An Investigation Into Corporate Governance (Cg) and Accountability Practices: Evidence from Libyan Listed Companies
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AN INVESTIGATION INTO CORPORATE GOVERNANCE (CG) AND ACCOUNTABILITY PRACTICES: EVIDENCE FROM LIBYAN LISTED COMPANIES HENLEY BUSINESS SCHOOL THE UNIVERSITY OF READING A Thesis Submitted to the University of Reading in Fulfilment of the Requirements for the Degree of Doctor of Philosophy Department of Informatics Systems and Accounting (BISA) Ismail Salem Elshahoubi February 2019 DECLARATION I confirm that this is my own work and the use of all material from other sources has been properly and fully acknowledged. ii ACKNOWLEDGEMENTS IN THE NAME OF ALLAH, MOST GRACIOUS, MOST MERCIFUL The prophet Mohamed (peace be upon him) said: Whoever does not thank people does not thank God (Allah). First of all, massive thanks to Almighty God (Allah) for granting me the golden opportunity and ability to pursue this PhD study. This work could not have been accomplished without his help. First and foremost, I would like to acknowledge my deepest thanks and appreciation to my supervisor, Professor Jill Atkins, for her invaluable assistance. Her continuing support, encouragement, guidance, patience and advice have been key factors in my success. Thanks alone are not enough to acknowledge what she has done for me during my PhD journey. I would like to express my sincere thanks to the University of Reading and the staff of the Department of Business Informatics Systems and Accounting (BISA) for their support, advice and the assistance they have given me throughout my research. I would also like to extend my deepest thanks and appreciation to the Libyan Stock Market (LSM) and all those who participated in the questionnaire survey and interviews for their precious time, especially Mr. Balaam Balaam, who gave me his utmost support and help to complete my field study at the LSM. Last but not least, special thanks to my sponsor, the University of Misurata, which gave me this opportunity to pursue my postgraduate studies in the UK. Gratitude is also due to my eldest brother, Mohamed Elshahoubi, for his endless support and to my dear friends, especially Khalid Masli, Ismail Shanab and Dr. Elganidi Elsaghier, for their encouragement and assistance during my field study in Libya. iii DEDICATION This work is dedicated to the memory of my beloved father, Salem Elshahoubi, who passed away when I was young, to my late martyr brother, Ali Elshahoubi, and to my late martyr cousin, Abdulbari Elshahoubi. Thank you for being there, I love you all and I miss you. May God (Allah) forgive you and grant mercy upon your souls. It is also dedicated to my beloved mother, Ruqaia Alahjal, who keeps me constantly in her prayers and who has made many sacrifices to see me happy and successful. Last but not least, to my dear brothers Mohamed, Muftah, Ahmed, Dr. Hassan, Housien, Saleh, Kamal, Faraj and Abdulsalam and my darling sisters for their endless support and encouragement during my PhD journey. iv ABSTRACT As awareness of the importance of CG has grown, it has received increasing attention from academic researchers, regulators and public policy makers, first in developed and latterly in developing countries. As yet, however, CG research in the MENA region is still relatively rare. This research seeks to address this gap by investigating CG and accountability practices in the listed companies of one MENA country: Libya. The study draws on data gathered from internal and external stakeholder groups to explore how CG and accountability are perceived, the extent to which CG mechanisms are being implemented, the current state of accountability practice and whether the current legal and regulatory framework of CG and accountability is adequate. Lastly, it investigates which factors these stakeholders perceive as having the most influence on CG and accountability in the Libyan environment. The research employed a mixed methods research design comprising a quantitative survey followed by semi-structured, qualitative interviews. This allowed for methodological triangulation, enhancing the reliability of the findings; the semi- structured interviews were conducted after the questionnaire survey in order to confirm the earlier quantitative findings and to provide deeper understanding. The findings suggest that stakeholders in Libyan listed companies are generally aware of and understand the concept of CG. Despite this, however, the perception in all stakeholder groups was that awareness of CG issues within the Libyan environment is currently inadequate. The results demonstrate that Libyan listed companies are generally committed to implementing CG mechanisms, but that there are significant weaknesses in terms of practice. Listed companies‟ commitment is most evident in their adherence to the LCGC‟s (2007) requirements regarding the board of directors mechanism. In contrast, the level of disclosure and transparency in these companies is barely satisfactory, since at present, disclosure and transparency practices in Libya are designed only to meet local requirements. Listed companies have also taken practical steps towards meeting the LCGC‟s requirements regarding the internal and external audit mechanisms, but the general view among stakeholders was that these mechanisms are currently not robust enough to ensure strong internal control systems. Majority shareholders were seen to enjoy much greater protection, both legally and in practice, than minority shareholders. The findings indicate that Libya does not currently have a legal/regulatory framework that supports CG and accountability practices, but the interviewees were almost unanimous in identifying the lack of knowledge and awareness about CG at all company levels as the biggest factor inhibiting the advance of CG. The weakness of the legislative environment was seen as the second most influential factor, followed by the weakness of Libya‟s accountability mechanisms. The results suggest that both internal and external stakeholders are well aware of the concept of accountability, but that they see it as largely non-existent within Libyan listed companies in practice. v TABLE OF CONTENTS DECLARATION .................................................................................................. ii ACKNOWLEDGEMENTS .................................................................................. iii DEDICATION ..................................................................................................... iv ABSTRACT .......................................................................................................... v TABLE OF CONTENTS...................................................................................... vi LIST OF FIGURES ............................................................................................ xiii LIST OF TABLES ............................................................................................. xiv LIST OF ABBREVIATIONS ............................................................................. xvi CONFERENCES AND PUBLICATIONS ........................................................ xvii CHAPTER ONE: THE INTRODUCTION ........................................................ 1 1.1 Background ..................................................................................................... 1 1.2 The Rationale and Motivation for the Research ................................................ 3 1.4 Research Questions .......................................................................................... 5 1.5 Significance of the Research and Expected Contribution .................................. 5 1.6 Research Methodology .................................................................................... 6 1.7 Thesis Structure ............................................................................................... 8 CHAPTER TWO: AN OVERVIEW OF THE LIBYAN CONTEXT ................ 11 2.1 Introduction ................................................................................................... 11 2.2 The Libyan Background ................................................................................ 11 2.2.1 The Geographical Location of the Libyan State ....................................... 12 2.2.2 Libya‟s Population, Language and Religion ............................................. 13 2.2.3 Historical and Political Background ......................................................... 13 2.2.4 The Evolution of the Privatisation Programme in Libya ........................... 15 2.2.5 The Accounting and Auditing Profession in Libya ................................... 17 2.3 Libyan Banking Sector .................................................................................. 19 2.3.1 Central Bank of Libya (CBL) .................................................................. 19 2.3.2 Commercial Banks .................................................................................. 20 2.3.3 The Libyan Foreign Bank (LFB) ............................................................. 21 2.3.4 Specialised Banks .................................................................................... 22 2.4 Establishment of the Libyan Stock Market (LSM) ......................................... 23 2.5 The Evolution of CG in the Libyan Environment ........................................... 25 2.6 The Legal Framework for CG Practices in the Libyan Stock Market (LSM) .. 28 2.6.1 Providing the Basis for an Effective CG Framework ................................ 29 vi 2.6.2 Protection of Shareholders‟ Rights .........................................................