The relative importance of corporate governance attributes: evidence from corporate stakeholders

This study investigates shareholders’ and directors’ perceptions of the relative importance of corporate governance attributes in their assessments of effective corporate governance in Australia. These attributes are chosen from existing corporate governance literature and current corporate governance requirements in Australia, namely (i) Australian Securities Exchange Principles of Good Corporate Governance (ASX POGCG) and (ii) the Corporate Law Economic Reform Program Act 2004 (CLERP 9). Overall, 230 shareholders and 46 directors participated in this study. The respondents are the members of Australian Shareholders Association (ASA) and Australian Institute of Company Directors (AICD). This study finds that both shareholders and directors perceive CEO duality to be almost twice as important as other attributes, followed by Board composition, Audit committee composition and Provision of non-audit services by the auditor. Shareholders’ and directors’ overall views of factors that constitute effective corporate governance are relatively similar. These findings indicate that directors’ views are broadly aligned to those of shareholders, which might suggest that their interests are also aligned. The study provides several contributions to the literature and practice. Firstly, this study adds another dimension to the existing corporate governance literature by being the first study to compare shareholders’ and directors’ relative preferences for key corporate governance attributes. Secondly, this study provides suggestions to regulatory bodies, such as ASIC and ASX, regarding future amendments to corporate governance requirements. Specifically, it identifies corporate governance attributes that are perceived by both shareholders and directors to be relatively important. Thirdly, this study also makes a contribution in terms of the research method used in this study, in using Adaptive Conjoint Analysis (ACA). The use of this method in the accounting and corporate governance literature will encourage its further use in this discipline, to provide insights into respondents’ relative preferences in situations involving choice.