Stevan Bajic and Burcin Yurtoglu
There is evidence that corporate social responsibility (CSR) practices predict higher firm value, but little evidence on which specific aspects of CSR drive this relationship. The…
Abstract
Purpose
There is evidence that corporate social responsibility (CSR) practices predict higher firm value, but little evidence on which specific aspects of CSR drive this relationship. The purpose of this paper is to study this question in a sample drawn from 35 countries over 2003-2016.
Design/methodology/approach
The authors employ a research design that analyzes observational data with panel data methods including ordinary least squares, firm-random effects, and firm-fixed effects.
Findings
The authors find in a sample drawn from 35 countries over 2003-2016 an economically significant relationship between an overall CSR measure and firm value. The overall CSR score builds on data from Asset4 and is comprised of three indices for environmental, social, and corporate governance aspects of CSR. The authors find that the social index consistently predicts higher market value. The authors also show that the use of particular elements of CSR can lead to substantial omitted variables bias when predicting firm value. The results also suggest a similar bias in studies that focus on a single index, which captures a specific aspect of CSR, but omits the remaining aspects.
Research limitations/implications
The study is subject to limitations common to observational studies.
Practical implications
The authors find robust evidence that CSR predicts market value using a country-benchmarked overall CSR index. The power to predict firm value comes solely from the social dimension of this measure, which captures firm-level practices related to treatment of employees and stakeholder relations including those with customers and the broader community. Three elements drive the social index: customer/product responsibility, human rights, and employment quality. None of the remaining 12 elements significantly predicts firm vale in an empirical setting with firm-FE and extensive covariates. The authors also show that omitted aspects of CSR can easily lead to an omitted variable bias and that the magnitude of this bias is potentially greater with an OLS specification.
Social implications
Among the many dimensions of CSR, only a subset drives firm value. Policies that target to improve the CSR performance of firms adopt a broader definition of CSR.
Originality/value
The authors provide first-hand evidence on which specific aspects of CSR drive firm market value.
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Mohammad Talalwa, Fu’ad Magableh and Nemer Badwan
The purpose of this study is to investigate the influence of corporate governance structure corporate governance on a firm’s performance in the Palestinian business environment…
Abstract
Purpose
The purpose of this study is to investigate the influence of corporate governance structure corporate governance on a firm’s performance in the Palestinian business environment between 2016 and 2023. The specific environment of the developing Palestinian economy is the main motivation and emphasis of this investigation.
Design/methodology/approach
Data were gathered from 49 financial and non-financial firms listed on the Palestine Stock Exchange between 2016 and 2023. While the random and fixed effects estimates were utilized to be the most suitable for this particular investigation, they were used to undertake the data analysis procedure. The study employed two-stage least squares (2SLS) to assess the robustness and correctness of data to bolster the findings and subsequent implications.
Findings
The findings show that the return on equity, a measure of corporate performance, was positively but not significantly impacted by the presence of women on the executive boards of Palestinian companies. This suggests that the variable in question had no bearing on the success of the firms. In terms of moderating influence, corporate governance structure had no bearing on the link between dual chief executives, institution ownership, government ownership, independent directors and firm performance. Family ownership and board size had negative, significant impacts on performance.
Research limitations/implications
The research limitations of this study are that it focuses exclusively on manufacturing firms listed on the Palestine Exchange (PEX) over a seven-year period, which limits its generalizability to other industries and regions. Furthermore, due to a lack of data, the model did not account for global diversity on boards of directors.
Practical implications
The findings of this research help managers understand how management structures impact business success and provide regulatory authorities with insights into gender diversity and corporate governance legislation in Palestine. It suggests enhancing company performance, competitiveness and capital acquisition by improving governance information quality, building investor confidence, raising standards and reforming governance systems.
Originality/value
This study contributes to the literature by enhancing the understanding of how corporate governance and gender diversity affect the financial performance of listed firms, addressing a research gap in the Palestinian market. It is one of the few studies examining company performance during political turmoil, specifically focusing on the increased role of women on Palestinian boards.
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Mustafa Tevfik Kartal, Serpil Kılıç Depren and Özer Depren
This paper aims to determine priority issues in the corporate governance (CG) principles to increase CG rating notes of publicly traded companies.
Abstract
Purpose
This paper aims to determine priority issues in the corporate governance (CG) principles to increase CG rating notes of publicly traded companies.
Design/methodology/approach
This study defines the priority issues for publicly traded companies that should be focused to increase the CG rating notes. In this context, this study considers the companies in Borsa Istanbul CG index (XKURY), use data for 2018, 2019, 2020, and applies machine learning algorithms.
Findings
Overall, importance of each CG principle changes for the CG rating notes; first five CG principles in terms of significance have a total of 43.6% importance for the CG rating notes; following a straight-line approach in completing deficiencies of the CG principles cannot help increase the CG rating notes. Hence, empirical results highlight the impact of the most significant CG principles in terms of the CG rating notes that should be focused on by publicly traded companies so that CG ratings can be increased.
Research limitations/implications
This study uses Turkey data and considers publicly traded companies in the XKURY index. The main cause of this condition is that consolidated data of compliance report format for all publicly traded companies cannot be obtained.
Practical implications
The publicly traded companies can increase the CG rating notes by considering the results of this study while focusing on priority issues in the CG principles.
Social implications
The study determines the most important CG principles that companies can focus on, highlights the importance of usage of machine learning algorithms in determining the most influential CG principles in terms of the CG rating notes and reflects on the difficulties for gathering consolidated CG principles compliance reporting data for all publicly traded companies. Hence, societies can have better companies that are ruled more efficiently and corporately by increasing their compliance with the CG principles.
Originality/value
To the best of the authors’ knowledge, this is the first empirical study that determines the priority issues to increase the CG rating notes of publicly traded companies based on the new CG principles compliance reporting scheme in Turkey. Following this aim, machine learning algorithms, which can present better results with regard to most of the econometric models, are used in this study.
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The purpose of this study is to investigate the compliance of US‐traded foreign firms with Sarbanes‐Oxley section 404 (SOX 404) by examining recent changes in their material…
Abstract
Purpose
The purpose of this study is to investigate the compliance of US‐traded foreign firms with Sarbanes‐Oxley section 404 (SOX 404) by examining recent changes in their material internal control weakness (ICW) disclosures. This study also seeks to explore as a result of compliance, whether large firms can improve their internal controls than small and mid‐sized businesses (SMBs) can.
Design/methodology/approach
This study uses a logit regression model to test the data collected from Compustat and AuditAnalytics databases.
Findings
Both US firms and US‐traded foreign firms from developed countries experienced a significant descending trend of material ICW disclosures from 2004 to 2006. US SMBs, like large US companies, improved internal controls.
Research limitations/implications
Prior studies asserted that the environment of corporate governance is more favourable for firms in developed countries. This study documents that US‐traded foreign firms from developed countries adjust to SOX 404 more quickly than do those from developing countries, resulting in fewer material ICW disclosures.
Originality/value
Although SOX 404 imposes vast costs on US‐traded foreign firms, investors can benefit from the improved internal control over financial reporting, as the Securities and Exchange Commission asserts. This paper contributes to the literature that US‐traded foreign firms from developed countries adjust to SOX 404 more quickly than those from developing countries. Although the significant fixed cost of implementing SOX 404 impacts SMBs disproportionately, US SMBs, like larger firms, still show an improvement in their internal control systems over time.
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Andrews Owusu and Charlie Weir
The purpose of this paper is to investigate the impact corporate governance, measured by a governance index, on the performance of listed firms in a developing economy, Ghana. It…
Abstract
Purpose
The purpose of this paper is to investigate the impact corporate governance, measured by a governance index, on the performance of listed firms in a developing economy, Ghana. It also evaluates the effect of the introduction of a code of corporate governance on compliance rates across Ghanaian firms as well as assessing the impact of the code’s introduction on firm performance for the study period 2000-2009.
Design/methodology/approach
The paper develops a Ghanaian corporate governance index (GCGI) containing 33 provisions to measure corporate governance quality during the pre-code and the post-code sub-periods. The authors use a panel data analytical framework and fixed effects regressions to analyse the governance-performance relationships.
Findings
After controlling for endogeneity, the authors find a statistically significant and positive relationship between the GCGI and firm performance. The analysis shows evidence of a statistically significant increase in the degree of compliance with the Ghanaian Code from the pre-2003 sub-period to the post-2003 sub-period. The authors also find that the introduction of the code has led to improved firm performance. However, not all elements of corporate governance appear to have a significant effect on firm performance.
Research limitations/implications
One limitation of this study is the development of a corporate governance index. The binary coding used to construct the GCGI may not reflect the relative importance of the different corporate governance provisions. This means that all elements included in the index are given equal weighting. Future research may assign weights to each of the corporate governance provisions but this may have the disadvantage of making subjective judgements relative to the importance of each corporate governance provision recommended by the Ghanaian Code.
Practical implications
These results have important implications for both policy makers and companies. For policy makers, it is encouraging for the development of a code of corporate governance to regulate firms rather than enforcing rigid laws that may not be value relevant. For companies, the improvement in compliance with a code of corporate governance can provide a means of achieving improved performance.
Originality/value
This paper adds to the limited evidence on the governance-performance relationship in developing economies and in particular it analyses the role of a governance index. It is also the first paper to compare the pre- and the post-code governance index-performance relationship in an African or developing country.
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Walaa Wahid ElKelish and Panagiotis Zervopoulos
This paper aims to investigate the internal and external determinants of firms’ efficiency and develop optimal corporate governance risk benchmarks for the manufacturing sector…
Abstract
Purpose
This paper aims to investigate the internal and external determinants of firms’ efficiency and develop optimal corporate governance risk benchmarks for the manufacturing sector across different countries.
Design/methodology/approach
Corporate governance risk data were acquired from Institutional Shareholder Services Europe SA. Data on firms’ efficiency and for explanatory and control variables were taken from the DataStream database. The generalised directional distance function data envelopment analysis (GDDF-DEA) model and its stochastic extension provided corporate efficiency measures and optimal corporate governance benchmarks. The authors used ordinary least squares multiple regression analysis with wild bootstrapping to test the study hypotheses.
Findings
The authors found significant differences between firms’ optimal and actual efficiency input/output variables and corporate governance risks in the manufacturing sector across countries. Internal firm characteristics such as group affiliations, product market competition and insider ownership and external institutional factors such as the legal system, the rule of law, control of corruption, law enforcement and cultural values are vital determinants of firms’ efficiency.
Practical implications
This paper provides valuable guidance to enable corporate managers, regulators and policymakers to enhance firms’ efficiency and corporate governance practices.
Originality/value
This paper develops optimal corporate governance risk benchmarks and identifies the most critical internal and external factors affecting firms’ efficiency in the manufacturing sector in various countries. It also used a novel GDDF-DEA model, with the multi-parametric model for bias correction of efficiency estimator.