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Corporate Governance
By this document u will be able to know the basics of "Corporate Governance"
From Md. Golam Mortuza
cg1
From Anuj Dubey
Electronic copy available at: http://ssrn.com/abstract=987717
Journal of Business Studies, Vol. XXVIII, No.1, June 2007
Corporate Governance and Reporting: An Empirical Study of theListed Companies in Bangladesh
Md. Hamid Ullah Bhuiyan
*
Pallab Kumar Biswas
**
Abstract:
Corporate governance is a burning issue now-a-days. In Bangladesh,a number of attempts have been made on part of different governmental and non-governmental institutions for ensuring better corporate governance.Considering the importance of this issue, this paper has tried to examine theactual corporate governance practices in the listed public limited companies byconsidering 45 disclosure items. A random sample of 155 listed Public Limited Companies (PLCs) has been taken for this purpose. To facilitate the analysis, aCorporate Governance Disclosure Index (CGDI) has been computed and anumber of hypotheses have been tested. The mean and standard deviation of CGDI have been found to be 56.04 and 17.20 respectively. In this study, significant difference has been found to exist among the CGDI of various sectors. Financial sector has been found to make more intensive corporate governance disclosure than the non-financial sector. In general, companieshave been found to be more active in making financial disclosures rather thannon-financial disclosures. Multiple regression result shows that corporate governance disclosure index is significantly influenced (at 5% level of significance) by local ownership, the SEC notification, and the size of thecompany. Belonging to financial or non-financial institution, age, multinational company, and size of the board of directors are not found to have any significant impact on corporate governance disclosure.
Keywords:
Corporate Governance, SEC notification, financial disclosure,multinational company.
Introduction
Corporate governance has evolved and grown significantly in the last decade. Followingthe Enron Collapse there has been an increased emphasis on various aspects of corporategovernance, including its disclosure aspect. Numerous countries have already issuedcorporate governance codes and the recommendations of these codes that typify “good”corporate governance undoubtedly contribute towards increased transparency and
*
Md. Hamid Ullah Bhuiyan,
Assistant Professor, Department of Accounting & Information Systems,University of Dhaka, Dhaka-1000, Bangladesh.
**
Pallab Kumar Biswas,
Lecturer, Faculty of Business Administration, Eastern University.
Electronic copy available at: http://ssrn.com/abstract=987717
2 Journal of Business Studies, Vol. XXVIII, No.1, June 2007
disclosure (Mallin, 2002: 253). In case of Bangladesh, the Securities and ExchangeCommission (SEC), Bangladesh Bank (BB), the Institute of Chartered Accountants of Bangladesh (ICAB), Bangladesh Enterprise Institute (BEI), the Institute of Cost andManagement Accountants of Bangladesh (ICMAB) are some of the pioneer bodiesworking for ensuring better corporate governance in the country. Their efforts include publication of code of corporate governance for Bangladesh, different reports,organization of seminars, issuance of notification etc. Hence, the main motivation of thecurrent study is to explore whether listed public limited companies in Bangladesh are paying attention to all these arrangements and to what extent such attention is beingresulted in annual report disclosure. With this end in view, this article at first brieflydiscusses various aspects of corporate governance framework. Considering all theseaspects, different disclosure issues have been selected to examine the actual corporategovernance practices in Bangladesh. “The foundation of any structure of corporategovernance is disclosure. Openness is the basis of public confidence in the corporatesystem, and funds will flow to the centers of economic activity that inspire trust.” This isa famous quote made by Sir Adrian Cadbury (2000: vi) explaining the importance of corporate governance disclosure. Without adequate reporting mechanisms, shareholdersand others cannot be confident that the affairs of the company are being run in a prudentmanner for their benefit. Also, there is inadequate assurance that the checks and balancesin place are effective. So the main objective of this study is to identify the extent of corporate governance disclosure by Bangladeshi Companies in the annual reports. Thisstudy is restricted to the public limited companies listed with the Dhaka Stock Exchange(DSE).This paper is organized into seven sections. The following section offers a discussion onthe conceptual framework of corporate governance. Section three focuses on theenvironment of corporate governance in Bangladesh. The fourth section deals with thehistorical aspect of corporate governance and the literature review. Section five presentsthe data collection and research methodology. The sixth section discusses data analysisand research findings. The final section concludes the paper with the scope of futureresearch.
Corporate Governance: The Conceptual Framework
The essence of corporate governance is about how owners (principals) of firms canensure that the firm’s assets (and the returns generated by those assets) are usedefficiently and in their best interests by managers (agents) delegated with powers tooperate those assets. This problem is intrinsic to any arrangement where ownersthemselves do not undertake the management functions directly. The corporategovernance problem arises due to the existence of separation of ownership and control
Corporate Governance and Reporting: An Empirical Study 3
rights, informational asymmetry, and incomplete or state-contingent contracts (Lin,2001:5).In such a regime, the prerequisite for effective corporate governance involves:
Alignment of risk-bearing and control
(e.g. rights of shareholders in appointing management,approval of strategy and cash-flow);
Monitoring and oversight
of management and firm’s performance based on transparency, regular and reliable disclosures, and internal checksand balances; and
Incentives
(managerial incentives to enhance effort and align interestsof management with those of owners).It is generally accepted that the governance problem entails a tension betweenaccountability and managerial initiative i.e. between the need for directors or management to be accountable to shareholders on one hand and the need for managementto have the discretion to maximize profits. An apt analogy (with apologies to the CadburyReport) is in terms of unleashing the tiger (management) into the jungle of the market toseek and exploit opportunities while ensuring that the tiger brings home the meat withoutconsuming it all himself, or that it does not eat up the owner in the process (Lin, 2001:6).To address the corporate governance problem in practice, owners (and stakeholders) needto devise a governance system comprising effective mechanisms of control, oversight andmonitoring over management and of incentives
for management to behave in the owners’interest. Such corporate governance system can be perceived as institutional attempts tocreate a structured dialogue between companies and their shareholders and stakeholderswith the purpose of paving the way for understanding the company’s strategic andoperational goals, including critical success factors for achieving those goals (Parum,2005:702).Lin (2001) identifies a number of variables which constitute the design parameters. Themost critical of these include the scope of accountability and the desirable purpose and benefits which determine the specific objectives or measures and criteria of whether governance is good or bad. In a good corporate governance system, management should be accountable to not only shareholders but also other stakeholders such as employees,creditors, major suppliers and customers. The scope of accountability can be broadenedeven further to include those with an indirect stake, i.e. “society” as a whole. Closelyrelated to the question of “to whom should the board be accountable” is the issue of theadvantages of corporate governance. A narrow conception of corporate governance dealswith safeguarding the interests of shareholders (and other security claimants). This seems pretty much to be the dominant view among firms and institutional investors in Anglo-Saxon countries. Good corporate governance in this context involves mainly enhancedcapacity for shareholders to perform oversight and monitoring functions through, for example, approving (or setting) strategic and financial objectives, management selection,decisions on directors remuneration, profit distribution, board representation, etc.
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Corporate Governance and Reporting an Empirical Study of the Listed Companies in Bangladesh
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