A win-win situation for both managers and shareholders

2020 ◽  
Vol 46 (8) ◽  
pp. 977-1000
Author(s):  
Jayalakshmy Ramachandran ◽  
Nafis Alam ◽  
Chea Ei Goh
Keyword(s):  
Corporate Governance ◽  
Financial Distress ◽  
Common Law ◽  
Legal Protection ◽  
The Philippines ◽  
Annual Data ◽  
Content Type ◽  
The Difference ◽  
Asean Countries ◽  
The Impact

PurposeTo examine the impact of corporate governance on Cost of Capital (COC) and financial distress in the ASEAN countries.Design/methodology/approachWe compiled a list of the 50 largest publicly listed firms by market capitalization in each of the following five East Asian countries, namely Malaysia, Singapore, Thailand, the Philippines, and Indonesia. Furthermore, we then divided the five countries into two distinctive categories – (i) Malaysia and Singapore (Common Law/strong legal protection countries) and (ii) Thailand, the Philippines, and Indonesia (Civil Law/weak legal protection countries). The annual data is collected for the time period ranging from 2006 to 2015, allowing a total observation of 1,317 firm years.FindingsOverall, the paper supports the findings of many researchers that Board independence, promulgating good corporate governance, leads to better access to capital at lower cost, thus providing growth opportunities for ASEAN region. Taking lead from Simpson and Gleason (1999) and similar, we emphasize that during financial distress CEO duality will strengthen control systems and reduce internal discord in ASEAN firms.Originality/valueThe paper is one of the niche studies that has incorporated the difference between civil and common law rule in the study of corporate governance and its impact on financial measures of firms' in the ASEAN countries.

Corporate governance mechanisms and corporate performance of firms in Nigeria and Ghana

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Martha Coleman ◽  
Mengyun Wu
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Financial Distress ◽  
Corporate Performance ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Content Type ◽  
Structure Index ◽  
The Impact ◽  
The Relationship

PurposeThis study investigates the impact of corporate governance (CG) mechanisms with inclusion of compliance and diligence index on corporate performance (CP) of firms in Nigeria and Ghana. It further examines the moderating effect of financial distress on the relationship between CG and CP.Design/methodology/approachThe study used panel data of 102 nonfinancial listed firms of Nigeria and Ghana stock exchange for the period 2012–2016 with total observation of 510. The study first used OLS in estimating the influence of CG mechanisms on CP. Due to multicollinearity in the independent variables, ridge regression was employed.FindingsIt was revealed that ownership structure index and board compliance and diligence index, board size, board disclosure, ownership structure, shareholders' right and board compliance and diligence index had positive influence on ROA and ROE. Growth of Tobin's Q depends on board procedure and board compliance and diligence index. Also, financial distress (ZFS) negatively moderates the relationship between board structure index, board disclosure index, board procedure index, shareholders' right and performance (ROA and ROE) but negatively moderates between ownership structure index and Tobin's Q.Practical implicationsThis study provides interesting findings to policymakers in full implementation of CG codes as stated by OCED (2015) by West African firms with greater emphasis on compliance and diligence index since it positively influences all CP measures.Originality/valueThe study provides evidence of the importance of the introduction of the new index: compliance and diligence, which looks at disclosure of CSR activities. This has been overlooked by most researchers especially in Africa in assessing quality CG mechanisms.

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.

Legal protection systems, corporate governance and firm performance: a cross-country comparison

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yosra Ghabri
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Legal System ◽  
Institutional Environment ◽  
Common Law ◽  
Investor Protection ◽  
Civil Law ◽  
Legal Protection ◽  
Content Type ◽  
Valuation Effect

Purpose This paper builds on the “Law and Finance” theory and aims to examine the effect of the legal and institutional environment on the governance–performance relationship in the context of non-US firms. More precisely, it examines whether and how the country’s legal system and the level of investor protection interact with the firm-level corporate governance and affect firm performance. Design/methodology/approach The authors used the “G-Index” governance score developed by the Governance Metrics International rating for a sample of 12,728 firm-year observations from 23 countries over the 2009–2016 period. Findings The results show that the interaction between the country-level institutions and corporate governance system significantly affect the firm performance. In particular, the findings indicate that firms operating in common law countries tend to exhibit a positive valuation effect and higher performance than firms with a comparable corporate governance level operating in civil law countries. More precisely, the authors find that in common law countries, higher investor protection with enhanced corporate governance is associated with better firm performance. However, firms operating in civil law countries with weaker investor protection and a comparable corporate governance level tend to experience a negative valuation effect. Originality/value The findings suggest that the institutional and legal environment is crucial and important in determining the value-maximizing level of good governance practices. Managers and regulators should carefully analyze the cost of these initiatives and should coordinate it with the needs of the country’s legal system. The challenge for the company will be how to adjust its corporate governance strategy according to the needs and demands of the country’s legal system in which the company operates to improve its performance. The regulators should ensure a fit between the specifics of the national legal and institutional environment and corporate governance standards and practices.

scholarly journals Can we predict the likelihood of financial distress in companies from their corporate governance and borrowing?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sara Sofia Gomes Mariano ◽  
Javad Izadi ◽  
Maurice Pratt
Keyword(s):  
Corporate Governance ◽  
Financial Distress ◽  
Chief Executive ◽  
Governance Structure ◽  
Ownership Concentration ◽  
Governance Structures ◽  
Content Type ◽  
Empirically Supported ◽  
The Uk ◽  
The Impact

Purpose The purpose of this study is to investigate the impact of corporate governance structures on the likelihood of financial distress in UK listed companies. The paper examines the impact of borrowing and corporate governance structures on financial distress likelihood in UK companies. Design/methodology/approach The study uses a quantitative approach with financial, governance and borrowing measures and data from 270 firm-observations between 2010 and 2018. The study analyses the impact of borrowing and corporate governance structures to indicate financial distress likelihood in British companies. Corporate governance variables such as ownership concentration, independence indicators, chief executive officer duality, director remuneration and corporate loans are considered, as well as the UK Corporate Governance Code. Findings The results indicate that companies with low ownership concentration and a low degree of independence are more likely to incur financial distress. Larger boards and better director remuneration can reduce financial distress likelihood and the existence of corporate loans can increase this likelihood. Empirical consideration of corporate borrowing is a new contribution to the literature. Originality/value Variables are highlighted and aggregated that have not otherwise been studied together; the UK Corporate Governance Code’s main ideas are empirically supported; the study is useful for defining corporate governance structure strategies.

Governance failure and its impact on financial distress

2021 ◽  
Vol 21 (7) ◽  
pp. 1416-1439
Author(s):  
Sourour Hazami-Ammar ◽  
Amal Gafsi
Keyword(s):  
Corporate Governance ◽  
Financial Distress ◽  
Business Performance ◽  
Positive Impact ◽  
Short Term ◽  
Content Type ◽  
Distress Risk ◽  
Thomson Reuters ◽  
Term Performance ◽  
The Impact

Purpose The purpose of this paper is to examine the effects of corporate governance failure, excess remuneration and entrenchment of managers, company variables and corporate governance variables on the company’s financial distress risk (DETR) in the French context. Design/methodology/approach Using the regression analysis, this paper is based on 201 observations about 67 companies of SBF 120 from 2015 to 2017. Data are collected on the Thomson Reuters database and in the referenced documents, which are published on the internet. Findings The research findings reveal that firm’s DETR is influenced negatively by excess remuneration and entrenchment of managers. In addition, there is a positive and significant relationship between DETR and company variables (performance and ownership structure) and corporate governance variables (power structure). However, a company’s size and board of directors’ independence do not affect firms’ DETR. Practical implications The impact highlighted between remuneration and entrenchment of managers and the financial distress of the company is explained by the intention of managers to work for announcing good short-term performance indicators that are most favorable to them. Originality/value The shareholder/manager agency problem can be changed when business performance tends to decline. Certainly, the managerial latitude adopted by the managers is used as an external careerism strategy. Its positive impact on the reduction of the firm’s financial distress can benefit shareholders who aim to sell their securities in the short term.

Corporate governance and financial distress: Asian emerging market perspective

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Noman Younas ◽  
Shahab UdDin ◽  
Tahira Awan ◽  
Muhammad Yar Khan
Keyword(s):  
Corporate Governance ◽  
Financial Distress ◽  
Positive Impact ◽  
Emerging Market ◽  
Random Effect Model ◽  
Listed Companies ◽  
Z Score ◽  
Content Type ◽  
Governance Practices ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of corporate governance index (PAKCGI) on firm financial distress for a sample of 152 non-financial firms listed at Pakistan Stock Exchange (PSX) over the period from 2003 to 2017. Design/methodology/approach To examine the impact of PAKCGI on financial distress (Altman Z-Score), random effect model is applied. The PAKCGI is a self-constructed index based on the five important factors of corporate governance practices, i.e. board of directors, audit committees, right of shareholders, disclosures and risk management. The binary coding approach is adopted for the construction of PAKCGI. Altman Z-Score model is used as a proxy for financial distress indicator. The absolute value of Altman Z-score has been taken as financial distress indicator. Findings The outcomes of the study indicate a positive impact of PAKCGI on risk of firms’ financial distress. The positive coefficient of PAKCGI implies that the good corporate practices work as catalyst to reduce risk of financial distress in Pakistan. A significant negative impact of block holders on financial distress suggests that the concentrated block ownership take monopolistic decision to protect their interests. It has also been observed that significant positive impact of institutional ownership on financial distress exists in the Pakistani listed firms. Furthermore, this study also reveals that significant negative association between board size, CEO duality and financial distress indicator. Research limitations/implications The findings may encourage the Pakistani listed companies to follow and implement good corporate governance practices, which would lead to increase the confidence of investors, regulators and stakeholders. Originality/value The current study extends the corporate governance literature by examining the relationship between the corporate governance attributes and the financial distress status of Pakistani listed companies. From the academic perspective, this paper adds to the knowledge concerning the association between corporate governance practices and risk of financial distress in emerging markets.

Dividend policy, earnings management and the moderating effect of corporate governance in the French context

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Olfa Ben Salah ◽  
Anis Jarboui
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Dividend Policy ◽  
Legal Protection ◽  
Moderating Effect ◽  
Least Square ◽  
Governance Mechanisms ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to examine the moderating effect of corporate governance on the impact of earnings management on dividend policy. Design/methodology/approach In this paper, the authors selected French non-financial companies listed on the CAC All Tradable index during the 2008–2015 period. Feasible generalized least square regression method is used to estimate the econometric models. Findings The empirical results allowed the authors to confirm and/or reject certain hypotheses. First, the ownership concentration seems to positively moderate the impact of earnings management on dividend policy. Another conclusion that the authors have been able to draw is that the effect of earnings management on dividend policy is more favorable in the case of firms with a small director’s board. Practical implications Our results have shown that French firms run earnings to inform the market that they can distribute dividends. Therefore, we recommend that the various partners of the firm pay more attention to the governance mechanisms of these types of companies and, in particular, in countries where foreign investors suffer from weak legal protection (Easterbrook, 1984; Gomes, 2000; La Porta et al., 2000 and Athari et al., 2016). In fact, standardization bodies, the Ministry of Finance, external auditors and stock exchange organizer must focus on sophisticated governance mechanisms to ensure better quality of financial reporting. Originality/value To our knowledge, no other research has examined whether the impact of earnings management on dividend policy varies significantly with the moderating effect of certain governance mechanisms in France.

Corporate governance practices and capital structure decisions: the moderating effect of gender diversity

2020 ◽  
Vol 20 (5) ◽  
pp. 939-964
Author(s):  
Mohammad A.A Zaid ◽  
Man Wang ◽  
Sara T.F. Abuhijleh ◽  
Ayman Issa ◽  
Mohammed W.A. Saleh ◽  
...  
Keyword(s):  
Corporate Governance ◽  
Panel Data ◽  
Capital Structure ◽  
Generalized Method Of Moments ◽  
Gender Diversity ◽  
Business Environment ◽  
Board Structure ◽  
Content Type ◽  
Financing Decisions ◽  
The Impact

Purpose Motivated by the agency theory, this study aims to empirically examine the nexus between board attributes and a firm’s financing decisions of non-financial listed firms in Palestine and how the previous relationship is moderated and shaped by the level of gender diversity. Design/methodology/approach Multiple regression analysis on a panel data was used. Further, we applied three different approaches of static panel data “pooled OLS, fixed effect and random effect.” Fixed-effects estimator was selected as the optimal and most appropriate model. In addition, to control for the potential endogeneity problem and to profoundly analyze the study data, the authors perform the one-step system generalized method of moments (GMM) estimator. Dynamic panel GMM specification was superior in generating robust findings. Findings The findings clearly unveil that all explanatory variables in the study model have a significant influence on the firm’s financing decisions. Moreover, the results report that the impact of board size and board independence are more positive under conditions of a high level of gender diversity, whereas the influence of CEO duality on the firm’s leverage level turned from negative to positive. In a nutshell, gender diversity moderates the effect of board structure on a firm’s financing decisions. Research limitations/implications This study was restricted to one institutional context (Palestine); therefore, the results reflect the attributes of the Palestinian business environment. In this vein, it is possible to generate different findings in other countries, particularly in developed markets. Practical implications The findings of this study can draw responsible parties and policymakers’ attention in developing countries to introduce and contextualize new mechanisms that can lead to better monitoring process and help firms in attracting better resources and establishing an optimal capital structure. For instance, entities should mandate a minimum quota for the proportion of women incorporation in boardrooms. Originality/value This study provides empirical evidence on the moderating role of gender diversity on the effect of board structure on firm’s financing decisions, something that was predominantly neglected by the earlier studies and has not yet examined by ancestors. Thereby, to protrude nuanced understanding of this novel and unprecedented idea, this study thoroughly bridges this research gap and contributes practically and theoretically to the existing corporate governance–capital structure literature.

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.

The impact of labor freedom on geographic cost of living differentials

2017 ◽  
Vol 6 (3) ◽  
pp. 385-395
Author(s):  
Richard Cebula ◽  
James E. Payne ◽  
Donnie Horner ◽  
Robert Boylan
Keyword(s):  
Labor Market ◽  
State Level ◽  
The State ◽  
Annual Data ◽  
Significant Finding ◽  
Cost Of Living ◽  
Content Type ◽  
The Usa ◽  
The Cost ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of labor market freedom on state-level cost of living differentials in the USA using cross-sectional data for 2016 after allowing for the impacts of economic and quality of life factors. Design/methodology/approach The study uses two-stage least squares estimation controlling for factors contributing to cost of living differences across states. Findings The results reveal that an increase in labor market freedom reduces the overall cost of living. Research limitations/implications The study can be extended using panel data and alternative measures of labor market freedom. Practical implications In general, the finding that less intrusive government and greater labor freedom are associated with a reduced cost of living should not be surprising. This is because less government intrusion and greater labor freedom both inherently allow markets to be more efficient in the rationalization of and interplay with forces of supply and demand. Social implications The findings of this and future related studies could prove very useful to policy makers and entrepreneurs, as well as small business owners and public corporations of all sizes – particularly those considering either location in, relocation to, or expansion into other markets within the USA. Furthermore, the potential benefits of the National Right-to-Work Law currently under consideration in Congress could add cost of living reductions to the debate. Originality/value The authors extend the literature on cost of living differentials by investigating whether higher amounts of state-level labor market freedom act to reduce the states’ cost of living using the most recent annual data available (2016). That labor freedom has a systemic efficiency impact on the state-level cost of living is a significant finding. In our opinion, it is likely that labor market freedom is increasing the efficiency of labor market transactions in the production and distribution of goods and services, and acts to reduce the cost of living in states. In addition, unlike previous related studies, the authors investigate the impact of not only overall labor market freedom on the state-level cost of living, but also how the three sub-indices of labor market freedom, as identified and measured by Stansel et al. (2014, 2015), impact the cost of living state by state.

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