBPP) for companies listed in Taiwan, are associated with earnings management. In particular, we examine whether the independence, financial expertise, and voluntary formation of independent directorships (supervisorships) are associated with the absolute value of discretionary accruals. Our findings suggest that the independence of supervisors, the financial expertise of independent directors, and the voluntary formation of independent directorships (supervisorships) are associated with a lower likelihood of earnings management. These findings are stronger after the CGBPP was enacted, suggesting that the implementation of CGBPP has lowered the likelihood of earnings management.     

ESG performance and corporate risk-taking: Evidence from China

Corporate environmental, social and governance (ESG) is vital for sustainable growth, while the motivation of corporate ESG engagement could decide whether ESG participation is green or greenwashing behavior. This paper attempts to understand the motivation of corporate ESG engagement from the firm's risk-taking perspective. Using Chinese publicly listed firm data from 2010 to 2020, we find that ESG rating significantly reduces corporate risk-taking. This finding still holds after a series of robustness tests to address potential endogeneity concerns and alternative risk-taking proxies. Furthermore, the marginal inhibitory impact of ESG on corporate risk-taking is more pronounced in firms with lower information transparency, weaker corporate governance and less external monitoring pressure. Our results shed essential insight on the trade-off between sustainable growth and corporate risk-taking behavior in a relatively weak investor protection institutional environment.     

倡导性规范与上市公司治理

上市公司治理领域长期以来依照强制性法律规范来运行,然而,上市公司治理的规范诉求的特性决定了单一的法律规范体系的局限性。以或遵守或解释规则为核心的倡导性公司治理规范迎合了上市公司治理的需求,并取得了显著的执行率。中国《上市公司治理准则》可进行适当的改革:从法律规范转变为倡导性规范;通过证监会信息披露法律规范的形式强化上市公司关于准则遵守或者解释的程序上的披露义务;利用现有的法律机制确保准则的有效执行,并鼓励股东发挥评判监督作用。     

Corporate Governance in China: a Step Forward

Recently, the presumed benefits of corporate governance have become one of the most contentious issues especially for emerging markets in Asia where institutional settings are quite different from other parts of the world. Using an internationally accepted benchmark (OECD's Principles of Corporate Governance, OECD, 2004 ), this study evaluates the progress of corporate governance practice of Chinese listed companies. A corporate governance index (CGI) is constructed to measure the quality of corporate governance practices of the 100 largest listed firms in China during 2004‐2006. The results show that Chinese companies have been making progress in the corporate governance reform. The findings also show a positive relation between market valuation and overall corporate governance practices, as measured by the CGI, among these Chinese listed companies. Additional investigation reveals that the rights of shareholders are the main driver in the relationship.     

The Impact of the Malaysian Code on Corporate Governance: Compliance,Institutional Investors and Stock Performance

In 2001, the Malaysian Code on Corporate Governance (MCCG) became an integral part of the Bursa Malaysia Listing Rules, which requires all listed firms to disclose the extent of compliance with the MCCG. Our panel analysis of 440 firms from 1999 to 2002 finds that corporate governance reform in Malaysia has been successful, with a significant improvement in governance practices. The relationship between ownership by the Employees Provident Fund (EPF) and corporate governance has strengthened during the period subsequent to the reform, in line with the lead role taken by the EPF in establishing the Minority Shareholders Watchdog Group. The implementation of MCCG has had a substantial effect on shareholders' wealth, increasing stock prices by an average of about 4.8%. Although there is no evidence that politically connected firms perform better, political connections do have a significantly negative effect on corporate governance, which is mitigated by institutional ownership.     

Accounting conservatism and voluntary corporate governance mechanisms by Australian firms

This study examines the relationship between voluntary adoption of selected corporate governance mechanisms and accounting conservatism for a sample of firms listed on the Australian Securities Exchange (ASX) over the 11‐year period prior to the promulgation of the ASX Corporate Governance Council Good Governance Principles and Best Practice Recommendations in 2003. Using four accounting and market‐based accounting conservatism measures, our results provide evidence of both conditional and unconditional conservatism in accounting reporting for Australian firms. We find that voluntary audit committee formation, increasing board independence and decreasing board size are positively associated with unconditional accounting conservatism and negatively related to the degree of conditional conservatism. Our results support the contention that firms voluntarily adopting perceived best practice corporate governance mechanisms employ unconditional accounting conservatism as a complimentary agency control device and are consistent with the observed negative association between the unconditional and conditional forms of accounting conservatism practice.     

Corporate governance reform and risk-taking: Evidence from a quasi-natural experiment in an emerging market

Existing studies suggest that stricter Corporate Governance Reform (CGR) reduces corporate risk-taking, primarily due to higher compliance costs and expanded liabilities of insiders or managers. We revisit the relationship between CGR and risk-taking in an emerging market set-up characterized by weaker market forces of corporate scrutiny and greater insider ownership, which encourages firms to pursue investment conservatism. Using a quasi-natural experiment, we find that stricter CGR leads to greater corporate risk-taking. We further show that risk-taking is an important channel through which CGR enhances firm value. Our findings support the view that stricter CGR can have a positive effect on corporate risk-taking and corporate investment decisions in an evolving regulatory environment.     

Managerial foreign experience and corporate risk-taking: Evidence from China

This study investigates the relationship between managerial foreign experience and corporate risk-taking. We find that foreign experienced managers in Chinese firms are positively associated with corporate risk-taking and that this mainly exists in private firms rather than in state owned enterprises (SOEs). In privately owned firms, the degree of corporate internationalization and operating leverage are potential channels through which foreign experienced managers affect corporate risk-taking. Moreover, the positive association is more pronounced for managers' practical, rather than educational foreign experience and for managers who gain their foreign experience from countries or regions with advanced management practices and better corporate governance. Short-term visits overseas has no impact on corporate risk-taking. Additionally, the relationship is more persistent among private firms with better corporate governance and those operating in weak local economy. Finally, we find evidence that the risk-taking behaviour from foreign experienced managers is an important mechanism for companies to enhance their value.     

The impact of audit committee expertise on audit quality: Evidence from UK audit fees

Governance regulators currently place great emphasis on ensuring the presence of financial expertise on audit committees (Sarbanes-Oxley, 2002; UK Corporate Governance Code 2010–2016). Underlying this is a belief that greater expertise enhances the effectiveness of audit committees and, by extension, the quality of the external audit. This study investigates the impact of audit committee expertise on one measure of audit quality - audit fees paid by FTSE350 companies. Our analysis finds that audit committees possessing greater levels of financial expertise are associated with higher audit fees. When we segregate financial expertise between accounting and non-accounting, we find that the positive impact identified is driven by non-accounting expertise. Furthermore, when we separate FTSE100 and FTSE250 firms we find the impact of financial expertise is confined to FTSE250 firms. Our findings are important as they highlight the usefulness of segregating financial expertise between specialists and non-specialists, something which regulators in the UK and in the USA currently do not do. Our findings also highlight the potential value of audit committee expertise in smaller as opposed to larger listed firms, suggesting that the value of expertise to audit quality depends on the specific financial reporting challenges firms face.     

The impact of governance reform on performance and transparency

This study examines the influence of Mexico’s efforts to improve corporate governance on firm performance and transparency. We utilize compliance data from the Code of ‘Best’ Corporate Practices, disclosed annually by public firms in Mexico, as a measure of corporate governance strength. We document a significant increase in compliance over 2000–2004 indicating Mexican companies view non-compliance as costly. However, we find no association between the governance index and firm performance, nor is there a relation with transparency. Instead, we find firms with greater compliance resort to the more costly mechanism of making dividend payments (higher propensity to pay and greater yield) to reduce agency conflicts. We conclude these associations are the direct result of the institutional features of the Mexican business environment, which is characterized by concentrated ownership of insiders, interlocked boards of directors, a lack of insider trading enforcement, and generally poor protection of minority investors. Our results show that monitoring mechanisms alone are not enough to fundamentally change economic behavior.     

Culture, Corporate Governance and Disclosure in Malaysian Corporations

Evidence from research conducted on corporate accounting indicates that the interaction of environmental factors in fluences disclosure practices. The purpose of this study is to examine the importance of various corporate governance and cultural (race and education) characteristics, in addition to firm–specific factors, as possible determinants of voluntary (non–mandatory accounting and non–accounting information) disclosures in the annual reports of Malaysian listed corporations. The results of the regression analysis indicate significant associations (at the 5 per cent level) between two corporate governance variables ( viz . chair who is a non–executive director and domination of family members on boards) and the extent of voluntary disclosure. This finding has implications for corporate governance policy formulation by the Malaysian Institute of Corporate Governance (MISG). One cultural factor (proportion of Malay directors on the board) is significantly associated (at the 5 per cent level) with the extent of voluntary disclosure suggesting that governmental focus on culture may solicit a response to secrecy from those who feel threatened.     

Board Effectiveness and Short Termism

We examine whether more effective boards in terms of size, experience, shareholding and independence, as discussed in the 2010 UK Corporate Governance Code, limit excessive short‐term risk taking or short‐termism. We use a state‐of‐the‐art asset pricing model that enables the disentangling of short‐term risk (related to short‐term returns) and long‐term risk (related to long‐term returns), and use the former as a proxy for short‐termism, where the short‐term component not only represents the time horizon for which we are interested but also the risk that is not related to fundamentals. We examine 916 firms in the UK over a possible horizon of 18 years, January 1992–December 2010, and find that more effective boards are associated with lower levels of short‐term risk and this result is robust to various types of short‐term risk (overall, downside) and specifications.     

Agency costs,ownership structure and corporate governance compliance: A private contracting perspective

This paper examines whether the adoption of specific corporate governance practices, and, in particular, adherence to an overall code of governance practice, is associated with agency cost benefits for companies listed on the Australian Securities Exchange (ASX). Using a private and voluntary contracting setting, the adoption of individual corporate governance attributes is found to have no influence on firm-level agency costs, whereas greater compliance with an overall governance index variable representative of the ASX Corporate Governance Council requirements now in force results in significantly lower agency costs. The beneficial influence of voluntary governance compliance on agency costs is also found to be independent of firm ownership structure, with these findings having a range of implications for firms both in Australia and globally.     

Corporate Governance and Value: Evidence from “Close Calls” On Shareholder Governance Proposals

The authors summarize the findings of their recent study of the effects of specific corporate governance provisions on firm value. Using a sample of governance provisions that were subjected to shareholder votes during the period 1997–2011, this study analyzes cases in which shareholder‐sponsored corporate governance proposals were either rejected or passed by a small margin (no more than 5% of the vote). By so doing, this study helps correct two limitations of the existing governance literature: (1) that the effects of expected governance changes are already incorporated in share prices (the “expectations” problem); and (2) that governance policies are often a consequence rather than a cause of other variables such as corporate performance and are thus correlated with many other firm characteristics (the “endogeneity” problem). The authors' findings show that expected improvements in corporate governance through the adoption of particular corporate governance provisions—particularly the removal of anti‐takeover provisions—is associated with both positive abnormal stock returns and improvements in long‐term firm operating performance. The authors estimate that the adoption of such governance proposals increases shareholder value by 2.6%, on average. Moreover, these returns are consistent with, and thus accurate predictors of, future changes in corporate investment (reductions of capital spending, in most cases) and improvements in operating performance.