Showing papers on "Corporate governance published in 2008"

Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences

Abstract: This paper examines the economic consequences of mandatory International Financial Reporting Standards (IFRS) reporting around the world. We analyze the effects on market liquidity, cost of capital, and Tobin's q in 26 countries using a large sample of firms that are mandated to adopt IFRS. We find that, on average, market liquidity increases around the time of the introduction of IFRS. We also document a decrease in firms' cost of capital and an increase in equity valuations, but only if we account for the possibility that the effects occur prior to the official adoption date. Partitioning our sample, we find that the capital-market benefits occur only in countries where firms have incentives to be transparent and where legal enforcement is strong, underscoring the central importance of firms' reporting incentives and countries' enforcement regimes for the quality of financial reporting. Comparing mandatory and voluntary adopters, we find that the capital market effects are most pronounced for firms that voluntarily switch to IFRS, both in the year when they switch and again later, when IFRS become mandatory. While the former result is likely due to self-selection, the latter result cautions us to attribute the capital-market effects for mandatory adopters solely or even primarily to the IFRS mandate. Many adopting countries make concurrent efforts to improve enforcement and governance regimes, which likely play into our findings. Consistent with this interpretation, the estimated liquidity improvements are smaller in magnitude when we analyze them on a monthly basis, which is more likely to isolate IFRS reporting effects.

Governance without Government: Order and Change in World Politics

Abstract: Preface Contributors 1. Governance, order and change in world politics James N. Rosenau 2. Governance with government: polyarchy in nineteenth-century European international politics K. J. Holsti 3. The decaying pillars of the Westphalian temple: implications for international order and governance Mark W. Zacher 4. The 'Triumph' of neoclassical economics in the developing world: policy convergence and bases of governance in the international economic order Thomas J. Biersteker 5. Towards a post-hegemonic conceptualization of world order: reflections on the relevancy of Ibn Khaldun Robert W. Cox 6. The effectiveness of international institutions: hard cases and critical variables Oran R. Young 7. Explaining the regulation of transnational practices: a state-building approach Janice E. Thomson 8. 'And Still It Moves' state interests and social forces in the European Community Linda Cornett and James A. Caporaso 9. Governance and democratization Ernst-Otto Czempiel 10. Micro sources of a changing global order James N. Risenau Index.

On the Use of Instrumental Variables in Accounting Research

Abstract: Instrumental variable (IV) methods are commonly used in accounting research (e.g., earnings management, corporate governance, executive compensation, and disclosure research) when the regressor variables are endogenous. While IV estimation is the standard textbook solution to mitigating endogeneity problems, the appropriateness of IV methods in typical accounting research settings is not obvious. Drawing on recent advances in statistics and econometrics, we identify conditions under which IV methods are preferred to OLS estimates and propose a series of tests for research studies employing IV methods. We illustrate these ideas by examining the relation between corporate disclosure and the cost of capital.

Gender Diversity in the Boardroom and Firm Financial Performance

Abstract: The monitoring role performed by the board of directors is an important corporate governance control mechanism, especially in countries where external mechanisms are less well developed. The gender composition of the board can affect the quality of this monitoring role and thus the financial performance of the firm. This is part of the “business case” for female participation on boards, though arguments may also be framed in terms of ethical considerations. While the issue of board gender diversity has attracted growing research interest in recent years, most empirical results are based on U.S. data. This article adds to a growing number of non-U.S. studies by investigating the link between the gender diversity of the board and firm financial performance in Spain, a country which historically has had minimal female participation in the workforce, but which has now introduced legislation to improve equality of opportunities. We investigate the topic using panel data analysis and find that gender diversity – as measured by the percentage of women on the board and by the Blau and Shannon indices – has a positive effect on firm value and that the opposite causal relationship is not significant. Our study suggests that investors in Spain do not penalise firms which increase their female board membership and that greater gender diversity may generate economic gains.

Women in the Boardroom and Their Impact on Governance and Performance

Abstract: We show that female directors have a significant impact on board inputs and firm outcomes. In a sample of US firms, we find that female directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. These results suggest that gender-diverse boards allocate more effort to monitoring. Accordingly, we find that CEO turnover is more sensitive to stock performance and directors receive more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses. Our results suggest that mandating gender quotas for directors can reduce firm value for well-governed firms.

Corporate governance in emerging economies: A review of the principal-principal perspective: Review paper

Abstract: Instead of traditional principal–agent conflicts espoused in most research dealing with developed economies, principal–principal conflicts have been identified as a major concern of corporate governance in emerging economies. Principal–principal conflicts between controlling shareholders and minority shareholders result from concentrated ownership, extensive family ownership and control, business group structures, and weak legal protection of minority shareholders. Such principal–principal conflicts alter the dynamics of the corporate governance process and, in turn, require remedies different from those that deal with principal–agent conflicts. This article reviews and synthesizes recent research from strategy, finance, and economics on principal–principal conflicts with an emphasis on their institutional antecedents and organizational consequences. The resulting integration provides a foundation upon which future research can continue to build.

Socially responsible investments: Institutional aspects, performance, and investor behavior

Abstract: This paper provides a critical review of the literature on socially responsible investments (SRI). Particular to SRI is that both financial goals and social objectives are pursued. Over the past decade, SRI has experienced an explosive growth around the world reflecting the increasing awareness of investors to social, environmental, ethical and corporate governance issues. We argue that there are significant opportunities for future research on the increasingly important area of SRI. A number of questions are reviewed in this paper on the causes and the shareholder-value impact of corporate social responsibility (CSR), the risk exposure and performance of SRI funds and firms, as well as fund subscription and redemption behavior of SRI investors. We conclude that the existing studies hint but do not unequivocally demonstrate that SRI investors are willing to accept suboptimal financial performance to pursue social or ethical objectives. Furthermore, the emergence of SRI raises interesting questions for research on corporate finance, asset pricing, and financial intermediation.

Review Paper Corporate Governance in Emerging Economies: A Review of the Principal-Principal Perspective

Abstract: Instead of traditional principal-agent conflicts espoused in most research dealing with developed economies, principal-principal conflicts have been identified as a major concern of corporate governance in emerging economies. Principal-principal conflicts between controlling shareholders and minority shareholders result from concentrated ownership, extensive family ownership and control, business group structures, and weak legal protection of minority shareholders. Such principal-principal conflicts alter the dynamics of the corporate governance process and, in turn, require remedies different from those that deal with principal-agent conflicts. This article reviews and synthesizes recent research from strategy, finance, and economics on principal-principal conflicts with an emphasis on their institutional antecedents and organizational consequences. The resulting integration provides a foundation upon which future research can continue to build.

A Theory of Board Control and Size

Abstract: We extend the traditional view of corporate boards as monitors to include a role for outside board members as suppliers of expertise or information. Indeed, both outsiders and insiders may have private information relevant to the decision. Because of the agency problem between managers and owners (who are assumed to be represented by the outside directors), neither party will communicate his or her information fully to the other. Outsiders in our model control agency problems by making some decisions themselves. When they do, the refusal of insiders to communicate their information fully becomes costly. Therefore, shareholders can sometimes be better off by having boards controlled by insiders. We characterize whether the board is optimally controlled by insiders or outsiders, the optimal number of outsiders, and resulting profits as functions of the importance of insiders’ and outsiders’ information, the extent of agency problems, and some other factors. This leads to an endogenous relationship between profits and the number of outside directors that furthers our understanding of some documented empirical regularities.

Does it pay to be different? An analysis of the relationship between corporate social and financial performance

Abstract: This study explores the relationship between corporate social performance (CSP) and corporate financial performance (CFP) within the context of a specific component of CSP: corporate charitable giving. A model of the determinants of the extent of corporate charitable giving is estimated and used as the basis of a classification that groups firms according to the difference between their actual and their predicted intensity of gift giving. The financial performance attributes of the classification are explored. We found that firms with both unusually high and low CSP have higher financial performance than other firms, with unusually poor social performers doing best in the short run and unusually good social performers doing best over longer time horizons. Copyright © 2008 John Wiley & Sons, Ltd. ABSTRACT FROM AUTHOR

Analyst Coverage and Earnings Management

Abstract: What is the role of information intermediaries in corporate governance? This paper examines equity analysts' influence on managers' earnings management decisions. Do analysts serve as external monitors to managers, or do they put excessive pressure on managers? Using multiple measures of earnings management, I find that firms followed by more analysts manage their earnings less. To address potential endogeneity problem of analyst coverage, I use two instrumental variables that are based on change in broker size and on firm's inclusion in the S&P 500 index, and find that the result is robust. Finally, given the size of coverage, analysts from top brokers and more experienced analysts have stronger effect against earnings management.

Growth Dynamics: The Myth of Economic Recovery

Abstract: Although researchers have documented that many financial crises are associated with severe recessions (Graciela Kaminsky and Carmen Reinhart 1999), very little attention has been paid to whether countries recover from such large negative shocks in the sense that output losses are reversed. A few recent papers show persistent output loss from financial crises in a small set of countries. For instance, Cerra and Saxena (2005a) demonstrate that six Asian countries suffered permanent output loss from the Asian crisis, and Cerra and Saxena (2005b) show that only a tiny fraction of the output loss from Sweden's banking crisis in the early 1990s was recuperated. The graphs in Figure 1 illustrate persistent output loss for selected countries following the 1997-1998 Asian financial crisis and the debt crisis of the early 1980s. In addition to financial crises, many countries experience large negative political shocks, which could include violent conflicts such as civil wars, as well as a deterioration in the country's governance. Such political shocks have the potential for significant disruption to economic activ? ity, as illustrated for a few episodes of civil war (Figure 2). This paper systematically documents the behavior of output following financial and political crises in a large set of 190 countries. While the graphs in Figures 1 and 2 are suggestive, our aim is to formally analyze the impact of financial and political shocks on output in a broad set of countries, particularly whether output losses are recovered. Financial shocks comprise currency, banking, and twin financial crises. For political shocks, we examine civil wars, a deterioration in the quality of political governance, and twin political crises comprising both shocks. We choose civil wars rather than interstate conflicts to ensure that the war occurs on the country's own soil. The military theater for some interstate conflicts may not directly encompass all parties to the conflict. In addition, the increase in wartime spending for an international conflict may boost economic activity in some countries. We also examine the economic impact of a deterioration in a country's political governance or institutional quality. Daron Acemoglu, Simon Johnson, and James Robinson (2001) and Acemoglu et al. (2003) use constraints on the power of the political executive as a measure of institutional quality, and find that it is linked to growth and volatility. Thus, we use this measure to study the shock to political governance. Potential endogeneity of the financial or political crisis is an important issue in estimating the output impact of the crisis. That is, the crisis itself may be a function of a slowdown of economic growth or changes in expectations of future growth. We attempt to address this issue using a few methods that are far from definite, but nonetheless uncover some interesting facts. In particular, we find that the forecasts of growth from an autoregressive model and from consensus surveys are optimistic relative to actual growth occurring during and after a crisis.

Corporate Governance and Risk-Taking

Abstract: Better investor protection could lead corporations to undertake riskier but value-enhancing investments. For example, better investor protection mitigates the taking of private benefits leading to excess risk-avoidance. Further, in better investor protection environments, stakeholders like creditors, labor groups, and the government are less effective in reducing corporate risk-taking for their self-interest. However, arguments can also be made for a negative relationship between investor protection and risk-taking. Using a cross-country panel and a U.S.-only sample, we find that corporate risk-taking and firm growth rates are positively related to the quality of investor protection.

Corporate governance in banking: The role of the board of directors

Abstract: We use a sample of large international commercial banks to test hypotheses on the dual role of boards of directors. We use a suitable econometric model (two step system estimator) to solve the well-known endogeneity problem in corporate governance literature, and demonstrate the empirical and theoretical superiority of system estimator over OLS and within estimators. We find an inverted U-shaped relation between bank performance and board size, and between the proportion of non-executive directors and performance. Our results show that bank board composition and size are related to directors’ ability to monitor and advise management, and that larger and not excessively independent boards might prove more efficient in monitoring and advising functions, and create more value. All of these relations hold after we control for the measure of performance, the weight of the banking industry in each country, bank ownership, and regulatory and institutional differences.

Corporate Social Responsibility: The Good, the Bad and the Ugly

Abstract: In this article I critically analyze contemporary discourses of corporate social responsibility and related discourses of sustainability and corporate citizenship. I argue that despite their emancipatory rhetoric, discourses of corporate citizenship, social responsibility and sustainability are defined by narrow business interests and serve to curtail interests of external stakeholders. I provide an alternate perspective, one that views discourses of corporate citizenship, corporate social responsibility, and sustainability as ideological movements that are intended to legitimize and consolidate the power of large corporations. I also problematize the popular notion of organizational `stakeholders'. I argue that stakeholder theory of the firm represents a form of stakeholder colonialism that serves to regulate the behavior of stakeholders. I conclude by discussing implications for critical management studies.

Hedge Fund Activism, Corporate Governance, and Firm Performance

Abstract: Using a large hand-collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring. ALTHOUGH HEDGE FUND ACTIVISM IS WIDELY discussed and fundamentally important, it remains poorly understood. Much of the commentary on hedge fund activism is based on supposition or anecdotal evidence. Critics and regulators question whether hedge fund activism benefits shareholders, while numerous commentators claim that hedge fund activists destroy value by distracting managers from long-term projects. However, there is a dearth of large-sample evidence about hedge fund activism, and existing samples are plagued by various biases. ∗ We thank the Acting Editor who handled our submission. Brav is with Duke University, Jiang

The New Corporate Social Responsibility

Abstract: The last half decade has witnessed a remarkable resurgence of attention among practitioners and scholars to understanding the ability of corporate social responsibility (CSR) to address environmental and social problems. Although significant advances have been made, assessing the forms, types, and impacts on intended objectives is impeded by the conflation of distinct phenomena, which has created misunderstandings about why firms support CSR, and the implications of this support, or lack thereof, for the potential effectiveness of innovative policy options. As a corrective, we offer seven categories that distinguish efforts promoting learning and stakeholder engagement from those requiring direct on-the-ground behavior changes. Better accounting for these differences is critical for promoting a research agenda that focuses on the evolutionary nature of CSR innovations, including whether specific forms are likely to yield marginal or transformative results.

The age of responsibilization: on market-embedded morality

Abstract: This article explores emerging discursive formations concerning the relationship of business and morality. It suggests that contemporary tendencies to economize public domains and methods of government also dialectically produce tendencies to moralize markets in general and business enterprises in particular. The article invokes the concept of ‘responsibilization’ as means of accounting for the epistemological and practical consequences of such processes. Looking at the underlying ‘market rationality’ of governance, and critically examining the notion of ‘corporate social responsibility’, it concludes that the moralization of markets further sustains, rather than undermining, neo-liberal governmentalities and neo-liberal visions of civil society, citizenship and responsible social action.

Does Religion Matter in Corporate Decision Making in America

Abstract: We examine how corporate culture influences firms' behaviors and, more specifically, how the level of religiosity in a firm's environment affects its investment decisions. We focus on one country (the U.S.) to minimize differences in legal and economic environments. Prior research suggests a positive link between individual religiosity and risk aversion. We find that this relation also influences organizational behavior. Specifically, firms located in counties with higher levels of religiosity display lower degrees of risk exposure as measured by variances in equity returns or in returns on assets. In turn, such firms require a higher internal rate of return before investing. They exhibit a lower rate of investment either in tangible capital or in R&D but generate a more positive market reaction when they announce new investments. Their long-term growth is also lower. Finally, we document that CEOs are more likely to join firms with similar religious environment as their last firm when they switch employers. All results are both economically and statistically significant. They are robust to many alternative specifications that minimize the risk of omitted variables or endogenous relations.

Corporate social reporting and reputation risk management

Abstract: Purpose – The purpose of this paper is to explore the proposition that corporate social responsibility reporting could be viewed as both an outcome of, and part of reputation risk management processes.Design/methodology/approach – The paper draws heavily on management research. In addition, an image restoration framework is introduced.Findings – The concept of reputation risk management could assist in the understanding of corporate social responsibility reporting practice.Originality/value – This paper explores the link between reputation risk management and existing theorising in social accounting.

Factors influencing the quality of corporate environmental disclosure

Abstract: Many firms choose to communicate their environmental strategies through voluntary environmental disclosures. This paper examines patterns in the quality of voluntary environmental disclosures made by a sample of around 450 large UK companies drawn from a diverse range of industrial sectors. The analysis distinguishes between five facets of quality, including the disclosure of group-wide environmental policies, environmental impact targets and an environmental audit. We examine how the decisions firms face regarding each facet of quality are determined by firm and industry characteristics, and find the quality of disclosure to be determined by a firm's size and the nature of its business activities. Specifically, we find high quality disclosure to be primarily associated with larger firms and those in sectors most closely related to environmental concerns. In contrast to several recent contributions, we find that the media exposure of companies plays no role in stimulating voluntary disclosures. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.

Changing Governance of the World's Forests

Abstract: Major features of contemporary forest governance include decentralization of forest management, logging concessions in publicly owned commercially valuable forests, and timber certification, primarily in temperate forests. Although a majority of forests continue to be owned formally by governments, the effectiveness of forest governance is increasingly independent of formal ownership. Growing and competing demands for food, biofuels, timber, and environmental services will pose severe challenges to effective forest governance in the future, especially in conjunction with the direct and indirect impacts of climate change. A greater role for community and market actors in forest governance and deeper attention to the factors that lead to effective governance, beyond ownership patterns, is necessary to address future forest governance challenges.

Formal versus Informal Finance: Evidence from China

Abstract: China is often mentioned as a counter-example to the findings in the finance and growth literature since, despite the weaknesses in its banking system, it is one of the fastest growing economies in the world. The fast growth of Chinese private sector firms is taken as evidence that it is alternative financing and governance mechanisms that support China's growth. This paper takes a closer look at firm financing patterns and growth using a database of 2,400 Chinese firms. The authors find that a relatively small percentage of firms in the sample utilize formal bank finance with a much greater reliance on informal sources. However, the results suggest that despite its weaknesses, financing from the formal financial system is associated with faster firm growth, whereas fund raising from alternative channels is not. Using a selection model, the authors find no evidence that these results arise because of the selection of firms that have access to the formal financial system. Although firms report bank corruption, there is no evidence that it significantly affects the allocation of credit or the performance of firms that receive the credit. The findings suggest that the role of reputation and relationship based financing and governance mechanisms in financing the fastest growing firms in China is likely to be overestimated.

Learning from Difference: The New Architecture of Experimentalist Governance in the EU

Abstract: This article argues that current widespread characterisations of EU governance as multi-level and networked overlook the emergent architecture of the EU's public rule making. In this architecture, framework goals (such as full employment, social inclusion, 'good water status', a unified energy grid) and measures for gauging their achievement are established by joint action of the Member States and EU institutions. Lower-level units (such as national ministries or regulatory authorities and the actors with whom they collaborate) are given the freedom to advance these ends as they see fit. But in return for this autonomy, they must report regularly on their performance and participate in a peer review in which their results are compared with those pursuing other means to the same general ends. Finally, the framework goals, performance measures, and decision-making procedures themselves are periodically revised by the actors, including new participants whose views come to be seen as indispensable to full and fair deliberation. Although this architecture cannot be read off from either Treaty provisions or textbook accounts of the formal competences of EU institutions, the article traces its emergence and diffusion across a wide range of policy domains, including telecommunications, energy, drug authorisation, occupational health and safety, employment promotion, social inclusion, pensions, health care, environmental protection, food safety, maritime safety, financial services, competition policy, state aid, anti-discrimination policy and fundamental rights.

Higher education and its communities: Interconnections, interdependencies and a research agenda

Abstract: Universities everywhere are being forced to carefully reconsider their role in society and to evaluate the relationships with their various constituencies, stakeholders, and communities. In this article, stakeholder analysis is put forward as a tool to assist universities in classifying stakeholders and determining stakeholder salience. Increasingly universities are expected to assume a third mission and to engage in interactions with industrial and regional partners. While incentive schemes and government programmes try to encourage universities to reach out more to external communities, some important barriers to such linkages still remain. To fulfil their obligation towards being a socially accountable institution and to prevent mission overload, universities will have to carefully select their stakeholders and identify the ‘right’ degree of differentiation. For the university, thinking in terms of partnerships with key stakeholders has important implications for its governance and accountability arrangements. For the future of the universities we foresee a change towards networked governance and arrangements to ensure accountability along the lines of corporate social responsibility. In order to further explore some of these concepts and to empirically investigate the tendencies suggested here, this article proposes an ambitious research agenda for tackling the emerging issues of governance, stakeholder management and higher education’s interaction with society.