Abstract

     This study examines the determinants of audit fees for companies listed on the Alternative Investment Market (AIM) in the United Kingdom (UK), which is the secondary market of the London Stock Exchange for small and medium sized companies. AIM companies are expected to present different audit pricing challenges compared to fully listed firms. From an audit demand perspective, AIM companies exhibit different risk and governance characteristics while, from a supply perspective, the AIM is characterized by greater auditor choice than typically found in main markets. We find that audit fees in the AIM are negatively influenced by client liquidity and the length of listing. We also find that higher levels of audit committee disclosures are associated with higher fees, although there is no evidence that individual audit committee characteristics influence audit fees. After controlling for self-selection bias, we find that Big 4 auditors charge higher fees and this premium is especially pronounced for smaller firms. Our findings contribute to the audit pricing literature by illustrating that the determinants of audit fees depends on the institutional setting in which companies operate as well as highlighting the importance of specific risk measures and auditor size in the determination of audit fees for AIM companies.

Introduction

     Understanding the determinants of audit fees has been a significant research focus ever since Simunic’s (1980) seminal paper just over 40 years ago. Subsequent research highlighted several factors as having a reasonably consistent impact on fees, notably audit client size, complexity, and risk as well as certain aspects of the audit client’s governance, auditor–client engagement characteristics, and auditor size (Hay et al., 2006, Causholli et al., 2011, Hay, 2013, Hay, 2017). The objective of this article is to extend our understanding of the determinants of audit pricing by studying companies listed on the United Kingdom’s (UK) Alternative Investment Market (AIM). The AIM was established in 1995 by the London Stock Exchange (LSE) as a market for small and medium-sized companies to raise new capital. The approximately 800 companies listed on the AIM have a total market value of around £1,190 billion (bn) (London Stock Exchange, 2020). Therefore, the AIM represents a significant part of the UK quoted company sector.

     Despite AIM’s importance, little academic attention has focused on AIM companies with hardly any prior research looking at auditing issues. This article seeks to remedy this by investigating the determinants of audit fees in the AIM. Examining the determinants of audit fees in the AIM can improve our understanding of audit pricing in several respects. First, AIM companies are often relatively young companies without a significant financial track record and frequently list on the AIM to access finance in order to pursue relatively high-risk ventures. Therefore, they often lack a sustained record of performance, and this is expected to pose a particular challenge to auditors in terms of setting an appropriate audit fee. Furthermore, as noted by Gerakos et al. (2013), AIM companies underperform firms on other exchanges and experience a higher failure rate, suggesting that AIM companies may present a more significant and identifiable audit risk than more mature listed firms. Examining the impact of various measures of audit client risk in a market such as the AIM allows us to improve our understanding of how risk more generally impacts the determinants of audit fees.

Conclusions

     This study fills a gap in the audit pricing literature by undertaking an empirical analysis of the determinants of audit fees in the AIM. Studying audit pricing in the AIM is interesting for several reasons. First, companies on the AIM are generally perceived as being higher risk than their fully listed counterparts. We focus on both traditional measures of audit risk as well as some AIM-specific measures to try and ascertain how audit client risk impacts audit pricing in the AIM. Second, companies on the AIM are not subject to the comply or explain approach to corporate governance regulation. Therefore, they enjoy much greater freedom in choosing their own governance arrangements. Thus, we are interested to ascertain the impact of both board independence and audit committee characteristics on audit fees in such a lightly regulated listed environment. Third, unlike the fully listed markets in the UK and elsewhere, there is significant diversity of auditors in the AIM with the Big 4 auditors not enjoying a dominant market share. Consequently, we are interested to ascertain whether the Big 4 audit firms charge an audit fee premium in the AIM.

     Our analysis reveals that audit fees in the AIM are influenced by various measures of audit risk, specifically client liquidity and listing history. We find consistent evidence that auditors charge more to client firms with lower liquidity and with a shorter history on the AIM. In further sub-sample analysis, we find that for AIM companies with shorter listing history as compared with more established firms, audit fees are especially sensitive to a range of risk measures. We find evidence that greater audit committee disclosure is associated with more expensive audits, but find no evidence that audit fees are sensitive to individual audit committee characteristics. After controlling for auditor self-selection bias, we find that Big 4 auditors charge a premium for audits in the AIM. When we investigate this further, we find that Big 4 and non-Big 4 auditors emphasize slightly different variables in their audit pricing decisions.

Abstract

Using the hand-collected data of 800 Vietnamese non-financial firms from 2008 to 2018, this study constructs a comprehensive corporate governance index in alignment with the corporate governance code of best practices in Vietnam. We provide strong evidence that corporate governance quality restrains earnings management, measured by both the absolute and signed discretionary accruals and the real earnings management. In particular, the negative association between corporate governance quality and earnings management is more profound in private firms (non-SOEs), firms with high foreign ownership and low concentrated ownership, and high growth firms compared to their peers. The observed results are robust to alternative measures of discretionary accruals, total accruals andreal earnings management. Furthermore, the results are corroborated using instrumental variables, firm fixed effects and propensity score matching methods to address potential reverse causality and sample selection bias.

Introduction

Earnings management has begun to attract public attention in the wake of recent corporate scandals in Vietnam. Vien Dong Pharmaceutical Joint Stock Company (DVD), one of the most lucrative-looking companies in the pharmaceutical industry, suddenly faced bankruptcy in 2011, even though the firm’s earnings growth rate was reported to be 325 percent in 2009, when DVD ranked the first in the industry. Inefficient corporate governance practices, such as the excessive concentration of power in the hands of top leaders, an inefficient board structure with conflicts of interest, and an ornamental supervisory board were blamed for assisting DVD management in defrauding its stakeholders. Similarly, other companies, such as Hoang Anh Gia Lai Group JSC (HAG) and Ho Chi Minh Infrastructure Investment JSC (CII), inflated their earnings to attract investors. On the other hand, other firms such as Quoc Cuong Gia Lai JSC (QCG) and Nafoods Group JSC (NAF), were revealed to have manipulated their earnings downward (Tap Chi Tai Chinh, 2020). These scandals motivate this study to explore the role of corporate governance quality as a significant driver of earnings management in Vietnam.

Globally, the infamous scandals involving Enron, Worldcom, Olympus, Parmalat, and Toshiba, to name but a few, have thrown up numerous questions about the efficiency of management accounting, auditing, and corporate governance practices. Di Miceli da Silveira (2013) reveals that Enron’s internal governance failures lead to managers’ taking advantage of accounting loopholes to manipulate its earnings and conceal its heavy losses. Chen et al. (2007) emphasise a pivotal role of corporate governance in stimulating transparency and efficiency, protecting minority shareholders’ wealth, ensuring the fair treatment of all shareholders, and facilitating the timely and accurate disclosure of all material matters. Deficient corporate governance mechanisms may result in severe agency costs and information asymmetry (Bhojraj & Sengupta, 2003) as well, which can be attributed to managerial misbehaviour. García-Meca and Sánchez-Ballesta (2009) propose that corporate governance helps to align the interest of managers with those of shareholders and to enhance the credibility of accounting information. It is notable that, Bao and Lewellyn (2017) and Lel (2019), in their recent multi-country studies, find that firms in emerging markets manipulate earnings to a much higher level, as their legal enforcement is less strict compared to developed markets.

Conclusion

The primary objective of this study is to examine, for non-financial listed firms in Vietnam from 2008 to 2018, the impact of corporate governance on earnings management, measured by the absolute value of discretionary accruals, signed discretionary accruals, and real earnings management. After controlling for firm-specific characteristics, we find that firms with higher corporate governance index are associated with lower earnings management. Results remain unchanged with the use of alternative measures of earnings management and alternative model specifications, which are used to allow for possible endogeneity biases. The findings from this study align with prior studies suggesting that corporate governance reduces agency and information costs. Considering the moral hazard, managers are more likely to act in their personal interests at the expense of stakeholders, in the absence of efficient corporate governance mechanisms. Reinforcement of corporate governance monitors managerial opportunism (Ali et al., 2018) and constrains earnings management activities (Liu & Lu, 2007; Shen & Chih, 2007). Our findings further suggest that the effectiveness of corporate governance’s monitoring role is subject to ownership structure and firms’ growth opportunities. The negative relationship is found to be significant only in non-SOEs, firms with high foreign ownership and low concentrated ownership, and high growth firms.

Abstract

     In this study, we investigate whether and to what extent country-level board reforms affect audit pricing decisions. We find audit fees are positively associated with board reforms. An increase in audit fees is more pronounced for firms that switched up to Big N auditors following board reforms. After board reforms, firms are less likely to issue restatements, and both analyst forecast accuracy and management forecast frequency increase, indicating improved audit quality and information transparency in the postreform period. Moreover, the positive relation between board reforms and audit fees is more evident for firms in countries that lack institutional governance mechanisms, captured by emerging capital markets, high political risk, weak governmental enforcement actions and low corporate governance quality. Overall, our findings broadly support the view that audit fees increase upon demand for better audit quality.

INTRODUCTION

     To date, most empirical research on board and audit committee independence has not explicitly separated the gross costs and benefits of reforms, but rather, has focused on the net impact to financial reporting outcomes, firm value and capital markets in assessing the merits (Fauver et al., 2017; Cohen et al., 2014; Klein, 2002; Palmrose et al., 2004; Hribar & Jenkins, 2004; Becker et al., 1998; Dhaliwal et al., 2010; Griffin et al., 2008; Tsui et al., 2001; Abbott et al., 2003). This empirical stream has provided valuable, yet mixed, findings: the net effect of board independence and a separate audit committee varies significantly across firms, industries and countries (Fauver et al., 2017). Such variations call for a better understanding of the specific nature of costs and benefits to determine the economic trade-off of board reforms. To respond to such a call, this study is able to quantify the direct statutory audit costs incurred by firms by examining the adoption of board reforms.

     We focus on audit costs because the adoption of board reforms is likely to have a profound impact on audit time and effort to review clients’ financial statements. Therefore, audit fees represent a direct, observable and measurable cash outflow that may incorporate significant changes in the board structure and composition.1 The impact of board reforms on audit fees is twofold. On the one hand, a more effective board with independent directors may demand higher audit quality (greater assurance), which requires more audit effort, to protect their reputation and to avoid future legal liability.2 This is consistent with the theory that audit fee is an input-based audit quality measure and restatement is an output-based audit quality measure, according to DeFond and Zhang (2014). As a result, the demand for high audit quality may increase audit costs/fees by ensuring that auditors perform sufficient and appropriate audit procedures (Carcello et al., 2002; Abbott et al., 2003; Zhang & Yu, 2016) and thereby reducing the likelihood of future financial restatements, which supports quality demand hypothesis.3

CONCLUSION

     One of the potential benefits of board reforms is to improve the process by which auditors are selected, retained and compensated. That raises an interesting question to accounting researchers and practitioners. To the best of our knowledge, this study is the first to test the association between board reforms and audit fees in a global setting. Due to different types and components of board reforms as well as country-level characteristics, prior studies provide mixed evidence as to whether such potential benefits of board reforms are being achieved. This study provides a comprehensive empirical analysis of the relation between a board reform’s efficacy and audit pricing decisions.

Abstract

Purpose

     This study aims to examine the mediating role played by corporate governance (CG) in the relationship between corporate social responsibility (CSR) and analyst forecast quality.

Design/methodology/approach

     The authors raise three specific questions: Does CG play a mediating role in the relationship between CSR and analyst forecast quality? If so, is such mediation effect of CG reduced for firms with weak governance? Do firms with superior CSR performance experience higher analyst forecast quality through the mediation effect of CG?

Findings

     The present results suggest that CG serves as a partial mediator that facilitates CSR’s positive influence on analyst forecast quality. However, further analyses show that in firms with a low governance score, CG does not have a mediation effect. Conversely, the authors find that firms with superior CSR performance have higher forecast quality through the mediation effect of CG. The authors also find that the mediation effect of CG is more pronounced for the environmental component than for the social component of CSR

Originality/value

     To the best of the authors’ knowledge, this study is the first to investigate the role of CG as a mediator between CSR and analyst forecast quality and to reveal that the strength of this effect varies depending on firms’ CG level and CSR commitment.

Introduction

     Informative stock price in financial markets is essential to efficient resource allocation in an economy, and the analyst report is an important avenue to producing a more informed stock price that also leads to better stock performance in the long term (Brav and Lehavy, 2003; Fernandez et al., 2011; Asquith et al., 2005; Lennox and Park, 2006). Although corporate social responsibility (CSR) is becoming a significant part of corporate activity, the literature about the influence of CSR on analyst forecast quality offers largely mixed findings. Some studies find that socially responsible firms experience lower levels of conflict among stakeholders, which may reduce information asymmetry in prices and thus result in more accurate analyst forecasts (Al-Hadi et al., 2019; Becchetti et al., 2015). Other studies suggest that CSR can be used by management as a greenwashing strategy to manipulate legitimacy for obtaining societal acceptance (Jo and Harjoto, 2012; Orlitzky, 2013), which can lead to price distortion and potentially mislead analyst forecasts. In an attempt to reconcile these inconclusive findings, we incorporate the unique role of corporate governance (CG) as a mediator, aiming to investigate the mediation effect of firms’ CG on the relationship between CSR and analyst forecast quality

Conclusion

     This study explored the relationship between CSR and analyst forecast quality and examined the mediation effect of CG. Our results reveal that CG acts as a partial mediator affecting the relationship between CSR and analyst forecast quality, and the mediating role of CG is muted in firms with low level of CG mechanism. Further, our results show that for firms committing to excess CSR, CG also plays a partial mediating role in facilitating CSR’s positive influence on forecast quality.

     This study offers two incremental contributions. First, to the best of the authors’ knowledge, this is the first study to explicitly investigate the role of CG as a mediator between CSR and analyst quality. Second, after splitting CSR into expected CSR and excess CSR, we obtain results that support the signaling hypothesis, indicating that excess CSR engagement by some firms enhances analyst forecast quality through CG as a mediator. Overall, our findings add to extant literature on the nexus of CSR, CG and information asymmetry by providing strong evidence that CG complements CSR to enhance analyst forecast quality.

Abstract

     This research is intended to study the impact of corporate governance, Corporate Social Responsibility (CSR), and technology on ethics with the objectives that are to be achieved in the discussions. For the research, the discussion will be based on the literature review from articles and journals that are related to the topic that is going to be analyzed, and it will help to compare and identify gaps in the research.

Introduction

     Ethics deals with understanding, evaluating, and separating issues as right and wrong or good and evil or admirable and deplorable when they are applied to the wellbeing and its relationship with human beings using a methodical approach[1]. Ethics can be simply the study of human behavior and generally ideal ways of living, which have led to several ethical studies in various areas, such as corporate ethics, a collection of guidelines or laws that an organization should practice. Moreover, it refers to a code of conduct that corporations are supposed to follow that allows the organization to differentiate between right and wrong and pass moral judgment on issues connected with the organization. Ethics has been influenced by place, time, religion, social law, and cultural background. Moreover, ethics is not only for the corporate sector but also for the general public’s personal, social, and professional aspects.

Conclusion

     Ethical value is essential in every aspect of businesses or organizations. To achieve superior performance and run it for the long term, everyone needs to act ethically. Corporate governance is the system of rules, practices, and processes by which an organization is directed and controlled. It is essential that the organization needs to treat the interest of stakeholders equally, such as shareholders, management, customers, government and community. Corporate governance is there in an organization because it was established to manage and ethically run the organization. Organizations need to make sure that any confidential information that is made within should not be publicly exposed or used for any personal benefits. Benefits received from business ethics are due to the goals of corporate governance. Based on the present study, it can be said that ethics have a substantial impact on corporate governance, and business ethics implementation can ensure good governance. As emphasized earlier, implementation of CG may not be as simple as it seems, particularly when it comes to the corporate domain, but researchers have agreed on the value of CG to enforce CSR and ethical standards in an organization.

Abstract

     Sustainable development has gained the attention of researchers worldwide and is becoming an important topic, especially in relation to corporate governance principles. This study investigates the influence of corporate governance on sustainable development in a sample of 185 countries over 2005–2020 using a panel linear regression model. Separate analyses are also conducted on subsamples of high- and low-income countries. Our findings highlight the positive influence of corporate governance, as measured by board efficacy, the strength of audits and reports, and digitalisation, on sustainable development, as measured by the Human Development Index, Human Capital Index, and Environmental Performance Index. Moreover, we find a higher positive and marginal effect of the influence of corporate governance on sustainable development for low-income countries than for high-income countries. The robustness checks performed using variables related to the happiness index, women in top management positions, and technology adoption verify our results. Our findings are important for managers and policymakers to consolidate sustainable development through the incentive brought about by high-quality corporate governance.

Introduction

     The well-being of a company should be a common interest of all engaged parties. Although researchers have long emphasised the importance of corporate governance principles (Nedelchev, 2013), Howell and Sorour (2016) raised the importance of implementing good practices to ensure organizational well-being. Hashanah and Mazlina (2005) also underlined the corporate governance elements that directly hamper the healthy development of society. Thus, implementing good corporate governance principles ensures the positive and therefore sustainable development of the business.

     Various studies have analyzed the relationships between corporate governance and corporate social responsibility (CSR) (Achim et al., 2017; Crane & Matten, 2007; Kolk & Pinkse, 2010) as well as between CSR and sustainable development (Kahraman Akdogu, 2017; Truant et al., 2017). However, few studies (e.g., De Luca, 2020; Dienes et al., 2016) have investigated the direct relationship between corporate governance and sustainable development. To bridge this gap in the literature, we analyze the impact of corporate governance on social and environmental performance as well as compare the influence of corporate governance in high- and low-income countries. We use a sample of 185 countries over 2005–2020 and panel linear regressions. To validate our main results, we also check their robustness using variables such as the happiness index, women in top management positions, and technology adoption. The results show that the level of sustainable development increases when the use of corporate governance best practices increases. Moreover, we find that corporate governance has a higher impact on the low-income countries than in the high-income countries than

Conclusions

     This study investigated the influence of corporate governance on sustainable development using a panel linear regression model applied to a sample of 185 countries over 2005–2020. Separate analyses were also conducted for high- and low-income countries. Our findings highlight the positive influence of corporate governance on sustainable development measured by the HDI, HCI, and EPI. In addition, we find a higher positive and marginal effect of the influence of corporate governance on sustainable development for low-income countries than for high-income countries.

     Further, we find that high-quality public governance, a high level of urbanisation, and low unemployment increase sustainable development. Culture impacts the sustainable development of a society markedly for both high- and low-income countries, but this effect is particularly high in the latter. The robustness checks performed using the supplementary variables of the happiness index, women in top management positions, and technology adoption verify our results.

Abstract

     Using dynamic panel data techniques, we find that a country’s corporate governance practices have a positive effect on the sophistication of its exported products. We also find that higher dispersion of governance across firms leads to lower economic complexity.

Introduction

     Traditional growth theories suggest that development materializes through the economic complexity that emerges from the interaction of agents operating in an economy (Romer 1990; Grossman and Helpman 1991). One of the expressions of such complexity is the degree of product diversity and sophistication embedded in a country’s productive structure. While least developed countries produce a small quantity of goods, developed nations have higher aggregate production and a more diverse set of products (Hidalgo et al. 2007). Therefore, government policies aiming to fight market failures have a potentially important positive role to play in shaping a country’s production structure (Hausmann, Hwang, and Rodrik 2007).

     One example of such market failure is generated by the existence of asymmetric information inside companies, exacerbating conflicts of interests between individuals working in the same firm. Those agency problems (Fama and Jensen 1983) hinder a country’s development and, therefore, may work as barriers to economic complexity. In this environment, corporate governance principles and laws act to mitigate these negative effects through the improvement of rules and procedures governing decision making in corporate affairs.

Conclusion

     We document a positive effect of corporate governance practices on economic sophistication, and a negative association between within-country governance inequality across firms and economic complexity. These findings suggest that a country’s degree of product sophistication accelerates through policies that improve the overall governance level and/or that alleviate the inequality of governance practices across companies.

     Future research could advance in two directions. First, exploring the mechanisms behind the relationship between economic complexity and corporate governance could generate new insightful policy recommendations. Second, one could evaluate the robustness of the association between corporate governance and economic complexity by using other datasets that contain corporate governance information, such as Thomson Reuters’ ASSET4 ESG data (Cheng, Ioannou, and Serafeim 2014; Duong, Kang, and Salter 2016).

Abstract

     Over the last 2 decades, the literature on corporate governance and sustainability has increased substantially. In this study, we analyze 468 research studies published between 1999 and 2019 by employing three clustering analysis visualization techniques, namely keyword network clustering, co-citation network clustering, and overlay visualization. In addition, we provide a brief review of each cluster. We find that the number of published items that fall under our search criteria has grown over the years, having surged at various times including 2014. We identified three main thematic clusters, which we have called (1) corporate social responsibility and reporting, (2) corporate governance strategies, and (3) board composition. The weighted average years that major keywords appear in the literature published over the last 2 decades fall into a period of 4 years between 2014 and 2017. This is due to the massive increase in the number of publications on corporate governance and sustainability in recent years. By means of chronological analysis, we observe a transition from more abstract concepts—such as ‘society,’ ‘ethics,’ and ‘responsibility’—to more tangible and actionable terms such as ‘female director,’ ‘board size,’ and ‘independent director.’ Our review suggests that corporate governance and sustainability literature is evolving from quite a conceptual approach to rather more strategic and practical studies, while its theoretical roots can be traced back to a number of foundational studies in stakeholder theory, agency theory and socio-political theories of voluntary disclosure.

Introduction

     Corporate governance (CG) is a set of rules and organizational structures that are the basis for correct business operation, understood as compensation for the interests—sometimes divergent—of stakeholders (Du Plessis et al. 2018). CG encompasses diferent areas in a company. It can refer as much to a series of activities and rules aimed at making companies follow specifc codes, as to the processes through which companies are directed and controlled; rules include both the laws of the country in which the company operates and internal company processes (Scherer et  al. 2016). Therefore, the concept of the CG of a company includes all those rules and processes through which decisions are made; it also indicates the path to follow to achieve corporate objectives and consequently the means of achieving them as well as measuring results achieved.

     Traditionally, corporate governance has been intended as a model designed to protect shareholder investments from the “claws” of opportunistic managers (Roberts and Van den Steen 2000). In recent years, however, governance has been increasingly applied to a more extensive form of monitoring of corporate activities, including the impact on society and the environment. This additional aspect related to corporate sustainability often arises in response to stakeholder requests. Indeed, sustainability is increasingly becoming an integral and decisive part of the strategies pursued by companies (Iansiti and Levien 2004), and of relationships they establish with various partners in the value chain.

Discussion and conclusion

     This paper reviews the literature on corporate governance and sustainability by means of a bibliographic analysis based on keyword co-occurrence and co-citation networks. We selected 468 single publications from the Web of Science database addressing both “Corporate Governance” and “Sustainability” published between 1999 and 2019. Such publications were analyzed by using three visualization techniques: keyword co-occurrence network clustering, chronological evolution of keywords, and co-citation network clustering. Moreover, we conducted a brief review of the literature for each of the major keyword network clusters identifed.

     We observed that the number of publications that fall under our screening criteria increased over time; about half of the 468 items selected from the period between 1999 and 2019 were published in the last 3 years. We believe that the increasing volume of literature on corporate governance and sustainability refects not only the growing attention to sustainability in general, but also the growing recognition of the role to be played by corporates in sustainability. Such a trend can also be observed from corporate commitments under (among other policy instruments) the Sustainable Development Goals (SDGs) framework, where corporate leaders are committed to addressing such issues as safety and environmental protection, climate change, innovative solutions to community needs as well as sustainable value creation approaches (UN 2015). We also believe that the increasing awareness of problems related to climate change—such as the Paris climate agreement reached in 2015 by 195 countries and the last Conference of the Parties (COP25) held in Madrid in 2019—provides further impetus for corporate governance literature to focus on sustainability (Rogelj et  al. 2016). Under the Paris agreement, countries have committed to reducing their greenhouse gas emissions following Nationally Determined Contributions (NDCs), many of these involve corporate participation (UNFCC 2008).

Abstract

     This paper investigates the possible nexus between the ‘risk-return paradox’ and corporate-governance of firms in a cross-country cross-cultural setup. We use corporate governance as well as accounting risk and return data for a large dataset of 45,322 firm-years from 27 countries and show that the firm-level risk-return association may be a non-linear one, contingent on the firm performance. Firms which are below the industry median in terms of operating performance, exhibit an inverse relation in line with Bowman’s (1980) ‘paradox’ while those above-median exhibit a positive risk-return association. Further, we establish empirically that such risk-return association could be due to the rent-seeking actions of managers and that strong corporate-governance in a firm substantially moderates and reverses these effects. Our results are robust and hold strong through a number of robustness tests.

Introduction

     Risk-return association in financial markets is typically expected to be positive, i.e., bearing higher risk is justified when expected returns are higher (Sharpe, 1964; Ghysels et al., 2005). This risk-return trade-off should also apply to firm-level strategic decisions that involve risks such as entering new markets, launching new products, and exploring new ways to prune costs. Therefore, to maximize shareholders’ wealth, managers may possibly undertake high-risk investments if they are expected to yield commensurate higher returns for shareholders (Chari et al., 2019). Thus, prior knowledge of such a risk-return association is critical from the perspective of firms and their stakeholders, especially managers. Our study draws its primary motivation from this premise.

     Bowman (1980) reports an interesting risk-return ‘paradox,’ or a negative correlation between accounting risk and return. This observation is counterintuitive to the generally accepted theory in traditional finance, as highlighted above (Sharpe, 1964; Ghysels et al., 2005). Since then, a series of empirical studies have presented possible theoretical and empirical explanations for this. ‘Prospect theory’ (Kahneman and Tversky, 1979), ‘behavioural theory’ (Cyert and March, 1963; Bromiley, 1991), ‘agency theory’ including ‘value-reducing risk-taking’ (Andersen et al., 2007; Chari et al., 2019), and ‘career concerns’ of managers (Dewatripont et al., 1999), to name a few. However, most of these studies draw their inferences based on US data. Whether Bowman’s ‘paradox’ is generalizable across different countries with wide inherent variability, to the best of our knowledge, has yet to be explored extensively. A few recent studies, such as Patel et al. (2018) and Dasgupta and Deb (2020), have used data from non-US countries to check the validity of the paradox. However, many potential dimensions of inherent variability, such as stages of economic growth, market cycles, legal systems, investor-protection rights, national culture, and various other firm-level heterogeneity are not controlled for in those studies. The current study draws its secondary motivation from this premise

Summary and conclusion

     This study explores the previously reported ‘risk-return paradox’ and examines whether the risk return relationship is contingent on measures of risk and return used, firm- or country-level heterogeneity, and market cycles. The study draws its primary motivation from the premise that prior knowledge of an established risk-return association is critical from the perspective of international firms. Such knowledge could help in shaping strategic decision-making processes involving risk or uncertainty, such as entering new markets, launching new products, and exploring new ways to prune costs. Managers need to undertake high-risk investments only if they yield commensurately higher returns for shareholders (Chari et al., 2019). We use accounting risk and return data from a sample of 45,322 firm-years from 27 countries, representing emerging and developed economies. We control for a large number of potential factors that may influence firm-level risk and return association. Using several univariate, multivariate, and robustness tests, we find evidence of a partial paradox in the risk-return association, which is contingent on the current level of firm performance. Firms that are below the median, in terms of performance, exhibit a negative (i.e., paradoxical) risk-return association primarily, while the firms that are above the median exhibit mostly a regular or positive risk-return relationship. These findings are in line with some other studies, a majority of which were in the context of US markets (Lehner, 2000; Becerra and Markarian, 2013; Holder et al., 2016).

Abstract

Introduction

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Abstract

A comprehensive corporate governance index (JCGI, 0–100) is constructed to measure the quality of corporate governance practices of the universe of publicly traded Jordanian firms during 2018–2019. We survey all firms’ corporate governance practices and manually collect governance data for listed corporations in Amman Stock Exchange to construct the first JCGI, which comprises five sub-indices and 60 elements.The results show that Jordanian companies did not progress in the corporate governance reform during the study period. The overall JCGI mean value is 67.80%. Sub-index results show that governance is weakest in both board procedure and disclosure, with a mean value of 57.36% and 52.43%, respectively. The board procedure subindex shows that most listed firms practice poor governance. Within the board structure sub-index, only 18% of the study sample has the policy to specify the board’s professional qualifications and training requirements. Results of shareholders’ rights show a rigid and nontransparent environment in the enterprises’ control structure.

Introduction

“Corporate governance, a term that scarcely existed before the 1990s, is now universally invoked wherever business and finance are discussed” (Keasey et al. 2005). Corporate governance has become a global phenomenon. The financial scandals and crises that have hit most countries pave the road for ongoing corporate governance interest. Governments worldwide are continuously developing corporate governance codes and guidelines or refurbishing those in existence (Mallin 2006).

The main sources of corporate governance legislation in Jordan are the Companies Law, the Securities Law, the Banking Law, and several Instructions and Regulations issued by the Jordanian Securities Commission and the Central Bank of Jordan.

The banking sector in Jordan is heavily regulated. Much attention by regulators and market commissioners was directed to this sector, for example, the “Bank Directors Handbook of Corporate Governance” issued in 2004, the “Corporate Governance Code for Banks in Jordan,” issued in 2007, and the “Corporate Governance Instructions for Banks” issued in 2014 (Cigna and Sigheartau 2016).

Jordan authorities have developed additional national corporate governance codes for listed companies; the Corporate Governance Code for Shareholding Companies listed on the ASE, issued in 2008. According to this law, companies must comply with its articles based on “comply or explain” principles or on a compulsory basis according to the law’s requirements (See, Cigna and Sigheartau 2016 and OECD Investment Policy Reviews: Jordan 2013).

Abstract

     This research examines whether the characteristics of top management teams are related to financial statement comparability. Considering the foreign experienced CEOs (FCEOs) in Chinese listed firms from 2005 to 2018, we show that it can increase financial statement comparability. We argue that firms led by FCEOs will enhance information environment and governance mechanisms by minimizing agency issues, consequently generating more comparable financial statements. Through further investigation, we find that the relationship between FCEOs and comparability is stronger when CEOs possess a financial and accounting background and when they have overseas professional experiences. fthe relationship is weaker with the existence of higher economic policy uncertainty. Finally, we identify financial reporting as an important channel that explains the relationship between FCEOs and comparability. Findings remain consistent after numerous robustness checks and supplementary investigations comprising lag of independent variables, generalized method of moment, instrumental variable approach, propensity score matching, and alternative comparability measures. Overall, the findings suggest that CEOs’ foreign experiences are associated with corporate outcomes.

Introduction

     Top management team (TMT) characteristics, especially of CEOs, substantially influence corporate decisions (Lai and Liu 2018; Zhang 2018). Despite scholarly recognition of CEOs’ traits, such as expertise, tenure, personality traits, duality, education, and gender, CEO foreign experiences are a few of the factors currently gaining research interest. This stream of literature claims that foreign experienced CEOs1 (FCEOs) have a possible influenfgce on corporate decisions, such as compensation (Conyon et al. 2019), undertaking foreign IPOs (Duan, Hou, and Rees 2020), performance (Duan and Hou 2017), and corporate investment (Dai, Kong, and Liu 2018). However, one of the important issues that has not received scholarly attention is financial statement comparability (comparability, hereafter). Accordingly, the current study contributes to the literature by investigating how FCEOs affect comparability

     Comparability is a crucial element in financial reporting (International Accounting Standard Board 2010). Users of financial statements benefit from it given its role to facilitate understanding of accounting information and thus in coming up with informed decisions. Studies (e.g., De Franco, Kothari, and Verdi 2011; Zhang 2018) suggests that comparability enhances information quality while reducing acquisition and processing costs. Comparability can correspondingly diminish information asymmetry, which leads to higher innovation efficiency (Chircop et al. 2020); more efficient resource allocation (Kim et al. 2020); higher stock price information quality (Choi et al. 2019); greater accounting information’s relevance (Kim, Kim, and Musa 2018); lower cost of capital (Imhof, Seavey, and Smith 2017); and higher analyst coverage and forecast accuracy and lower forecast dispersion (De Franco, Kothari, and Verdi 2011). Despite extensive scholarly attention to the antecedents of comparability, research has scarcely focused on its determinants (Dhole et al. 2015; Francis, Pinnuck, and Watanabe 2014; Imhof, Seavey, and Watanabe 2018). We add to this line of research by studying how TMT characteristics (CEOs’ foreign experiences) explain comparability.

 Conclusio

     This study investigates whether FCEOs and their accounting and financial expertise are associated with comparability. It utilizes a sample of Chinese listed firms from 2005 to 2018 and found evidence that FCEOs significantly increase comparability. Notably, this this influence is more pronounced for CEOs with accounting and financial backgrounds. These conclusions remain valid after addressing endogeneity issues. Our additional analyses also suggest the following: the effect of FCEOs on comparability is stronger when CEOs have overseas employment experiences but weaker in the presence of higher EPU. Finally, we identify financial reporting quality as a channel explaining the nexus between FCEOs and comparability

      This research provides new evidence confirming the importance and influence of CEOs’ foreign experiences on comparability. It underscores the significance of foreign experiences as integral in the acquisition of human and social capital. It also adds to the increasing body of knowledge regarding the economic implications of CEOs’ foreign experiences. Our findings are useful to firms that wish to attract foreign talents by recognizing the prospect of FCEOs to minimize agency problems and offer potential external resources. For policymakers, acknowledging that FCEOs can effectively help improve comparability might inspire them to allocate potential resources to crafting policies that attract foreign expertise. Overall, the results offer important implications for policymakers and regulators with regard to the role of FCEOs

Abstract

     A widespread perception exists that tax havens facilitate corporate opacity. This study provides new evidence on the association between tax havens and the transparency of firm financial reporting using a unique group of firms whose parent companies are incorporated in tax havens but whose headquarters or primary operations—that is, their base—are in nonhaven countries. While most research suggests a negative association between tax havens and transparency, I examine whether this association depends on the firm’s corporate governance environment as well as its capital market incentives. I find that the negative association is limited to firms subject to weak governance in the base country. In contrast, I find, among firms in stronger governance environments, a positive association between tax haven incorporation and transparency, which is most concentrated among firms with greater capital market incentives. My findings suggest that future researchers should use caution when assuming an unambiguous negative association between tax havens and corporate transparency. The study also provides unique evidence that tax planning can motivate higher transparency in certain settings.

Introduction

     A widespread belief exists that firms’ use of tax havens facilitates corporate opacity. Tax havens have unique regulations that can weaken shareholders’ ability to discipline managers and directors and can provide opportunities for reduced reporting quality or disclosure for tax haven–incorporated companies (Kun 2004; Moon 2018), which may motivate their managers to be less transparent. Many observers, including researchers, policymakers, and the media, have expressed concerns that tax havens let managers misbehave and hide information from financial statement users (e.g., Desai 2005; Morgenthau 2012; Black et al. 2013; Durnev et al. 2016, 2017; Atwood and Lewellen 2019). For example, the U.S. Senate has argued that the unique laws of tax havens can be used to circumvent U.S. securities safeguards, including disclosure requirements (U.S. Senate Permanent Subcommittee on Investigations 2006). Many sources also suggest that tax haven–incorporated companies provide financial information that is unreliable or insufficient to portray a firm’s economic situation.

Conclusion

     I provide new evidence on the association between tax haven use and financial reporting transparency using a unique sample of “tax haven firms” with tax haven–incorporated parents that are based primarily in a nonhaven country. I examine whether the association between tax haven incorporation and transparency is conditional on the firm’s corporate governance environment and capital market incentives. My results indicate that the association between tax haven incorporation and transparency depends on the strength of governance in the base country (i.e., the nonhaven country of headquarters or primary operations), in conjunction with capital market incentives. While I find an overall negative association between tax haven incorporation and transparency in the full sample, I find that firms facing weak country-level governance in the base country drive the baseline negative association. In contrast, I find that capital market incentives motivate tax haven firms to provide highertransparency, compared to other multinationals, among firms based in strong governance countries and firms based in weak governance countries with less severe potential internal governance problems. My study provides evidence that low transparency associated with tax havens is not ubiquitous, and the findings suggest that future researchers should use caution when assuming an unambiguous negative association between tax havens and transparency.

Abstract

Introduction

Literature review and hypothesis building

Methods

Results

Conclusion

Abbreviations

Authors’ contributions

Declarations

References

Abstract

     The paper aims to investigate the impact of corporate governance (CG) measures on firm performance and the role of managerial behavior on the relationship of corporate governance mechanisms and firm performance using a Chinese listed firm. This study used CG mechanisms measures internal and external corporate governance, which is represented by independent board, dual board leadership, ownership concentration as measure of internal CG and debt financing and product market competition as an external CG measures. Managerial overconfidence was measured by the corporate earnings forecasts. Firm performance is measured by ROA and TQ. To address the study objective, the researcher used panel data of 11,634 samples of Chinese listed firms from 2010 to 2018. To analyze the proposed hypotheses, the study employed system Generalized Method of Moments estimation model. The study findings showed that ownership concentration and product market competition have a positive significant relationship with firm performance measured by ROA and TQ. Dual leadership has negative relationship with TQ, and debt financing also has a negative significant association’s with both measures of firm performance ROA and TQ. Moreover, the empirical results also showed managerial overconfidence negatively influences the relationship of board independence, dual leadership, and ownership concentration with firm performance. However, managerial overconfidence positively moderates the impact of debt financing on firm performance measured by Tobin’s Q and negative influence on debt financing and operational firm performance relationship.

Introduction

     Corporate governance and its relation with firm performance, keep on to be an essential area of empirical and theoretical study in corporate study. Corporate governance has got attention and developed as an important mechanism over the last decades. The fast growth of privatizations, the recent global financial crises, and financial institutions development have reinforced the improvement of corporate governance practices. Well-managed corporate governance mechanisms play an important role in improving corporate performance. Good corporate governance is fundamental for a firm in different ways; it improves company image, increases shareholders’ confidence, and reduces the risk of fraudulent activities [67]. It is put together on a number of consistent mechanisms; internal control systems and external environments that contribute to the business corporations’ increase successfully as a complete to bring about good corporate governance. The basic rationale of corporate governance is to increase the performance of firms by structuring and sustaining initiatives that motivate corporate insiders to maximize firm’s operational and market efficiency, and long-term firm growth through limiting insiders’ power that can abuse over corporate resources.

Results

     Descriptive statistics of all variables included in the model are described in Table 1. Accordingly, the value of ROA ranges from −0.17 to 0.23, and the average value of ROA of the sample is 0.05 (5.4%). Tobin Q’s value ranges from 0.88 to 10.06, with an average value of 2.62. The ratio of the independent board ranges from 0.33 to 0.57. The average value of the independent board of directors’ ratio was 0.374. The proportion of the CEO serving as chairperson of the board is 0.292 or 29.23% over the nine years. Top 10 ownership concentration of the study ranged from 22.59% to 90.3%, and the mean value is 58.71%. Product market competition ranges from 0.85% to 40.5%, with a mean value of 5.63%. The debt financing also has a mean value of 40.5%, with a minimum value of 4.90% and a maximum value of 87%. The mean value of managerial overconfidence is 0.589, which indicates more than 50% of Chinese top managers are overconfident.