Corporate Governance Disclosures in Romania

1. Introduction
We can find a lot of information regarding the term corporate governance (hereafter
CG), because this subject is increasingly popular in emerging economies. The basics of the CG
remains the same for most countries, but each one of them has something unique that
differentiates it from the other.
The country on which we are going to focus on is Romania, an ex-communist country,
that now is a member of the European Union (hereafter E.U.) and represents now an important
investment opportunity for foreign investors. Romania adopted the CG principles in 2001, but
even now companies are struggling to implement this change in their management.
As mentioned before, each country has unique characteristics and a general format of the
information disclosed cannot be interpreted as relevant or reliable, especially in emerging
economies.
2. Literature review
2.1. CG in emerging economies . For an easier understanding of the CG in emerging
economies, MacMillan and Downing said: CG isthe mechanism by which companies are
controlled and directed and is closely related to economic and social development. The level of
information or literature regarding CG is increasing as the complexity of the business
environment is also growing. Some say that emerging economies are becoming the main drivers
of global growth, but this economies usually have a weaker capital market, less effective
regulations and need to improve their accountability model.
Also Peters et al. 2011 identified some differences between developed and emerging
economies with regard to CG, for example: concentrated ownership structures and informal
institutions.
2.2. CG Disclosure literature review and theorie. There are two kinds of dimensions
when it comes to characterizing the disclosure behavior: Mandatory and Voluntary. For example
mandatory refers to increased scrutiny, that provides useful information about the compliance
with regulations and also creating the advantage of comparison for one mandatory disclosure to
another.
The main theories that helped in researching the CG disclosure are the legitimacy theory,
the institutional theory and the stakeholder theory (Perrault Crawford & Clark Williams 2010;
Kavitha & Anita 2011, Vurro & Perrini 2011). The results concluded that environments with
higher levels of mandatory disclosures produce more qualitative disclosures.
2.3. CG in Romania- research questions. Romania engaged in a program of developing a
CG practice in 2001, the delay was the result of political, juridical and economic problems. BSE
also adopted the CG Code in 2001, but, because of the regulations only one company was listed
on the Plus Tier, that company is Electroaparataj S.A. .The code was changed in 2008 and
companies listed on the Plus Tier applied it since 2010.
First question is: Do CG Disclosures vary among firms in Romania?! Because previous
literature suggests that CG disclosures are characterized by a variety and there are different
reasons for explaining lack of uniformity. Legitimacy and institutional pressures are different
and resources are not necessarily available in emerging economies.
Second question: Are Romanian managers less inclined to disclose voluntary rather than
mandatory information? In Romania Raileanu analyzed the information included in the annual
reports of the entities listed on the BSE in order to discuss CG practices. They consider that
Romanian managers have less incentive to fulfill the provisions related to transparency.
Third question: Are Romanian managers inclined to disclose less information on auditing
and CSR than on other CG issues? In 2008 review of good CG disclosure practices indicated that
some subject areas such as issues related to auditing are significantly less reported than other
areas such as financial transparency.
3. Methodology
For the analysis of CG level disclosures were used different instruments, for example,
Sanan and Yadav (2011) used a disclosure instrument developed by S&P considering 108 items
classified in three categories: ownership structure and shareholder rights, financial and
operational information and board and management structure and process. SIF (Social
Innovation Fund) (2009) selected for their research five environmental, five social, and ten
corporate governance indicators from the UNCTAD ( United Nations Conference on Trade and
Development ) studies. The ISAR benchmark on International Standards of Accounting and
Reporting contains 53 disclosures classified into five broad categories : 1) financial transparency
; 2) board and management structure and process; 3) ownership structure and exercise of control
rights, 4) corporate responsibility and compliance, and 5) auditing.
4. Results
CG disclosures in Romania, similar to the case of other EU countries, are subject to hard
low and soft law provisions. The provisions of the European Directive 2006/46 EC ( European
Communities ) were implemented in Romania by the Order of the Minister of Public Finances (
hereafter OMFP ) no. 3055/2009. This Order provides that companies whose securities are
admitted to trading on a regular market are held to disclose an annual corporate governance
statement as a specific and clearly identifiable section of the annual report. To facilitate the
application, BSE published on its website a standardized report developed based on the
provisions of the Code and its Implementation Guidance.
5. Conclusion
In terms of regulations we first find that CG disclosure requirements are included in
various regulatory sources, although not always entirely consistent with one another. Romanian
regulations are aligned with European Directives. On the one hand, this creates the regulatory
framework that companies should follow to make their disclosures, both mandatory and
voluntary. On the other hand, the inconsistencies between the regulations create gaps that
companies can use to avoid making certain disclosures and a fuzziness that is unhelpful in
ensuring the desirable quality of disclosure.
While Romania in presented in the literature as developing one of the first CG codes in the
CEE (Central and Eastern Europe) , little is known about the CG practices of Romanian entities.
We contribute to the literature by providing evidence about the level of disclosure on CG issues
of such entities. We argue that the reduced level of disclosure could be explained by the
inconsistencies between national regulations and by the lack of institutional factors that might
support good CG practices.