corporate governance and reporting an empirical study of the listed companies in bangladesh

Electronic copy available at: http://ssrn.com/abstract=987717

Journal of Business Studies, Vol. XXVIII, No.1, June 2007

Corporate Governance and Reporting: An Empirical Study of the Listed Companies in Bangladesh

Md. Hamid Ullah Bhuiyan*

Pallab Kumar Biswas**

Abstract: Corporate governance is a burning issue now-a-days. In Bangladesh,

a number of attempts have been made on part of different governmental and

non-governmental institutions for ensuring better corporate governance.

Considering the importance of this issue, this paper has tried to examine the

actual corporate governance practices in the listed public limited companies by

considering 45 disclosure items. A random sample of 155 listed Public Limited

Companies (PLCs) has been taken for this purpose. To facilitate the analysis, a

Corporate Governance Disclosure Index (CGDI) has been computed and a

number of hypotheses have been tested. The mean and standard deviation of

CGDI have been found to be 56.04 and 17.20 respectively. In this study,

significant difference has been found to exist among the CGDI of various

sectors. Financial sector has been found to make more intensive corporate

governance disclosure than the non-financial sector. In general, companies

have been found to be more active in making financial disclosures rather than

non-financial disclosures. Multiple regression result shows that corporate

governance disclosure index is significantly influenced (at 5% level of

significance) by local ownership, the SEC notification, and the size of the

company. Belonging to financial or non-financial institution, age, multinational

company, and size of the board of directors are not found to have any significant

impact on corporate governance disclosure.

Keywords: Corporate Governance, SEC notification, financial disclosure,

multinational company.

Introduction

Corporate governance has evolved and grown significantly in the last decade. Following

the Enron Collapse there has been an increased emphasis on various aspects of corporate

governance, including its disclosure aspect. Numerous countries have already issued

corporate governance codes and the recommendations of these codes that typify “good”

corporate governance undoubtedly contribute towards increased transparency and

* Md. Hamid Ullah Bhuiyan, Assistant Professor, Department of Accounting & Information Systems,

University of Dhaka, Dhaka-1000, Bangladesh. ** Pallab Kumar Biswas, Lecturer, Faculty of Business Administration, Eastern University.

Electronic copy available at: http://ssrn.com/abstract=987717

2 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

disclosure (Mallin, 2002: 253). In case of Bangladesh, the Securities and Exchange

Commission (SEC), Bangladesh Bank (BB), the Institute of Chartered Accountants of

Bangladesh (ICAB), Bangladesh Enterprise Institute (BEI), the Institute of Cost and

Management Accountants of Bangladesh (ICMAB) are some of the pioneer bodies

working for ensuring better corporate governance in the country. Their efforts include

publication of code of corporate governance for Bangladesh, different reports,

organization of seminars, issuance of notification etc. Hence, the main motivation of the

current study is to explore whether listed public limited companies in Bangladesh are

paying attention to all these arrangements and to what extent such attention is being

resulted in annual report disclosure. With this end in view, this article at first briefly

discusses various aspects of corporate governance framework. Considering all these

aspects, different disclosure issues have been selected to examine the actual corporate

governance practices in Bangladesh. “The foundation of any structure of corporate

governance is disclosure. Openness is the basis of public confidence in the corporate

system, and funds will flow to the centers of economic activity that inspire trust.” This is

a famous quote made by Sir Adrian Cadbury (2000: vi) explaining the importance of

corporate governance disclosure. Without adequate reporting mechanisms, shareholders

and others cannot be confident that the affairs of the company are being run in a prudent

manner for their benefit. Also, there is inadequate assurance that the checks and balances

in place are effective. So the main objective of this study is to identify the extent of

corporate governance disclosure by Bangladeshi Companies in the annual reports. This

study is restricted to the public limited companies listed with the Dhaka Stock Exchange

(DSE).

This paper is organized into seven sections. The following section offers a discussion on

the conceptual framework of corporate governance. Section three focuses on the

environment of corporate governance in Bangladesh. The fourth section deals with the

historical aspect of corporate governance and the literature review. Section five presents

the data collection and research methodology. The sixth section discusses data analysis

and research findings. The final section concludes the paper with the scope of future

research.

Corporate Governance: The Conceptual Framework

The essence of corporate governance is about how owners (principals) of firms can

ensure that the firm’s assets (and the returns generated by those assets) are used

efficiently and in their best interests by managers (agents) delegated with powers to

operate those assets. This problem is intrinsic to any arrangement where owners

themselves do not undertake the management functions directly. The corporate

governance problem arises due to the existence of separation of ownership and control

Corporate Governance and Reporting: An Empirical Study 3

rights, informational asymmetry, and incomplete or state-contingent contracts (Lin,

2001:5).

In such a regime, the prerequisite for effective corporate governance involves: Alignment

of risk-bearing and control (e.g. rights of shareholders in appointing management,

approval of strategy and cash-flow); Monitoring and oversight of management and firm’s

performance based on transparency, regular and reliable disclosures, and internal checks

and balances; and Incentives (managerial incentives to enhance effort and align interests

of management with those of owners).

It is generally accepted that the governance problem entails a tension between

accountability and managerial initiative i.e. between the need for directors or

management to be accountable to shareholders on one hand and the need for management

to have the discretion to maximize profits. An apt analogy (with apologies to the Cadbury

Report) is in terms of unleashing the tiger (management) into the jungle of the market to

seek and exploit opportunities while ensuring that the tiger brings home the meat without

consuming it all himself, or that it does not eat up the owner in the process (Lin, 2001:6).

To address the corporate governance problem in practice, owners (and stakeholders) need

to devise a governance system comprising effective mechanisms of control, oversight and

monitoring over management and of incentives for management to behave in the owners’

interest. Such corporate governance system can be perceived as institutional attempts to

create a structured dialogue between companies and their shareholders and stakeholders

with the purpose of paving the way for understanding the company’s strategic and

operational goals, including critical success factors for achieving those goals (Parum,

2005:702).

Lin (2001) identifies a number of variables which constitute the design parameters. The

most critical of these include the scope of accountability and the desirable purpose and

benefits which determine the specific objectives or measures and criteria of whether

governance is good or bad. In a good corporate governance system, management should

be accountable to not only shareholders but also other stakeholders such as employees,

creditors, major suppliers and customers. The scope of accountability can be broadened

even further to include those with an indirect stake, i.e. “society” as a whole. Closely

related to the question of “to whom should the board be accountable” is the issue of the

advantages of corporate governance. A narrow conception of corporate governance deals

with safeguarding the interests of shareholders (and other security claimants). This seems

pretty much to be the dominant view among firms and institutional investors in Anglo-

Saxon countries. Good corporate governance in this context involves mainly enhanced

capacity for shareholders to perform oversight and monitoring functions through, for

example, approving (or setting) strategic and financial objectives, management selection,

decisions on directors remuneration, profit distribution, board representation, etc.


A broader conception includes the narrow conception described above but in addition

considers the efficiency aspects from the perspective of national economic vitality. So

Lin (2001) suggested that the merits and demerits of any corporate governance system

should be evaluated not only in terms of adequacy of shareholders’ interests but should

include its capacity to raise financing (which may or may not be in the interests of

existing shareholders), productivity and competitiveness which contribute to the

dynamism of the economy overall.

The broad conception of corporate governance would imply going beyond using

shareholder value as the sole objective or criteria of satisfactory governance. 1The choice

of a judicious blend of indicators of firm performance and prospects, in this case, depends

on either the myopia or “vision” of stakeholders, especially institutional investors, in

making investment decisions. Even so, a long-term view requires considerable effort and

skills in monitoring and analysis. Under this long range view, a system of corporate

governance involves a firm’s three constituent decision-making bodies: the shareholders’

annual general meeting (AGM), the board of directors, and management. It is often

assumed that this architecture represents the corporate governance of a firm. But Lin

(2001) argues that it only provides a skeletal structure upon which corporate governance

could be exercised, and the effectiveness - indeed the very existence of - corporate

governance depends entirely on how the skeletal structure is fleshed out. How it is

fleshed out depends on (a) Statutory provisions, particularly those relating to the

definition and exercise of shareholders’ rights, oversight mechanisms and disclosure,

contained in the legal and other (especially financial and securities) regulatory framework

of the country or jurisdiction and replicated - and further developed - in the charter of the

company; (b) Monitoring, compliance and enforceability of these legal and other

statutory requirements. However, how governance works in practice and more crucially

how effective it is, depends on a host of internal characteristics (ownership and capital

structure) and external factors which act as enforcement mechanisms, of which the most

important are (c) Ownership concentration or dispersal, which determines whether a firm

is tightly controlled by a group of insiders (e.g. majority shareholders) or by a large

number of widely dispersed small shareholders governing largely through markets (e.g.

share price movements), and the balance of powers and interests between

majority/insiders and minority/outsiders shareholders; (d) Board attributes, such as the

composition, representativeness, independence and qualification of board members, as

well as the existence of sub-committees (headed by non-executive or independent

1 Consider, for example, a profitable firm, delivering high shareholder value to its investors, but engaged in

activities considered by some as socially and ethically irresponsible: such as, say, environmentally

damaging or arms sales to repressive regimes. In the shareholder model, the firm may be said to have good

corporate governance (in delivering high shareholder value), but in the stakeholder model, it can be said to

be badly governed (Lin, 2001: 8).


directors) on audit, nomination and remuneration, to ensure that it can be an effective

oversight body on behalf of stakeholders; (e) Supporting checks and balances, such as

independent share registrars, company secretaries, internal financial controls and accurate

and timely information accessible to board members; (f) Accounting standards (including

auditing) and conventions which determine the type, detail and quality of information

disclosed to ensure transparency; (g) Product market competitiveness to instill

commercial discipline on management; (h) Efficiency and competitiveness of financial

markets, providing financial discipline and incentives, especially equity markets where

shareholders can exercise their “vote” in governance through entry and exit, and which

provides a market for corporate control as well as monitoring functions performed by

institutional investors; (i) Competitiveness of managerial job markets which make

managerial jobs “contestable” and thereby elicit managerial effort; and (j) Cultural and

historical factors, which, amongst other things, strongly influence business organization,

practices as well as the passivity or activism of shareholders in governance.

Thus, both internal and external enforcement mechanisms impact on corporate

governance (Lin, 2001:5-9). Depending on the above mentioned enforcement

mechanisms, different disclosure issues have been identified as a proxy for good

corporate governance in Bangladesh and attempts have been made to find out the nature

and extent of disclosure by the listed public limited companies in Bangladesh.

Corporate Governance in Bangladesh

The history of corporate governance in Bangladesh is not very old. About 60 years back

from now, the land, which is now Bangladesh, had a few bodies incorporated under the

Companies Act. At the time of independence of Bangladesh, many industries and

business houses owned by non-locals were abandoned and the government of Bangladesh

took possession of these industries by establishing corporate bodies like BCIC

(Bangladesh Chemical Industries Corporation) and BSEC (Bangladesh Steel and

Engineering Corporation). During 80s, Bangladesh Govt. took privatization policy and

since then, private sectors have a substantial impact on the pace and pattern of economic

growth (ICAB, 2003:6-7). In Bangladesh, though no remarkable corporate scandals

emerged to feel the necessity of corporate governance, yet the stock market crush of 1996

is worth remembering.2

Corporate governance is a function of regulation of corporate bodies through legislation

or self regulatory mechanisms such as those of stock exchanges. The current legal

2 The DSE all shares price index rose to 3648.75 on 5th November, 1996 starting from 865 on 1st June, 1996-

322% increase within a spate of only 158 days. The Market Capital that was T, 56.52 billion by end 1995

reached Tk. 168.11 (137% increase) by end 1996 (Mazumdar, 2006:64).


framework surrounding corporate entities in Bangladesh include: The Companies Act

1994, Bangladesh Bank Order 1972, The Bank Companies Act 1991, Financial

Institutions Act 1993, The Securities and Exchange Ordinance 1969, The Securities and

Exchange Commission Act 1993, and The Bankruptcy Act 1997 (BEI, 2003: 28-29).

The Companies Act 1994 is the law which governs incorporated entities in Bangladesh.

The Companies Act 1994 plays a major role in corporate governance. It defines the rights

of not only majority shareholders but minority shareholders as well. The act provides for

certain supervisory functions to be undertaken by the shareholders in the form of these

rights to attend meetings, appoint and remove directors, and to obtain financial

information as well as approve the balance sheet annually. It also provides for various

mechanisms for shareholders to enforce these rights, the principal among them being a

suit for minority protection under section 233 of the act (vide Afroze, and Jahan,

2005:189). Besides, Director’s report in the annual report is prepared under section 184

of the Companies Act 1994, various issues relating to directors’ ( such as appointment,

removal, vacation etc) are addressed through section 90 to 110, issues relating to

management and administration are addressed through section 77-89. All these reflect

various issues of corporate governance.

The Securities and Exchange Commission (SEC) has promulgated different orders and

notifications from time to time to ensure good corporate governance practice in the

listed public limited companies. On 9th January and 20th February 2006, the

SEC has issued order (No. SEC/CMRRCD/2006-158/Admin/2-06) and notification

(No.SEC/CMRRCD/2006-158/Admin /2-08) for complying with a number of governance

codes. By doing all these, SEC strives to stimulate the listed companies to comply the

corporate governance guidelines issued by them so that suppliers of funds to assure

themselves of getting a return on their investment (Imam, 2006:34). All these guidelines

are issued on the basis of “Comply or Explain”. In other words, a company which has not

accepted with any of the SEC-issued corporate guidelines should include an explanation

for noncompliance in the company’s annual report to the shareholders (Ahmed, 2006:26).

Islam (2006) provided a highlight of few regulatory requirements which are of critical

significance for proper issuance and orderly trading in securities and also have direct

relevance to corporate governance that is presented in a table given in Exhibit-A1.

The Institute of Chartered Accountants of Bangladesh (ICAB) has accepted a number of

International Accounting Standards (IAS) and International Standards on Auditing (ISA)

in Bangladesh as Bangladesh Accounting Standards (BAS) and Bangladesh Standards on

Auditing (BSA) respectively. Moreover, it has published a report named “Corporate

Governance in Bangladesh” in 2003 after undertaking a study on the present scenario of

corporate governance in Bangladesh. In the report, various recommendations have been


made for the improvement of corporate governance practice in Bangladesh (ICAB,

2003).

Besides the above two, some private firms have been working in this field for quite some

time in order to ensure better corporate governance. In August 2003, first such initiative

was taken by Bangladesh Enterprise Institute (BEI) by conducting a diagnostic study in

this field. Based on the study, BEI in March 2004 has published “The Code of Corporate

Governance for Bangladesh”. Subsequently, the ICAB has come up with principles and

rules to be followed (Mazumder, 2006: 67). Very recently, the Institute of Cost and

Management Accountants of Bangladesh (ICMAB) organized a two-day long Conference

on “Corporate Governance-Bangladesh Perspective” on March 14-15, 2006.

In spite of the existence of the above mentioned regulatory framework, in many cases, the

current system in Bangladesh does not provide sufficient legal, institutional, or economic

motivations for stakeholders to encourage and enforce good corporate governance

practices. As a result, there are few rewards for companies that institute good corporate

governance practices and no penalties for failing to do so (BEI, 2003: 1).While there is

increasing recognition of the need for corporate governance reform in Bangladesh, the

process has been slowed by the policy dimension of reform efforts, which often runs

counter to entrenched interests (www.asiafoundation.org). As a result, the poor

functioning of financial markets, opaque, unethical, illegal, or simply unprofessional

business practices raise the costs of doing business within the economy, distort domestic

investment decisions, and impede foreign investment in Bangladesh. Besides, failings in

institutions, government agencies, legal enforcement, and market behaviour, Mazumdar

(2006) found family owned business, lack of loyalty, misconception about delegation of

authority, and missing internal audit function to be the reasons behind poor corporate

governance in Bangladesh.

Corporate Governance: Historical Overview and Literature Review

Governance is a word with a pedigree that dates back to Chaucer and in his day the word

carried with it the connotation wise and responsible, which is appropriate. It means either

the action or the method of governing and it is in that the latter sense that it is used with

reference to companies. Its Latin root, “gubernare” means to steer and a quotation which

is worth keeping in mind in this context is: ‘He that governs sits quietly at the stern and

scarce is seen to stir.’ (Cadbury, 2002: 1). Though corporate governance is viewed as a

recent issue, there is, in fact, nothing new about the concept. Because it has been in

existence as long as the corporation itself (Imam, 2006: 32). Over centuries corporate

governance systems have evolved, often in response to corporate failures or systemic

crises. The first well-documented failure of governance was the South Sea Bubble in the


1700s, which revolutionized business laws and practices in England. Similarly, much of

the securities law in the United States was put in place following the stock market crash

of 1929. There has been no shortage of other crises, such as the secondary banking crisis

of the 1970s in the United Kingdom, the U.S. savings and loan debacle of the 1980s,

East-Asian economic and financial crisis in the second half of 1990s. In addition to

crises, the history of corporate governance has also been punctuated by a series of well-

known company failures: the Maxwell Group raid on the pension fund of the Mirror

Group of newspapers, the collapse of the Bank of Credit and Commerce International,

Baring Bank and in recent times global corporations like Enron, WorldCom, Pramalat,

Global Crossing and the international accountants, Andersen. These were blamed on a

lack of business ethics, shady accountancy practices and weak regulators. They were a

wake-up call for developed countries on corporate governance. The result is found in

different regulatory actions and other reforms.3 Each crisis or major corporate failure –

often a result of incompetence, fraud, and abuse- was met by new elements of an

improved system of corporate governance (Iskander and Chamlou, 2000:1).

Governance has proved an issue since people began to organize them for a common

purpose. How to ensure the power of organization is harnessed for the agreed purpose,

rather than diverted to some other purpose, is a constant theme. The institutions of

governance provide a framework within which the social and economic life of countries

is conducted. Corporate governance concerns the exercise of power in corporate entities

(www.ccg.uts.edu.au). There are probably as many definitions of corporate governance

as there are corporations. The earliest definition of Corporate Governance is provided by

the Economist and Noble laureate Milton Friedman (1970) (vide Indian infoline, 2001:1).

According to him, Corporate Governance is to conduct the business in accordance with

owner or shareholders’ desires, which generally will be to make as much money as

possible, while conforming to the basic rules of the society embodied in law and local

customs (vide Indian infoline, 2001:1). This definition is based on the economic concept

of market value maximization that underpins shareholder capitalism. Apparently, in the

present day context, Friedman’s definition is narrower in scope. Over a period of time the

definition of Corporate Governance has been widened. It now encompasses the interests

of not only the shareholders but also many stakeholders. In fact, a much-quoted definition

3 In the UK the collapse of the Maxwell publishing group at the end of the 1980s stimulated the Cadbury

code of 1992, and cases through the 1990s such as Poly Peck, BCCI and recently Marconi stimulated a

series of further enquiries and recommendations. The cases of Enron, World Com and Tyco have initiated

major debate and legislation in the US.. In Germany the cases of Holtzman, Berliner Bank, and more

recently Babcok have served the same catalytic role as did the collapse of HIH (a large insurer), Ansett

Airlines and One Tel in Australia.1 Credit Lyonnaise and Vivendi have raised many governance issues in

France; and in Switzerland the events at Swissair have had a similar effect. Large failures of both financial

and non financial institutions in Japan have also led to regulatory responses and to legal changes (OECD,

2003b:9).


of corporate governance comes from Sir Adrian Cadbury, father of the core of the UK

Combined Code on corporate governance which regulates corporate governance in UK

companies. His definition of corporate governance is “the system by which business

corporations are directed and controlled (Cadbury, 2002: 1).” But the most authoritative

functional definition of corporate governance is provided by the OECD which is

consistent with the definition provided by Sir Adrian Cadbury:

"Corporate governance is the system by which business corporations are

directed and controlled. The corporate governance structure specifies the

distribution of rights and responsibilities among different participants in the

corporation, such as the board, managers, shareholders and other

stakeholders, and spells out the rules and procedures for making decisions on

corporate affairs. By doing this, it also provides the structure through which

the company objectives are set, and the means of attaining those objectives

and monitoring performance” (OECD, 1999: 9).

Corporate governance is concerned with holding the balance between economic and

social goals and between individual and communal goals. The governance framework is

there to encourage the efficient use of resources and equally to require accountability for

the stewardship of those resources. The aim is to align as nearly as possible the interests

of individuals, corporations, and society. The incentive to corporations and to those who

own and manage them to adopt internationally accepted governance standards is that

these standards will help them to achieve their corporate aims and to attract investment.

The incentive for their adoption by states is that these standards will strengthen the

economy and discourage fraud and mismanagement (Cadbury, 1999: VI).The principal

characteristics of effective corporate governance are: transparency (disclosure of relevant

financial and operational information and internal processes of management oversight

and control); protection and enforceability of the rights and prerogatives of all

shareholders; and, directors capable of independently approving the corporation’s

strategy and major business plans and decisions, and of independently hiring

management, monitoring management’s performance and integrity, and replacing

management when necessary (vide Gregory, 2000: i). All these characteristics are there to

achieve the broad objective of good corporate governance: maximizing long term

shareholder value (Ahmed, 2006: 24).

A good number of theoretical and empirical researches on corporate governance

disclosure have been undertaken throughout the globe due to the continuing emphasis on

this. In conducting the research on corporate governance, annual reports have been used

as a main source of information. Karim et al. (1996) argued that annual reports of the

companies should be considered as the most important source of information about a

company and they used that for a variety of reasons. Bushman and Smith (2001) argued


that a fundamental objective of corporate governance research in accounting is to provide

evidence on the extent to which information provided in financial accounting systems

mitigate agency problems. Research in the field of corporate governance disclosure

during the recent years has mainly focused on the disclosure practices found in the annual

reports by determining the extent of corporate governance disclosures in the annual

reports of the companies of a country. In the Twenty First Session of International

Standards of Accounting and Reporting (Geneva 27-29 October, 2004) UNCTAD

Secretariat presented a report (which was prepared after conducting a survey on 30

companies representing different geographical regions and industry) that found

increasing convergence among national and international corporate governance codes and

guidelines but it also reported significant deviation in terms of disclosure practices and

content of disclosure. Gompers et al (2003) used the incidence of 24 governance rules to

construct a “Governance Index” to proxy for the level of shareholder rights at about 1500

large firms in the USA during the 1990s. They found that firms with stronger shareholder

rights had higher firm value, higher sales growth, higher profits, lower capital

expenditures, and made fewer corporate acquisitions. But except for size and, to a lesser

extent, ownership structure, Réal Labelle (2002) did not find consistent and significant

relations between disclosure quality of governance practices and firm performance or

other corporate governance variables such as the proportion of unrelated director, the

CEO’s plurality of offices and the level of financing activity in Canada.

Similarly, a number of attempts have been made by various researchers throughout the

world regarding the determinants of corporate governance. Durnev and Kim (2005)

provide empirical and theoretical evidence that companies with greater growth

opportunities, greater needs for external financing, and more concentrated cash flow

rights practice higher quality governance and disclose more and the strength of their

influence depends in part on the country’s legal environment. On the other hand, Barucci

and Falini (2005) find that in Italian financial market, governance features are affected by

shareholders’ composition, balance sheet data and company features. Anand et al. (2006)

provide empirical evidence that the absence of a large empirical block holding and a high

need for external financing are the firm characteristics associated with the adoption of the

Canadian guidelines and when it comes to voluntarily adopting the U.S. Sarbanes-Oxley

Act (SOX) provisions, firm size becomes an important determinant.

From the context of Bangladesh, Hossain et al (2005) made a study on voluntary

disclosures on corporate social responsibility in Bangladesh by taking 75 sample

companies. They found that only 9 companies (12%) disclosed several issues on

corporate governance in their annual reports covering issues like Internal Financial

Control (including management structure, financial reporting, asset management,

functional reporting), Statement of director’s responsibilities for preparation and


presentation of financial statements, Board Committees and Rights and relations with

shareholders. Besides, they also found 5 companies to highlight legal issues, 9 to disclose

about business ethics, 7 companies to report on the shareholder’s dialogue, 5 to report on

community relations, 14 to report on environmental sustainability and no companies to

report on human rights and labour standards. Al-Amin and Tareq (2006) found

significant statistical relationship between company size measured by annual turnover

and corporate governance disclosure after a survey of 30 companies. After conducting a

questionnaire survey of 151 companies in 2002, Centre for Policy Dialogue (CPD)

reported the adoption of corporate governance policy in 66.7 percent of the companies

and compliance with national and international benchmarks in 43.3 percent of the

companies. Hossain and Khan (2006) conducted an extensive survey of 100 sample

companies of DSE and/or CSE (Chittagong Stock Exchange) and found significant

relationship between corporate governance disclosures and some corporate attributes

such as multinational affiliation, linkage of auditor with big four audit firms, concentrated

ownership by sponsors and banking companies influence. In their survey, they considered

25 issues in developing corporate governance disclosure index. The present study has

been conducted considering 45 different issues that not only cover these 25 issues but

also other important issues considered by UNCTAD (2004).

Methodology of the Study

The main objective of this study is to examine the level of corporate governance

disclosures of the sample companies. So a disclosure index has been developed (mainly

on the basis of the papers prepared by the UN secretariat for the nineteenth session of

ISAR (International Standards of Accounting and Reporting), entitled “Transparency and

disclosure requirements for corporate governance” and the twenty second session of

ISAR, entitled “Guidance on Good Practices in Corporate Governance Disclosure”) for

the companies under study. Issues in corporate governance disclosure are classified into 5

broad categories. Financial disclosures, non-financial disclosures, annual general

meetings, timing and means of disclosure, and best practices for compliance with

corporate disclosure. Under non-financial disclosures, different headings such as

company objectives, governance structure and policies, members of the board and key

executives, material issues regarding employees, environmental and social stewardship,

material foreseeable risk factors, and independence of auditors are used. Under all these

broad and subcategories, a total of 45 issues have been considered (See Exhibit A-2 in

Annexure).

For this research, randomly selected 155 listed public limited companies have been

considered. The companies were classified into 11 categories under 2 broad headings:


Financial sector and non-financial sector. Financial sector includes banks and insurance

companies. Non-financial sector includes engineering, food & allied, fuel & power, jute,

textile, pharmaceuticals & chemical, paper and packaging, service and miscellaneous.

The disclosure practices of selected companies are analyzed as of July1, 2006. The

primary sources used for the survey include company annual reports and internet.

With the help of the list of disclosure issues, the annual reports of the companies were

examined. A dichotomous procedure was followed to score each of the disclosure issue.

Each company was awarded a score of ‘1’ if the company appears to have disclosed the

concerned issue and ‘0’ otherwise. The score of each company was totaled to find out the

net score of the company. A corporate governance disclosure index (CGDI) was then

computed by using the following formula:

CGDI= × 100

By using the total CGDI the following hypotheses have been tested:

Hypothesis 1 There is no significant difference among the CGDI of 11 sectors.

Hypothesis 2 CGDI of financial and non-financial sectors are equal.

Hypothesis 3 Companies do not differ significantly in avg. financial and non-

financial disclosure index.

Hypothesis 4 There is no significant association between a number of corporate

attributes (viz, size of the company, local ownership (which includes

public ownership, institutional ownership, and government

ownership), multinational company, belonging to financial or non-

financial institution, age, the SEC notification, size of the board of

directors) and the extent of corporate governance disclosure.

To provide primary evidence of the impact of corporate attributes on corporate

governance disclosures of different companies in Bangladesh, this paper uses the

following multiple regression technique.

CG = C + ββββ1LNSA+ ββββ2LOCALt + ββββ3MNCt + ββββ4FINt + ββββ5AGEt + ββββ6NOTIt + ββββ7BODt + et

Total Score of the Individual Company

Maximum Possible Score Obtainable by Company


Table 1

Operationalisation of the Research Variables

Variable Acronym Operationalisation Expected Sign

Dependent Variable:

Corporate Governance

Disclosure Index

CG Total score obtained by the

company divided by the

maximum score obtainable

by one company multiplied

by 100

Independent Variables:

Sales (Proxy for size) LNSA Natural log of the sales of

the company +

Local Ownership LOCAL The proportion of general

ownership (summation of

public, institutional and

government ownership) in

the company

+

Multinational Company MNC Dichotomous with 1 if the

company is a multinational

one and 0 otherwise

+

Financial Institution FIN Dummy Variable, 1 if the

company is a financial

institution and 0 otherwise

+

Age AGE Years of operation in the

market as a listed public

limited company +

The Securities and

Exchange Commission

Notification

NOTI Dichotomous with 1 if the

AGM of the company is

held after the SEC

notification (After March

2006) and 0 otherwise

+

Board Size BOD Number of directors in the

board +


Size: The size of the reporting company has been a major variable in most studies

examining disclosure variability and several measures of size may be annual sales, total

assets, fixed assets, paid up capital, shareholders equity, capital employed, and the market

value of the firm (Karim, 2006: 97). In this study, natural log of sales has been used as

the proxy for the size of the company.

Ownership pattern: In Bangladeshi PLCs, ownership pattern include sponsor ownership,

institutional ownership, government ownership, foreign ownership and public ownership.

In this study local ownership (which includes public ownership, institutional ownership,

and government ownership) has been used with the expectation to find any relationship

with corporate governance disclosure.

Company: In Bangladesh at present, a number of multinational companies are operating.

Because of their operation in different parts of the world, it is expected that multinational

companies will make more corporate governance disclosure than local companies. So a

dummy variable has been taken where 1 for the multinational listed companies in

Bangladesh, and 0 for other companies.

Age: In this paper, attempts have been made to find out if there exists any relationship

between the number of years of operation as a listed public limited company in the

market and the extent of corporate governance disclosure. Age has been calculated by

finding the difference between the annual report year and the year of listing.

The Securities and Exchange Commission Notification: The Securities and Exchange

Commission (SEC) imposed several conditions on 20th February, 2006 with which each

and every public limited company is subject to abide by on ‘comply or explain’ basis. So

it is expected that the company whose AGM took place after March, 2006 would make

more corporate governance disclosure than other companies whose AGM took place

before March, 2006.

Financial Institution: In Bangladesh, Bangladesh Bank pays special attention to financial

institutions (banks and leasing companies) by different circular, audit, notification etc. So

in this study, attempts have been made to add one dummy variable (1 if the company is a

financial institution) in the multiple regression model to find significant relationship with

corporate governance disclosure, if any.

Board Size: Large boards are usually more powerful than small boards and, hence,

considered necessary for organizational effectiveness (Florackis and Ozkan, 2004). For

instance, as Pearce and Zahra (1991) point out, large powerful boards help in

strengthening the link between corporations and their environments, provide counsel and

advice regarding strategic options for the firm and play crucial role in creating corporate

identity. So the board size has been considered in the multiple regression model.


Other than all these variables, natural log of assets (LNASST) has also been used to

develop a correlation matrix. Since multiple regression is used to test the hypotheses,

assumptions of multicollinearity, normality, homoscedasticity and linearity are also

tested. The Pearson correlation matrix is used to test the multicollinearity assumption,

while an analysis of residuals, plots of the standardized residuals against predicted values

are conducted to test for homoscedasticity, linearity and normality assumptions.

Before going for testing the above mentioned hypotheses, a Run Test has been performed

for testing the randomness of observed data. Besides Run Test, several statistics

techniques such as Kolmogorov-Smirnov goodness of fit test, Wilkoxon Rank Sum W test,

Analysis of Variance (ANOVA) have been applied in this study. For checking normality

of population Kolmogorov-Smirnov goodness of fit test has been conducted and Wilkoxon

Rank Sum W test has been conducted to test the equality of means where normality of

population can’t be ensured.

Findings of the Study

While there is increasing tendency to disclose different aspects of corporate governance,

the disclosure practices and the content of disclosures among the selected companies

varied greatly.

Table 2

Frequency Distribution of Total Score by Individual Company

Total Score N Cum. N % Cum. %

12-16 8 8 5.16 5.16

16-20 37 45 23.87 29.03

20-24 39 84 25.16 54.19

24-28 16 100 10.32 65.52

28-32 14 114 9.03 73.55

32-36 17 131 10.96 84.51

36-40 20 151 12.90 97.42

40-44 4 155 2.58 100.00

Source: Compiled and Computed from the Annual Report of the Concerned Company


Table 3

Frequency Distribution of CGDI

CGDI N Cum. N % Cum. %

30-40 29 29 18.710 18.710

40-50 49 78 31.61 50.32

50-60 17 95 10.97 61.29

60-70 19 114 12.26 73.55

70-80 17 131 10.97 84.52

80-90 24 155 15.48 100.000


As seen in above tables (Tables 1, 2), there is a significant range in the disclosure item

scores among the selected companies. With a maximum of 45 disclosure items and the

average score of 25, or 56%, four companies received the highest score of 40 or 89%

(from four different sectors with their AGMs after March 2006). At the low end, eight

received a score of 15, or 33% (from three different sectors with their AGMs before

March 2006). Test result of Run Test (Exhibit-A4) asserts that null hypothesis of

randomness of data can’t be rejected as P-value is more than α value which is 5%.

The majority of the selected companies have disclosed information that is consistent with

the disclosure items checklist. In general, the highest scores are associated with those

disclosure items that address financial results, accounting policies and the existence of

various governance structures and mechanisms. At the high end of the range, all selected

companies have disclosed financial and operating results, size, composition and change

in board structure, compliance with different rules and accounting policies, information

regarding ownership structure, auditor appointment & rotation, auditor fees and 99%

have disclosed the information regarding shareholder right (Exhibit-A2). Lower scores

concerned with various aspects of the board and key executives relating to organizational

hierarchy (16%), directors’ biography (6%), remuneration committee (14%), as well as

existence of a code of conduct (6%). In order to find out if the companies emphasize

more on financial disclosures rather than on non-financial disclosures, the following

hypothesis has been tested:


Ho: Companies do not differ significantly in avg. financial and non-financial

disclosure index.

H1: Companies differ significantly in avg. financial and non-financial disclosure

index.

The result is given in Exhibit-A5 and A7. From the exhibits, it is found that null

hypothesis of equal variance can’t be rejected (P value, 0.188, is more than α value of

5%). Under the assumption of equal variance, the null hypothesis of equality of means

can’t be accepted. It means that companies do differ significantly in average financial and

non-financial disclosure index.

In this paper, the selected companies have been classified into 11 sectors. The reason

behind classification is to find out extent of disclosure by different sectors. The sector

wise disclosure is shown in the following table:

Table 4

Sector-wise CGDI Distribution

Sector

No. of

Companies Minimum Maximum

Avg.

CGDI S.D.

Kolmogorov-

Smirnov z P value

Miscellaneous 22 33.33 88.89 55.35 16.41 0.93 0.36

Service 3 44.44 77.78 56.30 18.64 0.63 0.82

Jute 3 37.78 42.22 39.26 2.56 0.67 0.77

Fuel & power 5 42.22 82.22 60.00 19.53 0.71 0.70

Pharmaceuticals 15 37.78 88.89 62.22 17.07 0.63 0.82

Textile 20 33.33 88.89 55.67 23.75 1.18 0.12

Engineering 15 37.78 82.22 54.67 14.30 0.77 0.60

Food 24 33.33 82.22 46.28 14.75 0.91 0.37

Paper 4 33.33 35.56 34.44 1.28 0.61 0.85

Insurance 18 40.00 71.11 53.46 10.11 0.96 0.32

Financial

Institution 26

44.44

88.89 68.35 11.39 0.80 0.55

N=155 56.04 17.20

Source: Computed and Compiled from Annual Reports


The above table shows that among 11 sectors considered, banking sector has ranked the

highest (69%) and paper and packing has ranked the lowest with only 34% disclosure.

Considering these 11 sectors hypothesis has been tested to find out whether there is any

difference in the average CGDI among these sectors.

Ho: There is no significant difference in the avg. CGDI among various sectors.

H1: Significant difference exists in the avg. CGDI among various sectors.

The test result is shown in Exhibit-A8. Test result shows that null hypothesis of no

significant difference in the avg. CGDI among various sectors can’t be accepted. In other

words, various sectors differ significantly among themselves in respect of average CGDI.

In Bangladesh, financial sectors (Banks and Insurance companies in this study) are

subject to close monitoring and supervision by Bangladesh Bank and the SEC. As a

result, more restrictions are imposed on this sector while the non-financial sectors are a

little bit relaxed to some extent. So, attempts have also been made to distinguish financial

and non-financial sectors’ CGDI.

Ho: There is no significant difference between financial and non-financial sector

avg. CGDI.

H1: Significant difference exists between the financial and non-financial sector avg.

CGDI.

The result is given in Exhibit-A5 and A7. At 5% level of significance, null hypothesis of

equal variance can’t be assumed because significance value (.036) is less than the α value

of 5%. By assuming un-equal variance, null hypothesis of equality of means can’t be

accepted at 5% level of significance. So null hypothesis of difference in average CGDI

between financial and non-financial sector can’t be accepted.

Finally, attempts have been made to find out the impact of various corporate

characteristics on the corporate governance disclosure. For this, a multiple regression

model is run. The descriptive statistics for the independent and dependent variables are

given in Exhibit-A9. A correlation matrix of various independent variables along with

dependent variables is constructed which is shown in Exhibit –A10. The correlation

matrix shows that other than size of the board and age, all the independent variables are

significantly correlated with corporate governance disclosure index at 1% or 5% (MNC)

level of significance. High correlation has been found between natural log of asset and

natural log of sales (.704), belonging to financial and non-financial institution (FIN) and

natural log of asset (0.675). Due to the existence of high correlation between natural log


of asset and some other independent variables, natural log of sales has been selected to

act as proxy for size of the firm. The results of multiple regression (Exhibit-A11) show

that the corporate governance disclosure is significantly influenced (at 5% level) by size

of the company (represented by the natural log of sales), local ownership, and the SEC

notification. The multiple correlation coefficient (R) is 0.649 (R2 = .421) and the adjusted

R2 is 0.393, meaning that more than one-third of the variation in corporate governance

disclosure index can be predicted from the selected independent variables. It has also

been found that the variable SEC Notification (NOTI) has both the highest correlation

with CGDI (0.50) when other predictor variables are ignored (i.e. the highest zero-order

correlation) and the highest unique correlation with CGDI (0.420) when its shared

variation with the other predictor variables is taken into account (i.e. the highest beta

value). The beta weights suggest that other than local ownership (-.185) and age (-.026),

all the independent variables are positively contributing towards predicting audit

committee disclosure. As the SEC notification has been found to exert significant

influence on corporate governance disclosure practice, so it is important to make the

compliance of the conditions mandatory in the place of voluntary compliance (comply or

explain basis) on part of the listed companies. Again, the positive beta value of natural

log of sales implies that larger the size of the firm, the greater will be the extent of

disclosure. So law is necessary to reduce the gap between large and small firm level

disclosure practice. On the other hand, though local ownership has been found to be a

significant independent variable in explaining the extent of corporate governance

disclosure practice, its beta value is negative meaning that corporate governance

disclosure decreases as local ownership portion increases in a company. So policies

should be devised so that corporate governance disclosure increases with the increase in

local ownership portion in the company. Moreover, from the multiple regression model

output, it has also been observed that belonging to financial or non-financial institution,

age, multinational company, and, size of the board of directors do not contribute

significantly towards predicting the corporate governance disclosure. It means that for

Bangladesh, these variables are not significant contributors towards ensuring better

corporate governance at the current moment.

The survey result reveals that there are important corporate governance issues on which

disclosure is not yet a widespread practice. It is particularly a matter of concern that the

biography of the board members, remuneration committee information, code of ethics,

directorship information, organizational hierarchy are not being widely disclosed. Given

the growing complexity of business operations and of issues that boards have to deal

with, the investing public would be interested to know whether members of the board of

the enterprises in which they have invested or plan to invest in have sufficient educational

and professional qualification to carry out the business, how the remuneration of the

employees is being fixed, under which rules and guidelines the board members are


running the business, to what extent the board members are busy with other companies’

directorship. With respect to certain disclosure items, a number of more detailed findings

are drawn from the survey, as discussed below.

Financial Disclosures:

As has been said earlier, the selected companies are more eager to disclose financial

information rather than non-financial information. All the companies have disclosed

information regarding financial and operating results and accounting policies. Again, 140

(90%) companies have disclosed information regarding dividend. In case of corporate

governance framework, only 28% companies have disclosed their position. Corporate

governance framework includes declaration by the board regarding fair presentation of

financial statements, consistent application of accounting policies and standards, sound

internal control system, ability to continue as a going concern etc.

Non-financial Disclosures:

Out of 95 companies who’s AGMs were held after March, 2006, 52 companies (55%)

have made disclosure of the SEC Compliance Report in the respective annual reports. It

means that about 45% companies didn’t make any disclosure regarding Corporate

Governance Disclosure requirement of the SEC. The reluctance on part of the companies

to comply with the disclosure requirement is an alarming sign, indeed. Again, out of

these 52 companies, 15 companies have disclosed only the SEC required checklist. Other

37 companies have disclosed both the SEC required checklist as well as separate

statement of corporate governance or separate section for corporate governance to make

their position clear regarding various aspects of corporate governance. Out of the 43 non-

complied companies, 13 companies have provided some sort of information in the annual

reports regarding corporate governance in a separate statement or separate section. Out of

60 companies who’s AGMs were held before March, 2006, only 6 companies (10%) have

provided information regarding corporate governance practice in their organizations in

separate corporate governance statement or section. Again, 66 companies (43%) have

been found to disclose information regarding company objectives. All the selected

companies have disclosed information regarding ownership structure and all but one

disclosed information regarding shareholder rights. In the survey, disclosure of voting

right and attachment of proxy form is considered as synonymous to shareholder right.

The results of the survey show a disparity among selected companies between the

disclosure of the existence of governance mechanisms and the disclosure of information

on the transparency and effectiveness of these mechanisms. On average 23% of the


selected companies have disclosed the existence of some sort of governance structures

(existence of audit committee, remuneration committee, and other committees), 33% on

composition of the committees and 28% on role and functions of the committees. Again,

all the companies have disclosed the composition of the board (including executives and

non-executives) but only 23% have disclosed the role and functions of the board. Results

also reveal different levels of transparency among selected companies with respect to the

board. Only six percent of selected companies have disclosed the qualifications and

biographical information of each board member, while 23% of selected companies have

disclosed the duties of the directors and 19% disclosed the number of directorships and

other positions held by directors. Companies did better in disclosing the remuneration of

directors. 96% companies have disclosed this information in the notes to the financial

statement. A total of 137 companies (88%) have disclosed information regarding

responsibility of the companies towards employees. The disclosure contents vary

significantly and include relation with employees, industrial relation, provision of

gratuity, provident fund, workers’ profit participation fund etc. Forty one per cent of

selected companies have disclosed the company policy and performance in connection

with environmental and social responsibility, although in most cases relationships

between a company's policy and performance and their impact could not be discerned.

The content of disclosure varies among selected companies. A few companies have

disclosed specific natural environmental targets, while others disclosed more employee

training and health programmes and/or contributions made to the natural environment

and community. Results reveal different levels of transparency among selected

companies with respect to risk assessment and management and confirm a strong

tendency on the part of financial companies to score higher than non-financial

companies. Total 36 companies (23%) have disclosed information regarding this. Out of

the 36 companies, 24 (94%) are financial companies. Sound internal control system is a

pre-requisite for good corporate governance. Out of 155 companies surveyed, only 53

(34%) companies have disclosed information regarding internal control system inside the

organization. Most of the companies provided the information in the SEC Checklist.

Though it is a general practice to disclose the notice of AGM and the agenda of the AGM

in the annual report, 3 companies have been found without such disclosure. As a result,

from the annual report it is not possible to find out the matters to be discussed or

decisions to be taken in the AGM. 63 companies (41%) have disclosed information

regarding number of board meetings held during the last financial year. Out of these

companies, 38 companies have been found to disclose each and every director’s

attendance in the board meetings as well. Though internet is not so widespread in our

country at the current moment, still 68 companies (44%) have disclosed information


regarding financial position and/or annual report in their website. Most of these

companies are banks and financial institutions and foreign companies. Not a single

company has disclosed in a statement that the board of directors had confidence that the

auditors were independent and their integrity had not been compromised in any way. All

selected companies disclosed the complete letter of the "Independent Audit Report" in

their annual. Again, all the companies disclosed information regarding appointment and

rotation of auditors as well as their remuneration.

Concluding Remarks and Scope of Future Research

This study undertakes content analysis studies. It has been found that a good number of

DSE listed companies in Bangladesh have chosen to disclose information regarding

various issues of corporate governance with a view to ensure compliance with regulatory

requirement and to increase the confidence of various constituents of business as well as

society. But only disclosure in the annual reports shall not be enough. Practice of good

corporate governance and its appropriate disclosure can facilitate and stimulate the

performance of companies, limit the insiders’ abuse of power over corporate resources

and provide a means to monitor managers’ opportunistic behaviour.

The survey findings show that corporate governance disclosure in Bangladesh is

significantly influenced by local ownership, the SEC notification, and size of the

company but belonging to financial or non-financial institution company, multinational

company, age and size of the board of directors do not have significant impact on

corporate governance disclosure. So steps should be taken for mandatory compliance of

the SEC notification and for reducing the gap between large and small firms’ disclosure

practices. Within the current type of analysis, scope may be widened by covering the

corporate governance disclosure practice by Bangladeshi public limited companies over a

number of years to find out the extent of importance the organizations are emphasizing

on this issue. Moreover, in this article, all the disclosure items are given same weight.

Although this helps to reduce subjectivity, the market may place higher emphasis on

certain elements of governance. Also, some aspect of governance may be considered to

be a basic component or prerequisite to implementing others and thus should be given

more weight. Further analysis may also include managerial perceptions studies and

stakeholders’ perceptions studies.


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ANNEXURE

Exhibit - A1

SEC’s regulatory requirements and their interface with the corporate governance:

SEC’s regulatory requirement Relevance to SEC’s function

Relevance to pillars of corporate governance

Detailed information requirement in the prospectus for issuing securities for public subscription under Public Issue Rules 1998

i, ii, iii ii, iii

Neither the Company, nor any of its sponsors, directors or associates be a bank defaulter prescribed by 12

th May 2002 notification as

amendment to Public Issue Rules 1998

iii iv

Information requirement (including audited financial statements) under Issue of Capital Rules 2001 for companies seeking consent to raise capital for whom Public Issue Rules 1998 and Right Issue Rules of 1998 do not apply as well as their continuing requirement to hold Annual General Meeting regulatory and submit annual audited financial statements.

ii, iii iii

Requirements of Rights Issue Rules 1998 including no bank default or tax default certificates for Sponsors/Directors.

i, ii, iii iii, iv

The requirement under October 2000 notification of issuer companies to hold annual general meetings regularly in each year of Gregorian calendar and to hold discussions in conformity with Company Act which includes audited annual accounts

ii, iii i, iii

The requirement under January 2000 notification as amendment to the Securities and Exchange Rules, 1987 that the financial statements of an issuer of a listed company be audited, by a firm of Chartered Accountants consisting of not less than two partners in practice for a minimum of seven years, in accordance with International Standards of

ii, iii ii, iii


Auditing and the provision that, if necessary in public interest, such financial statements may also be audited by an auditor appointed by the Commission

Prevention of insider trading defined as trading in securities based on access to Undisclosed price sensitive information under Securities and Exchange Commission (prevention of insider trading) Regulations, 1995

ii, iii ii, iv

Procedures for acquisition or take-over of substantial shares under notification no. SEC/CMRRCD/2001-25/Administration-1/13 published in Bangladesh Gazette on 15 April 2002;

ii, iii ii, iii

Eligibility criteria and codes of conduct of merchant bankers under 1996 rules; stock dealers, brokers and authorized representatives under 2002 rules; sponsors, trustees, asset managers and custodians of mutual funds under 2001 rules; and of depository and depository participants under Depository Act of 1999, Depository Regulations of 2000 and Depository (User) regulations of 2000

ii, iii ii, iii, iv

The requirement for issuer companies to notify SEC and the stock exchanges about any decision about price-sensitive information within half an hour of such decisions under SEC’s order of 19 December 2000

ii, iii iii, iv

SEC’s function Corporate Governance

i = Proper issuance of securities;

ii = Protection of investor’s interest;

iii = Capital market regulation and development

i = Compliance with regulatory requirements;

ii = Equitable treatment of stakeholders;

iii = Disclosure of material information, including accounts;

iv = Business ethics.

Source: Islam, 2006: 5-8


Exhibit-A2

Disclosure Items and their rankings

Disclosure Item No. of Companies Percentage

I. Financial Disclosures:

1. Financial and Operating Results 155 100

2. Related Party Transaction 93 60

3. Critical Accounting Policies 155 100

4. Corporate reporting framework 44 28.39

5. Statement of Director’s responsibilities

towards preparation and presentation of

financial statements

72 46.45

6. Risk and estimates in preparing and

presenting financial statements

75 48.39

7. Segment reporting 72 46.45

8. Information regarding future plan 58 37.42

9. Dividend 141 90.97

II. Nonfinancial Disclosures:

A. Company Objectives:

10. Information about company objectives 66 42.58

B. Ownership and Shareholders’ Rights:

11. Ownership Structure 155 100

12. Shareholder Rights 154 99.35

C. Governance Structure and Policies:

13. Size of board 155 100

14. Composition of board 155 100

15. Division between chairman and CEO 101 65.16

16. Chairman Statement 55 35.48

17. Information about Independent Director 50 32.26

18. Role and functions of the board 35 22.58

19. Organizational Hierarchy 24 15.48

20. Changes in Board Structure 155 100

21. Compliance with different legal rules 155 100

22. Audit committee 46 29.68


23. Remuneration committee 21 13.55

24. Any other committee 38 24.52

25. Composition of the committee 51 32.90

26. Functioning of the committee 43 27.74

27. Organizational code of ethics 25 16.13

D. Members of the Board and key executives:

28. Biography of the board members 10 6.45

29. No. of directorship hold by individual

members

29 18.71

30. No. of board meeting 63 40.65

31. Attendance in board meeting 38 24.52

32. Director stock ownership 79 50.97

33. Director remuneration 149 96.12

E. Material issues regarding employees,

environmental and social stewardship:

34. Employee relation/Industrial relation 137 88.39

35. Environmental and social responsibility 63 40.65

F. Material foreseeable risk factors:

36. Risk assessment and management 36 23.23

37. Internal control system 52 33.55

G. Independence of Auditors:

38. Auditor appointment and rotation 155 100

39. Auditor fees 155 100

III. Annual General Meeting:

40. Notice of the AGM 152 98.06

41. Agenda of the AGM 152 98.06

IV. Timing and means of disclosure:

42. Separate Corporate Governance statement/

separate section for corporate governance

56 36.13

43. Annual report through internet 68 43.87

44. Any other event 114 73.55

V. Best practices for compliance with corporate governance:

45. Compliance with SEC notification 52 33.55

Source: Compiled and Computed from the Annual Reports of different companies listed with DSE


Exhibit-A3

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Total Score 155 15 40 25.22 7.74

CGDI 155 33.33 88.89 56.04 17.20

Financial Disclosure Score 155 22.22 100.00 61.93 18.04

Non-financial Disclosure Score 155 30.56 91.67 54.33 18.68

Financial organizations 44 40.00 88.89 62.42 13.45

Non-Financial organizations 111 33.33 88.89 53.51 17.878


Exhibit-A4

Statistics of Test of Randomness (Run Test) of CGDI

Test Value

of CGDI

Cases < Test

Value

Cases >= Test

Value

Total

Cases

Number

of Runs Z P-Value

55.86 95 60 155 64 -1.792 .073

Source: Test result of data collected from the Annual Report of the Concerned Company

Exhibit-A5:

Test for equality of variances and equality of means

Avg. Financial Disclosure

Score (µ1) and Non-financial

Disclosure Score (µ2)

Levene's Test

for

Equality of

Variances

Sig.

t-test for Equality of Means

t

df

Sig.

F

Equal variances assumed 1.741 0.188 3.643 308.00 0.00

Equal variances not assumed 3.643 307.624 0.00

Financial Sector avg. score (µ1) and Non-financial Sector avg. Score (µ2)

Equal variances assumed 4.486 0.036 3.073 153.00 0.00

Equal variances not assumed 3.468 104.305 0.00

Source: SPSS output using data from Annual Reports.


Exhibit-A6

Descriptive Statistics of CGDI relating to Financial and

Non-financial Disclosure Items

CGDI Kolmogorov-Smirnov z P value

Financial Disclosure Items 1.891 0.002

Non-Financial Disclosure Items 2.289 0.000

Financial sector 0.917 0.370

Non-Financial sector 2.012 0.001

Source: Compiled and Computed from Exhibit- A2 in the Annexure.

Exhibit-A7

Wilkoxon Rank Sum W test of equality of means

Components of Hypothesis W Z P value

Avg. Financial disclosure Index (µ1) and Avg.

Non-financial disclosure Index (µ2)

26948.50 3.622 0.000

Financial Sector avg. score (µ1) and

Non-financial Sector avg. Score (µ2)

4330.5 3.58 0.000

Source: SPSS result using data of Exhibit-A2 in the Annexure.

Exhibit-A8

ANOVA Table

Source of Variation SS df MS F P-value F crit

Between Groups 9751.961 10 975.196 3.918 0.000243 1.897007

Within Groups 35840.051 144 248.889

Total 45592.012 154

Source: SPSS result using data of Table 7 and Exhibit-A2 in the Annexure.


Exhibit- A9: Descriptive Statistics of dependent and independent variables

Minimum Maximum Mean Std. Deviation Skewness Kurtosis

CG 33.33 88.89 56.04 17.20 .48 -1.10

LNSA 4.84 17.46 12.22 2.12 -.49 -.03

LOCAL .04 1.00 .5420 .19 .09 .61

MNC .00 1.00 .0581 .23 3.82 12.73

FIN .00 1.00 .17 .38 1.8 1.24

AGE 1.00 45.00 17.30 8.83 .61 .141

NOTI .00 1.00 .61 .49 -.47 -1.80

BOD 3.00 37.00 9.28 6.4 2.17 5.34

Exhibit-A10: Correlation Matrix

CG LNASST LNSA LOCAL MNC FIN AGE NOTI BOD

CG 1

LNASST .528** 1

LNSA .413** .704** 1

LOCAL -.220** -.065 -.054 1

MNC .198* .095 .267** -.318** 1

FIN .349** .675** .276** -.070 -.105 1

AGE -.003 -.060 .151 -.037 .277** -.255** 1

NOTI .500** .333** .128 -.014 .127 .360** -.032 1

BOD .094 .270** -.092 -.117 -.033 .250** -.135 .137 1

** p < 0.01; * p < 0.05

Exhibit-A11: Coefficients

Unstandardized

Coefficients

Standardized

Coefficients t Sig.

Collinearity

Statistics

B Std. Error Beta Tolerance VIF

(Constant) 23.164 8.035 2.883 .005

LNSA 2.648 .574 .328 4.616 .000 .785 1.274

LOCAL -16.498 6.041 -.185 -2.731 .007 .868 1.152

MNC 1.142 5.635 .015 .203 .840 .738 1.356

FIN 3.834 3.514 .084 1.091 .277 .666 1.502

AGE -.050 .134 -.026 -.373 .709 .843 1.186

NOTI 14.669 2.412 .420 6.082 .000 .834 1.199

BOD .056 .176 .021 .316 .753 .893 1.120

R = 0.649; R2 = 0.421; Adjusted R2 = 0.393

corporate governance and reporting an empirical study of the listed companies in bangladesh

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