Showing papers on "Corporate governance published in 1994"

Toward a theory of international new ventures

Abstract: The formation of organizations that are international from inception—international new ventures—is an increasingly important phenomenon that is incongruent with traditionally expected characteristics of multinational enterprises A framework is presented that explains the phenomenon by integrating international business, entrepreneurship, and strategic management theory That framework describes four necessary and sufficient elements for the existence of international new ventures: (1) organizational formation through internalization of some transactions, (2) strong reliance on alternative governance structures to access resources, (3) establishment of foreign location advantages, and (4) control over unique resources

Interorganizational Governance in Marketing Channels

Abstract: Relationship management rapidly is becoming a central research paradigm in the marketing channels literature. A growing body of conceptual and empirical literature addresses different aspects of in...

The effects of board size and diversity on strategic change

Abstract: This study examines an important potential conflict between the institutional, governance, and strategic functions of boards. We specifically test how higher levels of board size and diversity, traditionally associated with optimal institutional and governance performance of boards, affect the boards ability to initiate strategic changes during periods of environmental turbulence. Our findings suggest that board diversity, in particular, may be a significant constraint on strategic change.

Institutional Owners and Corporate Social Performance

Abstract: In this study, we hypothesize that institutions invest more heavily in companies with strong corporate social performance. Analysis indicated a significant, positive relationship between social per...

Managerial Incentives, Monitoring, and Risk Bearing: A Study of Executive Compensation, Ownership, and Board Structure in Initial Public Offerings

Abstract: Both authors contributed equally to the paper The comments of Sanjai Bhagat, Jeanne Brett, Jerry Davis, Ron Dye, Peter Easton, Eugene Fama, John Hand, Steven Kaplan, Joe Moag, Jay Ritter, Abbie Smith, Robert Vishny, and three anonymous ASQ reviewers are greatly appreciated Todd Glass and Jeffery Nguyen provided valuable research assistance An earlier version of this paper received the Best Paper Award of the Business Policy and Strategy Division of the Academy of Management We argue in this study that a resolution of the ambiguity and conflict surrounding executive compensation and corporate control practices requires a more unified perspective on top management compensation, ownership, and corporate governance Drawing from agency and organizational research, the study develops and tests a contingency perspective on how organizations seek to ensure appropriate managerial behavior through a balancing of trade-offs between incentive, monitoring, and risk-bearing arrangements We suggest that (1) the ability of firms to use executive compensation contracts to address managerial incentive problems is hampered by risk-bearing concerns that stem from the risk aversion of top managers, (2) this problem is particularly severe for riskier firms, and (3) firms seek to address this problem by structuring their boards of directors to ensure sufficient monitoring of managerial behavior, given the magnitude of the agency problem This contingency perspective is then tested using a large sample of initial public offering firms The findings and their implications for the debates about ownership and control and executive pay for performance are discussed'

Bankruptcy and Corporate Governance: The Impact of Board Composition and Structure

Abstract: In this study, we examined the relationships among governance structures and corporate bankruptcy. A logistic regression analysis of bankrupt major corporations and a matched group of survivor firm...

Board control and ceo compensation

Abstract: The board of directors has been identified as a key internal control mechanism for setting CEO compensation. Theory suggests that CEOs will attempt to circumvent board control in an effort to maximize salary. This hypothesis was tested using a sample of 193 firms in a cross-section of industries. Corporate governance literature was reviewed to develop a multiple indicator measure of board control. Although, as hypothesized, CEO salaries were greater in firms with lower levels of control, CEO compensation was not significantly related to firm size or profitability.

From CSR1 to CSR2 The Maturing of Business-and-Society Thought

Abstract: This 1978 paper outlines a conceptual transition in business and society scholarship, from the philosophical-ethical concept of corporate social responsibility (corporations' obligation to work for...

Corporate Divestiture Intensity in Restructuring Firms: Effects of Governance, Strategy, and Performance

Abstract: Both inadequate governance and inappropriate strategy have been proposed as antecedents of the divestment activity of restructuring firms in the 1980s. We combined both views in a structural equati...

International Governance: Protecting the Environment in a Stateless Society

Abstract: How can the global environment be safeguarded in the absence of a world government? In the vanguard of efforts to address this critical question, Oran R. Young draws on environmental issues to explore the nature of international governance. Young's analysis invokes the distinction between "governance," a social function involving the management of interdependent individuals or groups, and "government," a set of formal organizations that makes and enforces rules.

The Costs and Benefits of Managerial Incentives and Monitoring in Large U.S. Corporations: When is More not Better?

Abstract: Recent research and public discourse on executive compensation and corporate governance suggests a growing consensus that firms can and should increase their control over top managers by increasing the use of managerial incentives and monitoring by boards of directors. This study departs from this consensus by offering an alternative perspective that considers not only the benefits, but also the costs of both incentives and monitoring in large corporations. The study develops and tests a contingency cost/benefit perspective on governance decisions as resource allocation decisions, proposing how and why the observed levels of managerial incentives and monitoring may vary across organizations and across time. Specifically, the study suggests that: (1) firms that are more risky face greater costs when using incentive compensation contracts for top managers, thus reducing the expected level of incentive compensation use for such firms; (2) firms facing this problem of low incentive compensation use can realize greater benefits from higher levels of board monitoring, and thus are likely to rely more on board monitoring; and (3) firms with more complex comporate strategies face higher costs in using board monitoring, and are thus likely to rely less on board monitoring as a source of controlling top management behavior. The study also proposes that within this contingency perspective there may be diminishing ‘behavioral returns’ to increases in monitoring and incentives. These hypotheses are tested using extensive longitudinal data from over 400 of the largest U.S. corporations. The supportive findings suggest that maximal levels of incentives and monitoring are not necessarily optimal, and that a firm's strategy may not only have significant product/market implications, but also corporate governance implications.

Strong Managers, Weak Owners:The Political Roots of American Corporate Finance

Abstract: In a broad-based democracy, not all contracts will survive. Even some efficient contracts will be banned, if enough people dislike them. Thus if the average voter dislikes powerful private financial institutions, politics will, all else being equal, ban them. Interest groups cancel one another out. One group wants powerful financial institutions and another, such as small-town bankers, does not. The small-town bankers have a leg up in the political infighting, because popular opinion is on their side, leading to a ban on some arrangements that a less regulated economy might produce. Or, to recast the problem in agency cost terms, managers would like to be free from the oversight that powerful financial intermediaries might provide, and in the modern era, politicians might side with managers when the managers’ goals of thwarting takeovers align with a public wary of too many hostile takeovers. The politician can satisfy the managerial interest group and be popular at the same time. Agency costs move into the political arena; some contracts are banned, and whether the substitutes that arise are always perfect ones, without additional costs, is an open question. Law restricted the dominant financial institutions from the end of the nineteenth century onward. American banks were fragmented geographically, lacking the size to take big slices of capital of the large American firms emerging at the end of the nineteenth century. Banks’ products and portfolios have been further restricted: they were barred from the securities business and from owning stock. Their affiliates were also restricted in the stock they could own. Insurers could not buy stock for most of this century. Mutual funds cannot easily devote their portfolios to big blocks and face legal problems if they go into the boardroom. Pensions cannot take very big blocks without legal and structural problems; the big private pensions are under managerial control, not the other way around. These rule were neither random nor economically inevitable. While public interest goals of keeping financial intermediaries prudent and stable explain some of the rules, they do not explain all of them. Two dominant themes lay behind many of the rules: American public opinion, which mistrusted private large accumulations of power, and interest group politics. There were winners in fragmenting financial institutions. These winners had a large voice in Congress, and their goals matched public opinion. For example, small banks wanted to shackle large ones and succeeded in getting and keeping branching limits, banks on banks in the securities business, banks on bank affiliates’ moving outside of banking, and deposit insurance (which, by guaranteeing depositors that they will be paid if the bank fails, helps smaller, weaker banks more than it helps more solid, often bigger banks). These features of the political economy of American finance became foundational for corporate finance and the separation of ownership from control.

Awareness of Sponsorship and Corporate Image: An Empirical Investigation

Abstract: Corporate sponsorship is growing in importance as an element of the communications mix The number of companies participating in sponsorship, as well as corporate expenditures for sponsoring events, is on the rise as organizations seek new ways to reach audiences and enhance their image The importance of corporate sponsorship is now generally acknowledged, but little research has been done to understand its value and effectiveness An exploratory study was conducted to examine the relationship between sponsorship and corporate image The results suggest that corporate sponsorship can improve corporate image, but its effects differ among companies Moreover, sponsorship is only one of the information sources consumers use to form their impressions of an organization Under certain circumstances, corporate sponsorship can damage, rather than enhance, the image of a company

A Neglected Factor Explaining Family Business Success: Human Resource Practices

Abstract: Over 600 family firms were involved in this examination of the impact of human resource management (HRM) and professional governance practices on family business success and survival. Our findings identified some of the most prevalent family firm HRM practices and found significant positive correlations among HRM practices, gross firm revenues, and CEO personal income levels. The results support prior arguments for competitive advantage in the marketplace gained through effective use of HRM practices. An interesting additional finding was that while boards of directors, strategic planning, and frequent family meetings were correlated with business longevity over multiple generations, succession planning was not. Such practices are important. for current competitive advantage and may also be crucial to the longevity of the business.

Contemporary Financial Intermediation

Abstract: Basic Concepts. The Nature and Variety of Financial Intermediation. The What, Why and How of Financial Intermediation. Major Risks Faced by Banks. Spot Lending. Further Issues in Bank Lending. Off-balance Sheet Banking and Contingent Claims Products. Securization and Loan Sales. The Deposit Contract and Insurance. Bank Regulation: The Theory. Major Milestones in Banking Legislation and Regulatory Reform. Management of Risks and Opportunities in Banking. International Banking: Lending and Related Issues. International Banking: Regulation. Mergers and Acquisitions. Organisation Culture in Banking: Quality, Ethics, and Corporate Governance. The Future.

Corporate governance and the bankrupt firm: an empirical assessment

Abstract: The incidence of bankruptcy has risen dramatically among firms of all types and sizes in the past decade. Little is known, however, about the effects of alternative governance structures on the propensity of an organization to file Chapter 11 bankruptcy. Relying on logistic regression for periods 5 years and 3 years prior to the bankruptcy, as well as the contemporaneous period, we examine the relationships among independent/interdependent board composition and the structure of CEO/board chairperson positions and the filing of bankruptcy. While controlling for a series of financial indicators and firm size, the results illustrate robust explanatory power for the governance variables for both lagged periods.

Corporate-Level Strategy: Creating Value in the Multibusiness Company

Abstract: CORPORATE STRATEGY AND PARENTING ADVANTAGE. Corporate Strategy: The Issues. Parenting Advantage: The Framework. Questions About Parenting Advantage. Corporate Strategy: The Background. SUCCESSFUL CORPORATE STRATEGIES. How Parents Create Value. Stand-Alone Influence. Linkage Influence. Functional and Services Influence. Corporate Development. The Evolution of Corporate Strategies. Successful Corporate Strategies. DEVELOPING A CORPORATE STRATEGY. Developing a Corporate Strategy: Overview. Developing Corporate Strategy: An Example. Decisions About the Portfolio. Decisions About the Parent. Putting Parenting Advantage into Practice. Appendices. Index.

Location, governance, and strategic determinants of Japanese manufacturing investment in the United States

Abstract: A firm's decision to manufacture abroad depends on location, governance, and strategic factors. Governance factors are firm-specific. In spite of this, most empirical studies of foreign direct investment (FDI) have been conducted at the industry level (making it impossible to look at firm-specific determinants), and only a handful have considered governance, location, and strategic factors simultaneously. This paper is the first large sample study of the determinants of foreign direct investment at the product and firm-level. It examines the impact of location and governance factors, and of four types of strategic interactions, on a Japanese firm's propensity to manufacture in the U.S. The results support the view that foreign direct investment is explained by location, governance, and strategic variables. Economies of scale and trade barriers encourage Japanese FDI in the U.S. The larger a Japanese firm's R & D expenditures, the greater the probability it will manufacture in the U.S., but this is not the case for advertising expenditures. Some strategic factors are also important: Japanese firms with medium domestic market shares have the highest propensity to invest in the U.S. There is evidence of follow-the-leader behavior between firms of rival enterprise groups, but none of ‘exchange-of-threat’ between American and Japanese firms. Japanese investors are also attracted by concentrated and high-growth U.S. industries.

Top Executives, Turnover, and Firm Performance in Germany

Abstract: This article examines executive turnover-for both management and supervisory boards-and its relation to firm performance in the largest companies in Germany in the 1980s. Turnover of the management board increases significantly with poor stock performance and particularly poor (i.e., negative) earnings, but is unrelated to sales growth and earnings growth. These turnoverperformance relations do not vary with measures of stock ownership and bank voting power. Supervisory board appointments and turnover also increase with poor stock performance, but are unrelated to other measures of performance. Corporate governance systems have received an increasing amount of attention from academics, the government, and the popular press. Most of this attention has focused on differences between the U.S. system and those of its strongest industrial competitors-Germany and Japan. The U.S. corporate govvernance system is generally characterized as market oriented or "short-term" shareholder oriented. Managers are monitored by an external market for corporate control and by boards of directors usually dominated by outsiders. The German and Japanese systems, in contrast, are characterized as relationshiporiented systems. Managers there are supposedly monitored by a combination of banks, large corporate shareholders, and other intercorporate relationships. These relationships are maintained for long periods of time. The external market for corporate control is small, if not absent, in those two countries. These differences in governance systems, in turn, are usually associated with differences in managerial behavior and firm objectives. One view, perhaps the majority view, argues that the close financial ties and relationships in Germany and Japan "reduce agency costs and allow investors to monitor

Governance, the State and the Politics of Development

Abstract: Current western aid and development policy aims to promote ‘good governance’ in the third world. Few would deny that competent, open and fair administration is both a worthy aim and a self-evident requirement of development. However, the current orthodoxy clearly illustrates the technicist fallacy, which is implicit in the following quotation from Pope, that the effective administration or ‘management’ of development is essentially a technical or practical matter. This article argues that development is fundamentally a political matter and that it is illusory to conceive of good governance as independent of the forms of politics and type of state which alone can generate, sustain and protect it. For Forms of Government, let fools contest; Whate'er is best administered, is best. (Pope, 1734: Bk 3, lines 303-4).

The dynamics of financial globalization: Technology, market structure, and policy response

Abstract: The development of increasingly transnationalized (‘globalized’) financial markets raises several key issues for the analysis of politics, public policy, and the national state. This article suggests that financial globalization increasingly constrains policymakers and circumscribes the policy capacity of the state. After looking briefly at a range of approaches to the process of financial globalization itself, the author suggests that technological change is the main independent variable, by reducing transaction costs and dramatically increasing the price sensitivity of financial markets across borders, while at the same time making possible a range of economies of scale. These very developments have a knock-on effect throughout the domestic and international economies. They in turn make obsolescent the political economies of scale — the governance structures — which have characterized economic policy in modern nation-states, undermining the capacity of the state to produce public goods. At the same time, globalized financial markets interact with rapidly changing interest group structures and divided state structures, especially through ‘regulatory arbitrage.’ Without the development of transnational regimes capable of regulating global financial markets, the structural basis of the national state itself is being undermined, and Polanyi's ‘Great Transformation’ is over.

CEO Compensation Monitoring and firm performance

Abstract: This study used a behavioral scale assessing the monitoring of the compensation of chief executive officers (CEOs) to test two hypotheses derived from agency theory and the corporate governance lit...

Governing capitalist economies : performance and control of economic sectors

Abstract: This comparative analysis of of the coordination and control of industries in North America, Japan, and Western Europe challenges neo-classical economists' assumptions about the efficaciousness of market mechanisms as a means of enhancing economic performance. The authors also explore variation in state policies in the governance of internationally competitive industries (automobiles, chemicals, consumer electronics, and steel, for example) and demonstrate how variation in state policies influences the economic performance of industrial sectors. The authors argue that tightly controlled sectors outperform their less-regulated counterparts in the world economy.

Downscoping: How to Tame the Diversified Firm

Abstract: Large, diversified firms face unique challenges as they compete worldwide, and corporate restructuring is one way multinationals strive for competitive advantage. Weighing the pros and cons of a variety of approaches to restructuring, Downscoping offers executives a clear, strategic path through the maze. The authors show that when a multinational conglomerate fails to compete effectively, too much diversification may be the culprit. Whether the result of weak corporate governance or poor corporate strategy, over-diversification can make managers, unfamiliar with some of the markets in which they compete, opt for safety over innovation. This risk-aversion and lack of long-range commitment to innovation lead inevitably to stagnation over the longer term. The answer is not downsizing-closing offices and laying off personnel-but downscoping: a strategic approach to restructuring. The options include incentive and compensation adjustments for executives, leveraged buy-outs and capital structure changes, focusing on core skills, diversifying internationally while focusing on businesses in which a firm has strong competencies, and buying and selling mature businesses where product development is not a great concern. Regardless of the approach, executives must exercise strategic leadership during and after restructuring, including providing strategic direction, exploiting core competencies, deeloping human capital and sustaining the corporate culture. Based on systematic research rather than casual observation, Downscoping provides a strong description of restructuring alternatives and their resulting tradeoffs. Its specific guidelines for maintaining competitiveness will be essential reading for managers involved in corporate restructuring.

The Institutions and Governance of Economic Development and Reform

Abstract: Why are the ambitions of economic development practitioners and reformers so often disappointed? One answer is that development policymakers and reformers are congenital optimists. Another answer is that good plans are regularly defeated by those who occupy strategic positions. An intermediate answer is that institutions are important, yet are persistently neglected in the planning process. The article takes a bottom-up, microanalytical approach to economic development and reform. It examines the governance of contract, investment, and private ordering through the lens of transaction-cost economizing. And it assesses the efficacy of the de facto (as against the de jure) institutional environment with respect to credible commitments. In effect, institutional economists are cast in the role of archaeologists of economic reform and development - with the task of unpacking the lessons of the past to inform choices and programs for the future.

The Contingent Governance of Teams--Analysis of Institutional Complementarity

Abstract: The first purpose of this paper is to design a model of governance structure, called the contingent governance, which can control the free-riding problem in teams in the second-best manner. The second is to show, by a new method of comparative static analysis, that the effectiveness of the contingent governance may be enhanced by complementary institutional arrangements of the imperfect labor market and bank-centered financial system. The paper discusses the implications of such institutional complementarity for the dynamic change of the Japanese main bank system and financial system design of transitional economies. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.