Table of contents(23 chapters)
Purpose of paper – This paper sets out to introduce the special issue on corporate governance in less developed and emerging economies. It summarises and reflects on themes and findings raised in the papers in the volume.
Design/methodology/approach – The findings reported in the paper are based on desk research and review of the papers contained in the volume.
Findings – The paper finds that the adoption of appropriate corporate governance systems is becoming a central issue in less developed and emerging economies. Factors such as the 1997 Asian financial crisis, the adoption of international donor led reforms, and the globalisation of capital markets are among the factors that are driving corporate governance reforms in less developed and emerging economies.
Research limitations/implications – The pressure from international donors has compelled some less developed and emerging economies to adopt corporate governance models developed in the West with no modification. The paper argues that while it is imperative for less developed and emerging economies to reform their corporate governance systems, it is important that these systems are adapted to suite the specific needs of individual countries.
Originality/value of paper – The paper is a summary of studies exploring various corporate governance issues in less developed and emerging economies. The issues addressed in these studies are important to understand corporate governance issues in both the private and public sectors in less developed and emerging economies.
Corporate governance, dual language reporting and the timeliness of annual reports on the Nairobi stock exchange
Purpose of paper – The study investigates the association between corporate governance mechanisms (proportion of finance experts on the audit committee, PFAC; frequency of board meetings, FBMG and proportion of non-executive directors, PNED), dual language reporting (DULR) (in English and Swahili) and timeliness of annual reports (TIME) of companies listed on the Nairobi Stock Exchange (NSE) in Kenya.
Design/methodology/approach – The data for the analysis is gathered from annual reports of 36 companies listed on the NSE for two financial years ending in 2005 and 2006. Ordinary least square (OLS) is used to determine the association between the corporate governance mechanisms, DULR and TIME. Company size (SIZE), gearing (GEAR), profitability (PROF) and industry (INDS) are used as control variables.
Findings – The findings suggest that there is a significant negative relationship between corporate governance mechanisms (PFAC and FBMG), DURL and TIME. Consistent with extant research, the study also found that SIZE and INDS are significantly associated with TIME. No significant association is found between PNED, GEAR, PROF and TIME.
Research limitations/implications – The findings of the research will help Kenyan policy makers and practitioners in formulating corporate governance policies. However our research is limited, among others, because it focuses on only companies listed on the NSE. The results may therefore not be representative of all companies operating in Kenya.
Originality/Value of paper – The value of the paper lies in that the results provide, for the first time, evidence of the relationship between corporate governance mechanisms (PFAC, FBMG and PNED), DURL and timeliness of the annual reports.
Purpose – This paper examines the extent to which Saudi listed companies report online information about their corporate governance practice in light of the guidance issued by the Saudi Arabian Capital Market Authority (SACMA), thereafter.
Methodology – We adopted a content analysis approach, accordingly a corporate governance disclosure index is developed to analyse the content of every company's website.
Findings – We found that the majority of Saudi listed companies utilise the Internet to communicate some information about corporate governance to their stakeholders. We also found that the level of online reporting of corporate governance varies between sectors. In particular, the paper revealed that the banking sector has the highest level of corporate governance disclosure compared with other sectors. On the other side, companies in the industry and service sectors provide very little information about corporate governance on their websites. The results suggest that the nature of control over the sector, the involvement of government in the ownership and management of businesses and some social assumptions could have an impact on companies’ decision to disclose online information about their corporate governance in developing countries.
Practical implications – The importance of investigating online reporting of corporate governance in Saudi Arabia emerges from the fact that SACMA published a guidance in 2006 that recommends the disclosure of corporate governance information by Saudi listed companies. Therefore, it would be worthwhile informing SACMA about the extent of compliance with the guidance of corporate governance. This is essential taking into consideration two facts: first, the recent remarkable growth of the Saudi stock market which was accompanied by significant increase in the demand for additional information by stakeholders; second, the recent increase of the utilisation of the Internet by companies for disclosure purposes worldwide. Further, the results of this research study could add to our limited knowledge about the practice of corporate governance in developing countries.
Originality/value – This paper contributes to the limited literature on disclosure practices in developing countries in general and in Saudi Arabia in particular. Our review of the literature revealed that there is no study to date on online disclosure of corporate governance in Saudi Arabia and very limited research has been carried out in developing countries in general. This is important taking into consideration environmental factors of developing countries, which could bring different sight in the issue of the disclosure of corporate governance.
CEO duality and accounting-based performance in Egyptian listed companies: A re-examination of agency theory predictions
Purpose – This paper aims at re-examining the predictions of agency theory with regard to the negative association between CEO duality (i.e. the Chief Executive Officer, CEO, serves also as the board chairman) and corporate performance. It also examines the role of other corporate governance mechanisms (board size, top managerial ownership and institutional ownership) as moderating variables in the relationship between CEO duality and corporate performance.
Methodology/approach – This paper uses the financial statements for the year 2006 of most actively traded Egyptian companies to examine these predictions of agency theory. Moderated Regression Analysis is used to analyse the empirical data.
Findings – The findings indicated that the hypothesized relationships between CEO duality, the moderating variables and corporate performance have changed. For companies characterized by large boards and low top management ownership, corporate performance is negatively affected by CEO duality and positively impacted by institutional ownership.
Research limitations/implications – A limitation of this study is the use of accounting-based performance measures because of the expected earnings management behaviours by CEOs.
Practical implications – The Egyptian Capital Market Authority should adopt a reform programme to encourage Egyptian listed companies to modify their governance structures by increasing top management ownership and reducing board sizes before incorporating the new governance rules into the listing requirements.
Originality/value of paper – The paper contributes to the literature on corporate governance and corporate performance by introducing a framework for identifying and analysing moderating variables that affect the relationship between CEO duality and corporate performance.
Purpose – The relationship between the board characteristics (i.e. board independence, CEO duality, board size, board meeting and board tenure) and the ownership structure (i.e. managerial ownership, family ownership and institutional ownership) and earnings quality is examined.
Design/methodology/approach – Data from 280 non-financial companies listed on Bursa Malaysia's Main Board for the year 2004 is used.
Findings – Significant association was found between board tenure and earnings quality. In addition, a positive significant association was found between outside board ownership and family ownership and earnings quality. However no significant relationship was found between board of directors’ independence and earnings quality.
Research limitations/implications – The association between audit committees’ characteristics and earnings quality was not examined. An examination of the impact of ownership structure on boards of directors and audit committees is warranted. An investigation of the impact of the ownership structure on earnings quality in Malaysia using separate test on family-controlled and non-family-controlled firms is suggested.
Practical implications – The appropriateness of policy directives requiring majority independent directors may be considered by policy makers.
Originality/value – The conflict of interest between outside shareholders and managers in a diffused ownership support the agency theory. However, utility of agency theory to explain the conflicts between the controlling owners and the minority shareholders where ownership concentration is prevalent is limited. Whilst demonstrating the dominant impact of ownership structure on earnings quality in Malaysia the study calls for alternative explanations of corporate governance practices in different institutional settings.
A study of corporate governance disclosure and its country-level determinants in the emerging markets
Purpose – This study examines country-level attributes that impact on Corporate Governance Disclosure (CGD) depending on the emerging market country's legal system.
Methodology/approach – We evaluate CGD level using 749 annual reports (year ended 2006) in 57 emerging market countries. We develop a CGD determinants model that compares differences in country level attributes between common law and civil law emerging market countries. Our model builds on a multiple regression and assumes interaction between the origin of the legal system and country-specific attributes.
Findings – Common law emerging markets have substantially higher levels of CGD than civil law ones. CGD is positively associated with the size of the capital market for the entire sample of emerging markets and for the sub-samples of common law and civil law countries. Law enforcement also has a strong positive influence on CGD in common law emerging countries, whereas it has no influence on CGD in civil law emerging countries.
Practical implications – Providing CGD levels for emerging markets helps to a better understanding of the corporate governance characteristics that prevail in each country. Decision makers (international investors, market authorities, standard setters, etc.) should be aware of how country level attributes may interact with the legal system (common law or civil law) to influence CGD.
Originality of the paper – This is one of the few papers to present evidence of the impact of country level attributes on CGD. This study contributes to identifying the attributes that influence CGD with reference to common law and civil law emerging markets.
Accounting standards, corporate governance, and foreign direct investments: the experience of emerging market economies
Purpose: The purpose of this paper is to examine the relationship between the inflow of foreign direct investment (FDI) into emerging market economies and its determinants between 1997 and 2005 from a new perspective emphasizing the role of accounting standards and corporate governance.
Methodology: The study covers 27 emerging market and transition economies that are classified into three groups: Asian, Central and Eastern European, and Latin American. Considering the possible endogeneity in studies on corporate governance, Generalized Two-Stage Least Squares (G2SLS) and Generalized Method of Moments (GMM) estimation techniques are used in this study.
Findings: Results indicate that the adoption of high quality accounting standards and effective corporate governance lead to an increase in FDI. I conclude that, in order to attract more FDI, emerging market countries should improve the quality of financial reporting and corporate governance in addition to improving their macroeconomic indicators.
Originality: This is, to my knowledge, the first study that aims to explore the association of FDI with accounting standards and corporate governance.
Research limitations: Difficulty in obtaining data constitutes the major limitation in international accounting research, in general, and in this study, in particular. Therefore, some emerging market countries are necessarily excluded from the study.
Purpose – The purpose of this study is to empirically evaluate the effectiveness of China's 2005 shareholding reform and investigate the relationship of the changes of state-owned shareholdings and the largest shareholdings with corporate performance.
Methodology/approach – This study uses a sample of 470 listed firms that were subject to China's 2005 shareholding reform with data from 2004 and 2006. First, we examine whether the reform has reduced state-owned shareholdings measured by ownership concentration and the largest shareholdings through comparing shareholder structures of the reformed listed companies prior to and after the reform. Second, regression analysis was used to explore the relationship between the change of ownership concentration and largest shareholdings and corporate performance of Chinese listed firms.
Findings – This study reveals the effectiveness of the shareholding reform as both ownership concentration and largest shareholdings decrease. This study presents evidence suggesting a positive impact of China's 2005 shareholding reform on corporate performance and endorsing the notion that state-owned shareholdings are detrimental to corporate performance.
Research limitations – ROE is used as a measure of corporate performance, which is influenced by the rules of accounting standards and corporate behavior.
Originality/value – This study provides empirical evidence on the effectiveness of China's shareholding reform and shows a positive relation between the reduction of ownership concentration and corporate performance. This is the first study to examine this relation using the cases of Chinese listed companies. The findings have implications to regulatory bodies, public listed firms and investors in China in terms of corporate governance and shareholding configuration.
The influence of ownership structures and board practices on corporate social disclosures in Bangladesh
Purpose – This study examines the influences of ownership concentration and the imposition of regulation on corporate governance (especially appointments of independent outside directors into the board) on voluntary corporate social disclosures (CSD) practices in Bangladesh.
Design/methodology/approach – CSD indices are developed using content analysis in terms of different attributes reported in the sample companies’ annual reports. Consistent with earlier studies, a checklist of items is constructed to assess the extent of CSD in annual reports. A two-stage least square (2SLS) regression analysis is used to examine the extent of the influences on CSD practices due to differing ownership structures and changed board compositions upon a notification of good corporate governance principles by the regulatory body in Bangladesh. To compare the differences on CSD practices before and after the imposition of regulation two periods (pre-notification from 2004 to 2005 and post-notification from 2006 to 2007) are considered for the analysis.
Findings – The results show that although ownership structures have small influence on CSD practices, but the imposition of regulation on good corporate governance can significantly influence such practices.
Practical implications – This suggests that without regulation (imposed or otherwise) companies have no incentives to provide voluntary social disclosures in annual reports in a developing country context.
Original/value of paper – This study contributes to the literature on the practices of CSD in the context of developing countries. As well, this study supports the theory of pro-regulation on corporate governance.
Purpose of this paper – This study investigates compliance with the corporate governance code in an African developing economy (Mauritius).
Methodology/approach – We examine the annual reports of 41 listed companies to assess the extent of compliance with the code and to analyze the wording of compliance statements. We also carry out in-depth semi-structured interviews with selected company directors to understand the reasons for compliance (or non-compliance).
Findings – Initial findings indicate a reasonable level of compliance with the more visible requirements of the code but noteworthy non-compliance also emerges, particularly in relation to the low number of company boards being chaired by independent directors, to uncertainties on the actual operation of board committees, and to the widespread non-disclosure of directors’ remuneration. Furthermore, compliance statements were found to be vague, ambiguous, or even inconsistent with the extent of compliance disclosed in the reports. We believe these are indications that many of the companies are adhering selectively with the code to project an image of symbolic compliance. Our in-depth follow-up interviews with directors largely confirm this behaviour of selective compliance.
Research implications – We suggest that the pursuit of legitimacy as an operational resource – rather than efficiency-led rationales – emerges as a potential theoretical explanation for the adoption of the corporate governance code in Mauritius.
Originality /value of paper – We bring evidence on how the corporate governance code is being understood and rationalized in a developing economy. We rely on a combination of annual report disclosures, compliance statements, and interview data to investigate corporate governance compliance.
Purpose – This paper examines the changing regimes of governance and the roles of accounting therein in a less developed country (LDC) by using Sri Lanka tea plantations as a case. It captures the changes in a chronological analysis, which identifies four regimes of governance: (a) pre-colonial, (b) colonial, (c) post-colonial and (d) neo-liberal. It shows how dialectics between political state, civil state and the economy affected changes in regimes of governance and accounting through evolving structures, processes and contents of governance.
Methodology – It draws on the works of Antonio Gramsci and Karl Polanyi to articulate a political economy framework. It provides contextual accounts from the Sri Lankan political history and case data from its tea plantations for the above chronological analysis.
Findings – The above four regimes of governance had produced four modes of accounting: (a) a system of rituals in the despotic kingship, (b) a system of monitoring and reporting to absentee Sterling capital in the despotic imperialism, (c) a system of ceremonial reporting to state capital in a politicised hegemony and (d) good governance attempts in a politicised hegemony conditioned by global capital. We argue that political processes and historical legacies rather than the assumed superiority of accounting measures gave shape to governance regimes. Governance did not operate in its ideal forms, but ‘good governance’ initiatives revitalised accounting roles across managerial agency to strengthening stewardship rather than penetrating it into the domain of labour controls. Managerial issues emerged from contradictions between political state, civil state and the economy (enterprise) constructed themselves a distinct political domain within which accounting had little role to play, despite the ambitious aims of good governance.
Originality – Most accounting and governance research has used economic theories and provided ahistorical analysis. This paper provides a historically informed chronological analysis using a political economy framework relevant to LDC contexts, and empirically demonstrates how actual governance structures and processes lay in broader socio-political structures, and how the success of good governance depends on the social and political behaviour of these structural properties.
The influence of social and political relations on corporate governance systems: the case of rural banks in Ghana
Purpose of paper – Rural Banks (RBs) are unit banks owned by members of the rural community through the purchase of shares and are licensed to provide financial intermediation in rural areas of Ghana. This paper reports on the external and internal mechanisms through which corporate governance is maintained in these banks.
Design/methodology/approach – The findings reported in the paper are based on evidence obtained from a review of relevant documents and interviews with the managers of selected RBs.
Findings – The corporate governance system in the RBs is mainly a rational western model recommended by the World Bank and implemented by the Central bank of Ghana. Under this model corporate governance is expected to be maintained externally through regulatory agencies (the Central Bank of Ghana and the Association of Rural Banks) and internally through the respective Boards of Directors. However, we observe that because of the locations and ownerships of these banks, board appointments and decisions are often embedded in local political and social relations. This affects the independence of the boards and impacts on their role in maintaining corporate governance.
Research limitations/implications – We argue that any attempt to design corporate governance systems in these banks without taking these social and political factors into consideration is likely to lead to failure. This is particularly important given that the World Bank and other international donors are continuously proposing rational western models of governance to institutions in the developing world, such as the RBs. Given that these organizations operate under different sets of environmental conditions, there is likely to be differences between the actual and the idealized corporate governance systems.
Originality/value of paper – The study is important because of the role the rural banks play in the socio-economic development of Ghana. Several other developing countries have established similar institutions to support the development of the informal sector through the provision of microcredit. The research will contribute to the design of appropriate corporate governance systems so as to improve the overall contributions of these institutions.
Purpose – The paper attempts to locate the debate on corporate governance in a social and cultural context.
Methodology – It draws on the traditional African philosophy of ubuntu and articulates how this might affect corporate governance frameworks. The paper utilises multiple methods that include interviews, a review of documents, and case studies. It analyses incidents from across Southern Africa that demonstrate how notions of ubuntu influence corporate practices.
Findings – The incidents in selected organisations reveal how multinational corporations are involved in the delivery of social welfare programmes to their employees and local communities. Such practices underscore the differences in perceptions about corporate social responsibility in the West and Southern Africa.
Practical implications – It highlights the implications of these practices for multinational corporations and auditors who do business in Southern Africa.
Originality – The paper argues that ubuntu informs corporate practices and influences perceptions on what constitutes ‘good’ corporate governance and ethics in Southern Africa. Finally, it proposes an alternative corporate governance framework informed by ubuntu, communitarianism, and stakeholder theories. Arguably, such a corporate governance framework will take into account the social and historical context of Southern Africa.
Research limitations – The proposed corporate governance framework might suit only those communities who subscribe to ubuntu values and communitarianism.
Corporate governance in infancy and growth – an interview-based study of the development of governance and corporate regulation in Nigeria
Purpose – This paper seeks to contribute to the debate on the role of corporate governance in developing, emerging and transition economies by focusing on the nature and practice of corporate governance in listed companies in Nigeria – a country which has experienced both economic growth and political turbulence over the past three decades and which too has experienced significant corporate failures in particular in the banking and insurance sectors. It does this against a contextual background which discusses issues of ethnicity, gender and power relationships and their relevance to governance in Nigeria.
Methodology – Archival and documentary analysis supported and underpinned by semi-structured interviews with 20 stakeholders in governance processes in Nigeria.
Findings – The analysis of the interviews highlighted the general support of the interviewees for corporate governance procedures and practices in Nigeria to continue to develop in line with those in more developed economies. However, concerns were expressed as to the inadequacies of aspects of the Nigerian governance regulatory infrastructure, in particular in relation to mechanisms for implementation and enforcement within a framework where there was limited confidence that either voluntary adherence to codes of good practice or market-driven regulation and control would be effective.
Contrary to the researchers’ expectations, the majority of the interviewees articulated the perspective that ethnicity, gender and power relationships were not of significance in the determination of the actuality of practice. However, a minority did identify these considerations to be of key importance, albeit frequently not overtly acknowledged or portrayed as such by parties associated with governance practices.
Research limitation(s) – The interviewees were drawn from a cross section of stakeholders from the business, government, regulatory and academic environment in Nigeria but the exigencies of conducting interview research in Nigeria and the difficulties of obtaining agreement from, and access to, interviewees meant that the potential for self-selection bias has to be considered when evaluating the study findings.
Practical Implication(s) – The research paper provides a platform for policy formulation on corporate governance in Nigeria.
Originality and value of paper – The paper builds on a number of previous studies of governance in Nigeria (for example, Oyejide & Soyibo, 2001; Yakasai, 2001; Ahunwan, 2002; Okike, 2007) in particular by means of the use of semi-structured interviews to provide a rich field of insight into the actuality of practice.
The corporate governance inertia: the role of management accounting and costing systems in a transitional public health organization
Purpose – The paper explains how internal reporting systems, as embedded practices informing organizational actions and “know-how”, contributed to the inertia in implementing a corporate form of governance in a transitional public organization in a developing country – Egypt.
Design/methodology/approach – The paper synthesizes an institutional theory framework in order to capture the case study mixed results. Drawing on DiMaggio and Powell's (1983) notions of isomorphic mechanisms, Ocasio (1999) and Burns and Scapens’ (2000) notions of organizations’ memory, history, cumulative actions and routines, Brunsson's (1994) notion of organizational institutional confusion as well as Carruthers's (1995) notion of “symbolic window-dressing” adoption of new practices, the paper explores the dynamic of a public hospital corporatization processes. Data collection methods include semi-structured interviews, documentary evidence and direct observation.
Findings – The case study evidence shows that the interplay between the new form of “corporate” governance and the intra-organizational power, routines and “know-how” created internal organizational confusion and changed organizational members’ narrative of risk and uncertainties.
Research limitations/implications – The paper does not reveal the role of reformers involved in the public sector “governance” reform in developing countries. Exploring such a role goes beyond the scope of this paper and represents an area of future research.
Originality/value – The paper provides a comprehensive account of public sector “governance” reform in a developing nation, while exploring the role of management accounting and costing systems in facilitating or otherwise that reform processes.
The (Perceived) roles of corporate governance reforms in Malaysia: The views of corporate practitioners
Purpose – The purpose of this paper is to understand the roles of corporate governance reforms in Malaysia following the 1997/1998 Asian crisis from the perspectives of corporate managers.
Design/methodology/approach – The primary evidence used is drawn from a series of in-depth semi-structured interviews with Malaysian corporate managers involved in the overseeing of the governance structures within their companies.
Findings – This study shows that most interviewees believed that an appropriate corporate governance system could play a role in resolving the problems associated with the interlocking and concentrated corporate ownership structure in Malaysia. However, the effectiveness of the corporate governance reforms in dealing with this issue is questionable. It also reveals that Malaysian companies ‘changed’ their corporate governance practices predominantly to recover (foreign) investor confidence lost during the crisis and to fulfil the legal requirements enforced by the government, where the latter was under pressure from the international community (especially, the World Bank and IMF) to ‘improve’ the Malaysian corporate governance practices after the crisis.
Originality/value of paper – This paper adds to the literature on corporate governance, especially in the context of developing countries. Prior research investigating corporate governance issues in developing countries has been limited, particularly the lack of in-depth examination of corporate governance practices from the perspectives of corporate managers. This paper will be of great value to researchers and practitioners seeking to gain a better understanding of the roles of corporate governance in Malaysia.
Corporate governance and International Financial Reporting Standard (IFRS): The case of developing countries
Purpose – Corporate governance requirements imposed internationally as part of the New International Financial Architecture (NIFA) include compliance with International Financial Reporting Standards (IFRS). The appropriateness of applying IFRS in developing countries has long been controversial. Recently, the International Accounting Standards Board (IASB) extended its project on IFRS for Small and Medium Entities (SMEs) to include developing countries. This paper provides a history of the controversy over IFRS in developing countries and examines the SMEs project as it affects developing countries.
Design/methodology/approach – This paper uses an agenda-setting theoretical framework and document analysis to analyse IASB's published documents as part of its formal due process.
Findings – The controversies surrounding the application of IFRS in developing countries seem likely to continue. The public submission process may be ineffective and too late for those seeking to influence IFRS developments. The findings suggest that those seeking IFRS for developing countries may need to both devise an acceptable solution and obtain inside access to the standard-setting process to achieve this aim.
Research limitations – The research is limited to literature review and documentary analysis and therefore subject to the known limitations of published project documentation in accounting standard-setting.
Originality/value – Contributes to understanding of international accounting standard-setting, including why developing country issues seem likely to continue.
The banks’ uses of smaller companies’ financial information in the emerging economy of Vietnam: a user's oriented model
Purpose – The aim of this study is to provide insights into the factors affecting the banks’ use of financial information in financial statements of small- and medium-sized enterprise (SME) which has implications for the governance of these important organizations. Specifically, this study assesses the views of bank lending officers on their demand for and use of financial information relating to SMEs.
Design/methodology/approach – The study uses the data collected from a quantitative study in the form of a postal questionnaire survey. The model is constructed based on the data collected and the use of structural equation modelling (SEM).
Findings – The research finds that the main factor affecting the use of financial information is the directors’ perceptions of the role of accounting. Bank lending officers tend to use a great variety of sources of information to make lending decisions and do not rely on financial information provided by SMEs. Direct contacts with the SMEs were extensively used and were perceived as having a significant effect on the utility of information.
Research limitations/implications – The limitation of the study lies in the relatively small sample of respondents and the response rate.
Practical implications – The model is important as it can aid the banks’ understanding of the business activities of the smaller company sector. This leads to improved relationships between the banks and smaller companies and more positive lending decisions.
Originality/value –The model is of interest to the banks and other parties. The model may also be of interest to accounting regulators and standard setters to clarify the issue of how financial information of smaller companies is used. The model implies the revision of the current reporting frameworks to improve the transparency of the corporate governance in SMEs in the context of the less developed reporting environment of transitional economies.