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Article
Publication date: 16 August 2021

Khairul Anuar Kamarudin, Wan Adibah Wan Ismail and Akmalia M. Ariff

This study aims to investigate whether auditor tenure has a significant influence on accounting quality and whether investor protection moderates the effect of auditor…

Abstract

Purpose

This study aims to investigate whether auditor tenure has a significant influence on accounting quality and whether investor protection moderates the effect of auditor tenure on accounting quality.

Design/methodology/approach

This study uses weighted least squares regression on a sample of 77,855 firm-year observations from 36 countries during the period 2010–2016. This study uses the absolute value of performance-matched discretionary accruals to measure financial reporting quality.

Findings

This study finds that a longer auditor tenure is associated with higher accounting quality, thus supporting the knowledge effect arguments. The results on the joint effect of investor protection and auditor tenure show evidence of the substitutive effect of investor protection, where the positive impact of auditor tenure on accounting quality is weaker in a high investor-protection environment.

Practical implications

These findings provide input for policy implications involving the auditing profession. Regulators may need to weigh the costs and benefits of mandatory audit rotation because country-level institutional factors influence auditing regulations and practices, as well as the auditors’ behaviors.

Originality/value

This study adds to the limited, albeit important, evidence on the joint effect of auditor tenure and country-level governance on accounting quality. The authors respond to the call by Brooks et al. (2017) for more evidence on the role of audits on financial reporting outcomes across various legal institutions for creating effective policies.

Details

Accounting Research Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 21 April 2020

Fangliang Huang, Li Sun, Jing Chen and Chaopeng Wu

The purpose of this study is to examine investors’ intention and behavior concerning ex ante information acquirement and ex post claims from the micro-level perspective…

Abstract

Purpose

The purpose of this study is to examine investors’ intention and behavior concerning ex ante information acquirement and ex post claims from the micro-level perspective with the deepening of the initial public offering (IPO) reform of China.

Design/methodology/approach

The authors made surveys and collected 932 valid questionnaires from investors in China. The authors also conducted interviews with sophisticated investors, investment bankers and government regulators to obtain first-hand information. Based on the survey results, the authors make the empirical analysis.

Findings

Investors’ attention to the first-hand information of the IPO prospectuses is inadequate. Individuals rely more on second-hand information, while institutions conduct more surveys. The higher the institutional practitioners’ degree of education, the more surveys they make. Only 1/3 investors intend to seek judicial remedy when getting fraud information due to high litigation costs and proof collecting difficulties. The investors who read more about prospectuses in advance are more likely to seek judicial protection afterwards. Compared with investors who know less about government administrative protection measures, those who know more have a low probability to choose “not to seek judicial protection.”

Originality/value

The authors enrich the research studies of IPO information acquisition and investor protection by conducting surveys to get first-hand data. Previous literature mostly makes empirical tests by using proxy variables.

Details

Nankai Business Review International, vol. 11 no. 4
Type: Research Article
ISSN: 2040-8749

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Article
Publication date: 10 July 2017

Sheela Sundarasen, Sanjay Goel and Fairuz Ahmad Zulaini

Managers may underprice initial public offerings (IPOs), leading to higher initial returns (IRs). The purpose of this paper is multi-fold: to compensate investors for…

Abstract

Purpose

Managers may underprice initial public offerings (IPOs), leading to higher initial returns (IRs). The purpose of this paper is multi-fold: to compensate investors for risk, to reduce litigation risk, as well as to maintain control over the firm. The authors examine country-level contingencies (degree of investor protection, legal origin and degree of transparency) in OECD countries to explain IPO IRs.

Design/methodology/approach

Cross-sectional data comprising of 4,164 IPOs from 28 OECD countries are used for the period of 2005-2010. Ordinary least square using multiple linear regressions is used to test the hypotheses.

Findings

Investorsprotection is associated with higher IRs. This relationship is stronger in the non-common law countries. Degree of transparency negatively moderates the relationship in common law countries. Overall, the results show evidence of risk compensation, litigation risk reduction, and managerial control motives in underpricing.

Originality/value

IPO IRs in OECD countries is examined, within the boundaries of institutional characteristics, i.e., investorsprotection, legal origin and transparency level.

Details

Managerial Finance, vol. 43 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

Content available
Article
Publication date: 18 June 2021

Mejda Bahlous-Boldi

This paper aims to investigate the link between agency costs mitigation via three levels of rights protection (minority rights protection, enforcing contracts, resolving…

Abstract

Purpose

This paper aims to investigate the link between agency costs mitigation via three levels of rights protection (minority rights protection, enforcing contracts, resolving insolvency issues) provides the propitious climate for financing investment opportunities around the world.

Design/methodology/approach

We use Bartlett’s three-group method to stratify countries based on how well they protect investors as measured by the scores provided in the Doing Business dataset developed by the world bank for 189 countries. We then test a variety of independent hypotheses that the alleviation of agency costs via three levels of protection (minority investors’ rights, contract enforcement, resolving insolvency issues) is associated with better access to credit via the banking system, better valuation of listed firms via the stock market and higher investment and growth.

Findings

Our findings support Agency Theory which explains why the absence of legal protection of external investors leads to stock markets and financial institutions failing to fulfill their role of financing the economy.

Practical implications

The policy implication from this study indicates that countries ought to (1) develop legislation that protects investors’ rights, (2) improve the quality of their judicial system in terms of enforcing the legislation and (3) build the framework for resolving disputes during insolvency as these are important ingredients for a developed financial system.

Originality/value

We use the World bank dataset and a new methodology to quantify the significance of the relationship between minority rights protection, ineffective enforcement, lack of bankruptcy laws and access to firm financing via the banking sector and the stock market. It provides new evidence that the quality of the judicial system in a country matter for firms’ ability to raise financing and enhance value creation.

研究目的

本文旨在探討一個假設,該假設為透過三級別權利保障(保障少數群體的權利、執行合同、解決破產問題)的代理成本緩減會為世界各地的金融性投資機會提供良好的氣侯。

研究設計/方法/理念

我們以巴特利特(Bartlett)的三組法把國家分組,分組方法是基於該國家保障投資者的程度,而保障程度是以世界銀行為189個國家而制定的營商資料集內提供的評分來衡量的。我們把國家分組後,便就各樣的獨立假設進行測試。這些假設是:透過三級別保障(保障少數股權投資者的權利、合同的執行、解決破產問題)的代理成本緩減是連繫於透過銀行系統而產生的更佳信貸途徑,透過股市的更佳上市公司估值及更高的投資和增長。

研究結果

研究結果証實了代理理論,該理論說明為何當外來投資者沒有得到法律保障時,結果會導致股票市場和金融機構不能履行其為經濟提供資金的角色。

實際的意義

本研究具有政策方面的意義,因研究顯示了國家應該:(1)設立保障投資者權利的法律;(2)在執行法律方面,改善其司法系統的素質;(3)建立解決破產時爭議的體系。這些是應該做的,因它們是一個已發展的金融體制的重要元素。

研究的原創性/價值

本文強調了一個保障投資者權利的法律環境所需的三個特定要素:對少數股權投資者權利的保障、有效的執行、有效的破產法律及透過銀行部門和股票市場而取得公司融資。這提供新的證據, 證實這三級別權利保障對公司籌集資金及提高價值創造的能力而言至為重要。

Details

European Journal of Management and Business Economics, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2444-8451

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Article
Publication date: 5 March 2018

Ahmed Kouki

The purpose of this paper is to examine the effect of investor protection on earnings management before and after IFRS adoption.

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Abstract

Purpose

The purpose of this paper is to examine the effect of investor protection on earnings management before and after IFRS adoption.

Design/methodology/approach

A sample of 106 companies listed on Germany, France and Belgium stock markets for the pre-IFRS (2000-2004) and post-IFRS (2006-2011) periods was used. This research is based on a comparative study between the pre- and the post-IFRS periods.

Findings

The results showed that investor protection better explains earnings management after the transition to IFRS. The findings revealed that international standards and investor protection are significant in jointly explaining earnings management for the second reporting period.

Originality/value

The study gives rise to a score that is considered as a proxy of investor protection that regroups several macroeconomic indexes.

Details

International Journal of Accounting & Information Management, vol. 26 no. 1
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 3 February 2012

Vincent F. Yu and Hsiu‐I Ting

The purpose of the study is to investigate whether the relationship between financial development/investor protection and corporate commitment to sustainability is related…

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1509

Abstract

Purpose

The purpose of the study is to investigate whether the relationship between financial development/investor protection and corporate commitment to sustainability is related to social contagion, neighborhood effect, and community effect.

Design/methodology/approach

The study applies correlation analysis, difference tests, and regression model to a sample comprised of 369 large firms listed on FTSE Global 500 covering 11 industries, located in 31 countries. This paper examines three country‐level variables, financial development index, shareholder rights index, and strength of investor protection, and five corporate commitment to sustainability measures, Carbon Disclosure Leadership Index, Greenhouse Gas (GHG) emissions (direct, electricity indirect, and other indirect GHG emissions), and the corresponding carbon intensity.

Findings

The results support the view that the relationship between financial development/investor protection and corporate commitment to sustainability is associated with social contagion, neighborhood effect, and community effect. Companies are more willing to commit to carbon disclosure for countries with higher financial development. Corporate commitment to sustainability is lower if neighbor countries' financial development or shareholder rights are high. Similarly, companies place less strategic importance on climate change issues if their community countries protect investors better, notwithstanding their relatively low level of other indirect GHG emissions.

Research limitations/implications

Future research may build on this research by supplementing the current data with more variables such as domestic financial sector liberalization or measures, such as business environment, financial stability, and size, depth, and access. The negative relationship between commitment to sustainability and investor rights suggests that investor rights and commitment to sustainability are singing different tunes. Corporate commitment to sustainability does not keep pace with investor rights especially for countries with better shareholder rights or investor protection.

Originality/value

This study provides a new perspective on the relationship between financial development/investor protection and commitment to sustainability. This study contributes to the existing literature by using five measures of corporate commitment to sustainability based on firm‐specific data using a sample of the FTSE Global 500. This paper provides a better understanding of the relationship between country‐level characteristics and commitment to sustainability in an environment where global integration is relatively high.

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Article
Publication date: 7 November 2019

Zili Su and Constantinos Alexiou

On the basis of corporate governance and agency cost theory, using the fifth sub-indicator of Fan et al. China Marketization Index as the regional investor protection

Abstract

Purpose

On the basis of corporate governance and agency cost theory, using the fifth sub-indicator of Fan et al. China Marketization Index as the regional investor protection index (IPI), the purpose of this paper is to explore the impact of equity incentives and regional investor protection on corporate payout policies and corporate performance.

Design/methodology/approach

This paper establishes ordinary least squares regression model to examine interactions between the effects of equity incentives and regional investor protection upon firms’ dividend payouts. In addition, the authors also explore whether the joint effects on payouts are altered in the presence of growth opportunities, and investigate the effects of interactions between equity incentives and regional investor protection on corporate performance.

Findings

The authors observe that firm managers appear to abuse equity incentives by increasing dividend payouts. However, regional investor protection can potentially restrain such behavior. The restraining effect depends on the firms’ growth opportunities, on the basis of which the effect on cash (stock) dividends is found to be weaker (stronger) in high-growth firms – and stronger (weaker) in low-growth firms. Further evidence indicates that the restraining effect of regional investor protection on selfish dividend-related behavior encouraged by equity incentives may also prove valuable in encouraging exploitation of these incentives so as to enhance corporate performance.

Practical implications

Since reforming investor protection laws and improving judicial quality are difficult and lengthy at a country level. Improving regional levels of investor protection, however, seems more feasible and effective. Through measures encouraging the development of intermediaries, increases in the number of lawyers – all of which seem likely to constrain behavior harmful to the interests of investors – the provincial administrations can reasonably expect to contribute toward improvements in the performance of firms and the development of the economy in their region. This paper provides encouragement to regional policy makers in China and in other developing countries.

Originality/value

This paper uses a regional index of investor protection to study the impact on corporate dividends and performance, in contrast with most previous studies, which have examined these issues at country or individual firm levels. The use of a regional-level investor IPI in this paper therefore fills a gap by coming in between the country- and firm-level indicators typically used in previous research, thus providing a new perspective on investor protection issues.

Details

China Finance Review International, vol. 10 no. 3
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 3 August 2015

Xiaofeng Shi, Michael Dempsey, Huu Nhan Duong and Petko S. Kalev

– This paper aims to establish the relation between corporate governance – as represented by investor protection at both the legal and firm levels – and stock market liquidity.

Abstract

Purpose

This paper aims to establish the relation between corporate governance – as represented by investor protection at both the legal and firm levels – and stock market liquidity.

Design/methodology/approach

This paper avails of the unique features of Hong Kong- and China-based stocks that are traded on the Hong Kong Stock Exchange so as to test whether differences between “common law” and “civil law” legal environments contribute to differences in stock liquidity. In addition, by constructing an internal corporate governance index score for each firm based on board size, board independence and information on the audit and remuneration committee, we document whether firms with better corporate governance scores have narrower spreads, greater depth and higher trading volumes.

Findings

Overall, results provide support for a linkage between corporate governance issues – as investor rights protection at both the environment and firm protection levels – and stock market liquidity.

Research limitations/implications

This paper recognizes that investor protection constitutes a single component of the desirability of investing in a firm’s stock. Nevertheless, it does appear to constitute an important component of a stock’s attractiveness.

Practical implications

The practical implications are clear, namely, that good corporate governance of firms leads to their attractiveness as investment vehicles (for both the shorter and the longer terms).

Social implications

The paper has clear social implications. In particular, the paper serves to highlight that prospects for enduring wealth creation are contingent on the safeguards accorded to the equity ownership of a firm’s stock.

Originality/value

The originality lies in taking advantage of the unique features of the Chinese and Hong Kong firms on the Hong Kong Exchange, so as to examine the contrasting influences of common law and civil law on stock liquidity. Thus, the authors allow for the effects of corporate governance across the two legal environments (China and Hong Kong) to be compared and contrasted while maintaining other influences unchanged across Chinese and Hong Kong shares.

Details

Corporate Governance, vol. 15 no. 4
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 19 August 2021

Jyoti Dixit, Poonam Singh and Arunima Haldar

Takeovers play a critical role as an external corporate governance mechanism to ensure investor protection. There is a long-standing debate on whether the convergence of…

Abstract

Purpose

Takeovers play a critical role as an external corporate governance mechanism to ensure investor protection. There is a long-standing debate on whether the convergence of corporate governance to global standards can enable emerging economies to ensure investor protection. This paper aims to analyse the evolution of the takeover code, namely, Securities Exchange Board of India’s Substantial Acquisition of Shares and Takeovers (2011) in India from the lens of investor protection. It then compares the takeover provisions in India, the USA, the UK, Singapore and Australia to examine the extent of convergence and its implications for investor protection.

Design/methodology/approach

Using a cross-national comparative analysis of takeover mechanisms in common law countries, the study analyses the extent and relevance of convergence in form. The focus of the comparison is on regulations governing offer size, offer price, creeping acquisition and initial trigger limit for the mandatory open offer.

Findings

The findings suggest that certain provisions such as the initial trigger threshold for the mandatory offer and the offer prices of the Indian takeover code are converging with the standards in common law countries. However, the offer price determination based on market prices may not reflect true market value in an inefficient market like India. Other provisions such as creeping acquisition and offer size are not only diverging from the international standards but are also inconsistent with the key objective of investor protections of the Indian regulator.

Research limitations/implications

Indian takeover regulation needs to converge to higher global standards to ensure adherence to improved investor protection. This needs to be done for the initial trigger limit for mandatory bid and offer prices, after accounting for the differences in institutional structure. The Indian regulators need to revisit provisions on the initial trigger, creeping acquisition to converge to the broader principle of investor protection.

Originality/value

This technical paper provides a comprehensive depiction of takeover mechanisms in an emerging economy context as a means of investor protection. Further using a comparative lens, it analyses the relevance of convergence of takeover laws. Thus, advances the theoretical knowledge of limited extant work on external corporate governance mechanism in an emerging economy context.

Details

International Journal of Organizational Analysis, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1934-8835

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Article
Publication date: 3 April 2017

Luigi Lepore, Francesco Paolone, Sabrina Pisano and Federico Alvino

The purpose of this paper is to analyze the relationship between ownership structure and firm performance, including judicial system efficiency as a moderator to…

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1995

Abstract

Purpose

The purpose of this paper is to analyze the relationship between ownership structure and firm performance, including judicial system efficiency as a moderator to investigate the joint effects of both explanatory variables. Although prior studies have considered judicial system efficiency by examining de jure investor protection, this study identifies another useful proxy and explores de facto legal protection.

Design/methodology/approach

Ordinary least square multiple regression models were used to examine the influence of judicial efficiency, which was measured using the disposition time (DT) and legal origin, as a moderator of the relationship between ownership concentration and firm performance for a sample of 565 non-financial companies listed in Italy, France, Germany and Spain in 2013.

Findings

This paper shows that de facto investor protection ensured by an efficient judicial system is relevant to the relationship between firm performance and ownership structure. As a moderator variable, DT strengthens the intensity of this relationship in countries with low judicial efficiency, showing that ownership concentration leads to a better enhancement of firm performance and is, therefore, a more efficient governance mechanism in countries in which investor protection is weak.

Originality/value

The evidence presented expands the understanding of the link between firm performance and ownership structure. The institutional deficiencies suggest that internal governance mechanisms may substitute for external mechanisms in facilitating efficient governance. This study corroborates policymakers’ concerns regarding the efficiency of judicial systems and their role in protecting the rights of minority shareholders. The results suggest a need for more efficient external mechanisms of investor protection to facilitate investment in equity capital. Moreover, this study shows that DT is a more accurate measure of investor protection than the traditional measure of de jure legal protection.

Details

Corporate Governance: The International Journal of Business in Society, vol. 17 no. 2
Type: Research Article
ISSN: 1472-0701

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