Challenges for corporate governance at the national and firm levels

• Published date: 01 January 2022
• Author: Omrane Guedhami,Sofia Johan,Florencio Lopez‐de‐Silanes,Siri Terjesen
• Date: 01 January 2022
• DOI: http://doi.org/10.1111/corg.12420

EDITORIAL

Challenges for corporate governance at the national and firm

levels

1|INTRODUCTION

Corporate governance is in a state of flux. Structural shifts in the

economy have changed the nature of entrepreneurial firm forma-

tion. New modes of finance have given rise to more complex gover-

nance solutions. And the international integration of firms, business,

and trade along with globally evolving cultural norms have created

different needs for governance solutions. These changes spurred

interest in Corporate Governance: An International Review hosting a

special issue conference at Florida Atlantic University in late

February 2020, perhaps one of the last in-person conferences held

before the Covid-19 pandemic. The goal of the conference was to

present and discuss research that investigates the causes and ensu-

ing consequences of these changes. The collection of papers in this

issue represents the most relevant of those presented at the

conference.

A key feature of the conference and the special issue papers was

to explore the risks associated with shifting governance changes and

investigate their skewness effects, or “tipping points,”giving rise to

success versus failure. The papers in this special issue are at the fore-

front of corporate governance research and suggest many novel ave-

nues for research.

This editorial does not review the corporate governance literature

but outlines the papers in the special issue that illustrate advances in

governance research resulting from connected changes in governance

needs and structures. Section 2 depicts research trends in Google

Scholar on topics pertinent to the special issue and highlights the

recent massive growth in research on board diversity and alternative

finance. These topics are among the collection of works in this special

issue.

Corporate governance research generally fits into one of two

themes. The first is national-level governance, which is sometimes

referred to as public governance (Zahra, 2014). Seminal work, known

widely as the “Law and Finance”literature, quantified country-level

governance standards to understand how national-level governance

affects corporate outcomes such as firm valuation, dividend policy,

ownership structures, liquidity, growth, access to equity financing, and

new stock market listings (Djankov et al., 2008; La Porta et al., 1997,

1998, 2000, 2006). Section 3 discusses the three special issue papers

that contribute to this literature on national-level governance.

The second theme is firm-level governance, which includes the

role of the board of directors, activists, and concentrated ownership

on firm outcomes such as fraud, growth, compensation, risk,

innovation, employee welfare, and related stakeholder issues.

Section 4 discusses the two special issue papers that contribute to

firm-level governance. The final section offers concluding remarks and

numerous suggestions for future research.

2|TRENDS IN GOVERNANCE RESEARCH

Figure 1 presents Google Scholar terms for theitems pertaining to this

special issue, including“law and finance,”“purpose of the corporation,”

“role of corporate governance,”“corporate ownership structure,”

“alternative finan ce,”and “board gender diversity.”The data clearly

show that the two main areasof growth are board gender diversity and

alternative finance. Governance research in general has increased, up

70% from 2015 to 2020, with exponential growth in gender diversity

on boards (up to 500%)and alternative finance (up to 250%).

The increased popularity of research on gender diversity and

alternative finance is perhaps understandable, for several key reasons.

First, gender diversity is an issue of fairness and antidiscrimination,

which is appealing on many levels because men and women bring dif-

ferent roles to a board (Singh et al., 2008; Terjesen et al., 2009). Sec-

ond, there is mixed evidence that diversity improves board monitoring

and governance and thus financial performance. Some work shows

that performance gains associated with diversity are insignificant or

tend to disappear after controlling for endogeneity and even become

negative for well-governed firms (Adams & Ferreira, 2009; Carter

et al., 2010). But other works, relying heavily on international data,

find the opposite (Terjesen et al., 2016). Third, there is evidence that

gender diversity positively affects innovation even after controlling

for endogeneity (Cumming & Leung, 2021). This recent paper controls

for endogeneity given institutional differences, such as in China,

which has regional variation in female populations due to their one-

child policy. Fourth, there is evidence that gender diversity on boards

mitigates securities fraud—again, regardless of controls for endo-

geneity (Bai & Yu, 2021; Cumming et al., 2015).

1

Alternative finance includes a variety of investor types outside

traditional examinations of bank (debt) finance and equity investment

in publicly traded companies. This line of inquiry examines venture

capital, private equity, hedge funds, and new forms of finance made

possible by financial innovations such as equity and debt

crowdfunding. Venture capital, private equity, and hedge fund inves-

tors are typically viewed as performing more intensive screening and

monitoring roles, as well as adding value to their investees. Equity and

DOI: 10.1111/corg.12420

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