Corporate Governance Disclosure

CORPORATE GOVERNANCE DISCLOSURES IN EMERGING CAPITAL MARKETS: THE CASE OF GHANA

CHAPTER 1

1.1 INTRODUCTION

Corporate governance has dominated the policy agenda in developed market economies since the mid 1990s. The spate of corporate failures and massive government bailouts that have characterised the current global recession has led to an upsurge in the call for tighter regulation of capital markets and more stringent corporate governance. What has become clear from the current global capital markets meltdown is that, as capital markets develop, so too does the complexity of transactions and organisational structures, and the span of inter-dependencies among the various players in the market which extend beyond the boundaries of nations and continents.

It is imperative for the stability of the global economy that there is adequate and effective regulation of the various capital markets and that the managers of major companies' be held accountable for complying with these regulations and adhering to the principles of good corporate governance. In order for corporate manager to be held accountable for their compliance with regulations and good governance, they must make relevant disclosures in their companies' annual reports.

Corporate Governance and Emerging Capital Markets

The recent international financial scandals have generated increased interest in corporate governance as a means of mitigating financial problems in developing economies (Tsamenyi et al. 2007, Reed 2002, Ahunwan 2002). These problems include weak and illiquid stock markets, economic uncertainties, weak legal controls and investor protection, and frequent government intervention. Developing economies also suffer from poor corporate performance and high concentration of company ownership (Tsamenyi et al. 2007, Ahunwan 2002). They usually suffer from state ownership of companies, weak legal and judiciary systems, weak institutions, limited human resources capabilities, and closed/family companies (Mensah 2002, Young et al. 2008). Reed (2002) noted that, globalization, international trade, and international investment practices call for the development of corporate governance in developing nations.

Corporate governance is mechanism for ensuring corporate management acts in the best interest of a company's stakeholders (John & Senbet, 1998). If capital markets in developing economies such as Ghana are to become fully established and grow, effective corporate governance regulations need to be developed and implemented. Such regulatory structures should not only be adequate to protect the interests of shareholders but also to assist in boosting the confidence of prospective investors and other stakeholders in corporate activities (Cadbury, 1992).

Emerging Capital Markets (ECMs) are an integral part of the global capital market. According to the International Finance Corporation (IFC, 1996), EMCs can be viewed as any market in a developing economy that has the potential for development (IFC, 1996). Such markets compete for investment funds with well developed capital markets and therefore need to put in place appropriate measures to attract business activities. The adoption of effective corporate governance is one such measure. Gompers et al. (2003) assert that, good corporate governance increases company valuations and boosts the bottom line. Along similar lines, Claessens et al. (2002) maintain that sound corporate governance frameworks benefit companies through increased access to financing, lower cost of capital, better performance and more favourable treatment of all stakeholders.

Corporate transparency and full-disclosure of information are core attributes of the corporate governance mechanism (OECD, 1999) and are regarded as an extremely important factor in the quality of corporate governance. Further, Beeks and Brown (2006)contend that firms with more effective corporate governance make more informative disclosures. Although corporate governance systems differ across countries, with the development of Codes of Best Practice around the world, there is gradual convergence of corporate governance practices toward global standards (Hopt 1997). Ghana is an example of an emerging economy which is increasingly embracing the concept of good corporate governance and requiring companies to report on their corporate governance practices.

Attempts being made in Ghana to promote effective corporate governance include the formation of the Institute of Directors in 2001 and the development of National Accounting Standards. Additionally, the Ghana Securities and Exchange Commission (GSEC) has developed a Corporate Governance Code of Best Practice against which companies can benchmark their practices. Other regulatory requirements which govern corporate conduct include provisions in the Companies Code 1963 (Act 179), the Securities Industry Law 1993 (PNDCL 333) and the Membership and Listing Regulations of the Ghana Stock Exchange.

Notwithstanding all of the above measures which are designed to secure good corporate governance by public listed companies in Ghana, the general level of compliance with the requirements is, and has always been, low. A study by Tsamenyi et al. (2007), which investigated corporate governance disclosures by applying a disclosure index to the 2006 annual reports of 22 listed companies in Ghana, found that the extent and quality of corporate governance disclosures were minimal.

Many studies have been examined on corporate governance disclosures based on the examination of the content and scope of annual reports information by establishing corporate disclosure indexes (see Meek et al. 1995, Coy and Dixon, 2003).

This study is concerned with the information disclosed mostly in the annual reports. Information in the annual report consists of qualitative and quantitative data. The quantitative data is both financial and non-financial. Moreover, many annual reports contain illustrations, diagrams and graphical presentations.

1.2 RESEARCH AIM AND OBJECTIVES

Following from the above discussion, the overall aim of this study is to make recommendations designed to improve the extent and quality of corporate governance disclosures by public listed companies in Ghana.

In order to achieve this aim the research has the following objectives:

1. to determine the current corporate governance disclosure requirements of listed companies in Ghana;


2. to compare Ghanaian disclosure requirements with those applying to UK listed companies;


3. to examine the corporate governance disclosures made by a Ghanaian listed companies in their 2008 annual reports;


4. to identify the differences (if any) in the corporate governance disclosures made by the listed companies in Ghana studied and the corporate governance disclosure requirements;


5. to ascertain the reasons for the failure by listed companies in Ghana to fully comply with the corporate governance disclosure requirements;


6. to make recommendations on how the quantity and quality of corporate governance disclosures by listed companies in Ghana might be improved.

1.3 METHODOLOGY

In order to achieve the research objectives the following methods have been used.

1. Literature review: Relevant articles in academic and professional journals have been reviewed in order to establish the extent to which corporate governance disclosure requirements exist and are adhered to in various ECMs. Keywords such as corporate governance, disclosures, ECMs, and Ghana input into databases such as Emerald, JSTOR, SSRN, and Google to search for relevant articles.


2. Document study:Statutory and regulatory documents have been examined to ascertain the existing corporate governance disclosure requirements in Ghana. In addition, the annual reports of a sample of 25 listed companies in Ghana for the year 2008 have been studied to determine the extent and quality of their corporate governance disclosures.


3. Disclosure Index:A corporate governance disclosure index has been and applied to the 2008 annual reports of 25 listed companies in Ghana. The index is has been constructed to include the key corporate governance requirements that apply to listed companies in Ghana.


4. Semi-structured interviews: Six semi-structured interviews were conducted in order to ascertain the reasons for differences in the corporate governance disclosures made by, and required of, listed companies in Ghana. The interviewees were two finance executives of listed companies, two senior audit partners from the "Big Four" auditing firms and one representative from each of the Ghana Stock Exchange and the GSEC.

1.4 IMPORTANCE AND LIMITATIONS OF THE STUDY

Prior studies such as those of Tsamenyi, et al 2007 and ROSC 2005, which have examined aspects of corporate governance in ECMs and, in particular, Ghana have revealed that corporate governance as a policy and regulatory issue is gaining ground but the level of corporate governance disclosure is low.

This study, by establishing the current extent (and quality) of corporate governance disclosures in Ghana, identifying deviations from the corporate governance disclosure requirements, and making recommendations on how corporate governance disclosure practices may be improved, will help to bring about improvements in the corporate governance disclosures by listed companies in Ghana

However, the study has a number of limitations. These include the following:

1. The study has focused only on a limited sample of 25 out of the 36 listed companies on the GSE. As a consequence the result may not be representative of all listed companies (or indeed, other companies) in Ghana.


2. The study will be based on one year's corporate governance disclosures and these may not be representative of corporate governance disclosures made in other years. Research which incorporates a longitudinal study may be necessary to demonstrate the development of corporate governance disclosures in Ghana.


3. The semi-structured interviews were conducted with a small sample of interviewees and the opinions expressed may be influenced by their personal ideologies and the extent of their experience with listed companies in Ghana.

1.5 ORGANISATION OF THIS RESEARCH REPORT

This research report has six (6) chapters as follows,

Chapter 1: Introduction: In this chapter the background to the study is explained, and its aims and objectives are specified. The research methods used for the study are outlined and consideration is also given to the contributions and limitations of the research project.

Chapter 2: corporate governance requirements in Ghana: This chapter provides background information on the corporate environment in Ghana and sets out the corporate governance requirements.

Chapter 3: Literature review: This chapter provides a definition of corporate governance and examines the importance of, and the principles underpinning, corporate governance. It also reviews prior research which has examined corporate governance disclosures and more particularly, those which have investigated corporate governance disclosure in ECMs.

Chapter 4: Methodology.This chapter explain the development and application of the of disclosure index used to examine the quantity and quality of corporate governance disclosures in the 2008 annual reports of a sample of listed companies in Ghana. It also describes the methodology adopted for the semi-structured interviews conducted with six interviewees from selected institutions in Ghana. In addition it explains the means by which the data have been analysed and reported.

Chapter 5: Research findings. The results of the analysis of selected companies' annual reports and the semi-structured interviews are reported and examined in the light of the exact literature.

Chapter 6: Conclusions and Recommendations.This chapter provides a brief summary of the research project and its findings. Conclusions are drawn from the research findings and recommendations made on ways in which corporate governance disclosures by listed companies in Ghana might be improved.

CHAPTER 2

CORPORATE GOVERNANCE REQUIREMENTS IN GHANA

2.1 INTRODUCTION

This chapter provides background information on Ghana, its political and economic environment and its corporate profile. It also explains the legal and regulatory framework and the corporate governance requirements which apply to listed companies in Ghana.

2.2 COUNTRY PROFILE

Ghana is a Sub-Saharan African country with a total land area of about 238,538 square kilometres/92,100 square miles and a population in 2007, of 23.5 million (Bureau of African Affairs, 2008). Ghana's population is concentrated along the coast in the principal cities (Bureau of African Affairs, 2008). Ethnically, Ghana is divided into smaller groups, each of which has a different language or dialect, however, the official language is English, which is a legacy of British colonial rule (Sarpong, 1999).

2.3 POLITICAL AND ECONOMIC ENVIRONMENT IN GHANA

For more than century, Ghana was under British colonial rule. She attained independence on 6th March 1957 and became a republic in July 1960. After independence, Ghana alternated between civilian and military rule. After a series of coup d'etats (Sarpong, 1999), in January 1993, the country returned to democratic rule under the National Democratic Congress (NDC). After 8 years (in 2001) power switched to the New Patriotic Party (NPP) but in January 2009, following the election, the NPP handed over power to the NDC.

The economy of Ghana is dominated by agriculture, mining and forestry agriculture. Agriculture accounts for about 37.5% of GDP (GOG, 2008), and the largest foreign exchange earners for the country are cocoa, gold and coffee (BBC, 2009). In 2007, the country's GDP was $15.2 billion. As at the first quarter of March 2009, the inflation rate of Ghana was 20.53 % (GOG, 2009). Ghana is a member of United Nations (UN), the British commonwealth, African Union (AU), International Monetary Fund, African Development Bank (ADB), the World Bank Group and the Economic Community of West African States (ECOWAS).

2.4 GHANA STOCK EXCHANGE AND LISTED COMPANIES OWNERSHIP

STRUCTURE

The Ghana Stock Exchange (GSE) was incorporated in July 1989. It was recognised as an authorized Stock Exchange under the Stock Exchange Act of 1971 (Act 384) in October 1990, and trading on the floor of the Exchange commenced in November the same year. In April 1994, it became a public company limited by guarantee (GSE 2009). The exchange is regulated by the GSE Membership Regulations L.I. 1510, Listing Regulations L.I 1509 and Trading and Settlement Regulations, and is organized as a body corporate under the supervision of the Securities Exchange Commission that falls under the Ministry of Finance.

The Exchange is governed by a council which includes representation from licensed dealing members, listed companies, banks, insurance companies, and the general public. The functions of the Council include preventing fraud and malpractice, maintaining good order among members, regulating stock market business and granting listings. The GSE currently has 36 listed companies with a market capitalization as at 31 March 2009, of GH18,041.20m, equivalent to US$13,073.33m (GSE 2009). The manufacturing and banking sectors currently dominate the Exchange, while other listed companies fall into the insurance, mining, transport, food, publication, pharmaceuticals and petroleum sectors.

Most of the listed companies on the GSE are Ghanaian (three being listed family-controlled companies) but there are five multinationals. Until 2006, individual foreign investors, who were first allowed to participate on the Exchange in 1993, were not permitted, without approval, to hold more than 10% of a listed company's' shares and the total foreign investments in any company could not exceed 74% of the company's shares. These limits were removed by the Foreign Exchange Act of 2006 (Act 723) and non-resident investors can now invest in the market without limit or prior exchange control approval. Dividend income is taxed at 8%, while Capital gains on listed securities are exempt from tax until November 2010 (GES 2009).

2.5 CORPORATE GOVERNANCE REQUIREMENTS IN GHANA

Over the recent years, notions of corporate governance has been gaining roots in Ghana in response to initiatives by some stakeholders such as the Ghana Institute of Directors (IoD-Ghana), Private Enterprise Foundation (PEF), State Enterprises Commission, the Institute of Economic Affairs, and the Ghana Centre for Democratic Development (Ocran 2001; Mensah et. al 2002). The IoD-Ghana strives to improve corporate governance practices and strengthen companies' boards of directors. It has, for example, hosted international and national conferences, run competitions to increase awareness of corporate governance issues and developed manuals and procedures to help implement good corporate governance practices (Mensah et. al 2002).

Notwithstanding the above developments, formal corporate governance structures and institutions are not widespread although a number of laws provide for governance structures for companies in Ghana. These laws include: The Ghana Companies Code 1963 (Act 179), The Securities Industry Law, 1993 (PNDCL 333) as amended by the Securities Industry (Amendment) Act 2000, (Act 590), and the Listing Regulations of the Ghana Stock Exchange, 1990 (L.I. 1509) (K-Coleman and Biekpe 2008)

2.5 .1 LEGAL REQUIREMENTS

The Companies Code 1963 (Act 179), which is based substantially on the UK's Companies Act 1948, provides for governance mechanisms of all companies incorporated in Ghana (NEPAD 2005). It provides governance of ministration such as requirements to have directors, appointment and removal of directors, remuneration of directors, directors' reports, and audited financial statements. It also provides for various mechanisms for shareholders to enforce their rights, such as rights to annual general meeting, equal treatments of shareholders.

The Securities Industry Law 1993 (PNDCL 333), as amended by the Securities Industry (Amendment) Act 2000 (Act 590) and Exchange Commission Regulations (2003), provides for, among other things, the governance mechanism of all stock exchanges, investment advisors, securities dealers, issues concerning accounts and audits and collective investment schemes licensed under the Securities and Exchange Commission (SEC 2003). The Securities and Exchange Commission, overseeing the disclosure of material information to the investing public by companies, including securities listed on the Ghana Stock Exchange.

Regulatory Frameworks for Boards of Directors

The Companies Code describes directors as person who is appointed to direct and administer the business of the company, and stipulates that each company must appoint a minimum of two directors for a company. However, the Code allows companies to fix the maximum number of directors in their Regulations. Section 181 of the Companies Code provides that directors are to be appointed through the individual votes of shareholders at a general meeting of the company. However, this frequently means that the directors are approved by the controlling shareholders. There is no requirement under the Companies Code for the appointment of independent directors but this is required under the Securities and Exchange Commission's Code of Best Practices on Corporate Governance (SEC Code) for the GSE.

In the exercise of their duties, the directors are required to act at all times in what they believe to be the best interests of the company as a whole so as to preserve its assets, further its business, promote the purposes for which it was formed, and to do so in such manner as a faithful, diligent, careful, and ordinarily skilled director would act in the circumstances.

The Code makes provision for the appointment of executive directors by allowing directors to hold any other office or place of profit in the company, other than office of auditor. The directors' remuneration is to be reasonably related to the value of services provided and is to and shall be determined from time to time by ordinary resolutions of the company

The Companies Code enjoins directors to, at least once annually (at intervals of not more than 15 months), to prepare and send to each shareholder the directors' report, which show the state of the company's affairs with any change during the financial year in the nature of the business of the company. The report is approved by the board of directors and signed on behave of the two directors.

Regulatory Framework for Shareholder Rights

The Companies Code 1963, the Securities Industry Law 1993 and the Regulations of the Ghana Stock Exchange provide the primary regulatory framework for the establishment and operations of companies that issue publicly traded securities.

The Companies Code gives shareholders opportunities to participate and vote in general shareholder meetings or exercising rights through proxy for the appointment or removal of directors, access to timely and transparent company information concerning the date, location and agenda of general meetings and the right to petition against unfair prejudice.

The Securities Industry Law and the GSE Listing Regulations ensure that the market for corporate control of listed companies functions in an efficient and transparent manner. It provides for example the organizing of shareholders meetings, proxy solicitation and voting by shareholders, disclosure of equity ownership, and allowable actions that shareholders may undertake against directors, including law suits, the removal of directors, and penalties for breaches of their fiduciary duty.

Regulatory Framework for Accountability and Audit

Under the Companies Code a company's, directors are responsible for keeping proper books of account and for the preparation of financial statements which provides a true and fair view of the company. Auditors are to be appointed by an ordinary resolution of shareholders, except that the directors may appoint the first auditor of the company and fill any casual vacancy in the office of an auditor.

Auditors are expected to employ diligence, objectivity and independence in the discharge of their duties and functions. To ensure the auditor's independence, the Code prohibits an officer of the company or any associated companies, partners of, or employees of an officer of the company from holding office as auditor. However, the Code permits auditors, in addition to their statutory duties to shareholders as auditors, to provide other services to the company such as, advising on accounting, costing taxation, rising of finance and other matters. This provides a ground for a conflict of interest which may impair the auditor's independent.

An auditor may be removed from office by an ordinary resolution of shareholders at an annual general meeting after 35 days notice and is allowed to speak to this at this meeting in response to his intended removal. No provisions exist under the Companies Code limiting the term of office of auditors.

The GSE Listing Regulations recognize the need for audit sub-committee which should be composed of non-executive directors. The GSE Listing Regulations also prescribe the audit committees duties such as; making recommendations to the board concerning the appointment and remuneration of external auditors; reviewing the auditors' evaluation of the system of internal control and accounting.

The Companies Code, the Securities Industry Law and the GSE Listing Regulations requires all companies to provide shareholders with audited financial statements prepared in accordance with the Ghana National Accounting Standards issued by the Institute of Chartered Accountants (Ghana) at close of their financial year to its shareholders.

2.5.2 LISTING REQUIREMENTS AND GOVERNANCE GUIDANCE BY CODE OF BEST PRACTICES

In December 2003, the Ghana Securities and Exchange Commission (SEC) issued corporate governance principles for listed companies entitledCode of Best Practices on Corporate Governance. This code is based on the OECD Principles of Corporate Governance (SEC 2003). Consistent with the United Kingdom, the code is not mandatory. While these provisions are not binding, the SEC encourages compliance with the Code and requires listed companies to include a statement in their annual report disclosing the extent of compliance with these guidelines. The Code set out principles for the equitable treatment of all shareholders, disclosure and transparency and responsibility of the board of directors.

As require by best practice.

1. There should be formal and transparent procedures for appointments to the board.


2. Also there should be separation between the roles of CEO and Board Chairman responsibilities unless there are specific reasons militating against such separation. In the case where two offices are combined the Code required companies to explain to shareholders and the board must enact procedures that ensure the independence of the board as a whole and their respective responsibilities should be defined.


3. There should be a balance of executive and nonexecutive directors with the complement of independent non-executive directors being at least a third of the total membership of the board and in any event, not less than two.

2.6 ANALYSIS OF CORPORATE GOVERNANCE DISCLOSURES IN GHANA

IN COMPARISON WITH THE UNITED KINGDOM

The provisions of the code are set in Table 1. Further, so that the provisions applying in Ghana may be evaluated in the light of well established Code of Corporate Governance, the provisions of the UK's Combine Code of Governance (Financial Reporting Council, 2008) are also presented.

		GHANA	UK
A. Directors	A.1 The Board		Every company should be headed by an effective board, which is collectively responsible for the success of the company
	A.2 Chairman and Chief Executive	There should ideally be a separation between the role of Board Chairman and CEO unless there are specific reasons which militate against such separation.	There should be a separation between the roles of CEO and Board Chairman
	A.3 Board Balance and Independence	The board should include a balance of executive and non-executive directors with the complement of independent non-executive directors being at least one third of the total membership of the board and in any event not less than two.	The board should include a balance of executive and non-executive directors (and in particular independent non-executive directors) such that no individual or small group of individuals can dominate the board's decision taking
	A.4 Appointments of Board	Appointments to the board should be formal and transparent selection process should be based on merit. There is no nomination committee	There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board. There should be a nomination committee which should lead the process for board appointments and make recommendations to the board
	A.5 Information and Personal Development	The board should have unrestricted access to all company information, records and documents. All directors enjoy the right to retain outside professional experts for counsel	The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge
	A.6 Performance Evaluation	The board should annual review their own performance and that of the various committees	The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.
	A.7 Re- Election	All directors should submit themselves for re-election at regular intervals and at least once in every three years	of its committees and individual directors. A.7 Re- Election All directors should submit themselves for re-election at regular intervals and at least once in every three years All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance
B. Directors Remuneration	B.1 Director's Remuneration	The levels of remuneration in corporate bodies should be competitive, should focus on retaining management and be linked to corporate and individual performance. Every corporate body should establish a remuneration committee. The remuneration committee should comprise of a majority of non-executive directors. Does not give number of directors	Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant proportion of executive directors' remuneration should be structured so as to link rewards to corporate and individual performance. The board should establish a remuneration committee of at least three independent non executive directors.
	B.2 Procedures	There should be a formal and transparent procedure for developing policy on executive remuneration. Members of the committee should exclude themselves from deliberations concerning their own remuneration.	There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration
C. Accountability and Audit	C.1 Financial Reporting	The board is responsible for ensuring that a balanced and understandable assessment is given of the financial and operating results of the corporate body in the financial statements.	The board should present a balanced and understandable assessment of the company's position and prospects
	C.2 Internal Control	The board is responsible for ensuring that appropriate systems of internal control are in place for monitoring risk, adherence to financial governance measures and compliance with the law.	The board should maintain a sound system of internal control to safeguard shareholders' investment and the company's assets
	C.3 Audit Committee and Auditors	The board should establish an audit committee. The audit committee should comprise at least three directors, the majority of whom should be non-executive	The board should establish an audit committee of at least three independent non-executive directors
D. Relationship with shareholders	D.1 Dialogue with institutional shareholders		There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.
	D.2 Constructive use of AGM	The board should use the AGM as the primary means of meeting and interacting with shareholders	The board should use the AGM to communicate with investors and to encourage their participation
	D.3 Shareholders rights		There should be a dialogue with shareholders based on the mutual understanding of objectives

Note: Same is used in the context not to mean same wording but in content

CHAPTER 3

THEORETICAL FRAMEWORK

1. INTRODUCTION

This chapter provides a definition of corporate governance and examines the importance of, and principles underpinning, corporate governance. It also reviews prior research examining corporate governance disclosures and, in particular, those studies which have investigated corporate governance disclosures in ECMs.

2. DEFINITIONS OF CORPORATE GOVERNANCE

Ideas of corporate governance have developed and gained importance as companies have grown in size, and their power and influence in society has increased. At the same time, company managements have come to be regarded as accountable to the company's stakeholders rather than just its shareholders. The concept of the stakeholder was defined by Freeman (1984) as "any group or individual who can affect or is affected by the achievement of the firm's objectives" (Freeman, 1984). The increasingly stakeholder-oriented view of corporate governance has resulted in defining corporate governance in broad terms. Solomon (2007) for example, defined corporate governance as a system of checks and balances, both internal and external to companies, which ensures that companies discharge their accountability to all their stakeholders and act in a socially responsible way in all areas of their business activity (Solomon, 2007, p. 14).

According to The Committee of Financial Aspect of Corporate Governance (CFACC, 1992: Cadbury Report), corporate governance is concerned with balancing between economic and social goals and individual and communal goals. The governance framework encourages the efficient use of resources and requires accountability for the stewardship of those resources. The aim is to align, as nearly as possible, the interests of individuals, corporations and society. The incentive to corporations is to achieve their corporate aims and to attract investment. The incentive for States is to strengthen their economics and discourage fraud and mismanagement (Cadbury Report, 1992). Corporate governance embodies the ideas of specifying the company's strategy, objectives and controls the development of internal controls to make sure that the company's managers and employees work towards the achievement of these objectives.

Thus, among other things, corporate governance is concerned with structures and processes for decision making, ensuring accountability, and controlling managerial and employees' behaviour. It therefore, seeks to address issues facing the board of directors, such as the interaction with senior executives and the relationship of the company with its owners and others interested in the affairs of the company.

2.3 PRINCIPLES UNDERPINNING CORPORATE GOVERNANCE ACTIVITIES

A number of principles underpin effective corporate governance - namely, business probity, honesty, responsibility and fairness or equal opportunity (Nolan 1995). If corporate entities exhibit these qualities, this will improve relationships between companies, their stakeholders and the overall welfare of the economy. These principles are briefly discussed below.

• Business Probity:Business probity requires company management to be open and honest in the discharge of their responsibilities. According to Brain (2005), openness implies a willingness to provide information to individuals and groups about the company's activities. In this regard, it is important to recognize that shareholders, other investors and other stakeholders need information about a company's activities in order to evaluate its performance. Timely delivery of information will enable them achieve this purpose.


• Honesty:Good corporate governance requires company directors and managers to be honest in the discharge of their responsibilities. Honesty requires managers to deliver factual information. Brain (2005 p. 26) contends that, whiles honesty might seem an obvious quality for companies, in an age of spin and the manipulation of facts, honest information is perhaps by no means as prevalent as it should be.


• Responsibility:Corporate governance requires company managements to be responsible in the discharge of their duties. Amongst other things, stakeholders require confidence that a company's financial systems are secure and reliable, and managers are expected to work to meet this expectation. Responsibility in the context of corporate governance includes other issues such as transparency and accountability. Directors are accountable to their stakeholders and therefore have a duty to explain their action to the company's stakeholders so as to enhance the latter's understands of the company's activities (Cadbury 1992).


• Fairness: The principle of fairness requires impartiality and a lack of bias in corporate activities. In the context of corporate governance, the quality of fairness is achieved when managers behave in a reasonable and unbiased manner, that includes making disclosure in a fair reasonable manner. In this sense, good governance results in all stakeholders receiving equal consideration.

2.4 IMPORTANCE OF EFFECTIVE CORPORATE GOVERNACE AND DISCLOSURE

Good corporate governance underpins market confidence, and corporate integrity and efficiency, and hence promotes economic growth and financial stability (OECD, 2005). The Committee on Corporate Governance (1998: Hampel Report) noted that good governance ensures that constituencies (stakeholders) with a relevant interest in the company's business are fully taken into account. In addition, good governance can make a significant contribution to the prevention of malpractice and fraud, although it cannot prevent them absolutely. Bosch (2002) also noted that, good governance increases the creation of wealth by improving the performance of honestly managed and financially sound companies.

Other commentators, such as Gregory and Simms (1999), assert that effective corporate governance promotes the efficient use of resources both within the firm and the larger economy. They explain that, with effective corporate governance systems, debt and equity capital should flow to those corporations capable of investing it in the most efficient manner for the production of goods and services most in demand and with the highest rate of return. In this regard, effective governance helps to protect scarce resources and helps ensure that societal needs are met.

According to the OECD (1999) good corporate governance ensures that timely and accurate disclosure is made of all material matters regarding a company, including its financial and non- financial position, performance, ownership, and governance mechanisms. Disclosure also helps to improve public understanding of the structure and activities of the enterprise, its policies and performance with respect to environmental and ethical standards, and the company's relationship with the communities in which it operates.

Further, according to Verrecchia, (2001), adequate disclosure enhances stock market liquidity, thereby reducing the cost of equity capital either through reduced transaction costs or increased demand for a firm's securities. Along similar lines, Ashbaugh-Skaife et al. (2006) assert that adequate disclosure of financial information and information about a company's compliance with corporate governance requirements and/ or guidance is critical to reducing the information asymetry between the company and its capital suppliers. They conjecture that, companies with more timely and informative disclosures are perceived to have a lesser likelihood of withholding value-relevant unfavourable information and, as a result, are expected to be charged a lower risk premium by creditors. As a result of a reduced cost of capital, such companies enjoy high valuation (Coles et al. 2001).

2.5 ATTRIBUTES OF HIGH QUALITY CORPORATE GOVERNANCE DISCLOSURES

Corporate disclosure of relevant and reliable information is critical for the functioning of an efficient capital market. Companies provide disclosure through regulated financial reports, including their annual audited financial statements, directors, management discussion and analysis, and other regulatory filings (Healyand Palepu, 2001). Disclosure concerns issues of transparency in the activities for which companies are accountable, the results of their activities (Leuz and Verrecchia, 2000). Another important aspect that should be mentioned concerning high quality corporate governance disclosures is that we are talking about both qualitative and quantitative and we want it to be complete and also useful.

The conceptual framework of the International Accounting Standards Board (IASB) provides guidance regarding generally accepted notions for assessing high quality disclosure. The IASB framework identifies four qualitative characteristics of information that make information useful to users in making economic decisions, namely, understandability, relevance, reliability and comparability (IASB, 1989). These attributes are briefly discussed below

• Understandability:An essential quality of information provided in accountability reports it that is readily understandable by users. For this purpose, users are assumed reasonable knowledge of business, economic activities and accounting and a willingness to study the information with reasonable diligence. (IASB, 1989) This means that the manner of presentation has to be in keeping with the knowledge and experience of users, and should include the following: a good design, systematic classification of topics, and an explanation of unknown terms in the text to enhance understandability.


• Relevance: Information should be relevant to the needs of users in forming an opinion or decision. Information has the quality of relevance when it may influence the economic decisions of users by helping them to evaluate past, present and future events or to confirm or correct past assessments. The relevance of information is affected by its nature and materiality (IASB, 1989).

Information is material if its omission or misstatement could influence users' decisions. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement (IAS 1). Management is responsible for making appropriate decisions with respect to the application of the materiality principle and its effects on the content of its corporate disclosures.

• Comparability:Information should be presented in a consistent manner over time and be comparable with related information and with similar information for other entities in order to enable users to evaluate a company's progress aid and its performance related to those of other similar companies. Users should be able to compare the company's performance indicators over time and with other similar businesses to enable them to identify and analyse the outcome of any changes. Any reason for a change should be explained by means of notes, and where it is not practical to adjust comparatives, the reason for that should also be explained


• Reliability:Information has the quality of reliability when it is free from material error and bias, and when it gives a true, complete and balanced view of the actual situation underlying reality. The key aspects of reliability are faithful representation, priority of substance over form, neutrality, prudence and completeness (FASB, 1989). The information should faithful represent the actual situation in the business, complete within the boundaries of what is relevant, well-balanced in terms of reporting both positive and negative events, presented in the right context, and free of material misstatement.

CORPORATE GOVERNANCE DISCLOSURES IN EMCs, - PRIOR STUDIES

Considerable empirical research has been conducted into corporate governance disclosures in corporate annual reports. These studies have in general, used a disclosure index or score to evaluate corporate disclosures in annual reports' (Patel, and Bwakira 2002, Botosan 1997). However, the research to date has been focused primarily on mature capital markets (Meek & Gray, 1989; Gray et al., 1995) and emerging markets such as Zimbabwe and Tanzania (Mangena & Tauringana 2007 and Abayo et al., 1990)). Very few studies have investigated corporate disclosure in Ghana (Tsamenyi et al., 2007).

Dahawy (2008) studied corporate governance disclosure in Egypt. The study evaluated the corporate governance disclosures by of 30 companies listed on the Cairo Alexandria Stock Exchange (CASE) by comparing them to the United Nations corporate governance disclosure checklist. This checklist consists of fifty-three disclosures to measure the level disclosure. Dahawy found that the level of disclosure in Egypt is low; on average the companies studied disclosed information about 22% of the 53 disclosure items in the UN checklist.

Hossain and Khan (2006) surveyed 100 companies listed on Chittagong Stock Exchange in Bangladesh to ascertain whether there are significant relationship between corporate governance disclosures and corporate attributes such as multinational affiliation, and the auditor been affiliated to the 'Big Four' audit firm. They found that those companies having with a multinational affiliation tend to disclosure more information than local companies. Likewise, companies which are audited by a 'Big Four' audit firm disclose more information than companies audited by a local audit firm. This support Firth (1979) research which found out that, larger companies are more inclined to disclose more information because they are prone to greater public scrutiny.

In the context of Ghana, Tsamenyi et al., (2007) examined the corporate governance disclosures of 22 listed companies in Ghana. They specified 36 items (including Ownership structure and investor relations; financial transparency and information disclosure; Board and management structure and processes) by using corporate governance index constructed by the OECD checklist to measure the extent of corporate governance disclosures in the company's annual reports. They found that average disclosure score was only 52 %, was low.

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