CORPORATE GOVERNANCE LISTING REQUIREMENTS: PROTECTING INVESTORS FROM FRAUDULENT FINANCIAL REPORTING

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Abstract

This paper analyzes the corporate governance listing requirements of major global stock exchanges to assess the level of investor protection from investment disasters, such as corporate fraudulent financial reporting (e.g. Enron, Lehman Brothers, Satyam, and Parmalat) and the 2008 financial crisis which destroyed over $1 trillion in market capitalization of U.S. companies. This investor protection issue is especially critical for emerging stock exchanges that are trying to attract foreign investors, such as in the United Arab Emirates (UAE) and Russia. This issue is assessed by comparing the corporate governance listing requirements of the well-established stock exchanges in the United States (both the New York Stock Exchange or NYSE and the over-the-counter-stock-exchange or NASDAQ), United Kingdom (London), and Singapore to the listing requirements of the emerging stock exchanges in the UAE and Russia. The effectiveness of these corporate governance listing requirements in protecting investors is assessed by determining how they address ten common corporate governance factors which represent lessons learned from recent fraudulent financial reporting scandals. These ten factors have been divided into two groups of five. The first five common factors were the same ones found in a 2010 Commission on Corporate Governance report, sponsored by the New York Stock Exchange, to investigate the 2008 financial crisis. This paper has called them “structural” factors and labelled the other five common factors as “behavioral” factors. The global listing requirement comparisons reveal that investors seem to be quite well protected from the five “structural” factors but not the five “behavioral” factors. The paper concludes with listing requirement suggestions to protect investors from these five “behavioral” factors. Investor protection from all ten factors is still needed as recent U.S. and global surveys have indicated that financial reporting manipulations are ongoing.

Keywords: Corporate Governance Listing Requirements, Fraudulent Financial Reporting, 2008 Financial Crisis

How to cite this paper: Aljifri, K., Grove, H., & Victoravich, L. (2014). Corporate governance listing requirements: protecting investors from fraudulent financial reporting. Corporate Ownership & Control, 11(4-7), 717-746. https://doi.org/10.22495/cocv11i4c7p14