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Book part
Publication date: 2 July 2012

Ruth V. Aguilera and Kurt A. Desender

Purpose – This chapter discusses the role that indices of corporate governance have had in comparative corporate governance research.Design/Methodology/Approach – The…

Abstract

Purpose – This chapter discusses the role that indices of corporate governance have had in comparative corporate governance research.

Design/Methodology/Approach – The authors begin with a short discussion of what corporate governance is and its main debates. Then, the authors review the main indices (which are also summarized in Table 1), highlighting their strengths and limitations as well as describing some of the findings that emanate from them. Then, the authors discuss the methodological and conceptual assumptions of corporate governance indices that may compromise their construct validity. The authors conclude with some encouraging suggestions for key methodological and research design issues to take into account in future comparative corporate governance.

Findings – Many methodological issues in the measuring and analysis of (comparative) corporate governance remain to be solved. First, although corporate governance practices have a direct effect on some of the firms’ strategic decisions, they may only have an indirect effect on firm performance. Second, it is possible that, after all, causality goes the other way around, i.e., the firm performance explains the adoption of certain governance practices. Third, there are also important challenges in measuring firm financial performance as well as measuring and comparing corporate governance effectiveness between firms from different governance settings.

Originality/Value – This is one of the first chapter to give an overview of the most current corporate governance indices, both academic and commercial, to discuss their underlying assumptions and limitations, and, finally, to provide specific directions for future research regarding comparative corporate governance.

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West Meets East: Building Theoretical Bridges
Type: Book
ISBN: 978-1-78190-028-4

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Article
Publication date: 18 September 2007

Imen Khanchel

This paper aims to investigate the determinants of good governance in the US firms.

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11233

Abstract

Purpose

This paper aims to investigate the determinants of good governance in the US firms.

Design/methodology/approach

The data are taken from a sample of 624 US listed and non‐financial firms for the period of 1994‐2003. Four indices were constructed that summarize the governance quality: one indice for the board of directors, another one for the board committees, a third one for the audit committee, and a fourth representing an overall or total index. Multiple regressions analyses are used in the study to find the determinants of strong governance.

Findings

The empirical results show statistically significant and positive associations between each governance index (exception to board index) and firm size, investment opportunities, intangible assets and directors and officers ownership. Furthermore, institutional ownership and external financing needs are positively related to each governance index considered. However, growth opportunities and performance have no significant effect on governance quality.

Research limitations/implications

Other corporate governance mechanisms could be considered (transparency and disclosure, anti‐takeover provisions and shareholder's rights).

Originality/value

This paper adds evidence to the important debate about corporate governance ratings. It gives a most comprehensive analysis to date in term of sample size and breath coverage. This paper also offers a new contribution to the debate on the determinants of good governance by isolating the effects of firm characteristics on the board of directors from the effect on compensation and nominating committees and from the effect on audit committee.

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Managerial Auditing Journal, vol. 22 no. 8
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 12 September 2016

Andrews Owusu and Charlie Weir

The purpose of this paper is to investigate the impact corporate governance, measured by a governance index, on the performance of listed firms in a developing economy…

Abstract

Purpose

The purpose of this paper is to investigate the impact corporate governance, measured by a governance index, on the performance of listed firms in a developing economy, Ghana. It also evaluates the effect of the introduction of a code of corporate governance on compliance rates across Ghanaian firms as well as assessing the impact of the code’s introduction on firm performance for the study period 2000-2009.

Design/methodology/approach

The paper develops a Ghanaian corporate governance index (GCGI) containing 33 provisions to measure corporate governance quality during the pre-code and the post-code sub-periods. The authors use a panel data analytical framework and fixed effects regressions to analyse the governance-performance relationships.

Findings

After controlling for endogeneity, the authors find a statistically significant and positive relationship between the GCGI and firm performance. The analysis shows evidence of a statistically significant increase in the degree of compliance with the Ghanaian Code from the pre-2003 sub-period to the post-2003 sub-period. The authors also find that the introduction of the code has led to improved firm performance. However, not all elements of corporate governance appear to have a significant effect on firm performance.

Research limitations/implications

One limitation of this study is the development of a corporate governance index. The binary coding used to construct the GCGI may not reflect the relative importance of the different corporate governance provisions. This means that all elements included in the index are given equal weighting. Future research may assign weights to each of the corporate governance provisions but this may have the disadvantage of making subjective judgements relative to the importance of each corporate governance provision recommended by the Ghanaian Code.

Practical implications

These results have important implications for both policy makers and companies. For policy makers, it is encouraging for the development of a code of corporate governance to regulate firms rather than enforcing rigid laws that may not be value relevant. For companies, the improvement in compliance with a code of corporate governance can provide a means of achieving improved performance.

Originality/value

This paper adds to the limited evidence on the governance-performance relationship in developing economies and in particular it analyses the role of a governance index. It is also the first paper to compare the pre- and the post-code governance index-performance relationship in an African or developing country.

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Journal of Applied Accounting Research, vol. 17 no. 3
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 9 January 2019

Varnita Srivastava, Niladri Das and Jamini Kanta Pattanayak

The purpose of this study is to construct a comprehensive Indian corporate governance index in light of the recently introduced Companies Act, 2013, which is further…

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Abstract

Purpose

The purpose of this study is to construct a comprehensive Indian corporate governance index in light of the recently introduced Companies Act, 2013, which is further validated by analyzing its impact on the cost of equity of a firm.

Design/methodology/approach

Based on the hand-collected data from firms listed on S&P BSE 500 from 2001 to 2016, this index comprises seven equally weighted sub-indices, comprising a total of 43 corporate governance attributes. This index and the sub-indices have further been regressed with the cost of equity of a firm.

Findings

The results suggest a negative significant relationship between the overall corporate governance and the cost of equity. The study also suggests that among all the sub-indices, board composition predicts the cost of equity to a greater extent. Other than this, the audit committee sub-index has a negative significant association with the cost of equity. The findings imply that a well-governed firm enjoys ease of access to equity finance from the market.

Originality/value

The corporate governance index is based on the recent regulatory reforms introduced in India. The index, with certain changes suitable to the local context, can be applied to similar emerging economies as well. The causal relationship tested using this method is the first one done in India. This study adds to the domain of corporate governance literature with special focus on the construction of an index for an emerging economy.

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Managerial Auditing Journal, vol. 34 no. 2
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 29 June 2012

Mostafa Kamal Hassan

The purpose of this paper is to examine the extent of corporate governance reporting by United Arab Emirates (UAE) listed corporations.

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2126

Abstract

Purpose

The purpose of this paper is to examine the extent of corporate governance reporting by United Arab Emirates (UAE) listed corporations.

Design/methodology/approach

The paper reports on the study of annual reports of 95 UAE listed corporations representing the major economic sectors (banking, insurance, industrial and service) in the country while crafting a corporate governance reporting index that not only advocates the voluntary publication of corporate governance information but also stresses its underlying ethos of public accountability and transparency.

Findings

Overall, the extent of governance disclosure is found to be similar across the major economic sectors in the UAE. The lowest disclosures are associated with information about external auditing and non‐audit services. The highest disclosures are those dealing with management structure and transparency, which are also found to be significantly different across the sectors in the UAE.

Research limitations/implications

The study examines the corporations' annual reports, as this is the only vehicle in which corporate governance information is disclosed. Future research is recommended to include other disclosure channels such as press releases, corporations' websites, and online reporting.

Practical implications

The findings of this study can assist UAE regulators in formulating corporate governance disclosure requirements. The findings also provide the international business community insights concerning the extent of corporate governance reporting in the UAE.

Originality/value

The crafted corporate governance reporting index not only adds a quantitative dimension advocating the voluntary publication of governance information but also considers the socio‐political context in the UAE.

Details

Journal of Financial Reporting and Accounting, vol. 10 no. 1
Type: Research Article
ISSN: 1985-2517

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Content available
Article
Publication date: 31 October 2018

Weian Li

In recent years, the quality and environment of global corporate governance have drawn attention from researchers and practitioners. Based on the public information of…

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1415

Abstract

Purpose

In recent years, the quality and environment of global corporate governance have drawn attention from researchers and practitioners. Based on the public information of Chinese listed companies (CLCs), the Evaluation Research Group of China Academy of Corporate Governance at Nankai University developed the first corporate governance index system that includes six dimensions to evaluate the status of the governance of CLCs.

Design/methodology/approach

This paper reports the findings of the annual evaluation in 2017.

Findings

The authors found that five of the six dimensions of CLC governance index increased, except for shareholder governance index. Management-level governance and information disclosure index increased most significantly.

Originality/value

Through the evaluation, the authors discovered some governance problems of CLCs and proposed some corresponding suggestions to improve the effectiveness of corporate governance of these companies.

Details

Nankai Business Review International, vol. 9 no. 4
Type: Research Article
ISSN: 2040-8749

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Article
Publication date: 21 November 2008

Juan L. Gandía

The purpose of this paper is to analyse the corporate governance information disclosed by Spanish listed companies on the internet, with the objective of assessing the…

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2676

Abstract

Purpose

The purpose of this paper is to analyse the corporate governance information disclosed by Spanish listed companies on the internet, with the objective of assessing the extent and the influence of several corporate characteristics on the level of information voluntarily disclosed.

Design/methodology/approach

The study took as its reference the existing literature on the examination of the quality of web sites and the importance of content as a key variable in determining web site quality. To quantify the corporate governance information disclosed by Spanish listed companies, three transparency indexes were designed. To contrast which variables determine the information provided online, the investigation based itself on studies about voluntary disclosure in companies, and three lineal regressions models and an ANOVA analysis were performed.

Findings

The empirical evidence obtained reveals that the firms that score highest for transparency are also those that are most likely to use the internet as a channel for the disclosure of corporate governance information. The results show that disclosure levels depend on the degree to which firms are followed by analysts, their listing age, their “visibility” and the fact of belonging to the communications and information services industry.

Practical implications

The need for this study was clear in view of the increasing interest shown by supervisory authorities for the oversight of the European and US capital markets in regulating not only the content but also the manner in which corporate governance information is disclosed over the internet. During the coming years, regulatory stock market agencies will have to strive to take advantage of the opportunities that the internet offers to increase both the relational and informational capacity of company web sites.

Originality/value

Corporate governance research has focused mainly on the analysis of the information that firms ought to disclose and the effects of disclosure generally, without considering the media involved. This paper suggests a new approach that examines the relevance of technology, particularly the internet, and orients supervisory authorities in the direction to follow for improving corporate governance transparency in listed companies.

Details

Online Information Review, vol. 32 no. 6
Type: Research Article
ISSN: 1468-4527

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Article
Publication date: 15 February 2013

Hao Li, John S. Jahera and Keven Yost

The purpose of this paper is to investigate the effect of corporate governance strength as measured by the Gompers governance index (gindex) and other related factors on…

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3028

Abstract

Purpose

The purpose of this paper is to investigate the effect of corporate governance strength as measured by the Gompers governance index (gindex) and other related factors on corporate risk as measured by implied volatility of returns.

Design/methodology/approach

The research incorporates implied volatility as the measure of risk, as compared to earlier studies that have used historic volatility measures. Governance variables include the Gompers Index, as well as other measures to control for firm size, ownership and leverage.

Findings

The findings indicate that corporate risk is significantly inversely‐related with the gindex, which essentially gauges how extensively antitakeover provisions are adopted by a firm. Firm size is the other variable significant in both univariate and multivariate models. Financial leverage and the percentage of outsiders on the board are significantly related to firm risk when not controlling for other factors. Board percentage of voting power does not appear to affect firm riskiness statistically.

Research limitations/implications

Future research needs to examine specifically why higher takeover defenses lead to lower implied volatility. This includes exploring whether the lower level of expected volatility is due to lower levels of takeover activity or whether firms with poor governance assume a suboptimal amount of risk.

Originality/value

The paper contributes to the literature by the use of implied volatility as the measure of risk. The results are robust and provide further support for the relationship between corporate governance and risk. While counter to initial expectations, these results suggest, at the very least, a firm with good governance may not necessarily have low implied volatility in its stock price.

Details

Managerial Finance, vol. 39 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 29 July 2019

Debasis Pahi and Inder Sekhar Yadav

The purpose of this paper is to investigate the nexus between corporate governance and dividend policy of listed Indian firms.

Abstract

Purpose

The purpose of this paper is to investigate the nexus between corporate governance and dividend policy of listed Indian firms.

Design/methodology/approach

Using new corporate governance stipulations, five new indices were constructed, namely, overall board governance index, board structure index, audit committee index, compensation committee index and nomination committee index. Using the newly developed indices, disclosure index and different firm-specific control variables, different panel Logit and Tobit regression models were estimated for 482 non-financial and non-utility listed firms during 2006–2017. Also, before the econometric analysis, mean difference test was conducted to examine the differences in dividend behaviour and corporate governance practices during pre- and post-Companies Act, 2013 and between payers and non-payers.

Findings

The overall evidence suggests that the firms having stronger corporate governance tend to pay higher dividends suggesting that the firm’s propensity to pay dividends increases with the improvement in corporate governance standards. Among the corporate governance indices board structure, audit committee and disclosure norms show a significant and positive relationship, whereas compensation committee and nomination committee show a positive but insignificant relationship with dividend policy. Control variables mostly had the expected impact on the dividends of the firms.

Practical implications

This study suggests that the establishment of the strong and effective corporate governance system is desirable to mitigate the agency conflicts between managers and shareholders and limit managers’ opportunistic behaviour in dividend payout policy.

Originality/value

This study is one of the latest studies to use several newly constructed indices on corporate governance mechanism based on new stipulations which bring new evidence on their specific impact on the dividend policy for an emerging market economy like India.

Details

Managerial Finance, vol. 45 no. 9
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 March 2011

Allan Hodgson, Suntharee Lhaopadchan and Sitapa Buakes

Prior research, in mainly Western economies, suggests the level of corporate governance is financially important. As an emerging economy case study, the purpose of this…

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1892

Abstract

Purpose

Prior research, in mainly Western economies, suggests the level of corporate governance is financially important. As an emerging economy case study, the purpose of this paper is to investigate whether the Thai Institute of Directors (IOD) corporate governance index provides investors with financial information about fundamental value and arbitrage portfolio decisions, and if/how information content changes over time.

Design/methodology/approach

Logistic regressions using 11 financially dependent variables and a “good governance” dummy variable, constructing zero‐cost buy‐sell portfolios, and Fama‐French cumulative average returns (CARs), over the period 2001‐2006.

Findings

The predicted significant relationships between a “good governance” categorization and financial proxies for firm performance; and zero‐cost portfolios that generate very high future monthly excess returns early in the study period, which are then dissipated by 2006, are found. These high returns were also associated with insignificant or inconsistent ten‐day CARs after the announcement of an improving (deteriorating) index category, but with a more rapid reaction in 2006.

Research limitations/implications

Results suggest that either (or in a combination): the Thai stock market had a slow learning adjustment to the governance index because of uncertainty as to information content; the IOD was incomplete and needed fine tuning and updating before full information impact was realized; and other time‐specific factors meant the IOD was of a lesser importance. One limitation is the data time period and the extension of the governance analysis to the global financial crisis years.

Practical implications

Governance information content in Thailand was not (initially) fully integrated into prices with substantial arbitrage returns available to astute investors. Continual re‐assessment and improvement of governance reporting should be an agenda requirement.

Originality/value

The paper forms an extension of governance studies into an Asian emerging economy, and determination of time‐varying information content and arbitrage opportunities.

Details

International Journal of Accounting & Information Management, vol. 19 no. 1
Type: Research Article
ISSN: 1834-7649

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