The effect of corporate governance and firm-specific characteristics on the incidence of financial restatement

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Suhaily Hasnan ◽  
Mardhiahtul Huda Mohd Razali ◽  
Alfiatul Rohmah Mohamed Hussain
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Executive Compensation ◽  
Significant Relationship ◽  
Audit Quality ◽  
Governance Mechanisms ◽  
Content Type ◽  
Financial Restatement ◽  
Corporate Governance Mechanisms ◽  
Firm Leverage

Purpose This paper aims to examine the effects of corporate governance and firm-specific characteristics on the incidence of financial restatement among Malaysian public listed firms. Design/methodology/approach The elements of corporate governance consist of board size, board independence, multiple directorships, audit committee expertise, external audit quality and executive compensation. Meanwhile, the firm-specific characteristics consist of firm age, firm performance, firm leverage and firm liquidity. The agency theory has been used to guide the study. This study used a matched-pair sample that consisted of a sample of 49 restatement firms and 98 non-restatement firms between the years 2011 and 2016. Univariate (t-test and Pearson correlation) and multivariate (logistic regression) statistical techniques were used to test the hypotheses. Findings The results show that there is a negative and significant relationship between executive compensation and firm performance, and the incidence of financial restatement. In addition, there is a positive and significant relationship between firm leverage and the incidence of financial restatement. However, the other corporate governance and firm-specific characteristic variables included in the study were found to be insignificant with the incidence of financial restatement. This paper provides evidence that some form of corporate governance mechanisms and firm-specific characteristics, particularly executive compensation, firm performance and firm leverage, may influence the direction and magnitude of the incidence of financial restatement. The findings indicate that optimal executive incentives may align management interests with those of shareholders. In addition, greater performance and lower leverage levels minimise firms’ financial pressure and debt covenant violation risk, which may reduce the management tendency to misstate the financial statement, and consequently, minimise the likelihood of financial restatement. Originality/value The main value of this paper is the effect of corporate governance and firm-specific characteristics on the likelihood of financial restatement in Malaysia. The findings of this study provide useful insights for regulators to improve and reconsider the current regulations on corporate governance mechanisms.

scholarly journals The effects of corporate governance mechanisms and investment opportunity set on firm performance

2008 ◽  
Vol 5 (4) ◽  
pp. 135-148
Author(s):  
Ruey-Dang Chang ◽  
Yeun-Wen Chang ◽  
Ching-Ping Chang ◽  
Fiona Hu
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Audit Quality ◽  
Negative Relationship ◽  
High Growth ◽  
Moderating Effect ◽  
Investment Opportunity ◽  
Governance Mechanisms ◽  
Corporate Governance Mechanisms ◽  
Investment Opportunity Set

This study uses investment opportunity set (IOS) as an environmental factor, and investigates its moderating effect on the relationships between corporate governance mechanisms (including internal and external corporate governance mechanisms) and firm performance. The empirical results using regression analysis show: (1) The IOS does not have a moderating effect on audit quality and firm performance. (2) The negative relationship between institutional investor ownership and firm performance is stronger for firms with higher investment opportunities. (3) When CEO is the chairman of the board, high growth firms can lead to better firm performance. (4) The relationship between the IOS and pledged shares ratio of directors and supervisors has positive influence on firm performance

Audit committee versus other governance mechanisms and the effect of investment opportunities: evidence from Palestine

2020 ◽  
Vol 20 (3) ◽  
pp. 527-544 ◽  
Author(s):  
Islam Abdeljawad ◽  
Ghassan A.I. Oweidat ◽  
Norman Mohd Saleh
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Audit Quality ◽  
Valuable Insight ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
Investment Opportunities ◽  
The Relationship

Purpose This paper aims to explore how the presence of an audit committee is associated with other corporate governance mechanisms, i.e. board structure, ownership structure and quality of external audit. The present study evaluated whether the presence of the audit committee complements or substitutes other governance mechanisms in Palestinian companies. Moreover, the effect of investment opportunities on the relationship between the formation of the audit committee and the quality of the auditor was addressed. Design/methodology/approach The association between the formation of the audit committee and other governance variables was modelled as a binary logistic model. The sample comprising 44 firms listed on Palestine exchange for the period between 2013 and 2017, amounting to 220 firm-year observations. Findings Based on the investigation, the results have indicated that board independence, the distinction between the chairman and chief executive officer function, ownership concentration and audit quality enhance the chance of audit committee formation, implying complementary effect. Contrastingly, board size and board ownership serve as a substitute to audit committee formation. It has also been found that investment opportunities act as an effective moderating factor that strengthens the relationship between audit quality and the formation of the audit committee. Originality/value The study provides valuable insight into the interaction between multiple corporate governance mechanisms within the economy of Palestine where the external uncertainty is high and investment opportunities are constrained by the decisions of the occupying authority. The findings may help regulators and policymakers in Palestine alongside those of other countries with similar environmental features to revise and update their corporate governance codes to ensure that the best control can be achieved, subsequently attracting more foreign and domestic investments.

Corporate governance mechanisms and firm performance: empirical evidence from medium and large-scale manufacturing firms in Ethiopia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Obsa Teferi Erena ◽  
Mesfin Mala Kalko ◽  
Sara Adugna Debele
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Sample Size ◽  
Board Of Directors ◽  
Manufacturing Firms ◽  
Board Independence ◽  
Governance Mechanisms ◽  
Board Effectiveness ◽  
Content Type ◽  
Corporate Governance Mechanisms

Purpose This study aims to examine the impact of corporate governance mechanisms on financial and non-financial aspects of firm performance in medium and large-scale manufacturing firms in Ethiopia. Design/methodology/approach The cross-sectional survey and simple random sampling methods are adopted while the data collection is through a questionnaire that covers five corporate governance indicators consisting of the board independence, board effectiveness, shareholders role, internal audit effectiveness (IAE) and disclosure and transparency. The dimensions of firm performance were indicated by six firm performance indicators of customer and market (CM), internal process (IP), differentiation, efficiency, competitive position (CP) and financial (organizational) performance (OP). The covariance-based structural equation modeling (SEM) with the maximum likelihood parameter estimation technique was used to perform the data analysis. Findings A significant positive relationship has been found between the independence of the board of directors and firm performance (especially with respect to differentiation, OP, CP and IP). However, the board of directors’ effectiveness showed an unexpected result, significant negative effect on differentiation, OP, CP, CM and IP. The study also indicates a positive significant effect of disclosure and transparency on differentiation, CP and OP. However, the coefficient on the CM construct of firm performance is negative and significant. A significant negative linkage has also been revealed between IAE and two constructs of performance: differentiation and CP. One of the important findings of the study is that shareholders’ role has a significant positive impact on both board characteristics (board independence and board effectiveness) and firm performance (differentiation, efficiency, CP and OP). Research limitations/implications The study has two potential limitations. First, in comparison to prior studies, this study is based on a small sample size which limits the generalizability of the findings. Different scholars have suggested (Anderson and Gerbing, 1984, 1988; Iacobucci, 2010; Hair et al., 2019) that SEM requires a large sample size to test the hypothetical model. Thus, future research can further investigate the link between corporate governance and firm performance by using a larger sample size to achieve more reliable results. Second, the current study used a quantitative approach only, but prior studies (e.g. Ahrens and Khalifa, 2013) suggest a qualitative approach to more investigate and reach a very conclusive idea on corporate governance. The approach is currently receiving growing popularity in the literature. Practical implications The findings of the study would have measurable implications for different stakeholders who are in the position of supporting or regulating manufacturing firms. First, the findings give a clue about how a firm can design a good corporate governance system. Second, managers of the firm can get a hint or tip from the result that might help as input for designing strategies. Finally, it might help policymakers to understand and think about the very crucial role of active participation of shareholders in curtailing/reducing agency cost and enhancing firm performance apart from (beyond) the conventional corporate governance mechanisms (board of directors, internal audit, disclosure and transparency). Originality/value This study seeks to extend and contribute to the current literature in several ways. First, in contrast to previous studies, this study used both financial and non-financial performance measures and thereby providing new empirical insights relating to the non-financial performance measures. Second, this study provides a new result that the role of shareholders has a direct significant positive impact on board characteristics (i.e. board independence and board effectiveness) and firm performance. Finally, this study has come with a new insight that disclosure and transparency is a major driver of firm performance.

Corporate governance mechanisms and firm performance in a developing country

2020 ◽  
Vol 62 (2) ◽  
pp. 147-169 ◽  
Author(s):  
Albert Puni ◽  
Alex Anlesinya
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Governance Mechanisms ◽  
Board Size ◽  
Ceo Duality ◽  
Content Type ◽  
Board Committees ◽  
Discourse Practices ◽  
Corporate Governance Mechanisms

Purpose The purpose of this study is to examine the influence of corporate governance mechanisms recommended by the Securities and Exchange Commission (SEC) of Ghana on firm performance as measured by accounting-based ratios (return on assets, return on equity and earning per share) as well as market-based measure (Tobin’s Q) among listed Ghanaian companies from 2006 to 2018. These mechanisms are: board composition (board size, inside directors and outside directors), board committees (audit, remuneration and nomination), chief executive officer (CEO) duality/separation, board meetings and shareholder concentration. Design/methodology/approach The study used panel regression analysis of data from 38 listed firms in Ghana from 2006 to 2018 to test how each corporate governance variable initiated by the SEC of Ghana contributed to firm performance. Data were extracted from the annual reports of listed companies. Findings The study found that the presence of both insiders and outsiders on the corporate board improved financial performance. Similarly, board size, frequency of board meetings and shareholder concentration/ownership structure generally had a positive impact on financial performance. However, the presence of board committees generally had a negative impact on financial performance while CEO duality had no impact on financial performance. Practical implications The study contributes to the understanding of how good corporate governance practices affect firm performance for both academics and particularly Ghanaian policymakers. Originality/value This study provided new findings to bridge the gaps in the general corporate governance literature relative to the lack of consensus on financial impacts of corporate governance mechanisms. The finding contributes to knowledge by providing new and original evidence that some current corporate governance mechanisms are not effective in minimizing the agency problem in a developing setting. Furthermore, the authors anticipate that the outcomes of this research, which so far is the most comprehensive study in the Ghanaian context in terms of the coverage of corporate governance mechanisms specified by the SEC of Ghana, can significantly shape corporate governance discourse, practices and policies in Ghana, particularly and in other developing countries generally to improve financial performance and corporate sustainability.

scholarly journals The relationship between corporate governance and financial performance

2019 ◽  
Vol 9 (1) ◽  
pp. 54-78 ◽  
Author(s):  
Zaid Saidat ◽  
Mauricio Silva ◽  
Claire Seaman
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Family Firms ◽  
Corporate Performance ◽  
Independent Directors ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Relationship

PurposeThe purpose of this paper is to attempt to fill a research gap in the relationship between corporate governance mechanisms and financial performance of family and non-family firms’ by using a sample of non-financial firms listed on Amman Stock Exchange (ASE) for the period 2009–2015.Design/methodology/approachThis research employs a quantitative method using data that include corporate governance mechanisms, firm characteristics and financial ratios of a sample of Jordanian listed firms in the ASE over the period 2009–2015. The sample covers all companies that have been part of the ASE during the period including both family and non-family firms, part of total of 228 companies listed on the ASE as of 31 December 2015. The study used accounting-based measures such as return on asset (ROA) and market-based measures such as Tobin’sQas proxies for corporate financial performance.FindingsThe study found that board size both in term of Tobin’sQand ROA has a negative relationship with the performance of family firms. In non-family firms, there is no systematic relationship with corporate performance. There is a strong relationship between corporate performance and independent directors in non-family firms. In addition, the authors found some evidence for a relationship between performance and independent directors in family firms. Also, results indicated that ownership concentration has an insignificant correlation with corporate performance and in family firms has a negative and significant correlation with Tobin’sQ. There is a significant relationship between local investors’ ownership and corporate performance as measured by Tobin’sQin family and non-family firms.Originality/valueStudies concerned with the effect of corporate governance on firm performance remains comparatively under-researched in Middle East countries and Jordan in particular (Najib, 2007; Omet, 2004; Marashdeh, 2014). Moreover, studies investigating whether the practice of corporate governance has the same impact on family firm performance are still relatively less well known than those when ownership is distributed widely (non-family firms) (Jaggi, Leung and Gul, 2009; Prencipe and Bar-Yosef, 2011). This research is seeking to fill this current gap in Jordan, which is one of the developing countries with an emerging economics that are very poorly represented in the literature.

The impact of board characteristics and ownership identity on agency costs and firm performance: UK evidence

2018 ◽  
Vol 18 (6) ◽  
pp. 1147-1176 ◽  
Author(s):  
Bahaaeldin Samir Allam
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Agency Costs ◽  
Economic Conditions ◽  
Agency Conflicts ◽  
Governance Mechanisms ◽  
Content Type ◽  
Board Characteristics ◽  
Corporate Governance Mechanisms ◽  
The Impact

PurposeThis paper aims to provide a twofold empirical comparison: first, a comparison between the impact of corporate governance mechanisms on agency costs proxies and firm performance measures, and second, this comparison was used before and after the 2008 financial crisis, capturing two different economic states.Design/methodology/approachPanel regression methods were applied to two data sets of non-financial firms incorporated in the FTSE ALL-Share index over the period 2005-2011.FindingsThe results provide evidence that not all mechanisms lead to lower agency conflicts and/or higher firm performance. Ownership identity has a significant impact and the role of the governance mechanisms changes with the changes in the economic conditions surrounding the firm.Research limitations/implicationsThe results lend support to the notion that forcing a certain code of practice on firms to follow could compel them to move away from conflict reduction governance structures.Originality/valueTo the best of the authors’ knowledge, this is the first paper to provide a comparison of empirical evidence for the impact of board characteristics and ownership identity on agency costs and firm performance by using a comprehensive set of corporate governance mechanisms. This comparison challenges the prior studies that use performance as an indirect proxy for lower agency costs. Additionally, it compares the impact of the governance mechanisms during two different economic conditions.

The relation between corporate governance mechanisms, executive compensation and audit fees

2018 ◽  
Vol 41 (8) ◽  
pp. 939-967 ◽  
Author(s):  
Mahdi Salehi ◽  
Hossein Tarighi ◽  
Samaneh Safdari
Keyword(s):  
Corporate Governance ◽  
Executive Compensation ◽  
Emerging Market ◽  
Positive Association ◽  
Audit Fees ◽  
Stock Option ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
Board Ownership

Purpose This paper aims to investigate the effects of some corporate governance mechanisms and executive compensation on audit fees in an emerging market. Design/methodology/approach The study population consists of 540 observations and 90 listed companies on the Tehran Stock Exchange during the years 2009-2014. The statistical model used in this study is a multivariate regression model; besides, the statistical technique used to test the hypotheses proposed in this research is panel data. Findings The changes in the value of a CEO’s own firm stock option portfolio, in thousands of rials (Iran’s currency), for a 0.01 change in stock return volatility and stock price are defined as Vega and Delta, respectively. The results demonstrated that there is a positive association between audit fees and delta, but not Vega; this means that a fee premium is linked to CEO Delta incentives. The findings show that Iranian companies pay more audit fees when they give managers more rewards. In addition, the results show that there is not a significant relationship between fees resulting from audit risk and Delta and Vega incentives of the board. Inconsistent with agency theory, the authors found that the independence of board members did not have any effect on audit fees. As a final point, the outcomes of the paper demonstrate that managers who invest in companies under their own management do not have any impact on the amount of audit fee. To put it another way, there is not any significant connection between the board ownership and audit fees. Practical implications This is one of the most important studies that simultaneously surveys the impacts of corporate governance mechanisms and executive compensation in the Iranian audit market. The results of this study will reveal more than the role of corporate governance mechanisms for society and users of financial statements because as tools on the CEO actions, they always have to pay attention to the implementation of corporate principles in the economic entity’ operation. Originality/value The present study has examined the relationship between two cases of corporate governance mechanisms named the board independence and the board ownership with audit fees in a country where, to the authors’ knowledge as in most other developing markets, such a relationship has not been a subject of empirical research. Moreover, the use of a two-dimensional measure of executive compensation, namely, Delta and Vega incentives, primarily considering research undertaken in an emerging market, as a valuable contribution may be observed.

scholarly journals Corporate governance and conglomerate diversification strategy – evidence from Vietnam

2018 ◽  
Vol 13 (6) ◽  
pp. 1578-1596 ◽  
Author(s):  
Thi Xuan Trang Nguyen
Keyword(s):  
Corporate Governance ◽  
Stock Exchange ◽  
Board Composition ◽  
Governance Mechanisms ◽  
Content Type ◽  
Unrelated Diversification ◽  
Corporate Governance Mechanisms ◽  
Control Devices ◽  
Interest Alignment ◽  
The Relationship

Purpose The purpose of this paper is to examine the impact of internal corporate governance mechanisms, including interest alignment and control devices, on the unrelated diversification level in Vietnam. Additionally, the moderation of free cash flow (FCF) on these relationships is also tested. Design/methodology/approach The study is based on a balanced panel data set of 70 listed companies in both stock markets, Ho Chi Minh Stock Exchange and Hanoi Stock Exchange, in Vietnam for the years 2007–2014, which gives 560 observations in total. Findings The results show that if executive ownership for CEOs is increased, then the extent of diversification is likely to be reduced. However, the link between unrelated diversification level and executive stock option, another interest alignment device, cannot be confirmed. Among three control devices (level of blockholder ownership, board composition and separation of CEO and chairman positions), the study finds a positive connection between diversification and blockholder ownership, and statistically insignificant relations between the conglomerate diversification level and board composition, or CEO duality. Additionally, this study discovers a negative link between diversification and state ownership, although there is no evidence to support the change to the effect of each internal corporate governance mechanism on the diversification level of a firm between high and low FCF. Practical implications The research can be a useful reference not only for investors and managers but also for policy makers in Vietnam. This study explores the relationship among corporate governance, diversification and firm value in Vietnam, where the topics related to effectiveness of corporate governance mechanisms to public companies has been increasingly attractive to researchers since the default of Vietnam Shipbuilding Industry Group (Vinashin) happened in 2010 and the Circular No. 121/2012/TT-BTC on 26 July 2012 of the Vietnamese Ministry of Finance was issued with regulations on corporate governance applicable to listed firms in this country. Originality/value This research, first, enriches current literature on the relationship between corporate governance and firm diversification. It can be considered as a contribution to the related topic with an example of Vietnam, a developing country in Asia. Second, the research continues to prove non-unification in results showing the relationship between corporate governance and conglomerate diversification among different nations. Third, it provides a potential input for future research works on the moderation of FCF to the effects of corporate governance on diversification.

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.

The adoption of CSR practices in Egypt: internal efficiency or external legitimation?

2018 ◽  
Vol 9 (5) ◽  
pp. 642-665 ◽  
Author(s):  
Dina El-Bassiouny ◽  
Peter Letmathe
Keyword(s):  
Corporate Governance ◽  
Sample Size ◽  
Business Environment ◽  
Western World ◽  
Corporate Ethics ◽  
Corporate Accountability ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
Internal Efficiency

Purpose This study aims to focus on the factors triggering the adoption of corporate social responsibility (CSR) practices in a developing country context. The authors examine whether the adoption of CSR practices is triggered more by internal efficiency forces or external legitimation forces. As early adoptions of new systems are more likely driven by efficiency motives, the authors argue that CSR practices in developing countries at nascent stages are more likely adopted for efficiency rather than legitimation reasons. Design/methodology/approach A cross-sectional sampling design was used to collect data on the CSR practices of top listed Egyptian firms and multinationals operating in Egypt. The sample size is selected based on a purposive criterion sampling method. The final sample size consists of 110 companies operating in Egypt, which includes 54 local and 56 multinational companies. To examine the relationship between the explanatory variables of the study and CSR, multiple regression analysis was used. Findings Using data from 110 top listed local companies and multinational firms operating in Egypt, the results show a significant influence of internal corporate governance on CSR. Yet, the effects of external factors, specifically legal regulations and stakeholder pressures, on CSR are perceived to be insignificant. This finding contrasts studies from industrialized countries in the Western world where firms are often motivated to invest in CSR by external forces. Practical implications The results indicate that the adoption of CSR practices in large firms in Egypt is driven more by internal efficiency gains rather than external legitimacy pressures. The study thus presses the need for the effective enforcement of governmental laws and regulations to strengthen external institutional pressures and demands for socially responsible behavior. Social implications The results of the study indicate a perceived absence of stakeholder pressure for CSR practices. As such, raising awareness for corporate accountability amongst Egyptian consumers, employees and the general public would increase corporate incentives to improve their social and environmental performance. In addition, the concept of CSR must be cultivated in the organizational culture where high value is placed on corporate ethics and managerial values. Originality/value This study provides insights about the predominant drivers of CSR in Egypt on two different levels; the organizational and the business environment. Salient links between CSR, internal corporate governance mechanisms and external drivers such as external stakeholder and legal pressures are explored. The results of the study also emphasize the importance of internal corporate governance mechanisms and how it is perceived to be the main driver of CSR in Egypt as opposed to external influences.

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