Corporate governance law effect in Greece
| Pages | 370-385 |
| Published date | 16 November 2010 |
| Date | 16 November 2010 |
| DOI | https://doi.org/10.1108/13581981011093686 |
| Author | Themistokles Lazarides |
| Subject Matter | Accounting & finance |
Corporate governance law effect
in Greece
Themistokles Lazarides
Department of Applied Informatics in Administration and Economy,
Technological Institute of West Macedonia, Grevena, Greece
Abstract
Purpose – Legislators legislate, but how feasible and effective the implementation and enforcement
of these laws are and how congruent with the countries characteristics, is under doubt. The paper
seeks to argue that the Greek law on corporate governance (CG) had no effect on the fundamental
elements of the corporate environment.
Design/methodology/approach – Seven hypotheses are tested using three different econometric
methodologies (panel data, probit, and ordinal probit regression).
Findings – The paper pinpoints the legal disarrays and their impact on the firm and argues that
there is a need for a new set of principles and laws that focus on the real issues of CG rather than the
size, structure and leadership of the administrating bodies or the disclosure mechanisms.
Research limitations/implications – The data used have been collected from the annual reports
and not from questionnaires. Furthermore, there is no methodology to integrate all seven models to a
structured or nested model.
Practical implications – The study provides evidence that there is a need for a different set of
provisions than the ones in the Anglo-Saxon countries.
Originality/value – The paper uses a variety of methodologies and tests seven hypotheses. It takes
a more holistic approach.
Keywords Corporate governance, Regulation, Greece
Paper type Research paper
1. The law as a formulating factor of the corporate environment
Legislators legislate, but how fea sible and effective the implementat ion and
enforcement of these laws are and how congruent with the countries characteristics,
is under doubt. Legal initiatives, since Sarbanes-Oxley (SOX) Act of 2002 in the USA,
have been seen as the remedy, a sort of panacea, for solving the corporate governance
(CG) problem and establishing a more stable and effective corporate environment. The
discussion on legal initiative effectiveness into making fundamental changes in the
economic environment has been active since the eighteenth century with the work of
Adam Smith. Until now academics and practitioners have been debating on the issue of
whether the law relies on the economic structure or vice versa.
The paper contributes to the growing literature regarding the interaction of law,
organization and economics and argues that the Greek law on CG had no effect on the
fundamental elements of the corporate environment. Greece is a country with the main
characteristics of a Continental Europe CG system’s country. The legal initiative that
the legislators have chosen in Greece is an imitation of the SOX provisions. The choice
to mimic the provisions initially designed to address a different CG problem (agency)
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JEL classification – K22, K42, G34, G38
JFRC
18,4
370
Journal of Financial Regulation and
Compliance
Vol. 18 No. 4, 2010
pp. 370-385
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981011093686
was driven by the need (that many institutional investors and autho rities supported) to
enforce the same rules and regulations in order to facilitate capital movement.
The impact of the law on economy is profound and it must be a problem solver and
not a problem creator. The Romans used to say “Dura Lex, Sed Lex” meaning “Tough
law, but law”. The saying illustrates the importance of the law in modern societies. The
existence of the law for the Romans is a prerequisite for order and fairness when people
interact. The law must be simple, direct, easy to apply, holistic and fair. It is better for
the law to be tough or strict than unfair. In the complex business environment all
market participants must have the feeling that the law can guarantee order and
fairness, otherwise the market loses its stability. If the law does not meet the above
criteria, it can create inflexibility, costs and disadvantages for the firms that function
under it. The main value of law is that it can impose structures and organizational
schemes, help create business cultures and alter (positively or negatively) the ability of
the firm to adapt in its environmental (internal or external) changes. So, the law must
be innovative or at least keep abreast of the times. That does not appear to be
happening in matters of CG according to Nicholson and Kiel (2004, p. 444) who argue:
Unfortunately, this wave of innovation does not appear to be reflected in legal systems or
governance practice. Rather than embracing recent academic advances, normative and legal
perspectives appear bound to the entrenched agency paradigm of how a board adds value.
Wherever the market mechanisms or the historical background or the level of
competition (“laws are silent in times of war”, Cicero) are strong, the impact is low and
the resistance to legal changes are high. If the enforcement and the monitor
mechanisms are not efficient, the law may become useless. The law is the catalyst that
may create a chain of reactions within the nexus multi correlated factors an d market
participants. The real terminus for the legal system is equilibrium in all market and
corporate participants.
The legal encounter of a multidimensional problem, like CG, is by its nature
difficult. There are different schools of thought. The first one argues that there must be
less legislative and regulative intervention and that market mechanisms should
regulate the governing of the firms (Cuervo, 2002). The second one argues that
legislative and regulative intervention is necessary for the smooth corporate and
market function (firms cannot completely compensate for the absence of strong laws
and good enforcement (Klapper and Love, 2004)). Finally, there is a third one that
mainly focuses on the process of decision making and governing rather than the
leadership, structure and size of the governing bodies (Leblanc and Gillies, 2003;
Kirkbride et al., 2005).
Klapper and Love (2004) in their empirical research paper that covered 14 countries
illustrated the importance of the legal framework and found that:
.firms in countries with weak overall legal systems have on average lower
governance rankings;
.firm-level governance is correlated with variables related to the extent of the
asymmetric information and contracting imperfections that firms face, which we
proxy with firm size, sales growth (proxy for the growth opportunities) and
intangibility of assets;
.firms that trade shares in the USA have higher governance rankings, especially
so in countries with weak legal systems;
Corporate
governance law
effect
371
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