Corporate governance practices and firm performance: a configurational analysis across corporate life cycles
DOI | https://doi.org/10.1108/IJAIM-11-2020-0186 |
Published date | 11 October 2021 |
Date | 11 October 2021 |
Pages | 669-697 |
Subject Matter | Accounting & finance,Accounting/accountancy,Accounting methods/systems |
Author | Hala M. Amin,Ehab K.A. Mohamed,Mostaq M. Hussain |
Corporate governance practices
and firm performance: a
configurational analysis across
corporate life cycles
Hala M. Amin and Ehab K.A. Mohamed
Faculty of Management Technology, German University in Cairo,
Cairo, Egypt, and
Mostaq M. Hussain
Faculty of Business, University of New Brunswick-Saint John, Saint John, Canada
Abstract
Purpose –This study aims to explore corporate governance (CG) practices that can lead to firms’better
performancein different organizational life cycles. The authorspropose a configurational approach to explore
how a set of CG practices combine in bundles to achievehigh performance outcomes for firms across their
corporatelife cycles.
Design/methodology/approach –Fuzzy-set qualitative comparative analysis was used to analyze a
sample of data of 21 countriesand 9 industries. Data referred to the period of 9 years extendingfrom the year
2005 to the year 2013.
Findings –This study revealsthat there are multiple CG practices that exist through firmsthat can achieve
high firm performance.Moreover, CG practices combine in different ways for firmsin their growth, maturity
and decliningstages.
Research limitations/implications –This study demonstrates the value of using a configurational
analytical approachto explore both the firm and country-specific CG practices (together)that engage firms to
achieve thedesired level of performance across the corporatelife cycles.
Practical implications –The current study draws attention to the policymakers’need to assess the
current level of regulatory and competitivedevelopment of their countries and form policy accordingly. The
approach used in the current research study not only offers the linkages between CG and performance to
managersas incentives to comply with regulation butalso to view CG-related activity as a strategicmove.
Social implications –The approach used in the current research study not only offers the linkages
between CG andperformance to managers as incentives to comply with regulationbut also to view CG-related
activityas a strategicmove.
Originality/value –This study broadeningthe focus of CG studies to include a rigorousexplanation of the
global CG phenomenaand to provide effective solutions for the practitioners.
Contribution to Impact –This study demonstrates the value of using a configurational analytical
approach to explore both the firm and country-specificCG practices (together) that engage firms to achieve
the desired levelof performance across the corporate life cycles.
Keywords Institutional environment, Board of directors, Firm performance, Corporate governance,
Fuzzy set qualitative comparative analysis, Corporate life cycle, Corporate governance bundles
Paper type Research paper
1. Introduction
A large number of corporate governance (CG) research typically tests agency-theory-based
hypotheses on the relationship between one governance mechanism and a measure of firm
Corporate
governance
practices
669
Received24 November 2020
Revised11 May 2021
Accepted28 May 2021
InternationalJournal of
Accounting& Information
Management
Vol.29 No. 5, 2021
pp. 669-697
© Emerald Publishing Limited
1834-7649
DOI 10.1108/IJAIM-11-2020-0186
The current issue and full text archive of this journal is available on Emerald Insight at:
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performance in a specific time frame and in geographically limited empirical settings[1].
While agency theory produces many interestingresults, the extension of the approach may
be needed to provide a contribution to the global theory of CG. Hence, agency theory is
criticized for having an under contextualized nature and its inability to accurately compare
and explain the diversity of CG arrangements across different institutional contexts
(Aguilera and Jackson, 2003). Hence, the way in which CG is organized differs between
countries, depending on the economic, political and social contexts. For instance, firms in
developed countries have dispersed shareholders and operate within stable political and
financial systems, have well-developed regulatory frameworks and effective CG practices.
However, the political instability that some developing countries suffer from can result in
severe economic conditionsaffecting firms that operate.
Additionally, the effect of the firm life cycle on how firms can developtheir CG practices
has been subject to the less rich base of articles compared to other fields (Harjoto and Jo,
2009). There are, however,studies that look both quantitatively and qualitativelyon how CG
practices can evolve around the corporate life cycle. Although they provide important
insights about how CG practices can evolvearound different organizational life cycle (OLC)
stages, they do not provide a complete frameworkfor the development of CG practices from
afirm life cycle perspective and/or they fail to provide empirically tested results for such
frameworks. Building on that, identifying four main limitations in the literature when
exploring the relationshipbetween CG practices from a firm life cycle perspective as follows.
First, none of the studies draws on longitudinal governance data to track governance
changes within-firms (O’Connor and Byrne, 2015a). Second, previous work has generally
focused on examining the relationship between subsets of governance mechanisms,
typically studying one or two governance variables, in relation to OLC stages. However,
governance practices are not fully independent from each other but rather they are highly
interrelated and complementary (García-Castro et al., 2013). Third, there is scarcity in
previous studies that shows how to appropriately structure the organization and put into
place governance mechanismsthat will provide for better performance at each stage of OLC.
Fourth, none of the studies shows that how CG practices used at each stage of OLC are
affected by the external contingencies existing in the environment in which firms operate,
for instance, the prevailing norms and values in the society and institutional conditions as
well.
Hence, the role of CG is likely to differ in ways contingent on both external and internal
resources, which are critical within the contextof the firms’organizational, market, sectoral,
regulatory or institutionalenvironments. Because the nature and salience of these resources
depend on the interplay with diverse organizational environments rather than being a
universal model, then contingencies associated with internal and external resources are
likely to influence the effectiveness of governance practices. In specific, the effectiveness of
these practices may depend on the firm’s size or age, phases of growth or decline in the
company’s development, the character of innovation in different markets and sectors and
regulatory and institutionalconstraints on business activity.
A number of recent studies started to challenge the main agency theory assumptions
arguing that little attention has been directed toward contingency variables that can affect
CG practices and their effectiveness, for instance, the relationship between managers and
shareholders can vary through the life cycle of the firm starting frominception until decline
stages. Along with these lines, the study of Filatotchev et al. (2006) explains how CG can
evolve around the firms’life cycle stages. Anotherresearch stream of CG (Ward et al.,2009;
Aguilera and Jackson, 2003;García-Castro et al.,2013) examines how agency conflict
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