Blockchain technology in corporate governance: disrupting chain reaction or not?

• Pages: 67-86
• DOI: https://doi.org/10.1108/CG-07-2018-0261
• Date: 23 September 2019
• Published date: 23 September 2019
• Author: Harjit Singh,Geetika Jain,Alka Munjal,Sapna Rakesh
• Subject Matter: Strategy

Blockchain technology in corporate

governance: disrupting chain

reaction or not?

Harjit Singh, Geetika Jain, Alka Munjal and Sapna Rakesh

Abstract

Purpose –The purpose ofthis paper is to determine the stakeholders’ acceptanceon blockchain and to

investigate the model fit by using ‘‘Technology Acceptance Model’’ withspecial reference to corporate

governancethrough cryptography to resolvethe decades-old problems of financialrecord-keeping.

Design/methodology/approach –The whole analysis has been performed in the two steps, i.e.

confirmatory factors analysis and structural equation modeling, to prove model fit between behavioral

intention and actual behavior for using blockchain technology. Total 223 respondents have been

selected, and the selectionof the respondent is primarily on the basis of their previous experiencewith

tradingcorporate equities.

Findings –The study determines empirically all the mentioned relationships of attitude, perceived ease of

use and perceived usefulness with the behavioral intention as per the conceptual model to prove the

relationship. The results of the manuscript shows the model fit indexes for various constructs are prove the

model fit as per the theorized model. The values of the variousindexes are found to be under the permissible

range which explains the relationship of various constructs based on the theorized model.

Research limitations/implications –Despite, the limitationsin terms of selection of samplingmethods,

outcome and the interpretation, the results proves the fit with the theoretical framework. The major

implicationis to understand the real-time use of blockchain technologyfor the transfer of shares from one

party to other.

Practical implications –Stakeholdersin corporate governance namely customers,creditors, suppliers,

community, employees, owners, investors, trade unions and social activists could benefit in different

ways. Investors could benefit from being able to purchase equity at low price and to sell them into a

marketwith greater liquidity, but they would foundit difficult to camouflage their trades.

Social implications –The study opines that virtually all aspects of the corporate governance can be

improved through the adoption of this technology resulting in greater transparency, improved liquidity

and loweringcosts.

Originality/value –This study will be a reference for global players in the financial industry that have

started investing in this innovativetechnology vis-a

`-vis recent announcementof adoption of blockchain

by global exchanges including NASDAQ, NYSE and Deutsche Borse, as a new method for trading,

tracking ownership and monitoring systemic risk for strengthening corporate governance mechanism.

This studywill have a significant index for futurereference where the technology adoptionwill be tested to

have bettercorporate governance which willbe useful for academics and professionals.

Keywords Stakeholders, Internet of Things (IoT), Corporate governance, Blockchain technology,

Smart contracts, Fintech, Distributed ledger

Paper type Research paper

1. Introduction

Blockchain described as decentralized ledger system, stores information and allows for

secure transactions without the need of any intermediary. The information is stored on

computers and monitored by stakeholders all over the world and ensures that no single

Harjit Singh and Geetika Jain

are both based at the Amity

School of Business, Amity

University, Delhi NCR, India.

Alka Munjal is based at

Amity University, Delhi

NCR, India. Sapna Rakesh

is based at the Institute of

Management Studies

Ghaziabad, Ghaziabad,

India.

JEL classif‌ication –G23,G33,

G34

Received 31 July 2018

Revised 14 February 2019

5 August 2019

Accepted 9 August 2019

DOI 10.1108/CG-07-2018-0261 VOL. 20 NO. 1 2020, pp. 67-86, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 67

entity, including businessesexecutives or cybercriminals can have control over the network.

This decentralized nature of blockchain coupled with speed, security and transparency

make this technology necessitatedto those participating in corporate governance.

The applications of blockchain technology are colossal. Record keeping through block chain

can solve issues related to companies’ inability to keep precise and timely records of who hold

their shares, resulting in reduced settlement time. The blockchain offers new prospects to

facilitate the agency relationship between corporate participants, thereby creating trust and

transparency (Fearnley and Soohoo, 2018). This offers huge scope for reduced agency c osts

for both shareholders and companies through the optimization and modernization of the

annual general meeting (AGM) (Van der Elst and Lafarre, 2017). For instance, in a private

blockchain Hyperledger of IBM, the company and shareholders that hold sufficient shares can

place proposals (Cygnetise, 2018). Eligible shareholders are immediately noti fied and can

exercise their voting rights during a short span of period (Cald eron et al.,2016). The voting

results may then become visible to all the shareholders but no shareholder c an have the view

what voting decision was taken by other shareholders (Kostyuk, 2005).

Consumers requiring financial information now need not to depend on the statements

issued and verified by the auditors (Yermack, 2017). Instead, they could trust with certainty

the data available on the blockchain and execute their own accounting judgment to make

their own non-cash adjustments such as depreciation or inventory revaluation (Deloitte,

2016). Besides this, following are the probable areas where blockchain serves as a tool for

effective corporate governance vis-a

`-vis improving the relationship between shareholders

and the company (Tapscott and Tapscott,2016).

More importantly, blockchain offers unrevealed partners to operate securely without the

involvement of a central authority or any intermediary. This allows the formation of peer-to-

peer distributed economies and lays the way for number of applications, from e-commerce

to corporate governance (Calderon et al.,2016). Adopting blockchain to record stock

ownership could mitigate many longstanding problems related to organisations’ failure to

maintain accurate and timely records of who owns their shares (Kahan and Rock, 2008).

Mere simple extensions could permit blockchain to embrace self-performing smart

contracts, for instance stock options owned by personnel or warrants held by external

investors. Such smart contracts could diversify into areas such as the pre-contracted

resolution of financial turbulence. Blockchain could provide unparalleled transparency to

investors to ascertain the ownership positions of equity and debt investorsand suppress ill-

practices on the part of watchdogs,exchanges, and registered companies.

If a firm decides to maintain its financial records on a blockchain, scope for additional

earnings and other accounting tactics could fall dramatically, and associated party

transactions would be much more crystal clear. Implementing blockchain can increase the

speed of decision-making, facilitate fast and efficient involvement of shareholders. Further,

Annual general meeting (AGM), an untidy mandatory requirement for the registered firms

which suffers from procedural flaws particularly when shareholders vote distantly have

started modernizing their AGMs with the use of blockchain resulting in lessening

shareholders’ voting costs.

According to “UCL Centre for Blockchain Technologies” or commonly called “UCL CBT[1]”

blockchain technology is not merely an infrastructure for “crypto-currencies” but presents

exponential potential to alter the way modern administrative work gets done. The UCL

research institute envisions a future where “Blockchain and Distributed Ledger

Technologies” are being widely accepted and unified into the socioeconomic system,

transformed completely (Abeyratne and Monfared, 2016). Hence, they are getting

worldwide attention of regulators, industry and academia for the formation of an “innovative

and connected ecosystem” wherenot only expertise is freely shared but also resources and

platforms are easily accessed by theseactors[2](Figures 1 and 2).

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