Corporate Governance Outcomes Research Articles

Governance Thresholds, Managerial Ownership and Corporate Performance: Evidence from the UK

The paper examines the relationship between managerial share ownership and firm performance for British stock-exchange listed firms. We seek to establish a link between the predictions of agency theory and the corporate control environment using key governance and disclosure thresholds as determinants of the nonlinear relationship between managerial share ownership and performance. We also argue that the use of conventional accounting and market-based performance measures can be problematic in estimating managerial efficiency. The Clean Surplus Accounting Rate of Return is introduced as an alternative performance measure to Tobin’s Q and ROE.Our results indicate that relationships between managerial share ownership and corporate governance outcomes might be linked to key regulatory disclosure thresholds and minority shareholders rights of UK Company Law. We find that shareholder wealth is maximised when equity ownership by executive directors is below the 5% equity threshold of the Association of British Insurers’ dilution limit and sections 376 to 378 of Companies Act 1985 or above the 15% equity threshold of section 110 of Companies Act 1989 and section 127 of Companies Act 1985. Share ownership by executives between 5% and 15% is found to lead to declining firm performance.Our findings confirm the importance of testing thresholds based on corporate governance regulation rather than inductively deriving them from the data. We also show that it is desirable to decompose board ownership into executive and non-executive components. Our results further support the use of the Clean Surplus Accounting Rate of Return as an alternative performance variable.

Corporate governance and institutional ownership: A critical evaluation and literature survey

This paper aims to analyse how effective the role of institutional shareholders is in corporate governance by examining the association between the different types of institutional shareholders and earnings management. Many prior studies have investigated the nature of several corporate governance practices and mechanisms and how they exist to strengthen institutions, however, there have been questions related to the role of governance failures in preventing unethical behavior by top management. The recent financial and accounting scandals that have engulfed major financial companies in the United States and other developed countries have renewed the interest in corporate governance issues and the role of shareholders. This study provides critical reviews of the theoretical and empirical literature on the inter-relationship between different types and composition of shareholders and influences on corporate governance outcomes. We evaluate what we can say with confidence about the interaction between ownership structures and corporate governance. Overall, there is a consensus among researchers that institutional investors and other outside blockholders vote more actively on corporate governance amendments than non-blockholders to enhance profitability and market valuation of firms.

Women Directors on Corporate Boards: A Review and Research Agenda

ABSTRACTManuscript Type: ReviewResearch Question/Issue: This review examines how gender diversity on corporate boards influences corporate governance outcomes that in turn impact performance. We describe extant research on theoretical perspectives, characteristics, and impact of women on corporate boards (WOCB) at micro, meso, and macro levels: individual, board, firm, and industry/environment.Research Finding/Results: To the best of our knowledge, this is the first comprehensive review of WOCBs, incorporating and integrating research from over 400 publications in psychology, sociology, leadership, gender, finance, management, law, corporate governance, and entrepreneurship domains. In addition, we organized our findings to provide a new lens enabling the field to be readily examined by level and by theoretical perspective. The review indicates that WOCB research is about improving corporate governance through better use of the whole talent pool's capital, as well as about building more inclusive and fairer business institutions that better reflect their present generation of stakeholders.Theoretical Implications: With only one in 10 papers addressing theoretical development, the predominant perspectives are human and social capital theories and gender schema at the individual level; social identity, token, and social networks theories at board level; resource dependency, institution, and agency theories at the firm level; and institutional, critical, and political theories at the environmental level. We provide a short synopsis of findings at each level, and conclude with an outline of fruitful directions for future research.Practical Implications: There are increasing pressures for WOCBs from diverse stakeholders, such as the European Commission, national governments, politicians, employer lobby groups, shareholders, Fortune and FTSE rankings, best places for women to work lists, as well as expectations from highly qualified women who are likely to leave if they see no women board members. Rationales generally draw on the business case; however, the moral justice case is also used by those who seek a fairer gender balance in all aspects of society. From our review, the “Impact” section charts the effect of WOCB at all four levels of analysis.

Bad debts, ownership concentration, and board composition: evidence on the quality of corporate governance outcomes in China’s listed non financial companies

This study analyses the relationships between performance metrics and the corporate control and governance characteristics of a sample of China’s listed non-financial companies in order to assess the influence of corporate governance structures on the quality and independence of corporate decision making. We use a panel data set covering the years 2001 to 2005 comprised of a stratified sample of A, AB and AH non-financial companies listed on China’s Shanghai and Shenzhen stock exchanges. We find that concentration of ownership, including state and foreign ownership, and board size and independence are significant factors in determining performance outcomes, and by association the quality and independence of corporate policy decisions, as measured in the form of firm bad debt to total asset and bad debt to receivables ratios. Our findings support claims of continued inadequacies in the operation and effectiveness of China’s institutions of corporate governance, especially with respect to the effectiveness of the supervisory board.

Corporate Governance and the Importance of Macroeconomic Context

This article seeks to bring a focus to the significance of trade and finance in corporate governance outcomes. It explores the theoretical and historical link between micro-economic-level firm structure and macro-economic institutions such as trade and finance. The more open the economy, it argues, the more difficult it is in the long run to sustain an insider model. It then argues that changes in interdependent aspects of macro-economic policy in the UK and the US—primarily trade liberalization and the end of capital controls—combined with the presence of developed capital markets and a self-regulatory ethos, allowed institutional investors to refocus the market-level rules on shareholders despite the managerial bias of their legal systems, and enabled the emergence of the outsider shareholder-oriented systems present there today. The article then argues that core insider systems such as those in Germany and France operated with different financing arrangements which meant that they were less susceptible to immediate change. However, in the long run global economic conditions have continued to push shareholder-oriented norms on insider systems. The article concludes that if these conditions persist, then governments will lose, or may indeed already have lost, sovereignty with regard to choice of corporate governance system.

Corporate Governance and the Importance of Macroeconomic Context.

This article seeks to bring a focus to the significance of trade and finance in corporate governance outcomes. It explores the theoretical and historical link between micro-economic-level firm structure and macro-economic institutions such as trade and finance. The more open the economy, it argues, the more difficult it is in the long run to sustain an insider model. It then argues that changes in interdependent aspects of macro-economic policy in the UK and the US—primarily trade liberalization and the end of capital controls—combined with the presence of developed capital markets and a self-regulatory ethos, allowed institutional investors to refocus the market-level rules on shareholders despite the managerial bias of their legal systems, and enabled the emergence of the outsider shareholder-oriented systems present there today. The article then argues that core insider systems such as those in Germany and France operated with different financing arrangements which meant that they were less susceptible to immediate change. However, in the long run global economic conditions have continued to push shareholder-oriented norms on insider systems. The article concludes that if these conditions persist, then governments will lose, or may indeed already have lost, sovereignty with regard to choice of corporate governance system.

When does internal governance make firms innovative?

Using managerial risk-taking as a lens to explore firm innovativeness, this study addresses the risk alignment effects of firm-level governance and its context-dependent nature. On the basis of the contrasting theoretical predictions of agency and stakeholder theories, the investigation shows how internal governance, in terms of managerial ownership and board competence, shapes the performance of new product introduction in a sample of 194 Taiwanese firms. These relationships are also conditioned separately by industry-wide technological opportunity and within-firm resource slack. This study enriches the body of knowledge in the strategic outcomes of corporate governance by demonstrating the general efficacy of two distinct governance arrangements and their contingent value when subject to different environmental and organizational munificence.

The Role of Competition in Determining Corporate Governance Outcomes: Lessons from Australia's Corporate Governance System

Successive waves of corporate collapse in every decade of Australia's history suggest that there is a significant unresolved corporate governance problem in Australia. Corporate collapse has been followed by reform but with little effect on the overall pattern of collapse and reform every decade. This article suggests that one of the elements which entrenches corporate governance problems in Australia is the competitive environment in which companies operate, which currently is not regulating management. It is argued that this anti‐competitive environment has two significant effects. First, key shareholders have retained controlling blocks of shares as the benefits of control and the costs of unconstrained management are high in such distorted markets. Secondly, management skills have stagnated, so that bad management and regular management failure have become features of the corporate governance system.

The Role of the Senior HR Executive in Japan and the United States: Companies, Countries, and Convergence

Based on data from an original survey of senior HR executives in Japan and the United States, this paper provides empirical data for evaluating institutional convergence. In both countries, the headquarters HR function has shrunk and employment decisions have become more decentralized. However, because the pace of change has been more rapid in the U.S., the national gap has widened. Differences persist in other areas, such as the HR executive's role in strategic decisions, perceived power of the HR function, how executives balance shareholder and employee interests, and the consequences of these decisions for corporate governance and organizational outcomes.