International Journal of Corporate Governance (8 papers in press)
Does Corporate Governance Influence the Working Capital Management of firms: Evidence from India
by Punam Prasad, Narayanasamy Sivasankaran, Palanisamy Saravanan, Manoharan Kannadhasan
Abstract: The study explores the impact of corporate governance on the working capital management of the Indian firms. The research question was investigated using panel data procedures for a sample of 126 Indian firms listed in the Bombay Stock Exchange for the period 2007-2014. A composite corporate governance score was developed and regressed with the proxies for working capital management. We have used ordinary least square (OLS), random effects and fixed effects panel model. Findings of our study indicate that corporate governance plays a definite role in improving the working capital management. The results indicate that the board efficiency indicators have an effect on the working capital management of the Indian firms. The composite corporate governance score results show that it plays a significant and positive role on working capital liquidity decisions. The results of the study will help the practitioners, investors, and analysts to better understand the relation between effective corporate governance practices and working capital management that enables them to make better and informed decisions. Our findings have implications for board efficiency in the quest for improving working capital management of firms. The study limits the generalization of the findings since the data is pooled across all industries.
Keywords: Corporate Governance; Working Capital Management; Bombay Stock exchanges; Liquidity; Indian firms.
Corporate Governance in India- Battle of Stakes
by Neeti Shikha, Rishika Mishra
Abstract: Most of the business conglomerates in India are family-run entities who govern the company, even from a back seat. The promoters, who are in most corporate scenarios also the majority shareholders, rule the roost. The minority shareholders and the board are held hostage to the formers powers. This paper explores the role of promoters in corporate governance in India through two recent corporate debacles of Tata Sons and Infosys that have brought to fore many glaring questions and harsh realities of our governance systems including the role of promoters and independent directors viz a viz the minority shareholders and separation of powers between the promoters and the board. The paper discusses efficacy of legal framework in this regard, and suggest fresh regulatory measures that could catalyze the process of effective governance.
Keywords: Promoters; SEBI; Infosys; Tata; Corporate Governance; Minority Shareholders.
Disclosures of Unethical Practices: Framework for the Promotion of Whistle-blowing in Nigerias Corporate Governance
by Jirinwayo Odinkonigbo, Uchechukwu Nwoke, Ndubuisi Nwafor
Abstract: Modern corporations are governed by policies established in conformity with legislation in the countries where they operate. Nevertheless, certain corporate decisions are oftentimes left to dishonest officials who engage in different kinds of unethical practices. One method of exposing immoral activities in corporations is through whistle-blowing. This paper, using the critical theory framework, evaluates the concept of whistle-blowing and how it can be used to prevent corporate misconducts in Nigeria. While the concept encourages ethical practices and helps in improving internal efficiency in corporations, its use in Nigeria is virtually non-existent. The paper argues that this is attributable to the absence of a comprehensive legislation on whistle-blowing, coupled with the dearth of strong institutions to protect whistleblowers. It suggests that Nigeria needs a comprehensive legal and institutional framework for the regulation of whistle-blowing, if it must enjoy the benefits derivable from it.
Keywords: Corporate Governance; Corporations; Legal Framework; Nigeria; Unethical Practices; Whistle-blowing.
Do female directors create value for the shareholders? Case study of New Zealand publicly listed companies
by Nirosha Hewa Wellalage, Stuart Locke
Abstract: The potential contribution from moving toward an even gender balance for those bodies charged with corporate governance, especially boards of directors, is discussed in this paper. Prior empirical research, reported in the literature, provides conflicting results. The likelihood of these opposite findings resulting from endogeneity suggests a dynamic GMM model as a preferable tool for analysing gender balance on boards. Agency theory is core for finance modelling of governance and increasing from the low level of female director proportion on boards reduces agency costs in the publicly listed companies in New Zealand. The positive effects diminish as the proportion of female directors reach higher levels. Is it the gender balance or competency set of the board contributing the gains? Our interpretation is that gender diversity quotas for women need to focus on acquiring relevant skills and qualifications required in boardrooms and gradually increasing participation goals is likely to be most efficacious through signalling the core competency base for improved performance.
Keywords: women; financial performance; principal-agent agency costs; principal-principal agency costs; New Zealand.
Public pension funds as shareholders and firm performance
by Naufal Alimov
Abstract: Public pension funds are important shareholders around the world. How these funds manage their holdings is of a considerable interest. Are public pension funds likely to 'vote with their feet', or do they instead try to have an impact when they become dissatisfied with the performance of companies in their portfolios? This study thus tests two competing hypotheses on data from the Swedish pension system restructured at the turn of the millennium: 'exit', that is, sell underperforming company shares, or 'direct impact', that is, contribute actively to securing the resignation of underperforming CEOs and boards of directors. The findings indicate that public pension funds tend to sell their shares in underperforming companies, instead of seeking to influence them through corporate governance mechanisms that would increase the likelihood that underperforming CEOs or the boards of directors be replaced.
Keywords: institutional investors; public pension funds; shareholders; firm performance; corporate governance; investment decisions.
Towards a more accurate audit assessment: can corporate social performance provide clues?
by Angie M. Abdel Zaher, Dina M. Abdel Zaher
Abstract: Regulators have been particularly concerned with the increased frequency of auditor's deficiencies related to material misstatement as reported in the 2017 Public Company Accounting Oversight Board (PCAOB) inspection brief. This research examines the relationship between auditor's risk of failing to capture material misstatement and the clients' social responsibility concerns. The findings indicate that clients with social performance concerns (human rights, environment, and governance) were associated with higher auditor's risk assessment, as indicated by higher audit fees. The results are consistent after controlling for various auditor and client variables. Implications of this study support the importance of incorporating social performance of clients in the auditor's evaluation since it can provide key insights into the client's underlying risk of future litigations which can arise due to socially irresponsive behaviours. In doing so, we seek to come closer to an accurate client assessment as well as respond to the call of PCAOB for minimising the deficiencies of the auditing process particular in the area of material misstatement.
Keywords: audit quality; audit fees; corporate social performance; client risk; audit effort; audit risk; material misstatement.
Audit committee director-auditor interlocking, audit pricing and industry specialisation
by Xiaolu Xu, Susan M. Albring
Abstract: This study examines the relation between audit committee director-auditor interlocking and audit fees, as well as the effect of auditor industry specialisation on this relation. Using a sample of S&P 1,500 firms in the USA during the years 2004-2014, we find a positive relation between audit committee director-auditor interlocking and audit fees only for firms that select industry specialist auditors. Firms that select non-industry specialist auditors pay lower audit fees compared to the control firms which do not have either interlocked audit committees or interlocked audit committees through director-auditor links. The findings are robust after controlling for sample selection bias and unobserved omitted variables and using alternative measures of audit committee director-auditor interlocking. Additional analyses show that firms with audit committee director-auditor interlocking are more likely to select industry specialist auditors. These results indicate that audit committees with director-auditor interlocking demand high quality audits and extensive audit coverage due to reputation effects only when the selected auditors have higher reputational cost and more bargaining power.
Keywords: audit committee director-auditor interlocking; audit fees; auditor industry specialisation; USA.
Does good governance lead to better financial performance?
by Supriti Mishra, Pitabas Mohanty
Abstract: The relationship between corporate governance and financial performance of firms has been a widely debated topic. More particularly, the direction of the relationship, whether better corporate governance leads to better financial performance or the vice versa has often been debated. More often, firms decide whether to have better governance standards within the company and this self-selection gives biased OLS regression results. In this paper, using data for Indian companies, we adjust for this endogeneity and find that corporate governance is positively related to financial performance. We finally find that the average ROA of well-governed firms would have decreased by almost 40% if they were poorly-governed.
Keywords: corporate governance in India; counter-factual outcomes; endogeneity; financial performance; switching regression.