Stakeholder-oriented Governance Research Articles

THE EFFECTS OF CORPORATE GOVERNANCE PRACTICES ON FIRM-LEVEL FINANCIAL PERFORMANCE: EVIDENCE FROM BORSA ISTANBUL XKURY COMPANIES

Corporate governance (CG) is a fundamental criteria for enhancing investors’ and stakeholders’ trust, relatively recently recognized in emerging markets. This study investigates the effects of CG practices on the firm-level financial performance of Borsa Istanbul XKURY-indexed companies during 2007–2019. Four specific aspects of CG are analysed: shareholders’ rights, public disclosure and transparency, stakeholders’ rights, and board of directors functioning, as defined by the Turkish Code of Corporate Governance, in line with international principles of CG issued by OECD. Alternative estimations of panel regression analysis indicate a positive association between stakeholder-oriented governance practices and firm-level financial performance expressed by accounting measures for both financial and non-financial companies. Shareholder protection policies have a negative influence on accounting-based performance, especially for non-financial industries, whereas the corporate practices related to board of directors and public disclosure vary between financial and non-financial entities. These findings contribute to international research on CG implications for emerging markets, providing evidence about the importance of stakeholders’ protection and the distinctive effects of CG dimensions for corporate financial performance.

Global shift towards stakeholder-oriented corporate governance? Evidence from the scholarly literature and future research opportunities

PurposeBy reviewing prior scholarly corporate governance (CG) literature and a review of more recent stakeholder studies, this paper aims to examine the extent to which stakeholders and their interests have gained in importance in recent years compared to the shareholder approach, which is dominant in many national economies and suggest future research opportunities.Design/methodology/approachThis study conducts a literature review to examine major findings in prior studies.FindingsThe reviews and analyses provide support for a formal and informal convergence of CG systems towards more stakeholder-oriented elements globally. In general, at the institutional and firm levels, there are remarkable shifts to adopt stakeholder-oriented rules and practices. However, there is limited evidence that all these trends will actually lead to full convergence towards a single stakeholder-oriented governance model.Originality/valueThe paper offers an extensive summary of prior studies that investigate the impact of CG on firm stakeholder-orientation and social performance. Based on the review, this study suggests promising research directions.

Does Stakeholder-Oriented Governance Mitigate a Dark Side of Shareholder-Oriented Governance?

This study investigates the potential substitution effects of the stakeholder-oriented governance elements in mitigating a negative side effect of shareholder-oriented corporate governance. Especia...

Italian banking regulation and the legal obstacles to corporate governance convergence

An ongoing dispute in comparative corporate governance studies concerns the extent to which cross-country convergence towards, essentially, the shareholder primacy view is occurring. While some scholars, especially legal scholars and economists, have predicted (and sometimes advocated) a convergence of corporate governance practices towards the Anglo-American model of (seemingly) shareholder primacy, others sharply disagree and point to the persistence of stakeholder-oriented governance in many countries. Banking, from the point of view of corporate governance convergence, is an interesting industry, for at least two reasons: (i) banks are peculiar types of business organizations, entailing specific governance rules in most systems; (ii) banks are (monetary) financial intermediaries more and more active on capital markets, and thus more and more exposed to the isomorphic pressures generated on corporate governance by those markets. Thus, predictions on the convergence or divergence of banks’ corporate governance are not easy to make. The present paper aims to contribute to the scholarly dispute by analysing the Italian case, which has seen, over the past 30 years or so, an apparently unfettered process of transformation of banks’ governance and ownership towards the shareholder primacy model – a process epitomized by the recent reforms of the country’s cooperative banking sector. ‘Apparently’, because a closer look at the legal and regulatory bases of banks’ corporate governance actually shows many sources of divergence from the shareholder primacy model.Thus, the contribution proposed by the present study is twofold: first, it extends the ‘convergence’ discussion to the banking industry, where specific dynamics may help us better ‘test’ the hypotheses developed in the ‘convergence’ debate; second, it emphasizes alternative divergent patterns to those normally identified in the literature, where divergent ‘practice’ is often opposed to converging laws. Here, the sources of resistance to convergence are found in law itself.

Political Ideology and Organizations

Research has shown that the political ideology of top executives is an important predictor of behaviors in organizations. While a number of recent studies have identified the impact of political ideology on some organizational outcomes, much more theory and research are needed to understand the full influence of ideology. This symposium seeks to shed additional light on the role of various types of ideologies, including the classic liberalism-conservatism axis, communist ideology, and Confucianism, in the United States and China with four theoretically rich empirical papers. Specifically, the papers in this symposium contribute to research on ideology in the management literature by: 1) examining not only liberalism- conservatism political ideology but also other types of ideologies, including communism and Confucianism; 2) expanding the scope of contexts from the United States to China; and 3) showing the ideologies of top executives are deeply connected with a range of novel organizational decisions and outcomes, including CEO activism and firms’ engagement in controversial social issues, governance orientation of the board, internationalization strategies, and stakeholder-oriented governance practices. The New Activist CEO: CEO ideology and Firms Socio-political Involvement Presenter: Michael Seth Nalick; mnalick@memphis.edu Presenter: Scott Kuban; Tulane U. Presenter: Matthew Josefy; Indiana U. - Kelley School of Business Presenter: Ronei Da Silva Leonel; U. of Memphis Presenter: M. K. Chin; Indiana U. Bloomington The Effect of the Board Chairs Political Ideology on Governance Orientation Presenter: Matias Kalm; Arizona State U. Presenter: Ryan Adam Krause; Texas Christian U. Presenter: Abhinav Gupta; U. of Washington, Seattle Presenter: Matthew Semadeni; Arizona State U. Allying with Thy Enemy? A Study of The Communist Ideological Imprint of Chinese Entrepreneurs Presenter: Christopher Marquis; Cornell U. Presenter: Kunyuan Qiao; UESTC/SFI Prosocial Values of Top Executives and Stakeholder Governance in China Presenter: XuHong Li; Fudan U. Presenter: David H. Zhu; Arizona State U. Presenter: Yuejun Tang; Fudan U.

How relevant is dividend policy under low shareholder protection?

This paper contributes to the debate on why firms pay lower dividends in the stakeholder-oriented governance regimes of Continental Europe than in the market-oriented Anglo-American world. We examine the stakeholder-oriented regime of the Netherlands, before sweeping governance reforms in 2004 defused some major anti-shareholder provisions widely employed by Dutch firms. We find that (i) the payouts of Dutch firms are low due to their habitual use of anti-shareholder provisions, and (ii) dividends and shareholder control are complementary rather than substitute mechanisms in mitigating agency concerns. We find no evidence that controlling shareholders would allow firms to relax their dividend behavior. On the contrary, they demand higher rather than lower dividends to counterbalance the negative impact of anti-shareholder provisions. The highest dividends are paid by firms controlled by corporate insiders, along with institutional investors with superior monitoring skills and incentives. These findings are unlikely to be specific to the Netherlands and could possibly be extended to other stakeholder-oriented regimes.

A Fair Trade-off? Paradoxes in the Governance of Fair-trade Social Enterprises

This paper explores how fair trade social enterprises (FTSEs) manage paradoxes in stakeholder-oriented governance models. We use narrative accounts from board members, at governance events and board documents to report an exploratory study of paradoxes in three FTSEs which are partly farmer-owned. Having synthesized the key social enterprise governance literature and framed it alongside the broader paradox theory, we used narratives to explore how tensions are articulated, how they can be applied within an adapted paradox framework, and how governance actors seek to mitigate paradoxes. The paper contributes to current debates in social enterprise scholarship concerning hybridity (Pache and Santos, Acad Manag Rev 35(3):455–476, 2010; in Institutional logics in action, Part B (Research in the sociology of organizations), 2012), hybrid organizing (Battilana and Lee, Acad Manag Ann 8(1):397–441, 2014) and operational tensions (Smith et al., Bus Eth Q 23(3):407–442, 2013) by illustrating empirically how the central social/enterprise paradox manifests in FTSEs governance arrangements. We build on the paradox categories proposed by Luscher and Lewis (Acad Manag J 51(2):221–240, 2008) and adapted in Smith et al. (Bus Eth Q 23(3):407–442, 2013) by developing a recursive model of legitimacy-seeking governance processes, conceptualizing how boards seek to mitigate, but not necessarily resolve, paradoxes.

Alternative Banking and Theory

Abstract Unlike business models of private banks based on profit maximization and shareholder-oriented governance, alternative banks (such as cooperative banks, government savings banks, and special purpose banks) share business models based on sustainable returns with longer time horizons, corporate missions that include social and public policy goals, and stakeholder-oriented governance. Strong evidence from recent research suggests that alternative banks often equal or outperform joint-stock banks in terms of efficiency, profitability, and risk management. This counters core ideas in contemporary banking theory and expectations of regulators about the superiority of private ownership and market-based banking. Concepts and theories from banking studies help explain how alternative banks outperform private banks in core functions such as creating and managing liquidity, pooling deposits, and reducing information asymmetries and agency costs. However, heterodox theories of the firm and institutional approaches to competitive advantage broaden the scope of analysis to explain further historical, social, and organizational advantages (and risks) in alternative banking. Alternative banks therefore require, and may inspire, alternative theories of banking and new approaches to bank regulation.

Ethics, Trust, and Governance in Temporary Organizations

We investigate the influence of governance structures of temporary organizations on the ethical issues faced by its managers, how they respond to these issues, and how that influences trust among stakeholders. A global, web-based survey confirmed earlier research that project managers encounter transparency, optimization, and relationship issues, and identified four additional ethical issue types. Managers' behavior in responding to ethical issues varies by governance structure, their willingness to resolve ethical issues themselves, and the trust between stakeholders. Higher levels of trust are found in stakeholder-oriented governance, which can reduce transaction costs. Implications for practitioners and academics are discussed.

Bond Performance in Mergers and Acquisitions: The Impact and Spillover of Governance and Legal Standards

This paper shows that bond performance around M&A announcements is extremely sensitive to cross-country differences in governance and legal standards, using deals involving European bidders with outstanding Eurobonds. Firstly, stakeholder-oriented corporate governance ensures that Continental European bonds fare better in and respond less to the risk effects of M&As. Secondly, bonds fare worse in cross-border M&As ceteris paribus, but perform better when they become exposed to a stakeholder-oriented governance regime or a more creditor-friendly jurisdiction. The creditor protection spillovers we identify are much greater in scope than has been previously assumed, and are intensified by the ability of creditors to arbitrage across legal systems.

How Relevant is Dividend Policy Under Low Shareholder Protection?

This paper reopens the debate on why firms pay lower dividends in the stakeholder-oriented governance regimes of Continental Europe than in the market-oriented Anglo-American world. Previous studies observe the concentrated ownership structures of Continental European firms, and infer that in the presence of a large controlling shareholder, dividends need not function as an agency control device. We examine the typical stakeholder-oriented regime of the Netherlands, and find that (i) the payouts of Dutch firms are low due to their habitual use of powerful anti-shareholder provisions, and that (ii) dividends and shareholder control are complementary rather than substitute mechanisms in mitigating agency concerns. We find no evidence that controlling shareholders would allow firms to relax their dividend behavior. On the contrary, they demand higher rather than lower dividends to counterbalance the negative impact of anti-shareholder provisions and ensure greater focus on shareholder value. Moreover, the highest dividends are actually paid by firms controlled by corporate insiders, along with institutional investors with superior monitoring skills and incentives. These findings are unlikely to be specific to the Netherlands and could possibly be extended to other stakeholder-oriented regimes.

Change of Governance in Historic Perspective: The German Experience

The shift from the liberal, laissez-faire attitude to the welfare state at the end of the 19th century was accompanied in Germany with an idealized notion of the state that has created a lasting and unfortunate legacy: the persistent and deeply ingrained present-day German belief in a perceived unlimited competence of the state, and a deeply ingrained skepticism against the market mechanism by the general public that has turned out to be the greatest single obstacle obstructing urgent reforms in 21st century Germany. Nevertheless, the financial overburdening of the modern welfare state has become increasingly visible, and it is confronted with the problem of a growing discrepancy between public expectations and its ability to act. Indicators of change are a large-scale privatization of public utilities and the beginning of a privatization of welfare arrangements. The political economy and corporate governance in Germany are characterized by a corporatist approach. This regime is generally classified as the standard example of an insider-controlled and stakeholder-oriented governance system as opposed to a modern capital-marked-based and outsider-controlled system. Various threads of this insider system have started to unravel, and certain elements typically associated with outsider systems seem to be increasing. The structural changes are accompanied by regulatory reforms that are inspired by a regulatory approach typical for a marketoriented governance model. The emphasis has been on the regulation of information: enhanced disclosure duties, stricter liability for insufficient or misleading information, and more efficient means of private enforcement of mandatory disclosure rules by damages suits.