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Article
Publication date: 22 June 2020

Ranjan Das Gupta and Rajesh Pathak

The study examines the role of a country's legal system in predicting the corporate cash holdings using a sample of 18 countries inherited with distinct legal traditions…

Abstract

Purpose

The study examines the role of a country's legal system in predicting the corporate cash holdings using a sample of 18 countries inherited with distinct legal traditions. The central point of the study is the comparative assessment of legal frameworks in shaping the corporate finance policies.

Design/methodology/approach

The authors employ host of regression techniques including dummy variables, panel data regression and Fama–MacBeth regressions to establish the relationship.

Findings

The study results support the idea of “theory of law and finance” that legal tradition is a key factor determining corporate behaviour and policy. In particular, the authors observe that firms operating in civil law systems hold significantly higher cash as compared to their peers from common law systems. Moreover, the authors report that the law system affects the corporate cash holdings through the channels of economic development and shareholder's protection, yet in opposite directions. This is because the authors find that in developed countries where civil law tradition prevails, firms hold reasonably higher cash. Moreover, if the firm belongs to high investors' protection country with civil law traditions, the cash holdings get substantially reduced. Besides, the authors find that the predictability of widely held determinants of cash holdings is not invariant of law traditions, and it holds true also when analysed in conjunction with the financial crisis. Overall, the authors find support for their postulation that corporate cash management policies are likely to be different across legal traditions. The study results are robust to the controls for various firm and country-specific antecedents of cash holdings and to the alternate econometric techniques.

Practical implications

The study findings would encourage the government and firm policymakers and regulators in strengthening the investor protection rights which would further augment the legal system and firm-specific corporate governance mechanisms. This would mitigate agency issues and managers would be forced to undertake investor-friendly financial policies especially corporate cash holdings which would be resulting into shareholder value maximization.

Originality/value

The study contributes uniquely since the existing literature is largely silent on the role that legal tradition of a country has on the cash holdings of its firms.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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Article
Publication date: 28 May 2021

Rajesh Pathak, Ranjan Das Gupta and Abhinav Jalali

This study investigates if the widely held predictors of corporate leverage exhibit predictive consistency through times and across countries amidst country…

Abstract

Purpose

This study investigates if the widely held predictors of corporate leverage exhibit predictive consistency through times and across countries amidst country heterogeneities such as legal principles, state of economic development and protection of investors’ rights.

Design/methodology/approach

We employ financial data for 3,197 unique firms from eight emerging and ten developed countries during the years 2001–2017 and use Tobit regression models, a two-step Fama−MacBeth(1973) regression and panel data regression techniques in order to ensure the robustness of estimates.

Findings

We find that firms in the civil French law system exhibit the highest average of a debt (around 27%), whereas firms based in high investors’ protection environment and in developed nations borrow significantly less than their counterparts. Furthermore, among predictors, including a firm's payout ratio, it returns on equity and the cash ratio except the P/B ratio have varying predictability for a corporate debt when firms are classified based on law systems, investors’ rights and the economic scenarios. The crisis period significantly affects the relationship of debt levels with legal systems, investors’ rights and economic development scenario. The author’s estimates are robust to alternate analysis.

Originality/value

This study is unique in its methodological approach and involves a considerably large number of countries and a longer study period for the results to be more generalizable compared to other existing studies.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 3 October 2016

Marcelle Colares Oliveira, Domenico Ceglia and Fernando Antonio Filho

The study aims to analyze the level of the disclosure of corporate governance practices by the companies that belong to the BRICS (Brazil, Russia, India, China and South…

Abstract

Purpose

The study aims to analyze the level of the disclosure of corporate governance practices by the companies that belong to the BRICS (Brazil, Russia, India, China and South Africa) countries according to normative recommendations and coercive requirements considering the enforcement of laws and norms in the different legal systems and to explain it in the light of the institutional theory approach.

Design/methodology/approach

The practices disclosed by a sample of the 20 largest companies listed on the stock exchanges of each of the BRICS countries were analysed, and the 52 practices recommended by UNCTAD (2009) were used as a parameter. The corporate governance practices of the companies were confronted with the laws, rules and norms that require or recommend their adoption and disclosure.

Findings

China has 49 practices required by own national law in face of 52 recommended by UNCTAD/International Financial Reporting Standards (IFRS) followed by South Africa with 44, Russia with 33, Brazil with 28 and India with 24. Brazil has 47 practices recommended by own national governance code in face of 52 recommended by UNCTAD/Intergovernmental Working group of Experts on International Standards of Accounting and Reporting (ISAR), followed by Russia with 45, China with 44, South Africa with 41 and India with 22. It was found that Brazil has the higher median of number of companies disclosing corporate governance practices with 17, followed by India with 13, Russia with 11, South Africa and China with 7.

Research limitations/implications

This research shows that more studies are necessary using the institutional theory to investigate how the normative and coercive pressures influence the disclosure of corporate governance information considering the enforcement of laws and norms in the different legal systems.

Practical implications

The differences observed in this study about normative and coercive forces are presented as an opportunity in the legal sphere of some countries to implement mechanisms to increase their level of enforcement.

Originality/value

This research contributes to various audiences such as governmental institutions, professional associations, market institutions to better understand their role in the improvement of the adoption of corporate governance practices and disclosure of information related to it.

Details

Corporate Governance: The International Journal of Business in Society, vol. 16 no. 5
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 29 April 2021

Rajesh Pathak and Ranjan Das Gupta

The authors examine the stability of dividend payout and the consistency in its predictability using sample of firms from 18 different countries amid their prevailing…

Abstract

Purpose

The authors examine the stability of dividend payout and the consistency in its predictability using sample of firms from 18 different countries amid their prevailing heterogeneous formal institutions (such as the legal system, corporate governance), the distinct state of economic development (developing vs developed) and changing times (during the crisis vs the noncrisis periods).

Design/methodology/approach

The authors use tobit regression models with distinct specifications for the authors’ investigations. The authors alternately analyze the study’s results using Fama–Macbeth (FM) (1973) and generalized least square (GLS) regressions.

Findings

The authors show a sharply declining stability in dividend payout with time using DeAngelo and Roll’s (2015) framework. In terms of predictive consistency, the authors report that only a few idiosyncratic factors predict dividends consistently, and these results hold qualitatively true across the robustness analysis. The firm's liquidity appears to be the most consistent predictor of dividends payout, whereas firm's size being on the other extreme. The results signify that the idiosyncratic factors that matter for firm's dividend policy are not country specific. Instead, it reveals commonality of predictors grounded on characteristics of countries such as legal environment, investor's protection, economic state (ES) and economic cycle.

Originality/value

The authors contribute to the dividends literature by providing the evidence of dividend instability through time and disapproving the stylized fact of sticky dividends. Besides, the authors provide international evidence of inconsistent predictability of dividends.

Details

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

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Article
Publication date: 2 May 2019

Mouna Aloui, Bassem Salhi and Anis Jarboui

The purpose of this paper is to study the impact of some corporate governance mechanisms on the market risk (stock price return and volatility, exchange rate) and on the…

Abstract

Purpose

The purpose of this paper is to study the impact of some corporate governance mechanisms on the market risk (stock price return and volatility, exchange rate) and on the exchange rate and Treasury Bill during the financial crisis. In order to better clarify the firms’ resistance to financial crises, the effect of exchange rate, Treasury Bill and the market risk are also considered.

Design/methodology/approach

The study uses a sample data of the SBF 120 on a panel of 99 French firms over the period between 2006 and 2015 divided into three sub-periods: the first sub-period, which covers the period between December 31, 2006 and December 31, 2009, was characterized by the outbreak of the subprime crisis. The second sub-period considers the sovereign debt crisis in Europe between December 31, 2010 and December 31, 2012. The last sub-period includes the post-crisis period (December 31, 2013 to December 31, 2015). The GARCH and BEKK models are used to capture the effect of volatility and conditional heteroskedasticity of both corporate governance and market risk.

Findings

The paper found that during the financial crisis (first sub-period, the sovereign crisis period), the high shareholders’ protection had a positive and significant impact on the stock market returns. Furthermore, the shareholders’ protection, the Treasury Bill, the institutional investors, the board’s size, had a negative and significant effect on the stock returns volatility. During the post-crisis period, the high protection and the board’s size had a negative and significant effect on the volatility of the stock returns.

Research limitations/implications

This result implies that during the financial crisis, the high shareholders’ protection played a role in increases the stock market return and minimized the stock return volatility.

Practical implications

This study helps in improving the legal protection of investors and helps managers, shareholders and investors to evaluate their investments. This study also provides implications for policymakers and legal environment in order to evaluate the importance of the current corporate governance frameworks in place.

Originality/value

This result implies that the institutional investors, as the results suggest, should follow the shareholders’ protection in all the countries to make decisions about their investments since the high shareholders’ protection increases the firm’s stock returns and decreases the stock return volatility.

Details

International Journal of Managerial Finance, vol. 15 no. 5
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 4 February 2014

Georgios P. Kouretas and Christina Tarnanidou

– The purpose of this paper is to focus on the specific “shareholder's” concept of transparency.

Abstract

Purpose

The purpose of this paper is to focus on the specific “shareholder's” concept of transparency.

Design/methodology/approach

It considers that indirect securities holding systems limit the degree of “post-trading” transparency. The main concern is that an adverse effect of globalized capital markets is that the actual shareholders are not registered in the official registries and registrations are effected in the name of intermediaries acting on their behalf. It further considers that new EU legislative action should be taken to address the legal issues of securities holdings as a key parameter for EU integration.

Findings

A new architecture of the securities holding system is proposed in this paper to be adopted at the EU level on the basis of the analyzed direct registration, i.e. registration of all the actual shareholders in the registries. It is considered that this architecture will promote securities holdings transparency for all systems, either direct or indirect, and hence enhance investors' protection and financial confidence in the markets. Focusing on the financial crisis of the recent years, it is worthy of note that a key parameter in solving this crisis problem could be considered not only the imposition of more possible regulatory requirements on all financial players but also the improvement credibility of the markets by making their operation more transparent. Direct registration could be defined as a method of making the markets more transparent in this regard.

Originality/value

In the light of the financial crisis of 2007-2009, this is one of the first studies, which clearly argues that direct registration could be considered the appropriate method of making the financial markets more transparent. Therefore, it calls for the EU legal intervention should therefore be accelerated. By delaying improvement in the efficiency of the available infrastructures mainly by utilizing all the advantages that technology offers, the markets accept the additional cost of higher risk coverage.

Details

Journal of Financial Regulation and Compliance, vol. 22 no. 1
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 16 October 2018

Saeed Shojaei, Mahmood Motavaseli, Ali Bitaab, Hasti Chitsazan and Ghanbar Mohammadi Elyasi

This paper aims to explore the barriers that constrain the venture capital (VC) financing in Iran based on the institutional theory.

Abstract

Purpose

This paper aims to explore the barriers that constrain the venture capital (VC) financing in Iran based on the institutional theory.

Design/methodology/approach

To answer the question, “How institutional barriers constrain the VC financing in Iran?”, 31 detailed interviews were conducted, and the interviewed data were analysed by using the grounded theory method.

Findings

There exist several institutional barriers (formal and informal) in different stages of the VC investment process in Iran. Major formal institutional deficiencies include lack of appropriate financial regulations, inefficacy in tax, labour, property rights, financial disclosure, bankruptcy, investor’s protection laws and regulations, lack of credit rating/scoring system, inefficacy in small and medium-sized enterprise-supporting policies and capital market underdevelopment. Moreover, there exist some informal institutional barriers such as culture of capitalism disapproval, culture of secrecy, individualistic customs and weakness of managerial skills that constrain VC activities in Iran.

Research limitations/implications

The research findings imply that the government’s role should change from “establishment of government-sponsored VC funds” to “enforcement of institutional reforms that lead to an appropriate framework for VC investment”.

Originality/value

This paper has made three key contributions. First, it has provided comprehensive insights into how institutional barriers constrain the VC investment in a developing country. Second, a new stage-wise model is proposed for analysing the VC investment process. Third, existing knowledge about the role of both formal and informal institutions in the VC investment is extended.

Details

Journal of Entrepreneurship in Emerging Economies, vol. 10 no. 3
Type: Research Article
ISSN: 2053-4604

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Article
Publication date: 19 March 2021

Nektarios Gavrilakis and Christos Floros

The purpose of this paper is to identify whether heuristic and herding biases influence portfolio construction and performance in Greece. The current research determines…

Abstract

Purpose

The purpose of this paper is to identify whether heuristic and herding biases influence portfolio construction and performance in Greece. The current research determines the situation among investors in Greece, a country with several economic problems for the last decade.

Design/methodology/approach

A survey has been conducted covering a group of active private investors. The relationship between private investors' behavior and portfolio construction and performance was tested using a multiple regression.

Findings

The authors find that heuristic variable affects private investor's portfolio construction and performance satisfaction level positively. A robustness test on a second group, consisting of professional investors, reveals that heuristic and herding biases affect investment behavior when constructing a portfolio.

Practical implications

The authors recommend investors to select professional's investment portfolio tools in constructing investment portfolios and avoid excessive errors, which occur due to heuristic. The awareness and understanding of heuristic and herding could be helpful for professionals and decision-makers in financial institutions by improving their performance resulting in more efficient markets.

Originality/value

The main contribution of this paper lies in the fact that it is the first study on two major behavioral dimensions that affect the investor's portfolio construction and performance in Greece. The rationale of the current research is that the results are helpful for investors in order to take rational, reliable and profitable decisions.

Details

Review of Behavioral Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 17 August 2018

Shigufta Hena Uzma

This paper aims to study from three perspectives: the developed countries corporate governance (CG) practices, the role of OECD in the global convergence of CG standards…

Abstract

Purpose

This paper aims to study from three perspectives: the developed countries corporate governance (CG) practices, the role of OECD in the global convergence of CG standards and India as an emerging country.

Design/methodology/approach

The paper reviews the various CG codes and regulations enacted in the Indian paradigm with special reference to the Indian Companies Act 2013 (cited as Act 2013).

Findings

The Act 2013 endeavours to provide a governance landscape in India with reforms. The new CG codes comprehensively introduce more accountability, transparency and stringent disclosure requirements. However, these changes are affected by the ownership structure, the level of enforcement and regulatory compliance of CG disclosure practices imposed on companies.

Research limitations/implications

Further research can be carried out in three domains in emerging countries: ownership structure, the effect of legal and regulatory environment and impact of mandatory compliance.

Practical implications

Legal and regulatory environment are notable extent that can effectively govern the CG codes. An increase in the board size, investor protection and gender diversity, with strong governance structure, can enhance the transparency of companies.

Originality/value

The paper examines the prominence of CG norms with the ratification of the Indian Companies Act 2013, which is analogous with global CG policies and regulations.

Details

Qualitative Research in Financial Markets, vol. 10 no. 3
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 1 January 2012

Pran Krishansing Boolaky

This paper aims to investigate the determinants of the strength of auditing and reporting standards (SARS) in 41 European countries. It posits that there are a number of…

Abstract

Purpose

This paper aims to investigate the determinants of the strength of auditing and reporting standards (SARS) in 41 European countries. It posits that there are a number of country‐level determinants for the SARS and these determinants are grouped into four main categories: legal framework, corporate governance, market and higher education. This study aims to expand the domain of auditing and reporting by using country‐level data than is usually found in the auditing literature.

Design/methodology/approach

Data were accessed from the World Economic Forum (WEF) Report (2009), World Bank Reports on Observation of Standards and Codes (ROSC) and the International Federation of Accountants (IFAC). The ROSC was used to synthesise the status of auditing in the 41 countries, whereas the IFAC report was used to determine the adoption of international standards on auditing. Data on SARS and its determinants were gathered from the WEF Report to empirically examine the validity of the hypotheses. The ranks of SARS were regressed on the ranks of its determinants.

Findings

This paper provides additional empirical evidence on SARS in Europe. It suggests that, in addition to extant literature, judicial independence and efficiency of the legal framework, ethical behaviour of firms, efficacy of corporate boards, strengths of the stock market and extent of staff training in the European countries impact on its SARS.

Research limitations/implications

Because the ROSC are not available for all the European countries, this study could not comment on the status of auditing for all the 41 countries. Second, had the countries been grouped into developed, emerging and developing, the determinants of SARS could be different.

Practical implications

This paper emphasises the importance of the efficiency of legal framework, corporate governance and the training of staff to maintain a reasonable SARS.

Originality/value

This study fills the research gap regarding the absence of an empirical cross‐country study on the determinants of the SARS in Europe

Details

Managerial Auditing Journal, vol. 27 no. 1
Type: Research Article
ISSN: 0268-6902

Keywords

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