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The IUP Journal of Corporate Governance
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Abstract |
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Corporate governance stands for responsible business management geared towards long-term value creation. Prior research found significant relationship between asset composition (tangible versus intangible assets) and corporate governance disclosure practices of firms. However, there is very little research in the current Indian context. Hence, this paper explores such a relationship for firms listed on the Indian stock market by considering a sample that includes firms from nine different sectors, viz., metal, oil and gas, power, IT, FMCG, capital goods, auto, consumer durables and healthcare. It applies Corporate Governance and Disclosure (CGD) index as a proxy for firm-specific rating of governance quality and calculates CGD scores of sample firms listed on Bombay Stock Exchange (BSE). To identify intangible assets dominance in firms, the ratio of market value to book value and capital intensity of sample firms are calculated. Accordingly, firms are divided into tangible assets-dominated and intangible assets-dominated sectors. The findings reveal that there is no significant difference in the corporate governance and disclosure practices of firms across tangible asset- and intangible asset-dominated sectors. The research identifies several reasons why this proposition does not hold true for firms in the current economic environment of India. |
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Description |
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A system of corporate governance needs a good level of disclosure and adequate information
to eliminate (or at least reduce) information asymmetries between all parties, making corporate
insiders accountable for their actions. The management recognizes that there are economic
benefits to be gained from a well-managed disclosure policy. Prior research found significant
relationship between asset composition (tangible versus intangible assets) and corporate
governance disclosure practices of firms. Mandatory financial reporting is claimed to be less
informative in high technology industries which make larger investments in intangibles such as
R&D, human capital and brand development (Collins et al., 1997; Francis and Schipper, 1999; and Lev and Zarowin, 1999). Therefore, firms with less informative financial statements are likely
to provide more voluntary disclosures (Tasker, 1998). Hence, firms with larger investments in
intangibles are likely to make more disclosures as compared to firms with larger investments
in tangible assets. However, in the current Indian context, there is very little research on the
influence of asset composition on the corporate governance and disclosure practices of firms.
Hence, this research attempts to explore such relationship for firms listed in Indian stock
market. Consequently, the study analyzes the impact of the intangible assets on corporate
governance and disclosure practices of firms listed on Bombay Stock Exchange (BSE).
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