Venancio Tauringana

Disclosure, Corporate Governance and Foreign Share Ownership on the Zimbabwe Stock Exchange

We investigate the association of foreign share ownership with firm-level disclosure and corporate governance structures in Zimbabwe, a developing country in Southern Africa. Our motivation for the study derives from the literature, which suggests that foreign investors: (1) generally have a preference for companies in which they are well informed and where their investments are more likely to be protected, and (2) avoid companies in developing countries because of weak corporate governance structures and low disclosure. Using data drawn from companies listed on the Zimbabwe Stock Exchange, we examine the effect of disclosure and corporate governance on foreign share ownership. We find that disclosure, proportion of non-executive directors, institutional share ownership and audit committee independence are all positively and significantly associated with foreign share ownership. Our results also demonstrate that market capitalization, return on equity and liquidity ratios are significantly associated with foreign share ownership. These results are consistent with the notion that foreign investors have a preference for companies with effective corporate governance structures, companies with less information asymmetry, as well as companies with healthy cash positions. The results have implications for policy-makers in developing countries in their endeavour to improve liquidity on stock markets through the participation of foreign investors. The results are also useful to managers in developing countries who are keen to increase the market value of their company, thereby reducing their cost of capital.

Corporate boards, ownership structure and firm performance in an environment of severe political and economic crisis

This study examines the relationship between board and ownership structures and firm performance in an environment of severe political and economic crisis using panel data from the Zimbabwe Stock Exchange for the period 2000–2005. The period is split into the pre-presidential election period (2000–2002) (a relatively stable political and economic period) and the post-presidential election period (2003–2005) (a hostile political and economic period) to capture the differences in the political and economic landscape. It is found that board size, ownership concentration and executive directors’ share ownership increased, while the proportion of non-executive directors fell in the post-presidential election period. Employing a system generalized method of moments approach, the study finds that performance is positively related to board size and ownership concentration in the post- (but not in the pre-) presidential election period. The results also show that performance is negatively related to executive directors’ share ownership in the post-presidential election period, but positively related in the pre-presidential election period. The relationship between performance and the proportion of non-executive directors is negative and significant in both periods. These findings support the notion that the effects of board and ownership structures depend on the nature of the firms environment, and therefore have important implications for policy-makers.

The Relative Importance of Working Capital Management and Its Components to SMEs Profitability

Purpose – This paper reports the results of an investigation of the relative importance of working capital management, measured by the cash conversion cycle (CCC), and its components (inventory, accounts receivable and accounts payable) to the profitability of SMEs. Design/methodology/approach – The paper employs panel data regression analysis and a questionnaire survey on a sample of 133 Alternative Investment Market (AIM) listed SMEs. The panel data analysis utilises financial data for the period 2005 to 2009. The questionnaire survey results are based on 19 SMEs that responded. Findings – Panel data analysis results show that the management of accounts payable (AP) and accounts receivable (AR) is important for SMEs profitability. However, AP management is relatively more important than AR management. Inventory (INV) and CCC management is not important for SMEs profitability. Questionnaire results suggest that management of CCC and all its components is perceived as important for SMEs profitability. In terms of relative importance, AR management is most important, followed by AP, INV and CCC respectively.Research limitations/implications – The sample is limited to AIM listed SMEs, and therefore the findings cannot be generalised to all companies.Practical implications – Overall the results imply that the SMEs need to concentrate their limited resources on managing AR and AP in order to be more profitable.Originality/value – The study is the first to investigate the relative importance of WCM and its components to SMEs profitability and use both regression analysis and questionnaire survey.

The demand for external auditing: managerial share ownership, size, gearing and liquidity influences

Small companies with a turnover of up to £90,000 have been exempted from a compulsory audit since 1994. This paper is an investigation of why some small companies chose to continue with the audit whilst others abandoned it. The basic hypothesis of the paper is that a major reason why some small companies continue to be audited is to help control the conflict of interests among managers, shareholders, and outside creditors. Based on this analysis, the probability that a company will be audited voluntarily are predicted to increase as company size and gearing ratio increase, and to decrease as managerial share ownership and liquidity ratios increase. Univariate and multivariate tests were applied to the data of 92 small independent companies randomly selected from the Companies House CD‐ROM database. The results from the two tests support the hypothesised effects of managerial share ownership, company size (turnover), and gearing ratio. There is no support for the company size (total assets) and liquidity ratio effects.

Corporate Compliance with Non-Mandatory Statements of Best Practice: The Case of the ASB Statement on Interim Reports

ABSTRACT This paper contributes to our understanding of compliance with non-mandatory statements of best practice. Specifically, we examine the efficacy of agency-related mechanisms on the degree of disclosure compliance with the ASB Statement on interim reports. Using data drawn from a sample of 259 UK companies listed on the London Stock Exchange, we show that although overall disclosure compliance is high (74.5% of the items of information being disclosed), companies do not fully comply with the ASB Statement on interim reports. We employ an ordinary least square (OLS) regression model to establish whether selected company-specific and corporate governance characteristics (proxying for agency-related mechanisms) are related to the degree of disclosure compliance. Our results indicate that multiple listing, company size, interim dividend and new share issuance are positively associated with the degree of compliance. We also find that the degree of disclosure compliance is positively associated with auditor involvement, audit committee independence and audit committee financial expertise. These results have important implications for policy because they suggest that whilst agency-related mechanisms may motivate compliance with best practice non-mandatory statements, full compliance may be unattainable without regulations.

Audit Committees and Voluntary External Auditor Involvement in UK Interim Reporting

The study investigates the relationship between audit committee characteristics and the decision to engage external auditors to review published interim reports. The motivation for the study derives from the consensus notion that the audit committee enhances the quality of financial reporting. Using interim reports of 258 UK listed companies published in the period 2001–2002, the results of logistic regression analyses show that the likelihood of engaging an external auditor to review interim reports increases with audit committee independence and financial expertise and decreases with share ownership by audit committee members. The results show that audit committee size and the number of audit committee meetings are not significantly associated with the decision to engage auditors in interim reporting. Taken overall, these findings suggest that an effective audit committee is associated with a review of interim reports by external auditors.

Corporate Governance and Performance of UK Listed Small and Medium Enterprises

This paper reports the results of an investigation into the effect of corporate governance factors on the performance of listed small and medium enterprises (SMEs), and examines whether this effect differs between the two sizes of business. The paper employs unbalanced panel data regression analysis on a sample of 234 SMEs listed on the Alternative Investment Market (AIM), for a ten-year period (2004-2013). The panel data analysis results show that for all SMEs, corporate governance factors – board size, chief executive officer (CEO) age and tenure, and directors’ remuneration – are significantly associated with performance of SMEs. The results also suggest that while board size is associated with the performance of both small and medium enterprises, CEO age is significant only for medium firms and directors’ remuneration only for small ones, while CEO tenure and proportion of non-executive directors are not significant for either. Overall, the results imply that corporate governance factors affect the performance of listed SMEs. However, this effect differs significantly between small and medium enterprises. The findings have important implications for policy makers who prescribe corporate governance mechanisms for SMEs. The paper adds to existing literature on corporate governance of SMEs by establishing a relationship between firm performance and board size, CEO age, CEO tenure, directors’ remuneration and proportion of non-executive directors.

Corporate governance, dual language reporting and the timeliness of annual reports on the Nairobi stock exchange

Conceptual Paper Purpose of paper – The study investigates the association between corporate governance mechanisms (proportion of finance experts on the audit committee, PFAC; frequency of board meetings, FBMG and proportion of non-executive directors, PNED), dual language reporting (DULR) (in English and Swahili) and timeliness of annual reports (TIME) of companies listed on the Nairobi Stock Exchange (NSE) in Kenya. Design/methodology/approach – The data for the analysis is gathered from annual reports of 36 companies listed on the NSE for two financial years ending in 2005 and 2006. Ordinary least square (OLS) is used to determine the association between the corporate governance mechanisms, DULR and TIME. Company size (SIZE), gearing (GEAR), profitability (PROF) and industry (INDS) are used as control variables. Findings – The findings suggest that there is a significant negative relationship between corporate governance mechanisms (PFAC and FBMG), DURL and TIME. Consistent with extant research, the study also found that SIZE and INDS are significantly associated with TIME. No significant association is found between PNED, GEAR, PROF and TIME. Research limitations/implications – The findings of the research will help Kenyan policy makers and practitioners in formulating corporate governance policies. However our research is limited, among others, because it focuses on only companies listed on the NSE. The results may therefore not be representative of all companies operating in Kenya. Originality/Value of paper – The value of the paper lies in that the results provide, for the first time, evidence of the relationship between corporate governance mechanisms (PFAC, FBMG and PNED), DURL and timeliness of the annual reports.

Determinants of risk disclosure compliance in Malawi: a mixed-method approach

Purpose – The purpose of this paper is to investigate compliance with risk disclosure requirements under International Financial Reporting Standard (IFRS) 7 by Malawian Stock Exchange-listed companies over a three-year period. Specifically, the paper examines the extent and determinants of risk disclosure compliance with IFRS 7. Design/methodology/approach – The study uses a mixed-method approach. The quantitative approach employs the research index methodology and uses panel data regression analysis to examine the relationship between proportion of non-executive directors (NEDs), size, gearing and profitability and the extent of risk disclosure compliance. The results of the panel data regression analysis are triangulated by the qualitative research approach in the form of personal interviews with company managers. Findings – The results indicate that over the three years, the extent of compliance with IFRS 7 is, on average, 40 per cent which is very low. The regression results suggest that NEDs, size an...

Neutrality of narrative discussion in annual reports of UK listed companies

This paper reports the results of an investigation into the neutrality of the narrative discussion of financial performance and position, as evidenced in 179 annual reports of UK listed companies. Neutrality of narrative discussion was determined by comparing the average proportions of good and bad news contained in the narrative and statutory accounts sections of the annual reports. The results of a comparison of the proportion of good news in the two sections of the annual reports suggest that the narrative sections contained a significantly higher proportion of good news than the statutory accounts sections. Comparison of proportions of bad news, however, indicates that the narrative sections contained a significantly lower proportion of bad news compared to the statutory accounts sections. Finally, the results also suggest that the proportion of good news as compared to bad news in the narrative sections is significantly higher than the proportion of good news compared to bad news in the statutory accounts section. The results are consistent with the suggestion that company management highlights good news in narrative discussions. The implications of the findings for company management, users, auditors and regulators are discussed.