Showing papers in "Corporate Governance: An International Review in 2006"
TL;DR: In this article, the authors investigate the extent to which corporate governance attributes, ownership structure and company characteristics influence the extent of voluntary disclosure in a developing country, namely Kenya, and find that the presence of an audit committee is a significant factor associated with the level of disclosure.
Abstract: There has been considerable research in respect of voluntary disclosure by companies and factors that may explain such disclosure. However, most of the research has been centred in developed countries. This study extends the previous literature by examining voluntary disclosure in a developing country, namely Kenya. Over the last decade, the Kenyan Government has initiated several far-reaching reforms at the Nairobi Stock Exchange (NSE) in order to mobilise domestic savings and attract foreign capital investment. These measures include privatisation of state corporations through the stock exchange and allowing foreign investors to own shares in the listed companies. This study provides a longitudinal examination of voluntary disclosure practices in the annual reports of listed companies in Kenya from 1992 to 2001. The study investigates the extent to which corporate governance attributes, ownership structure and company characteristics influence voluntary disclosure practices.
Our results suggest that the extent of voluntary disclosure is influenced by a firm's corporate governance attributes, ownership structure and company characteristics. The presence of an audit committee is a significant factor associated with the level of voluntary disclosure, and the proportion of non-executive directors on the board is found to be significantly negatively associated with the extent of voluntary disclosure. The study also finds that the levels of institutional and foreign ownership have a significantly positive impact on voluntary disclosure. Large companies and companies with high debt voluntarily disclose more information. In contrast, board leadership structure, liquidity, profitability and type of external audit firm do not have a significant influence on the level of voluntary disclosure by companies in Kenya.
885 citations
TL;DR: In this article, the authors argue that key differences between the UK and the US in the importance ascribed to a company's social responsibilities reflect differences in the corporate governance arrangements in these two countries, and draw on a model of instrumental, relational and moral motives to explore why institutional investors in the UK are becoming concerned with firms' social and environmental actions.
Abstract: This paper argues that key differences between the UK and the US in the importance ascribed to a company's social responsibilities (CSR) reflect differences in the corporate governance arrangements in these two countries. Specifically, we analyse the role of a salient type of owner in the UK and the US, institutional investors, in emphasising firm-level CSR actions. We explore differences between institutional investors in the UK and the US concerning CSR, and draw on a model of instrumental, relational and moral motives to explore why institutional investors in the UK are becoming concerned with firms’ social and environmental actions. We conclude with some suggestions for future research in this area.
517 citations
TL;DR: Corporate governance is fundamentally about what business is for, and in whose interests companies should be run, and how as discussed by the authors The authors of this paper review the increasingly complex cross-connects between the rapidly mutating governance agenda and the burgeoning world of corporate responsibility, social entrepreneurship and sustainable development.
Abstract: Corporate governance is fundamentally about such questions as what business is for—and in whose interests companies should be run, and how. Wider issues such as business ethics through entire value chains, human rights, bribery and corruption, and climate change are among the great issues of our time that increasingly cross-cut the rarefied worlds of corporate boardrooms. As a result, a growing proportion of SustainAbility’s work has seen the fusion of corporate governance with such wider societal concerns. This paper reviews the increasingly complex cross-connects between the rapidly mutating governance agenda and the burgeoning world of corporate responsibility, social entrepreneurship and sustainable development. We will move through three stages: (1) a brief review of work that SustainAbility has done in the area of corporate governance; (2) the three great waves of societal pressure on business since 1960, and where things seem likely to head next; and (3) some headline conclusions that emerged in this field from the World Economic Forum’s 2006 annual summit in Davos.
324 citations
TL;DR: In this article, the authors examined whether the information-usefulness of annual accounting earnings varies with the fraction of outside directors serving on the board and board size, and found that earnings informativeness is negatively related to board size but is not related to the number of outside board members serving.
Abstract: This study extends earlier research on corporate governance by examining whether the information-usefulness of annual accounting earnings varies with the fraction of outside directors serving on the board and board size. Using panel data from New Zealand (NZ) firms for the financial years 1991-97, we find that earnings informativeness is negatively related to board size but is not related to the fraction of outside directors serving on the board. Our results are robust to controlling for various firm-specific factors that are known to be associated with earnings informativeness.
279 citations
TL;DR: In this paper, the importance of these board roles and differences between the board's performance and perceived importance are assessed, and the results show it is indispensable to differentiate between two aggregated roles that boards in small and medium-sized family firms perform: control and service.
Abstract: The board of directors is regarded as one of the most imperative governance mechanisms in small and medium-sized family firms. Empirical studies examining both the roles these boards fulfil in a family business context, as well as evaluating the ceo’s perceived importance of these roles, are scarce. Founded by a range of conceptual and multi-theoretical board role definitions, this paper contributes to the literature by empirically determining board roles. Furthermore, the importance of these board roles and differences between the board’s performance and perceived importance are assessed. The results show it is indispensable to differentiate between two aggregated roles that boards in small and medium-sized family firms perform: control and service. The control role is predominantly based on agency theory, whereas the service role includes multiple theoretical perspectives. The ceos of the family firms perceive the service role of the board as most important. However, in order to direct succession and to compensate for the owner/manager’s altruistic behaviour, the board’s control role should not be neglected. The acknowledgement of these two aggregated board roles and their importance may enhance future research on board roles within specific contexts.
213 citations
TL;DR: In this paper, the authors evaluate the T&D practices of the 52 largest and most liquid firms in the Istanbul Stock Exchange (ISE), based on their English and local language annual reports and websites.
Abstract: Recent financial reporting and auditing scandals on both sides of the Atlantic have led to a global realization of the importance of sound corporate governance (CG) practices in alleviating the agency problems in the corporate form of business and for efficient allocation of capital in international markets. Transparency and disclosure (T&D) practices followed by firms are an important component and a leading indicator of CG quality. Transparent and full-disclosure of information is especially vital for Turkey where external capital is necessary to sustain the high growth rate and the biggest agency problem centers on asymmetric information and expropriation by majority shareholders. We collaborate with Standard and Poor’s (S&P) and base our survey on their scoring methodology, a customized version of the 98 desirable T&D attributes they used in several other countries, and their classification of the attributes into three categories: ownership structure and investor relations, financial transparency and information disclosure, and board and management structures and processes. We evaluate the T&D practices of the 52 largest and most liquid firms in the Istanbul Stock Exchange (ISE), based on their English and local language annual reports and websites. Our rankings provide a first time, objective assessment of the corporate disclosure practices of ISE firms and uncover that they are, at best, moderate and vary with respect to the three sub-categories of T&D. We also consider a simple model that sequentially links agency problems to CG/T&D mechanisms in place which, in turn impact firm-level and economy-wide financial performance. Concentrating on the causal side of the model -- the determinants of T&D scores --, we provide out-of-sample evidence that among the commonly used proxies for agency conflicts, firm size, financial performance, market-to-book equity best explain the variation in T&D scores in the ISE. While our results provide considerable support for prior findings in developed markets, they also shed light on how specific agency problems faced by the ISE firms impact their T&D scores.
204 citations
TL;DR: In this paper, an expectations gap approach is applied for the first time to implicit expectations which assume a relationship between firm performance and company boards, and seven aspects of boards are identified as leading to a reasonableness gap.
Abstract: Reflecting investor expectations, most prior corporate governance research attempts to find a relationship between boards of directors and firm performance. This paper critically examines the premise on which this research is based. An expectations gap approach is applied for the first time to implicit expectations which assume a relationship between firm performance and company boards. An expectations gap has two elements: a reasonableness gap and a performance gap. Seven aspects of boards are identified as leading to a reasonableness gap. Five aspects of boards are identified as leading to a performance gap. The paper concludes by suggesting avenues for empirically testing some of the concepts discussed in this paper.
183 citations
TL;DR: In this paper, the authors focus on two aspects of this regime: the nature of the explanations that have been given by companies with an established record of non-compliance (serial non-compliers) and the role of the market in permitting deviations from the Combined Code.
Abstract: The “comply or explain” principle adopted by the UK’s Combined Code on Corporate Governance has now been in operation for 12 years. In this paper we focus on two aspects of this regime. The first is the nature of the explanations that have been given by companies with an established record of non-compliance (“serial non-compliers”) and the role of the market in permitting deviations from the Combined Code. In particular, we consider the significance of share price performance as a factor that is relevant in justifying non-compliance and the extent to which investors appear to rely on this indicator rather than engage in the more difficult task of judging the relative merits of the Code provisions against alternatives. Our approach differs from much of the research linking corporate governance with financial performance in that it focuses on the potential influence of financial performance (as measured by share price) on governance structure rather than vice versa. Our study of FTSE 100 serial non-compliers suggests that there is a prima facie link between share price performance and investors’ tolerance of non-compliance with the Combined Code. The second issue we examine is the link between the principle of “comply and explain” and the self-regulatory status of the Code. We conclude that the benefits of flexibility generally associated with the self-regulatory status of the Code are overstated and that the Code could be integrated into mainstream company law.
156 citations
TL;DR: In this article, a new approach and set of standard measures to assess boards' effectiveness in strategy execution is developed, based on insights from strategy process research, and they suggest taking "strategy consistency" between a firm's resource allocation and its announced strategy as a proxy for board's effectiveness in guiding strategy execution, which contributes to extant research by going beyond structural governance issues and paying direct attention to strategic governance issues.
Abstract: Subsequent to a host of corporate corruption scandals, boards of directors are facing amplified pressure from investors, creditors and shareholders in a bid to ensure effective corporate governance of their investments. In previous research and public debate, the effectiveness of corporate governance structures has come under close scrutiny. However, boards' effectiveness in fulfilling their strategic role by guiding strategy execution mostly has been left unaddressed. Due to the high degree of secrecy and sensitivity of strategy issues, boards' effectiveness in guiding strategy execution is much more difficult to assess externally compared to structural governance issues. Against the backdrop of these difficulties and based upon insights from strategy process research, we suggest taking "strategy consistency" between a firm's resource allocation and its announced strategy as a proxy for boards' effectiveness in guiding strategy execution. In doing so, the paper contributes to extant research by going beyond structural governance issues and paying direct attention to strategic governance issues. Specifically, the paper develops a new approach and set of standard measures to assess boards' effectiveness in strategy execution.
150 citations
TL;DR: In this paper, the authors examine whether there is a pricing effect connected to the declared degree of compliance for a sample of (big) publicly traded German companies listed in the DAX 30 and MDAX.
Abstract: Since 2002 company law requires listed German corporations to declare their degree of conformity to the German Corporate Governance Code (GCGC). We examine whether there is a pricing effect connected to the declared degree of compliance for a sample of (big) publicly traded German companies listed in the DAX 30 and MDAX. We find that the degree of compliance with the Code is value-relevant after controlling for an endogeneity bias. This shows that the capital markets find the rules in the code meaningful and that there is capital market pressure to adopt the Code regulation. Our findings also suggest that the capital market fills a possible "control vacuum" resulting from the withdrawal of commercial banks from their (former) influential role in the German "insider control" corporate governance model.
130 citations
TL;DR: In this paper, the authors focus on corporate governance initiatives in South Africa, given its significance as an emerging market, its potential leadership role on the African continent and the country's notable corporate governance reform since the collapse of apartheid in 1994.
Abstract: The recent onslaught of corporate scandals has compelled the world to acknowledge the profound impact of corporate governance practices on the global economy. Corporate governance is of particular concern in developing economies, where the infusion of international investor capital and foreign aid is essential to economic stability and growth. This paper focuses attention on corporate governance initiatives in South Africa, given its significance as an emerging market, its potential leadership role on the African continent and the country’s notable corporate governance reform since the collapse of apartheid in 1994. The evolution of the country’s corporate structure and the forces driving corporate governance reform over the past decade will be examined, followed by a review of the most notable reform initiatives in place today. Finally, an assessment of those initiatives will be presented, along with recommendations concerning how South Africa’s initiatives can serve as models of enhanced corporate governance standards for the African continent.
TL;DR: In this paper, the authors explore the issue of multiple directorships in Australian listed companies and find that there is little empirical evidence to support the view that too many directorships are too many.
Abstract: How many directorships are too many? Globally, normative advice emphasises the importance of limiting the number of directorships any individual should hold due to the workloads they entail. However, there is little empirical evidence to support this view. Rather, there is a strong tradition of supporting multiple directorships as a mechanism for the firm to co-opt external resources. To explore the issue of director workloads and multiple directorships, we first consider the issues related to multiple directorships and outline the conclusions of extant international and Australian studies into multiple directorships. We then detail our objectives in undertaking this research and our approach to data collection. Our findings indicate that the incidence of multiple directorships in Australian listed companies is low. We also find that many of the apparent examples of multiple directorships are due to related entities, which share common directors and, due to the nature of these entities, have much lower workload requirements. Further, there does not appear to be any relationship between holding multiple directorships and firm financial performance. Finally, we discuss the implications for boards and those interested in governance, particularly the need to ensure governance recommendations and guidelines reflect empirical findings. We offer one solution to address the concerns of boards, investors, other stakeholders and the community regarding multiple directorships: board and individual director evaluations.
TL;DR: In this article, the authors evaluate the characteristics of corporate boards associated with layoff decisions using a large sample of UK firms suffering performance declines over the period 1994-2003 and find that firms are less likely to respond to performance declines with employee layoffs when they have large boards.
Abstract: The paper evaluates the characteristics of corporate boards associated with layoff decisions using a large sample of UK firms suffering performance declines over the period 1994–2003. The results show that firms are less likely to respond to performance declines with employee layoffs when they have large boards. Further analysis shows that layoff decisions are positively associated with the proportion of outside directors and directors’ remuneration. The findings provide some support to the recommendations of the Cadbury Report (1992) and Higgs Review (2003) on the importance of the structure and composition of board of directors in the corporate governance process.
TL;DR: In this article, the authors considered the GSI argument that the Asian way of doing business was the deep cause of the Asian crisis and found that poor corporate governance and lack of competition are not common characteristics of the APEC business model.
Abstract: This paper considers the Greenspan/Summers/IMF (GSI) argument that the Asian way of doing business was the deep cause of the Asian crisis. The IMF reform programme for the crisis-affected Asian countries suggested they should abandon the Asian business model and adopt the US corporate model. The main findings are: (a) contrary to GSI doctrine, poor corporate governance and lack of competition are not common characteristics of the Asian business model; (b) the stock market-based US business model has severe limitations for developing country corporations, not least because of imperfect share prices and the imperfect market for corporate control.
TL;DR: In this paper, the authors report that only a small minority complied with all significant aspects of the Code, and the vast majority did not comply with any of them, which suggests that the introduction of a Corporate Governance Code in Cyprus, or other developing economies, is likely to have only minimal impact unless it is supported by other initiatives.
Abstract: When the Cyprus economy was booming in the 1990s, key issues emanating from sound corporate governance, such as accountability, transparency and effective independent boards were not deemed important. However, largely as a result of the Cyprus stock exchange collapse of 2000, this view changed. In September 2002, due to the collapse, the Cyprus Stock Exchange implemented a Corporate Governance Code predicated largely on Anglo-Saxon principles of corporate governance.
This paper reports the result of a study into levels of compliance with the Code by companies listed on the Cyprus Stock Exchange. The findings indicate that only a small minority complied with all significant aspects of the Code, and the vast majority did not comply with any. While the Code was well intended, the intended reforms do not appear to have significantly improved corporate governance. This is perhaps not surprising, given that the Cyprus equity markets and corresponding legislative support pertaining to corporate governance are in their infancy. In addition, some typical free market controls (e.g. low degree of concentration of ownership, reliable and timely information flows and opportunities for investor diversification) that facilitate international institutional investment do not exist in Cyprus. This suggests that the introduction of a Corporate Governance Code in Cyprus, or other developing economies, is likely to have only minimal impact unless it is supported by other initiatives. However, recent developments in Cyprus relating to greater education as to the benefits of corporate governance, as well as more stringent listing rules for companies lacking aspects of corporate governance, suggest that Cyprus is making serious endeavours to improve the corporate governance of its listed companies.
TL;DR: In this paper, the authors examined chief executive officer (CEO) compensation and turnover in socially responsible (SR) firms and compared characteristics of SR firms with a matched sample of firms based on industry and size.
Abstract: This study examines chief executive officer (CEO) compensation and turnover in socially responsible (SR) firms. We compare characteristics of SR firms with a matched sample of firms based on industry and size. Analysis of CEO compensation indicates that the link between CEO pay and firm performance is weaker for SR firms than for non-SR firms. CEO turnover tests indicate that SR firms are more likely to experience CEO turnover following poor performance. Stock option grants to CEOs of SR firms do not appear to result in future risk-taking behaviour, whereas such grants are significantly related to future risk at non-SR firms.
TL;DR: In this paper, the authors review the case for having strong corporate governance institutions to facilitate the creation of thick equity markets in the context of developing countries in emerging markets, and examine the case of relying on alternative sources of capital including the state.
Abstract: Almost all firms start out as small, owner-managed companies. Many stay that way throughout their lives. Some create attractive investment opportunities, however, that will allow them to grow rapidly and become leading companies in their country. These firms typically do not have sufficient internal funds flows and must turn to external sources of finance. Among these is the issuance of equity. Once a firm sells shares, however, the cost of the managers engaging in on-the-job consumption falls, and they can be expected to do so at the expense of their shareholders. Knowing this, potential shareholders may be unwilling to purchase a new offering of a young firm’s shares, and the firm with attractive investment opportunities is unable to finance them. Strong corporate governance institutions help to protect shareholders from the discretionary use of their firm’s resources. This paper reviews the case for having strong corporate governance institutions to facilitate the creation of thick equity markets in the context of developing countries in emerging markets, and examines the case for relying on alternative sources of capital including the state.
TL;DR: In this paper, the main differences in expectations between NGOs and companies who interact with each other with respect to corporate social responsibility (CSR) are investigated and a web-based tool is developed to study these expectations and experiences.
Abstract: What are the main differences in expectations between NGOs and companies who interact with each other with respect to corporate social responsibility (CSR)? This is the leading question for a research project within the framework of the Dutch National Research Program on CSR (2003–2004). The research starts with the observation that companies and NGOs are increasingly interacting regarding CSR. Exploring the mutual expectations in the early stages of an interaction can deliver valuable information about the possibilities for cooperation. In order to study these expectations and experiences, a web-based tool is developed. The application of this tool results in the relevant gaps between mutual expectations and the comparison of expectations expressed in the beginning of the interaction with the actual experiences.
TL;DR: In this paper, the authors highlight the corporate governance potential of debt maturity structure for Turkish firms through investigating its association with ownership and control structure and find that both concentrated ownership structure and presence of a large shareholder is directly but moderately related to corporate debt maturity.
Abstract: This study highlights the corporate governance potential of debt maturity structure for Turkish firms through investigating its association with ownership and control structure. We model leverage and debt maturity as jointly endogenous under simultaneous equations framework. Firstly, we find that both concentrated ownership structure and presence of a large shareholder is directly but moderately related to corporate debt maturity. We also document that it is important for Turkish firms to match maturity of their assets with maturity of their liabilities. Our findings lend considerable support to the prediction that as firms get financially strong or have more growth opportunities they shorten their corporate debt maturity structure. Moreover, despite having a controlling large shareholder or a concentrated ownership structure, firms with growth opportunities still prefer shorter maturities in order to solve the underinvestment problems. Finally, firm size is positively associated with long-term debt and our empirical analysis provides no evidence that taxes affect debt maturity structure.
TL;DR: For example, the authors found that annual calendars and written protocols are often used to allocate decision rights between the board and management, and that executives make frequent judgement calls on what issues should go to the board, and what should remain within management.
Abstract: American boards of directors increasingly treat their delegation of authority to management as a careful and self-conscious decision. Numerically dominated by non-executives, boards recognize that they cannot run the company, and many are now seeking to provide stronger oversight of the company without crossing the line into management. Based on interviews with informants at 31 major companies, we find that annual calendars and written protocols are often used to allocate decision rights between the board and management. Written protocols vary widely, ranging from detailed and comprehensive to skeletal and limited in scope. While useful, such calendars and protocols do not negate the need for executives to make frequent judgement calls on what issues should go to the board and what should remain within management. Executives still set much of the board’s decision-making agenda, and despite increasingly asserting their sovereignty in recent years, directors remain substantially dependent upon the executives’ judgement on what should come to the board. At the same time, a norm is emerging among directors and executives that the latter must be mindful of what directors want to hear and believe they should decide.
TL;DR: The authors survey empirical studies examining privatisation's effects in developing economies and find that privatisation yields improvements in the operating and financial performance of divested firms, and only a handful document outright performance declines after privatisation.
Abstract: We survey empirical studies examining privatisation’s effects in developing economies. Most of these studies find that privatisation yields improvements in the operating and financial performance of divested firms, and only a handful document outright performance declines after privatisation. Almost all studies that examine post-privatisation changes in output, efficiency, profitability, capital investment spending and leverage document significant increases in the first four measures and significant declines in leverage. The studies examined here are far less unanimous regarding the impact of privatisation on employment levels in privatised firms. Studies that explicitly address the sources of post-privatisation performance improvement using data from multiple non-transition economies tend to find stronger efficiency gains for firms in regulated industries, in firms that restructure operations after privatisation, and in countries providing greater amounts of shareholder protection.
TL;DR: In this article, the authors examined the relationship between macroeconomic stabilisation and corporate governance reforms in Turkey since the 1999 and 2001 crises and demonstrated that the prospect of macroeconomic stability has led to extensive corporate governance reform for two reasons.
Abstract: Recent work on corporate governance has highlighted the effects of corporate governance quality on macroeconomic crises, especially in the context of South-East Asian economies. However, the possibility of reverse causation from macroeconomic performance to corporate governance has been overlooked. This paper aims to address this issue by examining the relationship between macroeconomic stabilisation and corporate governance reforms in Turkey since the 1999 and 2001 crises. We demonstrate that the prospect of macroeconomic stability has led to extensive corporate governance reforms for two reasons. First, recent return to macroeconomic stability has been underpinned by public governance reforms, which spilled over to the area of corporate governance. We call this the statutory reform effect. Second, macroeconomic stability tended to have a positive effect on firms' investment in corporate governance quality. We call this the voluntary reform effect. To substantiate these findings, we examine the post-1999 developments in the following areas: (i) the effectiveness of regulatory authorities; (ii) disclosure and transparency rules; and (iii) the quality of the enforcement regime.
TL;DR: In this article, the authors test the impact of large shareholders' deviations on corporate investment performance in Turkey and find that the average Turkish listed company has a return on investment which is less than its cost of capital.
Abstract: In spite of the fact that most research has concentrated on the typical agency problem between managers and dispersed shareholders, in many countries large shareholders are much more frequently observed than firms with dispersed ownership structures. While large shareholders are perceived as a potential solution to the typical agency problem between managers and dispersed shareholders, less research has been done on the costs of large shareholders. One important issue in this literature is that deviations of cash flow rights from voting rights often result in substantial value discounts. In this paper we test for the impact of such deviations on corporate investment performance in Turkey. To measure corporate investment performance we estimate returns on investment relative to company costs of capital, a methodology that overcomes the endogeneity problem, which is known to contaminate results in the empirical corporate governance literature. Consistent with existing studies, we find that the average Turkish listed company has a return on investment which is less than its cost of capital. We also report significantly better investment performance for companies that do not deviate from one share–one vote by using pyramidal ownership structures, dual-class shares and other devices that enhance the control power of large shareholders beyond their cash flow rights. We also find that business group membership improves the investment performance and relative market valuation of companies.
TL;DR: In this article, the authors explored the implications for democratic practice of collaborative working through partnership arrangements in the public sector and identified a problem for policy makers to address: partnerships are flexible management tools, but exhibit a democratic deficit in terms of the rules and procedures of public governance when measured against a benchmark of elected local government.
Abstract: This paper discusses the findings of a study undertaken by a team from the University of Birmingham's Institute for Local Government Studies (INLOGOV), funded by the Economic and Social Research Council. The research explores the implications for democratic practice of collaborative working through partnership arrangements in the public sector. Through a study of multi-organisational partnerships in two local authority areas, the research identifies a problem for policy makers to address: partnerships are flexible management tools, but exhibit a democratic deficit in terms of the rules and procedures of public governance when measured against a benchmark of elected local government. Partnerships are in, but not of, the community.
TL;DR: In this article, the ownership and financing structures and performance of listed (LCs) and large non-listed companies (NLCs), were compared using a large firm-level dataset covering 19 European countries.
Abstract: In this paper, we use a large firm-level dataset covering 19 European countries in order to compare the ownership and financing structures and performance of listed (LCs) and large non-listed companies (NLCs). For the overall sample, we find that the substantial majority of NLCs have either a large or medium blockholder. This contrasts with the ownership structure of LCs, which usually have no large blockholder. Moreover, we present information on typology of large blockholders as well as financial ratios in LCs and NLCs. The results from matched-pairs analysis, employed in order to directly compare the two categories, suggest that NLCs use relatively less fixed assets and they appear to be more capital intensive than LCs. In terms of performance, NLCs have higher returns on assets and equity than LCs do, but lower margins. Overall, the paper contributes to the understanding of differences between NLCs and LCs.
TL;DR: In this article, the authors provide a theoretical basis for evaluating corporate governance models in MNEs and propose four governance frameworks for subsidiary corporations: direct control, dual reporting, advisory board and local board.
Abstract: While the corporate governance literature generally focuses on the parent legal entity, many organisations are now multinational enterprises (MNEs) with subsidiaries that are most often legal entities in their host countries Despite the strengthening of corporate governance regimes internationally, the boards of these subsidiaries are in many instances perfunctory This paper examines the question of whether developments in corporate governance theory and practice can add value for the local subsidiaries of MNEs This paper provides a theoretical basis for evaluating governance models in MNEs The paper commences with a review of the key concepts from the MNE and conglomerates literature with respect to core MNE strategies The paper then discusses what the "governance roles" are that must be performed in MNE subsidiaries We propose four governance frameworks for subsidiary corporations These frameworks are: (1) Direct Control; (2) Dual Reporting; (3) Advisory Board; (4) Local Board We consider the strengths and weaknesses of each model in relation to international strategy theory We conclude with recommendations for the conditions under which the various models may be appropriate and practical guidelines for the utilisation of corporate governance theory to improve MNE performance
TL;DR: The authors in this article suggest that the evaluation process should interpret specific influences on the environment in which boards make their decisions, highlighting distinct board roles and responsibilities, and diverse levels of individual approach, expectation and contribution.
Abstract: Over the last few years corporate governance codes and shareholder expectations have increased the need for boards of directors to demonstrate effective leadership, quality decision-making processes and the ability to exercise corporate controls. Shareholders and stakeholders continue to focus on indicators such board structure, composition and non-executive independence as proxies for effectiveness, often without an increased under-standing of the environment in which boards of directors make decisions, or the behaviour and dynamics of individuals. In order specifically to address this issue the Combined Code, published in 2003, stated that a board should undertake annually “a formal and rigorous evaluation of its own performance, that of the committees and individual directors” (Financial Reporting Council, 2003, p. 10. The Combined Code on Corporate Governance. London: Financial Reporting Council), although it omitted to give formal guidance on evaluation methods, or the disclosure of outcomes to shareholders.
This paper draws on earlier research (Long, 2004) in order to contribute to an improved understanding of the role and effectiveness of board evaluation, and to add to the policy debate by identifying board dynamics which influence the environment in which boards operate. It suggests that the evaluation process should interpret specific influences on the environment in which boards make their decisions – company lifecycle, corporate structure, board culture and embedded process – highlighting distinct board roles and responsibilities, and diverse levels of individual approach, expectation and contribution. The author draws on her work through Boardroom Review to explore ways in which board evaluation can achieve a range of corporate objectives which extend beyond compliance, and encourages boards and their chairmen to adopt a thoughtful and thorough approach to this year’s evaluation model.
TL;DR: The authors found that the likelihood of replacing poorly performing CEOs was not related to business group (chaebol) affiliation, but after the Asian Financial Crisis, after the CEO turnover sensitivity to performance is greater in chaebol firms than in stand-alone firms.
Abstract: Various corporate governance initiatives were adopted in Korea following a major corporate governance failure, identified as a direct cause of the Asian Financial Crisis of 1997–1998. Our findings indicate that, before the crisis, the likelihood of replacing poorly performing CEOs was not related to business group (chaebol) affiliation. However, after the Asian Financial Crisis, we find CEO turnover sensitivity to performance is greater in chaebol firms than in stand-alone firms. These findings indicated improved monitoring following reforms initiated by the Korean government, NGOs and other capital market participants. These findings have implications for the effectiveness of corporate governance in US firms following governance restructuring imposed by the SEC, the government and various market participants.
TL;DR: In this article, the impact of concentrated ownership and business group affiliation on the performance of Turkish firms during the financial crisis by controlling balance sheet currency exposure, international involvement and firm size was examined.
Abstract: The objective of this study is to examine the impact of concentrated ownership and business group affiliation on the performance of Turkish firms during the financial crisis by controlling balance sheet currency exposure, international involvement and firm size. Our analysis focuses on a 12-month window encapsulating the February 2001 financial crisis. Our findings show that balance sheet exposure is the key determinant of the firm performance during the crisis periods. While we find evidence that firms with higher concentrated ownership experience lower stock market performance prior and during the financial crisis, business group affiliation does not have any impact on the performance. However, there is weak evidence that stock market performance increases with the level of business group diversification.
TL;DR: In this paper, the authors examined the increased flow of corporate news announcements by UK listed companies following the introduction of corporate governance codes, and found that the publication of the Cadbury, Greenbury and Hampel reports was accompanied by a significant increase in the number of news announcements.
Abstract: There have been a number of changes in United Kingdom corporate governance regulation since the financial scandals of the late 1980s and early 1990s. These developments, commencing with the publication of the Cadbury Report in 1992, address “the frequency, clarity and form in which information should be provided” (Cadbury Report, 1992, p. 60). This paper examines the increased flow of corporate news announcements by UK listed companies following the introduction of corporate governance codes. Our results indicate that the introduction of the Cadbury, Greenbury and Hampel reports was accompanied by a significant increase in the number of news announcements.