Multiple Governance Mechanisms Research Articles

Media coverage and debt financing choice

Extant literature has established the roles of media coverage in the financial system as an important information source and an integrated part of corporate governance, often through its substitution effects with other mechanisms. However, in this study, we utilize negative news sentiment to demonstrate how media coverage can also complement other governance devices, such as private debt and concentrated equity ownership. Firms facing negative news are riskier and require greater monitoring, thus necessitating the complementarity of multiple governance mechanisms to circumvent the negative attributes of firms seeking external debt financing.

Corporate governance mechanisms and renewable energy transition

PurposeThe intensity of carbon emissions has led to the serious problem of global warming, and the consequences in terms of climatic disasters are gaining increasing attention worldwide. As the energy sector is responsible for most global emissions, developing clean energy is crucial to combat climate change. This study aims to examine the relationship between corporate governance and renewable energy (RE) consumption and explore the interaction between RE production and RE use.Design/methodology/approachThe study adopts an econometric framework of a panel model, followed by the robustness check using alternative methods, including logit regressions. The bivariate probit model is used to analyze the interaction between the decision to use and the decision to produce RE. The analysis is based on a sample of 3,896 firms covering 45 countries worldwide.FindingsThe results reveal that appropriate governance mechanisms positively impact RE consumption. These include the existence of a sustainability committee; environmental, social and governance-based compensation policy; financial performance-based compensation; sustainability external audit; transparency; board gender diversity; and board independence. Firms with appropriate governance mechanisms are more likely to produce and use RE than others. Finally, while RE use positively impacts firm value and environmental performance, the authors find no significant effect on current profitability.Originality/valueThis study goes beyond previous research by exploring the impact of multiple governance mechanisms. To the best of the authors’ knowledge, this is also the first study examining the relationship between RE use and firm value. Overall, the findings suggest that RE transition requires, first of all, establishing appropriate governance mechanisms within companies.

Contribution à la compréhension du rôle de système de gouvernance dans la réussite de transmission au sein de l'entreprise familiale par l'approche exploratoire : Cas du Groupe Ménara Holding

The aim of this article is to describe the succession process in the family business, based on the mission and role of each governance mechanism to remove the ambiguity of the family business literature as a complex and ambidextrous organization of a set of values ; (ethical, emotional, social, etc.) in the face of changes in the business ecosystem dominated by the power of managerial companies, which aim at short-term growth in order to satisfy their shareholders. On the other hand, family businesses do not lack the assets to do so, they are innovative, and above all they aim for long-term sustainability, in a vision that the family business is considered a wealth that must be passed on to the heirs (successors). However, the family business is characterized by specific and particular governance mechanisms such as: the family council, trust as essential bodies to maintain a lasting climate of transmission to the next generation. This paper is based on the study of the governance system as a innovative key lever for the successful transmission process in the family business. We chose an exploratory approach with a qualitative methodology to describe and to better analysis our specific research issue. The results of our study show us that the family business can achieve a successful transmission by realizing a balance among the multiple governance mechanisms such as: family members involved in business management, and administrators in the family business, therefore to find the gap existent between two spheres: the family and the business, according to the specificities of the family business, in our context is Menara Holding Group.

Mobilizing the Temporary Organization: The Governance Roles of Selection and Pricing

Many marketing transactions between buyers and suppliers involve short-term collaborations or so-called temporary organizations. Such organizations have considerable value-creation potential but also face challenges, as evidenced by their mixed performance records. One particular challenge involves relationship governance, and in this respect, temporary organizations represent a conundrum: On the one hand, they pose significant governance problems due to the need to manage numerous independent specialists under time constraints. On the other hand, temporary organizations lack the inherent governance properties of other organizational forms such as permanent organizations. The authors conduct an empirical study of 429 business-to-business construction projects designed to answer two specific questions: First, how are particular selection and pricing strategies deployed in response to monitoring and coordination problems? Second, does the joint alignment between the two mechanisms and their respective attributes help mitigate cost overruns? The authors follow a formal hypothesis test with a series of in-depth interviews to explore and to gain insight into the validity of the key constructs, explanatory mechanisms, and outcomes. Managerially, the authors answer the long-standing question of how to mobilize a temporary organization. Theoretically, they develop an augmented “discriminating alignment” heuristic for relationship management involving multiple governance mechanisms and attributes.

Franchisor–Franchisee Bankruptcy and the Efficacy of Franchisee Governance

Franchisors’ long-term viability is tied to the ongoing operations of their franchisees. To ensure the ongoing performance of franchisees, franchisors deploy multiple governance mechanisms. This study assesses how governance mechanisms deployed to enhance franchisee ability (via selection and socialization) and motivation (via incentives and monitoring) impact franchisee bankruptcy. The authors examine the individual and joint effects of deploying governance mechanisms that share the same underlying objective, namely, to enhance franchisee ability and motivation. They also assess how motivation-inducing mechanisms may serve to counter the motivation-dampening effect of an increased royalty rate. Relying on data from multiple archival sources, the authors identify all bankruptcy filings by franchisees and their franchisors across 1,115 franchise systems over a 13-year observation window. Their findings document a positive and significant relationship between franchisee and franchisor bankruptcy. They also find main and interaction effects of the ability- and motivation-influencing governance mechanisms on the likelihood of franchisee bankruptcy, and the existence of significant bankruptcy spillovers among franchisees within the same franchise system. They discuss implications for franchise theory and management.

Does audit committee substitute or complement other corporate governance mechanisms

PurposeThe purpose of this paper is to examine the relation between audit committee (AC) and a set of other corporate governance mechanisms in one of the emerging economies, United Arab of Emirates (UAE). In particular, the current study examines whether an effective AC can serve as a substitute or as a complement mechanism to board characteristics and ownership structure of Emirati listed non-financial companies.Design/methodology/approachUsing substitution and complementary theories, a panel data from 48 nonfinancial companies listed on the UAE Stock Exchanges [Abu Dhabi Stock Exchange and Dubai Financial Market] during the period between 2011 and 2013 were used in the current study. A composite measure of four proxies has been used to measure the AC effectiveness, namely, AC size, independence, financial expertise and diligence. To test the hypotheses formulated for the study, a logistic regression model was used to identify the influence of a set of board characteristics and ownership structure variables on the effectiveness of the AC after controlling for firm size, auditor type, industry type and profitability.FindingsWhile AC effectiveness appeared to be positively associated with board size and board independence, it is negatively associated with CEO duality. This points to a complementary governance relation. On the other hand, the negative relationship between AC effectiveness and each of institutional and government ownership suggests substitutive relations.Research limitations/implicationsThe main shortcoming of the current study is that it examines the influence of a certain set of corporate governance factors on the effectiveness of AC. Other corporate governance mechanisms may, however, contribute to the effectiveness of AC. The findings of the study can be used by companies’ managements and regulators in the UAE to improve the corporate governance system.Originality/valueTo the best of researchers’ knowledge, this study provides the first evidence about the interaction among multiple governance mechanisms required by the code of corporate governance issued by the UAE Ministry of Economy in 2009. The current paper is expected to add to the limited AC literature in Middle East and North African countries in general and Arab World in particular.

Corporate governance provisions and firm financial performance

PurposeBorrowing from arguments of agency theory, the present study aims to investigate the moderating effect of the deviation from optimal franchising on the relationship between corporate governance provisions and firm financial performance.Design/methodology/approachThe sample consists of 35 publicly listed US restaurant firms for the 1990-2008 period. The study uses a hierarchical regression with cross-sectional time-series fixed effects.FindingsThe results show that the deviation from optimal franchising worsens the negative relationship between corporate governance provisions and firm performance.Research limitations/implicationsThe availability of governance data restricts our sample to large publicly listed firms in the US restaurant industry, limiting the ability to generalize results for small and privately held restaurant firms.Practical implicationsFirm executives should not only pay attention to which corporate governance provisions they adopt but also strive to maintain an optimal level of franchising.Originality/valueThe key contribution of this study to governance literature is that this study demonstrates how the presence of multiple governance mechanisms influences firm performance.

Complementary or Substitutive Effects? Corporate Governance Mechanisms and Corporate Social Responsibility

Management researchers have investigated how corporate governance mechanisms influence corporate social responsibility (CSR). The previous literature has been largely based on agency theory, which emphasizes the roles of effective monitoring and incentive alignment, but the empirical evidence has been mixed. This inconsistency may result from the assumption that each governance mechanism functions independently, even though they interact with one another to affect CSR. On the basis of a perspective of bundle of governance mechanisms, we examined whether multiple governance mechanisms act as complements or substitutes for each other in promoting CSR. Using a panel sample of U.S. firms for the years 2004 to 2010, we found that multiple governance mechanisms mainly act as substitutes to promote CSR. Our findings suggest that a similar level of CSR can be achieved with different combinations of governance mechanisms. Our study contributes to the fields of both corporate governance and CSR in theory and practice.

Complementary or Substitutive Effects? Corporate Governance and Corporate Social Responsibility

Management researchers have investigated how corporate governance mechanisms influence corporate social responsibility (CSR). The previous literature has been largely based on agency theory, which emphasizes the roles of effective monitoring and incentive alignment, but the empirical evidence has been mixed. This inconsistency may result from the assumption that each governance mechanism functions independently, even though they interact with one another to affect CSR. Based on a perspective of bundle of governance mechanisms, we examined whether multiple governance mechanisms act as complements or substitutes for each other in promoting CSR. Using a panel sample of U.S. firms for the years 2004 ‒ 2010, we found that multiple governance mechanisms mainly act as substitutes to promote CSR. Our findings suggest that a similar level of CSR can be achieved with different combinations of governance mechanisms. Our study contributes to the fields of both corporate governance and CSR in theory and practice.

Formal and informal governance in biotechnology alliances: board oversight, contractual control, and repeated deals

In complex transactions like strategic alliances, firms are likely to employ both formal and informal governance mechanisms to achieve effective alliance governance. The question of whether formal and informal governance mechanisms are complements or substitutes needs to be addressed within the context of effective governance as a means to economic value creation for the transacting partners. Rather than an “either–or” choice between the two perspectives—the substitute hypothesis and the complement hypothesis—on the relationship between formal and informal governance mechanisms, I provide evidence from the biotechnology industry that alliances characterized by high levels of exchange hazards utilizing both mechanisms, supporting the complements hypothesis, whereas those alliances with lower levels of exchange hazards utilize only one type of governance mechanism. Finding seemingly contrasting results within a single institutional setting suggests that, in addition to institution-specific characteristics, alliance-specific characteristics may also be critical for understanding how alliance partners utilize multiple governance mechanisms.

Managing Software Outsourcing Relationships in Emerging Economies: An Empirical Study of the Chinese Small- and Medium-Sized Enterprises

Small- and medium-sized enterprises (SMEs) are facing great challenges in their information systems (IS) outsourcing relationship management, especially with customized software outsourcing under conditions of technological uncertainty and transaction-specific investments. The problem may be even critical for Chinese SMEs in emerging economies characterized by institutional instability. This article draws on multiple theories to examine antecedents and consequences of the effectiveness of three important interorganizational governance mechanisms, namely, contractual-based and relational-based governance and vendor-specific investments. The results of a survey on 83 software outsourcing projects indicate some interesting patterns that Chinese SMEs use to manage their outsourcing relationships. We found that contractual governance is found to be the only effective mechanism when the outsourcing firm (client) perceives technological uncertainty. On the other hand, with the transaction-specific investments, relational governance, and reciprocal-specific investments by IS vendor would be preferred as effective mechanisms by the outsourcing firm. Our analyses also show that Chinese SMEs in emerging economies would rely on multiple governance mechanisms to enhance outsourcing success. Overall, the findings are in line with the studies stressing the importance of building partnership-style relationships and seeking reciprocal actions in sourcing exchanges.

Auditor independence, corporate governance and aggressive financial reporting: an empirical analysis

This paper seeks to provide empirical evidence on the efficacy of three important governance mechanisms (auditors, directors, and institutional shareholders) in constraining aggressive financial reporting, proxied by abnormal accruals. It also examines the effects of the Sarbanes–Oxley Act (SOX) on their efficacy. Using a sample of US firms audited by the Big 5 (4) auditors between 2000 and 2004, we document a positive relation between abnormal accruals (our proxy for financial reporting aggressiveness) and auditors’ economic dependence on their clients. Furthermore, we find that this relation is driven by firms with weak non-auditor governance mechanisms before and after the enactment of SOX. The results suggest that aggressive financial reporting occurs only when multiple governance mechanisms ‘fail’. More specifically, such type of reporting requires that a highly dependent auditor operates in a ‘poor’ governance setting. Thus, the paper underscores the importance of strong governance in constraining aggressive financial reporting. Moreover, our results suggest that governance regulation (such as SOX) is not a substitute for strong governance mechanisms and thus caution against the over reliance on SOX-type legislation in other parts of the world.

Globalization and governance for sustainability

PurposeThis paper seeks to take stock of core arguments in some of the most central governance traditions and to discuss their capacity to deliver solutions. It starts with an appraisal of the strengths and weaknesses of the ideas of market‐, state‐ and civil‐society‐led governance, but also factors in the effect of media and communication as governance arenas in their own right. Then it aims to review core arguments put forward in broader approaches to governance where multiple governance mechanisms are combined.Design/methodology/approachThis is a conceptual paper that reviews central approaches in the governance literature and their ability to further sustainable development. The review is taken as a basis for tentative formulations of new supplementary governance approaches.FindingsOut of the critical analysis the paper distils is an approach to governance that combines three basic elements: First, a re‐interpretation of Montesquieu's principle of checks and balances – applied not only to state institutions, but also to the interplay between the state, markets and civil society. Second, an argument for polyarchic, multilevel governance, where flexible institutional frameworks, at various levels of aggregation, allow actors to jointly engage in developing governance. Third, it argues that open communication may constitute an important governance element. It ends by recognising that global governance, going forward, will include a mix of parallel governance models, in some ways competing for hegemony, but supporting one another in other ways.Originality/valueThe originality/value of the paper lies in its critical assessment of central current governance theories and in its launch of new supplementary governance approaches.

Regional Governance in East Asia and the Asia-Pacific

This article examines the emergence of and relationships between Track 1 and Track 2 arrangements in East Asia and the Asia-Pacific. It argues that the emerging complex webs of institutional arrangements in East Asia and the Asia-Pacific exhibit a multi-layered structure of governance in which public and private actors are increasingly connected, but hierarchically organized. It also suggests that the coexistence of multiple governance mechanisms with overlapping but different memberships at both Track 1 and Track 2 levels signals difficulty in their attempts to enhance the overall efficacy of the governance mechanism.

The interaction among multiple governance mechanisms in young newly public firms

We focus on the relations among inside ownership, board composition, unaffiliated block ownership, and compensation structure for a sample of firms following their IPOs. Specifically, we follow firms for up to eleven years after their IPOs and examine the full sample and subsamples of firms that survive, are acquired, or that file for bankruptcy during the sample period. We find that as CEO ownership declines, board independence, board seats held by venture capitalists, and unaffiliated block ownership increase. Our findings suggest that as inside ownership decreases alternative governance mechanisms evolve to help mitigate the resulting increase in agency costs. Interestingly, the associations between CEO ownership, the fraction of venture capital board membership, and unaffiliated block ownership exist only for firms that survive over the eleven-year sample period.