Governance Vis-à-Vis Investment Efficiency: Substitutes or Complementary in Their Effects on Disclosure Practice

Abstract

Prior studies provide evidence that both corporate governance and corporate investment efficiency affect corporate disclosure practice. In this paper, we examine their joint effect on disclosure. In particular, we examine whether corporate governance quality and corporate investment efficiency act as substitutes or complements in their impact on narrative disclosure. We collect disclosure scores from Lancaster University’s Corporate Financial Information Environment (CFIE) website for a sample of non-financial UK companies for the period 2007–2014. We regress measures of corporate governance and corporate investment efficiency on two different proxies of disclosure practice (performance commentaries disclosure and the tone of narrative disclosure). Consistent with prior studies, we find that both governance and investment efficiency affect disclosure. We contribute to narrative disclosure studies in two crucial respects. First, we provide empirical evidence that governance and investment efficiency has a complementary effect on performance commentaries disclosure. Second, we contribute to the disclosure tone literature by providing empirical evidence that both governance and investment efficiency have a substitution effect on the tone of narrative disclosure.

Managers’ Investment Decisions: Incentives and Economic Consequences Arising from Leases

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Analysis of Banking Performance Over Corporate Governance, Risk Management and Disclosure Practises

“…In addition, the interests of the stakeholders at banks go beyond owners' interests since the depositors, creditors, and regulators of banks all have a stake in the banks as well. In addition to banks' management and stockholders, bank depositors and regulators have a direct financial interest in the institution's overall profitability (Elberry & Hussainey, 2021). Jan et al (2021) contends that borrowers have valid claim on banks by signing into loan provisions and that their cause acquires weight and urgency via other stakeholders like regulators and consumer organizations adopting their cause.…”

“…In addition to bank management and stockholders, bank depositors and regulators have direct financial interest in institution's overall profitability (Elberry & Hussainey, 2021). Given that we were unable to locate any relevant literature, it appears rather fascinating to explore the governance-performance-risk nexus in context of Pakistan.…”

The Role of Corporate Governance in Investment Efficiency and Financial Information Disclosure Risk in Companies Listed on the Tehran Stock Exchange

“…By improving corporate governance, the quality of information disclosure and investment efficiency increases (Chen et al 2021). The high quality of financial information disclosure in a company, which is influenced by the strong corporate governance structure in the company through more supervision and strict rules to control the actions of managers, and thereof the increasing of investment efficiency, is achieved through limiting an overinvestment in the negative NPV projects or under-investment by neglecting positive NPV ones (Elberry and Hussainey 2021). Good corporate governance can reduce information asymmetry, agency costs, and information search costs and can increase information transparency since corporate governance allows investors to experience fewer investment errors; sound corporate governance can ensure that while a company's managers have the incentive to make their own profits, they attempt to increase the interests of investors and the firm value (Cheng et al 2019).…”