Compliance Speed Research Articles

Delayed and Decoupled: Family Firm Compliance with Board Independence Requirements

AbstractWe investigate family firms’ speed and degree of compliance with board independence requirements and how willingness and ability affect family firms’ compliance patterns. Using a longitudinal sample of Indian publicly traded firms during a transitional period of corporate governance reforms, we find that family firms are slower to comply with board independence requirements than non‐family firms. Family firms’ compliance speed is even slower as agency costs increase. We also document that family firms are prone to symbolically comply with board independence requirements, as independent directors in family firms are less engaged than their counterparts in non‐family firms. Family firms’ symbolic compliance is even more salient when family firms possess larger agency problems and greater resource constraints. Our results also point to a complementary relationship between family firms’ willingness and ability to comply, as family firms with greater agency costs and larger resource constraints are among the slowest to comply and are also most likely to comply superficially. Overall, we conclude that family firms’ internal logic, agency costs and resource constraints jointly affect their compliance patterns.

The Effects of Compliance Timing on Multinational Enterprises’ Corporate Performance in China: An Application of Institutional Perspectives

Purpose – Multi-National Enterprises (MNEs) tend to face a high level of institutional pressures in regions with high institutional development level. When complying with institutional pressures, firms try to make decisions to maximize profit while minimizing the risks to them. The purpose of this study is to investigate the influence of the institutional development level on institutional compliance timing by MNEs and the relationship between compliance speed and corporate performance. Design/methodology – The research focuses on three main variables, which are the institutional development level (as a determination of the institutional pressure level), the firm’s compliance speed (as a determination of the compliance timing), and the firm’s financial performance (as a determination of the corporate performance). We collected 19,869 firm-level data from CSMAR (the China Stock Market and Accounting Research), 6,922 CSR data from RKS (the Rankins CSR Ratings), and province and city-level data from the NERIM (National Economic Research Institute Index of Marketization) and NBSC (National Bureau of Statistics of China). The firms in China were chosen for analysis, and the analysis period was from 2008 to 2017. Random Effects GLS Regression was used to test the relationships among the variables. Findings – This study examined the effect of the institutional development level on the firm’s compliance speed, together with the effect of compliance speed on the firm’s financial performance of the MNEs in China. We found that the institutional development level positively influenced firms’ financial performances, which means the firms’ financial performances are better in the region with a high institutional development level. The compliance speed of institutional practice by firms was faster in the higher level of institutional development. However, the firm’s delayed compliance led to better financial performance. Originality/value – Studies in the resource dependence view of Institutional Theory often fall short in understanding the theory by overlooking the firm’s active decision-making. Thus, the findings do not present a full scope of corporate performance in this regard. This study not only found a way to test the role of a firm’s independent decision-making (i.e., compliance timing) when facing the institutional pressure but also prove the significant role of the compliance timing on corporate performance. Also, we were able to test the effect of institutional development level, controlling location-specific variables because we used CSR performance data for MNEs operating in China. Lastly, by doing the above, the findings of this study suggest practical implications to the industry practitioners in MNEs.