A theoretical and empirical analysis of governance disclosure quality within Pakistani listed Banks: Evaluations of revisions consequent to the Pakistani Corporate Governance Codes 2012 and 2017

Research Background – Trust is the focal point of this thesis. It is an integral part of capitalist economies and, therefore, corporate governance. The relationship of trust serves as a bond and brings together different individuals of diverse interests to work collectively to fulfil their objectives. But in the last two decades, this relationship of trust has been badly shaken due to various reasons. To restore the bond of trust, policymakers in different jurisdictions have developed and introduced various policies and procedures. Such effort has been made by the Security and Exchange Commission of Pakistan (SECP), as it developed and implemented the country first Corporate Governance Code in 2002 and revised them twice in 2012 and 2017. But making rules, regulations, procedures, and policies are only one aspect of restoring the relationship of trust. The rules can be made very strong and fanciful, but only the implementation, compliance, and actions make them effective. Therefore, this doctoral research thesis empirically examines and evaluates the SECP Corporate Governance Code and tries to find out to what degree the SECP has succeeded in restoring the relationship of trust. Correspondingly, the doctoral research thesis increases awareness by empirically examining the benefits of compliance and implementation of regulatory frameworks with a truthful spirit and sound Corporate Governance practices among key stakeholders.

Research Setting –Theoretically, the research is focused on the overall domain of Corporate Governance. In empirical and geographic terms, it is located across the listed Pakistani banking sector, during years prior to and post the introduction of the SECP revised Corporate Governance Codes, 2012 and 2017. The research constructs a conceptual model by using the two most important theories - Signalling Theory and Stakeholder Trust Theory and seeks provide a comprehensive theoretical explanation using sets of hypotheses that are employed as a theoretical foundation for further empirical investigations

Research Purpose – A review of the relevant literature more than suggests a literature gap in terms of the effectiveness of board monitoring and governance disclosure quality. It is this gap that motivates and gives basis to the research. Additionally, the recent revisions of the current relevant Corporate Governance Code both provoke and invite an empirical examination of the effect (if any) on governance disclosure quality made by the identified sector over relevant years to determine changes in such quality – those possibly triggered by the identified revised code. In so doing, appropriate linked knowledge is also generated.

Research Design/Methodology/Approach – Significant consideration is given to the design and methodology employed for the research. Thus, appropriate decisions are made concerning the intended research philosophy (primarily positivist), approach (essentially deductive), method (significantly quantitative and mono methodical), strategy (archival), time horizon (longitudinal, as the construction of disclosure index and measurement process, is very time consuming, a longer sample period as uses in time series analysis is not feasible). The actual research set of banks represents 100% of the listed Pakistani banks uses to examine the impact of revisions of the SECP code across three-time periods. Regression analyses are used to test the relationship between variables.

The study develops a Governance Disclosure Quality Index (GQI) using guidelines identified by the United Nation Conference on Trade and Development (UNCTAD, 2006), OECD Principles, 2015, Basel Requirements for Corporate Governance of Banks, 2015, Global Reporting Initiative (GRI) Standards, 2018 and provisions of the SECP Corporate Governance Code and other key previous literature.

Research Findings/Outcomes – The research's main findings show that the Governance Disclosure Quality of the Pakistani listed banks in their annual were reports enhanced after each revision of the SECP Corporate Governance Code. However, better board and audit committee composition and function through enhanced SECP Corporate Governance Codes did not significantly impact governance disclosure quality. The main reason for this non-significant relationship appears to be that Pakistani listed banks have not complied with the board and audit committee structural guidelines of the SECP CG Code with spirit and instead used the tick box approach.

Research Limitations – The research has used data from only one sector, Pakistani listed banks. This has been done because the financial sector has special regulations regarding Corporate Governance and disclosure, and it is not wise to compare this sector with others. Either we can exclude the financial sector from sample selection or only use the data from that particular sector.

Research Contribution to Knowledge – The contribution and value of this research can be mainly divided into four areas. Firstly, it focuses on the banking sector in emerging markets. Many studies have been done on industrial firms in developed countries. This research takes a different view and provides empirical evidence within the Pakistani environment. Secondly, the study provides a comprehensive theoretical explanation using two distinct but relevant theories – Signalling Theory and Stakeholder Trust Theory.

Thirdly, this is the first study that primarily evaluates and examines the impact of the SECP Code's revisions on governance disclosure quality in Pakistani listed banks. The input–mediator–output approach examines how banks' financial position mediates the relationship between board and audit committee characteristics and governance disclosure quality. The research also empirically confirms that the SECP code's revisions act as a moderator, and the above-mentioned relationship is stronger after each revision. By so doing the study contributes to bringing increased awareness of sound Corporate Governance practice among key stakeholders.

Fourthly, the research provides recommendations to enhance governance disclosure quality. It describes the corporate board in the Pakistani listed banking context using inclusive board composition and functioning measures. The findings help policymakers and regulators assess the adequacy of the Board of Directors' guidelines in the terms of SECP Corporate Governance Code of Pakistan.

Originality/Value – In contrast with several previous studies in Corporate Governance domains, which mainly examine and compare Corporate Governance practices between developing and developed countries (to highlight the importance and bring awareness among stakeholders) in terms of sound Corporate Governance. This research examines and compares Corporate Governance practices within a single country, but across three different time periods (each time period had different corporate governance practices in Pakistani listed banks due to revisions of the SECP Corporate Governance Code, 2012 and 2017) to increase awareness of sound Corporate Governance practices (proxies of governance disclosure quality) among stakeholders. Indeed, when stakeholders are made aware of the importance of sound Corporate Governance, they tend to demand more of it.

Keywords – Corporate Governance Code, Governance disclosure quality, Legitimacy theory, Signalling Theory, Stakeholder Trust Theory