**2. Corporate Governance Characteristics and Timely Accounting Information Disclosure Violations in Private SMEs: Development of Research Propositions and Hypotheses**

#### *2.1. Conceptual Framework of the Study*

The violations of law occur in a firm when its managers do not comply with the legal requirements for either content, forms or time. Information on time is essential to align all firm stakeholders' interests (Singhvi and Desai 1971); generally, the older the information, the less useful it is. In addition, the timely disclosure of information is a way to reduce the information asymmetry between firms' stakeholders (Owusu-Ansah and Leventis 2006; Donnelly and Mulcahy 2008). The latter is possible through transparency, one of the important qualities of governance according to Hermalin and Weisbach (2007).

According to the upper echelons theory, the organization is a reflection of its top managers (Hiebl 2014). Based on the seminal paper by Hambrick and Mason (1984), the characteristics of firm's top managers and their strategic choices help to explain the organization's performance. Consequently, organizational outcomes such as firms' disclosure practices are influenced by the board's characteristics due to the monitoring role of corporate governance. Broadly, corporate governance is the setup of direction and control in companies (Huse 2007), given the separation of these two functions. The regulation of corporate governance originates from the time when ownership and management of businesses first became separated in accordance with the agency theory (Fama and Jensen 1983). Thousands of papers have been published about corporate governance related to multiple aspects of firms from that seminal paper. However, the extant evidence does not provide a clear answer if better corporate governance has a positive influence on information disclosures (Beekes et al. 2016).

As provided in the introduction, most of the studies about corporate governance are focused on large and listed firms but not on SMEs and private companies (Abor and Adjasi 2007; Spiers 2018). For instance, Durst and Henschel (2014, p. 18) even propose a different definition of corporate governance in small companies, where the focus is set on the interplay with relevant stakeholders to achieve a strategic change, rather than focusing only on the routine control function. Corporate governance in privately held firms includes many factors and variables that condition decision-making as to violate or not the disclosure of compulsory information, such as different organizational and/or institutional contexts (Uhlaner et al. 2007).

Clarke and Klettner (2009) and Uhlaner et al. (2007) suggest that directors of small firms are more worried about survival than planning and control as corporate governance imperatives. In this line, Crossan et al. (2015) emphasize that the lack of governance within small companies is a conditioning factor for business failure, while similar opinions are shared by Saxena and Jagota (2015) and Spiers (2017). Thus, an organic interconnection exists between corporate governance and risk behaviour of managers, one example of which is the timely accounting information disclosure violation (later also referred to as TADV).

We posit a theoretical concept in which corporate governance characteristics could condition risk behaviour in firms (see Figure 1). Our central standpoint states that based on the upper echelons' theory, firms' risk behaviour is conditioned by their management. In detail, we rely on three main theoretical streams of corporate governance (see Nicholson and Kiel 2007), that is, agency, stewardship and resource dependence theories, to outline the dimensions relevant to study the interconnection between corporate governance and risk behaviour. First, we rely on agency theory, the central question of which are the nonaligned interests of managers and owners in corporate governance (e.g., Jensen and Meckling 1976). Thus, our first dimension of interest considers the convergence of decision-making in a firm, which we name in the further text as "power concentration". Second, we rely on the resource dependence theory, which postulates that corporate governance channels firms' internal and external resources into performance (e.g., Pfeffer and Salancik 2003). In light of this theory, we focus on a specific type of internal resource, that is, the managers' "experience" dimension. Third, we rely on the stewardship

theory, which considers managers having aligned interests with owners, and thus, behaviour differences of firms are subject to inherent characteristics of managers (e.g., Donaldson and Davis 1991). The third dimension is named the "demographic diversity" of managers. These three dimensions are discussed further as follows, coming to the postulation of research propositions for each of the dimensions. Under each research proposition, specific testable hypotheses are developed. The same approach of using research propositions and specific testable hypotheses has been frequently used in management research (see e.g., Zajac and Westphal 1996). The postulated hypotheses rely on the (most) usual corporate governance characteristics applied to depict these dimensions in the literature.

**Figure 1.** Conceptual framework of the study. Source: Own elaboration.
