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Emerging Markets Corporate Governance Research Network Newsletter, May 2014

We continue in our 15th issue to feature interesting research articles, opinion pieces, reports and news from a very diverse background. This issue includes pieces on state ownership in India, board structure in Vietnam, ESG issues in Mexico, Indonesia, Nigeria and Turkey, and governance of US-Listed Chinese Companies. We also feature an interview with Prof. Bernard Black, Nicholas D. Chabraja Professor at Northwestern University School of Law and Kellogg School of Management. In this interview Prof. Black underlines why and how transparency and disclosure matter in the emerging markets.

CG Insight Series - Do Investors in Emerging Market Companies Care about Corporate Governance?

Dr. Bernard Black is Nicholas D. Chabraja Professor at Northwestern University School of Law and Kellogg School of Management. His research focuses on international corporate governance and law and finance, among other areas. This is an abbreviated version, read the full interview here.

The most compelling recent finding on corporate governance in emerging markets is...

...That transparency and disclosure really matter.

Our research provides strong evidence that good disclosure pays off. This is a consistent theme across countries that have very different characteristics. We study Brazil, India, Korea, Russia, and Turkey. Why should companies focus on transparency and disclosure? Because investors care about this, so the advice for firms is, if you work on improving your disclosure, you will be rewarded with a higher share price. We also see evidence, though less strong, of a similar correlation for independent directors. More...

Right now, I am working on...

...Deeper exploration of the effect of particular aspects of governance, such as disclosure and outside directors, on firm value.

For instance, while we have evidence that disclosure is important, we know very little about what companies should disclose. And, while there is evidence that outside directors can make a difference, we don’t know much about how important they are, or how many outside directors is enough—or even if there is a right number. The answers will likely depend on both country and firm characteristics. More...

I think the most relevant CG research topic for emerging markets now is...

...Understanding more about what matters to investors. While research can tell us a great deal, one of the most important tools that firms can use to enhance corporate governance is easily available and often overlooked: asking investors themselves what they care about!

Read the full interview



When Heirs Become Major Shareholders: Evidence on Tunneling and Succession Through Related-Party Transactions
Sunwoo Hwang and Woochan Kim
Family succession of controlling equity stakes can be done through related-party transactions. That is, families can make use of related-party transactions to benefit some firms, in which their heirs hold significant equity stakes, and thereby let such firms grow large enough to strengthen their control over other firms within the group. This enables firms to not pay any fees or inheritance tax to the governments during succession. Using a 2000 to 2008 sample of Korean firms Hwang and Kim confirm the above allegations made by non-governmental organizations and popular press in Korea, and they present evidence on tunneling activities and succession through related-party transactions.

When Bonding Fails: Audit Firm Oversight of US-Listed Chinese Companies
Joseph V. Carcello, Brian Todd Carver, Clive S. Lennox, and Terry L. Neal
The bonding argument predicts that companies with good governance and other fundamental characteristics have the most to gain from listing in the US, particularly when they are located in countries with weak institutional environments such as China. Contrary to this prediction, however, there have been many allegations of accounting irregularities by US-listed Chinese companies in recent years, resulting in investors losing around $70 billion. In light of these occurrences, the authors argue that the traditional bonding argument failed for US-listed Chinese companies due to a lack of good governance, audit quality and audit firm oversight.

Board Structure and Corporate Financial Performance: Empirical Evidence from Vietnam's Listed Firms
Phan Huu Viet
The author investigates the relationship between board structure and financial performance using a sample of firms listed on Vietnam Stock Exchange. Dual leadership and board size have positive relationships with firm performance. Despite earlier findings, proportion of outside directors is found to have a negative effect on firm performance.

Governance and the Corporate Life-Cycle
Thomas O’Connor and Julie Byrne
O’Connor and Byrne examine whether firms’ corporate governance attributes change across their corporate life-cycle. Using a sample of 205 firms from 21 emerging market countries, they find that mature firms tend to practice better overall corporate governance, and discipline and independence improve as firms mature. Furthermore, firms tend to be most transparent and accountable when they are young. These findings suggest that the resource/strategy and monitoring/control governance functions are relevant but at different life-cycle stages.

Politics, State Ownership, and Corporate Investments
Shashwat Alok and Meghana Ayyagari
Political interference has long been considered a major source of inefficiency in state-owned enterprises. Alok and Ayyagari present empirical evidence regarding the impact of political influence on Indian firms. Using a unique database of new investment projects announced in India, matched with electoral data at the district level for the period 1995-2009, the authors find that state-owned enterprises (SOEs) announce a greater number of projects during election years, especially in politically competitive districts. The number of investments announced by central (state) government firms in election years is on average 36% (58%) greater in districts in which the ruling party won or lost the previous election by a narrow margin (<5%) compared to other districts.


Opinion and Commentary

Multiple Faces of Shareholder Power in Asia: Complexity Revealed
Dan W. Puchniak
This is a chapter of the forthcoming Research Handbook on Shareholder Power (edited by Randall Thomas and Jennifer Hill), and it investigates the multiple faces of shareholder power in Asia. Puchniak examines corporate governance in Asia through American, Asian, and jurisdiction-specific lenses, and suggests future research in corporate governance in Asia should make an extensive use of the jurisdiction-specific lens.

Corporate Governance in Emerging Markets
Mariana Pargendler
Despite deep differences in their political systems, legal regimes and economic structures, Brazil, Russia, India, and China share a recent history of rapid economic growth and capital market expansion. This chapter for the forthcoming Oxford Handbook of Corporate Law and Governance (edited by Jeffrey N. Gordon and Wolf-Georg Ringe) explores the degree and direction of transformation in emerging markets’ corporate governance in the last decades.

Zakat, Dana and Corporate Social Responsibility
Arjya B. Majumdar
Asian corporations without a large number of shareholders tend to be family or individual driven, and this causes religious principles of charity effect corporate decision making.  In light of this, Majumdar argues that the tradition of giving, as mandated by religion, is a significant factor to boost Corporate Social Responsibility (CSR) in Asia.



oekom Corporate Responsibility Review 2014: stagnation in the corporate management of environmental and social challenges
oekom Research
According to oekom’s latest report world’s largest companies are making too little progress towards sustainable management, and this is problematic in two respects. Firstly, developments in climate change are threatening to escalate. The later action is taken here, the higher the cost of correcting undesirable developments will be. Secondly, companies that do not manage their energy, water and raw material consumption systematically are not expected to survive for long. For these reasons, oekom argues that it would be in companies’ own interests to abandon their short-term mindset and to start operating sustainably.

Supervision and Enforcement in Corporate Governance
This fifth peer review of the OECD Principles of Corporate Governance analyses the supervision and enforcement of rules and practices relating to related party transactions, takeover bids and shareholder meetings. The review covers 27 jurisdictions and is based on a general survey of all participating jurisdictions in June 2012, as well as an in-depth review of supervision and enforcement practices in Brazil, Turkey, and the United States.

ESG Issues in Mexico, Indonesia, Nigeria and Turkey
RepRisk has released its latest special report focusing on environmental, social and governance (ESG) issues in the emerging markets of Mexico, Indonesia, Nigeria and Turkey.

Special Report on MINT Countries: ESG Issues in Mexico, Indonesia, Nigeria and Turkey
On February 20, 2014 RepRisk issued a special report focusing on environmental, social and governance (ESG) issues in the emerging markets of Mexico, Indonesia, Nigeria and Turkey. The report “summarizes key issues in the MINT countries on activities related to human rights violations, poor working conditions, corruption, and environmental degradation throughout 2013.”


Events and Calls for Papers

The Fifth Private Equity International Responsible Investment Forum takes place on June 19, 2014 in London.

20th Annual Directors’ College, an executive education program for directors and senior executives of publicly traded firms, will be held on June 22-24, 2014 at Stanford Law School.

Third Symposium on Emerging Financial Markets: China and Beyond will be held on July 5-6, 2014 in Beijing, China. This symposium is intended to provide a platform for researchers to discuss fundamental research and policy issues related to emerging financial markets including China, India, Brazil, Russia, South Africa and others.

International CSR, Sustainability, Ethics & Governance Conference will take place on August 14-16, 2014 in University of Surrey, UK.

Humboldt-Indian Conference 2014 will be held on September 01, 2014 in Mumbai, India.

ACGA's 14th Annual Conference, the "Asian Business Dialogue on Corporate Governance 2014", will take place in Hong Kong on November 4-5, 2014.

International Conference on Management, Finance and Accounting (ICMFA) will be held on May 28-29, 2015 in Tokyo, Japan. Topics of interest include corporate governance and emerging markets.


From Our Coordinator

We encourage all of our members to notify us regarding their ongoing research or the events or conferences they want to share with the Network. We also welcome other relevant information and your feedback. Please contact Mehmet Canayaz at


The Emerging Markets Corporate Governance Research Network is supported by IFC Corporate Governance Group. The Group brings together staff from investment support and advisory operations into a single, global team. This unified team advises on all aspects of corporate governance and offers targeted client services in areas such as increasing board effectiveness, improving the control environment, and family businesses governance. The Group also helps support corporate governance improvements and reform efforts in emerging markets and developing countries, while leveraging and integrating knowledge tools, expertise, and networks at the global and regional levels. For more information about the EMCGN's activities, go to or contact   

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