Compliance with Corporate Governance Codes in Emerging Economies. Do Romanian Listed Companies “Comply or Explain”?

• In Event: Management Accounting

Abstract

We examine the attitude of Romanian companies listed on the Bucharest Stock Exchange towards the “comply-or-explain” principle under which they fulfill their corporate governance obligations. Against a lack of available databases containing information pertaining to our purpose, we hand-collect and analyze all “comply-or-explain” statements available for these companies in 2010 and 2011. We investigate the compliance and non-compliance cases, the quality of the explanations in case of non-compliance and we perform additional analyses by companies’ characteristics. We find that only one in two Romanian listed companies discloses the “comply-or-explain” statement on their website. Second, we find that the companies in our sample report that they comply with almost two thirds of the questions in the statement, but we also document cases of non-compliance without any explanations provided. Finally, we find that larger listed Romanian companies and companies with larger boards comply more with the principles of the corporate governance code, while the larger first-tier listed companies and companies separating the CEO and chair roles have better disclosures regarding non-compliance cases. We address the shortage of literature addressing the application of the “comply-or-explain” principle in Central and Eastern European countries by providing, to our knowledge, the first study that addresses the case of corporate governance practices based on the comply-or-explain principle in Romania, one of the recent members of the European Union. The small number of companies listed on the Bucharest Stock Exchange may be viewed as a limitation of the study. However, we analyzed data for all such companies, and we analyzed in depth the application of the principle by, therefore, the entire population available. Hence, this small number of companies prevented advanced statistical treatment of data, but offers a good understanding of these practices in emerging economies of the former communist bloc.

Authors

• Maria Madalina Girbina, The Bucharest University of Economic Studies

• Catalin Albu, University of Dayton