Dear colleagues,
In our third issue of EMCGN Newsletter we feature two papers on corporate governance indicators in key emerging markets. The first paper investigates how good corporate governance practices depend on country and firm characteristics, and is a great contribution to the current debate on whether governance practices should be universal vs. local and firm-specific. The second paper builds a composite corporate governance index using a selection of Novo Mercado's listing rules and investigates how it relates to the firm market value and operating performance.
Our third paper is investigating a growing trend: sustainability reporting. The authors study the consequences of mandatory corporate sustainability reporting, and investigate if sustainability reporting induces companies to improve their nonfinancial performance and contribute towards a sustainable society. The study has cross country implications as it compares the results between countries with different institutional backdrop.
Our fourth paper finds a positive relationship between busy directors with interlocking relations and firm performance in Colombia.
Melsa Ararat, Sabanci University
Publications and Working Papers
What Matters and for Which Firms for Corporate Governance in Emerging Markets? Evidence from Brazil (and other BRIK Countries)
Bernard S. Black, Antonio Gledson de Carvalho, Érica Gorga
Which corporate governance rules are likely to be beneficial in emerging markets? What aspects of corporate governance matter to which firms? The authors stimulate the debate on whether "good" corporate governance practices are universal vs. they are local and firm-specific by offering answers to these two questions. They find evidence which supports that good corporate governance practices depend on country and firm characteristics. To confirm their views, the authors construct a corporate governance index for Brazil and show that their index, as well as subindices for ownership structure, board procedure, and minority shareholder rights, predicts higher lagged Tobin's q. In contrast to other studies, they find that greater board independence predicts lower Tobin's q and firm characteristics matter. When they extend their analysis to India, Korea and Russia, they find country characteristics strongly influence both which aspects of governance predict firm market value, and at which firms that association is found.
The Consequences of Mandatory Corporate Sustainability Reporting
Ioannis Ioannou, George Serafeim
Ioannou and Serafeim investigate the effects of mandatory sustainability reporting on several measures of socially responsible management practices. They show that the social responsibility of business leaders increases after the adoption of mandatory sustainability reporting laws and regulations. Other consequences of mandatory corporate sustainability reporting are: sustainable development and employee training becomes a higher priority, companies implement more ethical practices reduce bribery and corruption, and managerial credibility increases. These effects are larger for countries with stronger law enforcement and more widespread assurance of sustainability reports.
Corporate Governance, Valuation and Performance: Evidence from a Voluntary Market Reform in Brazil
Marcus V. Braga-Alves, Kuldeep Shastri
The authors construct a composite index (NM6) that blends six proxies for the main governance practices that are viewed by Sao Paulo Stock Exchange as "good practices of corporate governance." They find that higher index scores are related to higher market value but not to better operating performance. They conclude by showing that an investment strategy that purchased stocks of firms with high NM6 and sold stocks of firms with low NM6 would have earned abnormal returns of 10.68% per year from 2001 to 2005.
Outside Directors, Board Interlocks and Firm Performance: Empirical Evidence From Colombian Business Groups
Carlos Pombo, Luis H. Gutiérrez
In this paper, Pombo and Gutiérrez provide for the first time measures of corporate governance variables associated with boards of directors in Colombia. The authors examine the relation of board structure through the appointments of outside directors and the role of busy directors on firm return on assets. Within an environment of no regulation for privately held firms and voluntary adoption of corporate best practices for security issuers with family controlling blockholders, they find a positive relation between both the ratio of outside directors, and the degree of board interlocks, with firm return-on-assets. Outside busy directors are the key drivers of improved firm performance. Appointments of outsiders are endogenous to firm ownership structure. Blockholder activism as well as contestability becomes an internal mechanism that improves director monitoring and ex-post firm valuation.
Upcoming Events
Third International Conference on Corporate Governance in Emerging Markets will be held May 28–29, 2011, in Seoul, Korea.
Yale Governance Forum will be held June 16–17, 2011, in New Haven, CT, the United States.
EURAM 2011 - Management Culture in the 21st Century (The European Academy of Management) will be held July 1–4 in Tallinn, Estonia.
Conference on Board Diversity and Economic Performance will be held September 29-30, 2011 at Copenhagen Business School, Denmark.
Announcements
Dr. Sabri Boubaker, Dr. Bang Dang Nguyen and Dr. Duc Khuong Nguyen are preparing a book called "Corporate Governance: Recent Developments and Trends," to be published by Springer Verlag in mid-2012. You are cordially invited to contribute to this book. Temporary 2-4 page abstracts (title, authors' short bio, proposed content, and tentative outline) should be emailed to sabri.boubaker@groupe-esc-troyes.com by June 30, 2011. Please don’t hesitate to contact him for obtaining more information.
Submission deadline for 2011 Moskowitz Prize for Socially Responsible Investing (SRI) is June 30, 2011. The annual Moskowitz Prize is the only global award recognizing outstanding quantitative research in the field of socially responsible investing (SRI). The $5,000 Prize competition is open to authors of studies relevant to social investing. Studies from all business disciplines are welcomed, but should be of a quality suitable for publication in an academic journal. The prize-winning study is selected by a panel of judges from academia and the investment industry, and will be accepted for publication in the Journal of Investing. Honorable mention or additional monetary prizes may be awarded at the judges' discretion.
http://www.ssrn.com/update/fen/fenann/ann11128.html
From Our Coordinator
Dear EMCGN Members,
Soon, EMCGN’s Third International Conference on Corporate Governance in Emerging Markets will take place in Seoul. EMCGN is looking for a volunteering organization to host the fourth international conference in 2013. We would like to discuss the options during the conference. If no one from your institution will be able to participate in the conference and you would like your institution to be considered as the host of the fourth conference, please send an e-mail before the 28th of May to melsaararat@sabanciuniv.edu. The conference series provides a great opportunity to bring local and international experts together to further the discussions on key issues in host countries.
As before, a synthesis report featuring the highlights of the conference will be published soon after the conference. For the report on the second conference, please go here.
Melsa Ararat, Sabanci University
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Emerging Markets Corporate Governance Research Network is supported by the Global Corporate Governance Forum, the leading knowledge and capacity building platform dedicated to corporate governance reform in emerging markets and developing countries. The Forum is a multi-donor trust fund facility located within the IFC, co-founded in 1999 by the World Bank and the Organisation for Economic Cooperation and Development (OECD). For more information about the EMCGN's activities, contact melsaararat@sabanciuniv.edu.