Corporate voluntary disclosure and the separation of cash flow rights from control rights

We find that corporate voluntary disclosure is negatively associated with the separation of cash flow rights from control rights. This result is consistent with the notion that as the separation of cash flow rights from control rights increases, controlling owners have larger incentives to expropriate the wealth of minority shareholders and low corporate disclosure constitutes a mechanism to facilitate controlling owners in masking their private benefits of control. The negative association between voluntary disclosure and the separation of cash flow rights from control rights is less pronounced for firms with greater external financing needs. This result suggests that for firms with high separation of cash flow rights from control rights, those with greater external financing needs undertake higher firm-level voluntary disclosure to reduce information asymmetry. We also find that the negative association between voluntary disclosure and the separation of cash flow rights from control rights is less pronounced for firms that have a large non-management shareholder. Our result supports the role of large non-management shareholder in mitigating agency problems associated with the separation of ownership and control.

Ownership structure and corporate voluntary disclosure in Hong Kong and Singapore

Drawing on prior empirical research based on disclosure behavior in developed western markets, this study examines the association of ownership structure with the voluntary disclosures of listed companies in the Asian settings of Hong Kong and Singapore. An analysis of annual reporting practices shows that the extent of outside ownership is positively associated with voluntary disclosures. In particular, the results also indicate that the level of information disclosure is likely to be less in “insider” or family-controlled companies, a significant feature of the Hong Kong and Singapore stock markets.     

Reporting intangible assets: Voluntary disclosure practices of top emerging market companies

This study is the first to empirically examine the applicability of the Value Chain Scoreboard™ proposed by Lev (2001) as an alternative disclosure framework for intangible assets (IA). The context of the research is the top 200 emerging market companies, which are the focus of increasing international attention. We empirically examine the extent of IA disclosures and find that emerging market companies do actively engage in voluntary disclosure practices to disseminate mainly quantitative IA information to their global stakeholders. Corporate-specific factors such as the adoption of IFRS/U.S. GAAP, industry type, and price-to-book ratio are key influences significantly associated with the level of IA voluntary disclosure. In addition, country-specific factors, including risks associated with economic policies and legal systems, are found to be significantly associated with the level of IA disclosure.     

Country-specific risks and geographic disclosure aggregation: Voluntary disclosure behaviour by British multinationals

Country-by-country reporting can promote accountability and corporate transparency by highlighting the activities of multinational firms in different countries. We examine the voluntary disclosure behaviour of leading British multinational firms in respect of country-specific risks. Specifically, we consider whether British multinationals' engagement in geographic disclosure aggregation/disaggregation of their country-by-country operations is associated with the country-specific business, economic, and political risks faced by their principal operating subsidiaries. We study the information disclosed in two key sections of corporate annual reports: segment information, and principal uncertainties and risks. Our findings show that British multinationals are less likely to voluntarily report their segment and risk information on a disaggregated geographic country-by-country basis if they are engaged in operations in countries associated with higher levels of country-specific risks. Country-specific risk disclosures are an important case, consistent with voluntary disclosure theory, where costs tend to outweigh benefits from the perspective of what is perceived to be in a multinational firm's best interests.     

Ownership concentration, voluntary disclosures and information asymmetry in New Zealand

This paper investigates the impact of different classes of ownership concentration on information asymmetry conditional upon corporate voluntary disclosures in New Zealand. The current paper attempts to extend this stream of research by incorporating three mutually exclusive ownership structures and considering the interactive relationship between such ownership structures and corporate voluntary disclosures. Results reveal that ownership concentration in general is significantly positively associated with bid-ask spreads (proxy for information asymmetry) observed around annual report release dates. This finding supports the adverse selection hypothesis and importantly this effect is found to be most pronounced for financial institutions and management-controlled ownership categories. When voluntary disclosure is taken into account, the findings demonstrate that disclosures significantly attenuate information asymmetry risk associated with ownership concentration. This effect is particularly pronounced for firms with management-controlled ownership structures. The findings highlight the importance of corporate disclosures under concentrated ownership structures especially management-controlled ownership structures in reducing information asymmetry and enhancing market efficiency in New Zealand.     

A study of the relationship between corporate governance structures and the extent of voluntary disclosure

The primary objective of this study is to test a theoretical framework relating four major corporate governance attributes with the extent of voluntary disclosure provided by listed firms in Hong Kong. These corporate governance attributes are the proportion of independent directors to total number of directors on the board, the existence of a voluntary audit committee, the existence of dominant personalities (CEO/Chairman duality), and the percentage of family members on the board. Using a weighted relative disclosure index for measuring voluntary disclosure, the results indicate that the existence of an audit committee is significantly and positively related to the extent of voluntary disclosure, while the percentage of family members on the board is negatively related to the extent of voluntary disclosure. The study provides empirical evidence to policy makers and regulators in East Asia for implementing the two new board governance requirements on audit committee and family control.     

Management accounting and corporate governance: An institutional interpretation of the agency problem

Challenging the dominant economic agency theory of corporate governance with a new discourse drawn from institutional theory, the paper analyses how management accounting is implicated in corporate governance. The proposed institutional theory of agency links the micro-institutions of the organization that are informed by the practices of management accounting with external institutional players and stakeholders. The paper identifies emerging narratives in which the management accounting profession has recognised a distinctive, post-Enron set of sensibilities. Although techniques drawn from strategic management accounting can be adapted to embed better corporate governance practices, the institutional theory of agency identifies tensions between the heroic CEO narrative and the routinization of strategy implicit in strategic management accounting.     

The association between employee stock option disclosures and corporate governance: Evidence from an enhanced disclosure regime

This study examines the role of corporate governance in employee stock option (ESO) disclosures following the revision of AASB 1028 Employee Benefits in 2001. We find that, while firms do not fully comply with AASB 1028 ESO disclosures, they voluntarily provide other ESO disclosures. In relation to corporate governance measures that have a role in the financial reporting process, we find two corporate governance measures dominate our results—the quality of auditor and duality of the role of CEO and Chair of the Board of Directors. We show that, in general, external auditor quality has positive incremental association with both mandatory and voluntary ESO disclosures while the dual role of CEO and chairperson of the board is associated with lower levels of mandatory disclosure.     

Phoenix rising: Legal reforms and changes in valuations in Finland during the economic crisis

Finland experienced an extremely severe economic depression in the early 1990s. As a part of the government's crisis management policies, significant new legislation was passed that increased supervisory powers of financial market regulators and reformed bankruptcy procedures significantly decreasing the protection of creditors. We show that the introduction of these new laws resulted in positive abnormal stock returns. The new laws also lead to increases in firms’ Tobin's q, especially for more levered firms. In contrast to previous studies, our results also suggest that public supervision of financial markets fosters rather than hampers financial market development.     

The Value Relevance of Transparency and Corporate Governance in Malaysia Before and After the Asian Financial Crisis

This paper investigates whether the value relevance of financial reporting transparency and corporate governance in Malaysia increased after the Asian financial crisis of 1997. Our sample comprised 94 companies listed on the Kuala Lumpur Stock Exchange in both 1996 and 2001. The disclosure indexes were significantly value relevant for 2001 but not for 1996. Our corporate governance measure was also significantly value relevant for 2001 but not for 1996. Accordingly, it would appear that after the Asian financial crisis, investors have become more sensitized to transparency and corporate governance issues.     

Improving the relevance of risk factor disclosure in corporate annual reports

This research develops a model for assessing the quality of risk disclosures and applies the proposed model to four companies in the food production and processing sector. We contribute to the literature by extending prior work on risk disclosure quality using a longitudinal approach to assess the quality of risk reporting. While previous studies have described disclosure practices, this paper adopts a normative approach to disclosure. By suggesting a way of improving risk reporting disclosures, the paper provides guidance for current and future company managers. In line with previous research, this paper identifies certain problems with existing risk disclosures. Results suggest that company managers prefer providing disclosures that are symbolic rather than substantive. We argue that institutional factors and proprietary costs contribute towards and can explain this behaviour. In suggesting a way forward we highlight the role that stakeholders including managers, users, regulators and auditors can play in improving the quality of risk reporting. Flexibility in reporting could be maintained by adopting a properly monitored ‘comply or explain’ approach.     

Political interventions in state-owned enterprises: The corporate governance failures of a European airline

This paper is based on the theory of hybrid organizations and we investigate the context, factors, mediators, and outcome of a public scandal involving a Romanian state-owned company in the civil aviation sector. This retrospective case study is part of a research design that alternates between inductive and deductive procedures devised to test relevant hypotheses, integrate several theories, and construct the causal mechanism of the corporate scandal. Four theories have been selected to address multiple aspects of the case: the hybrid organization theory, the agency theory, the fraud triangle theory, and the legitimacy theory. Several hypotheses have been proposed at the confluence of these frameworks, and the data collection process was conducted to ensure the credibility, dependability, and transferability of results. In addition to the themes and categories that have emerged from the thematic analysis, the paper also uses the process-tracing method to propose a causal graph and an event-history map in support of the hypotheses. The paper puts forward a series of recommendations on how to improve the corporate governance of state-owned enterprises, and to prevent potential scandals. The authors suggest that the separation of ownership and control is beneficial for strategy implementation in state-owned enterprises and can alleviate an entity’s financial difficulties.     

Responding to a corruption crisis through disclosure and remedial action: The case of Petrobras

This case study adopts a positivist perspective to examine how Petroleo Brasileiro S.A (“Petrobras”), a high-profile company in its native Brazil with multiple listings including in Brazil and the US, responded to a major corruption scandal arising in 2014. We consider Petrobras's response both in terms of its visible activities – i.e. in relation to anti-corruption and compliance (“ACC”) disclosures in its annual report (AR) and sustainability report (SR), as well as actioned remedial policies that constitute the crisis plan – and how the company went about interacting with stakeholders during and after the immediate crisis period. We conducted a content analysis of ACC disclosures and assessed Petrobras's remedial activities in the eight-year period 2010–2017 as disclosed in its ARs, SRs and press releases. We find firstly that, consistent with legitimacy theory, Petrobras responded by voluntarily and substantially increasing its relevant disclosures so as to regain legitimacy, a finding which mirrors those found elsewhere following corruption and environmental crises. Secondly, the unique corporate governance situation at Petrobras combined with the fact that leadership was allegedly implicated in the scandal, led the post-crisis management team to undertake a series of remedial actions that prioritised the need to take and maintain executive control and independence from the government, whilst at the same time carefully managing the relationship with this influential stakeholder: - actions which argue strongly in favour of stakeholder-agency theory and multiple agency theory interpretations of the nature of stakeholder interactions that transpired during the crisis period of disequilibrium, and which precluded the type of stakeholder dialogue seen in some previous environmental crisis situations. Finally, we show that Petrobras's crisis management response actions align well with models of trust repair and legitimacy management, and suggest the company considered it had successfully regained legitimacy by 2017.     

The effect of corporate governance on CEO luck: Evidence from the Institutional Shareholder Services (ISS)

CEOs are “lucky” when they receive stock option grants on days when the stock price is the lowest in the month of the grant, implying opportunistic timing. Extending the work of Bebchuk et al. (2010), we explore the effect of overall corporate governance quality on CEO luck. Provided by the Institutional Shareholder Services (ISS), our comprehensive governance metrics are much broader than those used in prior studies, encompassing more diverse aspects of corporate governance, such as audit, state laws, boards, ownership, and director education. We show that an improvement in governance quality by one standard deviation diminishes CEO luck by 14.77–21.06%. The governance standards recommended by ISS appear to be effective in deterring the opportunistic timing of option grants.     

The effects of board structure on corporate performance: Evidence from East African frontier markets

The effectiveness of the well-known corporate governance practices may not be universal due to fundamental differences in the environments under which firms operate. By using hand-collected data from all the non-financial firms listed on the unexplored East African frontier markets (i.e., Kenya, Tanzania and Uganda), we examine the effect of board characteristics on the performance of firms. Our results show that board size has a negative and significant effect on firm performance. The presences of foreigners and civil servants on the board play positive roles on financial performance, where the agency and resource dependence theories apply. Further, we find that board members with higher education also contribute to firm performance. These findings still hold when we consider the 2008–2009 financial crisis period. Overall, we show that in a business climate where ownership is largely dominated by few shareholders, the conventional governance mechanisms do not work effectively.     

Corporate governance and earnings management in the Chinese listed companies: A tunneling perspective

This paper examines the relation between earnings management and corporate governance in China by introducing a tunneling perspective. We document systematic differences in earnings management across the universe of China's listed companies during 1999–2005, and empirically demonstrate that firms with higher corporate governance levels have lower levels of earnings management. We study two China-specific situations, in which the listed firms have strong incentives to manage earnings in order to meet certain return on equity (ROE) thresholds, and earnings management has been shown to be the most conspicuous. We identify tunneling evidence for each. Our empirical findings, although not being able to completely exclude other explanations, strongly suggest that agency conflicts between controlling shareholders and minority investors account for a significant portion of earnings management in China's listed firms.     

The board's role in risk disclosure: an exploratory study of Italian listed state-owned enterprises

The determinants of risk disclosure in the annual reports of listed state-owned enterprises (SOEs) have yet to be fully explored. This paper examines the potential impact of the composition of the boards of directors and other company-specific features on risk disclosure levels. The presence of women on a board made a significant difference to risk disclosure, as did the age of board members. Board directors having an accounting or finance/business qualification affected risk disclosure negatively; company size and an internet visibility were positively related to risk disclosure. Although an Italian study, the lessons here will have application to academia and to practitioners, policy-makers and standard-setters worldwide.     

Voluntary disclosure of accruals in earnings press releases and the pricing of accruals

This study investigates firms’ decisions to disclose accruals information in earnings press releases versus to provide it only in 10-Q filings and the impact of this disclosure on the pricing of accruals. I find that firms disclose accruals in their press releases when earnings alone are a weak indication of cash flow performance and that following these disclosures the accruals information is fully impounded into stock prices. The evidence suggests that when investor demand for accruals is likely to exist and firms disclose the information in earnings press releases, the mispricing typically associated with accruals is mitigated.

Small firms and the value of improvements in corporate governance mechanisms

Since 2002, many firms have been required to alter their board of directors and committees to increase management monitoring. Kinney and McDaniel (1989) and Chhaochharia and Grinstein (2007) provide empirical evidence suggesting that investments in corporate governance may differ based on firm size, and that under-investing in monitoring may be more pronounced in smaller firms. To further test whether the benefits of recent changes in companies' governance mechanisms accrue to smaller firms that have underinvested in governance, we examine the stock market reaction to changes in board structure over the twenty-four months following the passage of the Sarbanes–Oxley Act. We construct a new composite measure of board structure and regress buy-and-hold abnormal returns on changes that occur in the Board Structure Index, finding that improvements in corporate governance quality result in economically significant abnormal returns accruing only to the smaller firms with weak initial board structures.     

Corporate governance and life cycles in emerging markets

Whereas the corporate life cycle hypothesis says firms follow structured goals along their life cycle, others argue that corporate governance objectives vary independently of predetermined life cycle stages. This study examines the impact of the corporate life cycle on corporate governance in emerging markets, where firms can self-select into stricter rules by adopting an exchange listing level that fits the governance needs of the organization independently of life cycle requirements. We find the listing-level decision is a better predictor of corporate governance quality than corporate life cycle. Firms signal improvements in corporate governance by bonding to more stringent regulation; they determine the corporate governance quality that matches their needs at any point during their life-cycle.