Showing papers on "Corporate governance published in 2005"

The governance of global value chains

Abstract: This article builds a theoretical framework to help explain governance patterns in global value chains It draws on three streams of literature ‐ transaction costs economics, production networks, and technological capability and firm-level learning ‐ to identify three variables that play a large role in determining how global value chains are governed and change These are: (1) the complexity of transactions, (2) the ability to codify transactions, and (3) the capabilities in the supply-base The theory generates five types of global value chain governance ‐ hierarchy, captive, relational, modular, and market ‐ which range from high to low levels of explicit coordination and power asymmetry The article highlights the dynamic and overlapping nature of global value chain governance through four brief industry case studies: bicycles, apparel, horticulture and electronics

Adaptive governance of social-ecological systems

Abstract: ▪ Abstract We explore the social dimension that enables adaptive ecosystem-based management. The review concentrates on experiences of adaptive governance of social-ecological systems during periods of abrupt change (crisis) and investigates social sources of renewal and reorganization. Such governance connects individuals, organizations, agencies, and institutions at multiple organizational levels. Key persons provide leadership, trust, vision, meaning, and they help transform management organizations toward a learning environment. Adaptive governance systems often self-organize as social networks with teams and actor groups that draw on various knowledge systems and experiences for the development of a common understanding and policies. The emergence of “bridging organizations” seem to lower the costs of collaboration and conflict resolution, and enabling legislation and governmental policies can support self-organization while framing creativity for adaptive comanagement efforts. A resilient social-eco...

Toward a Theory of International New Ventures

Abstract: Organizations that are international from inception – international new ventures – form 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.

Governance matters IV : governance indicators for 1996-2004

Abstract: The authors present the latest update of their aggregate governance indicators, together with new analysis of several issues related to the use of these measures. The governance indicators measure the following six dimensions of governance: (1) voice and accountability; (2) political instability and violence; (3) government effectiveness; (4) regulatory quality; (5) rule of law, and (6) control of corruption. They cover 209 countries and territories for 1996, 1998, 2000, 2002, and 2004. They are based on several hundred individual variables measuring perceptions of governance, drawn from 37 separate data sources constructed by 31 organizations. The authors present estimates of the six dimensions of governance for each period, as well as margins of error capturing the range of likely values for each country. These margins of error are not unique to perceptions-based measures of governance, but are an important feature of all efforts to measure governance, including objective indicators. In fact, the authors give examples of how individual objective measures provide an incomplete picture of even the quite particular dimensions of governance that they are intended to measure. The authors also analyze in detail changes over time in their estimates of governance; provide a framework for assessing the statistical significance of changes in governance; and suggest a simple rule of thumb for identifying statistically significant changes in country governance over time. The ability to identify significant changes in governance over time is much higher for aggregate indicators than for any individual indicator. While the authors find that the quality of governance in a number of countries has changed significantly (in both directions), they also provide evidence suggesting that there are no trends, for better or worse, in global averages of governance. Finally, they interpret the strong observed correlation between income and governance, and argue against recent efforts to apply a discount to governance performance in low-income countries.

Corporate Governance, Economic Entrenchment, and Growth

Abstract: Outside the United States and the United Kingdom, large corporations usually have controlling owners, who are usually very wealthy families. Pyramidal control structures, cross shareholding, and super-voting rights let such families control corporations without making a commensurate capital investment. In many countries, a few such families end up controlling considerable proportions of their countries’ economies. Three points emerge. First, at the firm level, these ownership structures, because they vest dominant control rights with families who often have little real capital invested, permit a range of agency problems and hence resource misallocation. If a few families control large swaths of an economy, such corporate governance problems can attain macroeconomic importance—affecting rates of innovation, economywide resource allocation, and economic growth. If political influence depends on what one controls, rather than what one owns, the controlling owners of pyramids have greatly amplified political influence relative to their actual wealth. This influence can distort public policy regarding property rights protection, capital markets, and other institutions. We denote this phenomenon economic entrenchment, and posit a relationship between the distribution of corporate control and institutional development that generates and preserves economic entrenchment as one possible equilibrium. The literature suggests key determinants of economic entrenchment, but has many gaps where further work exploring the political economy importance of the distribution of corporate control is needed.

Corporate Governance and the Value of Cash Holdings

Abstract: In this paper, we investigate how corporate governance impacts firm value by examining both the value and the use of cash holdings in poorly and well governed firms. Cash represents a large and growing fraction of corporate assets and generally is at the discretion of management. We use several measures of corporate governance and show that governance has a substantial impact on firm value through its impact on cash: $1.00 of cash in a poorly governed firm is valued by the market at only $0.42 to $0.88, depending on the measure of governance. Good governance approximately doubles this value of cash. Furthermore, governance has a significant impact on how firms use cash. We show that firms with poor corporate governance dissipate cash quickly and in ways that significantly reduce operating performance. This negative impact of large cash holdings on future operating performance is cancelled out if the firm is well governed. All of our results hold after controlling for the level of acquisitions undertaken by cash rich firms, indicating that acquisitions are not solely responsible for the value destruction in poorly governed, cash rich firms. The findings presented in this paper provide direct evidence of how governance can improve or destroy firm value and insight into the importance of governance in determining corporate cash policy.

Governance Innovation and the Citizen: The Janus Face of Governance-beyond-the-State:

Abstract: Summary. This paper focuses on the fifth dimension of social innovation—i.e. political governance. Although largely neglected in the mainstream ‘innovation’ literature, innovative governance arrangements are increasingly recognised as potentially significant terrains for fostering inclusive development processes. International organisations like the EU and the World Bank, as well as leading grass-roots movements, have pioneered new and more participatory governance arrangements as a pathway towards greater inclusiveness. Indeed, over the past two decades or so, a range of new and often innovative institutional arrangements has emerged, at a variety of geographical scales. These new institutional ‘fixes’ have begun to challenge traditional state-centred forms of policy-making and have generated new forms of governance-beyond-thestate. Drawing on Foucault’s notion of governmentality, the paper argues that the emerging innovative horizontal and networked arrangements of governance-beyond-the-state are decidedly Janus-faced. While enabling new forms of participation and articulating the state‐ civil society relationships in potentially democratising ways, there is also a flip side to the process. To the extent that new governance arrangements rearticulate the state-civil society relationship, they also redefine and reposition the meaning of (political) citizenship and, consequently, the nature of democracy itself. The first part of the paper outlines the contours of governance-beyond-the-state. The second part addresses the thorny issues of the state‐civil society relationship in the context of the emergence of the new governmentality associated with governance-beyond-the-state. The third part teases out the contradictory way in which new arrangements of governance have created new institutions and empowered new actors, while disempowering others. It is argued that this shift from ‘government’ to ‘governance’ is associated with the consolidation of new technologies of government, on the one hand, and with profound restructuring of the parameters of political democracy on the other, leading to a substantial democratic deficit. The paper concludes by suggesting that socially innovative arrangements of governance-beyond-the-state are fundamentally Janus-faced, particularly under conditions in which the democratic character of the political sphere is increasingly eroded by the encroaching imposition of market forces that set the ‘rules of the game’.

To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation

Abstract: Data on corporate governance and disclosure practices reveal wide within-country variation that decreases with the strength of investors’ legal protection. A simple model identifies three firm attributes related to that variation: investment opportunities, external financing, and ownership structure. Using firm-level governance and transparency data from 27 countries, we find that all three firm attributes are related to the quality of governance and disclosure practices, and firms with higher governance and transparency rankings are valued higher in stock markets. All relations are stronger in less investor-friendly countries, demonstrating that firms adapt to poor legal environments to establish efficient governance practices.

The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis

Abstract: We study how corporate boards and audit committees are associated with voluntary financial disclosure practices, proxied here by management earnings forecasts. We find that in firms with more effective board and audit committee structures, managers are more likely to make or update an earnings forecast, and their forecast is less likely to be precise, it is more accurate, and it elicits a more favorable market response. Together, our empirical evidence is broadly consistent with the notion that effective corporate governance is associated with higher financial disclosure quality.

Corporate Governance and Acquirer Returns

Abstract: We examine whether corporate governance mechanisms, especially the market for corporate control, affect the profitability of firm acquisitions. We find that acquirers with more anti-takeover provisions experience significantly lower announcement-period stock returns than other acquirers. We also find that acquiring firms operating in more competitive industries or separating the positions of CEO and chairman of the board experience higher abnormal announcement returns. Our results support the hypothesis that managers protected by more anti-takeover provisions face weaker discipline from the market for corporate control and thus, are more likely to indulge in empire-building acquisitions that destroy shareholder value. They provide a partial explanation for why anti-takeover provision indices of Gompers, Ishii and Metrick and others are negatively correlated with shareholder value.

Corporate Governance and Competitive Advantage in Family-Controlled Firms

Abstract: Recent attempts to identify the basis of family–controlled firms’ competitive advantage have drawn upon the resource–based view of the firm. This article supplements these efforts and advances the argument that family–controlled firms’ competitive advantage arises from their system of corporate governance. Systems of corporate governance embody incentives, authority patterns, and norms of legitimation that generate particular organizational propensities to create competitive advantages and disadvantages. For comparative purposes, the characteristics of managerial, alliance, and family governance are reviewed. The impact of a family's control rights over a firm's assets generates three dominant propensities (parsimony, personalism, and particularism). These propensities give advantages in scarce environments, facilitate the creation and utilization of social capital, and engender opportunistic investment processes. The experience of family–controlled firms in emerging markets is drawn upon to illustrate th...

The Market for Virtue: The Potential and Limits of Corporate Social Responsibility

Abstract: In the highly praised The Market for Virtue, David Vogel presents a clear, balanced analysis of the contemporary corporate social responsibility (CSR) movement in the United States and Europe. In this updated paperback edition, Vogel discusses recent CSR initiatives and responds to new developments in the CSR debate. He asserts that while the movement has achieved success in improving some labor, human rights, and environmental practices in developing countries, there are limits to improving corporate conduct without more extensive and effective government regulation. Put simply, Vogel believes that there is a market for virtue, but it is limited by the substantial costs of socially responsible business behaviour.

The effects of corporate social responsibility and price on consumer responses

Abstract: This experiment examined the influence of corporate social responsibility and price on consumer responses. Scenarios were created to manipulate corporate social responsibility and price across two domains (environment and philanthropy). Results from a national sample of adults indicate that corporate social responsibility in both domains had a positive impact on evaluation of the company and purchase intent. Furthermore, in the environmental domain corporate social responsibility affected purchase intent more strongly than price did.

Corporate Governance and Accounting Scandals

Abstract: This paper empirically examines whether certain corporate governance mechanisms are related to the probability of a company restating its earnings. We examine a sample of 159 U.S. public companies that restated earnings and an industry‐size matched sample of control firms. We have assembled a novel, hand‐collected data set that measures the corporate governance characteristics of these 318 firms. We find that several key governance characteristics are unrelated to the probability of a company restating earnings. These include the independence of boards and audit committees and the provision of nonaudit services by outside auditors. We find that the probability of restatement is lower in companies whose boards or audit committees have an independent director with financial expertise; it is higher in companies in which the chief executive officer belongs to the founding family. These relations are statistically significant, large in magnitude, and robust to alternative specifications. Our findings ...

Rethinking Sustainable Cities: Multilevel Governance and the 'Urban' Politics of Climate Change

Abstract: While sustainable cities have been promoted as a desirable goal within a variety of policy contexts, critical questions concerning the extent to which cities and local governments can address the challenges of sustainability remain unanswered. We use a multilevel governance perspective to examine the discursive and material struggles which take place in creating sustainable cities. In exploring the politics of implementing climate protection through development planning in Newcastle upon Tyne and transport planning in Cambridgeshire, we find that the interpretation and implementation of sustainability are shaped by forms of governance which stretch across geographical scales and beyond the boundary of the urban. We argue that the 'urban' governance of climate protection involves relations between levels of the state and new network spheres of authority which challenge traditional distinctions between local, national and global environmental politics.

Corporate Governance and Firm Valuation

Abstract: Gompers et al. [Gompers, P., Ishii, J., Metrick, A., 2003. Corporate governance and equity prices. Quarterly Journal of Economics 118, 107-155] created G-Index, a summary measure of corporate governance based on 24 firm-specific provisions, and showed that more democratic firms are more valuable. Bebchuk et al. [Bebchuk, L., Cohen, A., Ferrell, A., 2005. What matters in corporate governance? Working Paper, Harvard Law School] created an entrenchment index based on six provisions underlying G-Index, and found it to fully drive the Gompers et al. (2003) valuation results. Both G-Index and the entrenchment index are based on IRRC data that is comprised of anti-takeover measures, focusing on external governance [Cremers, K.J.M., Nair, V.B., 2005. Governance mechanisms and equity prices. Journal of Finance 60, 2859-2894]. We create Gov-Score, a summary governance measure based on 51 firm-specific provisions representing both internal and external governance, and we show that a parsimonious index based on seven provisions underlying Gov-Score fully drives the relation between Gov-Score and firm value. Our results support the Bebchuk et al. (2005) findings that only a small subset of provisions marketed by corporate governance data providers are related to firm valuation, and the Cremers and Nair (2005) evidence that both internal and external governance are linked to firm value. The 51 governance provisions we consider include five that are relevant to accounting and public policy: stock option expensing, and four that are audit-related. We find none of these five measures to be related to firm valuation. We document that only one of the seven governance provisions important for firm valuation was mandated by either the Sarbanes-Oxley Act of 2002 or the three major US stock exchanges. We provide researchers with an alternative measure of governance to G-Index with three distinct advantages: (1) broader in scope of governance, (2) covers more firms, and (3) more dynamic, reflecting recent changes in the corporate governance environment.

Governance Mechanisms and Equity Prices

Abstract: We investigate how the market for corporate control (external governance) and shareholder activism (internal governance) interact. A portfolio that buys firms with the highest level of takeover vulnerability and shorts firms with the lowest level of takeover vulnerability generates an annualized abnormal return of 10% to 15% only when public pension fund (blockholder) ownership is high as well. A similar portfolio created to capture the importance of internal governance generates annualized abnormal returns of 8%, though only in the presence of “high” vulnerability to takeovers. The complementarity effect exists for firms with lower industry-adjusted leverage and is stronger for smaller firms.

Does the Market Value Financial Expertise on Audit Committees of Boards of Directors

Abstract: We examine three-day cumulative abnormal returns around the announcement of 702 newly appointed outside directors assigned to audit committees during a period before implementation of the Sarbanes-Oxley Act (SOX). Motivated by the SOX requirement that public companies disclose whether they have a financial expert on their audit committee, we test whether the market reacts favorably to the appointment of directors with financial expertise to the audit committee. In addition, because it is controversial whether SOX should define financial experts narrowly to include primarily accounting financial experts (as initially proposed) or more broadly to include nonaccounting financial experts (as ultimately passed), we separately examine appointments of each type of expert. We find a positive market reaction to the appointment of accounting financial experts assigned to audit committees but no reaction to nonaccounting financial experts assigned to audit committees, consistent with accounting-based financial skills, but not broader financial skills, improving the audit committee's ability to ensure high-quality financial reporting. In addition, we find that this positive reaction is concentrated among firms with relatively strong corporate governance, consistent with accounting financial expertise complementing strong governance, possibly because strong governance helps channel the expertise toward enhancing shareholder value. Together, these findings are consistent with financial expertise on audit committees improving corporate governance but only when both the expert and the appointing firm possess characteristics that facilitate the effective use of the expertise.

Restoring trust after fraud: Does corporate governance matter?

Abstract: In this study, I examine the association between the credibility of the financial reporting system and the quality of governance mechanisms. I use a sample of 87 firms identified by the SEC as fraudulently manipulating their financial statements. Consistent with prior research, results indicate that fraud firms have poor governance relative to a control sample in the year prior to fraud detection. Specifically, fraud firms have fewer numbers and percentages of outside board members, fewer audit committee meetings, fewer financial experts on the audit committee, a smaller percentage of Big 4 auditing firms, and a higher percentage of CEOs who are also chairmen of the board of directors. However, the results indicate that fraud firms take actions to improve their governance, and three years after fraud detection these firms have governance characteristics similar to the control firms in terms of the numbers and percentages of outside members on the board, but exceed the control firms in the number of audit ...

The false developmental promise of corporate social responsibility: evidence from multinational oil companies

Abstract: Using the example of multinational oil companies, this article suggests that there are fundamental problems surrounding the capacity of private firms to deliver development and the aspiration of achieving development through Corporate Social Responsibility (CSR) may be fundamentally flawed. The article is based on an extensive twelve-month research project on the Gulf of Guinea region funded by the Nuffield Foundation. This research identified a number of constraints to a developmental role for CSR: the subservience of CSR schemes to corporate objectives; country- and context-specific issues; the failure to involve the beneficiaries of CSR; the lack of human resources; technical/managerial approaches of company staff and the lack of CSR's integration into larger development plans. But even if private companies were able to overcome practical problems, it argues that the current CSR agenda fails to address the crucial issues of governance and the negative macro-level effects that multinational companies cause in host countries. The article concludes by suggesting that a focus on CSR may divert attention from broader political, economic and social solutions for developmental problems.

Quality standards, conventions and the governance of global value chains

Abstract: Convention theory helps refine our understanding of the governance of global value chains through its analysis of ‘quality’. In this article, it is argued that global value chains are becoming increasingly ‘buyer-driven’, even though they are characterized by ‘hands-off’ forms of co-ordination between ‘lead firms’ and their immediate suppliers. This is because lead firms have been able to embed complex quality information into widely accepted standards and codification and certification procedures. As suggested by convention theory, their success in doing so has depended on defining and managing value chain-specific quality attributes that are attuned to broader narratives about quality that circulate within society more generally.

The Corporate Governance of Banks

Abstract: The study argues that commercial banks pose unique corporate governance problems for managers and regulators, as well as for claimants on the banks' cash flows, such as investors and depositors The authors support the general principle that fiduciary duties should be owed exclusively to shareholders However, in the special case of banks, they contend that the scope of the fiduciary duties and obligations of officers and directors should be broadened to include creditors In particular, the authors call on bank directors to take solvency risk explicitly and systematically into account when making decisions or else face personal liability for failure to do so

Corporate reputation and philanthropy: an empirical analysis

Abstract: This paper analyzes the determinants of corporate reputation within a sample of large UK companies drawn from a diverse range of industries. We pay particular attention to the role that philanthropic expenditures and policies may play in shaping the perceptions of companies among their stakeholders. Our findings highlight that companies which make higher levels of philanthropic expenditures have better reputations and that this effect varies significantly across industries. Given that reputational indices tend to reflect the financial performance of organizations above other factors (Fryxell, G. E. and J. Wang: 1994, Journal of Management 20, 1–14) and that elements of the literature emphasise that discretionary aspects of social responsibility, including corporate donations, may not be in the financial interests of organizations (e.g. Friedman, M.: 1970, “The Social Responsibility of Business is to Increase its Profits”, New York Times Magazine, September 13), this is a significant finding. It suggests that philanthropic expenditures may play a significant role in stakeholder management and may, in particular, lead to stakeholders holding more positive impressions of philanthropic corporations.

Do Women in Top Management Affect Firm Performance? A Panel Study of 2500 Danish Firms

Abstract: Corporate governance literature argues that board diversity is potentially positively related to firm performance. This study examines the relationship in the case of women in top executive jobs and on boards of directors. We use data for the 2500 largest Danish firms observed during the period 1993-­2001 and find that the proportion of women in top management jobs tends to have positive effects on firm performance, even after controlling for numerous characteristics of the firm and direction of causality. The results show that the positive effects of women in top management depend on the qualifications of female top managers.

The New Governance: Practices and Processes for Stakeholder and Citizen Participation in the Work of Government

Abstract: Leaders in public affairs identify tools and instruments for the new governance through networks of public, private, and nonprofit organizations. We argue the new governance also involves people—the tool makers and tool users—and the processes through which they participate in the work of government. Practitioners are using new quasi-legislative and quasi-judicial governance processes, including deliberative democracy, e-democracy, public conversations, participatory budgeting, citizen juries, study circles, collaborative policy making, and alternative dispute resolution, to permit citizens and stakeholders to actively participate in the work of government. We assess the existing legal infrastructure authorizing public managers to use new governance processes and discuss a selection of quasi-legislative and quasi-judicial new governance processes in international, federal, state, and local public institutions. We conclude that public administration needs to address these processes in teaching and research to help the public sector develop and use informed best practices.

Deliberative Policy Analysis: Understanding Governance in the Network Society

Abstract: should be required reading for planning educators who can trace their own streams of thought back to the source. The whole book or key segments, notably chapters 11 to 13, should find their way on to reading lists for city planning students as an excellent introduction to the profession. Practitioners should enjoy the explanation of how they came to where they are today. Researchers will have a field day with its rich bibliography. This review or any other can to do little justice to this book’s richness—it is a work that demands not one but several readings to appreciate its many contributions to the field.