EDITORIAL: RECENT TRENDS IN CORPORATE GOVERNANCE AND SUSTAINABILITY RESEARCH

open access articleI am honoured to introduce this second issue of 2021 (Volume 5) of the journal Corporate Governance and Sustainability Review. The nine articles published in this issue discuss various interesting corporate governance and sustainability-related topics. I can appreciate some shared aspects that correspond to three emerging trends in corporate governance and sustainability research. The first trend is apparently essential for our journal. It is represented by examining whether corporate engagement in sustainability activities is attributed to compliance with corporate governance mechanisms in emerging economies, adding to the previous debate by Gerged, Cowton and Beddewela (2018), Elamer, Ntim, and Abdou (2020), Gerged, Beddewela, and Cowton (2021), among others. For instance, Jamel Chouaibi, Yamina Chouaibi, and Noomen Chaabane investigate the expected impact of corporate governance mechanisms on the level of environmental disclosure among a selected sample of Islamic banks in the Middle East and North Africa (MENA) region. In another paper titled “Do Egyptian listed companies support SDGs? Evidence from UNCTAD guidance on core indicators disclosures”, Ahmed M. Abdel Meguid, Khaled M. Dahawy, and Nermeen F. Shehata provide a piece of empirical evidence that examines the extent to which macro-level foundations, including corporate governance regulations, influence sustainable development goals (SDGs) in Egypt. Similarly, Vincent Gagné and Sylvie Berthelot explore the determinants of greenhouse gas (GHG) emissions disclosure, including the influence of the existence of an environmental committee in the Canadian context. The second trend that can be appreciated in some articles on this issue is related to sustainability challenges in the time of COVID-19. Relatedly, Shirley Mo Ching Yeung explores in this issue the key elements of emotion sustainability (ES) and sustainable partnership (SP) post-COVID-19. This paper succeeded to add more perspectives to the academic debate that is established by recent studies, such as Adams and Abhayawansa (2021), Koutoupis, Kyriakogkonas, Pazarskis, and Davidopoulos (2021), Ikram, Zhang, Sroufe, and Ferasso (2020). The third trend focuses on various developments in corporate governance implementations. For example, Hamza El Kaddouri and Modar Ajeeb examine management teams’ perceptions of the role of legal audit in the governance system of French universities and its impact on the managerial latitude of university managers. Likewise, D. M. K. T. Dissanayake and D. B. P. H. Dissabandara analyse the nature and level of the relationship between board characteristics and dividend policy. Likewise, Tien-Chin Wang and Bi-Chao Lee raise the question of whether community security is the key to sustainable governance. These papers empirically contribute to the earlier work by Scott (2018), Yarram and Dollery (2015), Nesadurai (2013), among others. Along with the trends mentioned above in this issue, Udo C. Braendle reviews a book titled “Board of directors: A review of practices and empirical research”, edited by Stefano Dell’Atti, Montserrat Manzaneque, and Shab Hundal (Virtus Interpress, 2020; ISBN: 978-617-7309-16-0). This book review focuses on the main challenges that are associated with board diversity and sustainability issues. I am sure that anyone keen on advanced knowledge of the determinants, consequences, and associations among corporate governance and sustainability issues might find some points to ponder in these articles

Abnormal Real Activities, Meeting Earnings Targets and Firms' Future Operating Performance: Evidence from an Emerging Economy

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.This paper aims to examine the extent to which Real Earnings Management (REM) is used in Jordan to meet zero or previous year’s earnings and how this impacts the subsequent operating performance of Jordanian firms. The study used a sample of 98 Jordanian listed firms over the 2010-2018 period. To test our research hypotheses, which are formulated in accordance with both agency theory and signalling theory, multivariate regression is performed using a pooled OLS estimation. Additionally, a two-step dynamic Generalised Method of Moment (GMM) model has been estimated to address any concerns regarding the potential occurrence of endogeneity issues. Our results show that Jordanian firms that meet zero or last year’s earnings tend to exhibit evidence of real activities manipulations. More specifically, suspect firms show unusually low abnormal discretionary expenses and unusually high abnormal production costs. Further, consistent with the signalling earnings management argument, we find that abnormal real-based activities intended to meet zero earnings or previous year’s earnings potentially improve the subsequent operating performance of Jordanian firms. This implies that REM is not totally opportunistic, but it can be used to enhance the subsequent operating performance of Jordanian firms. Our findings are robust to alternative proxies and endogeneity concerns. Our findings have several implications for policymakers, regulators, audit professionals, and investors in their attempts to constrain REM practices to enhance financial reporting quality in Jordan. Managing earnings by reducing discretionary expenses appeared to be the most convenient way to manipulate earnings in Jordan. It provides flexibility in terms of time and the amount of spending. Our empirical evidence, therefore, reiterates the crucial necessity to refocus the efforts of internal and external auditors on limiting this type of manipulation to reduce the occurrence of REM activities and enhance the subsequent operating performance of listed firms in Jordan. Drawing on Al-Haddad & Whittington (2019), our evidence also urges regulators and standards setters to develop a more effective enforcement mechanism for corporate governance provisions in Jordan to minimise the likelihood of REM incidence. This study contributes to the body of accounting literature by providing the first empirical evidence in the Middle East region overall on the use of REM to meet zero or previous year earnings by Jordanian firms. Moreover, our study is the first to empirically examine the relationship between REM and Jordanian firms’ future operating performance

Estimating the Risk of Financial Distress Using a Multi-Layered Governance Criterion: Insights from Middle Eastern and North African Banks

open access articleIn this study, we explored the association of bank-level governance and state-level governance with the likelihood of banks’ financial distress in developing economies. Using a panel data sample of 954 bank-year observations of 106 conventional banks across 14 Middle Eastern and North African (MENA) countries from 2010 to 2018, we found that bank governance arrangements seemed to be negatively attributed to the probability of financial distress. We also found that the relationship of political stability with financial distress prospects is—contrary to our expectation—insignificant, whereas government effectiveness negatively influences the likelihood of financial distress. Our empirical evidence offers practical implications for bank managers, regulators, and credit rating agencies, and suggests several future research avenues that can build on our findings

Does investment stimulate or inhibit CSR transparency? The moderating role of CSR committee, board monitoring and CEO duality

open access articleThis study examined the potential relationship between different facets of firm investment (i.e., sales growth, R&D intensity, and total tangible and intangible assets) and CSR reporting, assurance and GRI adoption. Also, it further explored the conditions under which investing firms can encourage or discourage their CSR transparency. Our sample included 44,996 firm-year observations from 2004 to 2019 across 61 countries. Using a random-effects logistic model, our results indicate that corporate investments reduce firms’ CSR reporting and assurance tendency, which implies that a tradeoff exists between these two aspects of firm investment worldwide. Our moderation analysis outlined the contingent role of board-specific characteristics in the link between firm investment and CSR transparency. It appears that the CSR committee generates greater moderating effects on the firm investment–CSR transparency nexus than board monitoring and CEO duality. This empirical evidence also suggests several practical implications and future research agendas

How does transparency into global sustainability initiatives influence firm value? Insights from Anglo‐American countries

Corporations use global sustainability reporting principles, certifications, guidelines, and indices to promote corporate transparency. However, the effectiveness of adopting these global transparency approaches, either separately or collectively, in increasing firm value is as yet unclear. Thus, we examine whether different global transparency approaches engender different outcomes related to firm value and whether adopting a comprehensive or integrated global transparency approach could better enhance firm value. We use a sample comprising 6978 firm‐year observations of firms listed in the United States (S&P 500), Canada (S&P‐TSX 221), and the United Kingdom (FTSE 350) from 2013 to 2019. A fixed‐effects regression model is then used to examine the primary associations in this study. This technique was complemented by a two‐step dynamic generalised method of moment (GMM) model to overcome the expected endogeneity concerns. Our findings indicate that adopting global sustainability reporting principles, certifications, and an integrated global transparency approach is positively attributable to the market value of firms. In contrast, firms' adoption of international guidelines and environmental, social, and governance (ESG) ratings cannot predict the firm value in the study context. Our evidence implies that firms' adoption of an integrated global transparency approach adds the most value to those firms when compared with adopting a standalone transparency approach across the three sampled countries. Our study provides practical implications for policymakers and corporate managers and suggests avenues for future studies to build upon our findings

Does the presence of an environmental committee strengthen the impact of board gender diversity on corporate environmental disclosure? Evidence from Sub-Saharan Africa

open access articleThis study examines the relationship between board gender diversity, the presence of environmental committees and corporate environmental disclosure (CED). Using 1130 firm-year observations of 113 firms listed across five Sub-Saharan Africa (SSA) stock markets from 2010 to 2019, we find that the extent of CED in SSA is low compared with developed countries. However, panel quantile regression analysis reveals that the presence of women directors is positively associated with CED, and the relationship is contingent on the presence of an environmental committee. The study makes three principal contributions: it adds to the limited literature on the relationship between board gender diversity and CED, where virtually all previous studies have been conducted in developed countries; it is the first to examine the direct relationship between environmental committees and CED in the developing world; and, most importantly, it is the first study to examine the possible moderating influence of environmental committees

Anti-corruption disclosure quality and earnings management in the United Kingdom: the role of audit quality

Purpose Building upon institutional pressures on firms to deal with corruption, this study aims to investigate the association between a firm's engagement with anti-corruption disclosure quality (ACD_Q) and earnings management (EM). Also, this study examines the moderating role of audit quality in the association between ACD_Q and EM. Design/methodology/approach The authors constructed an ACD_Q index based on the 2010 UK Bribery Act and taking into account a wide range of rules on corruption and bribery, including those of the OECD, World Bank, UNCTAD, UNGC, UNCAC and GRI. Generalized method of moments and panel regression were used to examine the association between ACD_Q and EM. Findings Using a sample of 2,695 firm‐year observations of the UK’s FTSE-350 from 2008 to 2018, this study finds ACD_Q is negatively associated with EM. In addition, this negative relationship is contingent on audit committee independence and audit committee expertise. This finding is supported by additional robustness and sensitivity analysis. Practical implications The empirical evidence reiterates the crucial need for more concerted efforts to ensure corporate engagement in anti-corruption practices with a view to reducing earnings manipulations. Originality/value This study contributes to the limited evidence that investigates how ACD Q influences EM in the UK after the introduction of the UK Bribery Act in 2010. Furthermore, by considering the period from 2008 to 2019, this study investigates the potential moderating role of UK corporate governance reforms in EM reduction. In particular, to the best of the authors’ knowledge, this study assesses for the first time the moderating effect of audit committee mechanisms on the ACD Q and EM nexus

Is corporate environmental disclosure associated with firm value? A multi-country study of Gulf Cooperation Council firms

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.open access articleSeveral studies have found a relationship between corporate social and environmental disclosure and firm value or accounting profitability. Where environmental disclosure has been the focus, though, only single-country studies have been published; and most of the previous research concerns the developed world. This study examines the association between corporate environmental disclosure (CED) and firm value (FV) in the Gulf Cooperation Council (GCC) countries, where CED has been increasing from its previous low base. Findings from a multi-country sample of 500 firm-year observations using a 55-item unweighted environmental disclosure index suggest that CED is significantly and positively related to FV as measured by Tobin’s Q (TBQ). The relationship is robust to using a weighted version of the disclosure index, individual countries and environmental disclosure sub-indices. Some evidence of a positive relationship between CED and return on assets (ROA) is also found, but even where statistically significant, the relationship is much weaker than in the case of TBQ. For empirical and theoretical reasons, we recommend that future studies pay greater attention to market-based proxies, if possible when investigating the value relevance of CED in both developed and developing countries. Our results suggest that both managers and policymakers in GCC countries should take a positive view of expanded CED