Pyramids and the separation between direction and control of non-financial Italian family companies

This paper uses a multiple case study analysis of ten Italian business groups controlled by families to answer the following research questions: Does the controlling shareholder, through the parent company at the top of the pyramidal group, always exercise the direction activity of the subsidiaries? If not, why does the parent company not exercise that activity, delegating it to its subsidiaries? What is the degree of separation between control and direction within the group? A high percentage of our sample declares not to be directed by the parent company. However, the presence of family members on the subsidiaries’ boards and the low boards’ independence makes the separation between direction and control more apparent than real. The credibility of the separation is questioned mostly for those non-directed subsidiaries that operate in the same sector. Our analysis suggests some elements, in order to understand in which cases the direction activity by the parent (or its delegation to the subsidiaries) should be interpreted positively or negatively in terms of controlling shareholder expropriation, by proposing to use the degree of separation between direction and control as a proxy to assess indirectly the degree of that expropriation.     

Audit committee and internal audit and the quality of earnings: empirical evidence from Spanish companies

Corporate scandals and failures such as Enron, WorldCom, etc. were highly catastrophic and had a terrible effect on stakeholders. The pressure of globalisation and the intense competition have lead to organisations encouraging good corporate governance. Organisations have to promote transparency and accountability of financial information. As Gramling et al. (J Account Lit 23:194–244, 2004) argued there are four important mechanisms of corporate governance include boards of directors, audit committees (among others) and internal and external audit functions. However, this paper will focus on the relationship between two corporate governance mechanisms (audit committee and internal audit function). Thus, our purpose is to analyse the relation between characteristics of the audit committee and internal audit function and earnings management measured as abnormal accruals to test the quality of financial statements. We hypothesise that the association between the effectiveness of the audit committee and the presence of an internal audit function and its relationship with this committee would indicate less opportunity for management to manipulate earnings. Using a sample of 108 non-financial Spanish companies that traded on the Madrid Stock Exchange between 2003 and 2006 (432 observations), we have found that the size and number of meetings of the audit committee had a significant negative association with earnings manipulations. Also, our results suggest that a negative relation between having an internal audit function and earnings management.     

The impact of venture capital on investee companies: evidence from Spain

This paper examines the impact of venture capital investors on the financial structure of investee companies and the factors relevant to their capital structure, differentiated according to the investor’s public or private nature. This paper contributes to our understanding of the beneficial effects of such investors in response to the funding needs of SMEs and the decisions taken in this respect. The empirical analysis shows that, on average, these investee companies have a lower level of short-term debt than the average Spanish company. It is suggested that the debt structure is related to the growth opportunities presented, the business sector, the geographic location and the duration of the venture capital participation. These results, which are more significant in the case of companies receiving funds from public investors, highlight the effectiveness of the economic function of venture capital.     

Interlocking directorship across Italian listed companies: evidence from a natural experiment

The financial crisis of 2008 and the introduction of the Interlocking Ban in 2011 (for financial firms) deeply influenced the Italian corporate governance system. The aim of the present study is to investigate to what extent personal ties among the directors of Italian listed companies have changed after these two events. We describe the evolution and dimension of the phenomenon of interlocking directorship (ID) for all the Italian listed companies over the period 1998–2013 using different methodologies. Social network analysis discloses the existence of clusters of companies whose links remain dense after the crisis, while connections to the peripheral units of the system decrease, reducing the overall connectedness. Results reveal that, over the period, there is a reduction in the cumulation ratio which still remains high and mainly due to a high number of directorships for multiple directors. This reduction is more severe after 2008 when both the financial crisis and the Interlocking Ban occur. In disentangling the two effects we observe ID reduction during and after the crisis, also for non-financial firms, confirming the general tendency of a decline in national board interlocking networks.     

The value of audit quality in public and private companies: evidence from Spain

This paper compares the value of audit quality, proxied by the selection of a big N auditor, to the external claimholders of private and public companies. Although the combination of a lower ownership concentration of public companies, the greater demand for financial information quality about these companies and their higher litigation risk can result in the expectation that audit quality should be more valuable for public than for private companies, the greater information asymmetry between the managers and the external stakeholders and the unavailability of alternative mechanisms for monitoring the managers can make external audit more valuable for the external claimholders of private companies. In this paper, we test these two competing views by analysing if banks and lenders take into account auditor selection in the formation of the cost of debt. Our results support the second view: we find that only private companies obtain a lower cost of debt when they are audited by a high-quality auditor. These results are robust to both endogeneity and unobserved firm-specific heterogeneity.     

Efficiency of telecommunications companies in European countries

The telecommunications sector has undergone the most drastic changes in terms of market liberalization and has dominated the privatisation process in most countries in terms of the size of its assets and because this industry is the flagship of public services. The purpose of this study is to conduct a comparative analysis of the efficiency of eleven European privatised Public Telecommunications Operators PTOs from 1997 to 2005 and to determine whether privatisation, liberalisation and investment in infrastructure have increased their efficiency or not. We make use of the DEA methodology to analyse the efficiency of PTOs, as this model is especially appropriate to analyse organisations whose production process does not result in the obtaining of a product but in the delivery of a public service. In spite of the technological progress, our results do not show that the comparative performance of PTOs has grown significantly during the period analysed. Therefore, we must take into account other factors such as privatisation, state regulation and organisational changes to determine their performance. From our study, we can conclude that not all companies have been able to adapt equally to the competitive market. The non-efficient companies have traditionally operated in a protectionist market and they continue in a monopolistic situation in spite of market liberalization.     

A study of the determinants of environmental disclosure quality: evidence from French listed companies

Journal of Management and Governance - We examine the impact of various factors on the quality of environmental disclosure. Combining multi-theories in a unique framework, it focuses on factors...     

Total quality control: Lessons European executives can learn from Japanese companies

This paper reports the finding of a Mission to Japan by 18 executives to study the total quality control activities of 8 companies from diverse industries. A number of the companies can be classified as world class. In the companies studied the dedication, vision and planning for total quality control, development of policy and setting of improvement objectives at each level in the organisation structure, and attention to detail in the production preparation stage is without equal in the majority of Western organisations. It is also pointed out that the housekeeping of Japanese companies is first class and all the companies studied said their greatest assets are employees.     

Empirical evidence on internal control systems and corporate governance in Italy

The Corporate Governance (CG) theme has recently been the subject of significant measures to try to restore confidence among investors by encouraging information and communication transparency. The Italian Parliament approved Law 262 in 2005; and in 2006 the CG Committee of the Italian Stock Exchange approved the new Self-Regulatory Code for listed companies. This paper deals with control matters and moves on to causes and cases of their failures in relation to a sample of Italian companies. More precisely, it investigates, through an empirical survey, the main limits and areas for improvement in the working of company Internal Control (IC) system(s) and in the objectives of the role of the three main professional bodies currently in charge of it in Italy (i.e. Internal Auditing, Statutory Auditors and External Auditors). The results obtained show that the Italian situation is very unusual, due to a long tradition: the possibility to choose between different administration and control systems, often with coexisting and overlapping roles, creates problems in terms of responsibility and control. The first answers to the critical issues highlighted are given by the aforementioned laws, intended as the main catalysts for a review of the roles of all IC bodies. However, much work has still to be done. The final aim was to come up with suggestions about the possibility of finding areas for improvement within those companies’ IC systems.     

终极所有权结构对权益资本成本的影响——来自中国上市公司的经验证据

采用三种模型(GLS模型、ES模型和OJ模型)度量上市公司权益资本成本,以2004-2007年连续4年均能获得相关资料的中国非金融类上市公司构成的面板数据为研究样本,在控制相关变量下,基于代理成本和信息不对称视角实证检验终极所有权结构与权益资本成本之间的关系.研究发现,终极所有权结构是影响权益资本成本的重要因素之一.具体而言:(1)现金流量权与权益资本成本显著负相关;(2)控制权和现金流量权的分离度与权益资本成本显著正相关;(3)与终极控股股东是非国有控股的公司相比,终极控股股东是国有控股的公司具有相对高的权益资本成本.     

Board compensation and ownership structure: empirical evidence for Italian listed companies

This paper investigates the relationships among corporate ownership, the level of board compensation, and firms’ future performance within Italian listed companies. Board compensation could be related to corporate ownership characteristics, like the type of controlling shareholder, ownership concentration, the separation between cash flow and voting rights, and the presence of shareholders’ agreements. The evidence of high levels of board compensation associated with certain governance characteristics could signal, in a principal-agent framework, rent extraction by entrenched managers or by controlling shareholders versus minority shareholders; high board compensation, however, could be related to the need to hire directors with higher professional standing and also to the desire to create a network with other companies through the enlargement of the board, according to a social network view. In this paper we disentangle this issue showing the relationship between excess board compensation and future performance: examining firms listed on the Milan Stock Exchange over the period 1995–2002, we show that board compensation is linked to many governance characteristics, but excess compensation is never positively related to future performance. For founder family firms, in particular, high board compensation is associated with (a) smaller board size; (b) higher proportion of family members on the board; (c) lower future performance. The whole evidence therefore doesn’t support the hypothesis suggested by the social network view, but is consistent with a rent extraction hypothesis. These results could add new empirical evidence to the recent debate on the need for global remuneration reform. According to our results, some control mechanism and an increase in transparency of executive compensation schemes could be appropriate.     

Management control in multinational companies: a systematic literature review

Review of Managerial Science - Executing management control across borders is crucial for multinational companies (MNCs). Various management control mechanisms serve to align foreign subsidiaries...     

Managing diversity: Strategy and control in diversified British companies

Many large companies today operate in a range of different businesses. These companies need to fine tune their management styles to the specific requirements of each business in their portfolio. But they also wish to avoid unmanageable organizational complexity, and, as far as possible, to operate with a single, consistent, widely understood corporate culture throughout the company. Managing diversity therefore causes particular problems and conflicts. This article puts forward three alternative philosophies for managing diversity that the authors have encountered in extensive research on this topic with 16 large U.K. companies. It brings out the advantages and disadvantages of each philosophy and discusses the results that companies following each approach achieve.     

Influential factors and performance of logistics outsourcing practices: an evidence of malaysian companies

Despite the growing trend of logistics outsourcing, there are very limited sources of literature on logistics outsourcing, especially in determining the relationship between factors influencing outsourcing and the extent of logistics outsourcing practices. In this study, we tap into the field of strategic management to help clarify the mechanisms underlying the links between factors influencing, logistics outsourcing practices and outsourcing performance. A model based on the resource based view illustrates the hypothetical connections among these variables. The data gathered from the survey were analysed using SmartPLS software. A response rate of 21 % out of the 486 firms selected was achieved and fixed as the empirical data for this study. The results of this study provide support that superior performance is correlated to the resources of the firm. The analysis shows that lack of human and physical asset capabilities, as well as transaction uncertainty influence the extent of different logistics outsourcing practices. The four logistics outsourcing practices under study were found to have a positive relationship with logistics outsourcing performance, particularly strategic focus. This study shows that although theoretically firms aim at cost reduction by employing a logistics outsourcing strategy but not proven in this study because the financial benefit was only positively contributed by one of the four logistics outsourcing practices under study. Besides that, the results from this study also support that most firms outsource their non-core activities of the logistics practices to respond to the transaction uncertainty that their business experiences.     

Multi-criteria production theory: foundation of non-financial and sustainability performance evaluation

Multi-criteria production theory (MCPT) is a generalization of traditional production theories which has been developed in order to integrate concerns of modern management science and economics, in particular sustainability and environmental protection. Such as traditional production theory lays a foundation for cost (and revenue) theory, MCPT can be utilized to expand the knowledge regarding the theory and practice of non-financial performance evaluation, which is of major importance with distinct, conflicting objectives. Based on decision theory, the main idea behind MCPT is the capability to distinguish technologically determined inputs and outputs of a production system’s activity from its desired or undesired impacts on (artificial or natural) environments. The idea is formalized by multiple value functions. The paper clarifies the basic assumptions of MCPT in comparison to those of traditional production theories. For the special cases of linear and of monotonic value functions, two main theorems of MCPT are proven. Their application provides fruitful insights into some procedures and pitfalls of non-financial performance evaluation, especially those regarding ecological economics and data envelopment analysis. The main topics that are discussed address undesirable products and factors, hierarchies of performance evaluations, problems of non-monotonic value functions as well as the rationality of ‘technically inefficient’ production.     

Regulation by disclosure: the case of internal control

In this paper we explore the use of disclosure as a regulatory tool, using as an illustration the current UK requirements regarding the disclosure of information about internal control. After discussing the broad concept of regulation by disclosure, we trace the evolution of concepts of internal control and its reporting, describing the background to the Turnbull guidance for directors on internal control reporting, the basis of current UK requirements. We then examine recent examples of internal control disclosures, identifying the range of ways in which they address the disclosure requirements and considering the possible impact of the disclosure requirements on corporate behaviour and on the audiences for disclosure. We conclude with some reflections on the disclosure life cycle. The paper contributes to the literature on disclosure by specifically considering the role of disclosure as a regulatory tool and by examining the nature of specific disclosures in an area of continuing interest, that of internal control.     

Women on the boards of listed companies: Evidence from Finland

This paper investigates gender differences on the corporate boards of Finnish listed companies. The personal characteristics, careers, and boardroom roles of female and male directors on boards were analyzed on the basis of empirical data collected by questionnaire. An analysis of the findings revealed only minor differences between the women and men in personal characteristics such as their marital status, number of children and education, or in their careers. However, female board members were on average younger than their male counterparts and considered themselves to be more protean, took more active roles on the board, and enjoyed power more than men did. They also felt a need for more women on the board. The goal of this study is to contribute to the existing research in two ways. Firstly, it provides empirical evidence on women??s representation on boards from Finland, where women??s and men??s rights are regarded as more equal than in many other countries. Secondly, the study aims to increase our knowledge of gender differences, careers and roles of women in top positions in Finnish business.     

Engineer-to-order (ETO) production planning and control: an empirical framework for machinery-building companies

This paper illustrates the results of an empirical study involving 21 engineer-to-order (ETO) companies, operating in the machinery-building industry. The study investigates the needs and requirements of such companies in terms of software support for governing the businesses, with particular emphasis on production planning and control (PPC) processes. An empirical analysis investigated two main aspects: (i) the set of business activities performed by the companies in the analysed industry and (ii) the relevant, high-level software functionalities required for the execution of such activities. As an answer to the observed compelling need for reviewing the general approaches to PPC in machinery-building companies, we develop an empirical, high-level production planning and scheduling reference framework, encompassing all the activities involved in the order fulfilment process.     

社会责任强制披露下管理层机会主义行为考察——基于 A 股上市公司的经验证据

企业社会责任披露的经济后果一直是近年来理论界研究的焦点.在强制性披露社会责任报告的上市公司中, 管理层对社会责任报告第三方鉴证的自愿选择权反映其机会主义动机, 本文尝试切入企业违规风险的视野, 考察管理层机会主义行为的经济后果.研究结果表明, 从影响效应看, 社会责任强制披露与企业未来期违规风险呈现出显著正相关关系, 进一步分析表明, 在未进行第三方鉴证的公司中, 社会责任强制披露与企业未来期违规风险呈显著正相关, 而在自愿进行第三方鉴证的公司中两者间不相关.从作用机理看, 社会责任披露对企业未来期违规风险的影响渠道主要来自于管理层代理成本, 而不是大股东代理成本和信息环境.从治理因素看, 内部控制质量和机构投资者持股比例均未对上述管理层机会主义行为形成显著的治理监督效应.本文在理论上为社会责任强制披露的经济后果提供了直接的证据支持, 在实践上为监管部门优化社会责任强制披露以及鼓励社会责任报告第三方鉴证等制度安排提供了重要的决策依据.