Where institutional logics of corporate governance collide: Overstatement of compliance in a developing country, Bangladesh

Sobhan, Abdus (2016) Where institutional logics of corporate governance collide: Overstatement of compliance in a developing country, Bangladesh. Corporate Governance: An International Review, 24 (6). pp. 599-618. ISSN 1467-8683

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Abstract

Research Question/Issue: How do conflicting institutional logics predict and explain the overstatement of corporate governance compliance in a developing country?

Research Findings/Insights: A unique opportunity to study overstatement of compliance is available through checklists published in annual reports by companies in Bangladesh. A data set contrasting with that available from the checklists is collected by a confidential survey of company secretaries. Overstatement of compliance with the country’s Corporate Governance Guideline issued in 2006 is measured by comparing the published compliance with that revealed by the survey. There is significant overstatement of compliance in annual reports, particularly with respect to the less directly observable provisions of the Guideline. The overstatement is positively associated with control by a sponsor family and is negatively associated with the presence of an institutional investor on the board of directors.

Theoretical/Academic Implications: The logic associated with the regulative framework of an Anglo-American-based corporate governance model conflicts with the logic of a cultural-cognitive institutional framework in a developing country. The resulting contest of legitimacy motivates firms to overstate compliance with the Corporate Governance Guideline 2006 in annual reports.

Practitioner/Policy Implications: This study highlights the challenges of introducing an Anglo-American model of corporate governance in a developing country. National and international investors should seek to understand the reality of the corporate governance structure of firms in developing countries, rather than relying solely on compliance reported in annual reports. For researchers, there may be limitations in using the compliance reported in annual reports as a measure of corporate governance.

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