Wednesday, August 29, 2012

29/8/2012: Corporate Governance & Transparency in EU27

A new study, published in the International Journal of Business Research (link here), has ranked 27 EU countries' corporate governance codes in terms of transparency levels required. According to authors, the empirical study conducted "that approaches corporate governance from regulatory perspective analyzing all codes currently enforceable at European Union level, has two main goals focused on transparency and disclosure provisions settled by these" which implies that the study is "more comprehensive in these respects than prior related research focused on the same topic".

The main aspect of the study is "to define particular [corporate governance & transparency] disclosure groups [of countries] according to the level of transparency required and to classify all analyzed codes into these clusters."

The study modeled "the average value of disclosure indices for each disclosure group created" (Avg.D&T S_Index), basically as a metric of "similitude between them and OECD principles as regards the compliance with disclosure and transparency requirements".

"Consequently, we divided our sample of corporate governance codes according to their disclosure indices into six different groups revealing a level of disclosure from "very high level" to "insignificant level". The distribution of corporate governance codes into the disclosure groups thus created are presented in Table III, together with the average values of disclosure indices calculated for each group (Avg.D&T S_Index) and the average scores for the independent variables, revealing the level of disclosure depending on codes' issuers type (IT) and countries' legal regimes (LR1 and [LR.sub.1])." 

In the above 

  • "IT (Issuer Type), the following four identities being considered: "Composite", made of groups that contain representatives from at least two of the subsequent groups, "Government", referring to national legislatures or governmental commission/ministries, "Exchange", represented by national stock exchanges and "Industry", referring to industry or trade associations and groups, as in prior related literature;"
  • "LR (Legal Regime), in this respect being used classifications made by both La Porta, et al. (1997), who distinguished between "Common law", "German civil", "French civil", "Former socialist" and "Scandinavian civil" (values assigned to variable LR1) and Cicon et al. (2010), who introduced two new legal regimes ("Baltic civil" and "Global governance practices") instead of "Former socialist" and "Scandinavian civil" (values assigned to variable [LR.sub.2])."

Here are the summary table for groups assignments:

Now, the above suggests that Ireland has the lowest possible - "Insignificant Level" - of corporate disclosure rules compared to the OECD best practices standards. The results also show that Ireland does not belong to the group of highest disclosure-consistent legal regime (LR) that includes Common Law-type countries, but instead belongs to the lowest level of legal regime-consistent transparency.

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