Governance Bundles Research Articles

Structuring Corporate Boards for Wealth Protection and/or Wealth Creation: The Effects of National Institutional Characteristics

Manuscript TypeEmpiricalResearch Questions/IssueThis study examines variation among firms in different countries in terms of how corporate boards are structured for effective governance. We discuss the fiduciary role of boards along two dimensions: (1) boards as wealth protectors and (2) boards as wealth creators. We explore how external governance mechanisms affect the emphasis placed on these two board role dimensions.Research Findings/InsightsUsing data from 23 countries and 19 industries, we show that board structure choices depend upon national institutional characteristics. Specifically,InvestorProtection,Rule ofLaw, andOpenMarkets institution act as complements or substitutes to how a board is structured to emphasize two different aspects of corporate governance. The results hold while controlling for firm, industry, and other country level effects.Theoretical/Academic ImplicationsWe offer a more nuanced understanding of the linkages between internal/firm and external/institution level governance mechanisms by studying them in tandem. Our results imply that external governance mechanisms within a nation alter the costs and benefits of designing boards for a certain fiduciary role. This finding contributes to the governance bundles literature by articulating how governance mechanisms from both firm and nation levels configure together to form national governance bundles.Practitioner/Policy ImplicationAs opportunities and constraints differ by country due to distinct institutional characteristics, firms varyingly structure their boards in accordance with the environment. They emphasize stronger wealth protection and/or wealth creation, or neither. This paper contributes to public policy by presenting how corporate laws and de/regulating markets may affect board structure choices.

National Governance Bundles and Corporate Agency Costs: A Cross‐Country Analysis

Manuscript TypeConceptual and empiricalResearch Question/IssueComparative corporate governance performance across countries cannot be captured adequately by ranking of single or a few national governance factors (NGFs). But it is also intractable to undertake separate comparative analyses of the large number of NGFs that potentially impact corporate governance mechanisms. How can NGFs be combined into national governance bundles (NGBs) that are informative of the level of agency costs at the firm level and are also convenient to use in comparative analyses?Research Findings/InsightsWe theoretically motivate and empirically identify the components of two NGBs that, at the firm level, have especially significant impact on controlling shareholder agency costs and the agency costs of debt financing, respectively. These NGBs (1) allow consolidation of the effects of various individual NGFs that have been considered separately in the literature, (2) reveal the complementarity and substitutability effects among NGFs and between NGFs and firm governance mechanisms, and (3) are convenient to apply through aggregate bundle scores.Theoretical/Academic ImplicationsForming NGBs by combining NGFs that have especially significant impact on specific agency costs is useful both theoretically and empirically. The theoretical analysis guides the identification of NGFs that may be especially influential on specific agency costs and these predictions can be verified empirically. Examining the effects of NGFs on the relation of firm‐level governance mechanisms and agency costs is useful in understanding the links between national‐ and firm‐level governance variables.Practitioner/Policy ImplicationsThe parsimony and tractability afforded by the NGBs in understanding various aspects of corporate governance performance should prove useful to policymakers, international business managers, and investors. By providing readily available indicators of different agency costs at the firm level, these bundles can guide policymakers in setting the legal and regulatory framework for corporate governance at the national level.

Substitutes or Complements? A Configurational Examination of Corporate Governance Mechanisms

We conduct an exploratory qualitative comparative case analysis of the S&P 1500 firms with the aim of elaborating theory on how corporate governance mechanisms work together effectively. To do so, we integrate extant theory and research to specify the bundle of mechanisms that operate to mitigate the agency problem among publicly traded corporations and review what previous research has said about how these mechanisms combine. We then use the fuzzy-set approach to qualitative comparitive analysis (QCA) to explore the combinations of governance mechanisms that exist among the S&P 1500 firms that achieve high (and not-high) profitability. Our findings suggest that high profits result when CEO incentive alignment and monitoring mechanisms work together as complements rather than as substitutes. Furthermore, they show that high profits are obtained when both internal and external monitoring mechanisms are present. At the same time, however, monitoring mechanisms evidently combine in complex ways such that there may be simultaneity of substitution and complementarity among and across the various monitoring and control mechanisms. Our findings clearly suggest that the effectiveness of board independence and CEO non-duality—governance mechanisms widely believed to singularly resolve the agency problem—depends on how each combine with the other mechanisms in the governance bundle.

National Governance System, Corporate Ownership, and Roles of Outside Directors: A Corporate Governance Bundle Perspective

Manuscript TypeConceptualResearch Questions/IssuesWe explore why and how the different combinations of governance practices at national level, such as the legal system, conduct codes, and capital markets, and at firm level, such as various types of controlling shareholders, enable or constrain outside directors to engage in their monitoring and resource provision roles. Building upon such analysis, we develop a new taxonomy of corporate governance systems according to the different configurations of a set of interdependent governance characteristics, including national governance mechanisms, identity of block shareholders, and functions of outside directors.Research InsightsThis study enriches the growing body of research on governance complementarity and substitution by highlighting the role of bundles of governance practices in influencing directors' engagement in governance behavior, and consequently advancing our understanding of variation in corporate governance systems across and within countries.Theoretical/Academic ImplicationsThis paper demonstrates that the roles of outside directors depend on the interaction between a bundle of governance mechanisms rather than any individual mechanisms. The paper also goes beyond the traditional governance models based on the national context and highlights that interdependencies of corporate governance practices play an important role in explaining the diversity and variation of corporate governance arrangements across firms in both industrialized economies and emerging markets.Practitioner/Policy ImplicationsThis paper provides insights to policymakers by suggesting that not all the governance bundles are conducive to managerial monitoring and resource provision by outside directors.

Review of corporate governance bundle

Due to the importance of corporate governance in our business world today, especially after the frequent non-stop financial crises, and since one corporate governance mechanism may not fulfill the purpose, researchers recently came up with a bundle of corporate governance mechanisms which may complement each other or substitute one another. This paper reviews the literature as regards the evolution, development, current application, and potential future use of this bundle, together with relevant critiques

A Taxonomy of Corporate Governance Reporting Concepts

Manuscript Type: EmpiricalResearch Question/Issue: This working paper explores the theory that due to globalization national corporate governance bundles including national and firm-level dimensions tend to converge to each other. The focus of the study is to provide empirical evidence for this hypothesis by deriving a taxonomy based on multinational corporate governance reporting concepts. This reveals that there are a few such concepts used by multinational corporations. In accordance with Healy and Palepu (2001, page 431) changes in corporate governance reporting disclosures are not regarded as “random events”, but are instead seen interrelated with changes in firm governance. Further, according to the author companies have to consider national as well as firm-specific corporate governance requirements due to the fierce competition in capital markets, so that changes in corporate governance disclosure changes also reflect national corporate governance dimensions. The sample is based on 30 foreign private issuers listed on the New York Stock Exchange (NYSE) comprising mainly financial institutions, industrial corporations and insurance entities. All these companies have in common that they file as non-domestic filers and therefore have to make a decision about which concept for corporate governance reporting they follow. Do they adopt the US - shareholder model, do they pursue a combination of their national model and the U.S. – shareholder model or do they follow a unified approach. This decision will be influenced by the firm’s internal governance structures, impact of shareholders, legal risk assessment and senior management decisions.Research Findings/Insights: This study underlies that although there are national boundaries and firm-specific differences in corporate governance there are common global corporate governance reporting concepts, which can be derived empirically. At the end, there is significant evidence to conclude that there are three main corporate governance reporting concepts: the single, the unified and the combined. However, due to the process of benchmarking and peers analysis corporations continually search to identify best-in-class concepts, which are most efficient and provide a competitive advantage. This market-driven impact can be traced back to studies by La Porta et al. (2000). Theoretical/Academic Implication: Findings could help to support the development of a global theory of corporate governance, as the study reveals common corporate governance concepts. Practitioner/Policy Implication: The study provides insights into corporate governance reporting of multi-national corporations and is relevant for practitioner as well as for the academic research about Corporate Governance.

National Governance Bundles and Equitable Wealth Creation

In this study, we argue that a successful economy creates wealth and distributes that wealth equitably. Economic institutionalism tells us that the governance mechanisms within a society create the...

The Role of National Institutions in Board Monitoring and Executive Compensation

Drawing upon insights from previous comparative corporate governance research that has made the case that national institutions significantly influence the variance in corporate governance effectiveness, we develop and test a contextualized model that addresses the questions of whether and how institutions (formal and informal) alter the firm level bundling relationship between monitoring and executive compensation. Findings show a positive relationship between board of director monitoring and CEO compensation in a macro level study of 42 countries in 2009-2010. Furthermore, we find support for our hypothesized interactive effects of board monitoring with formal and informal institutions on CEO compensation. This paper serves to highlight the importance of considering the national institutional context that firm corporate governance bundles are embedded within, to determine if they are positively or negatively related to one another. This study provides insights for boards of directors who are responsible for monitoring and setting compensation packages for executives. Our results indicating the relationship between board monitoring and CEO compensation is impacted by informal and formal institutions at the national level serves to remind policy makers who are responsible for regulating corporate governance practices that corporate governance is not a one size fits all.

Substitutes or Complements? A Configurational Approach to Examining Governance Bundles

Controlling the agency cost arising out of the separation of ownership from control, the central focus of agency theory, has guided the nearly thirty years of research on governance mechanisms. Yet...

Pioneering Research in Comparative Corporate Governance: The Role of Special Issues

Pioneering Research in Comparative Corporate Governance: The Role of Special Issues

What Level of Analysis is Most Salient for a Global Theory of Corporate Governance?

What Level of Analysis is Most Salient for a Global Theory of Corporate Governance?

Governance Bundles, Firm Performance, and the Substitutability and Complementarity of Governance Mechanisms

ABSTRACTManuscript Type: ConceptualResearch Question/Issue: This paper extends the theory of bundles of corporate governance mechanisms to address agency issues within the Anglo‐Saxon system of corporate governance. The focus of our study is to detail the role of firm performance as a key determinant of how the governance mechanisms of monitoring and incentive alignment serve as complements or substitutes in addressing agency issues. Previous research has looked at these mechanisms in isolation from each other, with limited regard for the contingencies of firm performance and external monitoring. We propose that it is best to look at these mechanisms as a bundle of mechanisms to protect shareholder interests, and that firm performance is a key determinant of the composition of this bundle.Research Findings/Insights: We introduce firm performance as a critical contingency that heightens shareholders' concerns over governance issues as they seek to retain control over adverse selection and moral hazard problems. We propose that when firms are performing poorly, outside monitoring by institutional investors can complement internal monitoring by boards of directors.Theoretical/Academic Implications: We examine governance bundles under both agency and stewardship theoretical lenses to tie together previous empirical research and advance theory. In specifying the role of firm performance in determining the mix of mechanisms within the governance bundle, we reconcile prior disparate findings as to whether or not these governance mechanisms act in a complementary or substitutable fashion.Practitioner/Policy Implications: The conceptualization of these governance mechanisms has practitioner merit in analyzing the challenges that board members face managing agency conflicts through the mix of governance mechanisms, given different levels of firm performance. Our research also shows that, under conditions of poor performance, shareholders can provide effective external monitoring that can improve the overall governance effectiveness of the firm.

Bundling governance mechanisms to efficiently organize small firm loans

Bank loans are a common source of financing for small firms. While scholars have examined specific conditions that affect small firm loan approval and interest rates, practical questions remain about how these loans are structured to address characteristically acute challenges from asymmetric information. This paper suggests collateral, reputation, and relationship banking each perform unique exchange-organizing tasks, and that small firms systematically use them in predictable combinations. A multiple discriminant analysis of 796 small firm loans suggests four governance bundles are commonly employed in this setting. The implications for managers focus on how loan governance mechanisms are most efficiently bundled together.