Analysis of The Effects of Compliance with Corporate Governance Recommendations

Abstract

Research objectives: The objective of this thesis is to improve our knowledge concerning the relationship between corporate governance mechanisms and certain corporate outcomes. Specifically, given their relevance in financial markets, this research aims to examine the impact of corporate governance on: a) financial distress, b) environmental, social and governance (ESG) disclosure, and c) environmental innovation. Therefore, the main objective is broken down into three sub-objectives, which are addressed in three independent empirical studies: 1. Does compliance with corporate governance codes help to mitigate financial distress? 2. Corporate governance code (CGC) compliance and environmental, social and governance disclosures. 3. A critical approach to the true influence of female directors on environmental innovation: when are women greener? Accordingly, we analyse how corporate governance may impact three relevant and totally differentiated areas at the business level: business financial performance, disclosure of non-financial information, and environmental sustainability practices. Methodology: In order to test the hypotheses formulated, this research employs a number of econometric approaches, including logistic regression model, two-stage least squares method, regression analysis, panel data estimation model, and quantile regression modelling. Findings: The results highlight that compliance with corporate governance recommendations related to board of directors decreases the likelihood of financial distress as well as it leads to an enhancement in ESG disclosure practices. Furthermore, women directors positively impact on the level of environmental innovation. Implications: Given the relevance of financial distress, ESG reporting and environmental innovation, this evidence presents a strong business case about the effect of CGC compliance, particularly regarding board gender diversity. From an academic viewpoint, these findings provide guidance for studies on CGC compliance and emphasize the need to distinguish between the different types of recommendations in terms of examining the effects of CGC. In addition, this evidence has direct implications for regulators, which can guide their actions regarding the development of future CGC. Both professionals and firms can also better understand the effects of CGC compliance and benefit from this evidence in the configuration of corporate governance mechanisms. Limitations and future lines of research: This research is subject to a number of limitations that also provide interesting research opportunities: - These studies are limited to a single country (Spain or United Kingdom) in specific periods of time, and although the results can be extrapolated to countries that display similar characteristics, future research could focus on different legal and/or institutional contexts or periods. - Both the first and the second study provide specific measures of the level of CGC compliance, which may be extended and taken into consideration for further exploring the effects of CGC on other firm outcomes. Moreover, future studies may analyse other measures for compliance and might employ a different view, focusing on particular characteristics of women. - These findings are based on specific firm outcomes, as illustrated by financial distress, ESG information, and environmental innovation. However, they offer interesting lines for future studies that may seek to analyse the influence of corporate governance mechanisms on different business strategies relating to CSR. - In addition, the samples studied are limited to large listed firms, and future research on these topics might also investigate small and medium enterprises, which are pivotal in many economies. - These results have emphasized the relevance of moderation analysis. Future research might analyse contextual approaches, carrying out further moderation analysis in order to obtain more conclusive evidence.