Quality Management and Manufacturing Performance: Does Success Depend on Firm Culture?

Abstract

2009_Research Briefs_103 their executives a relatively smaller compensation package. Dey suggests that there is a trade-off between executive compensation and well-structured cor porate governance. Overall, the most efficient governance structures are found in corporations with more agency conflicts. In terms of the impact on financial performance, it has previously been suggested that good corporate governance charac teristics do not affect a firm's financial perfor mance. But previous studies have not discovered any relationship between the number of outside directors and a firm's financial results. In contrast, Dey found a significant relationship between cor porate governance mechanisms and a firm's finan cial performance, depending on the number of agency conflicts present. Put simply, corporations with more agency conflicts benefit financially from incorporating effective governance mecha nisms while corporations with few agency con flicts do not. Dey found that a strong audit com mittee was the only corporate governance feature that affects a firm's financial performance regard less of the number of agency conflicts. This study provides important evidence that corporate governance mechanisms vary across firms due to the number of corporate agency con flicts. Dey's results strongly suggest that political solutions for corporate governance may be harm ful because they will undermine the instinctive tendency of firms to efficiently address the agency conflicts they face. Although these results suggest that firms will naturally address emerging agency conflicts, they do raise some questions. The most important unanswered question is whether the presence of well-structured corporate governance mechanisms is enough to ensure their effective ness. Given the recent corporate governance fail ures, doubt clearly exists about how well these corporate governance mechanisms are working.