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An Empirical Analysis of the Relation Between Board of Director Composition and Financial Statement Fraud
Abstract
This study empirically tests the prediction that the inclusion of larger proportions of outside members on the board of directors significantly reduces the likelihood of financial statement fraud. Results from logit regression analysis of 75 fraud and 75 no-fraud firms indicate that no-fraud firms have boards with significantly higher percentages of outside members than fraud firms; however, the presence of an audit committee does not significantly affect the likelihood of financial statement fraud. Additionally, as outside director ownership in the firm and outside director tenure on the board increase, and as the number of outside directorships in other firms held by outside directors decreases, the likelihood of financial statement fraud decreases.
... Donald Cressey's (1953) Fraud Triangle Theory identifies three key conditions commonly associated with fraud: (1) opportunity, (2) incentive or pressure, and (3) rationalization. Previous studies by Beasley (1996) and Beasley, Carcello, Hermanson, and Lapides (2000) have underscored the significance of weak corporate governance, typified by a paucity of independent directors on the board, as an opportunity for corporate fraud to thrive. ...
... The role of board size as an effective governance measure in reducing fraud occurrences has been a subject of ongoing debate. While studies such as Beasley (1996), Aghghaleh, Iskandar, and Mohamed (2014), and Sadique, Ismail, Roudaki, Alias, and Clark (2019) have presented evidence supporting the notion that an increased number of directors on the board correlates with a decreased likelihood of corporate fraud, others like Jensen (1993), Dechow et al. (1996), and Kamarudin, Wan Ismail, and Kamaruzzaman (2018) have reported that larger boards are more prone to financial statement fraud. Simultaneously, a cadre of studies (e.g., Uzun, Szewczyk, and Varma, 2004;Chen, Firth, Gao and Rui, 2006;Chen and Lin, 2007;Shan et al., 2013;Ainul et al., 2014;Zam et al., 2014;Wu and Li, 2015;Salleh and Othman, 2016) have found no significant impact of board size on corporate fraud. ...
... The presence of independent directors on the board has been lauded as an essential mechanism for curtailing corporate fraud. This has been supported by studies such as Beasley (1996), Dechow et al. (1996), Uzun et al. (2004), Farber (2005, Chen et al. (2006), Persons (2006), Kim, Roden, and Cox (2013), Chen and Lin (2015), and Wu and Li (2015). However, contrasting findings from studies like The frequency of board meetings has been proposed as an indicator of robust management oversight. ...
The increasing incidence of corporate fraud in major global companies has drawn significant scrutiny to the
effectiveness of corporate governance in mitigating such fraudulent activities. Despite substantial improvements in
corporate governance practices and the implementation of new regulatory frameworks aimed at curbing corporate
fraud, instances of fraud continue to rise. If this situation persists, it will become a serious impediment to making
substantial progress toward the 2030 Agenda for Sustainable Development. The objective of this study is to explore
the interplay between corporate governance attributes, whistleblowing policies, and the likelihood of corporate
fraud occurrences within the context of Malaysia. The research sample comprises 19 companies implicated in
fraudulent activities, as documented in the Malaysian Securities Commission Enforcement Action for either criminal
prosecution or civil action. Additionally, 19 non-fraudulent companies listed on Bursa Malaysia were included for
comparative analysis. Data collection spans the period from 1999 to 2019, allowing for a comprehensive assessment.
The data was analyzed using panel logistic regression techniques. The study's findings reveal several critical insights into the relationships between corporate governance, whistleblowing policies, and corporate fraud in
Malaysia. The size of a company's board of directors plays a significant role in influencing the likelihood of
corporate fraud occurrences. Compensation structures for directors also exhibit a statistically significant relationship
with corporate fraud incidents. The level of financial expertise within a company's audit committee is linked to the
occurrence of corporate fraud. Specifically, the financial expertise of the audit committee chairman demonstrates a
noteworthy connection to corporate fraud likelihood. The presence and effectiveness of a whistleblowing policy are
important determinants in mitigating corporate fraud incidents. These findings hold vital implications for various
stakeholders, including publicly traded companies, auditors, and policymakers. They underscore the importance of
formulating and advancing robust corporate governance structures, regulatory frameworks, and institutional environments to address the persistent challenge of corporate fraud effectively. As corporate fraud remains a pressing
concern, this study provides valuable insights that can inform strategic decisions and policy enhancements in the
realm of corporate governance, ultimately contributing to more effective fraud prevention and mitigation efforts in
Malaysia.
Keywords: Corporate fraud, Corporate governance, Whistleblowing policy, Panel logistic regression
... Previous studies argue that an efficient board of directors can reduce the agency costs significantly. Beasley (1996) also shows the likelihood of financial statement fraud is reduced because of the existence of outside directors and audit committee. The financial distress cases in Taiwan can be attributed to poor corporate governance mechanism. ...
... Board size and performance have positively significant associated found by (AlQudah, Azzam, Aleqab & Shakhatreh, 2019) in Jordanian companies but negatively insignificant association was found by (El-habashy, 2019) in Egyptian listed firms. Board size plays vital role in effectiveness of the board (Beasley et al., 1996). EM is affected by BS (Park & Shin, 2004). ...
... Due to independency foreign directors are more efficient and reduce financial fraud (Fama, 1980;Fama & Jensen, 1983). The possibility of EM is lower in the presence of outside directors (Beasley, 1996). Therefore, we propose the following hypothesis: Hypothesis 5: The more outside directors, the lower the extent of earnings management. ...
The principal objective of this research study is to scrutinize and explore the influence of board of directors' characteristics such as gender diversity, education diversity, nationality, board size, and board experience have an influence on EM. The population of this study includes the financial and non-financial sectors of Pakistan Stock Exchange (PSE) which includes 559 firms. The target population of this study is comprised 14 sectors of non-financial firms of Pakistan Stock Exchange which includes 369 firms. This study examined the non-financial sectors of Pakistan Stock Exchange listed companies. This study conducted on three industries, namely, Cement industry, automobiles industry and pharmaceutical industry in Pakistan. Study sample includes 17, 18 and 43 Pakistani listed non-financial companies from Cement, automobiles and Pharmaceutical sectors respectively, during the period of 2010-2020. In this study secondary data was used. Board gender diversity and foreign directors' results are negatively significant and they play vigilant role in controlling earnings management and managers' opportunistic priorities. This result follow stewardship theory and reduce agency cost. The relationship between board education and earning management is positively significant. Board size is negatively insignificant and board experience positively insignificant. Moderating variable firm size concludes that firm size diversity has no significant effect on earning management. Firm size and gender diversity put combined significant effect on earnings management. Firm size and education diversity and firm size and foreign diversity respectively put combined positive and significant effect on earnings management. Firm size and board size and board experience respectively does not put combined significant effect on earnings management.
... Board Independence refers to the degree of independence enjoyed by the board of directors. It is taken to be the percentage of outside/non-executive directors on the board (Beasley, 1996). An independent director is expected to be free of any influence from the company, and hence, should be able to bring his expertise and knowledge to the decision making process without any affiliation or influence from the firm (Beasley, 1996). ...
... It is taken to be the percentage of outside/non-executive directors on the board (Beasley, 1996). An independent director is expected to be free of any influence from the company, and hence, should be able to bring his expertise and knowledge to the decision making process without any affiliation or influence from the firm (Beasley, 1996). Data on Board Independence has been extracted from the annual report of a company. ...
... Audit Committee Independence is proxied by number of outside directors serving as part of the audit committee (Beasley, 1996). Information related to the composition of the Audit Committee is also accessed from the corporate annual reports. ...
The financial scandals around the world have greatly challenged the way financial reporting plays its role in corporate governance mechanisms. The present study empirically tests if corporate governance attributes lead to the possibility of restatements in financial statements. Logistic regression has been applied on data from 90 PSX listed companies. In addition to governance variables, firm specific variables like size, age, financial structure have been tested for their role in the financial restatements taking place in a company. The results reveal that an independent board of directors significantly reduces the incidence of financial restatements. Thus independent directors can efficiently oversee the function of financial reporting. Similarly, an independent audit committee significantly influences financial restatements. Thus accounting restatements could be reduced with strong governance inside the corporations. These results carry implications for the corporate regulatory bodies and the overall corporate governance framework in Pakistan.
... Research by Dechow and Skinner (2000) found evidence of income-increasing discretionary accruals in firms facing earnings benchmarks, suggesting a strategic motive for earnings manipulation. Moreover, Beasley (1996) identified financial distress, executive compensation incentives, and corporate governance structures as significant predictors of earning management behavior. A myriad of empirical investigations have delved into the intricacies of earning management practices, spanning diverse industries and organizational settings. ...
... A myriad of empirical investigations have delved into the intricacies of earning management practices, spanning diverse industries and organizational settings. Building upon seminal research by Dechow and Skinner (2000) and Beasley (1996), recent studies have elucidated nuanced patterns, determinants, and consequences of managerial discretion in financial reporting. ...
... The motivations driving earning management behavior are multifaceted and often intertwined with financial incentives, regulatory pressures, and market dynamics Bédard et al., 2012). Managers may engage in earning management to meet analyst forecasts, trigger performance-based bonuses, or maintain market expectations (Beasley, 1996;Richardson et al., 1999). Regulatory frameworks, such as the Sarbanes-Oxley Act, introduce compliance pressures and legal sanctions, influencing firms' earning management strategies and disclosure practices (Cohen et al., 2008). ...
This research explores earning management practices through a qualitative analysis of accounting literature. It aims to elucidate the motives, mechanisms, and consequences of earning management, considering diverse industry contexts and regulatory environments. The study utilizes a comprehensive review of empirical studies, industry-specific research, and regulatory interventions to uncover nuanced patterns and emerging trends in earning management behavior. Findings indicate that earning management practices vary across industries, with regulated sectors exhibiting higher manipulation levels. Competitive dynamics also influence earning management decisions, with firms in fiercely competitive environments more likely to engage in aggressive tactics. Regulatory interventions, notably the Sarbanes-Oxley Act of 2002, have played a crucial role in deterring opportunistic practices. Despite regulatory efforts, challenges persist, including adaptive responses and unintended consequences such as regulatory arbitrage and greenwashing. The study underscores the importance of contextual factors in shaping earning management practices and highlights the need for tailored regulatory interventions and governance mechanisms. The research contributes to theoretical advancement in accounting, finance, and corporate governance and provides managerial insights into navigating ethical dilemmas and upholding transparency and integrity in financial reporting.
... Previous studies argue that an efficient board of directors can reduce the agency costs significantly. Beasley (1996) also shows the likelihood of financial statement fraud is reduced because of the existence of outside directors and audit committee. The financial distress cases in Taiwan can be attributed to poor corporate governance mechanism. ...
... Board size and performance have positively significant associated found by (AlQudah, Azzam, Aleqab & Shakhatreh, 2019) in Jordanian companies but negatively insignificant association was found by (El-habashy, 2019) in Egyptian listed firms. Board size plays vital role in effectiveness of the board (Beasley et al., 1996). EM is affected by BS (Park & Shin, 2004). ...
... Due to independency foreign directors are more efficient and reduce financial fraud (Fama, 1980;Fama & Jensen, 1983). The possibility of EM is lower in the presence of outside directors (Beasley, 1996). Therefore, we propose the following hypothesis: Hypothesis 5: The more outside directors, the lower the extent of earnings management. ...
The principal objective of this research study is to scrutinize and explore the influence of board of directors' characteristics such as gender diversity, education diversity, nationality, board size, and board experience have an influence on EM. The population of this study includes the financial and non-financial sectors of Pakistan Stock Exchange (PSE) which includes 559 firms. The target population of this study is comprised 14 sectors of non-financial firms of Pakistan Stock Exchange which includes 369 firms. This study examined the non-financial sectors of Pakistan Stock Exchange listed companies. This study conducted on three industries, namely, Cement industry, automobiles industry and pharmaceutical industry in Pakistan. Study sample includes 17, 18 and 43 Pakistani listed non-financial companies from Cement, automobiles and Pharmaceutical sectors respectively, during the period of 2010-2020. In this study secondary data was used. Board gender diversity and foreign directors' results are negatively significant and they play vigilant role in controlling earnings management and managers' opportunistic priorities. This result follow stewardship theory and reduce agency cost. The relationship between board education and earning management is positively significant. Board size is negatively insignificant and board experience positively insignificant. Moderating variable firm size concludes that firm size diversity has no significant effect on earning management. Firm size and gender diversity put combined significant effect on earnings management. Firm size and education diversity and firm size and foreign diversity respectively put combined positive and significant effect on earnings management. Firm size and board size and board experience respectively does not put combined significant effect on earnings management.
... Previous studies argue that an efficient board of directors can reduce the agency costs significantly. Beasley (1996) also shows the likelihood of financial statement fraud is reduced because of the existence of outside directors and audit committee. The financial distress cases in Taiwan can be attributed to poor corporate governance mechanism. ...
... Board size and performance have positively significant associated found by (AlQudah, Azzam, Aleqab & Shakhatreh, 2019) in Jordanian companies but negatively insignificant association was found by (El-habashy, 2019) in Egyptian listed firms. Board size plays vital role in effectiveness of the board (Beasley et al., 1996). EM is affected by BS (Park & Shin, 2004). ...
... Due to independency foreign directors are more efficient and reduce financial fraud (Fama, 1980;Fama & Jensen, 1983). The possibility of EM is lower in the presence of outside directors (Beasley, 1996). Therefore, we propose the following hypothesis: Hypothesis 5: The more outside directors, the lower the extent of earnings management. ...
... L'efficacité du conseil d'administration dépend essentiellement de sa composition . En effet, Baysinger et Butler (1985) (Beasley, 1996 ;Peasnell et al., 1998 ;Bedard et al., 2001 ;Klein, 2002a). Par ailleurs, le cumul des fonctions remet en cause l'indépendance du conseil d'administration du fait qu'il accorde un rôle important au dirigeant (Mizruchi, 1983et Daily et Dalton, 1993. ...
... Selon la loi SOX (2002), le comité d'audit constitue un élément de la gouvernance d'entreprise. Il s'occupe par conséquent d'établir et de surveiller les processus comptables afin de fournir des informations pertinentes et crédibles aux parties prenantes de l'entreprise (Pincus et al., 1989 ;Beasley, 1996). D'ailleurs, Anderson et al. (2004) suggèrent que le rôle principal du comité d'audit est d'assurer la fiabilité et la qualité des pratiques comptables du contrôle interne. ...
... Le comité d'audit est un mécanisme important de la gouvernance d'entreprise qui est chargé de surveiller les processus comptables afin de fournir des informations pertinentes et crédibles aux différents partenaires de l'entreprise (Pincus et al., 1989 ;Beasley, 1996). En plus, la qualité du comité d'audit est considérée comme une garantie de la solidité et de la qualité des pratiques comptables et du contrôle interne (Anderson et al., 2004). ...
The purpose of this thesis is to examine how the effectiveness of corporate governance mechanisms affects the firm's cost of debt for family and non-family firms. Although, US’ companies have a debt oriented financial system, financial institutions have little direct implications in corporate governance structures (such as board of directors and audit committee for example). Thus, those external capital provides might pay attention to the overall quality of monitoring devices set up within companies as well as the quality of financial reporting. Hence, we may expect an inverse relationship between the quality of corporate governance mechanisms and cost of debt. Using S&P 500 index data, over the period 2010 to 2017. The empirical findings reveal that board of directors’ quality and audit committee’s quality have a significant reducing effect on the cost of debt for full sample and non-family firms. Whereas for family firms, board of directors’ quality has is significant reducing effect on cost of debt and audit committee’s quality does not. We further, examine the impact of corporate opacity on cost of debt. we provide that the moderating effect of corporate opacity becomes more pronounced an investor's perception of controlling families’ moral hazard of expropriation is higher. We conclude then that corporate capacity as an important reference in assessing the extent of potential agency for conflict in US.
... According to the theory of the agency, to ensure the effectiveness of an audit committee, managers are encouraged to prepare financial statements in an adequate manner allowing them to specify the return generated by the companies. Beasley (1996) and Felo et al. (2003) based on agency theory predict the existence of a positive and significant relationship between the presence of an audit committee and the quality of financial statements. ...
... Hamdan et al (2013) examined the effect of the characteristics of the audit committee in Amman and found a relationship between the size of the audit committee and the ROE-measured financial performance of 106 financial sector companies listed on the Amman Stock Exchange over the period 2008 to 2009. Beasley (1996) and Felo et al. (2003), relying on the agency's theory, predict a positive and significant relationship between the presence of an audit committee and the quality of the financial statements. Gao & Huang (2018) found that an audit committee with an odd number of members is associated with a lower probability of accounting restatements than an audit committee with an even number. ...
The Audit Committee plays a crucial role in safeguarding the interests of shareholders and stakeholders in commercial banks. This study aims to examine the impact of audit committee characteristics on the financial performance of Commercial Banks in Burundi. The audit committee characteristics considered in this study are the size of the committee and the number of meetings held per year. The financial performance is measured by Return on Equity (ROE) and Return on Assets (ROA) models. An empirical analysis was carried out using a panel data regression model built on a sample of 4 Burundian Commercial Banks observed over a period of eight years between 2013 and 2020. The results of the study showed that there is a positive but not significant relationship between the size of the audit committee and the financial performance measured by ROE and ROA, whereas, the results of the frequency of audit committee meetings showed that there is a more significant positive relationship between the number of audit committee meetings and financial performance for ROE and ROA. Moreover, the results confirmed only the second hypothesis of the study, which suggested that "there is a positive and significant effect of the number of meetings of the Audit Committee on performance". With these results, this study concluded that the frequency of meetings held by the Audit Committee in its control and monitoring role has a direct impact on the performance of Burundian commercial banks.
... The audit committee has a function of reviewing significant issues relevant to the financial reporting preparation, and a function in terms of monitoring internal control and risk management systems. M. Beasley [18] evaluated how board composition influences the probability of fraud, investigated the effect of involving external operators in the audit, and the relevance of the audit committee's presence in a company. This study included 75 companies where fraud was confirmed and 75 non-fraud companies and used a logit model for the analysis. ...
... Various papers consider independence a significant variable which influences the probability of fraud. For example, M. Beasley [18] concludes that the probability of fraud decreases when the board comprises many outsiders. R. Labelle et al. [14] conducted a comparative analysis of data from the U.S., the U.K., and continental European countries. ...
This study examines the impact of corporate governance mechanisms on the probability of corporate fraud occurrence. We evaluate the board size, the degree of independence, and the frequency of meetings of the board and its committees. We also attempt to analyse the board’s gender diversity, but since boards are not gender-diverse in Russia, the significance of this variable cannot be tested. Our empirical study is based on 160 observations of MOEX-listed Russian companies, among which fraudulent behaviour has been revealed in 32 companies over a 5-year period from 2014 to 2018. The relationship between the probability of fraud occurrence and corporate governance was investigated employing a logit model. The data was collected from firms’ annual reports and Thomson Reuters Eikon. Data on fraud cases is based on the evidence from the press (including the leading news sources and specialised websites). We detected a significant negative relationship between nomination and remuneration committee chairmen’s independence, the share of independent directors, the independence of board and audit committee chairmen and the likelihood of fraud. We also discovered the insignificant influence of board and its committees’ size and their meetings’ frequency on fraud probability. This paper contributes to the academic research on the relationship between corporate governance mechanisms and probability of fraud occurrence, emphasizing the special role of the establishment of nomination and remuneration committee chairman independence in Russian companies.
... According to SOX (2002), the audit committee is an element of corporate governance. It is therefore responsible for establishing and monitoring accounting processes in order to provide relevant and credible information to the company's stakeholders (Beasley, 1996;Pincus et al., 1989). Also, Anderson et al. (2004) suggest that the primary role of the audit committee is to ensure the reliability and quality of internal control accounting practices. ...
... The audit committee is an important corporate governance mechanism that is responsible for setting up and monitoring accounting processes to provide relevant and credible information to the company's various stakeholders (Pincus et al., 1989;Beasley, 1996). In addition, the quality of the audit committee is a guarantee of the soundness and quality of accounting and internal control practices (Anderson et al., 2004). ...
This study delves into the impact of audit committee effectiveness on firm's cost of debt for family and non-family firms, drawing on the lens of agency theory and institutional theory. Through rigorous econometric analysis, this study uncovers that audit committee effectiveness does not directly influence cost of debt for full sample. However, control family significantly decreases cost of debt, aligning with agency theory's emphasis on monitoring mechanisms in mitigating agency conflicts. In addition, we find that audit committee characteristics such as size, independence and meeting frequency do not have a substantial impact in firm's cost of debt, challenging traditional agency theory assumptions. A comparative analysis between family and non-family firms highlights distinct relationships between audit committee independence and cost of debt, underscoring the nuanced interplay governance structure, family control, and cost of debt through the agency perspective.
... The data for this study was collected from the annual reports and accounts of the sampled companies, which are also known as financial statements through ratios and content analysis. Several scholars have used financial statements in their works (Alfraih, 2016;Beasley, 1996;Kaaya, 2015). Financial statements are official communication channels companies use to communicate with their stakeholders. ...
This study investigates the impact of shareholder activism on firm value. The analysis covers a period from 2014 to 2023, encapsulating a decade of evolving shareholder activism trends and their implications on firm value. A mixed-methods approach was employed; the quantitative segment utilized event study methodology to measure abnormal returns surrounding activism events, while regression analysis identified firm value trends. The study finds that shareholder activism generally leads to a positive impact on firm value. However, the effect was heterogeneous across institutional investors' activism. Shareholder activism catalyzes positive changes in firm value, especially when activists engage constructively with management. Companies should develop robust engagement strategies with activists, focusing on transparency and proactive governance improvements. Activists are encouraged to pursue collaborative approaches to ensure sustainable value creation. This study underscores the role of shareholder activism as a critical mechanism for enhancing firm value. It provides valuable insights for policymakers, corporate managers, and investors on the benefits and challenges associated with activist interventions. The research is limited by its reliance on publicly available data, which may not capture all dimensions of activism. Additionally, the heterogeneity of institutional activism and firm-specific factors may limit the generalizability of the findings. This study contributes to the literature by providing a comprehensive, longitudinal analysis of shareholder activism's impact on firm value. It highlights the evolving nature of activism and its nuanced effects on firm value.
... The size of the board may affect its functions, the level of EM, and therefore the financial firm performance. Several researchers found a non-linear relationship between board size and earnings manipulations [73,74]. Some other studies suggest that smaller boards can be more effective than larger boards; thus, they found a linear relationship between board size and EM level [75,76]. ...
This paper aims to examine the impact of corporate sustainable management (CSM) on earnings management (EM) activities using annual data from 2018 to 2022 for 37 non-financial Saudi indexed firms. A multi-measure approach was utilized to proxy for EM (AEM and REM) and CSM (CSR sustainability reporting, CSR sustainability committee, CSR sustainability external audit, GRI report guidelines, ESG performance index). The empirical analysis employed pooled ordinary least squares (POLS) regression. The results suggest that CSM plays a significant role in reducing both AEM and REM practices, indicating that sustainability-oriented organizations mitigate EM activities. Furthermore, the study reveals a negative correlation between CSM and sales manipulation, overproduction, and cutting discretionary expenditures. This research supports the notion that companies prioritize sustainable management due to a focus on long-term strategies and transparency. This is the first work in the Middle East and Arab region, particularly in Saudi Arabia, investigating this association.
... In 1999, professor Beneish developed Beneish model score, the essence of the model is to detect manipulation of accounting earnings or manipulation of financial statements. Several studies have used Beneish M-score to measure financial statement fraud (Beasley, 1996;Wan et al., 2014;Uwuigbe et al., 2019). See Appendix for further clarification on Beneish model score. ...
Whistleblowing activities have increased globally due to corporate fraud in recent times. The study examined the impact of whistleblowing framework on financial statement fraud of listed firms in Nigeria. We adopted the following to measure whistleblowing framework: size of audit committee, independence of audit committee, risk committee independence, size of external audit, international ownership and firm size. In the same vein, financial statement fraud was measured through Beneish M-score model, taking into consideration the eight parameters of the model. We analysed the data using weighted exogenous sample maximum likelihood (WESML), content analysis and fixed effect regression model. The findings reveal that most Nigerian listed firms have increased the pace toward transparent disclosure of whistleblowing practices which has significant effect on financial statement fraud. These empirical findings place a new direction for inclusive corporate disclosure of whistleblowing in Nigeria, and also for best practices in emerging economies.
... However, the empirical literature related to board size and firm performance relationship shows mixed results. For example, several studies document a negative relationship between board size and firm performance and report that small board size is better for controlling financial statement fraud (e.g., Beasley, 1996;Guest, 2009;Yermack, 1996). These studies report that smaller boards are focused, efficient and quick in decision making which results in better firm performance. ...
We examine the impact of corporate governance on firm value by using a unique research approach ‘sector‐wise analyses’ by employing a data set of listed firms in Taiwan. We investigate whether the unique dynamics of each industrial sector could differently affect internal corporate governance (CG) practice. In addition, we investigate the moderating effect of block ownership on the relationships between CG and firm value. Our results show that CG and firm value relationships significantly differ across industrial sectors and conclude that the CG model is not one‐size‐fits‐all for industrial sectors—while observed a significant impact of block ownership as a moderating variable.
... Tuy nhiên, ở thị trường Việt Nam, quy mô HĐQT thường gắn với quy mô công ty, các công ty có quy mô lớn có số lượng thành viên hội đồng quản trị nhiều hơn, cho nên, đặc điểm quy mô công ty và số lượng thành viên HĐQT có phản ánh đến chất lượng lợi nhuận công ty đó (Hung và cộng sự 2023). Nghiên cứu đề xuất giả thuyết sau: H1: Quy mô hội đồng quản trị có ảnh hưởng thuận chiều với chất lượng lợi nhuận của công ty Các quyết định độc lập với đa dạng về nền tảng và kinh nghiệm được cung cấp bởi các thành viên HĐQT độc lập là rất quan trọng để quyết định hiệu quả của hội đồng, đặc biệt là để kiểm soát quyền tự quyết của các nhà quản lý, có thể giảm thiểu việc xuất hiện các báo cáo tài chính sai lệch (Beasley, 1996) và quản lý lợi nhuận (Peasnell và cộng sự 2006), từ đó nâng cao chất lượng của báo cáo tài chính. Ngoài ra, hội đồng quản trị độc lập cũng cải thiện chất lượng của báo cáo tài chính theo cách thúc đẩy sự thận trọng về lợi nhuận (Ahmed & Duellman, 2007) và tính dự đoán về lợi nhuận. ...
Research on factors affecting earnings quality provides solutions to improve earnings information and attract business investment. This paper uses a sample of 1,260 observations from companies listed on the Vietnamese stock market during the period 2018-2023 to examine the impact of corporate governance on earnings quality. The results show that corporate governance impacts profit quality, in which board size and non-concurrent on the board of directors positively influence earnings quality. Meanwhile, the proportion of independent members, the number of meetings per year, and the proportion of women on the board of directors negatively impact earnings quality. These research results provide evidence based on agency theory to confirm that corporate
governance factors strongly influence the earnings quality of listed companies.
... Others identified fraud incentive-related red flags evident in a firm's financial statements [13]. Fraud opportunity-related studies presented evidence that weak corporate governance, including weak internal controls, un-ethical tone at the top, and inadequate internal policies and procedures, provide ideal circumstances for management to commit fraud [14][15][16][17]. Another primary research focus has been market reactions following fraud detection [18,19]. ...
This study examines the impact of executives implicated in fraud on firms’ investment decisions using publicly disclosed Accounting and Auditing Enforcement Releases (AAERs) of the U.S. Securities and Exchange Commission (SEC), aiming to address the underexplored aspect of rationalization within the fraud triangle. AAERs summarize enforcement actions subject to civil lawsuits brought by the SEC in federal court. Executives implicated in fraud often display abnormal attitudes to justify accounting irregularities, prompting an investigation into how abnormal investment decisions are used for rationalizing fraud, given their critical role in a firm’s long-term sustainability. We utilize bootstrap analysis to address the non-normality of fraud firms in our sample, and to acquire multiple bootstrap samples that represent the fraud population, thereby bolstering the reliability of our statistical analysis. Analysis of AAERs spanning from 1981 to 2013 reveals that implicated executives, particularly CEOs and CFOs, tend to make abnormal investment decisions, and that collusive fraud exacerbates this behavior. Notably, such executives lean towards overinvestment, particularly in R&D expenditure, to hide or justify fraud; the duration of fraud amplifies its impact on investment decisions. By shedding light on the rationalization aspect of the fraud triangle, this research contributes valuable insights for investors, regulators, and academia, emphasizing the significance of public disclosure of fraud by regulators to enhance transparency in capital markets and to alert capital market participants. Furthermore, this study underscores the importance of ethics-focused education in accounting to prevent corporate fraud.
... Independence from CEO influence, as emphasized by Weisbach (1988) enables these directors to effectively curb managerial consumption of perks. Independent nonexecutive directors are a cornerstone of effective CG and act as a potent deterrent against financial statement fraud (Beasley, 1996). While Baliga, Moyer, and Rao (1996) suggest that the impact of duality status on long-term operating performance remains inconclusive, studies like (Azeez, 2015) reveal a notable positive impact of CEO and chairman duality on financial performance, while research by Mura (2007) underscores the significant positive relationship between the proportion of non-executive directors and financial performance. ...
This study delves into the intricate relationship between corporate governance factors, including board size and the proportion of non-executive directors, and firm performance, with a specialized focus on environmental, social, and governance (ESG) considerations. Employing a secondary data analysis methodology, the research draws insights from a comprehensive dataset comprising 100 companies listed on the Pakistan Stock Exchange over a period spanning from 2018 to 2022. The study investigates these relationships using rigorous regression analysis to uncover significant findings. The analysis reveals a robust positive correlation between larger board sizes and firm performance, indicating that companies with expanded boards tend to exhibit improved financial performance within the Pakistani market landscape. Conversely, a higher proportion of non-executive directors is associated with decreased performance, highlighting potential challenges stemming from board composition. Furthermore, the research unveils the pivotal role of ESG practices in augmenting the positive relationship between board size and firm performance. However, it notes that this enhancement weakens as the proportion of non-executive director’s increases, suggesting a nuanced interplay between corporate governance structures and ESG considerations. Practically, the study underscores the critical importance of fostering diverse and well-structured boards while integrating ESG principles into corporate governance frameworks. By carefully considering board composition and embracing ESG practices, organizations can not only enhance their financial performance but also promote sustainability and long-term value creation, aligning with evolving stakeholder expectations and regulatory requirements in the Pakistani business landscape.
... The high percentage of outside and non-executive directors in BOD decreases the likelihood of fraudulent activities (Sharma, 2004). The board's ability to monitor managers and apply pressure to compel them with shareholders' wishes is improved by the board's independence and seniority (Beasley, 1996). Independent directors have the authority to impose constraints on management's decisions to protect the company's interests and reduce potentially harmful decisions (Vafeas, 2000). ...
How to cite this paper: Xanthopoulou, A., Skordoulis, M., Kalantonis, P., & Arsenos, P. (2024). Integrating corporate governance and forensic accounting: A sustainable corporate strategy against fraud [Special issue]. In the realm of financial oversight and corporate management, forensic accounting (FA) holds a critical position, serving as a central control mechanism and being widely recognized as an essential component of corporate governance. FA plays a crucial role as a central control mechanism and is acknowledged as a pivotal element of corporate governance. Consequently, it needs to continuously adapt in response to shifts in corporate governance practices, while the role of internal auditors transforms to actively support corporate sustainability. The aim of this research is to assess the effectiveness of FA and explore its relationship with corporate governance, based on the relevant literature. Thus, the main objectives of the present study are to identify the internal control attributes that influence the quality of its performance and to evaluate how corporate governance contributes to enhancing the quality of FA. To achieve the aim and the objectives of the paper, a literature analysis was carried out. The main contribution of the present paper is to refresh the existing body of knowledge on contemporary FA and its interplay with corporate governance. Authors' individual contribution: Conceptualization-A.X., M.S., P.K., and P.A.; Methodology-A.X. and P.K.; Resources-A.X. and P.A.; Writing-Original Draft-A.X. and M.S.; Writing-Review & Editing-A.X., M.S., P.K., and P.A.; Visualization-A.X. and M.S.; Supervision-P.K.; Project Administration-P.K. and P.A. Declaration of conflicting interests: The Authors declare that there is no conflict of interest.
... 41% of the companies to identify the impact of corporate governance on sector-wise earnings management. Beasley (1996) & Jayola et al (2017 argued that earnings management in various sectors are differently practised. They concluded that the manipulation on the earnings quality is practised as per the nature of the industry, hence, the study of earnings management and impacts on it have to be studied sector-wise. ...
Despite of positive impacts of the earnings management on the business purposes, many businesses have been suffered due to the audit failures as a result of aggressive earnings management. Therefore, the study on true reflection of earnings management, the controlling factors and how aggressively manipulated earnings quality can be mitigated are the areas of concern these days. For the estimation of earnings management, performance matched discretionary accruals model has been implemented as this model has been identified as the best explanatory models. Thereafter, this research has accumulated the sector-wise earnings management to identify the impact of sectors on the sectorial earnings management. There are eleven different industries involved in the research while four of them have revealed that the managers from certain sectors have got involved in the aggressive earnings management. Further, this research has investigated the impact of the attributes of the corporate governance on the sector-wise earnings management. the variables of corporate governance like managerial ownership, block-holders, institutional ownership and non-executive directors' fees have significant impact on sector-wise earnings management where other variables like board meeting, board size, number of female members on the board, board independence have not been identified as they have significant impact on controlling earnings management. Univariate and multivariate methods are used to demonstrate the results and to establish the inferences of the outcomes of the research. The use of coefficients (-value) and p-value are much prominent in this study.
... 41% of the companies to identify the impact of corporate governance on sector-wise earnings management. Beasley (1996) & Jayola et al (2017 argued that earnings management in various sectors are differently practised. They concluded that the manipulation on the earnings quality is practised as per the nature of the industry, hence, the study of earnings management and impacts on it have to be studied sector-wise. ...
Despite of positive impacts of the earnings management on the business purposes, many businesses have been suffered due to the audit failures as a result of aggressive earnings management. Therefore, the study on true reflection of earnings management, the controlling factors and how aggressively manipulated earnings quality can be mitigated are the areas of concern these days. For the estimation of earnings management, performance matched discretionary accruals model has been implemented as this model has been identified as the best explanatory models. Thereafter, this research has accumulated the sector-wise earnings management to identify the impact of sectors on the sectorial earnings management. There are eleven different industries involved in the research while four of them have revealed that the managers from certain sectors have got involved in the aggressive earnings management. Further, this research has investigated the impact of the attributes of the corporate governance on the sector-wise earnings management. the variables of corporate governance like managerial ownership, block-holders, institutional ownership and non-executive directors' fees have significant impact on sector-wise earnings management where other variables like board meeting, board size, number of female members on the board, board independence have not been identified as they have significant impact on controlling earnings management. Univariate and multivariate methods are used to demonstrate the results and to establish the inferences of the outcomes of the research. The use of coefficients (-value) and p-value are much prominent in this study.
... According to Nahar et al. (2023) independent directors play an important role in supervising management activities to enhance firm performance. Beasley (1996) explained that independent directors hold better judgment and fair representation of shareholders' interest, suitability as a reliable governing mechanism and their potential ability to concentrate on ensuring the maximization of shareholder value. In the study conducted by Nahar et al. (2022) board independence and board gender diversity support the initiatives taken by the Securities Commission. ...
Forecasting financial stability and the potential occurrence of financial distress has been a subject of considerable interest for many years due to its significant implications for listed companies, stakeholders, and the overall economy of a country. Financial difficulties may expose the companies to the risk of bankruptcy or liquidation. This study aims to explore whether corporate governance, specifically on the characteristics of the board of directors, has an impact on the financial well-being of the company. This study also employs a corporate governance perspective to examine the composition of the board and its influence on the financial well-being of the companies. By demonstrating the relevance of corporate governance concerning financial distress, this study provides valuable insights for shareholders and financial institutions.
... Similarly, a study by Ezejiofor and Adegbite (2021) found that effective board governance is positively associated with financial performance in Nigerian firms. Furthermore, according to Beasley (1996), there is a positive correlation between corporate governance and financial performance. Beasley argues that effective corporate governance mechanisms can help reduce agency costs, mitigate risks, and improve the quality of financial reporting, ultimately leading to higher financial performance. ...
... Akhtaruddin et al. (2009) stated that if the number of outside directors on the board is greater, there will be more chances of transparency in the organization. Beasley (1996) find that the proportion of outside directors is positively associated with the board's ability to decide to disclose sustainability practices. In line with this, Disli et al. (2022) suggest that outside directors who convene frequently achieve better sustainability performance. ...
This study examines the association between internal corporate governance (board size, outside directors, Shariah board size, and training of Shariah board members) and the sustainability practices of Islamic financial institutions (IFIs). The sample includes 59 IFIs listed in Africa, Europe, Asia, the Middle East, and North America over the period 2017–2021. We examine the relationship between internal corporate governance (board size, outside directors, Shariah board size, and training of Shariah board members) and sustainability practices using the ordinary least squares (OLS) method. Overall, our findings suggest that larger boards of directors and Shariah boards achieve greater sustainability. We also find a positive relationship between the training of Shariah board members and sustainability practices. Additionally, outside directors have an insignificant impact on sustainability practices. This study provides useful insights for managers and policymakers to better understand which internal governance mechanisms, especially board size, Shariah board size, and the training of Shariah board members, can best encourage a company to improve sustainable development practices.
... Many past studies evidenced a mixed findings about the relationship between independence of board and business success. Some suggest that there is negative significant association between these variables (Coles et al., 2008;Beasley, 1996;Hermalin and Weisbach, 2003;Robert Faff, 2013), while others found positive (Klein, 2002). For enhancing firm governance and company success, independent directors are essential. ...
The study examined the effect of the presence of female directors in the board and other board characteristics like board size, independence of directors, CEO duality, and meetings attended by directors. The Panel data analysis is used by taking a sample of 21 Pakistani banks and 52 Chinese banks. The results of this study reveal that some board features like board size and independence of directors have a significant effect on banks’ performance both in Pakistan and China. But other board variables like CEO duality and female director presence have insignificant impact on the performance of Pakistani and Chinese banks. These results are consistent with earlier studies.
... It is the position of the law in Nigeria (see CAMA 1990 as amended). Several authors have used company financial statements (Aktan, 2009;Alattar & Al-Khater, 2008;Alfraih, 2016;Alrshah, 2015;Ball & Foster, 1982;Beasley, 1996;Hai et al., 2015;Kalantonis et al., 2014;Maaloul & Zeghal, 2015). Furthermore, the methods of data analysis include frequency distribution, descriptive analysis, correlation analysis, panel multiple regression analysis, and post-estimation tests. ...
A low ESG (Environmental, Social, and Governance) performance may indicate that a company or investment is not prioritizing sustainable and responsible practices. This can lead to potential risks and negative impacts on various stakeholders, including the environment, society, and shareholders. To improve ESG performance, companies should focus on reducing their carbon footprint, promoting social equality and well-being, and maintaining strong governance practices. Investors can also consider supporting companies with higher ESG ratings to encourage better sustainability and responsibility in the long run. Given this, the paper examines the role of ownership structure in enhancing ESG performance among the NGX 154 companies. A panel-based multiple regression analysis model is constructed linking ownership dynamics with ESG performance, after accounting for firm size, profitability, listing age, and leverage. The ownership structure is represented by institutional ownership, foreign ownership, family ownership, CEO ownership, and board (managerial) ownership, while ESG is represented by GRI G4 (2012). The results indicate that institutional, foreign, CEO, and board (managerial) ownership are statistically significant with ESG performance, while family ownership, firm size, profitability, listing age, and leverage are not significant concerning ESG performance.
... Por meio do exame de componentes de governança corporativa, estudos recentes verificaram que, boas práticas de governança são eficazes na proteção das empresas e investidores contra casos de irregularidades (Martins & Siqueira, 2019;Yang, Jiao & Buckland, 2017;Bortolon & da Silva Junior, 2015;Jia, Ding, Li & Wu, 2009;Crutchley, Jensen & Marshall, 2007;Chen, Firth, Gao & Rui et al., 2006;Uzun, Szewczyk & Varma., 2004;La Porta, Lopez-de-Silanes, Shleifer & Vishny, 2000;Beasley, 1996). Segundo Smaili e Labelle (2016), irregularidade vem a ser um continuum entre erros, descumprimento de regulamentos e fraude. ...
Objetivo: O objetivo da pesquisa é verificar se os mecanismos de governança corporativa estão associados ao controle de irregularidades das companhias abertas listadas na B3, no período de 1999 a 2017. Método/abordagem: O Estudo é empírico e contempla variáveis de componentes internos e externos da estrutura de governança corporativa no Brasil, visando aferir se essas características afetam a probabilidade de ocorrência de irregularidades, baseadas em decisões dos processos administrativos julgados pela Comissão de Valores Mobiliários. Contribuições teóricas/práticas/sociais: Descobertas incluem a falta de evidências sobre a influência da independência do conselho e dualidade de cargos do CEO nas irregularidades. A presença de União ou empresa estatal como acionista majoritário reduz a eficiência da governança, enquanto alta concentração acionária e boa reputação de auditores contribuem para a prevenção de irregularidades. Originalidade/relevância: A pesquisa traz contribuições para a ampliação das discussões a respeito da necessidade de mecanismos eficientes de governança na mitigação de irregularidades.
... There is a large literature examining the relationship between board monitoring and firm performance on various aspects such as CEO turnover, stock return, operating performance and financial reporting quality (Weisbach (1988); Brickley (1994); Vafeas (1999); Dechow et al (1995); Beasley (1996)). These previous papers not only confirm that the board of directors does affect firm performance, but also find some characteristics of the board are related to the effectiveness of the board, especially in monitoring top managers. ...
Earnings are the powerful indicators of the firm's business activities. Since a company's stock is measured by the present value of its future earnings, investors and analysts look to earnings to determine the attractiveness of a particular stock. Companies with poor earnings prospects will typically have lower share prices than those withgood prospects. So, Earnings management plays a key role to determine the share price of a company as well as direct resource allocation in capital market. This paper specially focuses on earnings management, quality of earnings and various techniques (like cookie jar reserve, big bath, and big bet) that are used to manage earnings in the business entity. Extent and type of earnings management depends on several factors like stock market incentives, personal incentives, political & regulatory motives. Finally, this paper concludes that rigorous accounting standard, awareness of audit committee, corporate governance and consciousness and the morality of the stake holders play a vital role to control earnings management.
... Earnings management hurts the quality of financial reports. Beasley (1996) finds that the presence of an audit committee reduces the possibility of firms' involving in fraud. Beasley and Salterio (2001) argue that an audit committee plays a critical role in the credibility, and quantity of financial and non-financial information raising the quality of financial reports by monitoring management. ...
Chang et al. (Rev Financ Stud 30:835–865, 2017) attribute the underpricing of IPOs with little information asymmetry to agency costs resulting from the bargaining power of underwriters. In this study, we determine that a pre-IPO audit committee and auction method can reduce underwriter bargaining power, thereby improving IPO pricing efficiency. Auction method refrains underwriter discretion on IPO allocation. A pre-IPO audit committee or auction method does not raise IPO prices directly because there is little information asymmetry in Taiwan but does so indirectly by mitigating underwriter bargaining power. We determine that underwriters can save distribution efforts by lowering IPO offer price with their bargaining power before issuance to reduce costs. However, an effective audit committee can attenuate the negative effect of underwriter bargaining power on IPO prices.
... A larger board can provide diverse skills, expertise, and perspectives, thereby enhancing oversight quality. Beasley (1996) and Du (2020) utilised board size and the number of board meetings as proxies to gauge the effectiveness of board oversight, which we will incorporate into our meta-analysis. CEO Duality occurs when an individual serve as both the Chief Executive Officer (CEO) and Chairman of the Board, which can lead to weak oversight and increase fraud likelihood due to the concentration of power. ...
... The autonomy of board members stands as a crucial factor in ensuring board effectiveness. It is posited that only independent members possess the authority to oversee management (Dechow et al., 1996;Beasley, 1996;Weisbach, 1988). Maintaining a balance between inside directors and outside directors is viewed as a crucial aspect in achieving robust and high-quality reporting (Fama, 1980 Research has consistently shown that women tend to be more risk-averse than men (Sundén & Surette, 1998) and are often viewed as more ethically inclined (Weeks et al., 1999). ...
Purpose
The aim of this study is to approach the way in which corporate governance influences the occurrence of financial fraud, as expressed by the M-Beneish score. In order to get further into the topic, we have first computed a corporate governance score based on the comply-explain statement and then selected a few elements that are part of the corporate governance reporting: equilibrium of board members (EQUIL), independence of board members (INDEP), selection of the board members (NOM), remuneration policy (REM), audit committee (AUDIT) and the proportion of female directors on boards (GenF). They were tested, one by one, using the financial fraud score to see the way in which they interact.
Design/methodology/approach
The study is conducted on a sample of 65 companies listed on the Bucharest Stock Exchange (BSE) for the 2016–2022 period. The data were processed using three-stage general least square [general least squares (GLS), with iteration, igls and option] with a common first-order panel-specific autocorrelation correction, so as to explain how a poor adoption of the corporate governance score and its elements has a negative implication for the M-Beneish score, controlling for the auditor opinion, type of auditing company and if the company is privately owned.
Findings
The results support most of our research hypothesis, revealing that a poor adoption of the corporate governance score and its components – AUDIT, EQUIL, INDEP and GenF – negatively influences the M-Beneish score, i.e. a low corporate governance score will lead to an increase in financial fraud. This is an encouraging aspect, for an improved adoption of the corporate governance principles reduces the occurrence of financial fraud.
Research limitations/implications
This is a study that concerns the relationship between corporate governance and financial fraud for the case study for Romania.
Practical implications
The study highlights the importance of adopting the corporate governance code applied to the Romanian business environment. By measuring the presence of financial fraud appearance through the M-Beneish score, we have managed to outline the negative relationship between the two components. Thus, it is an important aspect of which companies should take account, so they will have long-term benefits and ensure the continuity of the business.
Social implications
The policy implications of this project are for policymakers, so that they will understand how a good corporate governance mechanism will enhance high-performing businesses. Different aspects regarding corporate governance were validated and are in the process of being validated. Managers can extract and try to understand and apply the good characteristics of corporate governance for the well-being of their companies. At a broader level, the macroeconomic environment will increase its own well-being while encouraging market players to enhance qualitative corporate governance reporting. There is no doubt that corporate governance has a positive impact on businesses.
Originality/value
The study highlights the importance of adopting the corporate governance code as applied to the Romanian business environment. By measuring the occurrence of financial fraud using the M-Beneish score, we have managed to outline the negative relationship between the two components. Therefore, this is an important aspect that companies should take into account in order to have long-term benefits and ensure the continuity of their business.
... The effectiveness of the audit process hinges not only on the auditors themselves, but also on the quality of the board of directors. Research by Beasley (1996) provides empirical evidence that boards with a higher proportion of outside directors are less likely to see financial statement fraud. ...
Incomplete information analysis and overreliance on technology can create a "fog" obscuring financial risks. This paper argues that professional auditors, like informed and accurate intelligence forces, are essential for companies' survival. We draw an analogy between intelligence failures, where warnings are missed, and auditors who overlook red flags. The paper examines potential pitfalls in auditing work that mirror the failures evident in the October 7th attack, emphasizing the need for a risk-based approach and clear communication. The importance of the audit procedures is heightened in light of catastrophic events. Our goal is to emphasizes the importance of audit procedures, taking a holistic view, and balancing critical thinking with technology to ensure that auditors, in conjunction with the board of directors, prevent financial disasters.
... Corporate governance plays an important role in affecting the probability of bankruptcy of a company, because agency risk and moral hazard can increase if managers sacrifice the company's long-term interests and instead focus on their short-term personal fulfilment (Jensen et al., 1986). By implementing proper corporate governance measures, a company can reduce managerial information asymmetry (Cormier et al., 2010), prevent the manipulation of company financial statements (Beasley, 1996), and consequently reduce the probability of going bankrupt (Fich & Slezak, 2008). Therefore, many researchers adopted CGIs in their bankruptcy prediction research and investigated their ability to reflect fundamental risks (e.g., Lu et al., 2015;Appiah et al., 2016;Liang et al., 2020;Mousavi & Lin, 2020) -in the remainder of this paper, we shall refer to these drivers as the conventional CGIs. ...
Using a sample of Korean-listed firms, this study investigates whether there is an association between political connections and market reaction. Specifically, we examine the association between the appointment of politically connected outside directors (PCODs) and cumulated abnormal returns and whether politically connected directors affect stock price crash risk. We find that firms appointing PCODs experience a negative market reaction on the announcement date of hiring them. However, firms with PCODs on the board are less likely to experience stock price crash risks. These results can be interpreted as follows: when firms appoint politically connected directors, investors initially criticise this event as political ties may corrupt fair trade. However, it may also be argued that firms with political connections have incentives to improve accounting transparency due to negative public concerns for a possible back-scratching alliance between the government and businesses and attract greater public attention from the media and investors. In other words, although PCODs may impose a negative perception on investors, these directors may contribute to their firm by playing a significant role in advising and/or protecting the firm using their previous work experience and connections.
The purpose of this study is to investigate the association between banks’ performance in Gulf Cooperation Council GCC banking sector and audit committees’ characteristics in banks. The current study contributes to the literature of characteristics of audit committee by filling the literature’ gaps in GCC region. As per (Oroud Int. J. Econ. Finance, 11(4), 104–113 [41]), the perfect composition of audit committees will help all firms in applying a good corporate governance (CG), in turn it will give indication for proper integrity, quality, credibility, and objectivity. For the purpose of this study, we selected number of independent variables; existence of non-executive members, committee size, existence of female members, number of meetings, existence of qualified members. Regarding bank performance, it is represented by returns on assets and equities (ROA), (ROE) respectively. Sixty eight banks in GCC have been selected during the period from 2013 to 2017, and the 68 banks divided into Islamic banks and conventional banks for further analysis. We used the Quantile analysis and nonparametric regression (OLS) to test the above mentioned association. We concludes that the characteristics of committee members are very important in developing and enhancing banks’ performance. This study provides evidence that the association between committee size and returns is positively and significantly correlated. Furthermore, it concludes that the presence of women members, independent members, committees’ meetings, and existence of qualified members are not significantly affecting the performance.
This study examines the relationship between corporate governance mechanisms and financial reporting transparency in Nigerian companies. A quantitative research approach was employed, using a survey of 154 companies listed on the Nigerian Exchange for 10 years (2014-2023). Data was collected from annual reports and accounts from the companies and analyzed using descriptive statistics and regression analysis. The results show that board independence, audit committee effectiveness, and ownership structure have a significant positive impact on financial reporting transparency. Specifically, companies with more independent boards, effective audit committees, and dispersed ownership structures tend to have higher levels of financial reporting transparency. The study concludes that effective corporate governance mechanisms are essential for promoting financial reporting transparency in Nigerian companies. The findings highlight the need for companies to prioritize board independence, audit committee effectiveness, and ownership structure to enhance transparency and accountability. The study recommends that regulators and policymakers should emphasize the importance of corporate governance mechanisms in promoting financial reporting transparency. Companies should also prioritize the implementation of effective governance mechanisms to enhance transparency and accountability. This study contributes to the existing literature on corporate governance and financial reporting transparency by providing empirical evidence from Nigeria, a developing country with a growing economy. However, the study only focuses on listed companies in Nigeria and may not be generalizable to other countries or contexts. Future studies can explore the relationship between corporate governance and financial reporting transparency in other settings.
Purpose-Anecdotal evidence indicates the internal audit function may be crucial in supporting the implementation of ESG practices and reporting. However, thus far, no study has been empirically conducted to check how and why internal audit function might affect ESG performance. This study aims to address this gap by examining whether the internal audit budget is positively related to the ESG performance of Malaysian listed firms. It also explores whether the sourcing arrangement of the internal audit function can moderate the internal audit budget-ESG nexus.
Design/methodology/approach-The secondary data for the paper is extracted from two main sources, namely, the Thomson Reuters Eikon database and firms' annual reports that were downloaded from the Bursa Malaysia website. The final sample consists of public firms listed on Bursa Malaysia over the period 2010 to 2019. Multivariate tests are used to examine the linkage between the variables.
Findings– The results show that the relationship between the annual internal audit budget and ESG performance is contingent on the sourcing arrangement of the internal audit function. Specifically, the results show that the annual internal audit budget has a positive impact on ESG performance for firms with an inhouse internal audit function but not for firms outsourcing an internal audit function to external providers. Overall, the results suggest that the annual internal audit budget promotes ESG performance for firms performing their internal audit activities internally.
Practical implications– The findings of this paper provide a strong motivation for authorities in Malaysia to develop new policies and rules aiming at ensuring that internal audit departments are adequately resourced to function effectively, thereby promoting corporate ESG performance. Moreover, the findings may be useful in informing the board of directors and other policymakers that establishing an in-house internal audit department assists in advancing corporate sustainability performance.
Social implications– The findings of this paper suggest that investors, creditors and other stakeholders should link ESGreporting withthe attributesof the internal audit function and outsourcing arrangement when evaluating firm performance. The total annual costs allocated to the internal audit function coupled with the outsourcing arrangement by an external provider should be considered for the overall assessment of the ESG performance and provide additional warranty towards corporate goals’ achievement and sustainability for the society.
Originality/value– This study extends previous studies on the determinants of ESG performance by focusing on two crucial aspects of the internal audit function: the annual budget and the outsourcing arrangement, a hitherto largely unexploredmechanism bytheexisting literature.
The issue of financial disclosures in annual report has been a persistent problem over the years, with high-profile sandals occurring both in the past and in more recent times. Certain characteristics of the board of directors that can improve their monitoring function are suggested in the literature as corporate governance mechanisms. Thus, this study examined the effect of board characteristics on the financial disclosures of listed industrial goods firms in Nigeria. The study adopted an ex-post facto research design. The population of the study comprised all the 13 quoted industrial goods firms on the Nigeria Stock Exchange Group Limited as of 31st December 2022 on which filters were employed to arrive at an adjusted population of 10 firms. Panel data were extracted from the annual financial statements of the firms for the period 2014-2022 to examine the effect of board financial expertise, independent directors, board gender diversity and board foreign directors on the financial disclosures of the firms. The panel data were analysed using dynamic panel regression or the Generalized Method of Moment. The findings of the study shows that board financial expertise, independent directors and board foreign directors have a positive significant effect on financial disclosures of listed industrial goods firms in Nigeria. While board gender diversity has a positive insignificant effect on financial disclosures of listed industrial goods firms in Nigeria. In line with the findings and conclusions, the study recommends among others that the listed industrial goods firms in Nigeria should prioritize the appointment of independent directors to improve financial disclosures in their annual reports. To achieve this, firms should aim to have a board composition that includes a significant proportion of independent directors.
This study uses agency theory as a framework to examine how board size, compensation committee, and CEO duality align the relationship between CEO compensation and firm sustainability performance. We examined 100 non-financial Asian companies with highest sustainability scores between 2010 and 2019. The findings support the pay-performance relationship proposed by agency theory by demonstrating a positive association between CEO compensation and firm sustainability performance. Our study claimed that, the compensation committee has a major impact on how closely CEO compensation is correlated with company sustainability performance, but board size has no discernible impact. This alignment is negatively impacted by CEO duality since improved performance offers a more realistic picture of the company. Furthermore, CEO compensation is significantly impacted by firm size which is justified by the complexity and the increased responsibilities associated with managing larger firms. Conclusively this investigation suggest that CEO compensation can be utilized effectively in the presence of effective governance practices. This study advances knowledge of agency theory and the connection between sustainability performance and compensation.
Objective
This paper examines the extent to which different corporate governance mechanisms affect the recognition and measurement of goodwill impairment, considering that these decisions are affected by a complex set of factors such as variables associated with corporate governance, economic/financial variables, and the market.
Methodology
We used data from 110 companies, both Spanish (75) and Portuguese (35), with listed securities, in the period 2010–2016 (unbalanced panel), and the path analysis method to infer financial and non-financial data relationships.
Findings
The results support the hypothesis that attributes linked to management and internal and external control mechanisms, as well as economic/financial, market and location variables, are directly and indirectly associated with the recognition of goodwill impairment.
Value Added
This paper outlines a company behavioral profile where opportunity seems to prevail over timely recognition and measurement of goodwill impairment. Big bath practices appear to be well founded, as well as the alignment of this strategy with market signals.
Recommendations
To foster the adoption of accounting practices close to the interests of all stakeholders, regulators should be encouraged to incentivize corporate governance models that promote the periodic rotation of the chief executive officer/chairman, the independence of all members of the statutory audit board, and training in economic and financial areas.
Kurumsal yönetim, şirketlerin tüm paydaşlarının çıkarlarını dikkate alarak, şeffaf, hesap verebilir ve performans odaklı kararlar almasını teşvik eden bir yaklaşımdır. Etkili kurumsal yönetim, şirketlerin performansını artırmak, rekabet avantajı sağlamak ve sürdürülebilir büyüme elde etmek için kritik bir öneme sahiptir. Bu bağlamda, yönetim kurulu, şirketin stratejik yönetimine liderlik eden, paydaşlarının güvenini kazanmayı amaçlayan ve şirketin tüm paydaşlarına karşı sorumluluklarını yerine getiren kritik kurumsal yönetim mekanizması olarak öne çıkmaktadır. Yönetim kurulunun görevlerini ve sorumluluklarını başarılı bir şekilde yerine getirebilmesi için, üyelerinin geniş bir deneyim ve bilgi birikimine sahip olması ve aynı zamanda sektörel ve finansal alanlarda uzmanlık kazanmış olması gerekmektedir. Bu özelliklere sahip bireylerin yönetim kurulunda yer almasını sağlamanın en etkili yolu, yönetim kuruluna bağlı komitelerde görev almalarını sağlamaktır. Bu yaklaşım, yönetim kurulu üyelerinin, şirketin karar alma süreçlerinde etkin bir rol oynamalarını sağlayarak, kurumsal yönetim uygulamalarının şirket performansı üzerinde olumlu bir etki yapmasına yardımcı olur. Bunun yanı sıra, komitelerde görev almak, yönetim kurulu üyelerine, şirketin işleyişi ve stratejik hedefleri hakkında daha derin bir anlayış kazandırır. Öte yandan komitelerde görev almanın getirdiği ekstra iş yükü, yönetim kurulu üyelerinin temel görevlerine yeterince odaklanmalarını engelleyerek karar alma sürecini yavaşlatabilir. Aynı zamanda yönetim kurulu üyelerinin diğer görevlerini ihmal etmelerine ve şirketin diğer önemli alanlarında yeterli denetim ve gözetim sağlayamamalarına neden olabilir. Bu çalışma, Türkiye'de Borsa İstanbul’da işlem gören 139 finansal olmayan şirketin verilerini analiz ederek, yönetim kurulu üyelerinin komitelerde görev almasının firma performansı üzerindeki etkisini araştırmaktadır. Sonuçlar, komitelerde görev alan yönetim kurulu üyelerinin oranının firma performansı üzerinde negatif bir etki yarattığını göstermektedir. Bu bulgu, yönetim kurulu üyelerinin, komitelere görevlendirilmeleriyle birlikte daha fazla sorumluluk ve iş yüküyle karşı karşıya kaldıklarını ve bu durumun firma performansını olumsuz yönde etkilediğini ortaya koymaktadır. Aynı zamanda, yönetim kurulu üyelerinin komitedeki görevlendirmeleriyle birlikte temel görevlerinden uzaklaşabildikleri ve firma yönetimine gereken katkıyı yapmakta zorlandıkları da göstermektedir. Bu nedenle, şirketlerin etkili kurumsal yönetim uygulamaları belirlerken, yönetim kurulu üyelerinin komitelerdeki rolünü dikkatlice planlamaları ve dengeli bir yaklaşım benimsemeleri önerilmektedir.
This paper examines whether the different corporate governance structures of conventional banks (CBs) and Islamic banks (IBs) have varying effects on their respective climate‐related disclosure (CRD). Employing a unique dataset of CBs and IBs' CRD and corporate governance structures for the period of 2016–2019, we found that their respective corporate governance structures did indeed affect their CRD in different ways. Our findings suggest that CBs disclose more climate‐related information than IBs because IBs focus on Sharia compliance which does not emphasise the protection of the environment, while CBs may be more responsive to shareholders' and stakeholders' demands on climate and environment. These effects were stronger with the quality of governance, that is, CBs disclose more climate‐related information with the governance quality, while IBs disclose even less when their governance quality increases. The findings of this study have important implications for climate change, especially the Paris Accord and The 26th Meeting of the Conference of Parties (COP26). There are also policy implications for sustainable financial markets and the financial services sector.
Deceptive financial reporting represents a significant worry for the main regulatory bodies overseeing Vietnam's capital market. Both regulatory bodies are continuously enhancing the criteria to ensure thorough monitoring of publicly listed companies. The objective of the current study is to investigate the link between financial statement analysis and fraudulent financial reporting. While numerous researchers have uncovered evidence suggesting the effectiveness of financial ratios in identifying fraudulent financial reporting, others have reached differing conclusions. The majority of these studies were conducted beyond the borders of Vietnam. The sample consists of companies listed in Vietnam, and the data utilized spans from 2011 to 2022. The findings revealed that various financial ratios, including total debt to total assets and receivables to revenue, emerged as significant indicators for identifying fraudulent financial reporting. This suggests that financial ratios could potentially aid in detecting fraudulent activities. These results contribute to the existing body of literature concerning the efficacy of financial ratios in fraud detection.
Based on a total of 1,590 listed non-financial firms on the Taiwan Stock Exchange and the Taipei Exchange (formerly the Over The Counter securities market) covering the period of 2007~2020, this study examines whether firm's performance on Corporate Social Responsibility (CSR) is affected by corporate board gender diversity. Based on the Upper Echelons Theory, the Agency Theory and the Resource Dependence Theory, increasing the number of female director to achieve higher level of gender diversity brings forth traits such as compassion, kindness, helpfulness, empathy, interpersonal sensitivity, a willingness to nurture, and a greater concern for others' well-being. These traits help firms form policies that prioritize stakeholders' welfare. Moreover, board gender diversity corresponds to a more diverse and broad background, understanding and experience of business operations, enabling firms to better understand where the key interest groups they face are and what they value. This allows firms to make more effective and better-performing decision in CSR. Through correlation analysis and multiple regression estimation, the principal outcome shows that greater degree of board gender diversity is associated with better CSR performance, confirming the hypothesis that a more gender diversified board enhances the efficiency of monitoring and advising function of board and then forming corporate strategies and implementations toward a better stakeholders’ management.
The advent of the digital economy has ushered in unprecedented opportunities for corporate development. Utilizing a comprehensive data set comprising Chinese listed companies spanning the period 2011–2020, this study empirically examines the impact of digital transformation on corporate illegality. The findings reveal a significant reduction in corporate illegality attributable to digital transformation. This empirical result retains its significance even when subjected to a battery of robustness tests. In terms of the underlying mechanisms, this paper conjecture that digital transformation reduces the internal and external information asymmetry, thereby curbing corporate illegality. Further heterogeneous analysis shows that digital transformation is more effective among corporates with higher agency cost (state‐owned or large corporates) or corporates located in regions with lower degree of marketization level. These heterogeneous effects provide supportive evidence to the above conjecture. The implications of this study extend the boundaries of digital transformation research and furnish novel and actionable insights into the prevention of corporate illegality.
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