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Synopsis

The research problem

This study examines the effects of board size and board independence, as well as the interaction effect between board independence and CEOs/CFOs on corporate governance disclosure practices.

Motivation

Despite corporate governance (CG) reforms around the world, research evidence indicates that the levels of corporate governance disclosures (CGDs) in developing countries remain poor due to weak institutions and corporate governance systems. In particular, the corporate boards as a key mechanism of CG and the board nomination processes in East Africa remain largely opaque and dominated by majority shareholders, chief executive officers, and chief finance officers (CEOs/CFOs), giving rise to opportunistic behaviors that may be detrimental to firm value. The distinctive feature of the board nomination process/CG system in East Africa has implications for monitoring and corporate governance disclosure practices and compliance and calls for systematic research in this under-explored subject.

Hypotheses

H₁: The association between board size and corporate governance disclosure will be positive.

H₂: The association between board independence and corporate governance disclosure will be positive.

H_3a: The presence of the CEO on the nomination/remuneration committee will negatively moderate the relationship between board independence and corporate governance disclosure.

H_3b: The presence of the CFO on the nomination/remuneration committee will negatively moderate the relationship between board independence and corporate governance disclosure.

H_3c: The presence of the CEO and CFO on the nomination/remuneration committee will negatively moderate the relationship between board independence and corporate governance disclosure.

Target population

Stakeholders including firm managers, practitioners, regulatory authorities, policymakers, and investors.

Adopted methodology

Ordinary least squares (OLS), fixed-effects model, and system generalized method of moments (GMM).

Analyses

Using a large and hand-collected dataset comprising 1000 firm-year observations from 2007 to 2017 in East Africa, this study develops a corporate governance disclosure index (CGDI) of East Africa consisting of 164 provisions. To test our hypotheses, this study adopts three analytical approaches, namely OLS and fixed-effects (FE) regressions and the two-stage system GMM to address the endogeneity concerns.

Findings

We find that large boards and independent directors are associated with greater disclosure of CG information. Our analysis suggests that CEO/CFO power negatively moderates the link between board independence and corporate governance disclosure, unlike those environments with stronger institutions and corporate governance systems. Thus, firms whose CEO and CFO are involved in remuneration or nomination committees disclose less CG information. The combined effect of the CEO and CFO on selection and remuneration committees and an independent board in reducing corporate disclosure appears more pronounced for the post-financial crisis period compared with the crisis period.

The East African Community’s (EAC) economic integration has gained momentum recently, with the EAC countries aiming to adopt a single currency in 2015. This article evaluates empirically the readiness of the EAC countries for monetary union. First, structural similarity in terms of similarity of production and exports of the EAC countries is measured. Second, the symmetry of shocks is examined with structural vector auto-regression analysis (SVAR). The lack of macroeconomic convergence gives evidence against a hurried transition to a monetary union. Given the divergent macroeconomic outcomes, structural reforms, including closing infrastructure gaps and harmonizing macroeconomic policies that would raise synchronization of business cycles, need to be in place before moving to monetary union.