Corporate governance risk and the agency problem

ElKelish, Walaa Wahid

doi:10.1108/cg-08-2017-0195

Cited by 34 publications

(28 citation statements)

References 38 publications

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“…This shows that from the governance point of view, Oman has a slightly less advanced institutional setting compared to Qatar. Additionally, Elkelish (2018) suggests that corporate governance models vary across countries due to different agency problems. The variations between the two countries and the findings of prior studies thereby suggest that Oman, as an emerging market, should be studied independently for its readability of annual reports.…”

Section: Introductionmentioning

confidence: 99%

Annual report readability, agency costs, firm performance: an investigation of Oman's financial sector

Dalwai

Chinnasamy

Mohammadi

2021

JAEE

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PurposeThe readability of annual reports is an important feature that determines the quality of communication between a firm and its stakeholders. Extant literature has demonstrated that readability characteristics of annual reports are crucial in facilitating the investor's ability to process and analyze information, resulting in higher firm performance and lower agency costs. This study examines the relationship between annual report readability, agency costs and the firm performance of listed financial sector companies in Oman.Design/methodology/approachUsing a sample of 150 firm-year observations of listed financial sector companies on the Muscat Securities Market (MSM) over the period 2014 to 2018, a panel regression analysis is used, along with the system generalized method of moments (GMM) estimation to address endogeneity concerns. The readability of annual reports is proxied by the length of the annual report, the Flesch reading ease and the Flesch–Kincaid index.FindingsThe ordinary least squares (OLS) results suggest that readability proxied by the length of the annual report has no significant relationship with agency cost, return on assets (ROA) or stock returns. The OLS results are confirmed through the system GMM estimation model for agency costs, Tobin's Q and stock returns. Easier-to-read annual reports measured by the Flesch reading ease demonstrate high asset utilization ratio and Tobin's Q. These results emphasize Flesch reading ease measure in explaining the economic significance of agency cost and Tobin's Q. In contrast, difficult-to-read annual reports are observed for firms with high ROA.Research limitations/implicationsThe study is limited to the financial sector. Its generalizability could be extended to a similar sector or countries with features similar to Oman. Future studies on readability could be extended to other sectors of Oman, and financial firms with easier-to-read annual reports show a high Tobin's Q, which reflects the confidence of investors in the stock market. These findings may encourage policymakers to regulate the readability features of annual reports and influence the reporting quality of financials and disclosures also including cross-country comparisons.Practical implicationsFinancial firms with easier-to-read annual reports show a high Tobin's Q, which reflects the confidence of investors in the stock market. These findings may encourage policymakers to regulate the readability features of annual reports and influence the reporting quality of financials and disclosures.Originality/valueWhile the study extends prior literature on readability, agency costs and firm performance, it is also one of the first to examine the financial sector of an emerging country, namely, Oman. The study supports the obfuscation hypothesis through the association of readability measure with agency cost. Unlike prior research that has focused on common computational linguistic literature, this study uses three proxies for readability to assess information quality.

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Section: Introductionmentioning

confidence: 99%

Annual report readability, agency costs, firm performance: an investigation of Oman's financial sector

Dalwai

Chinnasamy

Mohammadi

2021

JAEE

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“…This article offers several possible explanations for these results. Elkelish (2018) writes that the impact of investor focus on agency costs that have a significant negative impact on the risk of corporate governance between countries. This extension of the corporate governance mechanisms used, however, varies between geographic regions and types of industry.…”

Section: Quantitative Results and Discussionmentioning

confidence: 99%

Foreign investors? The effects of the property structure and legal system as mechanisms of corporate governance in Brazilian regulated companies

Santos

Orso

Machado

et al. 2019

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Purpose This paper aims to contribute to research on corporate governance in regulated sectors, with emphasis in the field of activity of foreign investors through the ownership structure and legal system that regulates companies in Brazil. Design/methodology/approach In the first moment, the investigation had a quantitative approach of relational nature. Based on the data about the valuation of actions, statistical methods were applied to a secondary database containing measurable information provided by the organizations that operate the Brazilian stock-market and documentary evidence provided by the companies. In the second moment, a qualitative approach was adopted, resorting on the use of semi-structured interviews with investors and agents of the sector. Findings The results lead to two paths: presenting the perspective that foreign investors play a key role in improving governance practices because foreign ownership mitigates agency problems, provides adequate follow-up and optimizes the use of corporate resources; and evidencing the existence of a mitigation of operational risks in the face of the various obligations imposed by the concession contract with the regulatory agency, without direct interference under the ownership structure of regulated companies. Research limitations/implications The literature portrays a distinct economic scenario in Brazil, where stock control is pulverized and mechanisms of corporate governance and scope of action of investors and regulated sectors are well-defined and implemented. Practical implications A great part of the studies from this field discusses the same object: the impact of the adoption of corporate governance mechanisms on selected efficiency indicators or on the value of the companies' actions. This investigation, on the other hand, targeted a differentiated approach so that its contribution would lie in the investigation under the influence of the regulation on the legal attributions and the performance of the investors how many conflicts between the other shareholder/regulatory body, as the control measures import by the regulatory agent the concessionaires of the Brazilian highways and transportation sector. Social implications The identification of the presence of foreign investors as a determinant for: better performance of companies in Brazilian regulated sector in terms of market valuation; better mitigation of requirements with the regulatory framework for the agencies that regulate the concession sector, targeting a reduction in the asymmetry of information and transparency among all stakeholders. Originality/value The fact that Brazil is an emerging country that lacks a rigid legal system and corruption-control measures in corporate environments and public sectors, stresses the importance of the application of the “Best Codes of Corporate Governance Practices” in the main developed countries. This also stresses the need for effective supervisory bodies that contribute to a better financial performance of companies, guaranteeing investors the legal system.

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“…Herein, we limit the topics that relate to the four dimensions of the CGES. First, the agency problem is a well-known management issue, which partially explains the importance of corporate governance to a company's shareholders and potential investors [19]. Previous studies have focused on how executive compensation plans can help mitigate agency problems for listed companies.…”

Section: Mainstream Research Topics Of Corporate Governance Covered Imentioning

confidence: 99%

Strengthen Financial Holding Companies’ Business Sustainability by Using a Hybrid Corporate Governance Evaluation Model

et al. 2019

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While the importance of corporate governance has been broadly acknowledged in global financial markets and academic research, how to devise a practical evaluation system is relatively unexplored. This paper attempts to refine the Corporate Governance Evaluation System (CGES), constructed by the Taiwan Stock Exchange (TWSE) since 2014. The current CGES has several debatable issues in its complicated design (e.g., it comprises over 80 indicators in different types). To resolve those issues, this study invited ten senior domain experts (including several CEOs of financial holding companies) to retrieve 13 essential criteria from the CGES in four dimensions. Additionally, this study integrates several multiple criteria decision-making (MCDM) methods (i.e., decision-making trial and evaluation laboratory (DEMATEL), modified VIKOR, DEMATEL-based analytical network process (DANP)) and the fuzzy evaluation technique to rank the exemplary companies. The final ranking is consistent with the one released from the CGES in 2017. This study conducted additional experiments to ensure the robustness of the findings. The newly devised model not only assists the ranking decisions but also supports a company in discussing the plausible action plans to strengthen corporate governance based on the analytics. These findings enrich the understanding of corporate governance and contribute to gaining business sustainability for financial holding companies.

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Corporate governance risk and the agency problem

Cited by 34 publications

References 38 publications

Annual report readability, agency costs, firm performance: an investigation of Oman's financial sector

Annual report readability, agency costs, firm performance: an investigation of Oman's financial sector

Foreign investors? The effects of the property structure and legal system as mechanisms of corporate governance in Brazilian regulated companies

Strengthen Financial Holding Companies’ Business Sustainability by Using a Hybrid Corporate Governance Evaluation Model

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