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Unformatted text preview: CSR, Sustainability, Ethics & Governance Series Editors: Samuel O. Idowu · René Schmidpeter Sabri Boubaker Duc Khuong Nguyen Editors Corporate Governance in Emerging Markets Theories, Practices and Cases CSR, Sustainability, Ethics & Governance Series Editors Samuel O. Idowu, London Metropolitan University, Calcutta House, London, United Kingdom Rene´ Schmidpeter, Ingolstadt, Germany For further volumes: ThiS is a FM Blank Page Sabri Boubaker • Duc Khuong Nguyen Editors Corporate Governance in Emerging Markets Theories, Practices and Cases Editors Sabri Boubaker Department of Accounting and Finance Champagne School of Management (Groupe ESC Troyes en Champagne) Troyes France Duc Khuong Nguyen IPAG Research Lab IPAG Business School Paris France ISSN 2196-7075 ISSN 2196-7083 (electronic) ISBN 978-3-642-44954-3 ISBN 978-3-642-44955-0 (eBook) DOI 10.1007/978-3-642-44955-0 Springer Heidelberg New York Dordrecht London Library of Congress Control Number: 2014934665 © Springer-Verlag Berlin Heidelberg 2014 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’s location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations are liable to prosecution under the respective Copyright Law. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer is part of Springer Science+Business Media ( ) Foreword Corporate governance has long been recognized as an important area of scholarship in many fields that include economics, finance, law, and management. Corporate governance practices vary from one country to another due to differing legal and institutional settings, economic conditions, and cultural disparities around the world. As such, there is a significant need for corporate governance scholars to understand the institutional context. Those that are interested in emerging markets naturally need specialized knowledge of such markets. Said differently, solutions to corporate governance problems are not merely adoptable from one country to the next, given the differences in legal, institutional, economic, and cultural conditions. China represents a classic case in point. China has had the fastest growing economy for many years in a row, yet corporate governance is vastly different in China than in western contexts. Corporate governance legal rules are not adopted in China in a way that corresponds to western style legal settings. Rather, informal institutions appear to be extremely important in the context of China, as explained in the widely referenced study of Allen et al. (2005). Similar evidence is found in India (Allen et al. 2006). Given the importance of context in corporate governance scholarship, it is extremely useful to have a book dedicated to corporate governance in emerging markets. This volume edited by leading scholars Sabri Boubaker and Duc Khuong Nguyen is an excellent source on topic. This book comprises 25 chapters on corporate governance in emerging markets. There are a total of 59 coauthors representing 22 countries (Australia, Bangladesh, Brazil, China, Estonia, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Morocco, the Philippines, Poland, Russia, Spain, Switzerland, Thailand, the United Kingdom, Ukraine, and the United States). The authors are among the top scholars in the field of corporate governance and have specialized expertise in emerging markets. Overall, this book represents a significant contribution to the literature on corporate governance in emerging markets, and as such, it is an invaluable reference for academics, practitioners, and policymakers alike. v vi Foreword There are five parts to this book. Part I addresses issues pertaining to Corporate Governance and Firm Performance, which represents the first four chapters. Data are presented from India (Chaps. 1, 3, and 4), China (Chaps. 2 and 4), and Hong Kong, Indonesia, the Philippines, and Thailand (Chap. 2). The authors present analyses of shareholder rights (Chaps. 1 and 2), product market competition (Chap. 3), and boards (Chap. 4). The authors show how firm value is affected by governance in these specific contexts. Part II (Chaps. 5, 6, 7, 8 and 9) covers topics on Corporate Governance and Firm Behavior. Data are presented from Bangladesh (Chap. 5), China (Chap. 6), Russia (Chap. 7), and multi-country samples (Chaps. 8 and 9). Topics covered include family firms and board structure (Chap. 5), earnings management (Chap. 6), organizational behavior (Chap. 7), accounting conservatism (Chap. 8), and privatization (Chap. 9). The authors explain how corporate governance has a pronounced impact in each of these specific contexts. Part III (Chaps. 10, 11, 12, 13, 14, 15 and 16) examines Corporate Governance Practices in Emerging Markets. Data are presented from the Ukraine (Chap. 10), Estonia (Chap. 11), Poland (Chap. 12), Eastern Europe (Chap. 13), the Philippines and Switzerland (Chap. 14), Nigeria (Chap. 15), and Bangladesh (Chap. 16). Topics covered include the evolution of corporate governance standards (Chaps. 10, 11, 14, 15, and 16), audit committees and supervisory boards (Chap. 12), and multinational companies (Chap. 13). The authors provide useful analyses of differences in governance practices and standards across countries and over time. Part IV (Chaps. 17, 18, 19, 20, and 21) studies practical issues surrounding corporate governance laws and reforms. Data are presented from Bangladesh (Chap. 18), Brazil (Chaps. 19 and 20), and a multitude of countries (Chaps. 17 and 21). Topics covered include corruption (Chap. 17), regulatory and legal reforms (Chap. 18 and 19), pension funds (Chap. 20), and banks (Chap. 21). The authors show that legal reforms are not easily transferrable across countries and governance provided by pension funds and banks is likewise not implemented in the same way and does not have the same effects across countries. Part V (Chaps. 22, 23, 24 and 25) provides lessons from practitioners that corporate governance matters. The authors discuss data and cases from the MENA region (Chap. 22), Morocco (Chap. 24), and a multitude of countries (Chaps. 23 and 25). The authors review topics that include shareholder activism and investment behavior (Chap. 22), microfinance institutions (Chap. 23), non-listed companies (Chap. 24), and the international corporate governance best practices (Chap. 25). Among other things, the authors provide many practical insights associated with implementing corporate governance in these contexts. In sum, this book is very well organized and provides in-depth analyses of corporate governance in many interesting and unique contexts in emerging markets. It will serve as an excellent resource for scholars for years to come. Toronto, Canada 26 September 2013 Douglas Cumming Schulich School of Business York University Foreword vii References Allen, F., Qian, J., & Qian, M., (2005). Law, finance, and economic growth in China. Journal of Financial Economics, 77(1), 57–116. Allen, F., Chakrabarti, R., De, S., Qian, J., & Qian, M. (2006). Financing firms in India. Journal of Financial Intermediation, 21(3), 409–445. . Preface Emerging markets are commonly known as financial markets of rapid growth economies that have, over the recent decades, undertaken a wide range of social, political, and economic reforms to put their economies on a more sustainable footing. In general, the expression of emerging markets also refers to emerging economies. With increasing integration of trade and finance flows in the context of globalization, emerging markets now play an important role for global economy growth and portfolio diversification. Altogether, they reached about 54 % of the world GDP measured at purchasing power parity, and they accounted for threequarters of global real GDP growth over the past decade (The Economist, print edition in August 2011). While developed countries experienced severe economic slowdown in the aftermath of the US subprime crisis, economic growth across emerging countries is still projected to grow at a steady rate through the next decade. Thus, the differences in growth potential between emerging and developed countries lead necessarily to changes in the way investors worldwide allocate their available funds and value their investments in emerging countries. Despite their high potential of growth, emerging markets investments are not without risk. They are commonly known as risky investments due to a number of market imperfections including particularly the lack of transparency, sound regulations, stringent accounting and reporting standards, and minority investor protection. Then, all potential investors should enter these markets with a clear-eyed view of corporate governance laws, rules, and practices. In particular, they should be able to grasp the underlying realities of the business environment and to adapt global corporate governance standards to local market specificities. In the meantime, research on corporate governance in emerging markets remains scanty and sparse and requires additional studies at both country and firm levels. This edited volume is intended to provide the readers with an in-depth understanding of governance mechanisms, practices, and cases in emerging markets. This book is an invaluable resource not only for academic researchers and graduate students in law, economics, management, and finance but also for people practicing governance such as lawmakers, policymakers, and international organizations promoting best governance practices in emerging countries. Investors benefit ix x Preface from this book to make judicious decisions regarding their future projects in emerging economies. This book is broadly divided into three parts. The first part focuses on the legal framework and codes of best practices of corporate governance. The second part presents some country experiences in the field of corporate governance. The last part addresses the topical issues of corporate social responsibility. Troyes, France Paris, France Sabri Boubaker Duc Khuong Nguyen About the Editors Sabri Boubaker is an Associate Professor of Finance at Champagne School of Management (Groupe ESC Troyes en Champagne, France) and research fellow at the Institut de Recherche en Gestion (University of Paris Est). He holds a Ph.D. in Finance from University of Paris Est (2006) and an HDR degree (Habilitation for Supervising Doctoral Research) in 2010 from the same university. He is a Visiting Professor at IESEG School of Management (France) and IAE Paris Gustave Eiffel (France). He was a member of the team that drafted the Tunisian Code of Best Practice of Corporate Governance and the Guidelines for Annual Reports of Tunisian Listed Companies. He has recently published several academic papers in international refereed journals including Journal of Banking and Finance, Review of Accounting and Finance, Multinational Finance Journal, Global Finance Journal, International Journal of Business, and Journal of International Financial Markets, Institutions and Money. Dr. Boubaker has also edited several books on corporate governance and corporate social responsibility issues. Duc Khuong Nguyen is a Professor of Finance and Deputy Director for Research at IPAG Business School (France). He holds a Ph.D. in Finance from the University of Grenoble II (France) and an HDR (Habilitation for Supervising Scientific Research) degree from University of Cergy-Pontoise (France). His research articles are published in various refereed journals such as Journal of Banking and Finance, Journal of International Money and Finance, Journal of International Financial Markets, Institutions and Money, Quarterly Review of Economics and Finance, and Review of Accounting and Finance. Dr. Nguyen has also edited several books on corporate governance and corporate social responsibility issues. xi . Acknowledgments We would like to thank Christian Rauscher and Barbara Bethke (Springer Berlin/ Heidelberg, Germany) for their helpful comments and editorial assistance. We are grateful to Professor Douglas Cummings who kindly agreed to write the foreword to this edited volume. Our sincere thanks also go to all the contributing authors. Their intellectual contribution is greatly appreciated. All expressed views in the chapters remain the sole responsibility of the authors. Sabri Boubaker Duc Khuong Nguyen xiii . Contents Part I Corporate Governance and Firm Performance Security Voting Structure and Firm Value: Synthesis and New Insights from Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chinmoy Ghosh and Milena Petrova Corporate Governance and Firm Valuation in Asian Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yan-Leung Cheung, J. Thomas Connelly, Jesus P. Estanislao, Piman Limpaphayom, Tong Lu, and Sidharta Utama 3 27 Corporate Governance, Product Market Competition and Firm Performance: Evidence from India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ekta Selarka 55 Strong Boards, Risk Committee and Bank Performance: Evidence from India and China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Francesca Battaglia, Angela Gallo, and Anna Elvira Graziano 79 Part II Corporate Governance and Firm Behavior Do Families Shape Corporate Board Structure in Emerging Economies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Mohammad Badrul Muttakin, Arifur Khan, and Nava Subramaniam Regional Legal Protection and Earnings Management: Evidence from China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Yuyang Zhang, Konari Uchida, and Hua Bu Corporate Form, Institutional Complementarity, and Organizational Behavior: Open versus Closed Joint-Stock Companies in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Ichiro Iwasaki xv xvi Contents Big 4 Conservatism Around the World . . . . . . . . . . . . . . . . . . . . . . . . . . 197 Richard Chung, Michael Firth, Jeong-Bon Kim, and Lei Pang Corporate Governance in Emerging Markets: What We Can Learn from a Privatisation Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 Jaime Guerrero-Villegas, Gloria Cuevas-Rodrı´guez, and Ramo´n Valle-Cabrera Part III Corporate Governance Practices in Emerging Markets Corporate Governance in Ukraine: Major Standards and Emerging Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Alexander Kostyuk, Markus Stiglbauer, Patrick Velte, Yuliya Lapina, and Dmitriy Riabichenko Corporate Governance Development in a Rapidly Changing Economy: Trends and Challenges in Estonia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 Ruth Alas and Tiit Elenurm Audit Committees in Polish Supervisory Boards: Common Practice and New Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 Izabela Koładkiewicz Multinationals as Vectors of Corporate Governance Improvement in Emerging Economies in Eastern Europe: A Case Study . . . . . . . . . . . 331 Nadia Albu, Ioana Lupu, and Raluca Sandu Corporate Governance in the Philippines and Switzerland— A Comparison of the Institutional Environment and Practices . . . . . . . . 351 Marie dela Rama, Christophe Volonte´, and Simon Zaby Corporate Governance Practices in Nigeria . . . . . . . . . . . . . . . . . . . . . . 373 Chris Ogbechie and Dimitrios N. Koufopoulos Corporate Governance in Bangladesh: A Comparison with Other Emerging Market Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395 Chowdhury Saima Ferdous, Chris Mallin, and Kean Ow-Yong Part IV Corporate Governance: Laws, Reforms, and Practical Issues Corporate Governance as an Antidote to Corruption in Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423 Duane Windsor The Regulatory Conundrum: Achieving Corporate Governance Reforms in Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445 Javed Siddiqui and Chowdhury Saima Ferdous Limitations of Legal Transplants and Convergence to Corporate Governance Practices in Emerging Markets: The Brazilian Case . . . . . . 465 Angela Donaggio Contents xvii Do Pension Funds Improve the Governance of Investee Companies? Evidence from the Brazilian Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485 Andre Carvalhal and Carlos Almeida Corporate Governance of Banks in Transition Countries . . . . . . . . . . . . 499 Gian Piero Cigna, David Risser, and Hind Sami Part V Corporate Governance Matters: Lessons from Practitioners Towards “Shareholder Spring” in the Middle East? . . . . . . . . . . . . . . . . 531 Alissa Amico Challenges for Corporate Governance at Microfinance Institutions . . . . 551 Stephan Hartenstein Convergence in Corporate Governance Practices: Evidence from Listed-Companies in Morocco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573 Lamia El Bouanani Guidance for Practical Corporate Governance: PhICS Model . . . . . . . . 591 Igor Belikov, Vladimir Verbitsky, and Ekaterina Nikitchanova Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607 ThiS is a FM Blank Page List of Contributors Ruth Alas is the Vice-Rector for Scientific Affairs and Head of Management Department at Estonian Business School (Estonia). Her research focuses on change and innovation management, crisis management, organizational culture, leadership, business ethics and corporate governance, and social responsibility. Ruth Alas is a Chairman of EIASM workshops’ series on “Organizational Development and Change,” which has been held since 2006. She has supervised several research projects at the Estonian Business School that link corporate governance to change management and risk management. Nadia Albu is an Associate Professor of Accounting at the Bucharest University of Economic Studies (Romania). She obtained her Ph.D. in 2005 from the same university. Her research focuses on transformations in accounting in emerging economies, including IFRS application, management accounting, corporate governance, and changes in the accounting profession. Nadia’s research has recently been published in Crit...
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