Corporate governance and social norms during financial crisis: evidence from France and Saudi Arabia
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Corporate governance and social norms during financial crisis: evidence from France and Saudi Arabia Hanene Ezzine1
Springer Science+Business Media, LLC, part of Springer Nature 2017
Abstract The resistance to financial crisis and compliance with social norms and effectiveness of corporate governance mechanisms is considered recently as a good matter of concern. Focusing on differences between French and Saudi firms, we examine the effect of (1) board of directors, (2) audit committee, (3) compliance with Corporate Social Responsibility activities, (4) compliance with Shariah principles on financial volatility during subprime crisis of 2007. We find that larger boards, larger audit committees, independent members on boards and audit committees are related negatively to financial volatility. The result supports corporate governance theory which suggests that corporate governance variables outlined provide effective of monitoring of the management thereby enhancing firm’s resistance to financial crisis. In addition, we find that compliance with CSR alone does not explain the financial volatility. Its concert with corporate governance variables is necessary. This result supports stakeholder theory which argues that companies compliant with CSR activities in their business strategy and have larger boards and audit committees, and independent directors on boards and audit committees resist more financial downturns and any economic shock. Furthermore, we find that compliance with Shariah norms plays a significant role in protecting shareholder interests, improving functioning of corporate governance mechanisms and affect positively the resistance of Saudi firms to financial crisis. Keywords Governance Social norms Subprime crisis
& Hanene Ezzine [email protected] 1
HDR of Finance, ESC of Sfax University, Sfax, Tunisia
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H. Ezzine
1 Introduction Without going into the delicate debate of defining 2008 subprime crisis, fall of investment, demand, financial institutions collapse, increased poverty, stock market collapse are translated by a lack of investor confidence. Markets cannot reasonably valorize firm value and we observe a decrease in stock market indexes and especially a considerable increase in price volatility. Greater attention is being paid to corporate governance issues in order to restore investor confidence. Many observers attribute the current financial crisis to failure in corporate governance, such as lax board oversight, flawed executive compensation practices, inadequate protection of shareholder rights and auditing failure (David et al. 2012; Ezzine and Olivero 2013). Some researches have lately focused on considering corporate governance as an environment of trust, ethics, moral values and confidence—as a synergic effort of all the constituents of society (Aras and Crowther 2011; Liu et al. 2014). They note the contribution of social norms in restoring investor confidence and financial market stability. During the last decade, corporate social responsibility has emerged as the preva
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