Corporate Governance and Information Efficiency in Security Markets

This paper investigates a neglected topic in corporate governance research; namely, do governance characteristics affect the market reaction to news? The topic is important given the emphasis by governance regulations and codes of best practice on the need for greater transparency of corporate activities. For the first time in the corporate governance literature, we show that corporate governance characteristics (particularly the presence of founding family directors and gender diverse boards) affect the market reaction to company specific news. The results of the paper point to the analysis of the impact of governance characteristics on the market reaction to news being a new and complementary research agenda within corporate governance.     

The role of internal corporate governance mechanisms on default risk: A systematic review for different institutional settings

Recent financial downturns, characterized by the significant failures of firms, have revealed the need to control credit risk. Latest literature has shown that weak corporate governance structures are related to high levels of default risk, leading to financial instability. In this context, we aim to summarize the literature that focuses on the role that internal corporate governance plays in the credit risk of firms, specifically considering three corporate governance components: ownership structure, board structure and financial stakeholders’ rights and relations. Additionally, we analyse whether the effectiveness of the internal mechanisms depends on particular key factors, especially the institutional setting and the type of mechanisms considered. Finally, new lines of research are identified for future research.     

公司治理机制与公司治理效率——基于公司治理成本的分析

国内外不断改革的公司治理实践都迫切要求对公司治理机制的效率进行成本收益分析。本文在已有文献的基础上对公司治理成本的概念进行了界定与分类,对公司治理机制、公司治理系统与公司绩效之间的关系进行了分析,并归纳了研究公司治理效率的方法。最后,从治理成本的视角分析治理效率对中国公司治理改革的意义。     

公司治理对保险公司绩效影响的实证检验——以24家中资财产保险公司为例

近年来,金融机构的治理问题日益引起学者们的重视,成为公司治理领域研究的热点。综观已有的国内外文献,国外研究侧重于不同所有制保险公司的治理差异,且样本多来自英美发达国家;而国内保险公司治理研究刚刚起步,在研究变量、研究样本的选择上还存在一些不足。鉴于此,本文以24家中资财产保险公司为样本,实证检验了股权结构、董事会特征、高管激励机制、信息披露透明度等治理机制对保险公司绩效的影响。     

The rise of corporate governance in corporate control research

This article has two related tasks. First, we review the articles published in this Special Issue on Corporate Control, Mergers, and Acquisitions. These articles provide new evidence on several aspects of corporate control and governance including the value and performance effects of various ownership groups, the impact of internal governance structures, the effects of regulatory changes on specific industries and evidence on bidding strategies in takeovers. This analysis leads us to our second task – to examine the evolution of corporate control research, broadly defined. Our analysis shows a movement in research from mergers and acquisitions to a broader analysis of corporate governance, especially internal governance features. We suggest that there is a trend toward an increase in the relative importance of internal governance compared to discipline from the market from corporate control. This trend reflects an important change over the past several decades in the means through which the market disciplines corporate behavior.     

Corporate governance and incidences of listing suspension by the JSE Securities Exchange of South Africa: An empirical analysis

We examine the association between corporate governance structures and incidences of listing suspension from the JSE Securities Exchange of South Africa. Using a matched-pairs research design, we compare 81 firms suspended between 1999 and 2005 to an equal number of control firms matched in terms of time, size and industry. Employing a conditional logistic model, we find that the likelihood of suspension is higher in firms with a smaller proportion of non-executive directors, without an audit committee, and with greater block-share ownership and higher gearing (i.e. leverage). Further analysis splitting block-share ownership into institutional and non-institutional investors provides mixed results. While we find a positive association between suspension and non-institutional investors, we observe no association with institutional investors. No association is detected for board size, role duality, directors' share ownership, auditor quality and return on assets. Given the paucity of studies examining listing suspension from stock exchanges and corporate governance mechanisms, these findings contribute to the literature. Additionally, the dearth of research on corporate governance in developing countries suggests that our findings have important implications for policy makers in these countries as they endeavor to improve corporate governance.     

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.     

Corporate governance and board effectiveness

This paper surveys the empirical and theoretical literature on the mechanisms of corporate governance. We focus on the internal mechanisms of corporate governance (e.g., corporate board of directors) and their role in ameliorating various classes of agency problems arising from conflicts of interests between managers and equityholders, equityholders and creditors, and capital contributors and other stakeholders to the corporate firm. We also examine the substitution effect between internal mechanisms of corporate governance and external mechanisms, particularly markets for corporate control. Directions for future research are provided.     

Determinants and consequences of debt maturity structure: A systematic review of the international literature

We conduct a systematic review of the international research on the determinants and consequences of debt maturity structure in the accounting, finance, and corporate governance literature. Our review reveals that a large volume of empirical research has been conducted on the determinants of debt maturity structure, and we categorize these determinants into the following five factors: (1) firm specific; (2) tax; (3) corporate governance; (4) country-level institutional; and (5) macroeconomic. The literature on the consequences of debt maturity structure is relatively scant and generally focuses on the effect of debt maturity structure on financial reporting quality and investment and financing decisions. We consider endogeneity as one of the major concerns in the reported empirical studies that, unless addressed satisfactorily, may render some of the findings untenable. Based on the review, we also provide several future research directions.     

董事责任保险与公司治理机制的互动影响研究——来自中国A股上市公司的证据

关于董事责任保险通过鼓励董事高管积极进取从而改善公司治理效力,还是通过增强董事高管的道德风险从而削弱公司治理效力存在争论。在已有研究发现上市公司在公司章程中设立董事责任险条款有助于减少公司代理成本的基础上,进一步基于中国A股上市公司的数据实证考察了董事责任保险实际购买需求影响因素和董事责任险实际购买对企业代理成本的影响。实证结果发现,良好的公司治理机制将增加公司对董事责任保险的需求,同时董事责任保险购买又将进一步改善公司治理机制、降低公司代理成本。     

What is the Relationship Between REIT Governance and Earnings Management?

The empirical corporate finance literature claims that better corporate governance constrains earnings management, while others argue that the unique legal and reporting structure of REITs may reduce the need for such internal corporate governance. Using a sample of publicly traded REITs for the 2004–2008 time period, we examine the relationships amongst corporate governance, accruals earnings management, manipulation of Funds from Operations (FFO), and real earnings management. We find that corporate governance quality is unrelated to accruals earnings management and manipulation of FFO. At first glance, the findings suggest that managers need less internal oversight because of the more transparent reporting structure of REITs. However, we document that REITs engage in significant real activities manipulation for earnings management purposes. Our empirical findings further show that corporate governance characteristics, in particular board size, independence, number of board meetings and audit committee financial expertise, are essential for constraining such activities. Finally, by focusing on a subset of REITs that act in ways which previous research has identified as more susceptible to earnings management activities, we demonstrate that good corporate governance effectively reduces accruals earnings management and manipulation of FFO for these REITs. Overall, our findings indicate that, despite the unique legal and reporting structure, REITs engage in certain forms of earnings management, and that the ability for REITs to manipulate earnings is reduced when corporate governance is more effective.     

EFA Keynote Speech: “Corporate Governance and Corporate Social Responsibility: What Do Investors Care about? What Should Investors Care about?”

This article is the keynote address from the Eastern Finance Association meeting in New Orleans in March 2007 with updated references and examples. In this keynote address, I discuss what we can learn about institutional investors' views on corporate governance and corporate social responsibility from research and surveys.     

Shareholder protection,income inequality and social health: A proposed research agenda

This paper develops a proposed research agenda in order to highlight how corporate governance, accounting and company law are relevant to the consideration of income inequality and wider social health. To illustrate this proposed research agenda, this paper draws on corporate governance research in the law and finance tradition, as well as macro-level studies in accounting concerned with the wider corporate governance context, in order to consider the association between shareholder protection, income inequality and child mortality. Under 5 child mortality is an objective indication of a country’s ability to nurture its children. In an influential body of work, La Porta et al. (1997a, 1997b, 1998, 2008) concluded that a common law legal system which protected the interests of shareholders gave rise to better economic and social outcomes. However, drawing on corporate governance and accounting literature we contend that such a conclusion is flawed. The findings of this paper suggest that common law countries (i.e. those with the greater legal protection for investors) have worse social outcomes in terms of under-5 child mortality.     

Consequences of local social norms: A review of the literature in accounting,finance, and corporate governance

We synthesise the empirical archival research on the consequences of local social norms on accounting, finance, and corporate governance outcomes in an international setting. The literature reviewed is premised on the theory that corporations do not make decisions, but managers do, and managers are likely to be influenced by the socioeconomic environment of the region in which they operate and/or by the people with whom they interact. To provide a structure to our review, we identify social capital, religiosity, gambling norms, and corruption culture, as four constructs of local social norms and link these with financial reporting and external auditing, financial, investment, and dividend decisions, capital market consequences and finally, corporate governance and corporate social responsibility behaviour of firms. We highlight some limitations of the existing research and offer some suggestions for future research.     

From Member of the Company to Registered Auditor: The Role of the External Auditor in Corporate Governance

Corporate governance has often been defined in a narrow way as comprising 'the range of control mechanisms that protect and enhance the interests of shareholders of business enterprises' ( Fama and Jensen 1983 ). In the corporate governance literature there has also been a general focus on the structure and functioning of boards of directors and the responsibilities of audit committees in relation to external auditing ( Rosenstein and Wyatt 1990 ; Shleifer and Vishny 1997 ). This article looks at the evolution of the role of external auditing in corporate governance. The role of the external auditor has changed through time, and consequently it should not be assumed that the role of external auditing is fixed or that it cannot be changed to meet societal needs and expectations. This observation leads to the primary argument of our article, which is that the role of the external auditor in corporate governance ought to be expanded in order to enhance the effectiveness of corporate governance for the benefit of a wider spectrum of stakeholders and society generally.     

Corporate political strategies

The paper offers a comprehensive and integrative review of the current literature on corporate political strategies sharing common boundaries with finance, accounting and corporate governance. While there appears to be a heightened interest among researchers in studying the value relevance of corporate political strategies [ Chen et al. (2010) , Goldman et al. (2009) , Cooper et al. (2010) , Richter et al. (2008) , Hochberg et al. (2007) , de Figueiredo and Edwards (2007) , Faccio and Parsley (2009) , and Myers (2009) among others], interestingly, finance and corporate governance scholars have yet to embrace the research on political strategies as part of their mainstream research. Taking a micro perspective at the firm level, we review the major scholarly works in the economics, finance and management disciplines with respect to the firm attributes shaping the corporate decision to engage politically, modes of corporate political participation, and the value impact of corporate political activity. The overarching theme of the review article is to integrate diverse – political economy and management – paradigms of corporate political participation and rationalize the value relevance within the corporate finance and corporate governance perspective. The paper also presents focused preliminary evidence on the determinants and value impact of corporate lobbying strategies. For the sample of 5452 firm‐year observations, the results indicate that while for large firms corporate lobbying may not be agency driven and may create value, for small firms, despite low shareholder rights associating with higher lobbying engagements, lobbying still relates positively to value added.     

Corporate governance norms and practices

We evaluate the impact of corporate governance on the valuation of firms in a large cross-section of countries. Unlike previous work, we differentiate between minimally accepted governance attributes that are satisfied by all firms in a given country and governance attributes that are adopted at the firm level. This approach allows us to differentiate between firm-level and country-level corporate governance, thus contributing to an ongoing debate in the literature about whether governance attributes are largely determined by country factors or firm characteristics. Despite the costs associated with improving corporate governance at the firm level, we find that many firms choose to adopt governance provisions beyond those that are adopted by all firms in the country, and that these improvements in corporate governance are positively associated with firm valuation. Firms that choose not to adopt sound governance mechanisms tend to have concentrated ownership and sizeable free cash flow, consistent with agency theories based on self-interested managers and controlling shareholders. Our results indicate that the market rewards companies that are prepared to adopt governance attributes beyond those required by laws and common corporate practices in the home country.     

How do firm- and country-level governance mechanisms affect firms’ disclosure?

This paper examines how a country’s regulatory environment interacts with firms’ institutional corporate governance arrangements to affect the disclosure that these firms provide in their annual reports. Prior literature indicates that firms with stronger corporate governance arrangements demonstrate higher levels of disclosure. We investigate whether this effect varies with the legal environment. The transparency-increasing effect of strong corporate governance might be reinforced by a strong legal environment, suggesting a complementary relationship between these two factors with respect to transparency. However, strong corporate governance arrangements may serve as bonding mechanisms in weak legal environments, suggesting a substitutive relationship between corporate governance and the regulatory environment. Using a sample of listed firms from 16 European countries, we find evidence suggesting that corporate governance arrangements and the legal environment substitute with respect to their effects on corporate disclosure.     

The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis

Corporate governance is of growing importance in Australia, New Zealand and all over the world. Corporate governance interacts with auditing and it is useful to understand how corporate governance and auditing affect companies. A related issue is whether better governance is a substitute for auditing or a complement. Previous studies of that issue have had mixed results. This review article provides a synthesis of Australian and New Zealand research about corporate governance and auditing that assesses what has been found and examines issues that can be explored using multiple studies. We conclude that despite extensive research, there is still considerable uncertainty about how corporate governance mechanisms are related to auditing and how auditing is associated with corporate governance. We conclude that recommendations for better governance (beyond a minimum level) are not yet supported by evidence. The results are intended to be helpful in providing advice about policy in Australia and New Zealand, and in determining directions for new research.     

Does Effective Corporate Governance Facilitate Continuous Market Disclosure?

The focus of this study is the role of corporate governance in ensuring exchange listed companies meet their continuous disclosure (CD) obligations. In doing so it attempts to address a deficiency in the generic corporate disclosure literature by investigating the ability of corporate governance to ensure quality corporate disclosure. Despite acknowledging that disclosure is adversely affected by agency conflict and that corporate governance is an effective control of that conflict, few studies have attempted to provide empirical evidence of a link between corporate governance and corporate disclosure quality. The results of this study show that a company's corporate governance does impact on its CD performance. In particular, it provides evidence that the likelihood of a company failing its CD obligations decreases as the proportion of independent directors on the board increases. This likelihood also decreases for firms that segregate the roles of CEO and board chair. In addition, the study also shows that declining company profitability increases the risk of CD failure. These results provide an important link between the corporate governance literature and the disclosure literature. The results of this study should provide regulators and company stakeholders with evidence to continue to demand corporate governance improvements as an important tool in improving market efficiencies.