Corporate governance

About: Corporate governance is a research topic. Over the lifetime, 118591 publications have been published within this topic receiving 2793582 citations.

A Team Production Theory of Corporate Law

Abstract: A Team Production Theory of Corporate Law^ INTRODUCTION Who owns a corporation? Most economists and legal scholars today seem inclined to answer: Its shareholders do. Contemporary discussions of corporate governance have come to be dominated by the view that public corporations are little more than bundles of assets collectively owned by shareholders (principals) who hire directors and officers (agents) to manage those assets on their behalf.1 This principal-agent model, in turn, has given rise to two recurring themes in the literature: First, that the central economic problem addressed by corporation law is reducing "agency costs" by keeping directors and managers faithful to shareholders' interests; and second, that the primary goal of the public corporation is-or ought to be-maximizing shareholders' wealth. In this Article we take issue with both the prevailing principal-agent model of the public corporation and the shareholder wealth maximization goal that underlies it. Because corporations are fictional entities that can only act through human agents, problems of agent fealty are frequently encountered by those who study and practice corporate law. Yet the public corporation is hardly unique in its use of agents. Other organizational forms, including partnerships, proprietorships, privately-held corporations, and limited liability companies, also routinely do business through hired managers and employees. Thus, while the principal-agent problem may be important in understanding the business firm, we question whether it necessarily provides special insight into the theory of the public corporation. We explore an alternative approach that we believe may go much further in explaining both the distinctive legal doctrines that apply to public corporations and the unique role these business entities have come to play in American economic life: the team production approach. In the economic literature, team production problems are said to arise in situations where a productive activity requires the combined investment and coordinated effort of two or more individuals or groups.2 If the team members' investments are firm-specific (that is, difficult to recover once committed to the project), and if output from the enterprise is nonseparable (meaning that it is difficult to attribute any particular portion of the joint output to any particular member's contribution), serious problems can arise in determining how any economic surpluses generated by team production-any "rents"should be divided. Ex ante sharing rules invite shirking,3 while ex post attempts to divvy up rewards create incentives for opportunistic rent-seeking4 that can erode and even destroy the economic gains that flow from team production. Yet trying to prevent shirking and rent-seeking by defining individual team members' duties and rewards through explicit contracts can be impossibly difficult, especially when the team production process is complex, continuous, or uncertain. While team production problems are less well studied than principal-agent problems, we believe the former may represent a more appropriate basis for understanding the unique economic and legal functions served by the public corporation. Our analysis rests on the observation-generally accepted even by corporate scholars who adhere to the principal-agent model-that shareholders are not the only group that may provide specialized inputs into corporate production.5 Executives, rank-and-file employees, and even creditors or the local community may also make essential contributions and have an interest in an enterprise's success. And in circumstances where it is impossible to draft explicit contracts that deter shirking and rent-seeking among these various corporate "team members" by preallocating rewards and responsibilities, we suggest that the problem may be better left to an institutional substitute for explicit contracts: the law of public corporations. …

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.

Board Structure and Firm Performance: Evidence from India's Top Companies

Abstract: Manuscript Type: Empirical Research Question/Issue: This paper investigates the relationship between internal governance structures and financial performance of Indian companies. The effectiveness of boards of directors, including board composition, board size, and aspects of board leadership including duality and board busyness are addressed in the Indian context using two theories of corporate governance: agency theory and resource dependency theory. Research Findings/Insights: The study used a sample of top Indian companies taking into account the endogeneity of the relationships among corporate governance, corporate performance, and corporate capital structure. The study provides some support for aspects of agency theory as a greater proportion of outside directors on boards were associated with improved firm performance. The notion of separating leadership roles in a manner consistent with agency theory was not supported. For instance, the notion that powerful CEOs (duality role, CEO being the promoter, and CEO being the only board manager) have a detrimental effect on performance was not supported. There was some support for resource dependency theory. The findings suggest that larger board size has a positive impact on performance thus supporting the view that greater exposure to the external environment improves access to various resources and thus positively impacts on performance. The study however failed to support the resource dependency theory in terms of the association between frequency of board meetings and performance. Similarly the results showed that outside directors with multiple appointments appeared to have a negative effect on performance, suggesting that “busyness” did not add value in terms of networks and enhancement of resource accessibility. Theoretical/Academic Implications: The two theories of corporate governance, namely agency and resource dependence theory, were each only partially supported, by the findings of this study. The findings add further to the view that no single theory explains the nexus between corporate governance and performance. Practitioner/Policy Implications: This study demonstrates that corporate governance measures utilized in developed economies related to boards of directors have some synergies and relevance to emerging economies, such as India. However, the nature of business structures in India, for example the large number of family businesses, may limit the generalizability of the findings and signals the need for further investigation of these businesses. The evidence related to multiple appointments of directors suggests that there may be support for restricting the number of directorships held by any one individual in emerging economies, given that the “busyness” of directors was negatively associated with firm performance.

From State to Market: A Survey of Empirical Studies on Privatization

Abstract: This study surveys the literature examining the privatization of state-owned enterprises(SOEs). We overview the history of privatization, the theoretical and empirical evidence on the relative performance of state owned and privately owned firms, the types of privatization, if and by how much has privatization improved the performance of former SOEs in both non-transition and transition countries, how investors in privatizations have fared, the impact of privatization on the development of capital markets and corporate governance. We concentrate on the empirical evidence on the effects of privatization on firm performance. In most setting privatization "works" in that the firms become more efficient, more profitable, financially healthier, and reward investors. While this holds in both transition and non-transition economies, there is more variation in transition economies. Especially in transition economies, the identity of the new owners and managers is important in determining post-privatization performance.