Agency and Institutions

• Date: 01 May 2008
• DOI: http://doi.org/10.1111/j.1467-8683.2008.00685.x
• Author: William Judge
• Published date: 01 May 2008

Editorial

Agency and Institutions

We have some exciting special issues planned for the

future, but this issue contains an “emergent” special

issue that occurred on its own. After accepting eight excel-

lent papers from a diverse array of authors and disciplines

dealing with corporate governance issues all over the

world, I recently noticed that two major theoretical per-

spectives were utilized in this issue. As might be expected

given its predominant status, agency theory was explored

in five of the articles and they are described below:

The first agency study published in this issue is authored

by Jara-Bertin, Lopez-Itarriga, and Lopez-de-Foranda. These

authors empirically explore how the power of core family

shareholders is balanced with minority shareholder rights

within the context of family-owned firms throughout 11

Western European nations. They discover that the specific

form of minority ownership within family-owned firms as

well as national legal limits to family control explain differ-

ences in firm value.

Next, Garay and González use agency logic to empirically

explore the relationship between corporate governance

effectiveness and firm value in Venezuela, an understudied

developing economy. They find that corporate governance

ratings are positively related to Tobin’s Q in a governance

environment with a relatively weak and underdeveloped

institutional environment.As such, this suggests that corpo-

rate governance at the firm level can mitigate weakness at

the institutional level as has been found in other developing

economies such as Russia and Brazil.

Boyer and Ortiz-Molina then explore the agency costs

associated information asymmetries between corporate

boards and executives in the specific case of CEO succes-

sions in the US. They find some empirical support for the

notion that senior-level executives signal their confidence in

serving as a future CEO to the board by owning relatively

higher levels of corporate stock. This finding implies that

stock ownership does not only align executive interests with

the shareholders, but it also signals to outside directors the

senior executive’s commitment to the firm and confidence in

their own ability to lead the corporation.

The fourth study employing agency literature and logic

is authored by Prior, Sorroca, and Tribo. They explore the

potential effects of managerial entrenchment within 26

nations throughout the world. This study is particularly

novel and interesting, as the authors assert that the more a

firm touts its social responsibility, the more likely that it is

to engage in earnings management practices. Interestingly,

they find some empirical support for the notion that cor-

porate social responsibility does not reflect greater concern

on the part of executives for its broad array of stake-

holders, but rather represents a devious attempt at protect-

ing the senior executive positions at the expense of its

shareholders.

And finally, Khalil, Magnan, and André explore the notion

of effective board monitoring of senior executives through

the utilization of appropriate director compensation plans.

Specifically, they explore the adoption of deferred share unit

plans and find that it is associated with abnormal returns

within Canadian firms.

However, three of the articles in this issue framed their

research around institutional logic. For example, Waring

opens this issue with a conceptual study that explores the

question of why socially responsible investments vary so

much throughout the world. He builds on the notion of

“institutional complementarities” whereby the presence

and efficacy of one social institution increases the returns

and/or efficacy of another social institution to explain

the considerable variations of social investment funds in

five developed economies in North America, Europe, and

Asia. This institutional explanation is novel and makes

sense, and it raises some interesting questions in light of

Prior and associates’ argument regarding corporate social

responsibility.

Next, Main, Jackson, Pymm, and Wright perform an

inductive empirical study of the remuneration committees

for a wide variety of firms within the UK. After conducting

field interviews with directors on these committees, they

expected to find a focus on the alignment of managerial

interests with the owners of the firms to be the fundamental

concern, as agency logic suggests. However, they found that

legitimacy concerns were a better explanation of how the

pay-performance logic was worked out within firms than

traditional agency explanations.

Finally, Ward and Feldman advance a conceptual study

utilizing institutional logic to explain how outside direc-

tors come to serve on boards. They build on the inter-

locking directorate literature to compare and contrast

interorganizational logic versus intraclass explanations.

Specifically, they argue that if we study what happens to

directors after they depart as CEOs from firms, we will

better understand whether their entry into the corporate

directorate world was due to their former role as CEO or

from class affiliation reasons. They advance a series of new

theoretical propositions, and they highlight the nodal

(i.e., individual) characteristics of former CEOs to be as

ii CORPORATE GOVERNANCE

Volume 16 Number 3 May 2008 © 2008 TheAuthor

Journal compilation © 2008 BlackwellPublishing Ltd

doi:10.1111/j.1467-8683.2008.00685.x