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Showing papers on "Corporate governance published in 1970"


Journal ArticleDOI
TL;DR: In this article, the authors examine the relationship between CEO duality and acquisition performance and find that it affects performance negatively and there is an important interaction effect between outside board monitoring andCEO duality.
Abstract: Our paper presents an empirical examination of the relationship between CEO duality and acquisition performance. Specifically, we address two related questions involving CEO duality under the auspices of agency and stewardship theories. The first involves the extent to which CEO duality directly influences the profitability of acquisitions. The second involves the influence of duality and the nature of outside board monitoring on acquisition performance. Our study tests competing hypotheses drawn from these two perspectives. We find that CEO duality affects performance negatively and there is an important interaction effect between outside board monitoring and CEO duality. ********** Due to the increasing importance of corporate governance in organizations, there has been a growing body of research on the utility of CEO duality--particularly on the performance of firms that employ the dual structure. "CEO duality" refers to the situation where the same person serves simultaneously as CEO and chairperson of the board--a dual responsibility that has been subject to continuing debate. According to stewardship theory, such CEO duality establishes strong, unambiguous leadership, and shareholder interests are maximized by the shared incumbency (Chaganti, Mahajan, & Sharma, 1985; Donaldson & Davis, 1991; Finkelstein & D'Aveni, 1994). Agency theorists argue such a leadership structure represents a conflict of interest, in that a CEO who is responsible for the overall management also is in a position to evaluate the effectiveness of that strategy (Jensen & Meckling, 1976; Zajac & Westphal, 1994). Since these theoretical perspectives lead to opposing predictions on CEO duality, this study tests the direct and indirect performance effects of CEO duality, using arguments from both. A primary concern is whether CEO duality directly influences firm performance; i.e., whether there are differences in the financial performance of firms whose CEOs also serve as board chairpersons and firms that have separate individuals in those roles. Yet another issue is effective monitoring of CEOs by the board of directors when the CEO is chairperson of the board. Agency theorists suggest that boards of directors are a primary monitoring device protecting shareholder interests (Fama & Jensen, 1983). Although boards are sometimes vigilant and exert significant influence on the organizations they oversee (Dalton & Daily, 1998; Stiles, 2001), research shows that boards are not always effective stewards of organizational resources (Dalton, Daily, Ellstrand, & Johnson, 1998; Donaldson, 1995). According to agency theory, duality promotes CEO entrenchment by challenging a board's ability to effectively monitor and discipline (Allan & Widman, 2000; Dalton & Daily, 1998). Stewardship theory contends that additional monitoring by outside (individuals who are not current or former employees of an organization) directors is superfluous. The nature of board monitoring contingent on the presence or absence of CEO duality also may impact the profitability. Our paper examines the effects of CEO duality and outside director monitoring on profitability of acquisitions. While mergers and acquisitions are clearly on the rise, most deals do not create value. A study by Hayward and Hambrick (1997) examining why premiums above the market price often are paid to acquire another firm conclude that "CEO hubris" was an important factor in such overpayments. Related research does suggest that acquisitions are perhaps no better than break-even propositions for owners of acquiring firms (Morck, Shleifer, & Vishny, 1990). Moreover, target firm managers have become more skilled at extracting higher prices for their firms (Bradley, Desai, & Kim, 1988). If acquisitions are not ordinarily beneficial for the shareholders of acquiring companies, then why are they made? According to agency theory, many acquisitions are made because they benefit the senior executives. …

80 citations


Journal ArticleDOI
TL;DR: In this article, boundary decisions that determine governance structures, particularly intermediaries and external contractors, for executing the primary functions of procurement, sales, and information technology support functions in the value chain model were investigated.
Abstract: This paper investigates boundary decisions that determine governance structures, particularly intermediaries and external contractors, for executing the primary functions of procurement, sales, and information technology support functions in the value chain model. Utilizing data from 113 firms doing business on the Internet, the findings indicate that firm resources have a significant impact on decisions to outsource or internalize electronic value chain functions. Specifically, firms with a greater reliance on sales intermediaries were found to deploy fewer technical e-commerce resources than firms less dependent on sales intermediaries. Moreover, the number of intermediary procurement functions was positively related to investment in web-based human resources. The results also suggest that firms experiencing lower levels of transaction frequency utilize more types of Internet sales methods. ********** With the advent of Internet-based electronic commerce, firms are searching for new business models to achieve organizational effectiveness. New technologies often do not lead to improved performance because managers lack a framework for deciding the optimal business model given their particular internal and external circumstances (Fisher, 1997; Janssen & Sol, 2000). Thus, research is needed that focuses on resources and capabilities and their impact on governance decisions for firms pursuing Internet-based commerce (Williamson, 1999; Barney, 1999). This study applies well-established paradigms from strategic management, marketing, and organizational economic literature to examine strategic and structural issues related to electronic commerce. Critical to the strategic objective of maximizing firm performance is the appropriate choice of corporate governance mechanisms for interorganizational relationships within the value chain. In light of new information technology, firms need to reassess boundary decisions that determine governance structures. In particular, a focus is needed on the primary functions of procurement, sales, and information technology support functions in the value chain. Although research suggests that the divergent resource requirements of this newly evolved information systems technology necessitate different governance structures, optimal boundary choices have not been empirically investigated (McWilliam & Gray, 1995; Tsang, 2000). In response to this void, this study examines how firm resources and exchange attributes impact interorganizational governance structures for specific value chain functions. First a discussion of the literature related to channel functions and governance structures is provided, followed by hypotheses regarding the effects of various exchange attributes on governance structures. Next, the methods used to test the hypotheses are presented and the results are provided. Lastly, a discussion of the theoretical and managerial implications is offered. Literature Review Channel Functions There are four basic types of companies that use the Internet in the core of their business: (1) e-commerce companies that sell goods over the Internet; (2) content aggregators who gather and display content from multiple sources; (3) market makers that act as intermediaries or conduct electronic markets; and (4) service providers who furnish Internet based services (Afuah & Tucci, 2000). This study focuses on market makers that act as intermediaries within the primary activities of procurement (supply) and sales (demand). Channel functions related to procurement include purchasing through multi-party, interactive, or dynamic pricing online markets. Selling channel services by intermediaries include selling through hubs, online auctions, use of competitive bidding, or the management of dynamic pricing systems. We also investigate information technology support services for website design and commerce support. …

69 citations


Journal ArticleDOI
TL;DR: In this paper, the authors examine the impact of societal context on corporate social responsibility (CSR) constructs and conclude that CSR constructs are malleable institutional hybrids that are most easily implemented if tailored to the social context.
Abstract: This paper empirically examines the impact of societal context on constructs of corporate social responsibility (CSR). The empirical analysis is informed by neo-institutional theory, which conceptualizes CSR constructs as potential or actual institutions. A case study from the Danish business setting identifies the steps that a project group of business actors took to develop a new CSR construct. The steps include the transfer and translation of a foreign institution in response to a field-level problem, major events, and partial deinstitutionalization of an established CSR construct. The findings suggest that the new CSR construct is an institutional hybrid, a combination of foreign and familiar institutions that make a new CSR construct innovative, legitimate, and continuous with existing practice in the business setting. The paper proposes that CSR constructs are malleable institutional hybrids that are most easily implemented if tailored to the social context. It concludes with implications for managers who want to select, design and implement CSR constructs in their own business settings. The Global Compact In an address to The World Economic Forum on 31 January 1999, United Nation Secretary-General Kofi Annan challenged business leaders to join an international initiative--the Global Compact--that would bring companies together with UN agencies, labour and civil society to support nine (now ten) principles in the areas of human rights, labour, the environment, and anti-corruption. The Global Compact's ten principles in the areas of human rights, labour, the environment and anti-corruption enjoy universal consensus and are derived from 'The Universal Declaration of Human Rights,' 'The International Labour Organization's Declaration on Fundamental Principles and Rights at Work,' 'The Rio Declaration on Environment and Development, and 'The United Nations Convention Against Corruption.' The Global Compact is now entering its next stage of development--from a phase of entrepreneurial growth to one of increasing organizational maturity. With a network of nearly 2,000 companies and other stakeholders, operating in more than 70 countries, the Global Compact is ready to move to a new level of performance. In December 2004, the first draft of a White Paper proposing a new business model and governance structure will be shared with governments, businesses, labour and civil society groups, and other stakeholders, for review, comment and input. In September 2005, The Global Compact Office will begin to implement the new business model and governance structure. (Extracts, www.unglobalcompact.org, November 18, 2004) This paper addresses the process through which a new CSR construct comes into existence and, in particular, the role of social context in this construction process. The Global Compact exemplifies one such construct of corporate social responsibility (CSR). A CSR construct is a form of CSR that is specific enough to be implemented in practice. The Global Compact is a unique construct in that it draws exclusively on international conventions. It defines CSR as universally as possible to make the construct relevant and appealing across the globe. The Global Compact also exemplifies a CSR construct that has been successful in its ambition of spreading rapidly across the world. Not all CSR constructs make it this far, or this fast. Some never diffuse beyond the innovative setting, others vanish like yesterday's fads and fashions. Yet others are never intended for global diffusion, targeting instead implementation at a more modest scale. There are many different CSR constructs, some of which are local or national in scope, while others are more international in orientation. A close look reveals that they draw on quite different elements and traditions in their CSR definitions. These differences can manifest themselves in divergent CSR practices across nations. …

59 citations


Book
01 Jan 1970

40 citations


Book
01 Jan 1970
TL;DR: A note on statistics Abbreviations Glossary 1. The rise of business corporations in India 2. The promotion and finance of companies to 1850 3. Problems of company law up to 1850 4. Growth of the corporate sector, 1851-1860 5. The American Civil War and the banking inflation in Bombay, 1861-1865 6. The boom in the tea industry 7. The gold rush in Southern India 8.
Abstract: Preface Acknowledgements A note on statistics Abbreviations Glossary 1. The rise of business corporations in India 2. The promotion and finance of companies to 1850 3. Problems of company law up to 1850 4. Growth of the corporate sector, 1851-1860 5. The American Civil War and the banking inflation in Bombay, 1861-1865 6. The boom in the tea industry 7. Growth of the corporate sector, 1866-1882 8. The gold rush in Southern India 9. Growth of the corporate sector, 1882-1900 10. Savings, insurance and the gold mining companies 11. Trends in corporate financing and legal developments 12. Corporate management: the managing agency system 13. Concluding observations. Appendices Select bibliography Index.

37 citations


Journal ArticleDOI

36 citations


Book
01 Jan 1970

30 citations


Journal ArticleDOI
TL;DR: For example, Sonnefeld et al. as discussed by the authors examined the impact of board member composition (number of outside directors, board tenure, board size, and the number of other boards on which directors serve, on the number or legal proceedings brought against the sample firms by various individuals, groups, and federal and state agencies.
Abstract: This study examined thepossible impact of board member composition (number of outside directors), board tenure, board size, and the number of other boards on which directors serve, on the number of investigations and/or legal proceedings brought against the sample firms by various individuals, groups, and federal and state agencies. A sample of 180 firms were selected for study from the financial services sector of the economy for the years 1998-2002. The results suggest that, contrary to theory, neither the proportion of outside directors or board size had a significant affect on the number of investigations brought against the sample firms. Further, as predicted, the results revealed a significant and negative link between board tenure and the number of l OK investigations, and a significant and positive relationship between the number of other boards served on by directors and the number of investigations. Although contrary to theory, this last finding offers some evidence that directors who serve on several other boards may become too distracted to properly monitor their firms. ********** Corporate governance continues to be an area of interest to researchers, stakeholders, and the general public (Sonnefeld, 2004). The influence of board characteristics on firm financial performance has been heavily researched over the past few years. Such board characteristics as board size, board tenure, number of inside and outside directors, number of female board members, and number of other boards on which members serve have been related to a variety of firm performance measures. Dalton, Daily, Ellstrand and Johnson (1998) and Dalton, Daily, Johnson and Ellstrand (1999) performed a meta-analysis to summarize the often-conflicting research results in this area and concluded that there is little evidence that board characteristics influence firm financial performance. Researchers have also begun to examine the influence of board characteristics on aspects of firm performance beyond financial performance. It is suggested that there may be incompatible interests between managers and stakeholders which may adversely affect the social performance of an organization (Simerly, 1995). One view is that the primary responsibility of a business is to maximize profit. This may give social performance and responsibility a back seat, or perhaps even divert resources away from social performance. The stakeholder view is that businesses are given legitimacy by society and, therefore, have a responsibility to behave in a socially responsible manner (Freeman, 1984). An integrative view is that social responsibility may actually contribute to business success (Werner, 1992). Wood (1991a, 1991b) has described "corporate social performance" as consisting of three components. The first component, corporate social performance, has to do with firm public responsibility and legitimacy within society. The second component is corporate social responsiveness and includes environmental assessment and stakeholder management. The third component consists of the outcomes of firm behavior and includes social impacts, social programs, and social policies. Obviously, corporate social performance can be measured in a variety of ways and this has lead to conflicting research results to date (Stanwick & Stanwick, 1998). One dimension of firm behavior related to corporate social performance is the legality of a firm's actions. Kesner and Johnson (1990) examined the relationship between board characteristics and shareholder lawsuits in the state of Deleware. They found a positive relationship between the proportion of inside directors and the likelihood of a firm's board of directors being sued by a shareholder for failure to maintain their fiduciary responsibilities. They also tested for the possibility that shareholders tend to file more lawsuits when firm performance is poor, by controlling for both return on assets and return on equity, and found no support for this hypothesis. …

27 citations



Journal ArticleDOI
TL;DR: In this paper, the authors investigated the relationship between a firm's corporate governance structure and the abnormal returns associated with acquisition announcements and found that acquiring firms have significant two-day abnormal returns of-2.71%.
Abstract: This paper investigates the relationship between a firm "s corporate governance structure and the abnormal returns associated with acquisition announcements. Based on a sample of 294 acquisitions occurring from 1994 through 1998, it is found that acquiring firms have significant two-day abnormal returns of-2.71%. A multiple regression model that includes corporate governance variables has an Adjusted R-squared of 14.2% with board size, the sensitivity of the CEO's wealth to changes in share price, method of payment, and acquiring firm size all being significant explanatory variables. ********** The modern corporation is a complex organization of interlocking relationships. For publicly held companies, one of the most important relationships is between the owners and managers of the firm. This relationship is a classic example of the principal-agent relationship and is characterized by a potential misalignment of goals where the agent may behave in his own interest instead of acting in the principal's interest. A firm's corporate governance structure can be used to reduce the total agency costs of a firm through the monitoring of management actions and by aligning the managers' self-interests with those of shareholders. The board of directors has the responsibility to represent shareholders by monitoring top management. They do this by hiring and firing management, designing the executive compensation contract, and voting on major firm decisions. However, recent events from Enron to WorldCom indicate that the board may not always adequately monitor management. These events have stirred calls for board reform and the effect of board structure on corporate decision making is an important and widely debated topic. A firm's compensation policy should be designed to attract and retain quality managers and also to align the managers' incentives with shareholders. Executive compensation is primarily composed of a base salary, a bonus often tied to accounting returns, and equity-based incentives. Stock option grants are an increasingly important component of compensation and can align interests by making compensation and overall wealth more sensitive to shareholder performance. This study investigates the relationship between corporate governance and agency costs by examining the abnormal returns to acquisition announcements. While there are a variety of explanations for acquisitions that increase shareholder wealth, many acquisitions actually reduce shareholder wealth in both the short-run and the long-run. One explanation is that shareholder wealth reducing acquisitions are the result of the failure of corporate governance mechanisms to properly align managers' interests with those of shareholders. The following section of this paper reviews the literature on corporate governance and mergers. The third section presents the data and methodology, followed by the empirical results in the fourth section. The final section summarizes the findings with suggestions for further research. Literature Review The existing literature investigating the relationship between managers' interests and mergers examines the issue from varying perspectives. Morck, Shleifer, and Vishny (1990) test managerial self-interest indirectly by arguing that self-interested managers will either diversify or buy growth firms. Since these types of acquisitions were found to be more likely to reduce shareholder wealth, they concluded that they were driven by self-interest. Kroll, Simmons, and Wright (1990) found that CEO compensation increased following acquisitions due in part to the increased size of the firm. CEO shareholdings and incentive plans were found to be positively related to announcement cumulative abnormal returns (CARs) by Travlos and Waegelein (1992). Ueng (1998) also found that managers with large stockholdings relative to salary are more likely to make acquisitions that increase shareholder wealth. …

20 citations


Journal ArticleDOI
TL;DR: In this paper, Chen et al. examine unanticipated successions that occur when a CEO becomes ill or injured, and examine both the successions after injury or illness announcements and decisions to let the CEO continue in office.
Abstract: Rules of behavior guide decisions, and succession rules guide CEO selection. When CEO turnover is unanticipated, succession rules may not be able to guide the board. We examine unanticipated successions that occur when a CEO becomes ill or injured. These unanticipated successions are associated with a greater likelihood of former-CEO successors than when the successions are anticipated. The stock market reacts positively to former-CEO succession announcements. While this type of succession may not be consistent with succession rules, it may be consistent with their functions by reducing internal conflict and allowing directors to maintain fiduciary responsibility. ********** Leadership is an important component of successful corporate governance. CEO succession has received considerable attention in the extant literature. Succession planning's importance may need to be given top priority by boards of directors (Shen & Cannella, 2003). Ocasio (1999) analyzed the succession process and the rules that govern it. He argued that rules of behavior exist throughout all areas of corporate activity providing regularity and structure to corporate decisions. The succession process provides an interesting case in which we can observe how boards rely on formal and informal rules to make decisions. There may be cases in which companies are unable to utilize succession rules because the need for succession is unanticipated and occurs suddenly. There are a number of ways in which unanticipated events could lead to the immediate need for succession. For example, a CEO could suddenly decide to quit the company leaving the board with an immediate succession decision. However, in these cases, it may not be possible to determine if it was the CEO's decision or a forced turnover. Alternately, a CEO could die while in office or become ill or injured. We examine unanticipated succession decisions following CEO illness/injury announcements rather than CEO death, because when a CEO dies there is no choice; the board must appoint a successor. However, when a CEO is ill or injured, the executive and board may have a choice. They can appoint a successor or depending on the severity of the affliction let the CEO attempt to continue. We examine both the successions that occur after injury or illness announcements and decisions to let the CEO continue in office. The pressures and responsibilities of a senior executive combined with the age of most senior executives can lead to serious illness. What happens when a CEO becomes injured or ill and the affliction is serious? When would the board replace the afflicted CEO and who assumes the vacated positional responsibility? Unanticipated succession decisions may prohibit the board from relying on its normal rules of succession. Vancil (1987) defines several styles of internal succession including relay and horse-race successions. Each type of succession would have its own informal or formal rules guiding the process. What these succession types have in common are that the board promotes a successor CEO from a position below the CEO in the corporate hierarchy. In other successions, the CEO comes from outside the firm. For the purposes of this paper, we define normal succession to include both outside succession and successions in which the successor is promoted from below in the corporate hierarchy. However, when the succession is unanticipated such as when an executive becomes ill, the board may not find the normal rules of succession to be useful. When an executive is unable to function, a successor may be needed to both run the company and show the outside stakeholders that someone is in charge. We propose that in unanticipated successions boards may appoint someone from the board such as the board chair or former CEO. Such an appointment would likely show stakeholders that there will be continuity in company operations and that an experienced executive is in charge. …


Journal ArticleDOI
TL;DR: The results suggest that among those firms whose directors hold multiple directorships, the incidence of 10K investigations initiated against those firms is significantly less in those firms having smaller boards, offering further evidence that smaller boards might be better monitors of their firms' behavior than larger boards.
Abstract: This study examined the possible impact of both board size and the proportion of outside directors on the link between directors holding multiple directorships and firm misconduct. The study utilized a sample of 181 firms drawn from the financial services sector during the 1999-2003 time period. The results suggest that among those firms whose directors hold multiple directorships, the incidence of 10K investigations initiated against those firms is significantly less in those firms having smaller boards. The results offer further evidence that smaller boards might be better monitors of their firms' behavior than larger boards. Further, contrary to theory, no significant relationship was observed between proportion of outside directors, multiple directorships and the incidence of 10K investigations. The implications of the findings and areas for future research are discussed. Background There is an on-going debate within the area of corporate governance regarding the membership of directors on multiple boards and its potential impact on effective firm monitoring. In light of the recent scandals involving firms such as Enron, Worldcom, and Tyco, effective corporate governance is seen by institutional investors and shareholder activists to be extremely important. While researchers have examined various governance issues, the potential consequence of multiple board membership by directors on monitoring their firms remains largely unexplored (Ferris, Jagannathan & Pritchard, 2003). Multiple Directorships and Director Distraction There is some debate as to whether the service of directors on multiple boards will serve to either bolster or hinder proper firm monitoring, and serve to prevent firm misbehavior. Some favor multiple directorships, arguing that firms can obtain valuable resources and vital information through board interlocks (Business Roundtable, 1997; Schnake, Fredenberger & Williams, 2005; Zahra & Pearce, 1989). There is some evidence that board interlocks may be linked with effective capital acquisition (Mizruchi & Stearns, 1988; Steams & Mizruchi, 1993). A board whose members serve on several other boards may enable the firm to gain access to needed resources and critical information through these multiple directorships (Bhagat & Black, 1999; Zahra & Pearce, 1989). Interlocked directors may be able to observe investigations and legal proceedings brought against other firms on whose boards they serve. Directors can then bring that vital information back to the other boards on which they serve, enabling these firms to take action to avoid similar legal pitfalls and litigation (Schnake et al., 2005). On the other hand, there appears to be a dominant belief among institutional investors and governance activists that, given their limited time and cognitive abilities, service on multiple boards may result in board members becoming distracted, and may reduce their abilities to effectively monitor their firms (Ferris et al., 2003; Lipton & Lorsch, 1992). Through their service on several boards, directors may serve on fewer board committees and, therefore, may simply be too busy to properly monitor their firms (Ferris et al., 2003). Thus, any informational advantages gained through service on other boards may be lost due to director distraction caused by being too busy and being spread too thinly. Further, it is likely that directors who serve on multiple boards may serve on firms in different industry settings. Having to face different industrial scenarios, the result is a greater demand on the director's cognitive abilities and more distraction for the director (Schnake et al., 2005). This notion of director distraction is often termed the "busyness hypothesis," and is linked by some to improper board oversight and its consequences. The Council of Institutional Investors takes a position in line with the busyness hypothesis. …

Journal ArticleDOI
TL;DR: In this article, the authors investigate the impact of the Sarbanes-Oxley Act (SOX) on audit fees in the public accounting industry and attempt to determine if that impact differs with the size of the audit firm.
Abstract: The Sarbanes-Oxley Act of 2002 was intended to improve corporate governance and increase the transparency of financial audits. The legislation also could have significant effects on the public accounting industry. This study finds evidence of higher audit fees across all firms resulting from compliance with the law. However, after accounting for self-selection of auditors, we do not find evidence that the size of the audit firm affects the magnitude of the audit fee increase. Introduction and Background In July of 2002, Congress passed the Sarbanes-Oxley Act (SOX) in response to a wave of corporate governance scandals. This paper will investigate the impact that the SOX Act has had on the audit fees in the public accounting industry and will attempt to determine if that impact differs with the size of the audit firm. This legislation was designed to increase the oversight and regulation of the accounting profession. With the goals of strengthening corporate governance and increasing the transparency of financial audits, the Act aimed to restore public confidence in corporate America following the scandals at Enron, Arthur Andersen, Tyco, WorldCom, Global Crossing, among others. The major provisions of the SOX Act include: * The establishment of the Public Company Accounting Oversight Board (PCAOB) to set auditing standards. * A stricter definition of auditor independence that restricts the types of consulting services an auditing firm may provide their clients. * Stricter criminal penalties for corporate fraud. * More detailed and timely disclosures of financial information. Many researchers have noted that the SOX legislation was passed very quickly, perhaps too quickly, and that the law's costs of compliance may exceed its benefits. Zhang (2005), for example, estimates that the private costs of complying with the SOX Act total $1.4 trillion. A large proportion of this cost comes from the increased costs of audits in order to comply with the law. Studies have also found that the SOX law has motivated many public firms to go private (or reconsider going public) as a way of avoiding the costs of complying with this law (Hartman, 2005; Block, 2004; Engel, Hayes & Wang, 2004). One report also raised the concern that foreign firms may be shunning U.S. financial markets to stay clear of this new legislation (Marshall, 2006). The apprehension overseas firms feel toward SOX has been widely reported (Darned Sox, 2006). Recently, a committee, led by former White House economic advisor R. Glenn Hubbard and Goldman Sachs executive John Thornton, was initiated to propose changes to the law and correct the perceived flaws (Sissell, 2006). SOX legislation was passed at a time when the U.S. public accounting market was becoming increasingly concentrated. In fact, as part of the SOX legislation a United States General Accounting Office (GAO) study was mandated on the public accounting market (GAO, 2003). This study raised the concern that very few audit firms are capable of auditing large U.S. clients and that this problem raises potential choice, price, quality, and concentration risk concerns. The current public accounting market consists of a "Big 4", a middle tier and a lower tier. The Big 4 firms are Deloitte & Touche, Ernst & Young, PricewaterhouseCoopers and KPMG. As of the 2003 GAO study, these four firms audited over 78 percent of all U.S. public companies and 99 percent of all public company revenue. Big 4 firms have traditionally dominated the large company audit market due to a number of factors, including the auditors technical skills, reputation and capacity (Doogar, Fargher & Hong, 2005). Literature Review and Hypotheses The additional work required of an auditor to comply with Sarbanes-Oxley is likely to increase the cost, and therefore, price of audits. This additional work is primarily due to Section 404 of the Act, which requires firms to include an internal control report in their annual report (Rittenberg, Evenson, Martens, 2006). …


Journal ArticleDOI
TL;DR: In this article, the authors examine the relationship between board members' dependence on the CEO and the corporation itself and find that reciprocated interlocks are positively associated, and inside directors are negatively associated, with the presence of antitakeover provisions.
Abstract: Past corporate governance research that has incorporated the concept of directors' dependence on the CEO has operationalized dependence in numerous ways, often aggregating various indicators into a single construct. We extend this research with an examination of individual indicators of director dependence by partitioning director relationships into six categories. Relying on agency theory in combination with other organizational theories, we test hypotheses about relationships between the different categories of director dependence and the presence of antitakeover provisions and golden parachutes. We find that reciprocated interlocks are positively associated, and inside directors are negatively associated, with the presence of antitakeover provisions. Implications for theory, method, and practice are discussed. Introduction The relationships that corporate board members share with the CEO and/or the corporation itself have been of interest to researchers and governance activists for years. In both realms, the conventional wisdom holds that directors who are in some way dependent on the CEO are more likely to be derelict in their fiduciary duties to stockholders than wholly independent directors. Researchers, most of whom rely on agency theory, have formalized the argument and operationalized its constructs in myriad, but largely unsystematic, ways. Corporate governance activists agitate for independence, frequently by asking or demanding that directors with specific kinds of relationships with the CEO or the organization be precluded from serving on the board. Although these arguments are grounded in well-accepted theory, and activists have been quite successful in bringing about change, the empirical record on the consequences of board composition is mixed (e.g., Dalton, Daily, Ellstrand, & Johnson, 1998; Westphal & Milton, 2000; Zahra & Pearce, 1989). in this paper, we investigate one factor that may help account for the inconsistent findings across studies--alternative and potentially conflicting operationalizations of the director dependence construct. The confusion associated with the conflicting operationalizations has theoretical, methodological and practical implications. The theoretical underpinnings vary for the different forms of director dependence on the CEO. For example, dependence that arises from directors who are related to the CEO is likely to be qualitatively different from that expected from directors who are also current officers. Different relationships may connote fundamentally different interests that are being represented on the board. Methodologically, the inconsistent operationalizations of the dependence construct across studies may account for the mixed empirical record, rendering tests of theory inconclusive in cases where the central construct is measured differently (Dalton, Daily, & Johnson, 1999). Practically, the need to disentangle the different forms of director dependence are important if for no other reason than that corporate governance activists, many of whom wield considerable market power, continue to agitate for the removal of several classes of directors. Institutional investors have become very willing to engage in publicized conflicts with the managers of specific firms in public and private forums (Serwer, 1996; Useem, 1993); activists publish books (e.g., Monks & Minow, 1995) and distribute other materials that detail their recommendations for board composition (e.g., Minow & Bingham, 1995); governmental agencies and stock exchanges impose reporting requirements to explicitly disclose the variety of potentially conflicting relationships (Daily & Dalton, 1994); and the business press commonly publishes stories and commentary devoted to issues of corporate governance (e.g., Byrne, 1997; Colvin, 2001; Lavelle, 2001). Thus, a more detailed examination of the kinds of relationships that exist between directors, the CEO, and the corporation itself may provide theoretical and practical insights for those interested in corporate governance. …

01 Jan 1970
TL;DR: In this article, the authors examine the relation between financial, corporate and legal systems and economic performance in different countries and suggest a strong association of financial development with economic growth and an important role for regulation in the development of financial institutions.
Abstract: This paper examines the relation between financial, corporate and legal systems and economic performance in different countries. It reviews international comparisons that use large, cross-country databanks, including developing countries. These suggest a strong association of financial development with economic growth and an important role for regulation in the development of financial institutions. However, this literature does not determine which types of institution or regulation are most relevant to economic growth, particularly in its early stages. A recent theoretical literature points to a relation between the types of financial institutions and forms of economic activity with some systems being more closely associated with the industrial base of particular countries. These theories suggest that systems may be related to stages of economic development. The paper summarises a first empirical study that reports an association between financial institutions, types of activity and stages of economic development. The paper considers the implications of these relations for the design of financial and corporate systems in countries at different stages of their development. It argues for diversity in systems and regulation that encourages competition between rather than harmonisation of systems.


Journal ArticleDOI
TL;DR: In this article, the authors argue that employee ownership has the potential to enable managers to shape organizational culture in support of firm strategy, and to the extent that organizational culture is strategy-appropriate, it leads to competitive advantage by increasing the availability of resources, the serviceability of those resources to the firm, and flexibility in the allocation of resources to address competitive threats and opportunities.
Abstract: Although abundant evidence demonstrates a positive relationship between employee ownership and firm performance, two questions remain unanswered: why does employee ownership fail to enhance the performance of some adopting firms, and what are the mechanisms by which employee ownership enhances performance? We argue that employee ownership has the potential to enable managers to shape organizational culture in support of firm strategy. In supporting firm strategy, employee ownership has the status of strategic choice. Further, to the extent that organizational culture is strategy-appropriate, it leads to competitive advantage by increasing the availability of resources, the serviceability of those resources to the firm, and flexibility in the allocation of resources to address competitive threats and opportunities. When managers of employee-owned firms are unable to create such a culture, the performance of their firms suffers as a result. INTRODUCTION Strategic management, often called 'policy' or nowadays simply 'strategy' ... includes those subjects which are of primary concern to senior management, or to anyone seeking reasons for the success and failure among organizations. Rumelt, Schendel, and Teece (1991) Why do employee-owned companies perform better, on average, than conventionally-owned companies? And why do some ESOP companies perform better than others? Employee ownership, also called "shared capitalism" (SC), or "earned capitalism" (EC), a term that includes employee stock ownership plans (ESOPs) stock purchase plans, profit- and gainsharing plans, and broad-based stock options (Kruse, Freeman, and Blasi (2010), is a management practice that has been utilized by firms for decades. (1) Partly a tool of corporate finance, and partly a tool of human resource management, ESOPs have become a small yet significant part of the economic landscape. Congress created the ESOP in the 1974 Employee Retirement Income Security Act (ERISA), which established the legal basis for ESOPs as a defined contribution retirement plan. Laws and regulations pertaining to ESOPs are regularly considered by Congress and reported in the press. During the last two decades, the number of ESOP firms has held steady at around 10,000 firms (NCEO, 2008). ESOPs have a dual nature. On the one hand, they are a tool of corporate finance. For instance, the law permits the employee stock ownership trust (ESOT) to borrow money for the purpose of purchasing shares. As such it is a mechanism for raising capital or restructuring the balance sheet. And, they can be used to alter the governance structure of a company. However, as a tool of human resource management employee ownership has the potential to have a much greater impact on firm performance than do alterations to the right-hand side of the balance sheet. This is the basis of our discussion. There have been a large number of studies attempting to show that EO activities "work"--that they have results that are beneficial to a firm's overall results. A considerable body of empirical work has demonstrated a positive link between employee ownership and firm financial performance (to be discussed in detail below). Research has also demonstrated some positive effects of EO programs on individual attitudes and behavior (to be discussed in detail below). While both of these lines of research are promising, there is a gap in the theoretical basis of this work that limits its usefulness. Specifically, there is a need for a clearer delineation of the mechanisms by which EO programs work at the individual level in motivating employees and yet are seen as contributing to significant firm level performance outcomes. Explanations tend to point vaguely at factors such as increased motivation, culture, information sharing, even a multi-period prisoner's dilemma, but generally lack detail. To compound the deficiency, no theory of which we are aware addresses the question of exactly how individual-level outcomes produce firm-level outcomes. …



Journal ArticleDOI
TL;DR: In this article, the authors develop a model of corporate governance stages in transition economies, including bureaucratic control-based, relational, and rule, market-based corporate governance, and demonstrate how institutions shape stakeholders' dominant sources of control power and firms' dominant origins of resources.
Abstract: We develop a model of corporate governance stages in transition economies, including bureaucratic control-based; relational; and rule, market-based corporate governance. We demonstrate how institutions shape stakeholders' dominant sources of control power and firms' dominant origins of resources within and across these stages. We then theorize how these driving forces influence the effectiveness of these corporate governance stages, and how the shift from one stage of corporate governance to another comes about. Our paper therefore contributes to the understanding of the development and nature of corporate governance in transition economies. Introduction Transition economies are former socialist countries such as those that were part of the former Soviet Union, those in Eastern Europe, and East Asia, which are transforming from central planning to free market competition (World Bank, 2002). Numerous studies of corporate governance in transition economies have recently been undertaken (e.g., Andreff, 1999; Aoki, 1994; Berglof, 1995; Dharwadkar, George, & Brandes, 2000; Estrin & Angelucci, 2003; Wright, Filatotchev, Buck, & Bishop, 2003; Young, Peng, Ahlstrom, & Bruton, 2002). Notably, transition economies account for a significant portion of the world's population and economic activity, and corporate governance is central to the privatization of state-owned enterprises--a vital activity in their economic transformation (McCarthy & Puffer, 2003; Peng, 2004). These economies present a unique context for examining phenomena and theories well established in the setting of developed economies (Hoskisson, Eden, Lau, & Wright, 2000; Peng, 2003). Most prior studies are static in nature. Given radical institutional changes and varying rates of progress occurring in different transition economies, research insights obtained from such static studies may be inconclusive and not reflective of temporal dimensions of corporate governance within and across transition economies. For example, Judge, Naoumova, and Koutzevol (2003) and Peng (2004) found inconsistent results concerning the role of outside board members in Russia and China. Similarly, Wright et al. (2003) and Estrin and Angelucci (2003) reported conflicting findings regarding the effectiveness of inside versus outside ownership. Such inconclusive findings may lead some scholars to conclude that transition economies are heterogeneous and thus it is not feasible to develop a general model of corporate governance for transition economies. However, according to a number of transition economy researchers (e.g., Boisot & Child, 1996; Le, Kroll, & Walters, 2010; McMillan & Woodruff, 2000; Peng, 2003), these findings offer evidence that transition economies go through similar stages during their market-oriented transformation, and at a given point in time their corporate governance is dissimilar because they are in different transition stages. This paper is motivated by unresolved questions concerning corporate governance in transition economies: (1) Does transition to a market-oriented economy generally progress through similar stages? (2) Which modes of governance are likely effective in those stages? (3) How and when do privatized firms shift from one mode of corporate governance to another? We note that our focus is on corporate governance in privatized firms (firms that have their ownership transferred from a socialist state to private organizations and individuals), to which we refer as "firms" in the rest of the paper. Previous studies (e.g., King, 2001; Le et al., 2010; Peng, 2003) indicate that the market transformation in transition economies can be temporally divided into three stages: (1) the early or bureaucratic control stage, (2) the intermediate or relational stage, and (3) the late or market stage. We suggest that, correspondingly, the prevalent mode of corporate governance likely shifts from bureaucratic control-based to relational corporate governance, then from relational to market-based corporate governance. …


Journal ArticleDOI
TL;DR: Li et al. as mentioned in this paper investigated a broad array of factors which may influence Chinese corporate governance and examined the relationships between firm age, top management team age, board structure, ownership structure and firm performance in publicly-listed Chinese firms.
Abstract: This study investigates a fairly broad array of factors which may influence Chinese corporate governance and examines the relationships between firm age, top management team age, board structure, ownership structure and firm performance in publicly-listed Chinese firms. As we anticipated, owing to the unique context of corporate China, results support a negative relationship between firm age and firm performance, a positive relationship between percentage of independent directors and firm performance, and a positive relationship between the presence of foreign blockholders and firm performance. This study also found a positive relationship between the percentages of shares owned by the state as a blockholder and firm performance, but found that neither private nor institutional blockholders influence firm outcomes. Results also indicate that the relationship between top management age and firm performance is mediated by firm size. The expected negative relationship between CEO duality and performance and positive relationship between board size and firm performance is not supported. These results indicate that there are some unique features of Chinese governance practices that need to be considered by researchers seeking to test the applicability of western theories in the Chinese context. Introduction In 1949, when Mao Zedong and his comrades formed the People's Republic of China, they probably never imagined that China would one day have a dynamic market-based economy measured in the trillions of dollars. In the early 1990's the transition to a market economy began with the liberalization of business practices, the privatization of small and medium-sized state owned enterprises, and the preparation of large institutions for private ownership. With the transition from state to private ownership have come issues of corporate governance and leadership, as well as the potential for agency problems. The separation of ownership by principals and decision control by hired managers creates the classic agency relationship, which has long been thought to materially influence the welfare of principals (Jensen & Meckling, 1976). In a centrally-planned economy, most state owned firms pursue goals other than wealth maximization. The agency relationship and its costs are neglected in such situations as enterprises essentially act as subsidiaries of the only market player, the state. While agency concerns were moot in the communist system, as China has moved toward a market economy, agency problems have become more of an issue (Hua, Misesing, & Li, 2006). Today, governance issues commonly confronted by western firms are becoming more and more familiar to both private and partially state-owned Chinese firms. We believe there are some unique issues related to corporate governance that need to be considered vis-a-vis Chinese firms. Researchers suggest that the composition of the board, the experience of the top management team (TMT), the firm's ownership structure and even the firm's history within the transitional economy may affect the performance of newly-formed, for-profit enterprises (Sun, Li, & Zhou, 2005; Firth, Fung, & Rui, 2006a & b, 2007;Chen, 2001;Wei, Lau, Young, & Wang. 2005). For Chinese companies, some of the prescriptions of western literature should hold, while others may not, owing to the unique dynamics of China's business climate where business processes include both western governance practices along with traditional socialist views. China is a rapidly emerging economic power. The widely-held assumption appears to be that this transformation has been proportional to the Chinese government's movement toward laissez faire economic policies. It is, however, also possible that a portion of China's success is owing to the government's continued involvement in the private sector--its middle way to privatization of the economy. A better understanding of the unique governance practices of China should be interesting to business scholars, given the increasing importance of China's economy in the global marketplace. …

Journal ArticleDOI
TL;DR: In this paper, the authors analyse recent organizational change and governance in UNESCO and analyze the United States' decision to abandon systematic and programmatic concern for universal literacy at the United Nations.
Abstract: This paper analyses recent organizational change and governance in UNESCO. The Organization has given priority to the promotion of universal literacy since its inception in 1946. It has persisted in its dual approach to universal literacy through both universal primary education and literacy learning opportunities through formal provision and non-formal learning opportunities for adults and out-of-school youth. A major policy shift in 2006 to abandon systematic and programmatic concern for literacy at UNESCO Headquarters drastically changed priorities. That decision is analysed in the broader UN system setting, United States’ policies since its return to UNESCO, and the recent internal governing dynamics of the agency.


01 Jan 1970
TL;DR: In this paper, the authors highlighted some of the causes of corporate failures in Nigeria and suggested ways of improving the standards of corporate governance, and suggested that traditional approaches to enforcement are inadequate to meet the challenge imposed by the sudden growth of the Nigeria capital market.
Abstract: This article examines corporate governance practice and challenges within the Nigerian corporate environment. A clear lesson the global recession taught the corporate world is that no corporation can be too big to fail. This article highlighted some of the causes of corporate failures in Nigeria and suggested ways of improving the standards of corporate governance. Over the years, investors and depositors in numerous companies in Nigeria have encountered untold hardship and loss due to weak corporate governance practices, regulation and implementation. The paper suggests that traditional approaches to enforcement are inadequate to meet the challenge imposed by the sudden growth of the Nigeria capital market.



Journal ArticleDOI
TL;DR: In this article, the authors argue for establishing Directors of Communication within upper level corporate management and discuss their functions and why their position has become necessary in our complex world, and why they are necessary in the complex world.
Abstract: This article argues for establishing Directors of Communication within upper- level corporate management and discusses their functions and why their position has become necessary in our complex world.