Mohammad I. Azim

Corporate governance mechanisms and their impact on company performance: A structural equation model analysis

The purpose of this study is to use structural equation modelling (SEM) to investigate the extent to which different monitoring mechanisms – the board and its committees, shareholders and independent auditors – are complements (i.e. a positive covariance) or substitutes (a negative covariance) for each other. The lack of consistent results in previous corporate governance research may be attributable to attention not being paid to monitoring mechanisms’ substitution or complementary relationships. By using SEM, this study concludes that complementary and substitution relationships among monitoring mechanisms are present. Using data from the pre – and post – global financial crisis period, this study explains where such corporate government impacts occurred, the inconsistencies that are evident in previous studies and provides insights into corporate governance practices.

Corporate reporting of intellectual capital: evidence from the Bangladeshi pharmaceutical sector

Purpose - – The purpose of this paper is to provide an understanding of the intellectual capital (IC) reporting practices of the Bangladeshi pharmaceutical industry, one of the most significant industries to the Bangladeshi economy. It investigates the extent and qualitative characteristics of IC disclosures made by listed pharmaceutical companies in Bangladesh. Design/methodology/approach - – Data are gathered through a content analysis of the 2006 annual reports of 16 pharmaceutical companies quoted on the Dhaka Stock Exchange. The content analysis is performed by IC topic (i.e. categories and subcategories) and three semantic properties of IC disclosure: first, format (i.e. discursive, numerical but non-monetary, numerical-monetary and visual); second, news-tenor (i.e. positive, neutral and negative); and three, time-orientation (i.e. forward-looking, non-time-specific and past-oriented). Findings - – Results suggest a clear awareness among the Bangladeshi pharmaceutical companies of the significance of IC in corporate value creation and a commitment to publicly communicating IC. Some evidence is found of the need to manage stakeholder relationships, and legitimacy and impression management motives underpinning the managements desire to disclose IC. Also, proprietary cost theory explains the variation in the disclosure of types of IC. The Bangladeshi pharmaceutical companies did not adopt a consistent framework for IC reporting. A lack of consistency in reporting IC was also evident as the extent and subcategories of IC disclosures varied among companies. The findings indicate the Bangladeshi pharmaceutical companies may not have properly measured and managed their IC. Research limitations/implications - – There are two main limitations specific to this study. First, it only provides a snapshot of IC disclosure practices of Bangladeshi pharmaceutical companies in 2006. Changes may have taken place since then that would have affected the IC-intensity and IC utilisation of these entities. Second, the studys sample is limited due to its focus on one industry. However, it is representative of the population as it includes more than two-thirds of Bangladeshi pharmaceutical companies. This limitation affects the ability to conduct statistically meaningful analyses for testing any hypotheses relating to IC disclosure. Originality/value - – This is the first study on IC reporting practices of Bangladeshi pharmaceutical companies. Unlike most prior studies on IC disclosure practices, this study measures the quality of disclosures by analysing their semantic properties. The paper highlights the need for building organisational competencies in managing, measuring and reporting IC in Bangladesh.

Corporate social responsibility disclosures and earnings quality: Are they a reflection of managers’ opportunistic behavior?

Purpose - – This paper aims to explore the relationship between corporate social responsibility (CSR) disclosures and earnings quality proxied by earnings accruals. Specifically, we examine whether CSR disclosures are context-specific, that is, whether companies dominated by powerful stakeholders are obliged to behave in a responsible manner to constrain earnings management, thereby reporting higher-quality earnings to investors. Design/methodology/approach - – This paper explores the relationship between CSR disclosures and earnings quality proxied by earnings accruals. Specifically, we examine whether CSR disclosures are context-specific, that is, whether companies dominated by powerful stakeholders are obliged to behave in a responsible manner to constrain earnings management, thereby reporting higher-quality earnings to investors. Findings - – Results show that managers in an emerging economy manage earnings when they provide more CSR disclosures. Such earnings management is achieved through income increasing discretionary accruals. Furthermore, companies from export-oriented industries dominated by powerful stakeholders (international buyers) disclosing more CSR activities, provide transparent financial reports through constraining earnings management. Originality/value - – The findings of this study are significant for both investors and policymakers. Investors should not take for granted that firms engage in CSR activities, behave ethically and provide transparent financial reports. As we document that firms might manipulate earnings through discretionary accruals and provide less transparent financial reports to shareholders, the credibility of firms’ CSR policies should be assessed with caution. Policies directing at promoting socially responsible practices instead of motivating the desired behaviour, may provide managers with additional incentives to utilise CSR for opportunistic behaviour. Thus, policymakers need to be cautious about this opportunistic behaviour and enhance monitoring to enforce social compliance. Possibly, some guidelines can be introduced to confirm that CSR disclosures are based on actual practice and not just a “green wash” statement to deceive stakeholders.

Biodiversity and local government: a reporting and accountability perspective

Purpose - – The purpose of this study is to illuminate the disclosure of biodiversity material contained in the reported information of 151 local government authorities (LGAs) in New South Wales, Australia. The introduction of the 1992 Convention on Biological Diversity (an international treaty to sustain the rich diversity of life on earth) has made the issue of fauna management and monitoring, and the associated requirement for cost-effective information, much more important. As local communities are best placed to make decisions about the protection of their local environments, the content in external reports and other disclosures allows stakeholders to gauge how accountable LGAs are regarding the conservation of biodiversity within their geographical jurisdiction. Design/methodology/approach - – Content analysis was used to analyze the disclosures of these LGAs. Findings - – The results reveal marked differences in the reporting of biodiversity issues. In fact, LGAs in the state of New South Wales (Australia) have been, at best, lukewarm in their disclosure of strategic information relating to biodiversity, particularly in their strategic goals and plans. Originality/value - – This paper contributes to the academic literature on biodiversity reporting by investigating existing reporting practices and providing evidence that a universally adopted framework for biodiversity reporting and reporting of local native fauna is required. In particular, the impacts of these practices need to be properly understood for LGAs to provide accountability to their stakeholders.

Risk governance and performance: a developing country perspective

Purpose - – The purpose of this paper is to investigate the association between risk governance and bank performance in a country where disclosure of risk information is virtually voluntary. Design/methodology/approach - – Using 210 bank-year observations comprising hand-collected data for the period 2006-2012, the study uses regression analysis to test whether a significant relationship exists between risk governance and banks’ accounting- and market-based performance. Findings - – This paper investigates risk governance in terms of risk disclosure, number of risk committees and existence of a risk management unit, controlling for other corporate governance variables. Accounting-based performance is measured by return on equity and return on assets; market-based performance is measured by Tobin’s q and buy-and-hold returns. The results show that there is a significant relationship between risk governance and bank performance measures used in this study. Research limitations/implications - – This paper complements the governance literature by incorporating agency and neo-institutional theory to provide robust evidence that risk monitoring and management are associated with bank performance, which has become extremely important following the global financial crisis (2007-2008). Practical implications - – Empirical evidence in this paper suggests that risk governance characteristics can be used as channels to improve bank performance. In addition, stakeholders may find these results useful in selecting their preferred bank. Originality/value - – The uniqueness of this paper lies in its country setting. Most studies on governance and performance involve developed countries. This paper’s contribution is to examine the association of risk governance characteristics for both accounting-based and market-based performance in a developing economy setting, with virtually voluntary compliance mechanisms in place.

Combating corruption in a microfinance institution

Purpose - Combatting corruption is an important social and commercial issue in most human societies. Many researchers have revealed how an effective anti-corruption practice can possibly minimise corruption in an organisation. However, studies focusing on organisation which is relatively successful in managing corruption at employees’ level are relatively rare. On this note, this study focuses on Grameen Bank, a Nobel Prize winning microfinance institute, that was able to minimise its level of corruption among its employees in a country where corruption is the norm. Design/methodology/approach - This paper uses standard economic theory to explain the perceptions and behaviours of the employees of Grameen bank, who live and work in a highly corrupted socio-cultural environment. We have used questionnaires to ascertain the perceptions of Grameen Bank employees to corruption-combating behaviours. We also conducted interviews among Grameen’s board members, managers and officers to further explore the nature and effectiveness of this organisation’s anti-corruption mechanisms. Findings - Corruption can never be entirely eradicated, however, it can be diminished and opportunities for corruption can be minimised. This paper found, through an analysis of employee perceptions relating to governance and corruption in the Grameen Bank that corruption exits, but there are systems in place to prevent it and to assist with staff morality. This research also uncovered a number best practices in Grameen Bank’s governance to minimise corrupt behaviours; which includes, but not limited to, strong monitoring, decentralisation of authority, review of decision-making process, high internal audit intensity, impersonal punishment, anti-corruption cultures, and transparency. Originality/value - This study suggests that it is possible for organisations to resist corruption, especially microfinance institutions, even when it operate is a highly corrupt socio-cultural environment.

Corporate Social Reporting by Pharmaceutical Companies in a LDC: A Hard Pill to Swallow

Purpose: The purpose of this paper is to focus on corporate social reporting by pharmaceutical companies operating in a least developed country, Bangladesh, where the pharmaceutical market remains small compared to its population size. In recent times, awareness of healthcare has increased and the government is demonstrating more interest in the pharmaceutical market. According to IMS Research, a UK–based market research firm, the retail market size is estimated to be around BDT 55 billion, growing by 6.9% in 2008 and then by 16.8% in 2009. This brings a new challenge for increasing corporate social disclosure as more profits are made. In 2009, the UN Global Compact Local Network was launched in Bangladesh and some Bangladeshi companies have participated in this initiative. No studies have previously explored the commitments to environmental and social disclosure by pharmaceutical companies operating in Bangladesh. Design/methodology/approach: Content analysis instruments are employed to analyze corporate social reporting by listed pharmaceutical companies in Bangladesh. Findings: Analysis of annual reports published in 2007-2008 reveals that 33.33% of listed pharmaceutical companies made some kind of CSR disclosures. As a least developed country, this figure is quite impressive compared to CSR disclosures in other sectors, such as ceramics, engineering, IT, paper and printing. However, an extensive survey of the contents, form, nature and extent of corporate social reporting of pharmaceutical companies reveals that more than three quarters of all disclosures are generalized qualitative statements without any attempt at quantification. More than half of disclosures are located in the director’s report and separate section of a company’s annual report, and the average length of disclosures amounted to less than one quarter of a page. Originality/value: This paper makes a substantial contribution to the literature since no previous studies have reported on pharmaceutical companies and their record in corporate social reporting in least developed countries, such as Bangladesh.

Risk disclosure, cost of capital and bank performance

Purpose This study aims to examine the relationship among corporate risk disclosure, cost of equity capital and performance within banking institutions in a developing country setting. The authors argue that corporate risk disclosure reduces the cost of capital as investors attain better information and have confidence in the business and that less risk disclosure may generate ambiguity for potential stakeholders. Design/methodology/approach This study uses the population of all 30 listed banks on the Dhaka Stock Exchange, Bangladesh, for the years 2006 to 2012 and uses three-stage least-squares simultaneous equations to deal with endogeneity issues. Findings There is evidence that Bangladesh has voluntarily adopted the International Financial Reporting Standard 7 – Financial Instruments: Disclosures (IFRS 7) and Basel II: Market Discipline and that these standards enhance risk disclosure even where compliance is not compulsory. The cost of capital is found to be negatively associated with risk disclosure, which has an inverse relationship with bank performance. Originality/value This study provides a link between risk disclosure, cost of capital and performance. It fills a gap in the literature by providing a longitudinal study of risk disclosure in the banking sector of Bangladesh. This research also highlights the importance of appropriate risk disclosure for banks and suggests its importance in the process of fulfilling stakeholders’ demands.

The determinants of risk disclosure by banking institutions: Evidence from Bangladesh

Purpose - The purpose of this paper is to investigate the extent of risk disclosure and the factors determining this for all listed banks in Bangladesh. Design/methodology/approach - Relying on a theoretical framework based on agency theory and the creation of a risk disclosure index (RDI) based on International Financial Reporting Standard (IFRS) 7, Basel II: market discipline, and prior literature, hand-collected data from the annual reports of all 30 banks traded on the Dhaka Stock Exchange over 2007-2012, creating 180 bank-year observations, are analysed. Findings - The study suggests that implementation of IFRS 7 and Basel II: market discipline standards in a non-mandated environment raised the extent of risk disclosure in every category of financial institution risk (market, credit, liquidity, operational and equities). The effect can be attributed to regulatory concerns and voluntary adoption of international disclosure standards in the banking industry in Bangladesh. Specifically, whilst the determinants of disclosure vary across types of risk, the number of risk committees, leverage, company size, the existence of a risk management unit, board size and a Big4 affiliate auditor are significant determinants of at least one category of risk disclosure. Research limitations/implications - The source of risk disclosures is limited to listed banks’ annual reports. Practical implications - The RDI, developed in this paper, contributes to the literature by: first, quantifying the extent of each of five types of risk disclosure; and second, identifying the factors determining them. Stakeholders, particularly depositors and investors, can use this index to select or monitor their bank of interest. Originality/value - The RDI was developed according to the most relevant standards – IFRS 7 and Basel II: market discipline, plus prior scholarly literature. This type of benchmarking has not been conducted to date in previous studies. Inferences about risk disclosure are based on archival data derived from all listed banks in a virtually unregulated environment. Further, the study complements the literature by providing support for the applicability of agency theory in investigating the level of risk disclosure by banks.

Sustainability and the Environment: Prospect and Challenges of Renewable Energy in Bangladesh

Unlimited access to energy sources is essential for modern development. Especially, for a developing country like Bangladesh, having a sustained energy supply is a prerequisite for economic growth. To alleviate poverty in the face of limited resources and high population density, Bangladesh requires a sustainable economic growth model where renewable energy sources are used properly. This paper represents a baseline overview of prospects and challenges of renewable energy resources in that country. The latest studies regarding renewable energy and associated energy storage systems have been collected from different government departments and the private sector including NGOs which are working on solar power, wind power generation, biomass and biogas energy, and hydro energy systems. This paper concludes that Bangladesh has the opportunity to meet its future power demands and thus economic growth through renewable energy. Using renewable energy appropriately may improve rural people’s quality of life and provide income-generating opportunities that redress social inequities and environmental damage in Bangladesh.