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Article
Publication date: 8 May 2018

Tahir Akhtar, Mohamad Ali Tareq, Muhammad Rizky Prima Sakti and Adnan Ahmad Khan

This study aims to provide a review of corporate governance and cash holdings because strong corporate governance is necessary for the efficient utilization of firm’s…

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1811

Abstract

Purpose

This study aims to provide a review of corporate governance and cash holdings because strong corporate governance is necessary for the efficient utilization of firm’s liquid resources such as cash, to minimize the agency cost of high cash holdings and to improve the value of cash.

Design/methodology/approach

The authors provide a literature review of corporate governance and cash holdings through a conceptual and theoretical argument rather than empirical research.

Findings

The authors review an empirical and theoretical work surrounding key corporate governance variables and identify avenues for future research. The authors find that corporate governance mechanisms and cash holdings have received much attention during the past two decades. However, the significant role of corporate governance (both country-level and the firm-level) in controlling the entrenched behaviour of the managers is discussed separately in the literature. The combined effect of both country-level and the firm-level governance is lacking in the cash holdings literature. Additionally, this study has found that much attention is paid to the developed markets, while only a few focused on the developing markets regarding cash holding literature, although the agency problems are high in developing markets.

Originality/value

The study contributes to the growing literature on corporate governance and cash holdings and provides a further understanding of the role of governance in minimizing the agency cost to increase value by assuring that firms’ assets are used efficiently and productively in the best interests of investors and other stakeholders. In addition, it provides a new idea to the policymaker and future researchers where they need to do more work.

Details

Qualitative Research in Financial Markets, vol. 10 no. 2
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 29 April 2014

Iftekhar Hasan and Liang Song

The purpose of this paper is to fill this void in the existing literature and investigate how firms’ disclosure policies influence bank loan contracting in emerging…

Abstract

Purpose

The purpose of this paper is to fill this void in the existing literature and investigate how firms’ disclosure policies influence bank loan contracting in emerging markets after controlling for the influence of borrowers’ private information obtained by banks. Furthermore, the paper examines how firms’ disclosure and non-disclosure governance interact to affect financial contracts.

Design/methodology/approach

The key variables Disclosure and Firm Governance are based on a survey by Credit Lyonnais Securities Asia (CLSA) in 2000. The paper hand-merges CLSA disclosure and governance data with the Dealscan database and Worldscope database by firm names. The paper conducts a multivariate analysis to investigate how firms’ disclosure policies influence bank loan contracting and how firms’ disclosure and non-disclosure governance interact to affect financial contracts.

Findings

The authors found that firms with superior disclosure policies obtain bank loans with more favorable loan contracting terms, such as larger amounts, longer maturity, and lower spread. In addition, the effects of disclosure on bank loan contracting are more pronounced for borrowers with superior firm-level non-disclosure governance or firms located in a country with better country-level governance.

Originality/value

The paper provides a more comprehensive view of the effects of corporate disclosure has on financial contracts in emerging economies.

Details

Asian Review of Accounting, vol. 22 no. 1
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 27 May 2014

Domenico Campa and Ray Donnelly

– The purpose of this paper is to evaluate the impact of corporate governance reforms in Italy.

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1360

Abstract

Purpose

The purpose of this paper is to evaluate the impact of corporate governance reforms in Italy.

Design/methodology/approach

The authors argue that the effectiveness of corporate governance can best be assessed with reference to the choices made by management or controlling shareholders. They use the curtailment of earnings management as a desirable and measureable outcome of good corporate governance to assess Italy’s progress since the 1990s. The UK is used as a reference point because it is a European Union (EU) economy of comparable size and there is evidence that its firms managed earnings to a much lesser extent than their counterparts in Italy in the 1990s. A matched sample of UK and Italian firms was used for the empirical analysis.

Findings

It was found that in contrast to the situation in the 1990s, firms in Italy do not manage earnings to a greater extent than their UK counterparts after the corporate governance reforms. In addition, firm-level governance has a greater effect on earnings management in Italy than in the UK. The authors attribute this to firm-level governance compensating for deficiencies in national institutions.

Research limitations/implications

The restriction of earnings management is just one positive consequence of good governance. Other positive outcomes require to be studied to form a complete picture of the impact of governance reforms in Italy.

Originality/value

This paper is the first to use an outcome-driven approach to evaluate the impact of governance reforms.

Details

Corporate Governance, vol. 14 no. 3
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 2 March 2015

Michael Kend

The purpose of this study is to consider three distinct bodies of literature and uses stakeholder theory as the premise of this study. The first deals with corporate…

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1909

Abstract

Purpose

The purpose of this study is to consider three distinct bodies of literature and uses stakeholder theory as the premise of this study. The first deals with corporate sustainability reporting and voluntary disclosure behaviour, and corporate governance at the firm level, the second deals with the decision to utilize assurance services (voluntary adoption) and the third relates to the choice of auditor/assurance provider.

Design/methodology/approach

This study investigates these issues using archival data from some of the Top 200 listed companies in 2010 from the countries Australia and the UK. The final matched-pair sample consists of 220 listed companies.

Findings

The study finds that audit client size and the strength of corporate governance structures are significant in explaining the decision to produce a standalone sustainability report. Whereas few of these variables provide any explanatory value on the voluntary decision to assure the sustainability report, the existence of an active and diligent audit committee does have positive significance. Finally, the existence of an active and diligent sustainability committee is significant in explaining the choice of assurance provider where a member of the auditing profession was selected by the firm’s management.

Originality/value

Few studies (if any), have found a link between governance characteristics, sustainability report production, and assurance provider. The current study attempts to address this knowledge gap, and also considers the assurance work by professionals outside the auditing profession, and identifies which governance and firm-level characteristics may explain demand for their assurance services. This current study, assists to understand the low incidence of assurance and what might be necessary to increase demand for this type of assurance.

Details

Sustainability Accounting, Management and Policy Journal, vol. 6 no. 1
Type: Research Article
ISSN: 2040-8021

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Article
Publication date: 1 February 2016

Liang Song and Joel C Tuoriniemi

The purpose of this paper is to examine how firms’ accounting quality affects bank loan contracting in seven emerging markets and whether these relationships are affected…

Abstract

Purpose

The purpose of this paper is to examine how firms’ accounting quality affects bank loan contracting in seven emerging markets and whether these relationships are affected by borrowers’ governance standards.

Design/methodology/approach

The study sample period is 1999-2007 because the syndicated loan market was severely affected by the East Asian financial crisis of 1998 and the US financial crisis of 2008. The final sample includes 719 loan observations for 75 firms in seven emerging markets.

Findings

The authors find that syndicated lenders provide loans with more favorable terms such as larger amounts, longer maturity and lower interest spread to borrowers in emerging markets with higher accounting quality. The authors also find that the influences of accounting quality on syndicated loan contracting for borrowers in emerging markets exist only with higher country- and firm-level governance rankings. The results of this paper suggest that lenders place more value on accounting numbers generated by borrowers in emerging markets with stronger internal and country governance frameworks.

Originality/value

Overall, this research provides new insights about how accounting quality affects the contract design. Specifically, the extant literature has demonstrated the effects of accounting quality on financial contracts in developed countries (e.g. Bharath et al., 2008). The authors extend this analysis to borrowers in emerging markets and confirm a similar result. Most notably, the authors explore whether the relationship between accounting quality and syndicated loan contracts is influenced by borrowers’ country- and firm-level governance, and find that accounting quality matters only when accompanied by high-quality governance. This research provides new insights about how accounting quality and governance standards affect the terms of borrowing contracts in emerging markets.

Details

Pacific Accounting Review, vol. 28 no. 1
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 26 August 2014

Hardjo Koerniadi, Chandrasekhar Krishnamurti and Alireza Tourani-Rad

– The purpose of this paper is to analyze the impact of firm-level corporate governance practices on the riskiness of a firm's stock returns.

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2800

Abstract

Purpose

The purpose of this paper is to analyze the impact of firm-level corporate governance practices on the riskiness of a firm's stock returns.

Design/methodology/approach

The authors constructed an index of governance quality incorporating best practices stipulated by regulators. The authors employed regression analysis.

Findings

The empirical evidence, using an index of corporate governance, shows that well-governed New Zealand firms experience lower levels of risk, ceteris paribus. In particular, the results indicate that corporate governance aspects such as board composition, shareholder rights, and disclosure practices are associated with lower levels of risk.

Research limitations/implications

A limitation of the study is that the corporate governance index constructed is somewhat arbitrary and due to limitation of data availability the authors may have excluded some factors such as share trading policy of directors and policies regarding provision of non-auditing services by auditors. The research supports the view that institutional context could have an impact on governance outcomes. The work has three implications for managers, investors, and policy makers. First, the results imply that well-governed firms have lower idiosyncratic risk and that this reduction is most likely due to the reduction in agency costs and information risk. Second, in the absence of features like an active corporate control market and stock option based managerial compensation, managers have little incentives to take on risky projects that increase firm value. Third, the results suggest that the managers of well-governed firms are not more risk averse with respect to investment decisions compared to poorly governed firms.

Practical implications

The work has practical implications for managers, investors, and policy makers. Well-governed firms face lower variability in stock returns compared to poorly governed firms. Firms that have independent boards that protect its shareholders’ rights and disclose its governance-related policies experience lower firm-level risk, other things being equal.

Originality/value

This study is the first one to examine the impact of a composite measure of corporate governance quality on stock return variability in a non-US setting. The results suggest that firms can use specific corporate governance provisions to mitigate firm-level risk. The findings of the paper are therefore relevant and useful to corporate managers, investors, and policy makers.

Details

International Journal of Managerial Finance, vol. 10 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 13 April 2010

Alexandre Di Miceli da Silveira, Ricardo Pereira Câmara Leal, André Luiz Carvalhal‐da‐Silva and Lucas Ayres B. de C. Barros

This paper aims to investigate the determinants and the evolution of voluntarily adopted firm‐level corporate governance practices in Brazil from 1998 to 2004 using broad

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2379

Abstract

Purpose

This paper aims to investigate the determinants and the evolution of voluntarily adopted firm‐level corporate governance practices in Brazil from 1998 to 2004 using broad corporate governance scores.

Design/methodology/approach

The authors employ a robust panel‐data procedure that accounts for the main sources of endogeneity to a very representative panel of Brazilian firms over a six‐year period. They address the endogeneity that arises from the simultaneous determination of the quality of corporate governance practices, the dependent variable, and possibly several firm attributes that are commonly employed as the determinants of such practices and are supposedly independent. Specifically, theoretical arguments and empirical evidence strongly suggest that the quality of corporate governance practices may influence some of the variables commonly used as its determinants just as much as they may be influenced by them.

Findings

The paper finds that firm‐level corporate governance practices are steadily improving but there is much room for improvement. Heterogeneity has increased. Voluntarily adhering to new stricter listing requirements is associated positively with improvements in firm‐level corporate governance practices. Reducing or not using non‐voting shares improves corporate governance practices.

Research limitation/implications

The authors found no clear evidence of the influence of other potential determinants of the quality of corporate governance, such as growth prospects, firm size, firm value, and ownership structure. Thus, they doubt previous findings that suggest a causal relationship from value and ownership to corporate governance practices because value and ownership seem to be determined endogenously.

Practical implications

Policies directed to reduce the use of non‐voting shares should be implemented. Creating strict listing requirements that may be adopted voluntarily by firms could be a feasible solution to improve the quality of corporate governance practices in emerging market countries. Firms in an emerging market that find that issuance in the USA became too expensive or demanding may offer a substitute listing environment with credible requirements to foreign investors. Premium listings may partially compensate emerging market exchanges for their loss of trading to major markets.

Originality/value

The paper examines the evolution of the voluntary adoption of corporate governance practices in Brazil from 1998 through 2004 while most studies use cross‐section samples over one or a few years. Further, this is one of a few papers to analyze the impact of ownership structure on the quality of corporate governance practices by segregating control and cash flow rights.

Details

Corporate Governance: The international journal of business in society, vol. 10 no. 2
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 4 April 2017

Ridhima Saggar and Balwinder Singh

This study aims to measure the extent of voluntary risk disclosure and examine the relationship between corporate governance firm level quality in the form of board…

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2978

Abstract

Purpose

This study aims to measure the extent of voluntary risk disclosure and examine the relationship between corporate governance firm level quality in the form of board characteristics and ownership concentration’s impact on risk disclosure in the annual reports of Indian listed companies.

Design/methodology/approach

The method adopted in this study is automated content analysis, which is applied to a sample of 100 listed Indian non-financial companies to find out the extent of risk disclosure. Further, multiple linear regressions have been applied to find out the relationship between corporate governance firm level quality in the form of board characteristics, ownership concentration and risk disclosure.

Findings

The findings reveal that the total number of positive risk keywords surpasses negative risk keywords disclosure. The corporate governance mainsprings, namely, board size and gender diversity have a positively significant effect on risk disclosure, whereas ownership concentration in the hands of the largest shareholder insignificantly affects risk disclosure, but identity of the largest shareholder having ownership concentration negatively affects disclosure of risk information in the case of Indian promoter body corporate, foreign promoter body corporate and non-institutions in comparison to family ownership.

Research limitations/implications

This study relied on a set of 39 risk keywords for measuring the extent of risk disclosure. Further, it uses a sample of 100 companies to examine the effect of corporate governance on risk disclosure at one point of time. However, a longitudinal study can help in understanding risk disclosure adopted by Indian listed companies in a better manner.

Practical implications

The findings have implications for regulatory bodies such as the Securities and Exchange Board of India, which needs to strengthen corporate governance norms with respect to board characteristics and keep a check on ownership concentration for improving risk disclosure by companies.

Originality/value

To best of the authors’ knowledge, this study is a preliminary attempt linking two research lines in India, that is, corporate risk disclosure and corporate governance quality in the form of board characteristics and ownership concentration. The study identifies corporate governance firm level qualities which lead to divulgation of risk information by the companies pointing towards strengthening of regulatory regime in the country for improved corporate governance regulations adopted by listed companies.

Details

Managerial Auditing Journal, vol. 32 no. 4/5
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 16 September 2021

Abdulhakim M. Masli, Musa Mangena, Ali Meftah Gerged and Donald Harradine

This study distinctively explores the firm-level and national-level determinants of audit committee effectiveness (ACE) in the Libyan banking sector (LBS).

Abstract

Purpose

This study distinctively explores the firm-level and national-level determinants of audit committee effectiveness (ACE) in the Libyan banking sector (LBS).

Design/methodology/approach

A mixed-methods approach has been employed to enhance the quality of the collected data and reduce the risk of bias. Five groups of actors in the Libyan banking sector were surveyed, including board members, AC members, executive managers, internal auditors and external auditors, further to interviewing a representative sample of these groups. In total, 218 survey responses were gathered, and 20 semi-structured interviews were conducted.

Findings

The study results show that AC authority, financial expertise and diligence are positively and significantly attributed to ACE, although AC independence and resources are not significantly related to ACE. The authors find that the legal and regulatory environment, government intervention, and the accounting and auditing environment are perceived as important and associated with ACE regarding national-level factors. These findings are strongly supported by semi-structured interviews and suggest that both firm-level and national-level factors are essential in understanding ACE in Libya's banking sector.

Research limitations/implications

The study’s evidence reiterates the vital need for more concentrated work to integrate governance, legislative and regulatory reforms to ensure the effectiveness of ACs as a key corporate governance (CG) mechanism in developing economies.

Originality/value

This study extends the literature relating measures of AC inputs and outputs by examining the perception of stakeholders to understand both the firm-level and national-level factors that affect ACE in a single institutional setting. Additionally, this work adds to the limited number of recent studies examining the role of ACs in the banking sector in developing economies.

Details

Journal of Accounting in Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 10 August 2015

Tesfaye T. Lemma

The purpose of this paper is to examine the influence of perceived corruption on debt financing and ownership structure decisions of firms within the context of ten…

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3494

Abstract

Purpose

The purpose of this paper is to examine the influence of perceived corruption on debt financing and ownership structure decisions of firms within the context of ten African countries.

Design/methodology/approach

The paper analyses 15-year (1996-2010) data pertaining to 556 non-financial firms drawn from ten African countries using models that link firm financing, ownership structure, and perceived corruption. It uses robust procedures including system-generalized method of moments, general least square, and Logistic (LOGIT) regression.

Findings

The study finds evidence that perceived corruption is important in shaping debt financing and ownership structure decisions of firms in Africa. Particularly, it finds that: first, higher levels of perceived corruption lead to firms using higher levels of short-term leverage, lower levels of long-term leverage and debts with shorter maturities and second, firms in countries with higher levels of perceived corruption respond to weaknesses in the law enforcement institutions through higher ownership concentration and controlling block shareholding.

Research limitations/implications

As in most empirical studies, this study focused on listed firms. Nonetheless, future studies that focus on non-listed firms could add additional insights to the extant literature.

Practical implications

The study provides empirical support for the argument that perceived corruption in a country distorts corporate governance. The policy implication of the findings is that governments, by taking steps that curb corruption, could enhance corporate governance by inducing firms into optimal debt financing and ownership structure decisions.

Originality/value

The study focuses on firms in African countries for which studies such as this are non-existent.

Details

Journal of Economic Studies, vol. 42 no. 3
Type: Research Article
ISSN: 0144-3585

Keywords

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