Emerging Markets Corporate Governance Research Network (EMCGN) Newsletter, Februrary 2012
In our first issue of 2012, we feature several articles that present “big picture” view of corporate governance. Franklin Allen from Wharton School discusses the pitfalls of governance models with the sole focus on shareholder value. Stijn Claessens and Burcin Yurtoglu present a great review of the recent research on emerging markets and identify issues requiring further study. Brian Cheffins provides an extensive review of the history of corporate governance, and surveys recent developments in this area. And, as always, you will find latest opinions, research, news and events.
Melsa Ararat, Network Coordinator
Governance Model with Sole Focus on Shareholder Value Might Not Be the Optimal Way Forward
Interview with Dr. Franklin Allen, a professor of finance and economics at the University of Pennsylvania’s Wharton School. He authored numerous scholarly works, including research on the role of corporate governance in building firm value. This is an abbreviated version, please read the full interview.
The most interesting piece on corporate governance I read recently was….
A research paper on corporate governance and the performance of American banks during the financial crisis of 2007-2008. It looks at the evidence to understand the role shareholders played. And, in fact, there is some evidence that shareholders encouraged managers to take risks in a number of ways. more
Right now, I am working on…
How different corporate governance models may have influenced the way different countries emerged from the financial crisis, building on my earlier research.
If you look at countries like Germany and Japan, they experienced significant output shocks during the crisis, yet unemployment did not increase very much. Meanwhile, the United States experienced a far smaller drop in GDP, but there’s been a doubling of unemployment. My theory is that this has to do with the approach to governance, and the focus on building shareholder value. more
I think the most relevant CG research topic for emerging markets now is…
Identifying a sustainable and effective corporate governance model. In emerging markets, unemployment is a huge issue. So, a governance model where focus is on building shareholder value—perhaps through cutting jobs or not hiring new workers, as U.S. companies have done—might not be the optimal way forward. more
The latest development in the field of research on financial crisis is…
An understanding that corporate governance matters and that different corporate governance models can yield different economic outcomes. Countries also may need to understand the notion of firm value in a different way.
Should they focus on shareholder value or on stakeholder value?
Other countries have done better than the U.S. on the unemployment issue. The result is that the classic “Great American Dream” is not as reliable today as it once was. If this is an aberration, then the model may well prove to have enduring value. If not, then a broader shift to a different governance model may be needed. more
Corporate Governance in Emerging Markets: A Survey Stijn Claessens and Burcin Yurtoglu
Yurtoglu and Claessens review the extensive corporate governance literature on emerging markets, and identify areas where more work is needed. They argue that better corporate frameworks benefit firms through greater access to financing, lower cost of capital, better performance, and more favorable treatment of all stakeholders. There is less evidence on the links between corporate governance and social/environmental performance. The literature needs to address causality issues in areas such as: ownership structures and their relationship with performance and governance mechanisms; corporate governance and stakeholders’ roles; and enforcement, both public and private, and related changes in the corporate governance environment.
Foreign IPO Capital Market Choice: Understanding the Institutional Fit of Corporate Governance Curt B. Moore, R. Greg Bell, Igor Filatotchev, and Abdul A. Rasheed
The authors find that the internal governance characteristics such as founder-CEO, executive incentives, and board independence, and external network characteristics such as prestigious underwriters, degree of venture capitalist syndication, and board interlocks are significant predictors of foreign capital market choice by foreign IPO firms. The authors conclude that foreign IPO firms pick a host market where the firms’ governance characteristics and third party affiliations fit the host market’s institutional environment.
Globalization, Country Governance, and Corporate Investment Decisions: An Analysis of Cross-border Acquisitions Jesse Ellis, Sara B. Moeller, Frederik P. Schlingemann, and René M. Stulz
The authors explore the relationship between governance and the shareholder wealth created from investment decisions by looking at the stock-price reactions to cross-border control acquisitions. They find that better governed countries gain more from such acquisitions and their gains are higher when targets are from worse governed countries. Typical country characteristics that the literature focuses on (e.g. the indices for laws protecting investors) don’t explain acquisition gains. Acquisition returns are also affected by factors such as acquirer’s industry and the year of the acquisition. Finally, there is strong evidence that better alignment of interests between insiders and minority shareholders are linked with greater acquirer returns, and there is weaker evidence that this effect mitigates the adverse impact of poor country governance for the bidder.
The Relative Value Relevance of Shareholder versus Stakeholder Corporate Governance Disclosure Policy Reforms in South Africa Collins G. Ntim, Kwaku K. Opong, and Jo Danbolt
Using a South African sample, the authors conclude that disclosing good CG practices on both shareholders and stakeholders increases firm value. The latter statement provides new explicit support for the resource dependence theory. The authors also provide new evidence by showing that disclosing shareholder focused CG practices contributes significantly more to firm value than stakeholder focused CG practices do. As a policy implication, authorities in emerging markets who are currently planning on CG reforms and extending CG disclosure rules should cover both shareholder and stakeholder provisions.
How Long Should Bank CEOs Continue? : Evidence from Nigeria Toni Uhomoibhi Aburime, Gerard L. Gannon, and Charles J. Corrado
The authors analyze the links between CEO tenure and bank efficiency in Nigeria. They argue that new CEOs concentrate solely on cutting costs in order to shore up profits, and to signal to their respective boards that their banks perform better compared to the past. As a policy recommendation the authors state that a 16year limit to the tenure of bank CEOs in Nigeria seems more appropriate than the current 10 year limit announced in 2010.
Opinions and Commentary
The History of Corporate Governance Brian Cheffins
In his forthcoming Oxford Handbook of Corporate Governance article, Cheffins gives an extensive review of the history of corporate governance. He explains how corporate governance became a subject of worldwide debate in the past decades and gives a survey of recent developments in this area. According to Cheffins debates concerning the inter-relationship between directors, executives and shareholders of publicly traded companies are destined to be conducted through the conceptual prism of corporate governance in the foreseeable future.
European Corporate Governance Institute's 2012 General Assembly and Annual Lecture will take place in Stockholm on April 26 -27, 2012. Comparing Regulatory Reforms and Market Practices, another ECGI event, will be held in Tokyo on July 6th, 2012. Please see all the forthcoming ECGI events.
Airlangga Accounting International Conference (AAIC) will be held in Bali International Convention Center (BICC), Nusa Dua, Indonesia on June 27-29, 2012. The main theme of the conference is “Governance, Competitive Advantages, and Accounting Issues in Emerging Countries.” Authors are invited to submit papers in the area of financial accounting, capital market, international accounting, finance, audit, tax, accounting information systems, corporate governance, sustainability reporting, corporate social responsibility, and other related topics.
The 2012 International Centre for Pension Management Call for Research Proposals is now available. Submission Guidelines are on the ICPM website and they can be accessed by visiting www.rotman.utoronto.ca. Select Apply for Research Funding for submission guidelines and select Research Papers to view previously funded research.
We encourage all of our members to notify us regarding their ongoing research or the events or conferences they want to share with the Network. We also welcome other relevant information and your feedback. Please contact:
Mehmet Ihsan Canayaz at firstname.lastname@example.org
or Yasemin Şeyda Erol at email@example.com
Emerging Markets Corporate Governance Research Network is supported by the Global Corporate Governance Forum, the leading knowledge and capacity building platform dedicated to corporate governance reform in emerging markets and developing countries. The Forum is a multi-donor trust fund facility located within the IFC, co-founded in 1999 by the World Bank and the Organisation for Economic Cooperation and Development (OECD). For more information about the EMCGN's activities, contact firstname.lastname@example.org.