Academic journal article Atlantic Economic Journal

Transparency and Disclosure Requirements-An Analysis of Corporate Governance Codes

Academic journal article Atlantic Economic Journal

Transparency and Disclosure Requirements-An Analysis of Corporate Governance Codes

Article excerpt

The objective of our research is to analyze corporate governance codes currently in force in the European Union member states in terms of disclosure and transparency compliance with the Organization for Economic Cooperation and Development recommendations by reference to the issuers of these codes. Based on agency theory, a good corporate governance system providing more transparent disclosure information appears to be a key issue in ensuring stability to the financial sector and sustainability to the economy as a whole. Reflecting upon these premises, we wondered, "Which type of issuer is most interested in setting up a corporate governance code encouraging transparency?" or, beyond that, "Are codes developed by collaborations of various specialists better in this respect?"

To answer these questions, we designed an empirical analysis aimed at identifying whether there is a link between codes' interest in promoting disclosure, as a good practice of corporate governance, and their issuer features, trying to enrich the research literature from the perspective of both sides. Thus, for assessing the codes' ability to promote disclosure, we measured the level of transparency required by each code by developing a disclosure index made of sub-indices according to the nature of information to be disclosed and the types of corporate governance participants to whom the code pertained (e.g., owners, boards, executives, committees, stakeholders).

Unlike the most pertinent research literature, which compared codes by referring to the Anglo-Saxon model, often considered as the best model of corporate governance, our study makes use of another well-known framework (OECD). We measured how close each code in our sample was to the recommendations for "good" corporate governance. Besides choosing another other framework for comparison, we also used a different methodology for measuring the disclosure level (Jaccard's similarity coefficient) than those used previously: the Latent Semantic Analysis technique (Deerwester, S., Dumais, S.T., Furnas, G.W. Landauer, T.K., and Harshman, R., Indexing by Latent Semantic Analysis, (Journal of the American Society for Information Science, No. 41(6), 1990, pp. 391-407) or the Leximetric one (Lele, P. and Siems, M.M., Shareholder protection: A Leximetric approach. Journal of Corporate Law Studies, No. 17, 2007, pp. 17-50).

After the measuring codes' ability to promote disclosure, as a good practice of corporate governance, we proceeded to identify possible relationships with issuer types. Prior studies focused on a similar topic revealed that those codes developed by stock exchanges and governments have the strongest enforceability, thus being the most likely to affect actual governance practices, while codes in force in common law countries provide shareholders and creditors the greatest amount of protection against expropriation by insiders, unlike civil law countries that offer the least (La Porta, R., Lopez-de-Silanes, F. …

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