Political connections, ownership structure and quality of governance

2017 ◽  
Vol 13 (4) ◽  
pp. 358-377 ◽  
Author(s):  
Saidatou Dicko
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Political Connections ◽  
Minority Shareholders ◽  
Content Type ◽  
Compensation Structure ◽  
Theoretical Contribution ◽  
Concentrated Ownership ◽  
Quality Of Governance

Purpose The purpose of this paper is to ask the following question: is there a link between being politically connected, the quality of governance and the company’s ownership structure? Design/methodology/approach The author then examined Canadian companies from the S&P/TSX index for the year 2015. Findings Political connectedness is significantly associated with lower quality of governance in relation to shareholders’ rights; ownership concentration is associated with lower quality of governance in relation to the overall governance, board of directors, shareholders’ rights and compensation structure indices; ownership structure does not mediate the relationship between political connections and quality of governance; and number of political connections through the executive is associated with less risky governance practices in relation to compensation structure; in other words, when members of the executive are politically connected, the firm adopts better compensation practices. Research limitations/implications The time limitation is the main weakness of this study and probably the cause of observed mitigated results. Practical implications The author hope that the results will inform regulators on the need not only to further regulate the business-politics relationship, but also to consider the specific traits of concentrated ownership companies and the most critical aspects of corporate governance in politically connected firms, such as shareholders’ rights, particularly those of minority shareholders. For example, an intriguing case to investigate in the Canadian context would be Pierre Karl Péladeau’s foray into Quebec politics and the controversy ignited by his political bid in light of his position as majority shareholder (75 percent) in communications giant Quebecor Inc. Social implications In fact, the results shown that concentrated ownership firms have lower governance quality than non-concentrated ones. Furthermore, in a concentrated ownership context, the minority shareholders’ rights could be threatened. In this sense, the results also shown that shareholders’ rights seem to be the most critical governance issue for the politically connected Canadian firms. These results are therefore the indication that Canadian financial market regulators must take action about politically connected and concentrated ownership firms in order to further protect minority shareholders’ rights. Originality/value This study makes a double theoretical contribution by enriching the literature on corporate governance and by providing one of the first investigations into the direct and comprehensive relationships between political connections, governance and ownership structure.

The effects of ownership structure on likelihood of financial distress: an empirical evidence

2017 ◽  
Vol 17 (4) ◽  
pp. 589-612 ◽  
Author(s):  
Shahab Udin ◽  
Muhammad Arshad Khan ◽  
Attiya Yasmin Javid
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Financial Distress ◽  
Generalized Method Of Moments ◽  
The Body ◽  
Content Type ◽  
The Government ◽  
The Impact

Purpose The purpose of this paper is to explore the role of corporate governance proxies by ownership structure on the likelihood of firms’ financial distress for a sample of 146 Pakistani public-limited companies listed at the Karachi Stock Exchange over the period of 2003-2012. Design/methodology/approach The dynamic generalized method of moments (GMM) estimator and panel logistic regression (PLR) are used to determine the impact of corporate governance on the financial distress. The ownership structure is used as a determinant of corporate governance, while the Altman Z-score is utilized as an indicator of financial distress, as it measures financial distress inversely. The smaller the values of the Z-score, the higher will be the risk of financial distress. Findings The authors find insignificant impact of ownership structure on firms’ likelihood of financial distress based on the dynamic GMM method. However, the PLR results indicate that foreign shareholdings have a significant negative association with firms’ likelihood of financial distress, in the case of Pakistan. An evidence of a negative and insignificant relationship between institutional ownership and financial distress was observed, which indicates the passive role of institutional investors in Pakistan. The results also reveal a positive and significant relationship between insider’s ownership and likelihood of financial distress. This finding is consistent with the entrenchment hypothesis which predicts that insiders are more aligned with their self-interest than outside shareholders’ interest when their shareholding increases in the business. Furthermore, the results also reveal insignificant association between government shareholdings and the probability of financial distress. The reason could be the social welfare objective of the government entities rather than profit maximization. Practical implications The findings of this study provide more insight to corporate managers and investors about the association between the quality of corporate governance and the degree of financial distress, with respect to Pakistani firms. Furthermore, this study contributes to the existing literature by adding new evidence from developing countries like Pakistan which are helpful for regulatory bodies and policymakers in the formulation of long-term corporate governance strategies to manage the financial distress. It is well established that strengthening the quality of corporate governance practices enhances the efficiency of capital markets and reduces the probability of financial distress. Originality/value The study extends the body of existing literature on corporate governance and the likelihood of financial distress with reference to Pakistan. The results suggest that policymakers may pay special attention to the quality of corporate governance, specifically ownership structure, while predicting corporate financial distress.

Regulatory pressure, blockholders and corporate social responsibility (CSR) disclosures in China

2014 ◽  
Vol 10 (2) ◽  
pp. 226-245 ◽  
Author(s):  
Lin Zheng ◽  
Nauzer Balsara ◽  
Haiyu Huang
Keyword(s):  
Corporate Governance ◽  
Corporate Social Responsibility ◽  
Ownership Structure ◽  
Content Type ◽  
Listed Firms ◽  
Csr Reporting ◽  
Regulatory Pressure ◽  
Corporate Social ◽  
The Relationship

Purpose – This paper aims to investigate the relationship between external regulation pressure and corporate social responsibility (CSR) reporting decision and comprehensiveness and the relationship between block ownership and CSR in China. Design/methodology/approach – This paper provides descriptive statistics of the current state of CSR reporting in China. In addition, regression models are utilized to analyze the behavior of CSR reporting of a sample of 5,334 listed firms in China. Findings – Our paper records a significant increase of CSR reporting in the period of 2008-2010. Using a sample of 5,334 listed firms in China, we find a positive yet weak association between centrally controlled state-owned enterprises (SOEs) and CSR reports. Moreover, we find that firms with more concentrated block ownership are less likely to issue CSR reports. Research limitations/implications – Taken as a whole, our analyses suggest that the entrenchment effect from blockholders seems to dominate the incentive effect and this depresses the quality of CSR reports. Practical implications – Despite the well-known effect of economic factors on CSR decision, corporate governance such as ownership structure could complicate the final results. Furthermore, the institutional background of the country and its implications for corporate governance should be considered jointly and concurrently. Social implications – The positive effect from regulatory pressure on centrally owned SOEs suggests that regulation remains an effective tool to encourage CSR reporting in emerging markets. Originality/value – First, our study confirms prior research that CSR disclosure decision is primarily driven by economic and strategic considerations. Moreover, our results suggest that a country’s institutional background, in addition to economic and strategic considerations, influences the decision and quality of CSR disclosures. Second, we extend the literature on ownership structure, particularly with respect to blockholders. Third, our research design addresses a weakness in earlier studies which are biased exclusively on state ownership to the exclusion of all other blockholders.

scholarly journals Ownership structure and demand for independent directors: evidence from an emerging market

2020 ◽  
Vol 22 (2) ◽  
pp. 335-342
Author(s):  
Quoc Trung Tran
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Agency Costs ◽  
Emerging Market ◽  
State Ownership ◽  
Independent Directors ◽  
Minority Shareholders ◽  
Foreign Investors ◽  
Content Type ◽  
Insider Ownership

PurposeIn this study, we examine how ownership structure affects the use of independent directors in Vietnam – an emerging stock market.Design/methodology/approachWe develop logit and tobit regression models to investigate the effects of ownership structure on the propensity to use independent directors and the number of independent directors on the board, respectively. Insider ownership and the use of independent directors are proposed to have a non-linear relationship.FindingsWith a sample of 1,318 observations collected from 192 listed firms over the period from 2008 to 2017, we find that insider ownership and independent director appointment have a U-shaped relationship. It is positive when insiders hold a small proportion of shares, and turns out to be negative when insiders hold a large percentage of shares. In addition, both state ownership and foreign ownership are negatively related to firm decisions of appointing independent directors.Practical implicationsOur findings imply that minority shareholders should have appropriate actions to reduce agency costs and protect their own interests. In addition, policymakers should improve the effectiveness of corporate governance legislation to increase the presence of independent directors in order to protect minority shareholders. Moreover, government agencies also need to increase the number of independent directors in state-controlled firms as a means to improve their corporate governance. Foreign investors may be a substitute for independent directors; therefore, firms without independent directors are able to improve their corporate governance by attracting foreign investors.Originality/valueWhile the extant literature shows that independent directors can help firms decrease agency costs of equity in financial decisions and performance, there are relatively few studies investigating corporate decisions to use independent directors. This paper contributes to the literature of corporate governance mechanisms through independent directors in emerging markets.

scholarly journals DEBT POLICY AS CORPORATE GOVERNANCE MECHANISM IN CONCENTRATED OWNERSHIP

2009 ◽  
Vol 6 (2) ◽  
Author(s):  
Mutamimah .
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Governance Mechanism ◽  
Minority Shareholders ◽  
Empirical Examination ◽  
Agency Conflict ◽  
Concentrated Ownership ◽  
Corporate Governance Mechanism ◽  
Debt Policy ◽  
Market Indicator

This research aims to test the debt policy as a mechanism to reduce agency conflict among majority and minority shareholders. This test aims to answer the problems to what extend debt can be used as corporate governance mechanism in a sense of reducing agency conflict. This research is important since most of company ownership structure in Indonesia is categorized concentrated structure, where its make a conflict between majority and minority shareholders. The populations of the research are companies that go public in the Indonesian capital market until the year of 2003. These samples of this research consist of 40 companies that are selected based on nonprobability technique with purposive sampling method. They were divided into two groups, high concentrated ownership structure and low concentrated ownership structure. In processes testing the hypothesis, 2 indicators were used, i.e. market indicator and accounting indicator. Event study analysis was used for market indicator, whereas multiple regression analysis was used for accounting indicator. Based on empirical examination result, it is generally concluded that debt policy cannot be used as mechanism to reduce agency conflict among majority and minority shareholders, both at high and low concentrated ownership structure. This is because of average company debt are higher than average industry debt. Debt policy tend be used as a tool of expropriation to minority shareholders. The expropriation is higher at high concentrated ownership structure rather than at low concentrated ownership structure and the difference is significant.

Do disclosure and transparency affect bank’s financial performance?

2019 ◽  
Vol 19 (6) ◽  
pp. 1344-1361
Author(s):  
Isaiah Oino
Keyword(s):  
Risk Management ◽  
Corporate Governance ◽  
Financial Performance ◽  
Financial Institutions ◽  
Content Type ◽  
Loan Portfolios ◽  
Cent Level ◽  
Transparency And Disclosure ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of transparency and disclosure on the financial performance of financial institutions. The emphasis is on assessing transparency and disclosure; auditing and compliance; risk management as indicators of corporate governance; and understanding how these parameters affect bank profitability, liquidity and the quality of loan portfolios. Design/methodology/approach A sample of 20 financial institutions was selected, with ten respondents from each, yielding a total sample size of 200. Principal component analysis (PCA), with inbuilt ability to check for composite reliability, was used to obtain composite indices for the corporate governance indicators as well as the indicators of financial performance, based on a set of questions framed for each institution. Findings The analysis demonstrates that greater disclosure and transparency, improved auditing and compliance and better risk management positively affect the financial performance of financial institutions. In terms of significance, the results show that as the level of disclosure and transparency in managerial affairs increases, the performance of financial institutions – as measured in terms of the quality of loan portfolios, liquidity and profitability – increases by 0.3046, with the effect being statistically significant at the 1 per cent level. Furthermore, as the level of auditing and the degree of compliance with banking regulations increases, the financial performance of banks improves by 0.3309. Research limitations/implications This paper did not consider time series because corporate governance does not change periodically. Practical implications This paper demonstrates the importance of disclosure and transparency in managerial affairs because the performance of financial institutions, as measured in terms of loan portfolios, liquidity and profitability, increases by 0.4 when transparency and disclosure improve, with this effect being statistically significant at the 1 per cent level. Originality/value The use of primary data in assessing the impact of corporate governance on financial performance, instead of secondary data, is the primary novelty of this study. Moreover, PCA is used to assess the weight of the various parameters.

Does audit committee substitute or complement other corporate governance mechanisms

2017 ◽  
Vol 32 (7) ◽  
pp. 658-681 ◽  
Author(s):  
Yousef Hassan ◽  
Rafiq Hijazi ◽  
Kamal Naser
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Audit Committee ◽  
Negative Relationship ◽  
Governance Mechanisms ◽  
Governance System ◽  
African Countries ◽  
Content Type ◽  
Board Characteristics ◽  
Corporate Governance Mechanisms

Purpose The purpose of this paper is to examine the relation between audit committee (AC) and a set of other corporate governance mechanisms in one of the emerging economies, United Arab of Emirates (UAE). In particular, the current study examines whether an effective AC can serve as a substitute or as a complement mechanism to board characteristics and ownership structure of Emirati listed non-financial companies. Design/methodology/approach Using substitution and complementary theories, a panel data from 48 nonfinancial companies listed on the UAE Stock Exchanges [Abu Dhabi Stock Exchange and Dubai Financial Market] during the period between 2011 and 2013 were used in the current study. A composite measure of four proxies has been used to measure the AC effectiveness, namely, AC size, independence, financial expertise and diligence. To test the hypotheses formulated for the study, a logistic regression model was used to identify the influence of a set of board characteristics and ownership structure variables on the effectiveness of the AC after controlling for firm size, auditor type, industry type and profitability. Findings While AC effectiveness appeared to be positively associated with board size and board independence, it is negatively associated with CEO duality. This points to a complementary governance relation. On the other hand, the negative relationship between AC effectiveness and each of institutional and government ownership suggests substitutive relations. Research limitations/implications The main shortcoming of the current study is that it examines the influence of a certain set of corporate governance factors on the effectiveness of AC. Other corporate governance mechanisms may, however, contribute to the effectiveness of AC. The findings of the study can be used by companies’ managements and regulators in the UAE to improve the corporate governance system. Originality/value To the best of researchers’ knowledge, this study provides the first evidence about the interaction among multiple governance mechanisms required by the code of corporate governance issued by the UAE Ministry of Economy in 2009. The current paper is expected to add to the limited AC literature in Middle East and North African countries in general and Arab World in particular.

Dynamic endogeneity and corporate governance-performance relationship

2017 ◽  
Vol 44 (5) ◽  
pp. 727-744
Author(s):  
Sujani Thrikawala ◽  
Stuart Locke ◽  
Krishna Reddy
Keyword(s):  
Corporate Governance ◽  
National Level ◽  
Estimation Method ◽  
Estimation Methods ◽  
Governance System ◽  
Past Performance ◽  
Gmm Estimation ◽  
Content Type ◽  
Dynamic Framework

Purpose The purpose of this paper is to examine the relationship between corporate governance (CG) and microfinance institution (MFI) performance, using a dynamic panel generalised method of moments (GMM) estimator to mitigate the serious issues with endogeneity. Design/methodology/approach Inconsistent findings and a general lack of empirical results for the microfinance industry leave an unclear message regarding the impacts of CG on MFI performance, especially in emerging economies. The authors use GMM estimation techniques to examine whether CG has an influence on MFI performance. Findings This study confirms that the MFIs’ contemporaneous performance and CG characteristics are statistically significantly positively linked with their past performance. This study finds statistically significant governance effects on MFI performance, including the presence of international directors and/or donor representatives on the board, client representatives on the board, percentage of non-executive directors and the quality of the national governance system. Practical implications These findings provide some insights for policy-makers and practitioners to develop suitable policies and guidelines to streamline MFIs’ operations in emerging countries. Moreover, national and international investors and donors may use these finding as a benchmark for their investment and funding decisions. Originality/value This paper is the first to estimate the CG and performance relationship of MFIs in a dynamic framework by applying the GMM estimation method. This approach improves upon traditional estimation methods by controlling the likely sources of endogeneity. Further, this paper examines whether quality of national-level governance characteristics is related to performance measures of profitability and outreach of MFIs.

Accounting conservatism, corporate governance and political connections

2017 ◽  
Vol 25 (2) ◽  
pp. 288-318 ◽  
Author(s):  
Nor Farizal Mohammed ◽  
Kamran Ahmed ◽  
Xu-Dong Ji
Keyword(s):  
Corporate Governance ◽  
Emerging Market ◽  
Political Influence ◽  
Ordinary Least Squares ◽  
Accounting Conservatism ◽  
Political Connections ◽  
Board Independence ◽  
Political Connection ◽  
Content Type ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between accounting conservatism, corporate governance and political connection in listed firms in Malaysia where political influence plays a significant role in the capital market and in many business dealings. Design/methodology/approach By utilizing 824 firm-year observations comprising large listed companies over a period of four years from 2004, this study uses ordinary least squares regression models to investigate the relationship between accounting conservatism, corporate governance and political connections in Malaysia. Multiple measures of conservatism developed by Basu (1997) and Khan and Watts (2009) are employed. Findings The results show evidence of accounting conservatism (bad news being recognized earlier than good news) in Malaysia. Further, the results reveal that better corporate governance structure in terms of board independence is positively associated with accounting conservatism while management ownership is negatively associated with it. However, political connection has a negative moderating effect on the positive relationship between accounting conservatism and board independence. The results also suggest political connections have a positive association with firm’s future performance. Originality/value This study is the first in investigating the effect of political connections on accounting conservatism in Malaysian context and how political connections negatively affect the monitoring role of the corporate boards. By directly measuring political connection and controlling for various corporate governance mechanisms and firm-specific attributes, this study contributes to enhance the authors’ understanding of the political influence in financial reporting quality and firm performance in an emerging market setting.

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