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Assessing corporate governance quality: substance over form

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Abstract

After the 2008 global financial crisis and corporate scandals, assessing and improving corporate governance quality (CGQ) is essential. This paper proposes a different approach to evaluate CGQ, to overcome the conceptual and methodological limits of the previous rating systems. It tries to go beyond the objectives of the existing models by suggesting an alternative operating model, (aligned with the new CG guidelines) that provides a concise index for monitoring and decision-making. Using a Fuzzy Expert System (FES), the authors propose a formalized model that: (1) represents all the factors (structural and behavioral) that affect the quality of corporate governance in terms of practical and objective decision-making procedure; (2) is a flexible and useful management tool for supporting the “Board review” and assessing the increase in CGQ associated with particular decisions; (3) supervisors can use to assess CG adequacy by replacing or integrating the experts’ opinions with interviews/questionnaires filled in by directors and managers or through direct observation, as recently suggested by EBA/ESMA. This paper highlights the importance of behavioral features and group dynamics in corporate governance and represents them in an integrated model together with other structural and organizational elements.

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Notes

  1. STAR listed companies voluntarily adhere to and comply with the following strict requirements: high transparency and high disclosure requirements; high liquidity (free float of minimum 35%); CG in line with international standards (i.e., a set of rules that determine the company’s management).

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Authors and Affiliations

  1. Department of Management, Economics, Mathematics and Statistic, University of Salento, Lecce, Italy

    Simona Cosma & Giovanni Mastroleo

  2. Department of Economics, University of Parma, Parma, Italy

    Paola Schwizer

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  1. Simona Cosma
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  2. Giovanni Mastroleo
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Correspondence to Simona Cosma.

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Cosma, S., Mastroleo, G. & Schwizer, P. Assessing corporate governance quality: substance over form. J Manag Gov 22, 457–493 (2018). https://doi.org/10.1007/s10997-017-9395-3

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