Corporate governance and institutions—A review and research agenda

• Author: Alessandro Zattoni,Emmanouil Dedoulis,Stergios Leventis,Hans Van Ees
• DOI: http://doi.org/10.1111/corg.12347
• Published date: 01 November 2020
• Date: 01 November 2020

REVIEW ARTICLE

Corporate governance and institutions—A review and research

agenda

Alessandro Zattoni

1

| Emmanouil Dedoulis

2

| Stergios Leventis

3

| Hans Van Ees

4

1

Department of Business and Management, Luiss University, Rome, Italy

2

Department of Business Administration, Athens University of Economics and Business, Athens, Greece

3

School of Humanities, Social and Economic Studies, International Hellenic University, Thessaloniki, Greece

4

Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands

Correspondence

Alessandro Zattoni, Department of Business

and Management, Luiss University, Viale

Romania 32, Rome, Italy.

Email: azattoni@luiss.it

Abstract

Research Question/Issue: Over the last decades, research on the relationship

between national institutions, governance mechanisms, and firm outcomes has been

increasing. This review aims at (i) analyzing extant research in this area, (ii) identifying

influential current trends, and (iii) highlighting future avenues of research.

Research Findings/Insights: Using a content analysis of 165 articles published in top

journals from accounting, finance, management, and organization disciplines, we

explore research on institutions, corporate governance, and firm outcomes. Our

results show that stronger national institutions aimed at protecting investors are

mostly associated with better corporate governance and firm financial outcomes and

that these relationships are moderated by some contingency factors.

Theoretical/Academic Implications: Our findings encourage scholars to further

explore the relationship between national institutions, corporate governance, and

firm outcomes by using theoretical frameworks and methods allowing them (i) to

develop a “thicker”understanding of the national institutional context, (ii) to analyze

powerful stakeholders' influence on the above relationships, and (iii) to better under-

stand the role played by informal institutions.

Practitioner/Policy Implications: Our findings help policymakers and investors to

(i) better understand how national institutions impact on both governance mecha-

nisms and firm outcomes and (ii) develop policies or design governance mechanisms

taking into consideration country-, industry-, and firm-level contingencies.

KEYWORDS

Corporate governance, bundle of governance mechanisms, formal institutions, informal

institutions, review

1|INTRODUCTION

Corporate governance research develops from a tradition of single

country studies, mostly exploring the antecedents and consequences

of corporate governance mechanisms in the United States and, to a

lesser extent, the United Kingdom (Kumar & Zattoni, 2019). More-

over, these studies—and the few ones investigating corporate gover-

nance mechanisms in other countries—have been based on agency

theory and have traditionally focused on firm-level governance and

ignored national institutions (Kumar & Zattoni, 2013). This probably

Received: 10 September 2019 Revised: 5 October 2020 Accepted: 5 October 2020

DOI: 10.1111/corg.12347

Corp Govern Int Rev. 2020;28:465–487. wileyonlinelibrary.com/journal/corg © 2020 John Wiley & Sons Ltd 465

happened under the (implicit) assumption that national institutions

were not relevant as invariant across countries or did not affect the

efficacy of firm-level corporate governance mechanisms (Aguilera &

Jackson, 2003; Zattoni et al., 2017).

Comparative studies on governance (or capitalist) models, publi-

shed in the early 1990s, opened up the debate by providing a rich and

relevant description of the main governance models characterizing

the most developed economies (e.g., the Anglo-American, the

German-Japanese, and the Latin model) (e.g., Albert, 1991;

Charkham, 1995). However, this literature did not have a strong

impact on mainstream corporate governance studies. It was only after

the publication of the research program on law and finance (La Porta,

Lopez-de-Silanes, Shleifer, & Vishny, 1997, 1998, 1999) that gover-

nance scholars started to explore the influence of the national institu-

tional context (in this framework represented by the legal tradition

and the investor protection) on several variables like ownership struc-

tures, IPOs, financial markets' size, and efficiency (Djankov, McLiesh, &

Shleifer, 2007; Shleifer & Wolfenzon, 2002).

Since then, an increasing number of studies embarked upon

exploring how formal and informal national institutions affect

firm-level governance mechanisms (e.g., ownership structure, board of

directors, and executive compensation) and outcomes (e.g., accounting

and financial performance, R&D, strategy, and reporting). Over time,

scholars broadened the scope of research by applying new theoretical

lenses (e.g., various strands of institutional theory), employing new

methods (e.g., QCA and multilevel analysis) and investigating new

empirical settings (like transition or emerging economies).

Against this background, our goal is to conduct a comprehensive,

interdisciplinary review of previous studies on the relationship

between national institutions, corporate governance mechanisms, and

firm outcomes in order to analyze the major results, identify existing

gaps, and indicate future avenues for research. There are several

important reasons to undertake a systematic review of this expanding

area of literature (Aguilera & Jackson, 2010; Judge, 2012). First, this

research subject is characterized by the application of alternative the-

oretical perspectives (e.g., agency theory, regulatory theory, and vari-

ous strands of institutional theory) whose contributions should be

addressed (e.g., Aguilera & Grøgaard, 2019; Jackson & Deeg, 2008).

Second, there is ambiguity whether to investigate the influence of

either individual institutions or bundles of institutions (Kumar &

Zattoni, 2019; Schiehll & Martins, 2016). Third, scholars should better

understand if national institutions complement or substitute firm-level

governance mechanisms in addressing agency issues (Aguilera &

Jackson, 2010; Kumar & Zattoni, 2013). Fourth, it is worth comparing

various country settings (e.g., emerging and developed economies)

and types of national institutions (e.g., formal and informal) to identify

the relevance of contextuality and institutional embeddedness

(e.g., Aguilera & Jackson, 2010; Zattoni et al., 2017).

To advance our knowledge on these issues, we undertook an

interdisciplinary review of previous studies published in top journals.

Following previous reviews (e.g., Cuomo, Mallin, & Zattoni, 2016;

Pugliese et al., 2009; Schiehll & Martins, 2016), we collected and ana-

lyzed empirical studies on the topic using the following criteria: (i) use

of theories; (ii) national institutions; (iii) research topic; (iv) research

method; (v) data analysis; and (vi) research setting.

Our findings encourage scholars to explore the relationships

between national institutions, corporate governance, and firm out-

comes further. First, future studies should build on both meso-level

theoretical frameworks and multilevel research methods to develop a

“thicker”understanding of the national institutional context. Second,

they should develop an actor-centered institutional perspective to

analyze powerful stakeholders' influence on the above relationships.

Finally, they should further investigate the role played by informal

institutions as it has been largely neglected so far.

2|CORPORATE GOVERNANCE AND

INSTITUTIONS

2.1 |From firm-level governance mechanisms to

country-level institutions

Since the pioneering work of Berle and Means (1932), corporate gov-

ernance studies explored potential remedies to the negative conse-

quences associated with the separation between ownership and

control that characterizes widely held companies. The employment of

agency theory and the focus on one country setting (i.e., the United

States or the United Kingdom) led scholars to mature a rich under-

standing on firm-level governance mechanisms, but at the expense of

ignoring the role of national institutional contexts (Aguilera &

Jackson, 2003; Kumar & Zattoni, 2019).

The first works exploring the relationships between national con-

texts and firm-level mechanisms and outcomes were comparative

studies on the competitiveness of the major capitalist models

(e.g., Albert, 1991; Charkham, 1995; De Jong, 1997). However,

despite these studies moving the attention of governance scholars

from firm- to country-level analyses, mainstream research continued

exploring whether and how firm-level governance mechanisms

(e.g., boards of directors and executive compensation) could address

public companies' agency problems (e.g., Daily, Dalton, &

Cannella, 2003).

At the end of the 1990s, a survey of corporate governance litera-

ture (Shleifer & Vishny, 1997) reopened the debate on international

corporate governance, by analyzing the effectiveness of both large

investors and legal protection in addressing agency problems. During

this period, governance scholars (e.g., La Porta, Lopez-de-Silanes,

Shleifer, & Vishny, 1997, 1998, 1999) developed the so-called

“Law and Finance”(L&F) perspective and used this conceptual frame-

work to explore the relationships between legal tradition and financial

markets in a number of countries. The L&F view had two important

merits: (i) to promote a number of studies on the relationship between

investor protection and several country- and firm-level variables

(e.g., ownership structure, financial structure, and IPOs) and (ii) to pro-

pose a measure of investor protection that—in its original or revised

form (e.g., Djankov, La Porta, Lopez-de-Silanes, & Shleifer, 2008; La

Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998; Spamann, 2010)—

466 ZATTONI ET AL.