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The impact of corporate governance on the digitalization process: empirical evidence for the Romanian companies

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Abstract

The aim of this paper is to investigate the impact of the quality of corporate governance and the level of digital investments. For this purpose, a sample of 66 Romanian nonfinancial companies listed on the Bucharest Stock Exchange (BSE) for the 2016–2020 period is used. The findings validate a positive relationship between the quality of corporate governance and the companies’ interest in digital matters, controlling for various other variables. More exactly, we find that a good quality of corporate governance (measured by the corporate governance score) determines more incentives for investing in digital technologies. In addition, the main patterns of the board structure (equilibrium between non-executive and executive members, independence of the members and presence of men within the board) are positively correlated with a high level of digital investments. Then, the presence of Nomination, Remuneration and Audit Committees together with a good and transparent dividend policy, as other patterns of corporate governance quality, are associated with a higher level of digitalization. Further, the more companies are publicly owned, the more inclined they are to digitalization. A successful governance is keen on investing in the IT department and continuously improving the programs, knowing the positive benefits will not seize to appear.

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Source: Authors’ processings

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Acknowledgements

This work was supported by a grant of the Romanian Ministry of Education and Research, CNCS—UEFISCDI, project number PN-III-P4-ID-PCE-2020-2174, within PNCDI III.

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Authors and Affiliations

Authors

Contributions

The authors contributed equally to the development of the study. All authors have read and approved the final manuscript.

Corresponding author

Correspondence to Monica Violeta Achim.

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The authors declare that they don’t have any conflict of interest.

Appendix: Description of variables

Appendix: Description of variables

Variables

Way of expressing

Units/scale

Sources

Dependent variables-

   

Digitalization

As the weight of the value of intangible assets within the company’s total sales

% value

Annual financial statements

Independent variable-

   

Corporate governance

As a score based on the Comply and explain statement/ This score ranges between minim 0 and maximum 41. However, we rescaled this score to range between 0 and 100 (CGscore)

Number

Comply or Explain Statement

 

As existing an equilibrium between non-executive and executive members (EQUIL)

Dummy variable having the value 1 if the company responded with Yes at the question “Is there an equilibrium between non-executive and executive members of the board of directors”?, and 0 when the answer is “No”

Comply or Explain Statement

 

As existing independence of board members (INDEP)

Dummy variable having the value 1 if the company responded with Yes at the question “Is there an independence of board members”?, and 0 when the answer is “No”

Comply or Explain Statement

 

As existing of nomination committee (NOM)

Dummy variable having the value 1 if the company responded with Yes at the question “Is there a nomination committee with requested criteria within the company”?, and 0 when the answer is “No”

Comply or Explain Statement

 

As existing of Audit Committee (AUDIT)

Dummy variable having the value 1 if the company responded with Yes at the question “Is there an audit committee with requested criteria within the company”?, and 0 when the answer is “No”

Comply or Explain Statement

 

As existing of Remuneration Committee (REM)

Dummy variable having the value 1 if the company responded with Yes at the question “Is there a remuneration committee with requested criteria within the company”?, and 0 when the answer is “No”

Comply or Explain Statement

 

As existing a transparent dividend policy (DIV)

Dummy variable having the value 1 if the company responded with Yes at the question “Is there a a transparent dividend policy”?, and 0 when the answer is “No”

Comply or Explain Statement

 

As existing a gender diversity of board structure, expressed as the proportion of female directors in total number of directors (FEM)

% value

Annual reports of the companies and companies’ websites

 

As existing institutional investors in total number of investors (INSTIT)

% value

Annual reports of the companies and companies’ websites

Control variables

   

Size of the company (LogEmpl)

As the number of employees

Number, logged for normality purposes

Annual financial statements

Operational risk (LogOpRisk)

As the ratio between the relative changes of sales to the total sales reported in the current period

% value

Annual financial statements

Financial performances ratios (LogROE or alternatively LogROA)

As Return on assets-ROA (dividing a company’s net income by its total assets) or Return on equity-ROE (dividing a company’s net income by its total equity)

% value

Annual financial statements

Leverage (LogLev)

As the percent of liabilities within the total sources

% value

Annual financial statements

Domain of activity (D_sector: D_Manuf, D_Commerce, D_Tourism, D_Build, D_Transp, D_Extr, D_IT, D_RealEst, D_S&T, D_Health, D_Power)

Our 66 companies belong to 11 different sectors: Manufacturing industry (40), Commerce (3), Tourism (3), Building (5), Transport (4), Extractive (4), IT&RD (1), Real Estate(1), Science &Technique (2), Health (1), Power (2 companies)

Dummy variable having the value 1 if the company belongs to that sector of activity and 0 otherwise

Annual financial statements

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Achim, M.V., Văidean, VL., Popa, AI.S. et al. The impact of corporate governance on the digitalization process: empirical evidence for the Romanian companies. Digit Finance 4, 313–340 (2022). https://doi.org/10.1007/s42521-022-00058-6

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  • DOI: https://doi.org/10.1007/s42521-022-00058-6

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