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:

https://www.emerald.com/insight/1834-7649.htm

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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