Codes of Good Governance

Abstract

Manuscript Type: ReviewResearch Question/Issue: We review the recent developments in the area of codes of good governance, a set of best practice recommendations regarding the behavior and structure of the board of directors. Research Findings/Results: Our review of the literature on codes of good governance highlights their rapid spread around the world and how academic research has lagged behind in analyzing this topic. Despite the criticism that the codes' voluntary nature limits their ability to improve governance practices, codes of good governance appear to have generally improved the governance of countries that have adopted them, although there is need for additional reforms. Theoretical Implications: Unfortunately, research on codes of good governance has developed in insolation with little cross-fertilization across the different disciplines. We propose a multi-level framework to discuss three main topics that have emerged within the codes literature: the motivations behind the diffusion of codes across countries and its implications for convergence of corporate governance practices; the content of the codes and their "comply or explain" dimension; and the relationship between code compliance and firm performance. We conclude by proposing four areas of future research. Practitical Implications: Code development, adoption, and compliance are directly related to issues surrounding the governance of the firm, and in particular to all the interactions that a director has inside and outside the firm. Codes are regulations that emerge from policy-making negotiations between multiple stakeholders, such as the state (via the stock market regulators) and the investors.

Corporate Boards and Ownership Structure as Antecedents of Corporate Governance Disclosure in Saudi Arabian Publicly Listed Corporations

“…It is contended, however, that in developing countries with different cultural, regulatory, CG, and institutional contexts, such as Saudi Arabia (Aguilera & Cuervo-Cazurra, 2009), voluntary compliance with CG Codes can be expected to vary from what has been found in developed countries. Therefore, an investigation of voluntary CG disclosures in developing countries, where there is a dearth of empirical evidence, is crucial in offering a more complete understanding of CG reforms and disclosure behavior.…”

“…Generally, and notwithstanding the increasing number of CG Codes in developing countries, such as Saudi Arabia (Aguilera & Cuervo-Cazurra, 2009;Samaha et al, 2012), existing studies investigating the effectiveness of voluntary CG Codes in improving governance standards are disproportionately concentrated in a few developed countries (Bebenroth, 2005;Bozec & Bozec, 2007;Cromme, 2005;Hooghiemstra, 2012;Hussainey & Al-Najjar, 2012;Mallin & Ow-Yong, 2012;Pass, 2006;Pellens, Hillebrandt, & Ulmer, 2001;Salterio et al, 2013;Werder et al, 2005). It is contended, however, that in developing countries with different cultural, regulatory, CG, and institutional contexts, such as Saudi Arabia (Aguilera & Cuervo-Cazurra, 2009), voluntary compliance with CG Codes can be expected to vary from what has been found in developed countries.…”

A Cross-country Study of the Effects of Institutional Ownership on Credit Ratings

“…What this shows is that in countries where there is power distance, institutional owners seem to have strong influence over credit rating (Aguilera and Cuervo-Cazurra, 2009). This influence is widely accepted in countries where power distance is a way of life.…”

“…An explanation for this could be that the majority of the countries in which the corruption index was high demonstrated that it affected credit rating. Since these were also countries in the stakeholding tradition, the European model, the fact that institutional ownership was held by many founder families who made decisions primarily in their interests would also be supposed by owners making decisions for their interests (Aguilera and Cuervo-Cazurra, 2009). …”

How Regulation Affects the Relevance of Bank-Debt Maturity as a Control Mechanism in Developed Countries

“…In addition to this, according to our understanding, this is the first study in treating the application of new regulation on corporate governance in different institutional environments as an explanatory variable in determining the maturity of bank debt contracts across countries. Differently than ours, other papers have focused on diverse aspects of regulation on the firm's financial decisions such as the role of law on corporate self-dealing, the effects of banking liberalization and the adoption of codes of good governance on capital structure (Djankov et al 2008;Aguilera, Cuervo-Cazurra 2009;González 2015, among others). Nevertheless, our paper goes one-step forward in the intuition that changes in the corporate governance laws might influence the maturity in the design of bank debt contracts, and through this, the conduct of managers.…”