Corporate governance and shareholders’ confidence in cooperativess a systematic literature review

Introduction

Malaysia’s cooperative movement began in the early twentieth century. Cooperatives are organisations whose purpose is to enhance its members' economic value in line with cooperative goals. Cooperatives is defined as “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise” (International Cooperative Alliance). Consumer cooperatives, labour cooperatives, finance or banking cooperatives, and community cooperatives are only a few examples of cooperatives from various industries. Cooperatives play a crucial part in the Malaysian economic system and contribute greatly to the country’s social development. Their contributions are valued at the same level as those made by other businesses, in terms of the value-added to the national economy.¹ This study considers the corporate governance of cooperatives and its relation to shareholders’ confidence. Corporate governance is a system of internal rules, procedures and employees that meets shareholders and other stakeholders' requirements via the management and control of management operations with strong business skills, objectivity, responsibility and integrity.

A lack of confidence in the ability of the cooperative management, can in turn, could trigger a financial crisis within the cooperatives. Thus, the failure of a cooperative could become inevitable, which may eventually damage shareholders willingness to provide future investment.² The effect of shareholders’ views is even more critical in the case of cooperatives, because these companies often have political influence. Politically linked companies can possess bad corporate governance practices and higher-level corporate issues because they depend heavily on the federal government.³ Thus, studying corporate governance’s impact on the confidence levels of shareholders in cooperatives is essential. Serious consequences may arise if it affects the confidence of Bottom 40 (B40) household shareholders. B40 refers to the bottom 40% in Malaysian household income; categorized as low-income householders earning below 4850 Malaysian Ringgit (RM) per month (approximately USD$1158). Various cooperatives offered a share to the B40 employees or B40 members as one of the cooperatives benefits. Such cooperatives in Malaysia include the Armed Forces Cooperative, National Land Finance Co-operative Society (NLFCs), Koperasi Permodalan Felda Berhad and many more. Factors such as transparency, trustworthiness, integrity and good governance, are the key factors in creating shareholder confidence, and ensuring cooperative organisations remain competitive.

Methods

Ethics

This study was approved by the Research Ethical Committee of Multimedia University, Malaysia (EA2712021).

This study is designed to present a literature review, research gap analysis, conceptual framework and insights gained on cooperatives and their relation to B40 shareholder’s confidence. The literature review is based on the five stages of systemic review proposed by Tranfield et al.⁹

Figure 1 below depicts the systematic flowchart of the review methodology.

Figure 1. Five stages of systematic review.

Identifying and evaluating studies

Articles investigating the confidence components in corporate governance within the context of cooperatives, do not specifically discuss the confidence of shareholders particularly in cooperatives. This study found that the Malaysian Code on Corporate Governance (MCCG) did not apply to cooperatives investors, in terms of there being no explicit regulations for how and when their practices may be improved. Effective corporate governance structure improves B40 shareholders confidence in terms of transparency, trustworthiness, integrity and good governance. As a result, we opted to check the number of publications for the specified keywords as the first step. The keywords range from broad themes (corporate governance) to more targeted terms (corporate governance/confidence/cooperative/B40).

Criteria of inclusion and exclusion

In order to conduct the search for this study, the following exclusion and inclusion criteria was used, detailed in Figure 2 also. Papers were selected if they were published between year 2000 and 2021, had been peer-reviewed, written in English, and if they addressed cooperatives and corporate governance. Journals, conference proceedings, dissertations and special issues were included in the inclusion criteria. Five major databases that were used to conduct the searches; Emerald, Scopus, Science direct, Inderscience and ProQuest.

Figure 2. Inclusion and exclusion criteria.

Keywords

In order to review the literature comprehensively, we followed Tranfield et al.,’s systematic literature review methods, and used Emerald, ProQuest, InderScience, Scopus and Science Direct to search the following keywords: (1) corporate governance, (2) confidence, (3) cooperative, (4) agency theory and (5) B40.⁹ The phrases searched included: ‘corporate governance’, ‘corporate governance and investors/shareholders confidence’, ‘corporate governance and investors/shareholders confidence and cooperative’, ‘corporate governance and investors/shareholders confidence and B40’ and ‘corporate governance and investors/shareholders confidence and cooperative and B40’. The search began with more general searches using the terms ‘corporate governance’ and/or ‘confidence.’ The searches were conducted between 1st June 2021 and 15th June 2021.

Search strategy

The search strategy was based on the keyword search, in order to investigate papers in the five major online databases, including Emerald, ProQuest, InderScience, Scopus and Science Direct. This selection was based on these databases’ widespread use and high level of academic merit.¹¹ Furthermore, these databases include a large number of periodicals devoted to business and cooperatives. The keywords selected were combined into five possible combinations, as shown in Table 1. The search on ‘corporate governance’ alone initially produced 77,864 publications. When searched with ‘corporate governance and investors/shareholders confidence’, the number dropped to 2,304. When we used the keyword combinations of ‘corporate governance and investors/shareholders confidence and cooperative,’ the number was 324. Subsequently, we found only one publication when we searched for ‘corporate governance and investors/shareholders confidence and B40’. The same was also true when we searched for ‘corporate governance and investors/shareholders confidence and cooperative and B40’; only one publication was found.

Table 1. Summary of keyword results.

No.	Online database	Corporate governance	Corporate governance AND Investors’ confidence OR Shareholders confidence	Corporate governance AND Investor/shareholders confidence AND Cooperative	Corporate governance AND Investor/shareholders confidence AND B40	Corporate governance AND Investor/shareholders confidence AND Cooperative AND B40
1	Emerald	18000	898	65	0	0
2	ProQuest	16524	482	171	0	0
3	InderScience	3546	105	28	0	0
4	Scopus	21766	118	0	0	0
5	Science Direct	18028	701	60	1	1
	Total:	77864	2304	324	1	1

We used the following technique to extract papers from the major web databases mentioned above, summarised in Figure 3. Only confidence in cooperatives papers linked to the B40 group, were selected for further evaluation.

Figure 3. Extraction process.

Results

From the 324 papers found through searching for ‘corporate governance and investors/shareholders confidence and cooperative, we found five papers relevant to our investigation. Only 5 of the 324 studies assess shareholders’ confidence in cooperatives, as well as one paper on B40 and two papers on agency theory. The findings are summarised in Table 2.

Although most of these studies have focused on the direct impact of confidence in cooperatives, some authors are interested in investigating the confidence effect that significant shareholders can exert. Only 5 of the 324 studies, displayed in Table 2, discuss shareholders’ confidence in cooperatives, including one paper on B40, and two papers on agency theory. The results of the analysis are presented in Table 3.

Table 3 lists two papers with agency theory and six other theories, which were used in the studies based on different context.

Discussion

There are several gaps identified in this study. This paper emphasizes the scarcity of studies on corporate governance related to B40 shareholders confidence in the context of cooperatives. More research and case studies are crucial for cooperatives to understand and adopt any possible recommendations; the implication of which would be to encourage B40 shareholders to invest in such cooperatives.

A limitation of our study is the number of keywords selected; it would have been possible to obtain more papers in our search if the keywords were expanded to broader fields of study, not so specific in nature, such as B40. This could possibly lead to publication biases.

Research gap in B40 shareholders’ confidence in the cooperatives sector

Only one paper discussed the importance of the B40 shareholders confidence in the form of trust in cooperatives However, the shareholders’ confidence was not sufficiently discussed in order to provide research depth and direction. Filling the research gap is vital to building more knowledge of B40 shareholders’ confidence in investment portfolios; which will help cooperatives build confidence in shareholders as a critical feature. The data are shown in Tables 4 and 5.

Challenges related to shareholders’ confidence in B40

The main challenges with shareholders confidence in cooperatives is that it does not stand alone. The challenges related to shareholders’ confidence, in general, can be grouped into four categories, including external, internal, government related and population size. The external challenges include corporate tax and social behaviour of shareholders. Restrictive government policies and the high populations in B40 groups are another challenge related to shareholders confidence in B40s. However, these challenges do not sufficiently address the issues faced by B40 shareholders, which is one of the research gaps this study has identified. Furthermore, B40 shareholders are generally illiterate and need more knowledge about investment portfolio.

Conceptual framework for B40 shareholders’ confidence in the cooperatives sector

Agency theory has not been tested for B40 shareholders, particularly to address shareholders’ confidence in cooperatives. Shareholder’s confidence is a missing piece within the agency theory; especially in cooperatives. Protecting the interests of B40 shareholders who invest in the company and have expectations about the business and their investments, are critical.¹² Thus, we propose the following conceptual framework for further studies.

Figure 4. Conceptual framework.

The rationale behind the scarcity of such low research on B40 shareholders is due to a general perception that they are not major contributor to national income and B40 population are not seen as investors in cooperatives context (Share Prosperity Vision 2030). This can be addressed in future by creating more awareness and investment programmes to B40. These activities will help B40 to involve more in buying shares, understand investment and transit to M40 group.

Future recommendations

Researchers looking into the association between B40 shareholder confidence, corporate governance and cooperatives could use the primary findings of this publication, to generate ideas for future research. Two primary research themes could be considered in the future and we hope the academic community conduct more research on the following:

Conclusion

The purpose of this study is to update corporate governance and cooperatives research communities about research gaps, namely in the areas of shareholder confidence, particularly among B40 shareholders. No unique confidence metric exists today, nor a case study explicitly dedicated to confidence. In this study, we used a five-stage technique to review papers based on a thorough examination of the literature in a particular field. According to our in-depth analysis of these papers, there are three primary areas which have room for research. Firstly, there is a pressing need for researchers to standardise the terminologies used the discuss corporate governance, cooperatives and shareholder confidence. Secondly, more research is needed to determine whether corporate governance, cooperatives, shareholder’s confidence and the B40 groupto form the basis for more effective policy formulation and the basis for guiding the next generation of effective investment. In this context, the extent of the commonalities between shareholder confidence and B40 could be investigated further due to its scarcity in research. Finally, further empirical research is needed to understand the elements that influence B40 shareholders’ confidence in the context of corporate governance and cooperatives.

Data availability