Organizational discretion, board control, and shareholder wealth: A contingency perspective
DOI | http://doi.org/10.1111/corg.12274 |
Author | Yuliya Ponomareva,Wei Shen,Timurs Umans |
Published date | 01 July 2019 |
Date | 01 July 2019 |
ORIGINAL ARTICLE
Organizational discretion, board control, and shareholder
wealth: A contingency perspective
Yuliya Ponomareva
1,2
|Wei Shen
3
|Timurs Umans
4,5
1
ESADE Business School, Ramon Llull
University, Barcelona, Spain
2
Academic Dean's Office, SKOLKOVO School
of Management, Moscow, Russia
3
Department of Management, W. P. Carey
School of Business, Arizona State University,
Tempe, AZ
4
Faculty of Business, Kristianstad University,
Kristianstad, Sweden
5
School of Business and Economics, Linnaeus
University, Växjö, Sweden
Correspondence
Yuliya Ponomareva, ESADE Business School,
Ramon Llull University, Av. de la Torre Blanca,
59, Barcelona E‐08172, Spain.
Email: yuliya.ponomareva@esade.edu
Abstract
Research Question/Issue: How does organizational context influence the impact
of board control over managerial decisions on shareholder wealth?
Research Findings/Insights: We introduce a new theoretical concept—organiza-
tional discretion—to characterize the upper limit of managers' latitude of actions pre-
sented by their organizational context and propose that it moderates the impact of
board control on shareholder wealth. Specifically, we first argue that strategic control
by boards over managerial decisions reduces managers' latitude of actions and leads
to trade‐offs between the containment of managerial opportunism and the pursuit of
strategic opportunities, which consequently influence the relationship between stra-
tegic control and shareholder wealth. We then suggest that the trade‐offs incurred
by strategic control over managerial decisions are more prominent in firms with high
organizational discretion. Because of the trade‐offs, we propose that boards are likely
to decide whether to rely more on strategic control or financial control in internal cor-
porate governance based on their firms' level of organizational discretion.
Theoretical/Academic Implications: By introducing the concept of organizational
discretion and highlighting the trade‐offs caused by boards' strategic control over
managerial decisions, we advance a contingency perspective to enhance the under-
standing about the impact of board control on shareholder wealth. It also bridges
the strategic management and corporate governance research on managerial discre-
tion that has largely evolved separately in the literature.
Practitioner/Policy Implications: Boards should attend to the trade‐offs between
the containment of managerial opportunism and the pursuit of strategic opportunities
when exercising strategic control over managerial decisions. Moreover, considering
the trade‐offs involved, boards should carefully design and implement internal corpo-
rate governance mechanisms based on their firms' level of organizational discretion.
KEYWORDS
Corporate governance, board of directors, firmperformance, managerial discretion, organizational
discretion
DOI: 10.1111/corg.12274
248 © 2019 John Wiley & Sons Ltd Corp Govern Int Rev. 2019;27:248–260.wileyonlinelibrary.com/journal/corg
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