Alternative Governance Mechanisms Research Articles

Antecedents of Independent Directors on Joint Venture Boards

The presence of independent directors on corporate boards is often seen as an important means of monitoring to address principal-agent problems and of providing external resources and advice to management. In joint ventures (JVs), however, shareholder-management frictions can be lessened by appointing insiders to management and board positions, whereas access to valuable expertise, resources, and networks are provided by the partners themselves. A natural question, then, is why and when do partners appoint independent directors to JV boards? We argue that the appointment of independent directors to joint venture boards is primarily driven by principal-principal conflict considerations, which are unique in the joint venture context compared with conventional widely held corporations. Consistent with this argument, we find that the likelihood of appointing independent directors increases when JVs face more exchange hazards due to the competitive overlap between partners and the broader functional scope of the JV. However, given that JVs also have alternative governance mechanisms to mitigate shareholder conflicts, we also find that more complex contractual agreements can potentially substitute for independent directors on JV boards. Although relational governance is often highlighted as a key facet of JV governance, we do not find such a substitution effect for this supporting governance mechanism. Overall, our research therefore highlights several interesting domain translation issues when applying existing corporate governance insights to the joint venture setting. Our paper concludes with a call for future research on independent directors serving on JV boards, as JVs represent an organizational form that has been neglected in corporate governance research.

Trust matters: A global perspective on the influence of trust on bank market risk

This paper examines the role of societal and organizational trust in mitigating market risk within the banking sector. Using a global sample of 10,616 bank-year observations across 45 countries, we find that higher trust significantly reduces bank total and idiosyncratic risk. The risk-mitigating effect of societal trust becomes more pronounced for banks headquartered in countries with weaker investor protection, diminished legal rights, dissatisfaction with government economic policies, and higher political unrest. Our results suggest that trust serves as an alternative governance mechanism, substituting for ineffective formal institutions in reducing bank risk. These findings have important implications for financial regulation worldwide.

Global health monitoring and evaluation partnerships as contested spaces in Zimbabwe

Background: Global health partnerships (GHPs) have flourished across Africa as alternative governance mechanisms seeking to strengthen local health systems for effective national planning, implementation, monitoring, and evaluation. Mutual and trust-based relationships anticipate fostering relations that build weak systems for improved availability of data and information for local informed decision-making and programme learning.Objectives: This article aims to explore and demonstrate how global health monitoring and evaluation partnerships (GHMEPs) are contested spaces contrary to the pervasive collaborative discourse in official government policies.Method: Data for this study were collected using content analysis of existing documents and key informant interviews for a qualitative case study. Furthermore, monitoring and evaluation (ME) policy documents and key informant interviews with the ME staff from the Ministry of Health and Child Care, Zimbabwe, were purposively selected. Ethics clearance was sought from the University of KwaZulu-Natal, HSREC/00002455/2021.Results: The results show that GHMEPs are contested spaces despite the expectation to foster mutual trust and improved availability of quality data and information for informed decision-making and learning. Evidence shows partner contests through unspectacular soft power strategies to counterbalance resource and power imbalances in partnerships.Conclusion: The evidence of unspectacular soft power strategies suggests that collaboration for ME conceals and prolongs opportunities for addressing practical and contested challenges, hence failing the test for ideal partnerships.Contribution: The article contributes to a critical understanding of the limitations of the current theorisation of partnerships, which erroneously assumes trust, mutuality, and equality between resourced and under-resourced partners.

Party leadership, corporate governance and stock price crash risk: Evidence from China

In this paper, we provide evidence supporting the negative effect of corporate party organizations on Chinese state-owned enterprises' stock price crash risk. To illustrate the underlying mechanisms, we verify the impact of corporate party organizations on chairmen of different ages and positions and find that the restraining effect only exists in companies with strong promotion incentives for senior executives, supporting the governance role of the corporate party committee. Further, the impact of corporate party organization is weakened when the chairman is more powerful and alternative governance mechanisms work. In contrast, the governance effect is more pronounced in the companies controlled by local governments and after the new anti-corruption policy. We adopt several methods to address endogeneity concerns and find our results robust. Overall, this paper contributes to the mixed evidence on governance and stock price crash risk from the perspective of a unique arrangement, corporate party organizations.

The governance role of corporate party organization on innovation

In this paper, we provide evidence supporting the positive effect of corporate party organizations on Chinese state-owned enterprises’ innovation outputs. To illustrate the underlying mechanisms, we verify the impact of corporate party organizations in reducing management myopia and over-invest in R&D activities, supporting the governance role of the corporate party committee. Further, the effect of corporate party organization is weakened when alternative governance mechanisms work. We adopt several methods to address endogeneity concerns and find our results robust. Overall, this paper contributes to the mixed evidence on governance and innovation from the perspective of a unique arrangement, corporate party organizations.

Combating Corruption during Covid-19 in Bangladesh: The Role of Community-Based Organizations

The COVID-19 pandemic revealed significant challenges for effective governance worldwide. There is a significant question raised about the distribution of aid and relief for lower-income groups. In many countries, both government and non-government organizations, as well as locally elected bodies, were directly and indirectly involved in widespread corruption. In Bangladesh, various types of community mobilisation were witnessed amid the COVID-19 pandemic to prevent corruption. Based on empirical evidence, this paper argues that the COVID-19 crisis brought about a re-emergence in the sense of community at a local level and worked as an alternative governance mechanism. It operated using different mechanisms and worked alongside the government to ensure accountability. We discovered that community bonding assisted in mitigating the crisis in government relief and health equipment distribution through a variety of mechanisms, such as informing government officials to identify corrupt syndicates, raising voice against corrupt practises against authorities, raising awareness on social media, and so on. It also indicates that the role of community-based organisations in resisting and preventing corruption will reflect the global phenomenon of corruption in many developing countries and will help to understand to what extent community-based organisations are effective in resisting corruption. Finally, we also found the flipside of community-based organization, meaning that corruption was conducted during COVID-19 in the name of community activism, which indicates the challenges of community activism in Bangladesh. ​

Vice-Chancellor Pay and Performance: The Moderating Effect of Vice-Chancellor Characteristics

This article investigates the association between UK higher education institutions (HEIs) long- and short-term performance measures, and the pay of vice-chancellors/principals (VCs) in an era of intense neoliberalism/financialisation of HEIs, and consequently ascertains the extent to which the VC pay–performance nexus is moderated by VC characteristics. Using a longitudinal sample of UK HEIs, our baseline findings suggest that HEIs that prioritise meeting long-term social performance targets tend to pay their VCs low pay packages, whereas HEIs that focus on achieving short-term reputational performance targets pay their VCs high pay packages. We show further that the VC pay–performance relationship is moderated/explained largely by VC characteristics. Our findings are robust to controlling for alternative governance mechanisms, endogeneities, alternative performance measures and different estimation techniques. Our findings offer empirical support for optimal contracting and prestige theories with significant implications for the sector.

The monitoring role of venture capital on controllers' tunneling: Evidence from China

This paper provides evidence supporting the monitoring role of venture capital (VC) in mitigating controlling shareholders' tunneling behavior. We use the staggered introduction of bullet trains in China as shocks to travel time between VCs and portfolio companies, which increases VCs' involvement in portfolio companies' governance. Using a generalized difference-in-difference design, we find that the increased VC involvement induced by the opening of a bullet train route in a city decreases affected portfolio companies' inter-corporate loans by 0.4 percentage points (pp) and the probability of a company violating capital occupation by 6.2 pp. The effect of bullet train connectivity on VC monitoring is more pronounced for companies that are located in cities where are subjected to a larger extent of bullet train connectivity, companies that experience more problematic tunneling, and companies that have looser alternative governance mechanisms. Furthermore, we provide direct evidence supporting the effect of bullet train connectivity on VC involvement by showing that VC directors participate more in the committees and board meetings. Our paper contributes to the literature by providing a plausibly causal effect of VC monitoring on the conflict between the controlling and minority shareholders.

A New Institutional Economic Perspective on Alternative Governance Mechanisms at the Local Government Level

The ‘new institutional economics’ (NIE) can go a long way towards comprehending the emerging complexities of local government. As local bodies seek to forge collaborative partnerships with other organisations, they have to decide whether to solve horizontal co-ordination problems through market, hierarchy or network mechanisms. NIE can show that where other governance mechanisms are incomplete or subject to high transaction costs, trust and co-operation can informally develop through the process by which network interactions become embedded within each other. We show how this approach can be revised to take into account the expressive dimension of behaviour in hope-based networks whose members are bound together not so much by structures of resource dependence as by the hope and trust they place in the advancement of common goals. JEL: L38

Board reforms and debt choice

In this study, we examine the impact of board reforms on the choice between bank and public debt. Using a large sample of firm-year observations from 29 countries and a difference-in-difference setting, we find that major board reforms lead to a decrease in bank debt ratio, particularly in companies where bank debt is used for monitoring purposes, suggesting that bank debt and board reforms are substitutes for monitoring managers' actions. We also find that board reforms' adoption is associated with a facilitated access to alternative financing sources with better terms than bank debt. In an additional analysis, we show that the decrease in bank debt ratio is stronger for firms with higher information opacity and those in countries with strong institutional environment. More importantly, we provide evidence that the decrease in bank debt post-reform increases firm value, indicating that the substitution between bank monitoring and board monitoring is a value-enhancing decision. Taken collectively, we conclude that the need for bank monitoring is endogenously determined by the strength of alternative governance mechanisms (i.e. board governance).

The Governance Role of Auditors: Evidence from Derivative Lawsuits

This paper examines whether external auditors play a unique governance role distinct from other mechanisms of corporate governance. We exploit the staggered adoptions of the Universal Demand (UD) laws by U.S states, which have been shown to result in the decline of various corporate governance mechanisms. We examine whether auditors step up their monitoring when outside shareholders place a greater demand on external monitoring, yet other governance mechanisms decline. We find that external auditors are more likely to issue going-concern opinions to financially distressed firms after their incorporation states have adopted the UD laws. Further, the increased propensity to issue going-concern opinions is driven by auditors’ reputation and litigation concerns. The effect is stronger when alternative governance mechanisms are weak, and it is not attenuated by auditors’ financial ties to clients. We also find evidence of greater auditor monitoring after the passage of UD laws using two alternative outcomes, i.e., the reporting of internal control weakness and the length of audit reporting lag. Overall, our findings suggest the unique monitoring role of external auditors as they step up their oversight of the audited firms in the lapse of other monitors.

Pluralistic ignorance, risk perception, and the governance of the dark side in peer-to-peer transactions: Evidence from the Indian banking industry

This paper investigates the role of pluralistic ignorance as a credible governance mechanism mitigating the emergence of the dark side in peer-to-peer transactions. Using the empirical context of the Indian banking industry, this paper identifies three underlying dimensions of pluralistic ignorance arising from firm, relationship, and institutional factors and links them to peer-to-peer transaction preferences, especially under conditions of uncertainty. By focusing on a particular type of interorganizational relationship that is recurrent but devoid of specific asset investment, this paper provides an alternative governance mechanism that complements the formal and relational contract-based approaches to mitigating the dark side in interorganizational transactions prevalent in the existing literature.

Related-Party Transactions and CEO Foreign Experience: Evidence from China

We find that Chinese CEOs with foreign experience tend to engage less in related-party transactions. This result holds through various analyses, including firm-fixed effects model estimations, propensity score matching, and instrumental variable regressions. The effect of CEO foreign experience is pronounced for companies in which the state enforces regulations (non-state-owned enterprises and firms without political connections). It is not evident when alternative governance mechanisms exist (independent boards and foreign shareholders). We find that related-party transactions tend to decline especially when the CEO experienced a country with more developed institutional environments. These findings highlight the importance of having CEOs with foreign experience in emerging markets.

Auditors' Fee Premiums and Low‐Quality Internal Controls*

ABSTRACTWe examine the relation between low‐quality internal controls and audit fee premiums. Using a novel data set of audit hours and audit fees we find, consistent with the audit risk model, that auditors increase their effort (hours) owing to low internal control quality. We find that auditors also charge a significant fee premium to clients with internal control weaknesses. This premium is observed for severe internal control weaknesses and companies with low‐quality alternative governance mechanisms. The results are robust to multiple methods to address endogeneity, including company fixed effects, difference‐in‐differences design, and a propensity score‐matched sample. Taken as a whole, low internal control quality leads to fee premiums, which are a deadweight loss to client companies.

A Longitudinal Network Analysis of Intergovernmental Collaboration for Local Economic Development

Fragmented jurisdictions in a metropolitan area have found collaborating with others to be not only normatively appealing but also practically beneficial for reducing negative externalities from intense development competition. However, collaboration among communities could involve collective action dilemmas. As an alternative governance mechanism, jurisdictions strategically establish informal networks with others, depending on the conditions where jurisdictions are involved. This study focuses on the strategic behavior of individual jurisdictions for their economic growth: how autonomous jurisdictions have selected collaborative partners and how the collaboration has evolved over time. We apply an institutional collective action framework and a longitudinal network analysis using Simulation Investigation for Empirical Network Analysis (SIENA). The results indicate that, although there is strong evidence that jurisdictions create mutual and clustered relations with others in collaborative networks, there is relatively less for making ties to a popular actor. In addition, jurisdictions are more likely to collaborate with others who share similar political and socio-economic characteristics.

Do shareholder protection and creditor rights have distinct effects on the association between debt maturity and ownership structure?

AbstractThis study examines the effects of the firm's ownership concentration and its institutional environment on corporate debt maturity choices. As ownership concentration and debt maturity are alternative governance mechanisms, we theorize and investigate whether their association is influenced by country‐level governance factors that enhance outside monitoring by minority shareholders and debtholders. Our investigation is based on a dataset of 50,599 firm‐year observations from 38 countries. We use a propensity‐score matching approach and find that the effect of ownership concentration on debt maturity is conditional to country‐level governance attributes. Ownership concentration has a negative effect on debt maturity in countries where both shareholder protection and creditor rights are weak. Ownership concentration, however, tends to lengthen debt maturity as protection increases, and this positive effect on the length of debt maturity is stronger in countries enhancing protection towards debtholders (instead of shareholders). We also explore other characteristics of ownership structure, such as the identity and presence of controlling shareholders. These results corroborate the view that entrenched shareholders may use debt maturity opportunistically. Our study provides new insights into the interplay between firm‐ and country‐level governance mechanisms and a deeper understanding of cross‐country differences in the association between ownership structure and debt financing.

A call for institutional analysis: practicing polycentric political economy in policy research

In Public Governance and the Classical Liberal Perspective, Aligica et al. (2019) highlight the importance of conducting institutional analysis and experimentation as a means toward robust, adaptable polycentric governance. For policy researchers, engaging in the practice of polycentric political economy means analyzing the role of alternative governance mechanisms at the constitutional, policy, and operational levels of social interaction. In order to demonstrate how policymakers can engage in institutional analysis at each level, we examine the case study of state regulatory reform. We find that the pursuit of marginal improvements within an existing governance framework can contribute to institutional reform if researchers are focused on long-run institutional change. This requires looking at policy research as part of a process aimed at institutional experimentation and the reimagination of governance frameworks within a polycentric environment where researchers engage in coproduction of an adaptive and sustainable governance system.

Gross SAARC Happiness: A Perspective on Ethical Governance

Since its inception in 1985 South Asian Association for Regional Cooperation (SAARC, hereafter), in the last three decades, has been making painstaking efforts, as a collective forum, to achieve its three basic goals: Economic Development, Good Governance through integrated Regional Cooperation by establishing a platform for the social, environmental and economic development. Despite giving impetus to their regional cooperative mechanism, SAARC has been struggling to achieve the objectives laid down in GNH (Gross National Happiness) a globally followed model developed by the Fourth King of Bhutan, in the 1970s. This paper tries to develop a view point to understand the proposed vision of Gross SAARC Happiness (GSH, hereafter) by putting emphasis on the very idea of development through critical ethical investigation into the various governance ideas adopted by the cooperative nations. One of the aims of this paper is to offer an explanation of the basics of happiness & development in that the social, environmental, and economic realms of life cannot be subjugated to GDP (Gross Domestic Product) or GNI (Gross National Income). Hence, the index of GSH is entrenched in the sustainable collective development on the one hand and the collective & individual happiness on the other. What will be crucial in achieving the model of GSH is that the cooperative countries have to practice enhanced political cooperation in maintaining collective peace, and they should refrain from the unsustainable models to achieve GDP. Rather, it is the inclusive growth which should produce individual happiness, collective wellbeing, and Sustainable development. The paper develops the method of ethical governance, by taking recourse to the idea of Sustainable Development Goals structured by the United Nations (UN), for the cooperative nations to adopt as an alternative governance mechanism in achieving the Happiness and Governance at SAARC in the replica of GSH.

Renegotiation of joint venture contracts: The influence of boards of directors and prior ties as alternative governance mechanisms

Research on alliance governance has pointed out that joint ventures (JVs) are particularly complex forms of collaboration. Partnering firms therefore often face difficulties in anticipating contingencies and collaborative behaviors at the contract negotiation stage. When initial JV contracts are incomplete, renegotiation represents a key strategic opportunity for enhancing contractual safeguards or coordination guidelines over the course of the joint venture. Costs and risks entailed by renegotiating JV arrangements at a later stage are far from trivial, however. Existing research on alliances suggests that practitioners have alternative relational and formal governance solutions at their disposal for handling possible inefficiencies caused by contractual gaps over time. Although insightful, this research does not enable a determination as to whether these alternative relational and formal mechanisms substitute for or facilitate ex post contractual renegotiation. The competing arguments found in the literature provide little guidance to JV practitioners as well. Our results show that the collaborative context within which the JV is embedded (i.e., prior inter-partner ties) obviates the need for enhancing incomplete JV contracts ex post. By contrast, ex post contractual adjustments are fostered and facilitated by the formal and administrative apparatus engaged over the course of the JV (i.e., an involved JV board of directors). Such opposing effects suggest that prior ties can “prevent” the occurrence of inefficiencies caused by contractual gaps, while an involved JV board primarily can act as a mediation and renegotiation platform to “repair” the exchange when inefficiencies occur. Our findings highlight the multidimensional nature of joint venture governance, and in particular the interplay among various formal and informal governance solutions in the execution of joint ventures. By unpacking their complex effects on the decision to renegotiate incomplete JV contracts, our study also holds important value for managers seeking to govern their JVs over time.

Governance Mechanisms for Green Supply Chain Partnership

The literature has recognized the value of green supply chain management in achieving the goals of environmental management. Yet developing and fostering sustainability partnerships among supply chain organizations remains challenging. Bounded rationality and opportunistic behaviors are likely to hinder joint sustainability collaboration and performance. The literature has called for a better understanding of the governance of green supply chain collaboration. This study applies transactional cost economics as a conceptual framework to investigate the relationships among transaction features, governance mechanisms, and environmental performance. Using the data collected from 969 plants in 17 countries, the statistical analysis compares and validates the effectiveness of three alternative governance mechanisms: contractual governance, problem-solving cooperation governance, and information-sharing governance. The statistical results reveal significant performance differences in how firms apply alternative governance mechanisms to mitigate opportunism, manage adaptation problems, and improve green supply chain collaboration and performance. Overall, this study makes research contributions by confirming the mediation effects of governance mechanisms on green supply chain practices. For green supply chains to be a viable practice, firms should apply governance mechanisms in proper alignment with the nature of the collaborative and environmental conditions.