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

• DOI: https://doi.org/10.1108/CG-04-2020-0121
• Pages: 78-91
• Published date: 03 November 2020
• Date: 03 November 2020
• Subject Matter: Corporate governance,Strategy
• Author: Tanveer Ahsan,Sultan Sikandar Mirza,Bakr Al-Gamrh,Chai Bin-Feng,Zia-Ur-Rehman Rao

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