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Article
Publication date: 13 March 2018

Luigi Lepore, Sabrina Pisano, Assunta Di Vaio and Federico Alvino

The purpose of this paper is twofold: first, to assess the degree of disclosure about compliance with corporate governance code and the explanations provided by Italian…

Abstract

Purpose

The purpose of this paper is twofold: first, to assess the degree of disclosure about compliance with corporate governance code and the explanations provided by Italian firms and second, to analyze the relationships between this disclosure and different variables of ownership structure.

Design/methodology/approach

The sample was composed of 75 non-financial companies listed in Italy in 2016. Content analysis of the corporate governance statement and ordinary least squares (OLS) multiple regression models were used to test the hypotheses.

Findings

Companies tended to comply with the corporate governance code and to disclose this information, but when they decided to not comply, they did not provide adequate explanations. Findings revealed a negative relation between ownership concentration and the disclosure analyzed. Results also highlight that a more equal distribution of shares among larger shareholders is beneficial for disclosure. Moreover, the presence of a dominant financial shareholder at a high level of ownership concentration creates inefficiency of the degree of adherence to the comply-or-explain principle.

Originality/value

This study examines in depth the underexplored issue of “explanation” and exceeds the issue of ownership concentration, which has already been examined extensively, raising the issues of counterweight power and shareholders’ identities, which remain underexplored. In this way, results presented contribute to explaining some causes of the diverse findings that research has found about the relationship between ownership concentration and voluntary disclosure, demonstrating the importance of counterweight power and largest shareholder’s identity. Consequently, when self-regulating initiatives are designed and implemented, legislators, regulators and managers should not ignore the characteristics of the firms’ ownership structure.

Details

Corporate Governance: The International Journal of Business in Society, vol. 18 no. 5
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 1 May 2020

Simone Pizzi, Andrea Venturelli and Fabio Caputo

The purpose of this paper is to evaluate the effectiveness of the comply-or-explain principle in the Italian context. In particular, the analysis will evaluate, which…

Abstract

Purpose

The purpose of this paper is to evaluate the effectiveness of the comply-or-explain principle in the Italian context. In particular, the analysis will evaluate, which factor impact on firms' voluntary adoption of this tool to adequate their non-financial reports to the legal requirements of Directive 95/2014/EU.

Design/methodology/approach

The methodology consists of two different levels of analysis. The first part is statistical descriptive, and it consists of a rhetorical analysis on the justifications provided by the firms about their omissions to comply with Directive 95/2014/EU. The second part is inferential and its aim is to evaluate, which factors impact on comply-or-explains adoption.

Findings

The findings reveal how the comply-or-explain application in Italy has been characterized by several criticisms. The result highlight how the justifications adopted by the firms is influenced by their sector of activity and omission's type. Moreover, the analysis suggests how the sector of activity and the level of adherence to global reporting initiative influenced the average number of omissions.

Research limitations/implications

The limitations of the research are represented by the focuses on a single country and by the short period of analysis. In this sense, future research could be addressed to the analysis of countries different from Italy. Moreover, accounting scholars could provide further contributions to the political debate through the evolution of the “comply-or-explain” principle’s strategies over the years.

Practical implications

The practical implications connected to the present research are twofold. The first one is represented by the possibility for policymakers to increase the degree of attention about the use of comply-or-explain as legitimization's tool. The second one is represented by the possibility for practitioners to identify a new reporting framework.

Social implications

The social implications are represented by the possibility for stakeholders to evaluate the reliability's degree of the disclosure produced by Italian public interest entities after the implementation of Directive 95/2014/EU.

Originality/value

Despite the growing attention paid by academics regard Directive 95/2014/EU, this is the first attempt to analyze the comply-or-explain from a rhetorical perspective.

Details

Sustainability Accounting, Management and Policy Journal, vol. 12 no. 1
Type: Research Article
ISSN: 2040-8021

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Article
Publication date: 2 February 2015

Cătălin Nicolae Albu and Maria Madalina Girbina

The aim of this study is to examine the attitude of Romanian companies listed on the Bucharest Stock Exchange towards the “comply-or-explain” principle, under which they…

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1387

Abstract

Purpose

The aim of this study is to examine the attitude of Romanian companies listed on the Bucharest Stock Exchange towards the “comply-or-explain” principle, under which they fulfill their corporate governance obligations.

Design/methodology/approach

We design and use five indexes to investigate the compliance of Romanian listed companies with their corporate governance obligations, and the quality of their explanations in case of non-compliance under the “comply-or-explain” principle. Further, we perform additional analyses by firm characteristics to identify the more compliant companies.

Findings

Our results point to the difficulties in the application of the “comply-or-explain” principle approach to corporate governance in emerging economies. First, applicable laws and regulations in these countries deter themselves the application of this principle, by the confusions and unclear provisions that they contain. Second, these countries are characterized by low enforcement mechanisms and less demanding users of information. These create an environment where local companies get away with unsanctioned non-compliance instances, and general type of explanations. However, our results suggest that larger, first-tier companies with larger boards have better corporate governance practices.

Research limitations/implications

The small number of companies listed on the Bucharest Stock Exchange prevented advanced statistical treatment of data.

Originality/value

We fill a gap in literature by providing, to our knowledge, the first study that addresses the case of corporate governance practices based on the “comply-or-explain” principle in Romania (one of the recent members of the European Union), and one of the few studies addressing the case of Central and Eastern European countries.

Details

Corporate Governance, vol. 15 no. 1
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 26 April 2018

Georgios L. Thanasas, Georgia Kontogeorga and George Asterios Drogalas

In recent years, the principle of the “comply or explain” approach has become the trend in corporate governance statements that are not fully compliant with national…

Abstract

Purpose

In recent years, the principle of the “comply or explain” approach has become the trend in corporate governance statements that are not fully compliant with national codes. This is because managers of companies deviating from corporate governance codes try to be lawful, providing reasonable explanations; thus, they reach an impasse, copying explanations from other companies, in a mimetic behavior. The purpose of this study is to investigate whether companies listed in Greek Stock exchange tend to imitate one each other thus to be legitimate in terms of the “comply or explain: approach”.

Design/methodology/approach

This study focuses on the “comply or explain” approach in Greek listed companies, analyzing statements by 162 companies (80.2 per cent) listed on the Athens Stock Exchange (ASE), showing a total of 1,211 deviations from the national code. Therefore, the explanations were classified for analysis, grouping them into three main categories and investigating the degree of imitation.

Findings

In total, 96 companies deviating from the Code (56.3 per cent) provided explanations as to their legitimacy practices. Thus, the managers of these companies tried to explain their deviations from the national code in such a way that it could be considered that they tend to imitate each other, striving to be lawful.

Research limitations/implications

Owing to Greece’s ongoing economic crisis, many companies listed on the ASE in previous years have suspended the trading of their shares. An examination of previous years may have led to biased results, owing to the different samples of companies. Another limitation concerns the number of companies in the sample; although it covers almost 80 per cent of listed companies, the actual number of companies is not big enough.

Practical implications

This study tries to investigate whether Greek listed companies comply with or deviate from the National Corporate Governance Code. For that purpose, context analysis was performed on 80.2 per cent of these companies (162 out of 202 companies) for the calendar year 2017. Most companies tried to explain their deviations from the Code in such a way that it could be considered that they tend to imitate each other.

Social implications

Companies that deviate from the corporate governance code tend to imitate each other. This phenomenon occurs mainly in small companies, which, while striving to be lawful, even copy other companies’ phrases verbatim. This study reveals that managers of such companies care to provide an explanation for only deviations from the Code as a logical justification and not to capture the existing situation of their companies.

Originality/value

This study is the first to examine the mimetic behavior on corporate governance statements in Greece. Although the trend of imitation is a fact in developed economies, similar studies never took place on emerge economies. This study contributes to the literature by examining whether the trend of mimetic behavior exists in emerging economies as well.

Details

Corporate Governance: The International Journal of Business in Society, vol. 18 no. 5
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 15 May 2018

Danila Djokic and Mojca Duh

This paper aims to provide an overview of the quality of corporate governance (CG) disclosures in the framework of CGS and the “comply or explain” code principle in…

Abstract

Purpose

This paper aims to provide an overview of the quality of corporate governance (CG) disclosures in the framework of CGS and the “comply or explain” code principle in Slovenia. It aims to observe the differences among companies of the prime, standard and entry markets in terms of the differences in governance standards and regulatory frameworks.

Design/methodology/approach

This paper analyzes the historical development, legal approach and methods used in the regulation of the “comply or explain” principle in Slovenia. In the 2014 SEECGAN research – Slovenia, we measured the quality of CG by applying the newly created SEECGAN index methodology covering seven segments of CG and assessing 98 attributes. This paper upgrades the results of this research with additional case study research.

Findings

The analysis from 2011 to 2014 on the “comply or explain” principle showed a gradual improvement of transparency in Slovenian public companies. The 2014 SEECGAN research – Slovenia revealed that the number of specific and high-quality explanations of deviations has increased. The study in this paper showed that the governance practice in some cases is still not in line with code recommendations and does not disclose the deviations from the code.

Originality/value

Disclosures of the Slovenian public companies are presented for the period 2004-2018. This paper points out the improvements to be realized to change unsatisfactory practices. The measurement of the quality of CG by the 2014 SEECGAN research – Slovenia introduced a methodology, which could be recognized and improved by the EU and/or its member states.

Details

Corporate Governance: The International Journal of Business in Society, vol. 18 no. 5
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 5 May 2015

Michail Nerantzidis

This paper provides evidence regarding the efficacy of the “comply or explain” approach in Greece and has three objectives: to improve our knowledge of the concept of this…

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1474

Abstract

Purpose

This paper provides evidence regarding the efficacy of the “comply or explain” approach in Greece and has three objectives: to improve our knowledge of the concept of this accountability mechanism, to elevate auditors’ potential role in the control of corporate governance (CG) statements and to contribute to the discussion about the reform of this principle; a prolonged dialogue that has been started by European Commission in the light of the recent financial crisis.

Design/methodology/approach

The approach taken is a content analysis of CG statements and Web sites of a non-probability sample of 144 Greek listed companies on the Athens Stock Exchange for the year 2011. Particularly, 52 variables were evaluated from an audit compliance perspective using a coding scheme. From this procedure, the level of compliance with Hellenic Federation of Enterprises (SEV) code, as well as the content of the explanations provided for non-compliance, were rated.

Findings

The results show that although the degree of compliance is low (the average governance rating is 35.27 per cent), the evaluation of explanations of non-compliance is even lower (from the 64.73 per cent of the non-compliance, the 40.95 per cent provides no explanation at all).

Research limitations/implications

The research limitations are associated with the content analysis methodology, as well as the reliability of CG statements.

Practical implications

This study indicates that companies on the one hand tend to avoid the compliance with these recommendation practices, raising questions regarding the effectiveness of the SEV code; while on the other, they are not in line with the spirit of the CG code, as they do not provide adequate explanations. These results assist practitioners and/or policy-makers in perceiving the efficacy of the “comply or explain” approach.

Originality/value

While there is a great body of research that has looked into the compliance with best practices, this study is different because it is the first one that rates not only the degree of the compliance with the code’s practices but also the content of the explanations provided for non-compliance. This is particularly interesting because it adds to the body of research by providing a new approach in measuring the quality of the “comply or explain” principle in-depth.

Details

Managerial Auditing Journal, vol. 30 no. 4/5
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 5 December 2018

John Dumay, Matteo La Torre and Federica Farneti

This paper examines the gap between reporting and managers’ behaviour to challenge the current theoretical underpinnings of intellectual capital (IC) disclosure practice…

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2063

Abstract

Purpose

This paper examines the gap between reporting and managers’ behaviour to challenge the current theoretical underpinnings of intellectual capital (IC) disclosure practice and research. The authors explore how the key features from IC and integrated reporting can be combined to develop an extended model for companies to comply with EU Directive 2014/95/EU and increase trust in corporate disclosures and reports.

Design/methodology/approach

This essay relies on academic literature and examples from practice to critique the theories that explain corporate disclosure and reporting but do not change management behaviour. Based on this critique, the authors argue for a change in the fundamental theories of stewardship to frame a new concept for corporate disclosure incorporating using a multi-capitals framework.

Findings

We argue that, while the inconsistency between organisations’ reporting and behaviour persists, increasing, renewing or extending the information disclosed is not enough to instil trust in corporations. Stewardship over a company’s resources is necessary for increasing trust. The unanticipated consequences of dishonest behaviour by managers and shareholders compels a new application of stewardship theory that works as an overarching guide for managerial behaviour and disclosure. Emanating from this new model is a realisation that managers must abandon agency theory in practice, and specifically the bonus contract.

Research limitations/implications

We call for future empirical research to explore the role of stewardship theory within the dynamics of corporate disclosure using the approach. The research implications of those studies should incorporate the potential impacts on management behaviours within a stewardship framework and how those actions, and their outcomes, are disclosed for rebuilding public trust in business.

Practical implications

The implications for integrated reporting and reports complying with the new EU Directive are profound. Both instruments rely on agency theory to coax managers into reducing information asymmetry by disclosing more. However, agency theory only re-affirms the power managers have over corporate information. It does not change their behaviour, nor to act in the interest of all stakeholders as the stewards of an organisation’s resources.

Social implications

We advocate that, in business education, greater emphasis is needed on how stewardship has a more positive impact on management behaviour than agency, legitimacy and stakeholder theories.

Originality/value

We reflect on the current and compelling issues permeating the international landscape of corporate reporting and disclosure and explain why current theories which explain corporate disclosures do not change behaviour or engender trust in business and offer an alternative disclosure model based on stewardship theory.

Details

Journal of Intellectual Capital, vol. 20 no. 1
Type: Research Article
ISSN: 1469-1930

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Article
Publication date: 24 June 2019

Khurram Ashfaq and Zhang Rui

The purpose of this paper is to investigate the internal control disclosure (ICDISC) practices in South Asia and compare those disclosure practices across enforced setting…

Abstract

Purpose

The purpose of this paper is to investigate the internal control disclosure (ICDISC) practices in South Asia and compare those disclosure practices across enforced setting (India) versus comply or explain setting (Pakistan and Bangladesh). Further, whether the audit firm size moderates the relationship between ICDISC practices and board & audit committee effectiveness.

Design/methodology/approach

To achieve these objectives, a sample of 100 non-financial companies was selected from Pakistan and India for three years’ period (2013-2015), whereas 93 companies were selected from Bangladesh based on market capitalization. The ICDISC index has been used which is based on the COSO framework.

Findings

Results of univariate analysis show that public sector companies in South Asia tend to disclose significantly more internal control information as compared to private sector companies. In terms of enforcement variable, the results of Mann–Whitney test show that companies listed in enforced setting have disclosed significantly greater extent of overall as well as individual categories of ICDISC as compared to companies listed in comply or explain setting. Based on multivariate analysis results for overall sample, it was found that board and audit committee characteristics and ownership by government have positive significant effect on ICDISC except representation of female or foreigner on audit committee which was found negatively significant. In addition to this, listing on foreign stock exchange and enforcement effect emerged as significant variables to influence ICDISC. Finally, the results of additional analysis state that the role of board and audit committee for influencing ICDISC has been moderated by the external auditor size in South Asia. In addition, enforcement variable is highly positively significant for companies having non-big four audit firm.

Research limitations/implications

These results imply that enforcement variable acts as an important alternative external control mechanism when companies do not have big four audit firm as their external auditors.

Originality/value

This is very first study on ICDISC in South Asia which explores the effect of enforcement and governance on ICDISC practices of firms. It also contributes toward the literature that the regulation on reporting of internal control can be effective in developing country only if there is strong penalty for non-compliance by regulatory authorities.

Details

Journal of Financial Reporting and Accounting, vol. 17 no. 2
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 16 October 2009

Kevin Campbell, Magdalena Jerzemowska and Krzysztof Najman

The purpose of this paper is to analyse the reasons for non‐compliance by Polish listed companies with elements of the Polish code of corporate governance Best Practices

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1736

Abstract

Purpose

The purpose of this paper is to analyse the reasons for non‐compliance by Polish listed companies with elements of the Polish code of corporate governance Best Practices in Public Companies 2005.

Design/methodology/approach

Based on 250 publicly available compliance statements filed in 2005 by companies listed on the Warsaw Stock Exchange (WSE) content analysis is used to classify the explanations provided for non‐compliance with those corporate governance principles that attract high levels of non‐compliance.

Findings

The data analysis reveals that, despite a high level of overall compliance, three out of 50 code principles attract high levels of non‐compliance. These principles concern the independence of supervisory board members, the composition of supervisory board committees and the appointment of auditors. The most contentious principle concerns the independence of supervisory board members, due to the presence of many majority‐owned companies on the Warsaw Stock Exchange.

Practical implications

The paper sheds light on the operation of the “comply or explain” approach to corporate governance in Poland and provides suggestions for improving the level and quality of compliance with the revised corporate governance code Best Practices for WSE Listed Companies, applicable from 2008 onwards.

Originality/value

The paper provides an empirical investigation of the reasons given by Polish companies for non‐compliance with the most controversial corporate governance principles. It highlights a tendency for some companies to report compliance that is conditional, suggesting that reported compliance under‐represents the true level of compliance. We suggest that establishing a monitoring committee tasked with evaluating the quality of explanations for non‐compliance and reducing ambiguities in the wording of code principles will improve the quality of Polish corporate governance in the long term.

Details

Corporate Governance: The international journal of business in society, vol. 9 no. 5
Type: Research Article
ISSN: 1472-0701

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Book part
Publication date: 17 April 2018

Juliette Senn

The objective of this chapter is to analyse the impact of France’s ‘Grenelle 2’ law of 2010, which applies to environmental accounting disclosures (EADs). More…

Abstract

Purpose

The objective of this chapter is to analyse the impact of France’s ‘Grenelle 2’ law of 2010, which applies to environmental accounting disclosures (EADs). More specifically, it seeks to observe whether the ‘Anglo-Saxon’ ‘comply or explain’ model, transposed into the French regulatory framework, influences the disclosure strategies of firms that are listed on a regulated market.

Methodology/approach

Drawing on the theoretical framework of legitimacy and the concept of normativity, an empirical study is conducted on a sample of 96 French firms listed on the SBF index between 2009 and 2014. The effect of regulation is assessed by a content analysis of EAD in annual reports, examining changes in disclosure practices and the contents of disclosures.

Findings

The main results show that explanations for the absence of EAD showed a significant increase after the introduction of the law. We also observe that the new rules had no effect on the number of firms making EADs, although the quality of the disclosures declined. Finally, the results also concern practices of non-disclosure without any accompanying explanation.

Research limitations

The limitations of this study relate to the choices underlying the classifications and observations made during the content analysis.

Practical implications

This study has social relevance in that it supplies information for assessing the transposition of European directives into French law.

Originality/value

This study extends research concerning environmental disclosures by examining a recent accounting object. It also continues the debate on normativity, with its analysis of disclosures subject to a changing regulatory framework.

Details

Sustainability Accounting
Type: Book
ISBN: 978-1-78754-889-3

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