Purpose The purpose of this paper is to investigate the impact of CEO incentive-based compensation on earnings management, taking into account the influence of institutional settings and corporate governance systems. Design/methodology/approach Using archival data of 3,000 British, Australian, German, and Austrian firm-years between 2005 and 2014, the study applies fixed-effect estimator to reduce risks of endogeneity bias. Findings The findings reveal that institutional factors influence the relationship between CEO incentive-based compensation and earnings management. Particularly, firms from countries within the Anglo-American model (the UK and Australia), which provide greater protection for investor, stricter legal enforcement, and higher quality of corporate governance, tend to have lower level of earnings management. However, besides corporate governance quality, it is relevant to consider weaker investor protection and legal enforcement to motivate earnings management in firms from countries within the Euro-Continental model (Germany and Austria). Originality/value The study suggests that robust implementation of corporate governance, derived from either model, helps in restraining CEO opportunistic behavior. Importantly, more qualified institutions have higher impact on the relative adequacy of CEO incentive-based pay formulas in mitigating earnings management concerns. This can be extended by future research through comparative studies using other contexts or influential institutions.
The impact of the emerging markets context has been largely neglected in mainstream corporate governance research. The purpose of this paper is to conduct the first empirical study that investigates the relationship between board structure and firm financial performance through bundling theory with contextual considerations for economic, political, and social elements of the emerging Saudi Arabian market. This study uses archival data from a longitudinal sample of all listed firms in the Saudi market for years 2009 to 2013, taking into account the risks of endogeneity bias to OLS regression. The paper found that outside directors from a privileged regional background and government representative directors on the board of companies predict a better return on assets, while outside directors from the ruling royal family positively influence corporate performance only when they are joined by government representative directors. Integration between theory and context provided a more accurate diagnosis of board phenomena in Saudi Arabia. Optimising the recognition of board members by utilising informal institutions determines the actual boardroom players who influence firm profitability. Such an approach involves significant implications for corporate governance theories and practices. Whether this holds in the context of other emerging markets is an area worthy of further investigation.
This paper aims to build corporate governance theory to inform company success in the context of emerging markets. Success for a company listed in an emerging market is contingent on being able to effectively manage a range of business, economic, social and political considerations unique to that emerging country. This paper explains the significance of incorporating context with corporate governance systems to inform how can organizational governance and board of directors affect firm performance. Theory developed in the context of emerging markets provides the basis for more widely applicable emerging stock market insight into theory of context and practice of corporate governance.
The impact of context has little or no consideration in the mainstream corporate governance literature. The purpose of this paper is to consider social, economic, and political elements of the emerging Saudi Arabian market when developing a multi-theoretical model about the relationship between board composition and financial performance.<strong> </strong>The paper attempts to conceptually inform the conversation about context with regard to board composition and firm financial performance in emerging markets. In particular, it discusses these theoretical feedback loops in conjunction with a proposed research agenda for the field.<strong> </strong>The paper proposes shifting the focus of corporate governance in emerging markets from relying on the predominant Western corporate governance theories to the alignment of those theories with considerations on emerging markets context. Such an approach involves significant implications for corporate governance theories and management practices. The paper describes the conditions in which certain formation of board of directors is composed in the Saudi Arabia may generate a competitive advantage. The consideration of emerging markets context can have implications for society as it may influence firms and governments to improve corporate governance standards and practices<strong> </strong>A literature gap in the corporate governance literature identified in this paper holds theoretical and practical implications. This research will enable comparative studies with other emerging markets, and will provide a conceptual benchmark for future corporate governance research.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.