A cross-firm analysis of corporate governance compliance and performance in Indonesia

2020 ◽  
Vol 35 (5) ◽  
pp. 621-643
Author(s):  
Miranda Tanjung
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Audit Quality ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Empirical Literature ◽  
Positive Contribution ◽  
Content Type ◽  
Governance Index ◽  
Governance Practices

Purpose The study aims to construct a cross-firm corporate governance index to predict firm performance. The index consists of 15 governance elements from a large sample of the Indonesian firms covering the period from 2003 to 2013. Design/methodology/approach This study presents robust results as the findings are tested by applying the generalized method of moments (GMM) estimator to eliminate endogeneity problems and unobservable heterogeneity posed by the relationship between performance and firm-level governance practices. Findings The results indicate that the corporate governance index is associated with enhanced corporate financial performance. Likewise, the findings reported under the pooled ordinary least squares and GMM also indicate corporate governance sub-indexes (elements), which have significant effects on performance: whistleblower mechanism, audit quality, board of director size and blockholders. Research limitations/implications In the emerging market context, this study supports the notion that active and self-regulated governance practices are appreciated by the market and, in the end, can have a positive impact on financial performance. The analysis adds to the empirical literature by providing insights into how governance provisions are being actively implemented in the micro level. With regard to weak governance practices, this study is consistent with previous studies, according to which, firms have the opportunity to use corporate governance as a way of differentiating themselves from other players in countries with poorly regulated investor protection and institutional settings. Originality/value This study makes a positive contribution, as it looks at the impact of Indonesia’s corporate governance compliance on the basis of a set of 15 unique governance provisions, including the findings of the positive influence of corporate governance in family business.

scholarly journals Corporate Governance and Cost of Capital: Evidence from Emerging Market

Risks ◽  
2020 ◽  
Vol 8 (4) ◽  
pp. 104
Author(s):  
Muhammad Yar Khan ◽  
Anam Javeed ◽  
Ly Kim Cuong ◽  
Ha Pham
Keyword(s):  
Corporate Governance ◽  
Lower Cost ◽  
Cost Of Capital ◽  
Emerging Market ◽  
Firm Level ◽  
Listed Firms ◽  
Corporate Failure ◽  
Governance Index ◽  
Governance Practices ◽  
Code Of Corporate Governance

This study used a researcher self-constructed corporate governance index as a proxy to measure the firm-level corporate governance compliance and disclosure with the 2002 Pakistani Code of Corporate Governance, to examine the relationship between corporate governance and cost of capital. We found a negative and significant association between the Pakistani Corporate Governance Index (PCGI) and block ownership with the firm-level cost of capital. On average, better-governed Pakistani listed firms tend to be associated with a lower cost of capital than their poorly governed counterparts are. As an emerging market, good corporate governance practices are mainly related to minimise corporate failure and assist firms in attracting capital at a lower cost.

What drives board committee structure? Evidence from an emerging market

2019 ◽  
Vol 35 (3) ◽  
pp. 373-397 ◽  
Author(s):  
Pornsit Jiraporn ◽  
Ali Uyar ◽  
Cemil Kuzey ◽  
Merve Kilic
Keyword(s):  
Corporate Governance ◽  
Audit Quality ◽  
Emerging Market ◽  
Panel Data Analysis ◽  
Positive Association ◽  
Developed Countries ◽  
Board Structure ◽  
Ceo Duality ◽  
Content Type ◽  
Board Committees

Purpose Board committees enable boards to function effectively, as committees improve the quality of corporate governance by fulfilling specific, assigned tasks. This study aims to explore how board structure, CEO duality and audit quality are associated with board committee structure in the context of an emerging market, namely, Turkey. Design/methodology/approach The sample consisted of 122 firms listed on the Industrial Index of Borsa Istanbul for the years between 2012 and 2014, inclusive, and this yielded 366 firm-year observations. To test the hypotheses, the panel data analysis method was used, which enabled the elimination of certain problems, such as multicollinearity and estimation bias, as well as specification of the time-variant association between the predictor variables and the output variable. Findings Board size, board independence and firm size had a positive association with the number and size of board committees, whereas CEO duality had a negative association with the number and size of board committees. Moreover, the appointment of female members on audit and corporate governance committees was more frequent in firms that had a high proportion of women on their boards. Finally, audit quality was positively associated with the existence of risk committee, the overall diversity of board committees and the diversity of corporate governance committees. Research limitations/implications The study is not free from limitations. It covers the time span between 2012 and 2014; thus, readers should be cautious about generalizing these results longitudinally, as a different time periods could possibly yield different results. The second limitation concerns the fact that only industrial firms were sampled; thus, these findings may not be valid in other sectors. Practical implications The paper shifts the attention of researchers from overall board structure to board committee structure. The results of the study provide insights for policymakers, boards and shareholders. Policymakers can formulate boards and committees by considering these findings. Boards can benefit from the conclusions of this study in shaping their own structure and sub-committee structures. Current and potential shareholders may find the results of the study instructive in making investment decisions. Originality/value This study investigates the factors associated with the structure of overall and specific board committees. Additionally, while most prior research on board committees has sampled firms that are domiciled in developed countries, this study examines the subject in an emerging country context, namely Turkey. Moreover, this study adds to the literature by examining the association between audit quality and board committee structure, which has been largely neglected in prior literature.

The effects of corporate governance on financial performance and financial distress: evidence from Egypt

2015 ◽  
Vol 15 (5) ◽  
pp. 641-662 ◽  
Author(s):  
Tamer Mohamed Shahwan
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Financial Distress ◽  
Emerging Market ◽  
Negative Relationship ◽  
Positive Association ◽  
Time Frame ◽  
Content Type

Purpose – This paper aims to empirically examine the quality of corporate governance (CG) practices in Egyptian-listed companies and their impact on firm performance and financial distress in the context of an emerging market such as that of Egypt. Design/methodology/approach – To assess the level of CG practices at a given firm, the current study constructs a corporate governance index (CGI) which consists of four dimensions: disclosure and transparency, composition of the board of directors, shareholders’ rights and investor relations and ownership and control structure. Based on a sample of 86 non-financial firms listed on the Egyptian Exchange, the effects of CG on performance and financial distress are assessed. Tobin’s Q is used to assess corporate performance. At the same time, the Altman Z-score is used as a financial distress indicator, as it measures financial distress inversely. The bigger the Z-score, the smaller the risk of financial distress. Findings – The overall score of the CGI, on average, suggests that the quality of CG practices within Egyptian-listed firms is relatively low. The results do not support the positive association between CG practices and financial performance. In addition, there is an insignificant negative relationship between CG practices and the likelihood of financial distress. The current study also provides evidence that firm-specific characteristics could be useful as a first-pass screen in determining firm performance and the likelihood of financial distress. Research limitations/implications – The sample size and time frame of our analysis are relatively small; some caution would be needed before generalizing the results to the entire population. Practical implications – The findings may be of interest to those academic researchers, practitioners and regulators who are interested in discovering the quality of CG practices in a developing market such as that of Egypt and its impact on financial performance and financial distress. Originality/value – This paper extends the existing literature, in the Egyptian context in particular, by examining firm performance and the risk of financial distress in relation to the level of CG mechanisms adopted.

An investigation of the post-privatization firms’ financial performance in Nigeria: the role of corporate governance practices

2019 ◽  
Vol 19 (3) ◽  
pp. 404-418 ◽  
Author(s):  
Ojonugwa Usman ◽  
Umoru Adejo Yakubu
Keyword(s):  
Corporate Governance ◽  
Stock Market ◽  
Financial Performance ◽  
Stock Exchange ◽  
Market Development ◽  
Board Composition ◽  
Content Type ◽  
Stock Market Development ◽  
Governance Practices

Purpose The purpose of this study is to investigate the role of corporate governance practices on the post-privatization financial performance of the firms listed on the Nigerian Stock Exchange (NSE) over the period 2005-2014. Design/methodology/approach The study uses a two-step dynamic system Generalized Method of Moments (GMM) estimation technique for 27 privatized firms by considering a wide range of controlled variables such as managerial shareholdings, board composition, debt financing and stock market development. Findings The empirical result suggests that the improvement in the firms’ financial performance is attributed to good corporate governance practices through effective board composition, debt financing (leverage) and stock market development. The result further shows no substantial evidence to support that managerial shareholding improves firms’ financial performance. Research limitations/implications Therefore, based on the empirical findings of this study, the authors recommend that the firms need to maintain the optimum board composition and the ratio of debt to share capital as well as developing the stock market to function effectively. Originality/value This study contributes to the existing literature in several ways: (1) the first time that the role of corporate governance is considered in explaining the post-privatization financial performance of firms listed on the Nigerian Stock Exchange; (2) the paper applies a two-step dynamic system GMM estimation technique, proposed by Arellano and Bover (1995) and Blundell and Bond (1998) to control for the serial correlation and heterogeneity, which remain the major weaknesses of the panel data modeling in the literature.

scholarly journals Corporate governance practices and comprehensive income

2018 ◽  
Vol 18 (3) ◽  
pp. 462-477 ◽  
Author(s):  
Erika López-Quesada ◽  
María-del-Mar Camacho-Miñano ◽  
Samuel O. Idowu
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Positive Impact ◽  
Negative Relationship ◽  
Multivariate Statistical ◽  
Main Hypothesis ◽  
Content Type ◽  
Comprehensive Income ◽  
Governance Practices ◽  
Governance Strategies

PurposeThe purpose of this paper is to analyze the effect of corporate governance practices on firms’ financial performance, as measured by comprehensive income (CI).Design/methodology/approachUsing a sample of 237 firms from the Standards & Poor (S&P) 500 index during the years 2004-2009, multivariate statistical analyses are conducted to confirm the authors’ main hypothesis.FindingsThe results indicate that having high levels of corporate governance culture has a positive impact on a measure of firms’ financial performance, namely, CI. Furthermore, they indicate a positive correlation between a higher percentage of external directors and financial performance, and a negative relationship between number of board meetings and financial performance.Originality/valueThe main contribution of this research is that good corporate governance strategies deliver superior financial performance for businesses in terms of CI. This serves as a method of value creation, which is the ultimate goal of a business. In addition to the use of CI as an indicator of financial performance, a unique measure of corporate governance level is tested.

Fuzzy bundling of corporate governance practices and performance of Indian firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Pankaj Kumar Gupta ◽  
Prabhat Mittal
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Design Methodology ◽  
Stock Exchange ◽  
Decision Making Process ◽  
Specific Level ◽  
Content Type ◽  
Governance Practices ◽  
And Performance ◽  
Conventional Regression

Purpose This paper aims to develop a framework that aids in achieving the desired state of financial performance for corporate enterprises based on distinct configurations of corporate governance (CG) practices. Design/methodology/approach This study uses a fuzzy-based system to arrive at a definitive configuration of CG practices that lead to a specific level of firm’s performance. Findings This analysis of the panel data of 92 National Stock Exchange–listed companies conducted for RONW on selected CG variables shows that eight fuzzy configurations lead to a particular state of RONW. The authors compare the results with the conventional regression-based scoring models. Originality/value Corporate enterprises can use the derived bundles of CG practices leading to a specific set of financial performance (RONW) to aid the decision-making process in defining and implementing their governance structures. The regulators can modify or customize the law-mandated CG practices to reduce redundancies and promote the national agenda of economic efficiency.

A comparative study of corporate governance practices of Indian firms affiliated to business groups and industries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Pitabas Mohanty ◽  
Supriti Mishra
Keyword(s):  
Corporate Governance ◽  
Business Groups ◽  
Principal Component ◽  
Past Research ◽  
Business Group ◽  
Hierarchical Regression ◽  
Group Affiliation ◽  
Content Type ◽  
Governance Index ◽  
Governance Practices

Purpose This paper aims to study the corporate governance practices followed by the listed companies in India to find out if industry and business group affiliation of firms influence their corporate governance practices. Design/methodology/approach The authors have created a corporate governance index for India using 15 of the variables used in past research. Hierarchical regression has been used in the study to control for possible inter-firm correlation in governance scores. Findings Using principal component analysis, the authors derive five factors for the corporate governance index – board composition, shareholder responsibility, ownership, responsible board behavior and fair executive compensation. Using the random intercept mixed-effects model, the authors find that corporate governance behaviors of firms affiliated to business groups are more similar within business groups than within industries. Practical implications Regulatory authorities generally target individual firms to enforce good corporate governance practices. As companies affiliated with the same business group exhibit similar governance practices, regulators can also set norms for business groups in addition to individual firms. Originality/value Scant research has studied the corporate governance behavior of firms affiliated with business groups. By making business groups (and industries) the unit of analysis, the authors have studied the corporate governance behavior of firms as a cluster in the context of an emerging country, India.

scholarly journals Does investing in sound corporate governance pay? A South African study

2017 ◽  
Vol 48 (2) ◽  
pp. 33-43 ◽  
Author(s):  
N. Mans-Kemp ◽  
P. D. Erasmus ◽  
S. Viviers
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
South African ◽  
Performance Measures ◽  
Factor Model ◽  
Emerging Market ◽  
Abnormal Returns ◽  
Annual Reports ◽  
Complex Nature ◽  
Governance Practices

Despite increased recognition of the importance of sound corporate governance practices in emerging markets, previous researchers reported inconclusive evidence on the association between corporate governance and financial performance. Authors that predominantly focused on board-related variables might, however, have failed to reflect the complex nature of corporate governance. The financial performance measures employed in the majority of previous studies also ignored the potential risk-reducing benefits that sound corporate governance could hold for emerging market firms. The purpose of this article was thus to investigate the relationship between a comprehensive measure of corporate governance and the risk-adjusted performance of selected South African companies. A unique corporate governance database was compiled by conducting content analysis on the considered companies’ annual reports over the period 2002 to 2010. Aspects related to nine corporate governance categories were taken into account. In addition to the accounting and market-based performance measures that were employed in previous studies, South African companies’ risk-adjusted performance was also taken into account. The capital asset pricing model and the Fama-French three-factor model were employed to estimate risk-adjusted abnormal returns for four corporate governance-sorted portfolios. Both estimations revealed that the portfolio comprising of companies with the highest corporate governance scores managed to significantly outperform the market.

Corporate governance and earnings forecast accuracy in IPO prospectuses: an empirical analysis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Faten Ben Ahmed ◽  
Bassem Salhi ◽  
Anis Jarboui
Keyword(s):  
Corporate Governance ◽  
Initial Public Offering ◽  
Audit Quality ◽  
Forecast Error ◽  
Emerging Market ◽  
Forecast Accuracy ◽  
Financial Statements ◽  
Small Sample ◽  
Earnings Forecast ◽  
Content Type

Purpose The purpose of this study is to present an extension to the research area dealing with the Tunisia initial public offering (IPO) associated earnings management forecasts, by an examination of the corporate governance mechanisms and earnings forecast accuracy relating impacts. Design/methodology/approach The authors use a multiple regression technique (FGLS) to estimate the effect of corporate governance structures and audit quality on earnings forecast accuracy. A sample of 33 IPO companies (165 firm-year observations) collected over the period ranging between 2011 and 2015 was applied. Findings The finding of this study reveals that the companies displaying a respectable audit committee size have a significant level of earnings forecast accuracy. Similarly, the accuracy level associated with IPO earnings forecasts is positively influenced by the use of the brand-name auditor. Research limitations/implications This study is based on a small sample from a single jurisdiction and limited time period. In fact, the findings examine how financial statements are measured and reported and assess additional regulation to protect investors and understand as well as manage earnings forecast accuracy in IPO prospectuses. Practical implications The findings of the study provide some implications for regulators, financial analysts, investors and users of financial statements, particularly who are investigating in potentially IPO firms. This study has an implication for market regulators who suggest that a requirement to publish very detailed forecast information would improve market efficiency by reducing the forecast error. Originality/value Previous studies on this subject carried out in other countries with a regulatory framework differ from that of Tunisia, which obligatorily obliges the publication of the forecasts in the prospectus of IPO and capital increase. This is one of the most important studies that simultaneously tests the impacts of corporate governance and audit quality on earnings forecast accuracy in an emerging market, and the results of this study may give strength to Tunisian as well as other developing countries.

Proxy advisory voting recommendations in India – an exploratory study

2017 ◽  
Vol 9 (4) ◽  
pp. 283-303 ◽  
Author(s):  
S. Subramanian
Keyword(s):  
Corporate Governance ◽  
Exploratory Study ◽  
Emerging Market ◽  
A Priori ◽  
Future Research ◽  
Research Issues ◽  
Content Type ◽  
Proxy Voting ◽  
Governance Practices ◽  
New Research

Purpose This paper aims to explore the voting recommendations made by proxy advisory firms in India by descriptively analyzing the “Vote Against” recommendations made by two proxy advisory firms for shareholder resolutions for the listed Indian firms. It also empirically tests the relationship between proportion of “Vote Against” recommendations and the parameters which are proved to be influencing corporate governance practices of a firm. Design/methodology/approach Empirical analysis of proxy voting recommendations for a sample of 77 listed non-financial Indian firms across four financial years. Findings The paper finds that two categories of shareholders proposals, “reappointment of non-executive directors” and “remuneration of statutory auditors”, account for 83.5 per cent of “Vote Against” recommendations. Further, there are significant differences in the proportion of “Vote Against” recommendations based on the type of “controlling ownership” of the firms. The regression analysis indicates that the relationships between proportion of “Vote Against” recommendations and determinants of corporate governance practices are mostly in line with the a priori expectations, as far as ownership is concerned but requires further analysis for other parameters. Research limitations/implications Exploratory nature of this paper opens up new research issues in the upcoming Indian Proxy advisory industry. It suggests that the future research should consider the controlling ownership as an important parameter while analyzing the proxy firm recommendations. Practical implications Indian proxy advisory industry requires lots of nurturing from the regulators, and this exploratory study provides the basic insights in this regard. It also highlights potential corporate governance issues where the regulators need to tighten the corporate governance norms, like reappointment of independent directors and appointment of statutory auditors. Originality/value Pioneering Study in understanding the proxy advisory voting recommendations in an emerging market.

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