Corporate Governance

Previtali, Pietro; Cerchiello, Paola

2023 Corporate Governance

doi: 10.1108/cg-06-2022-0275

In recent years, the role of environmental, social and governance (ESG) disclosure has become crucial. The aim of this paper is to study how corporate governance affects one part of ESG disclosure: anti-corruption disclosure.Design/methodology/approachThis study examined 140 corporate social responsibility (CSR) reports from companies listed on the Italian stock markets and 50 CSR reports from other companies, then this study analysed the adoption of the Global Reporting Initiative (GRI) standard no. 205.FindingsThe results show a low level of disclosure, and that corporate governance issues matter. In particular, the analysis found a positive relationship between the presence of female and outside members, the number of board members and the level of anti-corruption disclosure.Research limitations/implicationsThis study acknowledges some limitations. Firstly, the research is based on a one-year sample. Secondly, the research hypotheses are confirmed only when considered in relation to a single section of the GRI standards. Thirdly, this study has a bias towards relatively large enterprises.Practical implicationsIt could be worthwhile introducing a soft regulation regarding the composition of the board of directors that requires a certain quantitative and qualitative composition.Originality/valueTo the best of the authors’ knowledge, this is one of the few studies, the first in Italy, that sheds light on anti-corruption disclosure and its determinants.

Beuren, Ilse Maria; Machado, Vanessa Noguez; Dall Agnol, Alexsson Jr

2023 Corporate Governance

doi: 10.1108/cg-05-2022-0200

The perception of the relevance of risk management reports and the system of internal controls permeates the risk management of multinational companies. Shedding light on perceived relevance, on the one hand, can serve as a guide for improvements in communication between headquarters and subsidiaries; on the other hand, it can lead to greater involvement of subsidiaries in company policies. Thus, this study aims to analyze the relevance of internal controls for risk management in the perception of its executors and reviewers in a multinational company.Design/methodology/approachA survey was conducted with the executors and reviewers of the internal controls of a multinational company. To the collected data, structural equation modeling was applied.FindingsThe perceived relevance of internal controls by the subsidiaries directly and positively influences the perceived relevance of the reporting of their specific and standardized reports for all subsidiaries. In addition, the perception of the relevance of standardized reports for all subsidiaries demonstrates a direct and positive influence on the familiarity with the regulations regarding the reporting of internal controls.Originality/valueTo the best of the authors’ knowledge, this paper is the first to examine the relevance of internal controls for risk management in the perception of its executors and reviewers of subsidiaries of a multinational company. In this way, it provides a useful contribution to the literature and insights to promote improvements in the communication process between headquarters and subsidiaries of different countries regarding risk management reports and the system of internal controls.

Hassaan, Marwa; Salah, Wafaa

2023 Corporate Governance

doi: 10.1108/cg-09-2022-0386

This study aims to investigate the association between corporate governance and financial transparency, using the moderating role of an Egyptian currency devaluation decision as a policy shock.Design/methodology/approachData was collected for a sample of companies listed on the Egyptian stock exchange from 2014 to 2019. To control for time-invariant unobserved heterogeneity, the authors analyse panel data using an estimated generalised least squares regression model.FindingsThe findings underline the pitfalls of assuming that corporate governance mechanisms are effective regardless of circumstances and support the complementary roles of a number of theories in interpreting the empirical findings.Research limitations/implicationsThis study is limited to non-financial companies and includes only corporate board and audit committee governance mechanisms. The study results have important implications for policymakers, international lending institutions, investors and accounting standards setters. It is of particular importance to policymakers in other less-developed countries with similar economic conditions.Originality/valueTo the best of the authors’ knowledge, this study is the first empirical attempt to provide evidence of the impact of a currency devaluation shock on the relationship between corporate governance and financial transparency within the Egyptian context as an example of a transitional economy. Hence, it provides a significant theoretical and empirical contribution to the literature.

Farooq, Muhammad; Ahmad, Naeem

2023 Corporate Governance

doi: 10.1108/cg-08-2022-0355

This study aims to examine the moderating effect of intellectual capital (IC) in the relationship between board characteristics and firm performance of non-financial firms listed on the Pakistan Stock Exchange (PSX) from 2010 to 2019.Design/methodology/approachThe modified value-added intellectual capital (MVAIC) was used to assess the efficiency of sample firms’ IC, which is a modified version of Pulic’s (2000) model VAIC that includes an additional component, rational capital efficiency. Board size, independence, board meetings, chief executive officier duality and board gender diversity are all measures of board characteristics. Firm performance is measured through return on assets, return on equity and earnings per share. The Hausman test was used to select the best model for the study.FindingsBased on the regression results, the board’s gender diversity and duality have a significant inverse relationship with profitability. In terms of the impact of board characteristics on IC, it is discovered that board independence and diversity are significantly inversely related to IC. Furthermore, IC is significantly related to profitability by all means. In terms of the moderating effect of IC, the findings show that IC significantly moderates the negative relationship between duality and profitability, as well as board gender diversity and profitability.Practical implicationsThis study made some policy recommendations to policymakers. Duality should be avoided in PSX firms because it is significantly inversely related to profitability and IC. Second, female board participation should be subjective. Third, because the findings indicate that Pakistani firms lack true board independence, the Securities and Exchange Commission of Pakistan should take additional steps to ensure that the board is truly independent.Originality/valueTo the best of the authors’ knowledge, this is the first study of its kind to study the moderating effect of IC between corporate governance and firm performance.

Fassas, Athanasios; Nerantzidis, Michail; Tsakalos, Ioannis; Asimakopoulos, Ioannis

2023 Corporate Governance

doi: 10.1108/cg-09-2022-0391

This study aims to investigate the association between firm valuation and earnings quality in several European countries. Also, it examines if country-level governance and market development are important determinants of firm valuation.Design/methodology/approachUsing a sample of 5,002 non-financial firms in 37 European countries over the years 2004 to 2019, the authors evaluate the research question using regression models.FindingsThe authors find a significant positive relationship between firm valuation and a multi-factor earnings quality measure based on four components (accruals, cash flows, operating efficiency and exclusions). The authors further show that stock market development is also a driver of firm value, while country-level governance is significant only in the case of a firm fixed effect model with time effects. The results are robust to alternative model specifications that control for endogeneity, sample heterogeneity and alternative proxies for firm valuation.Practical implicationsPolicy makers and market participants could benefit from the findings, by exploiting the advantages of earnings quality in terms of high-ranking stocks whose earnings are backed by cash flows and other sustainable sources.Originality/valueTo the best of the authors’ knowledge, this study is the first to empirically test the relationship between earnings quality and firm value in the European setting during a period that incorporates the adoption of IFRS. This is quite interesting as it permits cross-border comparability in terms of financial reporting and provides deeper and more representative evidence.

Iannuzzi, Antonia Patrizia; Dell’Atti, Stefano; D'Apolito, Elisabetta; Galletta, Simona

2023 Corporate Governance

doi: 10.1108/cg-03-2022-0119

Based on the agency and resource dependence theories, this study aims to investigate whether nomination committee (NC) characteristics could serve as key attributes for reducing environmental, social and governance (ESG) disputes and whether NC composition affects the appointment of ESG-friendly directors to the board.Design/methodology/approachThis study focuses on a sample of 30 global systemically important banks from 2015 to 2021. The authors estimate panel data models with fixed effects, clustering heteroskedastic standard errors at the bank level to account for the serial correlation of the dependent variables for each bank.FindingsBanks’ exposure to ESG controversies can be reduced when NC members have specific skills, in particular when at least one member of this committee also belongs to the sustainability committee and is a foreign director. Moreover, banks’ ESG disputes decrease when the NC members are younger, while the share of independent NC members has a negative impact. Finally, a positive influence of NC composition and its members’ features as well as the appointment of ESG-friendly directors on the board is found.Originality/valueThe findings are particularly useful during periods such as the current one, when there is growing attention to both banks’ corporate governance, the subcommittees’ role and functioning and social and environmental issues. This study shows that the NC is important in reducing the likelihood of banks incurring ESG disputes and in appointing more ESG-friendly directors. NC effective functioning and its members’ qualities serve as a key attribute for fulfilling objective assessment and improving board effectiveness.

Athar, Muhammad; Chughtai, Sumayya; Rashid, Abdul

2023 Corporate Governance

doi: 10.1108/cg-06-2022-0261

The aim of this study is to understand how board structure, size of audit committee (AC), gender diversity and ownership structure influence banks’ performance in Pakistan. This study also aims to examine how various dimensions of governance differently affect the different measures of bank performance.Design/methodology/approachThis study used panel estimation techniques to quantify the impact of various elements of corporate governance on bank performance by taking annual data of 19 Pakistani banks for the period 2013–2020. The corporate governance is measured by board size, CEO duality, AC size, ownership structure and gender diversity. To get the robust results, this study measures bank performance by considering different indicators, namely, return on assets, earning per share, technical efficiency (TE) and total factor productivity. The empirical investigation is based on several well-known and well-accepted governance theories such as the agency theory, the stewardship theory, the tokenism/critical mass theory and the information asymmetry theory.FindingsThe findings of the study reveal that the size of board and ACs both significantly improve profitability and productivity, whereas they decrease TE. Further, the findings suggest that most of the indicators of gender diversity significantly deteriorate the performance of banks. However, ownership structure significantly improves banks’ earnings per share and TE. This study further illustrates that CEO’s duality does not have any significant impact on bank performance. This finding holds true for all the performance measures considered for this study.Practical implicationsThe findings are of great importance to various stakeholders, especially to policymakers to know about the factors influencing different measures of performance. Specifically, based on these findings, they can devise the result-oriented strategies to enhance the financial and real performance of banks. The findings also suggest that both investors and owners should take into consideration the governance indicators while evaluating banks’ performance by using accounting, market-based, efficiency and productivity measures.Originality/valueThis research adds to the vast body of existing knowledge about the effectiveness of corporate governance by investigating how the different dimensions of corporate governance and gender diversity influence bank performance in a developing country, namely, Pakistan. Further, this study elaborates the domestic rules/regulations, governance theories and governance framework and practices and tries to link the empirical findings with them for better understanding the role of governance in determining the performance of the banking sector of Pakistan.

Chatjuthamard, Pattanaporn; Jiraporn, Pornsit

2023 Corporate Governance

doi: 10.1108/cg-09-2022-0371

Taking advantage of a novel measure of innovative culture generated by advanced machine learning, this study aims to investigate how a culture of innovation is influenced by a crucial aspect of the board of directors, i.e. board size. The data on corporate culture of innovation are based on a textual analysis of earnings conference calls and represent a unique approach to capturing corporate culture.Design/methodology/approachIn addition to the standard regression analysis, the authors also perform several sophisticated robustness checks, such as propensity score matching, entropy balancing, an instrumental-variable analysis, Oster’s (2019) method for testing coefficient stability, GMM dynamic panel data analysis and Lewbel’s (2012) heteroscedastic identification.FindingsCorroborating the prediction of the resource dependence theory, the study results show that larger boards promote an innovative culture more effectively. A larger board with more directors provides the firm with additional resources, expertise and abilities, enabling it to develop an innovative culture more successfully.Originality/valueThis study is the first to examine the effect of board size on innovation using data on corporate culture generated by sophisticated computer algorithms. The authors advance the literature both in corporate governance and corporate innovation.

Manello, Alessandro; Falavigna, Greta; Isaia, Eleonora; Rossi, Maria Cristina

2023 Corporate Governance

doi: 10.1108/cg-03-2022-0092

The recent literature on corporate governance and gender diversity underlines that those differences may go beyond a pure or direct effect on firms’ performance and in this vein, this study aims to investigate whether the presence of women in leading positions can affect the credit rating indicators.Design/methodology/approachThe authors focus on Italian manufacturing firms, as well as small and medium firms (SMEs), that are often under-represented in previous studies, despite their importance in many economies. The authors extract data on directors and top managers as well as rating classes and credit score indicators, and using a fixed-effects model, the authors analyze the relationship between credit risk mitigation and the inclusion of women among top managers, consistently with the rising empirical literature focused on risk perceptions.FindingsThe authors find a significant negative relationship between female participation in top management and credit risk, with a greater impact associated with smaller firms, where the presence of a female top manager might make the difference. The results are robust to different model specifications and estimation strategies, and the authors find different magnitudes of the effects also according to the geographical location of the firm.Research limitations/implicationsBecause of the chosen sample of manufacturing firms, the research results may lack generalizability. Therefore, researchers are encouraged to expand the study and test the approach elsewhere.Originality/valueThe authors add new and more robust empirical evidence of a negative relationship between female participation in the top management and credit risk by focusing on the entire population of Italian nonlisted manufacturing firms.

Bhatnagar, Chandra Shekhar; Bhatnagar, Dyal; Bhullar, Pritpal Singh

2023 Corporate Governance

doi: 10.1108/cg-04-2022-0173

The purpose of this study is to examine the impact of corporate social responsibility (CSR) expenditure and business responsibility report (BRR) on a firm’s financial performance. Additionally, the study explores whether CSR expenditure and firm performance are related linearly or otherwise. The study also assesses the influence of mandating CSR expenditure on a firm’s performance.Design/methodology/approachThe study is set in India and uses a nine-year data set from 165 companies listed on the Bombay Stock Exchange. Data compilation and analysis are done by using content analysis and panel data regressions.FindingsThe main findings of the study are that the effect of CSR expenditure on firm performance in India is non-linear and can be characterized as parabolic for investigated firms. While some performance indicators suggest a U-shaped relationship, others show an inverted U-type pattern, making a definitive conclusion elusive in either direction. BRR scores themselves have a positive impact on firm performance. Mandatory CSR expenditure affects the financial performance negatively, but the market performance improves in general.Originality/valueThe study provides new insights on the relationship between CSR expenditure, BRR scores and firm performance from India, which is not only a notable emerging market but also has other gripping characteristics. It has a prolific history of philanthropy, and yet, it is the first country in the world to mandate CSR expenditure in recent times. The equation between reported economic progress and general quality of life remains intriguing, and yet the number of studies on the effects of CSR expenditure on firm performance are no match to the volume of ongoing and completed works in more developed markets. This study attempts to trim the gap and provide some useful insights for managers, policymakers and stakeholders, apart from prompting further research.

Attah, Amewu; Amoah, Prince

2023 Corporate Governance

doi: 10.1108/cg-11-2022-0461

This paper aims to examine the effects of extractive activities on the well-being of local communities and assesses stakeholder expectations of resource benefits and the corporate social responsibility (CSR) practices of oil companies in Ghana.Design/methodology/approachThe paper uses a qualitative approach based on an exploratory research design to investigate the opinions and experiences of stakeholders in the growing oil and gas industry in Ghana.FindingsThe empirical findings demonstrate that entry negotiated agreements and local content requirements in the offshore oil industry have minimal benefits because of the lack of linkages with the economies of local communities. Additionally, the nature of CSR practices within the extractive industry is directly traceable to the resource governance arrangements and plural logics in Ghana’s institutional context.Research limitations/implicationsThis study only provides insights into natural resource governance and CSR issues in offshore oil and gas projects. Thus, the findings are not generalisable to the entire industry, including onshore drilling, which have other sustainability issues.Practical implicationsThis research highlights the gap in natural resource management in Ghana and the effects of community expectations on CSR practices in the oil and gas industry. Therefore, this study posits the significance for including compliance requirements for improving the well-being of host communities in entry negotiated agreements and local contents.Originality/valueBy highlighting the nuanced issues in natural resource management within the oil and gas industry in Ghana, this paper makes significant contributions to the CSR and sustainability literature.