TRANSPARENCY IN CORPORATE GOVERNANCE: ITS ROLE IN MITIGATING FINANCIAL RISKS AND IMPROVING PERFORMANCE METRICS

Thanigaimani S; Shankar Reddy P

doi:10.29121/shodhkosh.v5.i6.2024.1624

Authors

Dr. Thanigaimani S Assistant Professor and Research Supervisor, Department of Commerce, Srimad Adavan Arts and Science College, Bharathidasan University, Tiruchirappalli, India
Shankar Reddy P Research Scholar, Department of Commerce, Srimad Adavan Arts and Science College, Tiruchirappalli - 620005 (Affiliated To Bharathidasan University)

DOI:

https://doi.org/10.29121/shodhkosh.v5.i6.2024.1624

Keywords:

Governance, Financial Risk, Performance Metrics, Stakeholder Trust, Regulatory Compliance, Corporate Disclosure, Board Accountability, ESG Reporting, Information Asymmetry

Abstract [English]

In-depth analysis of the vital role that openness plays in corporate governance is provided in this paper, with particular attention to how it improves organizational performance measures and reduces financial risk. Transparent corporate governance processes are more important than ever in a time of growing complexity in global business operations and elevated stakeholder expectations. Using a mixed-methods approach, this study combines qualitative insights from in-depth interviews with business executives, regulators, and governance experts with quantitative analysis of financial data from 500 publicly traded companies across several industries. The study's five-year duration, from 2019 to 2023, enables a thorough analysis of trends and causal connections. Based on reduced stock price volatility, fewer substantial financial restatements, and improved credit ratings, our results show a clear positive association between more corporate transparency and better financial risk management. Additionally, the study shows that businesses with more open governance processes routinely beat their less open competitors on a number of important performance criteria, such as customer happiness, employee productivity, and return on equity (ROE). The study also reveals complex connections between particular transparency metrics and performance results, emphasizing the necessity of customized strategies for improving openness depending on organizational and industry-specific factors. These revelations aid in the creation of an all-encompassing framework for putting corporate transparency into practice and gauging its effectiveness, offering practitioners, legislators, and scholars studying corporate governance useful direction.

References

Aggarwal, R., Erel, I., Stulz, R., & Williamson, R. (2009). Differences in governance practices between U.S. and foreign firms: Measurement, causes, and consequences. Review of Financial Studies, 22(8), 3131-3169. DOI: https://doi.org/10.1093/rfs/hhn107

Barth, M. E., & Schipper, K. (2008). Financial reporting transparency. Journal of Accounting, Auditing & Finance, 23(2), 173-190. DOI: https://doi.org/10.1177/0148558X0802300203

Bebchuk, L., Cohen, A., & Ferrell, A. (2009). What matters in corporate governance? Review of Financial Studies, 22(2), 783-827. DOI: https://doi.org/10.1093/rfs/hhn099

Bhattacharya, U., Daouk, H., & Welker, M. (2003). The world price of earnings opacity. The Accounting Review, 78(3), 641-678. DOI: https://doi.org/10.2308/accr.2003.78.3.641

Braun, V., & Clarke, V. (2006). Using thematic analysis in psychology. Qualitative Research in Psychology, 3(2), 77-101. DOI: https://doi.org/10.1191/1478088706qp063oa

Brown, L. D., & Caylor, M. L. (2006). Corporate governance and firm valuation. Journal of Accounting and Public Policy, 25(4), 409-434. DOI: https://doi.org/10.1016/j.jaccpubpol.2006.05.005

Bushman, R. M., & Smith, A. J. (2003). Transparency, financial accounting information, and corporate governance. Economic Policy Review, 9(1), 65-87.

Coates, J. C. (2007). The goals and promise of the Sarbanes-Oxley Act. Journal of Economic Perspectives, 21(1), 91-116. DOI: https://doi.org/10.1257/jep.21.1.91

Creswell, J. W. (2014). Research design: Qualitative, quantitative, and mixed methods approaches (4th ed.). Sage Publications.

Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301-325. DOI: https://doi.org/10.1086/467037

Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art. Cambridge University Press. DOI: https://doi.org/10.1017/CBO9780511815768

Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. The Quarterly Journal of Economics, 118(1), 107-156. DOI: https://doi.org/10.1162/00335530360535162

Graham, J. R., Grennan, J., Harvey, C. R., & Rajgopal, S. (2019). Corporate culture: Evidence from the field. National Bureau of Economic Research Working Paper No. w23255.

Guiso, L., Sapienza, P., & Zingales, L. (2015). The value of corporate culture. Journal of Financial Economics, 117(1), 60-76. DOI: https://doi.org/10.1016/j.jfineco.2014.05.010

Hermalin, B. E., & Weisbach, M. S. (2012). Information disclosure and corporate governance. The Journal of Finance, 67(1), 195-233. DOI: https://doi.org/10.1111/j.1540-6261.2011.01710.x

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. DOI: https://doi.org/10.1016/0304-405X(76)90026-X

Lambert, R., Leuz, C., & Verrecchia, R. E. (2007). Accounting information, disclosure, and the cost of capital. Journal of Accounting Research, 45(2), 385-420. DOI: https://doi.org/10.1111/j.1475-679X.2007.00238.x

Leuz, C., & Verrecchia, R. E. (2000). The economic consequences of increased disclosure. Journal of Accounting Research, 38, 91-124. DOI: https://doi.org/10.2307/2672910

Ng, A. C., & Rezaee, Z. (2015). Business sustainability performance and cost of equity capital. Journal of Corporate Finance, 34, 128-149. DOI: https://doi.org/10.1016/j.jcorpfin.2015.08.003

Ntim, C. G., Opong, K. K., & Danbolt, J. (2012). The relative value relevance of shareholder versus stakeholder corporate governance disclosure policy reforms in South Africa. Corporate Governance: An International Review, 20(1), 84-105. DOI: https://doi.org/10.1111/j.1467-8683.2011.00891.x

Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, 89(1/2), 62-77.

Schnackenberg, A. K., & Tomlinson, E. C. (2016). Organizational transparency: A new perspective on managing trust in organization-stakeholder relationships. Journal of Management, 42(7), 1784-1810. DOI: https://doi.org/10.1177/0149206314525202