Corporate governance and social norms during financial crisis: evidence from France and Saudi Arabia

The resistance to financial crisis and compliance with social norms and effectiveness of corporate governance mechanisms is considered recently as a good matter of concern. Focusing on differences between French and Saudi firms, we examine the effect of (1) board of directors, (2) audit committee, (3) compliance with Corporate Social Responsibility activities, (4) compliance with Shariah principles on financial volatility during subprime crisis of 2007. We find that larger boards, larger audit committees, independent members on boards and audit committees are related negatively to financial volatility. The result supports corporate governance theory which suggests that corporate governance variables outlined provide effective of monitoring of the management thereby enhancing firm’s resistance to financial crisis. In addition, we find that compliance with CSR alone does not explain the financial volatility. Its concert with corporate governance variables is necessary. This result supports stakeholder theory which argues that companies compliant with CSR activities in their business strategy and have larger boards and audit committees, and independent directors on boards and audit committees resist more financial downturns and any economic shock. Furthermore, we find that compliance with Shariah norms plays a significant role in protecting shareholder interests, improving functioning of corporate governance mechanisms and affect positively the resistance of Saudi firms to financial crisis.     

公司治理于财务困难公司效果之研究

美国Enron案发生后,为维护资本市场安定与保护投资大众,各国均致力提倡公司治理,如强化董监结构、股权结构与提升透明度等。然而,在主管机关与公司管理当局均认为企业公司治理机制已有显著的强化后,台湾企业诸如博达、讯碟等公司仍然持续爆发弊案。因此,治理政策是否确实落实执行于各企业,值得深入探讨。因此,本研究拟以财务危机公司的公司治理机制及其影响为探讨重点。首先了解公司爆发财务危机前的公司治理运作情形,进而讨论在发生财务危机后,采用各项公司治理机制是否对提升公司财务状况有所帮助,提供主管机关及投资人决策之分析。实证结果显示,董监事持股,控制股东担任董事监察人、专业经理人担任董事席位数、董事会规模这三项皆可做为投资人投资公司的参考,及财务危机公司是否能转危为安的判断依据。     

The impact of the board of directors characteristics on corporate performance and risk-taking before and during the global financial crisis

Over recent years, the effectiveness of good corporate governance practices has received considerable attention by the financial literature. In the current global finance crisis, several practitioners, academic and regulators argue that mechanisms of corporate governance have not served their purpose to safeguard equitably the interest of stakeholders, increasing the corporate risk-taking without proper management. This research contributes to the empirical literature, analyzing the impact of board characteristics and the capital structure on corporate performance and corporate risk-taking, in two different economic contexts: in an economic growth and in an economic recession. The methodology implemented takes into account the bidirectional causality and addresses endogeneity problem using a simultaneous equations system with three-stage least squares estimation method. The results show that the effectiveness of the board is sensitive to the economic period and the capital structure leads to reduce the levels of corporate risk-taking during the crisis. This research suggests that good corporate governance mechanisms should mitigate excessive corporate risk-taking and protect the interest of stakeholders in both periods: before and during the global financial crisis.     

Introduction to Special Issue on Sustainable Corporate Governance

Papers in this special issue focus on sustainable corporate governance measures in the aftermath of the financial crisis, and a background environment of increased scepticism over executive pay and corporate behaviour more generally. The authors provide an overview of recent corporate governance reforms, including ‘say‐on‐pay’ and gender‐pay‐gap transparency, and explain how the research papers in the special issue contribute to understanding of corporate governance research and practice in the areas of boards of directors, corporate governance reform and corporate culture and risk‐taking.     

Sustaining the Financial Value of Global CSR: Reconciling Corporate and Stakeholder Interests in a Less Regulated Environment

In this article we examine the association between corporate social responsibility (CSR) and firm value. This line of research is important since firms continue to invest in CSR even though past studies reveal a limited linkage between financial value and CSR. However, the business case for CSR or “doing good while making a profit,” appears to be advancing within the business ethics literature as a preferred conception of CSR. We conjecture that the greater unification and refinement of both profit maximization and stakeholder interests through corporate acts, not statements alone, will sustain the financial value of CSR in a less regulated global business environment. We study the triangle of what companies say, what companies do, and firm financial performance. We analyze Fortune 250 firms and find a positive association between what companies do based on KLD Research and Analytics, Inc. (KLD) ratings, and what companies state about ethics in their CSR statements. We then employ regression analysis and find that companies’ socially responsible acts are positively associated with overall firm value and financial performance. Yet we do not find a statistically significant association between what companies say regarding ethics in their CSR statements and their financial outcomes. These results suggest that firm value and financial performance is associated with what companies do and not what they say. Our results seem to be driven by multinational corporations (MNCs) and not by non‐MNCs. This is possibly because MNCs generally operate in a less regulated global business environment that often necessitates strong ethical corporate leadership to further stakeholder interests. Overall, these results help reconcile corporate and stakeholder objectives since evidence of a link between financial performance and doing good sustains global CSR.     

Interlocking directorship across Italian listed companies: evidence from a natural experiment

The financial crisis of 2008 and the introduction of the Interlocking Ban in 2011 (for financial firms) deeply influenced the Italian corporate governance system. The aim of the present study is to investigate to what extent personal ties among the directors of Italian listed companies have changed after these two events. We describe the evolution and dimension of the phenomenon of interlocking directorship (ID) for all the Italian listed companies over the period 1998–2013 using different methodologies. Social network analysis discloses the existence of clusters of companies whose links remain dense after the crisis, while connections to the peripheral units of the system decrease, reducing the overall connectedness. Results reveal that, over the period, there is a reduction in the cumulation ratio which still remains high and mainly due to a high number of directorships for multiple directors. This reduction is more severe after 2008 when both the financial crisis and the Interlocking Ban occur. In disentangling the two effects we observe ID reduction during and after the crisis, also for non-financial firms, confirming the general tendency of a decline in national board interlocking networks.     

Corporate governance and accountability in multinational enterprises: Concepts and agenda

The objective of this editorial article is twofold: (1) to develop a conceptual foundation that defines corporate governance and accountability in MNEs and (2) to present issues for future research on the ground of this conceptual foundation. Despite recent attention and greater efforts to understand MNE corporate governance and accountability using multiple disciplines, a cohesive and integrated foundation to define them and their interrelationships is still lacking. Even among submissions to this special issue, there is no one article that conceptualizes all of these issues. To fill this void, this article explains what constitutes corporate governance and accountability in an MNE; we address what elements the concepts entail, how they differ from domestic firms and in what ways governance and accountability are mutually facilitative. This article also discusses several major research issues that have strong implications for MNE governance and accountability design.     

Comparative and International Corporate Governance

Abstract

In this article, we examine the state of the art in comparative and international corporate governance by identifying the key research questions, main concepts, and paradigms of explanations of cross‐country diversity in corporate governance. First, we discuss the multiple definitions of corporate governance across disciplines and explore how this multi‐dimensional nature of corporate governance posses challenges when making cross‐national comparisons. Second, we review existing comparative research on corporate governance and highlight some of the main characteristics of comparative analysis. Third, we analyze how comparative corporate governance has been understood from four different scholarly perspectives: economics and management, culture and sociology, legal, and political paradigms. We conclude from this third section that future research should make an effort to better integrate cross‐disciplinary paradigms. Fourth, we investigate what insights these four perspectives bring to understand change and stability better in two particular governance dimensions: corporate ownership and the role of labor in comparative corporate governance. Finally, we conclude the article with some forward looking suggestions regarding (1) how different perspectives of corporate governance can be more effectively integrated by adopting case‐based, historical, and actor‐centered forms of institutional explanations and by (2) discussing the current U.S. corporate governance system, frequently seen as the “best practice” model.     

Does strategic corporate performance depend on corporate financial architecture? Empirical study of European,Russian and other emerging market’s firms

Performance of the firm depends on its structural dimensions: capital structure, ownership structure and corporate governance. Their interactions are known as corporate financial architecture according to S. Myers. In this paper we analyze financial architecture which is a mix of ownership structure, capital structure, control and board’s composition, and therefore, provides the given framework for improving corporate performance. We contribute to the literature by different attributes of our study. In contrast to most empirical papers on performance, we develop integrated rather than segmented approach combining the intrinsic components of corporate financial design in one research model. We introduce new variable to capture the structure of ownership for the purpose of performance analysis. Our third contribution is based on comparative analysis of the influence of financial architecture over corporate performance in rather different capital market environment: developed European and emerging (developing) capital market’s countries. We start with a classic empirical model of the impact of ownership structure, capital structure and other components of financial architecture on the corporate performance. Further we verify the validity of exogenous nature of key variables of the classic model when applying it to companies in developed and emerging market environment. Our results could have some important policy implications for the firms in normal economic environment as well as in the period of global economic crisis. We found that the higher proportion of related ownership which indicates investors with significant voting power and the board’s composition affect firm performance positively. The related shareholders and independent directors seem to add more value to firms while the impact of government ownership differs depending on the country. The emerging market’s sample versus the one from developed countries proves the stronger influence of corporate financial architecture over performance.     

网络时代的适时财务监控与公司治理

网络技术应用的普及使传统财务监控的变革已成为公司治理和财务管理的热点话题,本文简要揭示新概念——适时财务监控与公司治理的关系,剖析了公司不同管理层次的适时财务监控的实时需求,从公司治理的基本需要对公司价值流再造、公司信息系统变革和适时财务监控机制重构等三个方面进行了初步研究,为网络适时财务监控在公司治理实务中的应用提供了一个基本框架。     

Ex-post governance in joint ventures: Determinants of monitoring by JV boards of directors

Considerable advances have been made in corporate governance research in recent years and opportunities exist to consider these developments within alliances. We extend the “scope of operations” hypothesis to the domain of joint ventures. This proposition suggests that the monitoring carried out by boards increases when organizations become more complex. The inherent characteristics of JVs generate unique sources of complexity that are currently unexplored in the corporate governance literature. First, we seek to determine their influence on monitoring by using primary data on JV board monitoring. Second, we adopt the size of JV boards as a proxy for monitoring in order to examine whether the determinants of board size and monitoring in fact coincide and to reveal if certain effects are masked by using board size as a simple proxy for monitoring. Doing so enables us to investigate the black-box of what boards actually do as well as extend governance research to other organizational forms. Our findings confirm that the unique characteristics of JVs influence the information needs by the boards resulting in more monitoring by JV directors. Our findings show there is value in bridging alliance theory and the literature on corporate governance research. We also advance practitioner's understanding by providing suggestions on how to structure JV boards in relation to their complexity.     

Financial Reporting,Private Disclosure and the Corporate Governance Role of Financial Institutions

This paper explores how large UK financial institutions (FIs) pursued a private corporate governance agenda with their portfolio companies. It also investigates the role of financial reporting in private and public corporate governance. The case financial institutions argued that the limited quality of public information, especially in financial reports, was a major constraint on their ability to act in fund management and corporate governance roles. However, the financial reporting cycle determined a private institutional and company meeting cycle and this created opportunities for private information collection and for governance influence by FIs. In addition, the perceived limitations of public governance mechanisms such as voting encouraged private governance approaches. As a result, the case financial institutions had the incentive and the means to improve the quality of their sources of corporate information and to obtain a competitive edge over other financial institutions and the market through their direct contact with companies. Despite the limitations of public information, the paper reveals how public disclosure in financial statements and the financial reporting cycle played a central role in corporate governance. Public sources of information were combined with private sources to create a financial institutional knowledge advantage. The institutions used this knowledge to diagnose problem areas in strategy, management quality, and the effectiveness of the board, and their impact on financial performance. The financial reporting cycle meant that the quasi insider financial institution had the access opportunity and the joint public/private insight to influence companies across a wide corporate governance agenda and in a range of corporate circumstances. The case institutions exploited these private access and knowledge advantages for investment purposes and for Cadbury style corporate governance purposes. Thus, the private governance process was critically dependent on the FI knowledge advantage, which in turn relied on both financial reports and private disclosure. This wide ranging governance behaviour by institutions corresponds to recommendations subsequently made by the Hampel report in 1998 concerning UK corporate governance. The paper ends by exploring how the private institutional and company meeting agenda can suggest new directions for financial reporting and public disclosure and how this can further improve public and private corporate governance.     

基于控制权私有收益视角的可转债融资的治理效应研究

通过在职消费、过度投资、自由现金流和现金股利支付4个变量间接测度管理者攫取的控制权私有收益,并运用中国A股市场数据实证检验权益、债务和可转债3种不同融资方式下(横向比较)以及可转债发行前后(纵向比较)企业控制权私有收益的差异。研究结果表明,可转债发行将导致在职消费和自由现金流的降低以及现金股利支付的增加;但在抑制管理者过度投资中可转债并未发挥积极作用。研究结果为优化我国企业融资结构,完善内部公司治理提供了理论支持;同时,也将为促进我国资本市场金融创新提供新的证据。     

资本结构、金融中介和公司治理

公司治理作为当前国有企业改革的重要措施之一,受到了人们广泛的关注。而金融中介机构的发展与成熟程度直接影响着公司的资本结构和治理结构,进而影响着公司的竞争能力。本文借鉴西方财务理论和日美公司治理方面的经验与教训对金融中介机构是否应积极参与公司治理进行了较深入的探讨,提出其积极参与公司治理的理性决策模型,同时也回答了如何来完善我国上市公司的公司治理结构的问题:重构现代金融体系,激励国有商业银行,大力发展资本市场、培育机构投资者以及修改与制定相关的法律制度,促使其积极参与公司治理。     

基于联立方程模型的公司治理溢价研究——兼谈如何检验公司治理评价指标的有效性

公司治理溢价研究可以揭示公司治理与企业价值之间的互动机理,不仅有助于深化和丰富公司治理理论,为上市公司优化公司治理指明方向和重点,而且有助于投资者全面评估企业价值.而对公司治理的客观评价是公司治理溢价研究中的关键问题,本文在以往研究成果基础上,以上证公司治理板块的评选结果为参照样本,给出了检验公司治理评价指标有效性的科学方法,进而验证了以DEA方法构建的公司治理效率值指标的有效性;在此基础上利用联立方程模型对公司治理溢价进行研究,解决了公司治理与企业价值之间可能存在的内生性问题;以2007年中国沪市578家A股公司为样本对联立方程模型进行估计.结果表明,中国股票市场存在公司治理溢价,公司治理效率值每增加0.1,流通盘市场附加值就会有37.2%的溢价.     

The 2007 financial crisis: strategic actors and processes of construction of a concrete system

The recent financial and economic crisis, defined “a once in a century credit tsunami” by former President of Federal Reserve, Alan Greenspan, has produced relevant damages in all economic sectors, making many people much poorer. For this reason, many scientific contributions have addressed the causes of the crisis, focusing mostly on the ‘bad practices’ in lending and credit securitization procedures as well as in corporate governance mechanisms ruling the banking system. Our work is based on an organizational perspective and it reviews the crisis under a theoretical model that combines the political and new institutionalist studies, in order to show evidence of the intense network of relationships and interests underlying the financial system government. In doing so, we identify the key players acting as institutional entrepreneurs that, levering on their resources and power, have contributed to construct and reshape the institutional framework—normative and symbolic—ruling the so called Great Moderation period.     

Assessing corporate governance quality: substance over form

After the 2008 global financial crisis and corporate scandals, assessing and improving corporate governance quality (CGQ) is essential. This paper proposes a different approach to evaluate CGQ, to overcome the conceptual and methodological limits of the previous rating systems. It tries to go beyond the objectives of the existing models by suggesting an alternative operating model, (aligned with the new CG guidelines) that provides a concise index for monitoring and decision-making. Using a Fuzzy Expert System (FES), the authors propose a formalized model that: (1) represents all the factors (structural and behavioral) that affect the quality of corporate governance in terms of practical and objective decision-making procedure; (2) is a flexible and useful management tool for supporting the “Board review” and assessing the increase in CGQ associated with particular decisions; (3) supervisors can use to assess CG adequacy by replacing or integrating the experts’ opinions with interviews/questionnaires filled in by directors and managers or through direct observation, as recently suggested by EBA/ESMA. This paper highlights the importance of behavioral features and group dynamics in corporate governance and represents them in an integrated model together with other structural and organizational elements.     

Corporate Governance und Eigenkapitalkosten - Bestandsaufnahme des Schrifttums unter besonderer Ber��cksichtigung des Informationsaspektes und Forschungsperspektiven

The present paper provides an overview of research concerning the relationship between corporate governance and the cost of equity capital. The purpose is to explore whether and to what extent corporate governance attributes manifest in firms?? cost of capital. Since the separation of ownership and control is seen as the starting point for the academic thinking on this issue, the term of corporate governance from a shareholder perspective is discussed in more detail. Apart from this terminological discussion the emphasis of this paper lies on the critical review of theoretical and empirical literature. In conducting this review, empirical concepts measuring the relevant dimensions and their potential limitations are explained. Based on these limitations I suggest opportunities for expanding research on the relationship between corporate governance and cost of equity capital, thereby showing future research directions.     

The Corporate Governance Effects of Audit Committees

Arguments associated with the promotion of audit committees in many countries are premised on their potential for alleviating weaknesses in corporate governance. This paper provides a synthesis and evaluation of empirical research on the governance effects associated with audit committees. Given recent policy recommendations in several countries aimed at strengthening these committees, it is important to establish what research evidence demonstrates about their existing governance contribution.A framework for analyzing the impact of audit committees is described, identifying potential perceived effects which may have led to their adoption and documented effects on aspects of the audit function, on financial reporting quality and on corporate performance. It is argued that there is only limited and mixed evidence of effects to support claims and perceptions about the value of audit committees for these elements of governance. It is also shown that most of the existing research has focused on factors associated with audit committee existence, characteristics and measures of activity and there is very little evidence on the processes associated with the operation of audit committees and the manner in which they influence organizational behaviour.It is clear that there is no automatic relationship between the adoption of audit committee structures or characteristics and the achievement of particular governance effects, and caution may be needed over expectations that greater codification around factors such as audit committee members' independence and expertise as the means of correcting past weaknesses in the arrangements for audit committees. The most fundamental question concerning what difference audit committees make in practice continues to be an important area for research development. For future research we suggest (i) greater consideration of the organizational and institutional contexts in which audit committees operate; (ii) explicit theorization of the processes associated with audit committee operation; (iii) complementing extant research methods with field studies; and (iv) investigation of unintended (behavioural) as well as expected consequences of audit committees.     

Connecting the Dots: Do Financial Analysts Help Corporate Boards Improve Corporate Social Responsibility?

This paper presents an examination of the joint impact of board structural elements at firm level and financial analysts as market-level corporate governance (CG) on corporate social responsibility (CSR) performance. Our study contributes to the CG–CSR literature by adopting the bundling approach, a perspective that has recently attracted researchers’ attention as an answer to any heterogeneity and fragmentation in existing findings. It is based on an extensive sample consisting of 7,739 firm-year observations of US firms for the 2006–2015 period. The findings suggest that financial analysts complement the corporate board with more independence, gender diversity and a specialized CSR committee to realize a certain level of CSR performance of a firm. The findings also indicate that analysts substitute for those internal governance factors that are associated with weaker boards – larger sizes and dual-role CEOs. We also draw implications for research and practice from our findings.