findings and theoretical issues. The proposals developed are not beyond controversy and,therefore, should stimulate further discussions.

Brigitte EierleUniversity of Regensburg, Germany

Corporate governance and accountability, Jill Solomon, 2nd ed.. John Wiley & Sons,Chichester, UK(2007), xvi + 386 pages, £ 30.99, €48.11, $65.00, ISBN 0-470-03451-3

1. Introduction

The dynamic concept of corporate governance and its underlying themes and issuescontinue to challenge practitioners and academics alike with its constant review andreforms, at a national and international level. As the author points out the term corporategovernance is one of the most commonly used phrases in the current global businessvocabulary. The author presents a text which is well written, easily understood andextremely informative. First published in 2003, this second edition of the book updates thefirst and includes new features. The author's and colleagues' latest research is alsosummarized and referred to within the text. The book will be useful to undergraduate andmasters students, as well as practitioners interested in critically thinking about their rolewithin a corporate-governance framework. It includes the key literature pertaining tocorporate governance, which is extremely useful for those undertaking research.

2. Overview

The book is divided into three parts, with 11 chapters. It provides an overview of corporategovernance. In Part I the author sets out the corporate-governance framework andmechanismswith a clear U.K. focus before providing a summary of global corporate-governance systemsin Part II. The book concludes in Part III with an extremely interesting examination of thewaysthat corporate governance has evolved to include stakeholder concerns as well as shareholderaccountability. The book, which is supported by the author's and colleagues' research,includes an Enron case study and an analysis of Parmalat, the “European Enron”. Particularfeatures of the book are the chapter summaries and questions for reflection and discussion,which are extremely useful, not only for those studying corporate governance but also forthose delivering corporate-governance units at undergraduate and postgraduate level.

The author defines corporate governance as “the system of checks and balances, bothinternal and external to companies, which ensures that companies discharge their ac-countability to all their stakeholders and act in a socially responsible way in all areas of theirbusiness activity” (p. 14). Themain premise of the book is based upon the perceived shift fromthe shareholder-basedmodel of corporate governance,with attention being principally focusedonmaking companiesmore accountable to shareholders, to an increasing emphasis onmeetingthe needs of a broad range of stakeholders. The author argues that theoretical frameworks that

doi:10.1016/j.intacc.2007.09.002

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suggest companies should only be accountable to shareholders are not necessarily inconsistentwith theoretical frameworks, which favor stakeholder accountability. The author also observesthat this wider stakeholder approach, linked to social responsibility and to some extent anethical approach to business, is not necessarily inconsistent with corporate profitability. Thisbelief is, as the author states, founded “on a growing body of literature and empirical evidencethat suggests that corporate accountability, which takes into account a broad range of social,ethical and environmental factors, is conducive to financial performance” (p. 29).

3. Part 1

Part I, which consists of chapters 1–6 deals with corporate-governance frameworks andmechanisms. Chapter 1 first defines corporate governance before dealing with thetheoretical frameworks of agency, transaction cost, and stakeholders. The author comparesand contrasts these before noting that they are “different lenses through which the sameproblems may be observed and analysed” (p. 23). Chapter 2 deals with corporate-governance failure with particular reference to “Enron” and “Parmalat”. The main focus isthe “Enron” case study which illustrates the dangers associated with weak corporategovernance and ineffective checks and balances. The author observes that while the U.S. andItalian corporate-governance systems are very different, it is interesting to note that they areequally vulnerable to similar forms of abuse and corporate-governance weaknesses. Chapter3 focuses on U.K. corporate-governance reform, which the author states has, since the firstedition of the book, been subject to over-all fine tuning and refining of corporate-governancemechanisms rather than dramatic changes and reforms. The chapter provides a usefulhistoric overview and summary of the corporate-governance reports from the CadburyReport (1992) to present day. The chapter introduces the corporate-governance codes ofpractice and policy documents and explains the U.K. self-regulatory/voluntary approach tocorporate governance, described as the “comply or explain” approach, aimed at encouragingcompliance with its associated “good” corporate-governance culture rather than strictstatutory code. This approach has not been adopted at a global level andmany countries haveadopted a more legalistic and statutory approach. It also highlights the important linkbetween governance and financial performance, before concluding with the development ofcorporate-governance ratings, which impact on shareholder wealth. Chapter 4 deals in somedetail with the role of the board of directors, focusing mainly on U.K. listed companies. Thechapter covers the main initiatives supported by academic literature from board structure tothe increasingly important role of the non-executive director. The board is compared to a“healthy heart” that needs to be “healthy, fit and carefully nurtured for the company to runeffectively” (p. 77). The author outlines the corporate-community response to the HiggsReport (2003) and considers the arguments put forward by the literature relating to whethernon-executive directors play a useful corporate-governance role. The chapter highlights theinitiatives to widen the non-executive “gene pool” recommended by Higgs (2003) andTyson (2003). It closes with a view that the board is subject to a complexity of dynamicswhich leads to perhaps a need to consider not only an “agency theory, finance paradigm” butalso other disciplines, such as “management science”when seeking “understanding of boardas corporate governance mechanisms” (p. 104). Chapter 5 considers the role of theinstitutional investor, highlighting themonitoring aspect in the context of agency theory. The

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chapter explains how the ownership structure has become more concentrated in the hands ofa small group of large institutional investors and the related, complex web of ownership, asexemplified by pension fund investment management. The chapter also deals with theincreasing activity of the institutional investor, with special reference to research intoinstitutional investor voting in the U.K. and the impact of shareholder activism on corporateperformance and company value. Chapter 6 is dedicated to the way in which corporatetransparency contributes to corporate governance and the associated mechanisms by whichcompanies may become more transparent. A particular feature of this chapter is the sectiondealing with the emerging areas of governance reporting and forward-looking narrativereporting. Other key aspects of the chapter include the importance of risk disclosure and therole of the audit in corporate governance linked to the agency problem.

4. Part II

Part II of the book focuses on the theme of global corporate governance. Chapter 7introduces corporate-governance systems worldwide, based upon the main determinates ofownership structure and legal frameworks while recognizing the impact of cultural and otherinfluences. The author acknowledges the difficulty associated with the categorization of acountry's corporate-governance systembut adopts the accepted “insider” and “outsider”model(p. 182), while offering the view that there is a real possibility that corporate governance willconverge at a global level. Chapter 8 provides a reference dictionary of corporate-governancesystems of selected countries that seeks to illustrate the broad diversity arising from their ownlegal frameworks, corporate ownership, structure, culture, and economic factors. This chapterclearlymeets its aim of providing a flavor of the rich diversity of corporate-governance systemsinternationally. However, it could benefit from elaboration or even form the basis in its ownright of a comparative text on international corporate-governance systems.

5. Part III

Part III broadens the debate on corporate governance by “extending the theoreticalparadigm from a narrow agency theory perspective to encompass a stakeholder theoryperspective” (p. 231). The author does this very successfully in chapter 9 by considering thegrowth of corporate social responsibility and highlighting the potentially strong impact ofcorporate behavior on a wide range of stakeholders. This is supported by a discussion of thesocial, ethical, environmental, and sustainability disclosure which has the potential ofdischarging their accountability to a wide range of stakeholders. The author notes theimportance of environmental and sustainability corporate reporting in achieving wideraccountability to both shareholders and corporate stakeholders. This is supported by agrowing perception that “good management of social and environmental issues is areflection of good general management, which is helping to drive the sustainability agenda”(pp. 263–264). The chapter concludes by considering the academic debate that exists overthe stakeholder engagement and its genuine success in promoting corporate accountability.Chapter 10 develops the theme of a broadening corporate-governance agenda through itsanalysis of the role of institutional investors in driving corporate social responsibility bytaking account of environmental, social, and governance factors in their investment

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decisions. This analysis extends to consideration of socially-responsible investmentstrategies and investments and their drivers and profitability. The author reports upon theincreasingly sophisticated engagement and dialogue that is emerging between institutionalinvestors and their investee companies in the area of social and environmental information aspart of socially-responsible investment. The author offers the view that such issues are nowbeing integrated into the heart of corporate-governance concerns for the institutional-investment community. The chapter concludes with the statement that “this represents a deepchange in the attitude of business and financial institutions towards social responsibility,endorsing a broader remit than that encapsulated by pure agency theory” and that a “broaderagenda for corporate governance, which embraces a stakeholder theory approach, may nolonger be viewed as inconsistent with value creation in the long run” (p. 302). Part IIIconcludes with chapter 11 which provides a brief insight into the author's view of the futuredirection of corporate governance and accountability, which touches upon investor activism,the global convergence in corporate governance, and corporate-governance reform.

In conclusion, it is fair to say that the author achieves the stated aims of this work in aninformative and easily-read format. The book not only provides a great deal of explanationand detail on the topic of corporate governance and accountability for undergraduates andpractitioners alike, but also provides a very useful discourse on a range of associatedtheories, with reference to key literature on corporate governance and accountability, forpostgraduates embarking on their research.

References

Cadbury, A. (1992). Report of the committee on the financial aspects of corporate governance (Cadbury report).Higgs (2003). Review of the role and effectiveness of non-executive directors (Higgs report). London: Department

of Trade and Industry.Tyson (2003). Report on the recruitment and development of non-executive directors (Tyson report). London

Business School.

Jonathan EdwardsBusiness School, Bournemouth University, United Kingdom

doi:10.1016/j.intacc.2007.09.001

Financial statement analysis and security valuation, Stephen H. Penman, 3rd ed.McGraw-Hill/Irwin, International edition (2007), xxix + 776 pages, £44.99, ISBN-10: 007-125432-3

Penman's book is a well crafted volume, which offers plenty of content includingdetailed material on “hands-on” financial statement analysis and valuation. It is com-prehensive and such, the 2nd edition was widely adopted. The book provides a helpfulreference for students in economics and business, particularly for MBA candidates.Penman's book also serves the needs of professionals who are confronted with valuation

450 Book reviews