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

Author:Tanveer Ahsan, Sultan Sikandar Mirza, Bakr Al-Gamrh, Chai Bin-Feng, Zia-Ur-Rehman Rao
DOI:https://doi.org/10.1108/CG-04-2020-0121
Pages:78-91
Publication Date:04 Nov 2020
How to deal with policy uncertainty to
attain sustainable growth: the role of
corporate governance
Tanveer Ahsan, Sultan Sikandar Mirza, Bakr Al-Gamrh, Chai Bin-Feng and
Zia-Ur-Rehman Rao
Abstract
Purpose The purpose of this study is to investigate the moderatingimpact of corporate governance (CG) on
the relationship between economicp olicyuncertainty (EPU) and the sustainable growth (SG) of Chinese firms.
Design/methodology/approach The study collects data of 975 Chinesenon-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 industryand year fixed effects regression to investigate the direct and
moderatingimpact of CG on the relationship between EPU and SG of Chinesefirms.
Findings The results of the study explain that EPU negatively affects SG, while concentrated
ownership, boardindependence 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
impactof EPU on the SG of the Chinese firms.
Research limitations/implications The study considersonly non-financial firms; therefore, the results
of this study cannot be generalized for financial firms. Future research can be carried out while
consideringfinancial firms as a unit of analysis.
Practical implications The investigationof the negative impact of policy uncertaintyon SG is essential
for the government and policymakers to devise policies to reduce uncertainty. The investigation of the
moderating effectof CG enriches the literature on corporates’ response to policyuncertainty. It provides
valuableinsights for corporates regarding CG mechanismsto attain SG.
Originality/value To the best of the authors’ knowledge, this is the first study that investigates the
moderatingimpact of CG on the SG of Chinese firms using an index-based measurementof SG.
Keywords China, Corporate governance, Panel data, Sustainable growth, Policy uncertainty
Paper type Research paper
1. Introduction
The shareholder and the stakeholder theories argue two opposing frameworks regarding
the objective of the profit-making role of corporations. According to the shareholders’
approach, the core objective of the corporations is to maximize the value for the
shareholders (Friedman, 1970), while the stakeholders’ theory states that the core objective
of the corporations is to satisfy not only the shareholders but all the stakeholders (Freeman,
1984). Although both competing theories have an opposite point of view, the objectives
explained by both theories can be achieved by the sustainable growth (SG) of the
corporations. Achieving SG requires a sustainable operating environment; however,
changing economic policies creates uncertainty and consequently increases the risk and
cost of capital of the corporations(Mirza and Ahsan, 2020).
Higher economic policy uncertainty (EPU) makes it difficult for the corporations to grow
sustainably; however, improved internal control can reduce the impact of EPU on the SG of
Tanveer Ahsan is based at
the Department of
Accounting and Finance,
Rennes School of Business
France, Rennes, France.
Sultan Sikandar Mirza is
based at the International
Business School, Waikato
Management School,
University of Waikato,
Hamilton, New Zealand.
Bakr Al-Gamrh is based at
the Department of
Accounting and Finance,
Rennes School of Business,
Rennes, France. Chai Bin-
Feng is based at the
Department of Accounting,
Zhejiang Gongshang
University, Hangzhou,
China.
Zia-Ur-Rehman Rao is
based at the Department of
Business, Forman Christian
College University Lahore,
Pakistan.
Received 3 April 2020
Revised 25 July 2020
9 September 2020
23 September 2020
24 September 2020
1 October 2020
Accepted 6 October 2020
PAGE 78 jCORPORATE GOVERNANCE jVOL. 21 NO. 1 2021,pp. 78-91, ©Emerald Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-04-2020-0121

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