Showing papers on "Corporate governance published in 2007"

The economic institutions of capitalism : firms, markets, relational contracting

Abstract: This study is based on the belief that economic organization is shaped by transaction cost economizing decisions. It sets out the basic principles of transaction cost economics, applies the basic arguments to economic institutions, and develops public policy implications. Any issue that arises, or can be recast as a matter of contracting, is usefully examined in terms of transaction costs. Transaction cost economics maintains that governance of contractual relations is mainly achieved through institutions of private ordering instead of legal centralism. This approach is based on behavioral assumptions of bounded rationalism and opportunism, which reflect actual human nature. These assumptions underlie the problem of economic organization: to create contract and governance structures that economize on bounded rationality while safeguarding transactions against the hazards of opportunism. The book first summarizes the transaction cost economics approach to the study of economic organization. It develops the underlying behavioral assumptions and the types of transactions; alternative approaches to the world of contracts are presented. Assuming that firms are best regarded as a governance structure, a comparative institutional approach to the governance of contractual relations is set out. The evidence, theory, and policy of vertical integration are discussed, on the basis that the decision to integrate is paradigmatic to transaction cost analysis. The incentives and bureaucratic limits of internal organization are presented, including the dilemma of why a large firm can't do everything a collection of small firms can do. The economics of organization in presented in terms of transaction costs, showing that hierarchy also serves efficiency and permits a variety of predictions about the organization of work. Efficient labor organization is explored; on the assumption that an authority relation prevails between workers and managers, what governance structure supports will be made in response to various types of job attributes are discussed, and implications for union organization are developed. Considering antitrust ramifications of transaction cost economics, the book summarizes transaction cost issues that arise in the context of contracting, merger, and strategic behavior, and challenges earlier antitrust preoccupation with monopoly. (TNM)

Collaborative governance in theory and practice

Abstract: Over the past few decades, a new form of governance has emerged to replace adversarial and managerial modes of policy making and implementation. Collaborative governance, as it has come to be known, brings public and private stakeholders together in collective forums with public agencies to engage in consensus-oriented decision making. In this article, we conduct a meta-analytical study of the existing literature on collaborative governance with the goal of elaborating a contingency model of collaborative governance. After reviewing 137 cases of collaborative governance across a range of policy sectors, we identify critical variables that will influence whether or not this mode of governance will produce successful collaboration. These variables include the prior history of conflict or cooperation, the incentives for stakeholders to participate, power and resources imbalances, leadership, and institutional design. We also identify a series of factors that are crucial within the collaborative process itself. These factors include face-to-face dialogue, trust building, and the development of commitment and shared understanding. We found that a virtuous cycle of collaboration tends to develop when collaborative forums focus on ‘‘small wins’’ that deepen trust, commitment, and shared understanding. The article concludes with a discussion of the implications of our contingency model for practitioners and for future research on collaborative governance. Over the last two decades, a new strategy of governing called ‘‘collaborative governance’’ has developed. This mode of governance brings multiple stakeholders together in common forums with public agencies to engage in consensus-oriented decision making. In this article, we conduct a meta-analytical study of the existing literature on collaborative governance with the goal of elaborating a general model of collaborative governance. The ultimate goal is to develop a contingency approach to collaboration that can highlight conditions under which collaborative governance will be more or less effective as an

Why would corporations behave in socially responsible ways? an institutional theory of corporate social responsibility

Abstract: I offer an institutional theory of corporate social responsibility consisting of a series of propositions specifying the conditions under which corporations are likely to behave in socially responsible ways. I argue that the relationship between basic economic conditions and corporate behavior is mediated by several institutional conditions: public and private regulation, the presence of nongovernmental and other independent organizations that monitor corporate behavior, institutionalized norms regarding appropriate corporate behavior, associative behavior among corporations themselves, and organized dialogues among corporations and their stakeholders. Concerns about corporate social responsibility have grown significantly during the last two decades. Not only has the issue become commonplace in the business press and among business and political leaders (Buhr & Graf

Modes of Network Governance: Structure, Management, and Effectiveness

Abstract: This article examines the governance of organizational networks and the impact of governance on network effectiveness. Three basic models, or forms, of network governance are developed focusing on their distinct structural properties. Propositions are formulated examining conditions for the effectiveness of each form. The tensions inherent in each form are then discussed, followed by the role that management may play in addressing these tensions. Finally, the evolution of governance is explored.

Putting the S back in corporate social responsibility: A multilevel theory of social change in organizations

Abstract: We provide a multilevel theoretical model to understand why business organizations are increasingly engaging in corporate social responsibility (CSR) initiatives and thereby exhibiting the potential to exert positive social change. Our model integrates theories of organizational justice, corporate governance, and varieties of capitalism to argue that organizations are pressured to engage in CSR by many different actors, each driven by instrumental, relational, and moral motives. We conclude by highlighting empirical questions for future research and discussing some managerial implications. Economic progress, through a fair and open world trading system is essential to tackle poverty and ensure a safer more secure world for everyone now and for future generations. The challenges remain of ensuring that the benefits of that progress reach all sectors in all countries and are not at the expense of the environment (Sir Stephen Timms, U.K. Minister for CSR, Royal In

Governance matters VII: aggregate and individual governance indicators 1996-2007

Abstract: This paper reports on the latest update of the Worldwide Governance Indicators (WGI) research project, covering 212 countries and territories and measuring six dimensions of governance between 1996 and 2007: Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. The latest aggregate indicators are based on hundreds of specific and disaggregated individual variables measuring various dimensions of governance, taken from 35 data sources provided by 32 different organizations. The data reflect the views on governance of public sector, private sector and NGO experts, as well as thousands of citizen and firm survey respondents worldwide. The authors also explicitly report the margins of error accompanying each country estimate. These reflect the inherent difficulties in measuring governance using any kind of data. The authors also briefly describe the evolution of the WGI since its inception, and show that the margins of error on the aggregate governance indicators have declined over the years, even though they still remain non-trivial. The authors find that even after taking margins of error into account, the WGI permit meaningful cross-country comparisons as well as monitoring progress over time. In less than a decade, a substantial number of countries exhibit statistically significant improvements in at least one dimension of governance, while other countries exhibit deterioration in some dimensions. These aggregate indicators, spanning more than a decade, together with the disaggregated individual indicators, are available at www.govindicators.org.

Corporate Governance, Accounting Outcomes, and Organizational Performance

Abstract: The empirical research examining the association between typical measures of corporate governance and various accounting and economic outcomes has not produced a consistent set of results. We believe that these mixed results are partially attributable to the difficulty in generating reliable and valid measures for the complex construct that is termed corporate governance. Using a sample of 2,106 firms and 39 structural measures of corporate governance (e.g., board characteristics, stock ownership, institutional ownership, activist stock ownership, existence of debt-holders, mix of executive compensation, and anti-takeover variables), our exploratory principal component analysis suggests that there are 14 dimensions to corporate governance. We find that these indices have a mixed association with abnormal accruals, little relation to accounting restatements, but some ability to explain future operating performance and future excess stock returns.

Who Blows the Whistle on Corporate Fraud

Abstract: What external control mechanisms are most effective in detecting corporate fraud? To address this question we study in depth all reported cases of corporate fraud in companies with more than 750 million dollars in assets between 1996 and 2004. We find that fraud detection does not rely on one single mechanism, but on a wide range of, often improbable, actors. Only 6% of the frauds are revealed by the SEC and 14% by the auditors. More important monitors are media (14%), industry regulators (16%), and employees (19%). Before SOX, only 35% of the cases were discovered by actors with an explicit mandate. After SOX, the performance of mandated actors improved, but still account for only slightly more than 50% of the cases. We find that monetary incentives for detection in frauds against the government influence detection without increasing frivolous suits, suggesting gains from extending such incentives to corporate fraud more generally.

Social Learning and Water Resources Management

Abstract: Natural resources management in general, and water resources management in particular, are currently undergoing a major paradigm shift. Management practices have largely been developed and implemented by experts using technical means based on designing systems that can be predicted and controlled. In recent years, stakeholder involvement has gained increasing importance. Collaborative governance is considered to be more appropriate for integrated and adaptive management regimes needed to cope with the complexity of social-ecological systems. The paper presents a concept for social learning and collaborative governance developed in the European project HarmoniCOP (Harmonizing COllaborative Planning). The concept is rooted in the more interpretive strands of the social sciences emphasizing the context dependence of knowledge. The role of frames and boundary management in processes of learning at different levels and time scales is investigated. The foundation of social learning as investigated in the HarmoniCOP project is multiparty collaboration processes that are perceived to be the nuclei of learning processes. Such processes take place in networks or “communities of practice” and are influenced by the governance structure in which they are embedded. Requirements for social learning include institutional settings that guarantee some degree of stability and certainty without being rigid and inflexible. Our analyses, which are based on conceptual considerations and empirical insights, suggest that the development of such institutional settings involves continued processes of social learning. In these processes, stakeholders at different scales are connected in flexible networks that allow them to develop the capacity and trust they need to collaborate in a wide range of formal and informal relationships ranging from formal legal structures and contracts to informal, voluntary agreements.

Understanding Governance: Ten Years On:

Abstract: The paper reassesses the argument in Understanding Governance (1997). The first section summarizes where we are now in the study of governance, reviewing briefly the key concepts of policy networks, governance, core executive, hollowing out the state and the differentiated polity. The second section engages with my critics with the aim of opening new directions of research. I concentrate on the key issues of: the context of policy networks, explaining change and the role of ideas, the decline of the state, rescuing the core executive, and steering networks. Under each heading, I sketch a decentred answer to the question of where we go from here. I argue the analysis of governance should focus on beliefs, practices, traditions and dilemmas.

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 antitakeover provisions experience significantly lower announcementperiod abnormal stock returns. This supports the hypothesis that managers at firms protected by more antitakeover provisions are less subject to the disciplinary power of the market for corporate control and thus are more likely to indulge in empire-building acquisitions that destroy shareholder value. We also find that acquirers operating in more competitive industries or separating the positions of CEO and chairman of the board experience higher abnormal announcement returns. FOLLOWING A STRING OF CORPORATE SCANDALS in the United States, legislators and regulators rushed to enact corporate governance reforms, which resulted in the passage of the Sarbanes-Oxley Act of 2002. Yet, these reforms were instituted with little scientific evidence to support their purported benefits. As the impact of these reforms continues to be strongly felt, with further reforms likely in the future, it is of great economic import to understand how major corporate governance mechanisms affect shareholder wealth. A series of recent studies by Gompers, Ishii, and Metrick (GIM, 2003), Bebchuk, Cohen, and Ferrell (BCF, 2004), Bebchuk and Cohen (2005), and Cremers and Nair (2005) examine one important dimension of corporate governance, namely, the market for corporate control. They document negative relations between various indices of antitakeover provisions (ATPs) and both firm value and

Corporate Governance, Accounting Outcomes, and Organizational Performance

Abstract: The empirical research examining the association between typical measures of corporate governance and various accounting and economic outcomes has not produced a consistent set of results. We belie...

Does female board representation influence firm performance? The Danish evidence

Abstract: Board diversity has become a major issue within corporate governance where a number of studies seek to explore the impact of diversity on firm performance. The debate focuses on questions such as whether a corporation’s board should reflect the firm’s stakeholders or be more in line with society in general. This article uses a sample of listed Danish firms during the period of 1998–2001 in a cross sectional analysis. Despite that fact that Denmark has gone very far in the liberalisation of women, Danish board rooms are still to a large extent dominated by men. Contrary to a number of other studies, this article does not find any significant link between firm performance as measured by Tobin’s Q and female board representation. This is also the case for board members’ educational background as well as the proportion of foreigners. It is argued that board members with an unconventional background are socialised unconsciously adopting the ideas of the majority of conventional board members, which entails that a potential performance effect does not materialise.

Corporate Governance and Risk Taking

Abstract: This paper examines the relationship between investor protection and corporate insiders' incentive to take value-enhancing risks. In a poor investor protection environment corporations are often run by entrenched insiders who appropriate considerable corporate resources as personal benefits. When these private benefits are large, insiders may undertake sub-optimally conservative investment decisions to preserve them. Better investor protection reduces these private benefits and may therefore induce riskier but value enhancing investment policy. Such a relationship can also result from risk-averse behavior on the part of dominant shareholders with undiversified exposure in their own firms, which is again more prevalent in countries with poorer investor protection. If prominent non-equity stakeholders such as banks, labor unions or the government can influence corporate investment, and their influence is decreasing in investor protection, that can also give rise to a positive relationship between investor protection and investment risk. We test these predictions using a large cross-country panel. We find empirical confirmation that corporate risk-taking and firm growth rates are positively related to the quality of investor protection. On the other hand, the data do not lead to consistent evidence for the alternative channels.

The Colors of Investors' Money: The Role of Institutional Investors Around the World

Abstract: We study the role of institutional investors around the world using a comprehensive data set of equity holdings from 27 countries. Domestic, U.S.-, and non-U.S.-based foreign institutions hold comparable shares of non-U.S. corporations. We find that all institutional investors have a strong preference for the stock of large firms and firms with strong governance indicators, while foreign institutions tend to overweight firms that are cross-listed in the U.S. and members of the Morgan Stanley Capital International World Index. We find that firms with higher ownership by foreign and independent institutions (unlike other institutions) have higher firm valuations, better operating performance, and lower capital expenditures. Our results indicate that foreign and independent institutions, with potentially fewer business ties to firms and freer from management influence, are involved in monitoring corporations worldwide.

Going beyond panaceas.

Abstract: In the context of governance of human-environment interactions, a panacea refers to a blueprint for a single type of governance system (e.g., government ownership, privatization, community property) that is applied to all environmental problems. The aim of this special feature is to provide theoretical analysis and empirical evidence to caution against the tendency, when confronted with pervasive uncertainty, to believe that scholars can generate simple models of linked social-ecological systems and deduce general solutions to the overuse of resources. Practitioners and scholars who fall into panacea traps falsely assume that all problems of resource governance can be represented by a small set of simple models, because they falsely perceive that the preferences and perceptions of most resource users are the same. Readers of this special feature will become acquainted with many cases in which panaceas fail. The articles provide an excellent overview of why they fail. Furthermore, the articles in this special feature address how scholars and public officials can increase the prospects for future sustainable resource use by facilitating a diagnostic approach in selecting appropriate starting points for governance and monitoring, as well as by learning from the outcomes of new policies and adapting in light of effective feedback.

Corporate Disclosures by Family Firms

Abstract: Compared to non-family firms, family firms face less severe agency problems due to the separation of ownership and management, but more severe agency problems that arise between controlling and non-controlling shareholders. These characteristics of family firms affect their corporate disclosure practices. For S&P 500 firms, we show that family firms report better quality earnings, are more likely to warn for a given magnitude of bad news, but make fewer disclosures about their corporate governance practices. Consistent with family firms making better financial disclosures, we find that family firms have larger analyst following, more informative analysts' forecasts, and smaller bid-ask spreads.

Transition Management : New Mode of Governance for Sustainable Development

Abstract: textThis book introduces transition management as a new mode of governance for sustainable development. Transition management combines a conceptual approach on social complexity, governance and long-term structural societal change with an operational governance model to actually work towards sustainability through learning-by- doing and doing-by-learning. The basic rationale behind transition management is that we are faced with societal problems of such complexity and magnitude, that existing approaches do not suffice. Such persistent problems can be found in many areas of society: energy, mobility, agriculture, water management, but also in health care, education, construction and industry. In these areas agreement upon definitions of sustainability the best solutions is impossible to achieve so that top-down planning is impossible, while at the same time sustainability can also never be achieved solely through bottom- up innovation and liberalization: sustainable development re! quires taking into account collective goods, future needs and un certain future development. Transition management aims to deal with persistent societal problems through combining long-term envisioning, short-term experiments in a selective participatory process that supports policy integration, social learning and social innovation. It focuses on frontrunners, entrepreneurs, niche-actors and innovative individuals and organizations in general that are committed to sustainable development. More often than not, innovations that in the long-term could contribute to sustainable development are unable to break through because of for example fragmentation, lack of means and support, limited attention to external (socio-economic) factors or lack of exposure. By simultaneously raising awareness and political acceptance for sustainable development in a specific area and by developing more coherence, cooperation and strategic capabilities at the level of the innovations, a structured process of social experimentation and learning can evolve that gradually leads to fundamenta! l structures in our societal systems. The central instrument for transition management is the transition arena: a scientifically underpinned operational model for coordinating and structuring transition management processes (especially in the predevelopment phase). The transition arena is a mental, physical and institutional space for experimentation, envisioning and network-building that is legitimized by regular policy. In the transition arena, different types of innovators with various backgrounds, perspectives and ambitions are brought together and develop shared long-term perspectives and a transition agenda that increasingly will influence regular policy. This approach has been introduced into research and policy in the Netherlands in 2001 and since then successfully applied in areas of sustainable energy, mobility, agriculture and housing . It has also been adopted as a new paradigm and approach in multi-disciplinary research . This book covers offers insight into the first five years of development of theory and practice of transition management in the Netherlands. As such, it is a unique account of an innovative experiment in policy theory and practice that is highly relevant for sustainable development in the international context.

Theories of democratic network governance

Abstract: Introduction E.Sorensen & J.Torfing Theoretical Approaches to Governance Network Dynamics E.Sorensen & J.Torfing Mechanisms of Governance Network Formation: A Contextual Rational Choice Perspective N.Hertting Virtuous and Viscous Circles in Democratic Network Governance B.G.Peters Decentred Theory, Change and Network Governance M.Bevir & R.A.W.Rhodes Theoretical Approaches to Governance Network Failure E.Sorensen & J.Torfing Closure and Governance L.Schaap Consensus and Conflict in Policy Networks: Too Much or Too Little? J.F.M.Koppenjan Network Governance: Effective and Legitimate? T.A.Boerzel & D.Panke Theoretical Approaches to Metagovernance E.Sorensen & J.Torfing Governing the Formation and Mobilization of Governance Networks P.Triantafillou Meta-governance as Network Management E-H.Klijn & J.Edelenbos Governing Outputs and Outcomes of Governance Networks L.J.O'Toole, Jr. Theoretical Approaches to Democratic Network Governance E.Sorensen & J.Torfing Governance Networks and Participation A.D.Hansen Networks and Democratic Ideals: Equality, Freedom and Communication J.S.Dryzek Democratic Accountability and Network Governance: Problems and Potentials A.Esmark

A General Framework for Analysing Diversity in Science, Technology and Society

Abstract: This paper addresses the scope for more integrated general analysis of diversity in science, technology and society. It proposes a framework recognizing three necessary but individually insufficient properties of diversity. Based on 10 quality criteria, it suggests a general quantitative non-parametric diversity heuristic. This allows the systematic exploration of diversity under different perspectives, including divergent conceptions of relevant attributes and contrasting weightings on different diversity properties. It is shown how this heuristic may be used to explore different possible trade-offs between diversity and other aspects of interest, including portfolio interactions. The resulting approach offers a way to be more systematic and transparent in the treatment of scientific and technological diversity in a range of fields, including conservation management, research governance, energy policy and sustainable innovation.

The Evolution of Shareholder Activism in the United States

Abstract: In the early 1900's American financial institutions were active participants in U.S. corporate governance but the enactment of securities laws in the 1930's limited the power of financial intermediaries and thus their governance role. The consequence of such laws and regulations was a progressive widening of the gap between ownership and control in large U.S. public companies. In 1942, SEC rule changes allowed shareholders to submit proposals for inclusion on corporate ballots. Since that time, shareholder activists have used the proxy process, and other approaches, to pressure corporate boards and managers for change. In particular, during the mid-1980s, the involvement of large institutional shareholders increased dramatically with the advent of public pension fund activism. At the heart of shareholder activism is the quest for value, yet the empirical evidence suggests that effects of such activism are mixed. We review the evidence on activism and, while some studies have found positive short-term market reactions to announcements of certain kinds of activism, there is little evidence of improvement in the long-term operating or stock-market performance of the targeted companies. A recent increase in hedge fund activism appears to be associated with dramatic corporate change, however, the research in this area is still somewhat nascent and the long-term effects are still unknown.

Does Corporate Governance Matter in Competitive Industries

Abstract: By reducing the fear of a hostile takeover, business combination (BC) laws weaken corporate governance and create more opportunity for managerial slack. Using the passage of BC laws as a source of variation in corporate governance, we examine if these laws have a different effect on firms in competitive and non-competitive industries. We find that while firms in non-competitive industries experience a significant drop in performance after the laws' passage, firms in competitive industries experience virtually no effect. While consistent with the general notion that competition mitigates managerial agency problems, our results are, in particular, supportive of the (stronger) Alchian-Friedman-Stigler hypothesis that competitive industries leave no room for managerial slack. When we examine which agency problem competition mitigates, we find evidence in support of a "quiet-life" hypothesis. While capital expenditures are unaffected by the passage of the BC laws, input costs, wages, and overhead costs all increase, and only so in non-competitive industries. We also conduct event studies around the dates of the first newspaper reports about the BC laws. We find that while firms in non-competitive industries experience a significant stock price decline, firms in competitive industries experience a small and insignificant price impact.

Economic Consequences of the Sarbanes-Oxley Act of 2002

Abstract: This paper investigates the economic consequences of the Sarbanes-Oxley Act (SOX) by examining market reactions to related legislative events. Using concurrent stock returns of non-U.S.-traded foreign firms to estimate normal U.S. returns, I find that U.S. firms experienced a statistically significant negative cumulative abnormal return around key SOX events. I then examine the cross-sectional variation of U.S. firms' returns around these events. Regression results are consistent with the nonaudit services and governance provisions imposing net costs. Additional tests show that deferring the compliance of Section 404, which mandates an internal control test, resulted in significant cost savings for nonaccelerated filers.

An Organizational Approach to Comparative Corporate Governance: Costs, Contingencies, and Complementarities

Abstract: This paper develops an organizational approach to corporate governance and assesses the effectiveness of corporate governance and implications for policy. Most corporate governance research focuses on a universal link between corporate governance practices (e.g. shareholder activism, board independence) and performance outcomes, but neglects how interdependences between the organization and diverse environments lead to variations in the effectiveness of different corporate governance practices. In contrast to such 'closed systems' approaches, we propose a framework based on 'open systems' approaches to organizations which examines these organizational interdependencies in terms of the costs, contingencies and complementarities of different corporate governance practices. These three sets of organizational factors are useful in analyzing the effectiveness of corporate governance in diverse organizational environments. We also explore how costs, contingencies and complementarities impact approaches to policy such as 'soft-law' or 'hard law', and their effectiveness in different contexts.

Corporate Governance and Firm Value: the Impact of the 2002 Governance Rules

Abstract: The 2001 to 2002 corporate scandals led to the Sarbanes Oxley Act and to various amendments to the U.S. stock exchanges' regulations. We find that the announcement of these rules has a significant effect on firm value. Firms that are less compliant with the provisions of the rules earn positive abnormal returns compared to firms that are more compliant. We also find variation in the response across firm size. Large firms that are less compliant earn positive abnormal returns but small firms that are less compliant earn negative abnormal returns, suggesting that some provisions are detrimental to small firms.