Corporate Governance Disclosure Quality: Signalling Theory Insights and a Related UK-Egypt Empirical Analysis and Evaluation

PhD Thesis

Ahmed, Y. (2023). Corporate Governance Disclosure Quality: Signalling Theory Insights and a Related UK-Egypt Empirical Analysis and Evaluation. PhD Thesis London South Bank University School of Business
AuthorsAhmed, Y.
TypePhD Thesis

The essential background of this research lies in the domain of corporate governance (CG). The importance of CG comes fundamentally from its attempt to minimise the conflict of interest between the principal and the agent and consequently, decrease the information asymmetry through corporate disclosures.
Disclosures made to, and for, the public by a corporation are corporate disclosures. Corporations disclose through regulated financial reports, including financial statements, footnotes, management discussion and analysis, and other regulatory filings.
Using Signalling Theory as the theoretical framework, this research examines the effect of three sets of characteristics, namely company characteristics set (stock exchange index, S&P ESG (Standard & Poor's Environmental, Social, and Governance) index, company age, company size, type of auditor, cross-listing, profitability, liquidity, ownership structure, and foreign institutional investors), CG
characteristics set (Chief Executive Officer (CEO) duality, Board of Directors (BoD) size, BoD independence, and Audit Committee), and country-specific characteristics set (country) on the Corporate Governance Disclosure (CGD) quality within the context of the U.K. and Egyptian listed companies.
The U.K. companies are selected from the population of listed companies on the London Stock Exchange (LSE) under the Financial Times Stock Exchange (FTSE) 100 index. Regarding the sample of the Egyptian companies, it is based on listed companies on the Egyptian Exchange (EGX) EGX100 EWI index. The final testable sample comprised 65 U.K. listed companies and 70 Egyptian listed companies over the period of three years 2019-2021 across six business sectors. The dependent variable CGD quality is a numeric computed variable. For each company, its CGD score is developed using the 52 (financial and non-financial) disclosure items as identified within the 2011 United Nations Conference on Trade and Development (UNCTAD) International Standards of Accounting and Reporting (ISAR) benchmark.
The Content Analysis and Evaluation Approach is used to quantify CGD quality for each company. A series of statistical analyses are conducted including correlation, multiple regression, analysis of variance, and T-test. The correlation results for the U.K. sample reveal that only three variables emerged to be highly statistically significant and positively correlated with the CGD quality.
These are the variables of company size, BoD size, and BoD independence. However, company age, profitability, liquidity, and ownership structure appear to have no significant correlation with CGD quality.
Regarding the Egyptian sample, the correlation results are slightly different. The CGD quality is highly statistically significant and positively correlated with the company size, profitability, ownership structure, and BoD size. On the other hand, the CGD quality is positively correlated and statistically significant with BoD independence. However, while the relationship between the CGD quality and the company age emerges to be highly statistically significant, it is curiously, negatively correlated. Moreover, liquidity (while negatively correlated) appears to have no significant correlation with the CGD quality.
In terms of the U.K. and Egyptian samples, both samples reveal that the CGD quality appears to be positively correlated and highly statistically significant with the company size and BoD size. Furthermore, the BoD independence is revealed to be positively correlated with the CGD quality for both samples. however, in the U.K., it was highly statistically significant, while in Egypt, it was statistically significant. Equally, both samples reveal that liquidity appears to have no significant correlation with CGD quality.
In terms of the multiple regression results themselves, the research determines that the independent variables, combining company characteristics and CG characteristics as well as the country variable, explain 88.87% of the change in the CGD quality, based on the R-squared %. The results indicate that CGD quality increases with S&P ESG index listing, larger company size, auditor with Big 4 affiliation, being cross-listed, higher profitability, higher liquidity, higher free float percentage, larger BoD size, and higher BoD independence; (2) decreases in older companies, with the existence of foreign institutional investors, with CEO duality, and in companies located in Egypt.
Regarding the business sectors, there were two tests employed to explore the differences within and between the six identified business sectors as follows: Analysis of variance and T-test.
Regarding the analysis of variance, the results suggested that there is a statistically significant difference in CGD Quality across the six identified business sectors in the U.K. as well as the six identified business sectors in Egypt.
As for the T-test, the results indicate that there is a statistically significant difference between the average score of CGD quality in companies in the U.K. compared to Egypt. The U.K. companies have an average CGD quality score higher than the Egyptian companies across all the six identified business sectors.
Generally, the results of the research support the theoretical arguments that companies tend to adopt higher CGD quality in order to reduce information asymmetry and, eventually, increase investors' trust. The empirical evidence from this research contributes to knowledge in respect to CGD quality and contributes to policy recommendations for the directors of the companies, investors, and regulators. More importantly, it contributes to the CGD practices in Egypt, one of the developing countries where the financial regulators and professional bodies work hard to improve CGD quality.

PublisherLondon South Bank University
Digital Object Identifier (DOI)
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Publication dates
Print02 Oct 2023
Publication process dates
Deposited04 Oct 2023
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