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  • Ethical disclosure in the Shari’ah annual reports of Islamic banks: discourse on Shari’ah governance, quantitative empirics and qualitative analysis

    Purpose: As an essential component of Islamic governance for ensuring religious compliance, Shari’ah annual reports (SARs) play an important role in providing communication between Shari’ah board (SB) members and stakeholders. This paper aims to determine the ethical disclosure in SARs to identify how close the Shari’ah disclosure to the standards set by AAOIFI and also substantive morality of Islam. The research also aims to examine the factors determining disclosure performance. Design/methodology/approach: Two disclosure indices are developed to generate data from the SARs: the AAOIFI standards for Shari’ah governance index for form related approach, an Islamic ethicality augmented index reflecting on substantive morality approach. The sample consists of 41 Islamic banks from 15 different countries for the period of 2007–2014. Sampled 305 SARs were examined through disclosure analysis in line with the two indices developed for this study. The econometric analysis was run to identify the factors determining disclosure performance. Findings: The findings suggest that AAOIFI guidelines have an influence on the level of disclosure, even if Islamic banks have not adopted them. However, the level of disclosure for the ethically augmented index is found to be very limited with reliance on general statements in most of the cases. As part of determining factors, the popularity of Shari’ah scholars is significant for both indices, while the existence of an internal Shari’ah auditing department holds some explanatory power. The adoption of AAOIFI standards at the country level, the regulatory quality and the duration of Sharīʿah-compliance are particularly deterministic factors in terms of complying with AAOIFI standards for SARs. Originality/value: Although SB is the most crucial division of corporate governance in Islamic banks in terms of securing the “Islamic” identity of these institutions, their most important communication instrument, namely, SAR, has not been explored sufficiently, alongside an insufficient attempt to constitute Islamic corporate governance. Initially, this study attempted to constitute an Islamic corporate governance framework as a theoretical construct, which provides context for the empirical part of the research and this should be considered a novel approach. Second, the empirical part of the research aims to fill the gap observed in the literature such as small sample size and index construction-related matters. This research is conducted with a larger sample size as compared to the available studies in the literature and it has developed two indices for disclosure analysis along with developing an Islamic morality-based index beside an index based on AAOIFI standards.

  • Can forensic accounting impact sustainable corporate governance?

    Purpose: The purpose of this paper is the measurement of forensic accounting’s (FA) impact on sustainable corporate governance (SCG) within Omani public listed companies. Beyond merely cataloging the latest criminal innovations and SCG problems, this paper offers a path forward to overcome the myriad threats that can harm the organization and society. FA and SCG can achieve, anticipate and prevent tomorrow’s fraud today before organizations reach the point of no return. Design/methodology/approach: For this study, FA is an independent variable and SCG is the dependent variable. This study used a descriptive cross-sectional survey design. Data are collected by internet-based tool and analyzed via partial least squares structural equation modeling and Statistical Package for Social Sciences. Findings: Result suggests that FA has a significant direct impact over SCG; moreover, FA can become the part of governance management toward the elimination of fraud and achievement of SCG. Practical implications: This study can assist regulators, professional bodies and organizations in amending their codes of corporate governance and organizational policies by introducing the SCG clauses and making FA as a compulsory part of governance system. Originality/value: Up to the best of the knowledge of researchers, there is no study conducted before which verifies the FA impact on SCG; moreover, previous relevant studies verify only one constituent for SCG, whereas this study is identifying three constituents necessary for SCG.

  • Blockchain technology – a new era of ecolabelling schemes?

    Purpose: This paper aims to investigate the potential of blockchain technology (BCT) for enhancing the effectiveness of ecolabelling schemes (ecolabels). The paper examines ecolabels’ effectiveness across three criteria – reducing adverse environmental and social impacts, enhancing quality and safety standards during production and service delivery and increasing producer’s trading power via decreased information asymmetry. These three categories are compared with technology’s status quo, linking use cases relevant to the enhancement of contemporary ecolabels’ effectiveness. Conclusions are drawn over BCT’s potential for enhancing the effectiveness of ecolabels. The paper also offers directions for future research related to BCT and purpose-driven ecolabels. Design/methodology/approach: This study adopted a qualitative interpretivist approach to investigate the potential BCT represents for enhancement of the effectiveness of ecolabelling schemes (ecolabels). The paper identifies three criteria against which ecolabels can be assessed in respect to their effectiveness. Additionally, it looks for linkages between the design of ecolabels and a creation and utilisation of improved practices in a given industry. This conceptual literature review resulted in a framework for ecolabels’ effectiveness and a lens to review BCT-related literature with potential to enhance ecolabels’ design and trading practices. Findings: There is an undeniable shift in attitude towards the adoption of BCT, stepping away from the naïve notion that BCT can fix all the problems encountered in a supply chain. On the one hand, BCT offers to better inform consumers of the green benefits ecolabelled products provide. On the other hand, a broader application of BCT currently faces a trilemma of challenges related to issues of decentralisation, security and scalability. BCT’s presence is likely to force ecolabelling organisations to review their position on the market and their intended purpose in the marketplace. Research limitations/implications: This paper is based on a conceptual literature review and derives with three key themes grouping ecolabels against their efficiencies. These themes provide scope for a search of relevant blockchain-embedded use cases that may or may not contribute to the enhancement of ecolabels’ impact. This is a conceptual, theoretical review of possible approaches that can be adopted by commerce with predictions relevant to ecolabels. This paper does not claim any empirical findings. Practical implications: Despite interest BCT gained to date, the technology still deals with unresolved issues related to decentralisation, scalability and security. Many studies advise caution, and some do not view the technology as disruptive but foundational. The paper provides references to studies that assist organisations with a decision, whether it is the right time to invest in BCT or not. Social implications: This paper adds to the ambition most ecolabels strive for, and that is to mitigate adverse environmental and social impacts production of conventional products may have. Use cases embedded in BCT offer insights into the impacts of enhanced transparency within supply chains. For example, BCT is likely to work well for improving the lives of those producing the foods we eat while informing on issues such as child labour or planting of new trees as part of an offset program. Originality/value: This paper’s contribution is manifold. First, it delivers a qualitative conceptual analysis of principal ecolabels against their stated purpose. Second, it reviews the BCT literature and identifies cases that are able to provide perspective on the technology’s relevance to ecolabels’ effectiveness. Third, by exploring the overlap of the two concepts, this paper discusses the likelihood of future BCT’s utilisation in ecolabelling programs.

  • CSR performance and the cost of debt: does audit quality matter?

    Purpose: This study aims to shed light on the effect of corporate social responsibility (CSR) on the cost of debt. It also investigates whether audit quality affects the cost of debt incurred by socially responsible firms. Design/methodology/approach: Based on a sample of French non-financial companies over the period 2005 to 2016, this paper uses panel data regressions. This paper re-estimates the model using Newey-West standard errors and the weighted-least-squares method. For further robustness, this paper runs instrumental variable regressions using the two-stage instrument variable method (two-stage least square). Findings: The results show a negative relationship between CSR performance and the cost of debt, suggesting that financial institutions are likely to apply preferential costs for socially responsible firms. Financial institutions reward socially responsible companies as they recognize the potentiality of CSR to reduce firm risk and enhance its reputation. The findings also show that the perceived audit quality, along with CSR performance, are relevant to banks in the pricing of debt. The incremental audit quality, attributable to audits by the Big 4 auditors, decreases the cost of debt for CSR firms. Big 4 auditors are expected to, simultaneously, play information and insurance roles, thereby enhancing the firm risk profile. The results are robust to alternative audit quality measures (i.e. audit fees). Practical implications: This study has important implications for managers and banks. Managers will be able to understand the effect of CSR on financing costs with relevant implications for strategic financing planning. Firms are also encouraged to signal their commitment to maintain a high-level quality reporting and reduce agency costs through their expenditure in auditing (i.e. hiring a large well-known audit firm). Moreover, this study sensitizes banking institutions to encourage the concept of socially responsible finance and consider soft information (i.e. involvement in societal issues, corporate citizen, trustworthiness, integrity and non-opportunistic behavior), as part of the credit decision-making and debt pricing process. Originality/value: This study extends the literature on CSR and the cost of debt. Unlike prior studies, this paper focuses on the debt-pricing effects of audit quality for CSR firms. Audit quality is deemed to be an important governance feature that is likely to constraint opportunistic behaviors (i.e. CSR diversion) and play information and insurance roles to lenders. Audit quality (perceived or real), along with CSR performance, are associated with lower costs of debt.

  • Effect of corporate governance attributes on IFRS compliance: evidence from a developing country

    Purpose: This study aims to analyze the relationship between corporate governance attributes and the International Financial Reporting Standard (IFRS) compliance among Zambian listed companies. Design/methodology/approach: Data was collected through content analysis of annual reports and audited financial statements of 20 Zambian listed companies for the period 2012 to 2018. This is a longitudinal study which involved panel data analysis. A Hausman test was conducted to select the model to use to run the panel regression analysis. Findings: The results indicate a positive statistically insignificant relationship between board size, board independence and IFRS compliance. A statistically significant negative relationship between audit committee independence and IFRS compliance. However, there is a positive relationship between board members with accounting and auditing experience, the inclusion of women on the board and IFRS compliance. Research limitations/implications: Limitation includes the narrow focus on listed companies only which cannot be generalized to other public interest and private companies in Zambia. Practical implications: The study findings imply that corporate governance attributes such as the inclusion of qualified and experienced Chartered Accountants and women on the board will increase IFRS compliance. The appointment criteria of non-executive directors should be strengthened. Originality/value: This is the first empirical study to analyze the relationship between IFRS compliance and corporate governance in Zambia. The study also responds to the call by the World Bank (2017) to empirically study IFRS compliance in Zambia and contributes to the scant literature in developing countries on determinants of IFRS compliance.

  • Does the market for corporate control influence executive risk-taking incentives? Evidence from takeover vulnerability

    Purpose: This study aims to investigate the role of the market for corporate control as an external governance mechanism and its effect on executive risk-taking incentives. Managers tend to be risk-averse as they are more exposed to idiosyncratic risk, resulting in sub-optimal risk-taking that does not maximize shareholders’ wealth. The takeover market alleviates this problem, inducing managers to take more risk. Therefore, risk-taking incentives inside the firm are less powerful when the outside takeover market is more active. Design/methodology/approach: Exploiting a novel measure of takeover vulnerability recently constructed by Cain et al. (2017), the authors explore how takeover vulnerability influences executive risk-taking incentives. Using a large sample of US firms, the authors use fixed-effects regressions, propensity score matching and instrumental variable analysis. Findings: Consistent with this study’s hypothesis, a more active takeover market results in less powerful risk-taking incentives. Specifically, a rise in takeover vulnerability by one standard deviation diminishes executive risk-taking incentives by 22.39%, which is an economically meaningful magnitude. Originality/value: To the best of the authors’ knowledge, this study is the first to explore the effect of the takeover market on managerial risk-taking incentives, using a novel measure of takeover susceptibility. The authors’ measure of takeover vulnerability is considerably less susceptible to endogeneity, enabling the authors to draw causal inferences with more confidence.

  • Corporate governance and banking performance: the mediating role of intellectual capital among OIC countries

    Purpose: The existing literature asserted that the Islamic banking industry progress significantly, but it has increasingly found asset deficient which assaulted the performance of Islamic banks (IBs). The aim of this study to examine the mediating role of intellectual capital (IC) on the relationship between corporate governance (CG) mechanisms and IBs performance is examined (ATO, NPM). Design/methodology/approach: A panel sample of 129 IBs is drawn from the 29 organisation of Islamic cooperation (OIC) countries from 2008 to 2017. Two-step system generalized method of moments (2SYS-GMM) was used to account for the unobserved endogeneity and heteroscedasticity problem. Findings: The empirical findings demonstrate that there is a significant impact of the CG mechanism on IC. Moreover, the empirical findings indicate that CG has a direct influence on banking performance but it affects indirectly through IC. IC also appears to have a mediation role in the relationship between the CG mechanism and the performance of IBs. Research limitations/implications: As the empirical research on IC from CG point of view in Islamic banking is generally new in the banking literature, the output of this research will contribute to the building up of empirical framework and practices regarding IC in the Islamic banking industry by using the resource-based theory as a leading theory and agency theory as a sub theory. It is anticipated that this study provided a superior comprehensive discussion of the IC in IBs across OIC countries which discovers the CG mechanism to influence the IC to improve banking performance. Practical implications: This study offers useful insights to the regulators and practitioners to draw the rules and regulations in improving the CG mechanism and the effectiveness of internal controls by acknowledging the importance of IC in Islamic banking institutions. Particularly, the findings of this study may be of benefit to bankers to efficiently use the IC as a premise to design new and creative strategies to achieve a competitive advantage in the banking industry. Originality/value: The study is unique in its nature because it presents a successful model for IBs to concentrate more on the role of IC in enhancing banking performance, which might be used by the banks to rearrange the roles within CG, to place their priorities regarding the internal governance system and financial plans for competency enhancement.

  • Successful private investor activism in an emerging market

    Purpose: Institutional investors in emerging markets are increasingly under pressure to integrate environmental, social and corporate governance considerations into their investment analyses and ownership practices. Old Mutual Investment Group (OMIG) is a South African-based institutional investor that has long been regarded as a pioneer in responsible investing. The purpose of this study was to examine the nature and effectiveness of OMIG's private shareholder activism endeavours over the period 1 January 2014 to 30 June 2018. Design/methodology/approach: A unique database was constructed using proprietary, point-in-time data for 69 listed companies covering 283 private engagements. Binary logistic regressions were conducted to test the hypothesised relationships. Findings: The majority of the private engagements centred on executive remuneration. This finding was not unexpected given the large and growing wage gap in South Africa. Close to two-thirds of OMIG’s private deliberations were successful. Engagement success was positively associated with a targeted company’s capacity to change and desire to protect its reputation. Research limitations/implications: This study only investigated the private shareholder engagement actions of a single, well-resourced institutional investor. Practical implications: The findings serve as an encouragement to other investors who are contemplating a more active approach to change unethical and unsustainable corporate policies and practices. Originality/value: This unique analysis sheds light on the determinants and success of private shareholder activism in an emerging market.

  • Is the effect of board diversity on CSR diverse? New insights from one-tier vs two-tier corporate board models

    Purpose: The purpose of this study is to investigate the impact of board diversity on corporate social responsibility (CSR). The aim is twofold; does board diversity has any effect on CSR, do structural and demographic differences between one-tier and two-tier board models may impact this effect? Design/methodology/approach: This paper applies a panel generalized method of moments estimator to a sample of 2,544 non-financial listed firms from 42 countries over the period of 2013–2017. Findings: The findings reveal that board diversity leads to effective CSR. By distinguishing between diversity among boards from diversity within boards, the results display the effects of the specific variables that make up the manner and latter’s constructs within unitary and two-tier board structures. Specifically, this paper reveals that tenure, ideology and educational level (gender and nationality) predominantly appear to drive a firm’s CSR within one (two)-tier boards settings. These results remain consistent when robustness tests are ruled. Practical implications: The study provides managers, investors and policymakers with knowledge about how among and within board diversity attributes favor the decision-making process around CSR. The evidence is useful for companies in setting the criteria to identify directors who can support their strategic decisions. It benefits, moreover, academics in better understanding firms’ CSR determinants and practices under different corporate board models. Social implications: Examining how different sets of board diversity affect firms’ CSR given divergences between one-tier and two-tier board structure is a useful and informative endeavor for all community actors. Originality/value: Unlike prior studies that identify the limited scope of diversity, the study is the first to examine the effect of broader dimensions of board diversity on CSR under both one-tier and two-tier board settings. This paper provides a contribution to a greater understanding of the impacts underlying board models and different attributes of board diversity on CSR. This new understanding will help to improve predictions of different features of board diversity impacts on decision-making processes around organizational outcomes.

  • How to deal with policy uncertainty to attain sustainable growth: the role of corporate governance

    Purpose: The purpose of this study is to investigate the moderating impact of corporate governance (CG) on the relationship between economic policy uncertainty (EPU) and the sustainable growth (SG) of Chinese firms. Design/methodology/approach: The study collects data of 975 Chinese non-financial listed firms for the period from 2010 to 2017. The study measures SG using a comprehensive index based on nine financial indicators and applies industry and year fixed effects regression to investigate the direct and moderating impact of CG on the relationship between EPU and SG of Chinese firms. Findings: The results of the study explain that EPU negatively affects SG, while concentrated ownership, board independence and board gender diversity (BGD) positively contribute to the SG of the Chinese firms. The results also explain that concentrated ownership and BGD reduce the negative impact of EPU on the SG of the Chinese firms. Research limitations/implications: The study considers only non-financial firms; therefore, the results of this study cannot be generalized for financial firms. Future research can be carried out while considering financial firms as a unit of analysis. Practical implications: The investigation of the negative impact of policy uncertainty on SG is essential for the government and policymakers to devise policies to reduce uncertainty. The investigation of the moderating effect of CG enriches the literature on corporates’ response to policy uncertainty. It provides valuable insights for corporates regarding CG mechanisms to attain SG. Originality/value: To the best of the authors’ knowledge, this is the first study that investigates the moderating impact of CG on the SG of Chinese firms using an index-based measurement of SG.

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