Antecedents of voluntary corporate governance disclosure: a post-2007/08 financial crisis evidence from the influential UK Combined Code

TLDR: In this article, the authors investigate the level of compliance with, and disclosure of, good corporate governance (CG) practices among UK publicly listed firms and consequently ascertain whether board characteristics and ownership structure variables can explain observable differences in the extent of voluntary CG compliance and disclosure practices.

Abstract: Purpose The purpose of this study is to investigate the level of compliance with, and disclosure of, good corporate governance (CG) practices among UK publicly listed firms and consequently ascertain whether board characteristics and ownership structure variables can explain observable differences in the extent of voluntary CG compliance and disclosure practices. Design/methodology/approach This study uses one of the largest data sets to-date on compliance and disclosure of CG practices from 2008 to 2013 containing 120 CG provisions drawn from the 2010 UK Combined Code relating to 100 UK listed firms to conduct multiple regression analyses of the determinants of voluntary CG disclosures. A number of additional estimations, including two stage least squares, fixed-effects and lagged structures, are conducted to address the potential endogeneity issue and test the robustness of the findings. Findings The results suggest that there is a substantial variation in the levels of compliance with, and disclosure of, good CG practices among the sampled UK firms. The authors also find that firms with larger board size, more independent outside directors and greater director diversity tend to disclose more CG information voluntarily, whereas the level of voluntary CG compliance and disclosure is insignificantly related to the existence of a separate CG committee and institutional ownership. Additionally, the results indicate that block ownership and managerial ownership negatively affect voluntary CG compliance and disclosure practices. The findings are fairly robust across a number of econometric models that sufficiently address various endogeneity problems and alternative CG indices. Overall, the findings are generally consistent with the predictions of neo-institutional theory. Originality/value This study extends, as well as contributes to, the extant CG literature by offering new evidence on compliance with, and disclosure of, good CG recommendations contained in the 2010 UK Combined Code following the 2007/2008 global financial crisis. This study also advances the existing literature by offering new insights from a neo-institutional theoretical perspective of the impact of board and ownership mechanisms on voluntary CG compliance and disclosure practices.

Figures

Table 5. Antecedents of Voluntary Compliance and Disclosure of Good CG Practices.

Table 2. Variables Definition and Measurement.

Table 6. Antecedents of Voluntary Compliance and Disclosure of Good CG Practices.

Table 1. A Comparison of UK Corporate Governance Codes Since 1992.

Table 7. Robustness Analysis of Antecedents of Voluntary Compliance and Disclosure of Good CG Practices

Table 3. Summary Statistics.

Full text

University of Huddersfield Repository
Elmagrhi, Mohamed H., Ntim, Collins G. and Wang, Yan
Antecedents of Voluntary Corporate Governance Disclosure: A Post-2007/08 Financial Crisis
Evidence from the Influential UK Combined Code
Original Citation
Elmagrhi, Mohamed H., Ntim, Collins G. and Wang, Yan (2016) Antecedents of Voluntary
Corporate Governance Disclosure: A Post-2007/08 Financial Crisis Evidence from the Influential
UK Combined Code. Corporate Governance, 16 (3). pp. 507-538. ISSN 1472-0701
This version is available at http://eprints.hud.ac.uk/id/eprint/27947/
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1
Antecedents of Voluntary Corporate Governance Disclosure: A Post-2007/08 Financial
Crisis Evidence from the Influential UK Combined Code
Mohamed H. Elmagrhi, Collins G. Ntim and Yan Wang
•
Financial Ethics and Governance Research Group
Department of Accounting and Finance
University of Huddersfield Business School
University of Huddersfield
Huddersfield, UK
•
Corresponding author. Address for correspondence: Financial Ethics and Governance Research Group, Department of
Accountancy and Finance, University of Huddersfield Business School, University of Huddersfield, Queensgate Campus,
Queensgate, Huddersfield, HD1 3DH, UK. Tel: +44 (0) 148 447 1796. Fax: +44 (0) 148 447 3148. E-mail:
y.wang3@hud.ac.uk.

2
Antecedents of Voluntary Corporate Governance Disclosure: A Post-2007/08 Financial Crisis
Evidence from the Influential UK Combined Code
Abstract
Purpose: This study investigates the level of compliance with, and disclosure of, good corporate
governance (CG) practices among UK publicly listed firms, and consequently ascertains whether
board characteristics and ownership structure variables can explain observable differences in the
extent of voluntary CG compliance and disclosure practices.
Design/Methodology/Approach: The study uses one of the largest datasets to-date on compliance
and disclosure of CG practices from 2008 to 2013 containing 120 CG provisions drawn from the
2010 UK Combined Code relating to 100 UK listed firms to conduct multiple regression analyses of
the determinants of voluntary CG disclosures. A number of additional estimations, including two
stage least squares, fixed-effects and lagged structures, are conducted in order to test the robustness
of the findings.
Findings: The results suggest that there is a substantial variation in the levels of compliance with,
and disclosure of, good CG practices among the sampled UK firms. We also find that firms with
larger board size, more independent outside directors and greater director diversity tend to disclose
more CG information voluntarily, whereas the level of voluntary CG compliance and disclosure is
insignificantly related to the existence of a separate CG committee and institutional ownership.
Additionally, the results indicate that block ownership and managerial ownership impact negatively
on voluntary CG compliance and disclosure practices. The findings are fairly robust across a number
of econometric models that sufficiently address various endogeneity problems and alternative CG
indices. Overall, the findings are generally consistent with the predictions of neo-institutional theory.
Originality/Value: This paper extends, as well as contributes to the extant CG literature by offering
new evidence on compliance with, and disclosure of, good CG recommendations contained in the
2010 UK Combined Code following the 2007/08 global financial crisis. This paper also advances the
existing literature by offering new insights from a neo-institutional theoretical perspective of the
impact of board and ownership mechanisms on voluntary CG compliance and disclosure practices.
Keywords: Corporate governance; Board and ownership mechanisms; Comply or explain; Neo-
institutional theory; UK Combined Code

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1. Introduction
This study seeks to extend, as well as contribute to the extant literature by: (i) investigating why
and how UK listed firms may voluntarily comply with, and disclose information relating to CG
recommendations contained in the influential 2010 UK Combined Code; and (ii) consequently
examining whether ownership and board characteristics can explain observable differences in CG
compliance and disclosure practices with specific focus on providing new empirical insights
following the 2007/08 global financial crisis. Our analysis is informed by a neo-institutional
theoretical perspective.
The last decade has witnessed an increased interest in the extent of voluntary CG compliance and
disclosure practices (Conyon & Mallin, 1997; Elshandidy & Neri, 2015; Melis et al., 2015; Ntim et
al., 2012b, Pass, 2006; Waweru, 2014). Whilst varied justifications have been provided to explain
why firms may voluntarily disclose information relating to their CG practices (Hussainey & Al‐
Najjar, 2012; Mallin & Ow-Yong, 2012; Ntim, 2015; Al-Bassam et al., 2016; Ntim et al., 2016),
recent theoretical advancements indicate that institutional context and theory can explain the
considerable growth in the issuance and/or adoption of codes of CG practices around the world
(Adegbite, 2015; Zattoni & Cuomo, 2008; Al-Bassam & Ntim, 2016). Particularly, and from neo-
institutional theoretical perspective, institutional forces (e.g., political, social and economic
institutions) can influence the spread and/or the imposition of business norms/practices on firms
(DiMaggio & Powell, 1983, 1991; Scott, 2001). These institutional forces have generally been
suggested to be driven by two main reasons: efficiency (‘substantive management’) and legitimation
(‘symbolic management’) (Adegbite, 2015; Aguilera & Cuervo-Cazurra, 2004). Observably, neo-
institutional theoretical perspective has been employed by prior studies in explaining the institutional
forces, which can facilitate or constrain the diffusion of corporate practices at the national-level of
analysis, including the adoption of international financial reporting standards (Maroun & Van-Zijl,
2015), CG standards (Adegbite, 2015; Zattoni & Cuomo, 2008) and CSR practices (Ntim &
Soobaroyen, 2013). By contrast, neo-institutional theoretical perspective has rarely been employed
towards explaining the rapid adoption of good CG standards at the firm-level of analysis. Arguably,
this limits current understanding of institutional forces that may be able to explain the rapid
proliferation of good CG standards at the firm level.
Accordingly, this study aims to extend, as well as contribute to the current literature by applying
neo-institutional theoretical perspective to explain differences in CG practices and with specific
focus on the efficiency and legitimation implications of neo-institutional theory. The neo-
institutional (efficiency view) perspective proposes that institutional pressures (i.e., coercive,
mimetic and normative pressures) can force economic entities to compete strongly to gain access to
critical resources which can maximise the wealth of shareholders (Adegbite, 2015; Zattoni &
Cuomo, 2008). Hence, committing to high levels of accountability/transparency in the form of

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engaging in increased voluntary
1
CG disclosure can allow firms to gain access to crucial resources
by improving their reputation and goodwill (Pfeffer & Salancik, 1978). Additionally, greater
engagement in voluntary CG disclosures can improve the performance of economic entities by
reducing the conflict of interest between management and owners through improvement in the flow
of information between them (Jensen & Meckling, 1976; Fama & Jensen, 1983).
Similarly, the legitimation view of neo-institutional theory proposes that coercive pressures can
force corporations to behave according to socially accepted standards/conventions. This is because
conforming to such socially expected and accepted standards/conventions can improve legitimacy of
a company’s operations and also enhance its social acceptance (Duff, 2015; Suchman, 1995).
Therefore, committing to good CG practices can be one way by which corporate goals may be
aligned with those of the larger society, and that can in turn help legitimise corporate operations via
improved corporate image and reputation. Furthermore, the need to keep good relationships with
powerful corporate stakeholders (Pfeffer & Salancik, 1978), and thus improving corporate reputation
and image, can compel economic entities to conform to or voluntarily mimic socially expected and
accepted standards/conventions (Mizruchi & Fein, 1999). For instance, greater commitment to good
governance standards in the form of engaging in greater CG disclosures may improve the legitimacy
of firms by gaining the support of influential stakeholders, including shareholders and governments,
who are central to the ability of corporations to maintain sustainable operations (Zattoni & Cuomo,
2008).
Due to various reasons underlying corporate disclosure behaviour, previous research has
investigated the extent, motives and antecedents of voluntary disclosure practices (Cooke, 1992;
Botosan, 1997; Barako et al., 2006). However, the existing voluntary disclosure literature has a
number of observable weaknesses. First, despite the importance of good CG practices and the
considerable amount of CG reforms that have been pursued worldwide (Aguilera & Cuervo-Cazurra,
2004), existing voluntary disclosure literature is primarily focused on investigating general financial
disclosures (Allegrini & Greco, 2013; Cheng & Courtenay, 2006), social and environmental
disclosures (Cuadrado-Ballesteros et al., 2015; Grougiou et al., 2016; Reverte, 2009) and risk
disclosures (Cabedo & Tirado, 2004; Elshandidy & Neri, 2015; Ntim et al., 2013). In contrast,
studies examining why and how public corporations may voluntarily comply with and disclose
information about their CG practices are scarce (Adegbite, 2015; Pass, 2006; Bozec & Bozec, 2007).
Second, the few studies that have examined voluntary disclosure of CG practices are impaired in
that they measure compliance indirectly through a survey (Adegbite, 2015; Conyon, 1994; Conyon
& Mallin, 1997)/subjective analysts ratings (Patel et al., 2002; Hussainey & Al-Najjar, 2012) or
investigate a small number of CG provisions (Arcot et al., 2010; Padgett & Shabbir, 2005), and
thereby arguably limiting the generalisability of their findings. Third, despite increasing theoretical
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It should be noted that the term ‘voluntary disclosure’ used in this paper refers to the voluntary CG compliance/disclosure regime
that has been popularised by the UK’s 1992 Cadbury Report in contrast to the ‘comply or else’ (mandatory) CG compliance and disclosure
regime, which has been advocated by the US Sarbanes-Oxley Act. Thus, the operationalisation of the ‘voluntary disclosure’ terminology in
this case is different from the traditional understanding of reporting over and above mandatory disclosure requirements.

Frequently asked questions

Q1. What contributions have the authors mentioned in the paper "Antecedents of voluntary corporate governance disclosure: a post-2007/08 financial crisis evidence from the influential uk combined code" ?

This study investigates the level of compliance with, and disclosure of, good corporate governance ( CG ) practices among UK publicly listed firms, and consequently ascertains whether board characteristics and ownership structure variables can explain observable differences in the extent of voluntary CG compliance and disclosure practices. The study uses one of the largest datasets to-date on compliance and disclosure of CG practices from 2008 to 2013 containing 120 CG provisions drawn from the 2010 UK Combined Code relating to 100 UK listed firms to conduct multiple regression analyses of the determinants of voluntary CG disclosures. This paper extends, as well as contributes to the extant CG literature by offering new evidence on compliance with, and disclosure of, good CG recommendations contained in the 2010 UK Combined Code following the 2007/08 global financial crisis. This paper also advances the existing literature by offering new insights from a neo-institutional theoretical perspective of the impact of board and ownership mechanisms on voluntary CG compliance and disclosure practices. The results suggest that there is a substantial variation in the levels of compliance with, and disclosure of, good CG practices among the sampled UK firms. The authors also find that firms with larger board size, more independent outside directors and greater director diversity tend to disclose more CG information voluntarily, whereas the level of voluntary CG compliance and disclosure is insignificantly related to the existence of a separate CG committee and institutional ownership. 

Q2. What have the authors stated for future works in "Antecedents of voluntary corporate governance disclosure: a post-2007/08 financial crisis evidence from the influential uk combined code" ?

In addition to proposing and applying a neo-institutional theoretical view to investigate the antecedents of voluntary CG compliance and disclosure, their results extend, as well as contribute to the extant studies by using one of the most extensive data-to-date on CG disclosures constituting 120 CG provisions extracted from the 2010 UK Combined Code, the study provide new evidence, which indicates that the CG practices vary substantially among the sampled firms. As explained below, future studies may include both external and internal CG mechanisms. The evidence provided in this paper offers potential theoretical and empirical insights for future studies. In terms of theoretical expansions, the evidence indicates that future studies can possibly enhance their theoretical grounds by relying on the insights provided by other closely related governance theories, including neo-institutional, public accountability and stewardship theories, when examining factors, which can influence CG compliance and disclosure practices. 

Q3. What is the efficiency view of neo-institutional theory?

The efficiency view of neo-institutional theoretical framework proposes that larger boards are characterised by better decision-making and higher managerial monitoring (Ntim, 2015). 

Q4. what is the role of gender and ethnic diversity in corporate governance?

gender and ethnic diversity can enhance board independence from management by having members from diverse gender and ethnic origins (Barako & Brown, 2008), which can improve the ability of the board to effectively monitor self-serving managers from expropriating shareholder wealth (Carter et al., 2010; Upadhyay & Zeng, 2014). 

Q5. What is the evidence of neo-institutional (efficiency view) perspective?

neo-institutional (efficiency view) perspective suggests that larger boards are usually associated with greater monitoring on management activities, and that can impact positively on voluntary CG disclosure practices. 

Q6. What is the definition of a legitimation-led perspective?

In particular, the legitimation-led perspective of neo-institutional theory suggests that firms need to commit to high levels of voluntary disclosure of information relating to stakeholder CG practices in order to legitimise their operations and survive (Reverte, 2009). 

Q7. Does the insignificant impact of institutional ownership support the predictions of neo-institutional?

the insignificant impact of institutional ownership on the UKCGI does not support the predictions of neo-institutional theory (‘legitimation view), which indicates that corporations with higher institutional owneership have a greater need to demonstrate public accountability and transparency so as to legitimise their operations as well as gain access to critical resources. 

Q8. how many independent outside directors do you think can enhance efficiency for shareholders?

the presence of independent outside directors may not only enhance efficiency for shareholders by mitigating agency conflicts, but can also enhance legitimacy by taking into account the interests of different groups of stakeholder. 

Q9. what is the effect of ownership on voluntary CG?

as ownership by managers increases, there is a greater possibility that their monitoring will decrease, which may impact negatively on voluntary CG compliance and disclosure practices. 

Q10. what is the role of institutional shareholders in reducing agency conflicts in public corporations?

From a neo-institutional (efficiency view) perspective, institutional shareholders play an active role in reducing agency conflicts in public corporations (Shleifer & Vishny, 1986). 

Q11. Why are larger boards more likely to be controlled by powerful chief executives?

This is because larger boards are less likely to be controlled by powerful chief executives in comparisonwith smaller boards (Ntim & Soobaroyen, 2013), and as such, strategic decisions, including those relating to voluntary disclosure of CG practices can be scrutinised more effectively by larger boards.