corporate governance in fintech companies in the uk: an … · corporate governance in fintech...

Corporate Governance in Fintech Companies in the UK: An exploratory analysis for e-disclosure

AUTORS:

• Montserrat Hernández-Solís

• Teresa Herrador-Alcaide

Universidad Nacional de Educación a Distancia (UNED)

Facultad Ciencias Económicas y Empresariales

Departamento Economía de la Empresa y Contabilidad


Voluntary disclosure provided by FinTech

Companies

Topics on the Website

Factors of disclosure

The amount of information disclosed


What FinTech companies are?

and

Why did they arise?

Small Businesses could not Access to external

funding +

Banks focused their work on the economic

recovering

Crisis 2007

A strong telecommunications

market


Motivation for researching Fintech


OBJECTIVE

The objective of this study is to carry out an empirical analysis of FinTech companies in order to fill the existing gap in knowledge related to e-disclosure provided for FinTech businesses.

Regarding this goal, this study has been focused on a prospection of e-disclosure on the FinTech corporate governance and their big investors in the context of voluntary information.

Thus, the empirical analysis was focused on two objectives of second order:

The first one focused on the measurement of the information on corporate governance disclose in four dimension related to it (general dimension, economic dimension, social

dimension and ethical dimension).

The second one focused on the establishment of different levels of e-disclosure structured in a ranking.

THE SAMPLE: 40 the top FinTech companies from London and their investors.


THEORETICAL FRAMEWORKS TO STUDY DISCLOSURE

FINTECH- CHARACTERISTICS

AUTHOR THEORY’S NAME CHARACTERISTICS

Coase (1937) Theory of the firm of Coase Corporate governance is partly linked to the social responsibility of the firm

Maldonado-García; Escobar-Váquiro & Marín-Gaviriar (2012).

The Stakeholders Theory This theory recognizes the need to expand the information disclosed by the existence of multiple users of information

Maldonado-García, Stella; Escobar-Váquiro, Natalia & Marín-Gaviria (2012).

The Legitimacy Theory This theory implies that companies disclose more information to eliminate the criticism because it presupposes the existence of an implicit social contract with socially accepted values

Osma & Albornoz, (2005) Laffont (1989) Collis et al., 1998 Cabedo & Pérez, (2005)

The voluntary codes for firms The most of the information will be provided in a voluntary manner. Corporate e-governance is understood how the integration of the information technology and communications (ITC) on the Internet to disclose transparency about its governance practices


THEORETICAL FRAMEWORKS TO STUDY DISCLOSURE

Disadvantages to consider Corporate Governance for Fintech Companies

Number 1 Novelty of the FinTech Business has not focused these firms on this aspect yet

Number 2 The small dimension of the majority of these companies has not shown the interest of the society currently on the corporate governance in FinTech

Number 3 Corporate governance is a mechanism for ruling of relationships among shareholders, managers and other stakeholders basing on the definition and separation of different roles in the firm. Small structure and staff of many FinTech companies, majority startups, this role are still together

Number 4 The entrepreneurial character of these companies has directed their goal to the survival, not considering this aspect of relationship with society yet.


WHAT ARE THE RESEARCH QUESTIONS?

Thereby, this study has been focused on the empirical analysis of FinTech companies in order to analyse the answers to the research questions exposed

Question 1 What are the main topics in e-disclosure on corporate governance in FinTech?

Question 2 What is the total volume disclosed of information on corporate governance?

Question 3 Is it possible to notice the existence of different levels of e-disclosure related to corporate governance?

Question 4 Is it possible to order the levels of disclosure in a ranking?


THE MAIL GOAL

The objective of this paper is to stablish if there are some indicators of the e-disclosure on corporate governance for the top FinTech

companies of London and the major investors.

SELECTED HUB OF ALL HUB OF FINTECH BUSINESS IN THE WORLD WE HAVE SELECTED THE LONDONCITY HUB BY THE FOLLOWING REASONS: Government Support, Innovation culture, Proximity to

customer, Proximity to expertise, Foreign Start Ups and Regulation. ( Source: Deloitte Fintech Hub Review 2016).


THE SAMPLE The analysis of the disclosure is carried out for a sample of 40 companies which are included in the FinTech Business from London: 28 FinTech companies and 12 big investors (Transferwise, Wordpay or Zopa, among

others).

METHODOLOGICAL OBJETIVES

To measure the total volume on corporate governance disclosed by FinTech companies and FinTech big investors on their website. This major objective is divided in following objectives of second order:

Quantification of the information disclosed in each item and the total information in each dimension of the e-disclosure on corporate governance.

Determination of the different levels of e-disclosure of each company, both for FinTech companies as for their investors.

DIMENSIONS WE HAVE CONSIDERED IN OUR RESEARCH: General Dimension, Economic Dimension , Social Dimension and Ethical Dimension.

TOTAL NUMBER OF ITEMS: 35. The purpose is to quantify whether information is given on the item. So 1=yes, and 0= No


DATA COLLECTION Regarding the objective of second order related to the different levels of e-disclosure of each company, following previous studies (Cabedo & Pérez, 2005; Escamilla et al., 2015; Navarro et al., 2009) a ranking of information disclosed has been developed (e-disclosure). Thereby, the companies are classified applying the following ranking:

ITEMS’ WEIGHT

DIMENSIONS NUMBER OF ITEMS WEIGHT OF ITEMS WEIGHING FOR EACH DIMENSION

General Dimension 7 20% 25%

Economic Dimension 9 25,7% 25%

Social Dimension 9 25,7% 25%

Ethical Dimension 10 28,6% 25%

Total 35 100% 100%


FINDINGS Maximum level of e-governance: from 29 to 35 items. High level: From 22 to 28 items. Average level: 15 to 21 items. Low level: From 8 to 14 items. Null Level: 0 to 7 items.

Regarding the results of the empirical analysis, the total volume disclosed by FinTech and FinTech investors companies is not very large . By considering the ranking of disclosure it has been noticed that only the 2.5 % of these companies provide a maximum level of e-disclosure on corporate governance. The average level of e-disclosure is reached only by other 2.5% of the companies. Thus, the most of the companies in FinTech and their investors provide a low level (40%) or a null level (50%).

Level of e-governance Companies % Companies

Max Level of e-disclosure 1 2,5

High Level of e-disclosure 0 0

Average Level of e-disclosure 1 2,5

Low level of e-disclosure 18 45

Null level of e-disclosure 20 50


FINDINGS. GENERAL DIMENSION When it is considered the e-disclosure attending to the different dimensions, the results are varied depending on the dimension and also for each item. The total of amount of information in the general dimension is generally higher than in the other once. Thus, the most of companies provide an information above 85% for all the items except for the information on the sustainability of the company. Perhaps, it could be explained for the feature of Start Ups of these companies. Thus, companies concentrate their efforts on their economic growth and thus they do not lead their effort to the reporting.

Levels of information for items on General Dimension YES % YES NO % NO

Access to the website 40 100 0 0

If Government Board is identified on the website 37 92,5 3 7,5

The web of each company facilitates the contact mails of the important positions 36 90 4 10

Declaration of the maximum responsible regarding to the importance of sustainability 1 2,5 39 97,5

Company's philosophy 39 97,5 1 2,5

Company size or number of employees 34 85 6 15

Number of countries where the company carries out 36 90 4 10


FINDINGS. ECONOMIC DIMENSION The information on the economic dimension disclosed by the FinTech or by their investors is lower than the information on the general dimension. Thus, the e-disclosure for the most of the variables shown in the items is minor than 10%. Only for the historical information on economic data (37.5%) and for the information related to some economic data (not exhaustive information) (27.5%) the amount is between 27% and 37%. This finding could be reflecting a low culture of e-disclosure related to economic data.

Levels of information for items on Economic Dimension YES % YES NO % NO

Company Budget (Incomes –expenses) 2 5 38 95

Disclosure of the balance sheet and income statement 3 7,5 37 92,5

Existence of the company's annual report 3 7,5 37 92,5

Historical information on economic data 15 37,5 25 62,5

Disclosure of economic data such as GDP, employment, unemployment rates, interest

rates.

11 27,5 29 72,5

Information on the accounting policies applied in FinTech 2 5 38 95

Financial Risks assumed 7 17,5 33 82,5

Disclosure on subsidies and aid received 1 2,5 39 97,5

If your financial-economic situation is audited by third parties 1 2,5 39 97,5


FINDINGS. SOCIAL DIMENSION The information in the social dimension is a bit better than in the economic dimension. Thus, the best level of information is for two aspects: disclosure on social benefits of company and the work-family conciliation. Likewise, any information on fund or aids is barely disclosed (5%). Likewise, information on policies of insertion in the job takes a low level (5%). Actually, this is a dimension not very worked in the FinTech reporting.

Levels of information for items on Social Dimension YES % YES NO % NO

Social benefits 12 30 28 70

Fund and aids 2 5 38 95

Social policies of insertion in the job 2 5 38 95

Work-family conciliation 12 30 28 70

Internal promotion policy 4 10 36 90

Human Rights 3 7,5 37 92,5

Employment health 5 12,5 35 87,5

Efficiency and efficiency indicators 1 2,5 39 97,5

Satisfaction or engagement of stakeholders 6 15 34 85


FINDINGS. ETHICAL DIMENSION The ethical dimension offers the lowest disclosure leverage . Only for the second item related to CSR is achieved the 20% and the level is near for the procedures for responding questions (17.52%). Thus, it perhaps means that FinTech companies do not consider that ethical information was an interesting topic to disclose on the FinTech website. .

Levels of information for items on ethical Dimension

YES % YES NO % NO

Codes of good corporate governance / ethical codes 2 5 38 95

Date on CSR (letter from the company president, summaries of assemblies, business organization

chart, composition of the shares, whether or not listed) 8 20 32 80

Reports of external auditors of the financial statements 0 0 40 100

Ethical committee or person in charge for ethically recognized internally or externally 2 5 38 95

Report on the risks that companies have made 3 7,5 37 92,5

Management of social and ethical issues (such as hacking, tax evasion, smuggling or falsification of

products). 2 5 38 95

Unfair competition 0 0 40 100

Procedures to respond any suggestions and questions from stakeholders. 7 17,5 33 82,5

Indicators relate to the overall planning process. 4 10 36 90

Social balance 2 5 38 95


THE MAJOR CONCLUSION

The major conclusion is that there is not a culture of e-disclosure of information on different aspects related to corporate governance in FinTech companies and in other companies linked them.

Likewise, findings notice that it is necessary to research not only the quantitative disclosure on the website but also the quality of the disclosed information. Thereby, it can be interesting the use of models in order to analysis the relationship of the type of information with several factors, in a traditional research line on disclosure.

Disclosure is an important tool for accountancy, not only for economic information but also for other social and ethical issues linked to the social engagement.


THANKS FOR YOUR ATTENTION

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