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Cannella and Holcomb ((this volume). In: F. Dansereau & F. J. Yammarino (Eds), Research in multi-level issues (Vol. 4). Oxford, UK: Elsevier Science) are unconvinced that top management teams (TMTs) are the appropriate level of analysis for upper echelons research and are, accordingly, unenthusiastic about the promise of multi-level analysis for research of this type. We agree and discuss (1) the fragility of agency theory as it pertains to TMT research, (2) various issues pertaining to TMT turnover (or lack thereof), (3) paradoxes in practice and theory regarding TMT homogeneity/heterogeneity, (4) the absence of boards of directors in the upper echelons perspective, and (5) the implications of these issues on the theory/conceptualization of TMTs and of the research dedicated to them. We question whether the variables, as currently configured, relied on in this literature are sufficiently developed to adequately test an upper echelons perspective, or to sensibly warrant a multi-level analytical approach.

The purpose of this research is to examine the impact of audit committee financial experts on the risk of financial corruption in public companies.

A time-lagged, matched-pairs sample of 352 corporations was utilized to test the study's hypotheses (176 financially corrupt firms plus 176 compliant firms). To uncover financially corrupt firms, 2,895 Accounting and Auditing Enforcement Releases from the Securities and Exchange Commission were thoroughly evaluated.

The results show that financial experts on audit committees generally increased financial corruption. However, the impact was reversed when audit committees had three or more financial experts, showing that having at least three financial experts reduced financial corruption.

The study's findings call into question the long-held practice of appointing at least one financial expert to audit committees. This study offers a novel approach to improve corporate oversight and reduce financial corruption by having at least three financial experts on audit committees.

The purpose of this paper is to provide insights into the current roles and responsibilities of the internal audit (IA) function and the factors perceived to be necessary to ensure its effectiveness. The current performance evaluation practices of IA are also examined.

Semi‐structured interviews were utilised to elicit the perceptions of key corporate governance actors about the evolving role of IA, as well as IA effectiveness, in terms of its design, measurement and evaluation.

The results of the study suggest significant expansion and refocus of the role of IA and perceptions of its effectiveness. However, the findings also suggest that performance evaluation mechanisms of IA have not evolved contemporaneously. The misalignment between the role and evaluation gives rise to difficulty in assessing the extent to which IA functions are meeting stakeholders' expectations.

The findings are useful in informing the deliberations of regulators and standard setters, as well as providing a benchmark for internal auditors and audit committees. The insights are also relevant for external auditors who are required to consider various aspects of corporate governance, including the objectivity and quality of IA.

The use of semi‐structured interviews facilitates an in‐depth insight and understanding of the perceptions of roles, effectiveness and evaluation of IA and adds depth to the predominantly questionnaire‐based survey approach of prior studies.

We investigate how firms’ responses to misconduct change when the institutional environment becomes more stringent. Organizational theory offers conflicting perspectives on whether new legislation will increase or decrease pressure on firms to take remedial action following misconduct. The dominant perspective posits that new legislation increases expectations of firm behavior, amplifying pressure on them to take remedial action after misconduct. A more recent perspective, however, suggests that the mere necessity to meet more stringent regulatory requirements certifies firms as legitimate to relevant audiences. This certification effect buffers firms, reducing the pressure for them to take remedial action after misconduct. Using a temporary, largely arbitrary exemption from a key provision of the Sarbanes-Oxley Act, we show that firms that were not required to meet all the regulatory standards of good governance it required became 45% more likely to replace their CEOs following the announcement of an earnings restatement after Sarbanes-Oxley. On the other hand, those that were required to meet all of Sarbanes-Oxley’s provisions became 26% less likely to replace their CEOs following a restatement announcement. Ironically, CEOs at firms with a legislative mandate intended to increase accountability for corporate misconduct shoulder less blame than do CEOs at firms without such legislative demands.

This study seeks to evaluate, in a global context, the impact of Sarbanes Oxley Act on a particular risk measure of importance to investors (risk‐adjusted returns), and two measures of risk due to asymmetry (upside and downside risk). A unique dataset permits a dual evaluation of the law's impact on such measures in leading non‐US economies as well (i.e. “ripple effects”).

Hypotheses are empirically evaluated on a sample (n=712) of the largest US and European firms (control) using daily return data from 1993 through 2009 – one of the most extensive data sets employed in the literature on this topic to date. The reliability of the risk measures is carefully evaluated using multiple approaches, including Fama‐MacBeth regressions. A series of difference‐in‐difference analyses is then employed to empirically assess Sarbanes Oxley's impact on equity risk.

The findings suggest Sarbanes Oxley decreased both risk‐adjusted returns and upside risk, whereas downside risk fails to explain the cross section of returns for the largest US firms. From a global perspective, it is suggested that the enactment of Sarbanes Oxley's in the USA motivated leading non‐US economies to adopt similar regulatory measures, which caused “ripple effects” – e.g. effects similar to those documented in this paper – in leading non‐US economies.

The findings suggest that comprehensive financial regulations, such as Sarbanes Oxley Act, are properly envisaged at the global level, as their impact is not confined to the home country. In an increasingly globalized economy, investor welfare is likely to be influenced – directly as well as indirectly – by economic and financial regulation(s) enacted in foreign economies. Arguably, this suggests the pivotal importance of effective mechanisms of global governance, such that a purely domestic approach to regulation may be short‐sighted. In either case, the findings of this study are entirely relevant if regulators are to consider the broader, global impact of regulation on investor welfare.

This is the first study to empirically analyze, within a global framework, Sarbanes Oxley's risk implications without relying on a series of simple mean variance analyses. Substantive research documents that the methodological approach employed is more precise, reliable as well as “investor relevant”. Furthermore, the authors seek to assess the law's impact on leading non‐US equity markets, a first for the literature. Consequently, this study provides a robust evaluation of the law's (international) impact on firm (equity) risk, making an important contribution to the literature.

In response to corporate scandals the USA issued the Sarbanes‐Oxley Act to promote corporate responsibility for financial reporting. Some see the impact of the US legislation crossing borders and influencing the nature of financial reporting in other countries. The purpose of this paper is to investigate whether or not there have been increases in transparency in non‐US financial markets, specifically in South East Asia, suggesting a ripple effect as a result of the Sarbanes‐Oxley Act.

The study examines the audited financial statements of 92 South East Asian companies issued before and after the Sarbanes‐Oxley legislation to note any significant increase in transparency. As a proxy for transparency, the study examines the number of footnotes included in audited financial statements.

The results indicate a statistically significant increase in the number of footnotes in the positive direction. Because of this increase, a changing trend of increased transparency is suggested in South East Asia.

In 2002 the USA passed the Sarbanes‐Oxley Act to promote corporate responsibility for financial reporting. Some see this US legislation creating a ripple effect on financial reporting in other countries. The findings of this study suggest a changing trend of increased transparency in financial reporting in South East Asia. Although this trend cannot be directly attributed to the effects of the Sarbanes‐Oxley Act, it appears to be related to a larger, more transcendent worldwide reform movement towards increased corporate responsibility and financial reporting to which the Sarbanes‐Oxley Act appears to have served as a catalyst.

A structural equation model is proposed to explain internet reporting by banks. The model relates three constructs of financial institutions (size, financial performance, and internet visibility) to their final influence on internet information disclosure (e‐transparency).

This paper's proposed model analyses a sample of Spanish financial institutions using publicly available data. The model is tested using partial least squares.

A positive and statistically significant relationship has been found between size, financial performance, internet visibility, and e‐transparency, with direct and indirect effects. The study shows that size accounts for most of the variance. Size has a positive effect on e‐transparency, financial performance, and internet visibility. However, the direct effect of financial performance and internet visibility on e‐transparency is small.

The researchers have analysed only one year of data from one country and one sector. The direction of cause and effect assumed in the model is a logical one, but statistical methods cannot prove causality, only association. Even though any bank can disclose its financial information online for a very low cost, building a robust, interactive web site requires major resources. This gives larger banks a value added advantage.

The paper examines the relationship between size, financial performance, internet visibility and e‐transparency using a structural model. Although structural models are commonly used in many scientific disciplines, they have not yet been applied in disclosure research.

Stewardship theory is an emergent approach for explaining leadership behavior, challenging the assumptions of agency theory and its dominance in corporate governance literature. This study revisits the agency and stewardship theories by seeking to answer whether chief executive officers (CEOs) in China are committed stewards or opportunistic agents.

Based on 5,165 observations of 1,036 listed companies in China over the period 2005–2010, the results suggest that the corporate governance mechanisms developed from the agency theory in the West are not necessarily applicable in the Chinese context.

This study supports the stewardship theory in its findings that empowering CEOs through the practice of CEO duality and longer CEO tenure have a positive effect on firm value in China. Additionally, the positive relationships between CEO duality, CEO tenure and firm value are strengthened by the number of executive directors on the board, and weakened by the number of independent directors on the board.

One size does not fit all. Leadership behaviors in China do not follow the agency assumptions inherent in Western practices, rather they favor the conditions of positive leadership expressed by the stewardship theory. Assuming that the motivations of managers in emerging markets such as China are similar to those in the West may lead to a poor fit between governance policies and the institutional context.

As one of the few studies to connect the theoretical debate between the agency and stewardship theories, this study presents new evidence to support the stewardship theory, thereby strengthening its theoretical importance and relevance in corporate governance literature.

Despite formal ethics education and ethics-related continuing professional education (CPE) requirements, professional accountants continue to play a central role in enabling corporations to make unethical business decisions and take unethical business actions. Several jurisdictions in the United States require ethics education for licensure, but often the focus is on memorizing rules and regulations, rather than on providing tools to improve the moral practice of professionals and to help them resolve ethical dilemmas. The authors analyzed recent state Certified Public Accountant (CPA) society course offerings and found much more emphasis on memorization than on ethical reasoning to satisfy State CPA CPE requirements. To improve accountants’ ethical awareness and behavior, CPE providers should stress ethical reasoning rather than merely memorizing rules. Such changes will make future and present accountants and auditors more ethically aware, and thus more likely to improve their ethical decision-making. Nonetheless, the authors suggest that effective ethics education and training should start in the classroom with help from departmental advisory councils. Ethics courses offered in accounting programs as well as those offered by CPE providers can leverage the experience of members of advisory councils to create programs that resonate with professionals and foster lifelong ethical awareness and ethical reasoning skills.

Board diversity has been an important topic in corporate governance. Extant literature examines the overall diversity in the boardroom and its impact. However, since important decisions are usually taken by the committees, it is important to also examine diversity in committees. We use the Coca-Cola Company as the case study and examine its diversity in both audit and finance committees. Our goal is to raise the awareness of researchers, board nominating committees, and diverse directors themselves, as to whether diverse directors are placed in the right positions to allow them to contribute their diverse views and experiences.

We conducted a case study of the Coca-Cola Company using its proxy statement in both 2016 and 2018.

While Coca-Cola’s self-reported board diversity stood at 27% in 2016, and increased to 31% by 2018, the critical audit and finance committees showed a distinct lack of diversity. Focusing on gender diversity for the purposes of this chapter, we investigated two possibilities: (1) that the lack of committee diversity is due to the lack of finance and leadership skills of those board members who were from underrepresented groups, but this possibility does not seem likely, (2) that the presence of a female CFO removed the urgency to place board members from underrepresented groups on the audit and finance committees.

We provide a cautionary perspective on the implementation of diversity policies at the highest levels of an organization. The pursuit of diversity, like other admirable corporate goals, can degenerate into a check-the-box mentality. When this happens, diversity can become viewed as a substitute for real competency rather than a complement to existing competencies.

It is suggested that boards revise the recruiting and selecting process to include more female candidates, and be sensitive how and where those diverse directors can best contribute their perspectives and experiences.