Corporate Governance: An International Review

Publisher:: Wiley
Publication date:: 2021-02-01

ISBN:: 0964-8410

Issue Number

No. 31-6, November 2023

Latest documents

CEO turnover: Cross‐country effects
Research Question/Issue We examine how countries' cultural and legal environment, in addition to firm‐level governance mechanisms, affects firms' retention and termination decision of the CEO. Research Findings/Insights Previous research focuses primarily on the effects of governance structures and incentives on turnover. In this paper, we focus on two additional institutions—cultural and legal. We find that in cultures characterized by higher individualism, competition, and stronger views that hard work leads to success, boards are more likely to replace CEOs in response to poor shareholder performance. Conversely, we find that in more corrupt cultures and cultures more protective of employees, there is lower turnover–performance sensitivity. Theoretical/Academic Implications Williamson (2000) provided a framework consisting of four levels of institutional influences on economic activity: (1) cultural norms, (2) the legal system, (3) governance structures, and (4) resource allocation and employment. Previous research focuses primarily on the two highest levels; we focus on the two more basic levels, cultural and legal, while controlling for firm‐level governance. Practitioner/Policy Implications Cultural values and legal conditions combine with the firm's governance structure to affect CEO turnover and its sensitivity to firm shareholder performance.
When does a female leadership advantage exist? Evidence from SOEs in China
Research Question/Issue We approach the ongoing debate in the literature on when and why a female leadership advantage exists in the context of China. In particular, we examine whether female CEOs outperform male CEOs in state‐owned enterprises (SOEs). Research Findings/Insights We show that a female leadership advantage exists in SOEs. We find that the female leadership increased performance is attributed to improved profitability, capital structure, and operating efficiency. The magnitude of this gender effect is bigger in central state‐owned enterprises (CSOEs) than that in local state‐owned enterprises (LSOEs). The results are robust to additional tests that mitigate the sample selection and other endogeneity concerns. Theoretical/Academic Implications We use the role congruity theory to motivate and develop the hypotheses drawing insights upon the literature in psychology and leadership. Female CEOs are perceived as less congruent with their leadership roles given the gender role stereotypes. Thus, they face more challenges and difficulties than male CEOs. These obstacles take at least two forms which are significant in SOEs: shareholder activism and sex discrimination. Female CEOs have to outperform their male counterparts to alleviate the pressure from shareholder activism and showcase their managerial skills and abilities. Practitioner/Policy Implications For the state shareholders, the extra scrutiny in selecting female CEOs should be lifted given this outperformance. The evidence is also relevant for CEOs to choose their career paths among different types of firms, for boards of directors on their strategic decisions on CEO hiring, and for policy makers to promote the female leadership advantage.
An axe to grind: Family outsiders and firms doing good
Research Question/Issue This paper examines the relationship between having nonfamily members (i.e., family outsiders) as board chairs and corporate philanthropy. Research Findings/Insights In a hand‐collected dataset of Chinese family firms, we find that firms invest less in philanthropy when the board chair is a nonfamily member. However, this impact is mitigated when the chair's discretion is restricted, as in highly visible firms or firms controlled by the founding family. The negative relation between nonfamily chairs and corporate philanthropy is also weaker when the interest of chairs is more aligned with that of the controlling family, where chairs are inside‐promoted or members of founding team, when board chairs and the families have more goal consistency, when stakeholders have higher demands for corporate social responsibility or investors care less about profitability. Further analysis shows that nonfamily chairs help firms reduce overinvestment in philanthropy, the board chair has a more salient effect than the CEO on philanthropic giving, and the results are not driven by expropriation issues of the controlling family. Theoretical/Academic Implications Our study highlights the heterogeneity of board chairs in family firms, board chair's significant influence on a firm's social performance, and the agency problem related with the board chair, which are all underexplored topics in prior literature. Practitioner/Policy Implications Our evidence offers insights to practitioners about the impact of board chairs on corporate philanthropy. Family firms need pay attention to the recruitment of board chairs and hold a comprehensive view of family firm professionalization as a nonfamily board chair might negatively affect firms' stakeholder relationship management but bring benefits by mitigating excess philanthropic activities. Besides, practitioners shall be aware of agency problems originating from board chairs. Incentives or monitoring over chairs might be useful to address potential conflicts of interest.
Stock market response to the statement on the purpose of a corporation: A vindication of stakeholder theory
Research Question/Issue On August 19, 2019, the Business Roundtable (2019) released a statement signed by 181 chief executive officers (CEOs) of well‐known US corporations, in which they pledged “a fundamental commitment” to “deliver value to all” stakeholders. This study examines the stock market reaction to this new statement on the purpose of a corporation. Research Findings/Insights Based on a sample of 163 publicly listed companies that signed the pledge, the results show that investors react positively to a firm's pledge in the days surrounding the statement release. The consensus among stock market investors was robust, characterized by the low volatility in the share price post‐announcement date. The decision by these companies, though intended to maximize the wealth of all stakeholders, rather than shareholders alone, carries an opportunity cost. Specifically, a post‐announcement decline in share buybacks by pledge firms relative to control firms is observed, though investors embracing stakeholder theory appear undeterred by the reduction in distributions. Theoretical/Academic Implications This study provides empirical support that, in the evolving business environment, companies must emphasize issues that concern customers, employees, non‐governmental organizations (NGOs), and the government. Failure to prioritize these issues may engender public backlash, especially in the age of social media. However, the attention to stakeholders is compatible with the focus on shareholder performance. Performance suffers when customers leave, workers feel dissatisfied, NGOs call for boycotts, and governments levy fines. Corporations seeking to increase shareholder wealth will need to fully embrace stakeholder concerns. Practitioner/Policy Implications This study shows that adopting a stakeholder perspective unlocked value that would not have been achieved had the focus remained on shareholder primacy. The excess values may derive from greater customer loyalty, improved employee motivation, better supplier relations, supportive financiers, maximizing revenue, minimizing costs, and/or yielding higher profits. Shareholders anticipate greater long‐term value from companies emphasizing employees, communities, supply chain, financiers, and shareholders.
Issue Information
No abstract is available for this article.
Institutional cross‐ownership and trade credit: Evidence from China
Research Question/Issue Relying on enhanced market power and improved information environment associated with institutional cross‐ownership, this paper examines the relation between institutional cross‐ownership and trade credit in China. Research Findings/Insights Listed firms with cross‐ownership can obtain more trade credit. The main conclusion is robust when we consider endogeneity problems, alternative measures of institutional cross‐ownership, and the effect of a financial crisis. Further, we perform several tests to examine the influencing mechanisms, confirming that the positive relation between institutional cross‐ownership and trade credit is more pronounced for listed firms in more competitive industries, or with poorer information environment. Further analysis also finds that the positive effect of institutional cross‐ownership on trade credit is more prominent for listed firms with fewer bank loans. Theoretical/Academic Implications This paper emphasizes information sharing and cooperation among listed firms with institutional cross‐ownership and argues that the information improvement effect is a relatively more important mechanism in affecting listed firms' decisions. Practitioner/Policy Implications China's market‐oriented reform is in progress and shows some weaknesses in corporate governance and investor protection. The research focusing on institutional cross‐ownership can provide useful suggestions for policy makers on how to improve corporate governance and construct efficient capital markets.
Unification of power and responsibilities for state‐owned enterprises: A quasi‐natural experiment
Research Question/Issue Based on Property Rights Theory and Empowerment Theory, this paper uses the establishment of local State‐Owned Assets Supervision and Administration Commissions (SASACs) as a quasi‐natural experiment to investigate whether and how SASACs improve the efficiency of state‐owned enterprises (SOEs). Research Findings/Insights (1) After the establishment of SASACs, and compared to those not supervised by the SASACs (i.e., the control group), SOEs governed by local SASACs (i.e., the treatment group) have experienced a significant increase in decentralization and empowerment from the government, proxied by corporate pyramid levels. We also find increased pay‐performance sensitivity for SOE managers and higher productivity measured by total factor productivity (TFP). (2) SASACs adopt different strategies to manage SOEs in monopolistic and competitive industries. (3) The above effect of the SASACs is more pronounced in SOEs supervised by high‐quality governments that effectively protect property rights, enforce fair contracts, apply laws and regulations to everyone, and sufficiently refrain from expropriation. Theoretical/Academic Implications Using a quasi‐natural experiment, this paper expands the existing literature on SOE reform from the perspective of incentive reform at the regulatory level based on Property Rights Theory and Empowerment Theory. Practitioner/Policy Implications (1) Privatization is not necessarily the only optimal solution for SOE reform. We show that the unification of power and responsibilities can be very effective and is perhaps less costly and more practical than privatization. Thus, our study provides an encouraging solution for SOE reform for other countries. (2) Countries experiencing SOE reform should also work on strengthening their government quality in order to fully maximize the benefit of the reform.
Chief Executive Officers With A Cause? CEO Activism And Firms’ Governance, Strategy, And Performance
No abstract is available for this article.
Owners' nonfinancial objectives and the diversification and internationalization of business groups
Research Question/Issue Studies on business groups, a collection of legally separate firms operating in unrelated industries under common control, tend to compare the behavior of firms affiliated with business groups and firms that are independent companies. Unfortunately, this ignores the diversity among business groups based on their controlling owner. Hence, in this conceptual article, we study how the types of controlling owners impact the diversification and internationalization of business groups. Research Findings/Insights Building on agency theory, we separate business groups into five types based on their ultimate controlling owners (state, labor, family, mutual, and bank) and identify their nonfinancial objectives. We argue that their nonfinancial objectives result in diverging levels of diversification and internationalization of business groups across owner types. Specifically, we propose that state‐owned and bank‐owned business groups have a relatively high level of diversification, labor‐owned and mutual‐owned business groups have a relatively moderate level, and family‐owned business groups have a relatively low level. We also argue that state‐owned and labor‐owned business groups have a relatively low level of internationalization, family‐owned business groups have a relatively moderate level, and mutual‐owned and bank‐owned business groups have a relatively high level. We add depth to these ideas by proposing that pro‐market reforms alter owners' ability to achieve their nonfinancial objectives, leading to diverging changes in business groups' diversification and internationalization across owner types. Specifically, we propose that following pro‐market reforms, state‐owned and bank‐owned business groups experience a large decrease in their level of diversification, labor‐owned and mutual‐owned business groups see a moderate decrease, and family‐owned business groups have a small decrease. We also argue that pro‐market reforms lead state‐owned and labor‐owned business groups to have a small increase in their level of internationalization, family‐owned a moderate increase, and mutual‐owned and bank‐owned to experience a large increase. Theoretical/Academic Implications To the business groups literature, we highlight the importance of controlling owners and their nonfinancial objectives as the drivers of business group diversification and internationalization, complementing the usual focus on market imperfections. To agency theory, we highlight the diversity of owners' nonfinancial objectives and explain how these affect strategy, complementing the traditional focus on differences in objectives between owners and professional managers driving strategy. Practitioner/Policy Implications Managers can defend decisions based on the often‐unstated nonfinancial objectives of the controlling owners, countering external investors' criticisms of managers misbehaving by not aiming to maximize profits.
Governance mechanisms, accounting regulation, and corporate disclosure in the aftermath of Covid‐19: Novel research questions and methodological opportunities
Research Issue In this commentary, we sought to highlight research opportunities in terms of how governance mechanisms, accounting regulation, and corporate disclosure were affected by Covid‐19 (C19) and shaped the economic landscape in the post‐C19 period. Research Insights The outbreak of the C19 triggered significant researchers' interests in the fields of business and economics for two main reasons: first, to the economic and social consequences of the crisis, and the impact of various policy interventions enacted by governments and supra‐national institutions worldwide and, second, the availability of microdata on the spread of the pandemic and vaccines, complemented economic and financial data to assess the effects of policy interventions in curtailing the crisis. Theoretical/Academic Implications We envision two potential avenues for further study: first, research on the impact of C19 and policy interventions in areas of interest, and, second, using the C19 disruption as a “laboratory” to unravel research questions on how various characteristics of firms, governments, and regulatory bodies affect the response to systemic crises, assuming that pre‐existing characteristics are not related to the crisis event. Policy Implications Relevant and rigorous research on the effects of C19 and the policy interventions is likely to be informative to governments, financial regulators, and supra‐national institutions facing future instances of systemic crisis.