We are pleased to announce that the 5th International Conference on Corporate Governance in Emerging Markets will be held on August 28-29, 2015 at the Stellenbosch Institute for Advanced Studies in Stellenbosch, South Africa.
This issue features stimulating articles that investigate topics such as the diffusion of corporate governance to emerging markets, the governance reforms around the world and their impacts on performance. We also include an interview with Professor Igor Filatotchev that highlights the importance of corporate governance in attracting foreign investors.
CG Insight Series - How Can Emerging Market Companies Enhance their Valuation by Foreign Investors?
Igor Filatotchev is Associate Dean for Research & Enterprise and Director, Centre for Research on Corporate Governance, at Sir John Cass Business School, City University in London. His research focuses on the sociological and economic aspects of corporate governance, among other areas. This is an abbreviated version, read the full interview here.
The most interesting piece on corporate governance in emerging markets I read recently is…
…An article in the New York Times about the Chinese company Alibaba and its initial public offering on the New York Stock Exchange. Despite the initial success of Alibaba’s IPO, the article cautions that investors should be concerned about the relatively small stake held by the members of the controlling Alibaba partnership. As a result, U.S. investors should expect that some of the long-term value created by Alibaba may not be shared with them but rather appropriated by the insiders and companies under their control. More
Right now, I am working on…
…Deeper exploration of how emerging market companies can make themselves more attractive to foreign investors through improved corporate governance.
Our research to date reveals that emerging market companies have to make an even greater effort to adhere to the highest level of corporate governance standards—in some cases well beyond what their home country requires—if they are to succeed in the global marketplace. More
I think the most relevant CG research topic for emerging markets now is…
…Understanding more about the interface between governance policies at the national level and the individual company approach to governance at the micro level.
Companies are molded by local institutions. But, while they may be in total compliance with the rules and regulations in their own countries, they may not conform to the governance standards prized by foreign investors. More
The take-away for emerging market companies is that…
…If you want to attract foreign investors you should use corporate governance as part of your strategy in doing so.
I think emerging market companies are at a crossroads of sorts. They are trying to find the right balance between complying with the institutional pressures of their home markets and their target global markets so they can operate comfortably at home while broadening their access to global markets. In some cases, these efforts can seem at cross-purposes.
Research
The Diffusion of Corporate Governance to Emerging Markets: Evaluating Two Dimensions of Investor Heterogeneity
Woochan Kim, Taeyoon Sung, and Shang-Jin Wei
Kim, Sung and Wei investigate how openness to foreign institutional investors transmits better corporate governance practices and thereby enhances shareholder value. Using a sample of Korean firms and an event-study methodology the authors find positive abnormal returns due to ownership by activist foreign institutional investors. The authors conclude that openness to foreign activist investors, especially those from countries with a strong tradition of activism, can indeed put pressures on firms in emerging markets to adopt corporate governance practices that enhance shareholder values.
Governance Reforms and Firm Value: Worldwide Evidence
Larry Fauver, Mingyi Hung, Xi Li, and Alvaro Taboada
The authors examine the impact of governance reforms on firm value across a wide spectrum of 41 countries, and using a difference-in-differences design they find that firm value increases after enactment of governance reforms. The effect of reforms on firm value is primarily due to provisions related to board independence and audit committee, not due to the separation of the roles of chief executive officer and chairman. As a policy implication authors underline that exogenously imposed governance changes benefit shareholders, mainly in countries with weak institutional quality and for reforms with a comply-or-explain approach.
Which One is the Monitoring Structure, Board or Audit Committee? Evidence from the Adapted Anglo-American Model in Korea
Seung Hun Han, and Hohyun Kim
Adoption of Anglo-American Model in East Asian countries has frequently been in question due to various reasons. In a related article, Han and Kim study how effectively the reformed board-committee structure monitors managerial expropriation in Korea. The article has important implications for policy makers, as they find that increasing independence in board is unlikely to help outside directors to monitor management, because CEOs do not seem to share valuable information in board meetings. The authors claim therefore that it is better to help the audit committee to perform well for shareholders as an independent monitoring structure.
The Determinants and Implications of Board of Directors’ Risk Oversight Practices
Christopher D. Ittner and Thomas Keusch
Ittner and Keusch use survey data from 676 organizations located in 29 countries to take a closer look into the black box of board risk oversight. They examine the relationships between country- and organization-level corporate governance characteristics, board of director risk management practices, and the maturity of organizations’ enterprise risk management processes. The authors find that the assignment of board roles and responsibilities are a major determinant of board risk oversight practices. Ownership structure and country-level governance variables are significantly associated with the assignment of board roles and responsibilities, but they have little direct effect on specific board risk management practices.
Opinion and Commentary
Foreign Direct Investment and Governance Quality in Russia
Olga Kuzmina, Natalya Volchkova, and Tatiana Zueva
What are the financial reasons behind the large heterogeneity in foreign direct investment (FDI) across countries, and why do some countries struggle bringing in FDI? In this forthcoming article, the authors explore how quality of governance affects foreign direct investment, and they find that a shift from the average to the top governance quality across Russian regions more than doubles the FDI stock.
From Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance
Gordon Clark, Andreas Feiner, and Michael Viehs
The authors argue that environmental, social and governance (ESG) factors can cause outperformance by decreasing cost of capital and increasing the cash flows. The study also includes a comprehensive bibliography of both theoretical and empirical studies on sustainability.
Emerging Markets Outperformance: Publicly Traded Affiliates of Multinational Corporations
Martijn Cremers
In a recent IMCA opinion piece Prof. Cremers uses his earlier research to explain how improved corporate governance and the stabilizing role of the parent companies boosted performance in the emerging markets.
Reports
International Integrated Reporting Council (IIRC) announced the publication of two research reports on integrated reporting, one by Black Sun and one by PricewaterhouseCoopers (PwC). The former revealed that 91% of all respondents have seen a positive impact on external engagement with stakeholders, including investors. Of those that have published at least one integrated report, 87% of businesses believe investors better understand their strategy. The latter found that nearly two thirds of investment professionals (63%) believe that the quality of a company’s reporting – including information about strategy, risks and other drivers of value – could have a direct impact on its cost of capital. Black Sun Report | PwC Report
The First 10 Years of the Emerging Markets Corporate Governance Research Network (EMCGN) Report provides an account of EMCGN and its first 10 years of activities. Analysis of publication data shows that EMCGN has been successful in encouraging research on corporate governance in emerging markets in most areas of research that identified as critical at the inception of EMCGN and through its interactions with practitioners and policy makers. EMCGN has been also successful in stimulating collaborative research and facilitating dialog between scholars and the larger CG community.
The latest ICGN Global Governance Principles report is out.
In the course of 2013, RepRisk has analyzed news on thousands of companies across the globe in relation to their environmental, social and governance (ESG) risks. The recent report on companies around the globe with highest ESG risk can be accessed here.
A research report prepared by Columbia University’s Masters of Science in Sustainability Management (MSSM) program evaluates 10 global ESG data providers on the quality and completeness of their offerings:
Events and Calls for Papers
Journal of Economics and Business has a special issue on Governance and Risk in Banking. The extended deadline is October 1, 2014.
ACGA's 14th Annual Conference, the "Asian Business Dialogue on Corporate Governance 2014", will take place in Hong Kong on November 4-5, 2014.
Centre for Corporate Governance, Institute of Public Enterprise, Hyderabad and Accounting Research Institute, Universiti Teknologi Mara, Malaysia are organizing the "6th International Conference on Corporate Governance" on November 20 – 21, 2014 in Hyderabad, India.
World Business, Finance and Management Conference will be held on December 8-9, 2014 at Rendezvous Hotel, Auckland, New Zealand. Corporate governance is among the demanded fields of research, and deadlines for manuscript submission and for registration are October 31, 2014 and November 24, 2014.
EURAM Public Management SIG Mini-Conference on Corporate Governance, Accounting and Accountability of State-Owned Enterprises and Agencies will be held on February 19-20, 2015 at Leipzig University, Faculty of Economics and Management Science, Germany.
5th International Conference on Corporate Governance in Emerging Markets will be held on August 28-29, 2015 at the Stellenbosch Institute for Advanced Studies in Stellenbosch, South Africa. More information and the call for papers will follow shortly.
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 Mehmet.Canayaz@sbs.ox.ac.uk.
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 http://www.ifc.org/corporategovernance or contact Melsa Ararat, PhD, Sabancı University, School of Management, at melsaararat@sabanciuniv.edu.