Does the “capstone” of the “comply or explain” system work in practice? Evidence from Athens Stock Exchange

Abstract

Purpose In recent years, the principle of the “comply or explain” approach has become the trend in corporate governance statements that are not fully compliant with national codes. This is because managers of companies deviating from corporate governance codes try to be lawful, providing reasonable explanations; thus, they reach an impasse, copying explanations from other companies, in a mimetic behavior. The purpose of this study is to investigate whether companies listed in Greek Stock exchange tend to imitate one each other thus to be legitimate in terms of the “comply or explain: approach”. Design/methodology/approach This study focuses on the “comply or explain” approach in Greek listed companies, analyzing statements by 162 companies (80.2 per cent) listed on the Athens Stock Exchange (ASE), showing a total of 1,211 deviations from the national code. Therefore, the explanations were classified for analysis, grouping them into three main categories and investigating the degree of imitation. Findings In total, 96 companies deviating from the Code (56.3 per cent) provided explanations as to their legitimacy practices. Thus, the managers of these companies tried to explain their deviations from the national code in such a way that it could be considered that they tend to imitate each other, striving to be lawful. Research limitations/implications Owing to Greece’s ongoing economic crisis, many companies listed on the ASE in previous years have suspended the trading of their shares. An examination of previous years may have led to biased results, owing to the different samples of companies. Another limitation concerns the number of companies in the sample; although it covers almost 80 per cent of listed companies, the actual number of companies is not big enough. Practical implications This study tries to investigate whether Greek listed companies comply with or deviate from the National Corporate Governance Code. For that purpose, context analysis was performed on 80.2 per cent of these companies (162 out of 202 companies) for the calendar year 2017. Most companies tried to explain their deviations from the Code in such a way that it could be considered that they tend to imitate each other. Social implications Companies that deviate from the corporate governance code tend to imitate each other. This phenomenon occurs mainly in small companies, which, while striving to be lawful, even copy other companies’ phrases verbatim. This study reveals that managers of such companies care to provide an explanation for only deviations from the Code as a logical justification and not to capture the existing situation of their companies. Originality/value This study is the first to examine the mimetic behavior on corporate governance statements in Greece. Although the trend of imitation is a fact in developed economies, similar studies never took place on emerge economies. This study contributes to the literature by examining whether the trend of mimetic behavior exists in emerging economies as well.

Responses to corporate governance code: evidence from a longitudinal study

“…The analysis of compliance statements and non-compliance explanations shows the evolution of these responses, documenting the frequency of their use over a 14-year period. The paper offers a complementary view to findings by Shrives and Brennan (2015) and Thanasas et al (2018), who introduce taxonomies of detailed categories of explanations. Secondly, while the predominant portion of the literature offers analysis on corporate governance compliance in developed economies, we provide much-needed evidence of compliance from a post-transition country (Albu and Girbina 2015), characterized by a post-socialist legacy of skepticism towards institutions and rules (Mishler and Rose 1997;Tilly 2004) and lacking the tradition of a principle-based approach.…”

“…Drawing upon neo-institutional theory, our study adds to this body of research on the content of company declarations (MacNeil and Li 2006;Andres and Theissen 2008;Arcot et al 2010;Hooghiemstra 2012;Seidl et al 2013;Albu and Girbina 2015;Manzanares and Leal 2021). Following the frameworks offered by Oliver (1991), Seidl et al (2013), Shrives and Brennan (2015) and Thanasas et al (2018), we address questions on how companies respond to the institutional change brought by corporate governance codes, analyzing both compliance statements and explanations of deviation from best practice (Hooghiemstra 2012). Company responses to institutional pressures depend on their willingness and ability to conform.…”

“…Specifically, we intend to identify strategic responses adopted by listed companies in reaction to the new rules brought by corporate governance codes and to track the dynamics of these strategic responses over a long period of time. Referring to prior studies (Okhmatovskiy 2017;Seidl et al 2013;Shrives and Brennan 2015;Thanasas et al 2018), we present the results of a content analysis of compliance statements with regard to board practice by 125 companies listed on the Warsaw Stock Exchange (WSE) in the years 2006-2019. The study provides an answer to two research questions concerning (1) how companies respond in their compliance statements when reacting to institutional pressure and (2) how these strategic responses evolve over time.…”

Enhancing financial reporting: challenges and opportunities in corporate governance statements

“…The sixth article in the Special Issue, entitled "Does the 'capstone' of the 'comply or explain' system work in practice? Evidence from Athens Stock Exchange" by Thanasas et al (2018), investigates whether companies listed in the Greek Stock exchange tend to imitate one another in the deviation depicted in CGSs. The authors find that 96 companies deviate from the Code (56.3 per cent) and provide explanations so as to be legitimate.…”

“…As can be seen in Table I, the second column (entitled "Region") shows the countries where CG practices have been analyzed. The majority of studies, 3 out of 11 have focused on European Union (Cash, 2018;Tampakoudis et al, 2018;Vasilakopoulos et al, 2018), whereas the rest are distributed among different continentals and are country specific (Bueno et al, 2018;Djokic and Duh, 2018;Koutoupis et al, 2018;Lepore et al, 2018;Mgammal et al, 2018;Roudaki, 2018;Thanasas et al, 2018;Zaman et al, 2018). Moreover, the fourth column denotes the methodologies that have been used.…”