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 The effects of corporate governance mechanisms on the financial leverage–profitability relation

2019 ◽  
Vol 43 (4) ◽  
pp. 387-409
Author(s):  
Hanh Song Thi Pham ◽  
Duy Thanh Nguyen
Keyword(s):  
Corporate Governance ◽  
Panel Data ◽  
Emerging Market ◽  
State Ownership ◽  
Board Independence ◽  
Financial Leverage ◽  
Governance Mechanisms ◽  
Board Size ◽  
Content Type ◽  
Corporate Governance Mechanisms

Purpose This paper aims to investigate the moderating effects of corporate governance mechanisms on the financial leverage–profitability relation in emerging market firms. Design/methodology/approach The paper examines the impacts by estimating the empirical model in which a firm’s accounting profitability is a dependent variable, while financial leverage, board size, board independence, CEO duality, CEO ownership, state ownership and the interaction variables are predictors. The paper uses the panel data set of 295 listed firms in Vietnam in the period 2011-2015 and two key econometric methods for panel data, namely, the two-stage least square instrumental variable and general moments method. Findings The paper finds the evidence for the significant and positive effect of board size, board independence and state ownership on the financial leverage–profitability relation. The effect of CEO duality on the financial leverage–profitability relation tends to be negative, and the impact CEO ownership inclines to be positive, although both of them are statistically insignificant. The results are consistent across different estimation methods. Originality/value This paper is the first investigating the moderating effect of various corporate governance mechanisms on the financial leverage–profitability relationship in emerging market firms.

Does intellectual capital and corporate governance have an impact on annual report readability? Evidence from an emerging market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tamanna Dalwai ◽  
Syeeda Shafiya Mohammadi ◽  
Gaitri Chugh ◽  
Mahdi Salehi
Keyword(s):  
Corporate Governance ◽  
Intellectual Capital ◽  
Annual Report ◽  
Emerging Market ◽  
Financial Sector ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
Capital Efficiency ◽  
The Impact

PurposeThis study examines the impact of intellectual capital efficiency and corporate governance mechanisms on the annual report readability of Oman's financial sector companies.Design/methodology/approachThe study uses a sample of 150 firm-year observations of listed financial sector companies in the Muscat Securities Market, Oman, from 2014 to 2018. Flesch Reading ease and Flesch Kinkaid Index are used as proxies for annual report readability. As part of sensitivity analysis, the study also uses the natural logarithm of annual report pages as alternative readability measures. The investigation is conducted using random effects regression analysis and supported with system GMM estimation for robustness.FindingsThe findings of this study demonstrate a decrease in intellectual capital efficiency associated with better readability of annual reports for the financial sector firms. Alternatively, banks report a positive association of intellectual capital efficiency with the Flesch Reading ease score of the annual report. The structural capital and capital employed efficiency are also found to be negatively associated with annual report readability. Corporate governance mechanisms such as dispersed ownership and audit committee size also result in easy-to-read annual reports that support agency theory.Research limitations/implicationsThe research was conducted for financial firms of Oman, and thereby the findings can be generalized to the financial sector of countries with similar settings, such as the Gulf Cooperation Council (GCC) region.Practical implicationsThe policy implications arising from this study suggest a strengthening of the intellectual capital efficiency and corporate governance mechanisms to improve the readability of the firms and thereby increase investor confidence.Originality/valueThis paper's uniqueness is in the model used to investigate the impact of intellectual capital efficiency and corporate governance mechanisms on the annual report readability of an emerging market.

scholarly journals Does D&O insurance matter for stock price crash risk? Evidence from an Asian emerging market

2019 ◽  
Vol 3 (1) ◽  
pp. 34-46
Author(s):  
Ming-Te Lee ◽  
Kai-Ting Nien
Keyword(s):  
Corporate Governance ◽  
Stock Price ◽  
Emerging Market ◽  
Insurance Coverage ◽  
Crash Risk ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Relationship

Purpose The purpose of this paper is to address the opposing views of the relationship between directors’ and officers’ liability insurance (D&O insurance) and stock price crash risk in a major Asian emerging stock market. Design/methodology/approach This paper finds an endogenous relationship between D&O insurance and stock price crash risk. Hence, the two-stage least squares regression analysis is used to address the endogeneity issue when the relationship is examined. Moreover, this paper further controls the quality of other corporate governance mechanisms to investigate whether D&O insurance still has an effect on stock price crash risk. Findings The effect of D&O insurance coverage is significantly negatively related to firm-specific stock price crash risk in Taiwan. More importantly, even when the quality of other corporate governance mechanisms is controlled, the negative relationship between D&O insurance coverage and firm-specific stock price crash risk remains significant. The evidence supports that D&O insurance serves as an effective external monitoring mechanism, strengthens corporate governance, and thus reduces stock price crash risk. Originality/value Emerging Asian markets suffer a dearth of research on the relationship of D&O insurance coverage and the firm-specific stock price crash risk. Investigating the relationship in Taiwan, the present study fills the research void. The findings show that D&O insurance plays an important role in reducing stock price crash risk of Taiwanese firms even when other corporate governance mechanisms are in place.

The effect of characteristics of audit committee and board on corporate profitability in Iran

2018 ◽  
Vol 34 (1) ◽  
pp. 71-88 ◽  
Author(s):  
Mahdi Salehi ◽  
Mohammad Tahervafaei ◽  
Hossein Tarighi
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Stock Exchange ◽  
Emerging Market ◽  
Board Independence ◽  
Outside Directors ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms

Purpose The purpose of this paper is to evaluate the relationship between the characteristics of the audit committee and the board and profitability among the companies listed on the Tehran Stock Exchange (TSE) in Iran. Design/methodology/approach In this study, the companies listed on the TSE during the period from 2010 to 2015 are investigated. The Linear panel regression method is employed for this purpose. The independent variables of the study are composed of some corporate governance mechanisms including audit committee size, audit committee expertise, board size, board independence, chief executive officer (CEO) duality, and institutional ownership. Findings In spite of the fact that there does not exist any significant association between audit committee size and corporate financial performance, the results indicate that there is a positive and significant relationship between audit committee financial expertise and profitability. The authors found that the number of board members cannot affect corporate performance; moreover, duality of CEO role in Iranian companies does not affect company performance. However, the outcomes showed a positive and significant association between the proportion of outside directors on the board (board independence) and profitability at 99 percent confidence level. This implies that the role of non-executive directors in Iran is inconsistent with the stewardship theory. This is due to the fact that independent directors understand the status of business and market better than the board’s executive members. Finally, the results indicated that there is no significant association between institutional owners and Iranian companies’ performance. Practical implications The findings of this study will reveal more than ever 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 This is one of the most important studies that simultaneously examine the impacts of characteristics of the audit committee and the board on profitability in an emerging market, and the results of the study may give strength to Iranian as well other developing countries.

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.

Corporate governance and social responsibility

2015 ◽  
Vol 57 (1) ◽  
pp. 38-52 ◽  
Author(s):  
Marty Stuebs ◽  
Li Sun
Keyword(s):  
Corporate Governance ◽  
Social Responsibility ◽  
Good Governance ◽  
Positive Association ◽  
Individual Investors ◽  
Governance Mechanisms ◽  
Content Type ◽  
Good Corporate Governance ◽  
Corporate Governance Mechanisms ◽  
Corporate Social

Purpose – This paper aims to draw on the stakeholder theory to examine the association between corporate governance and social responsibility. Design/methodology/approach – This paper hypothesized that corporate governance is positively associated with corporate social responsibility (CSR), and good corporate governance also leads to good social responsibility in the following year. Corporate governance was measured by using the corporate governance index provided by Brown and Caylor (2006, 2009). CSR data come from Kinder, Lydenberg and Domini (KLD), Inc. Findings – Regression analysis documents significant evidence to support a positive association between corporate governance and social responsibility. Evidence suggests that good governance leads to good CSR performance. Originality/value – The results should interest managers who engage in behavior leading to or maintaining strong corporate governance mechanisms, financial analysts who conduct research on corporate governance and firm performance and policymakers who design and implement guidelines on corporate governance mechanisms. Moreover, results of this study can increase individual investors’ confidence in investing in companies with stronger corporate governance.

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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