Mainstream theories of corporate governance and the corporate governance – firm performance relationship

- This is an open- access article distributed under the terms of the Creative Commons Attribution 4.0 International license..
- Mainstream theories of corporate governance and the corporate governance – firm performance relationship.
- This paper reviews the mainstream theories of corporate governance and the relationship between corporate governance structures and firm financial performance.
- We show that the four predom- inant theories often employed to study the corporate governance – firm performance relation- ship are agency theory, stewardship theory, resource dependence theory, and institutional theory..
- In spite of being an overwhelmingly predominant theoretical approach in corporate governance studies, agency theory has recently been criticized for not fully reflect corporate governance prac- tices in various institutional contexts.
- It is, therefore, necessary to re-examine the traditional agency framework to understand the corporate governance – firm performance relationship in various in- stitutional environments.
- There are also calls for the application of a multi-theoretical approach to capture the complex nature of the corporate governance – firm performance relationship.
- It is also clear from our review that the effect of corporate governance on firm performance is inconclusive as empirical findings concerning this relationship are mixed in different analysis contexts.
- It is ar- gued that such inconclusive findings of the corporate governance – firm performance relationship may be caused by the national institution differences and the imperfection of estimation tech- niques.
- Several recent studies in corporate governance support the view that the implementation of corporate governance mechanisms in a country is influenced by its institutional environment..
- For this reason, the effectiveness of corporate governance mechanisms also varies from country to country, or in other words, it is country-specific.
- We also suggest that the potential mediating impacts of institutional characteristics on the corporate governance – firm performance relation- ship should be taken into consideration when conducting cross-country comparative corporate governance studies..
- It is indicated that there are three primary sources of inspiration for most of the empirical studies in the field of corporate governance, including agency theory, stewardship theory, and resource dependence theory 1 .
- Among them, the agency theory is regarded as the overwhelmingly predominant theoretical ap- proach in corporate governance studies 2–5 .
- How- ever, scholars increasingly realize that the agency the- ory depicts only a part of the complicated picture of an organization 6 , and insufficiently presents corpo- rate governance practices in all analysis contexts due to cross-national differences of the institution 7 .
- This leads to the need for the application of institutional theory to conduct cross-national comparative analy- ses of corporate governance.
- plex nature of the corporate governance – firm per- formance (CGFP) relationship 2,4,7–12 .
- More specifically, Letza, Sun, and Kirk- bride 3 conclude that the finance view and agency the- ory are employed as the predominant approach of studies on corporate governance in the past decades..
- Mainstream theories of corporate governance and the corporate gover- nance – firm performance relationship.
- This paper aims to review the mainstream theories of corporate governance and the relationship between corporate governance structures and firm financial performance.
- The theoreti- cal frameworks and typically empirical findings of the CGFP relationship will then be reviewed in the second subsection..
- FOUR PREDOMINANT THEORIES IN CORPORATE GOVERNANCE.
- It is also necessary to dis- tinguish between the terms of ‘system’ and ‘mecha- nism’ in the corporate governance literature.
- While the corporate governance system focuses on corporate governance at the country level, the term of corpo- rate governance mechanisms refers to corporate gov- ernance at the firm level.
- Whereas, the term of corporate governance mechanisms may be understood as the ways used to solve corporate gov- ernance problems at the firm level 16 .
- Many prior studies interchangeably use the term ’mechanisms’ and/or ’structures’ to deals with corporate governance at the level of firm..
- The extant corporate governance literature 16,18–22 suggests some such mechanisms to align the inter- est conflicts between the owners and the managers, including internal mechanisms (such as board size, board diversity, board committees, board indepen- dence, managerial ownership, and leverage, among others), and external mechanisms (such as block- holder ownership, institutional ownership, the mar- ket for corporate control and managerial control, and legal framework).
- Although the above-mentioned dual classification of corporate governance mecha- nisms is widely accepted, it should be noted that the denotation of each category is various between schol- ars 16 and, in fact, most researches primarily focus on the impact of each mechanism of corporate gov- ernance on financial performance 13,21 .
- For exam- ple, in many corporate governance studies, board size, board diversity, board committees, and board inde- pendence (including board composition and board leadership structure) are regarded as determinants of the board attributes.
- It should also be noticed that there is no consensus among researchers about the connotation of the terminology “board attributes”..
- Meanwhile, managerial ownership and block-holder ownership are two major features of the ownership structure.
- Hillman and Dalziel 9 refer to the ability of the board to bring essential resources to the firm as “board capital” in- cluding “human capital (experience, expertise, repu- tation) and relational capital (network of ties to other firms and external contingencies).
- For the region of East Asia, although there is prelim- inary evidence to state that resource dependence the- ory can better explain the board’s functions of East Asian companies than agency theory 30 , it is suggested that the combining of the two theoretical approaches will provide a sound grasp of the board’s functions 9.
- So what is the role of institutional theory in comparative studies of corporate governance? and how can national institu- tions affect their corporate governance mechanisms?.
- Concerning the role of institutional theory in studying corporate governance, several recent studies support the general view that the implementation of corporate governance mecha- nisms in a country is influenced by its institutional environment.
- For this reason, the effectiveness of corporate governance mechanisms also varies from country to country.
- It is suggested that the factors of the national institutional environment such as culture, financial system, corporate ownership patterns, legal tradition, and economic situation 36,37.
- are important determinants in analyzing different models of organization and their different levels of performance 38 , as well as in creating diverse national corporate governance practices 37.
- Moreover, in countries with incomplete legal systems and weak legal enforcement, corporate governance mechanisms may be adopted for legitimate targets rather than for firm performance 2 .
- In that case, the corporate governance practice is a purely normal matter rather than fact 13,40.
- The above examples illustrate the impacts of the na- tional institutional factors on corporate governance practices at the firm level as well as their importance to cross-country comparisons of corporate governance and firm performance.
- In general, although there is a growing consensus on the role of a national institution in corporate governance practices, cross- national comparative research on the CGFP relation- ship is still in the early stage of development 34 .
- they affect corporate governance practices, therefore, is considered as the primary objective of comparative studies of corporate governance .
- Several recent studies have focused on the CGFP re- lationship in emerging markets, where legal envi- ronments, corporate governance systems, and insti- tutional frameworks are considerably different from those of developed markets 22,43–47 .
- THE CORPORATE GOVERNANCE–FIRM.
- about corporate governance.
- It is ar- gued that such vague findings of the CGFP relation- ship may be caused by: (i) The institutional differ- ences between countries 30,32–34 .
- The board of directors is one of the vital determinants of the internal corporate governance mechanisms 50 and its relationship to financial performance has at- tracted many scholars for a long time 2 .
- Although such a relationship is explained and forecasted by sev- eral theories such as agency theory or resource depen- dence theory 9 , empirical findings of the influence of the board on firm performance are inconclusive 4,19 .
- The extant literature of corporate governance shows that the attributes of the board may include board size, board diversity, board committees, and board inde- pendence (including board composition and board leadership structure), among others.
- Board size and firm financial performance Among various board characteristics, the size of the board of directors is believed to be one of the most essential characteristics 24,51 .
- Yermack 55 finds an inverse relation- ship between board size and market-based measure- ment of corporate governance (firm value) in a sam- ple of 452 large United States industrial companies for the period of 1984-1991.
- This view is supported by several recent studies of the CGFP rela- tionship 56,57 .
- Their study aims at examining the relation- ship between selected corporate governance mecha- nisms and firm valuation through applying the three- stage least squares method.
- It is to be regretted that the study of Mak and Kusnadi does purely use multi- national data to examine the role of board size to firm performance, but not use a comparative approach to clarify the nature of the board size-firm performance relationship in different national contexts..
- Agency theory considers the monitoring of behaviors of managers (agents) to protect the interests of owners (principals) as the primary function of the board 6,14.
- The di- rection of the influence of board independence on firm performance can be predicted by three predomi- nant theories in corporate governance literature, in- cluding agency, stewardship, resource dependence, and institutional theories..
- Agency theory suggests that the higher level of non- executive directors on the board is, the better the monitoring function of the board will be 10,14,50 .
- Nicholson and Kiel (2007) dis- cuss that if the monitoring function of the board is im- plemented effectively thanks to board independence,.
- Resources dependence theorists are in favor of the stewardship theory’s perspective on board composi- tion.
- From agency theory’s perspective, the concentration of ownership is considered as one of the impor- tant mechanisms to monitor managerial behaviors..
- The relationship of manage- rial ownership and firm performance is predicted by two theoretical hypotheses in the current literature, consisting of the convergence-of-interests hypothesis and entrenchment hypothesis.
- While most extant corporate gov- ernance studies base their arguments on the agency theory, scholars increasingly realize that the agency theory depicts only a part of the complicated nature of the CGFP relationship.
- Second, although there is a growing consensus on the role of a national institution in corporate governance practices, cross- national comparative research on the CGFP relation- ship is still in the early stage of development.
- We conclude that most extant corporate governance studies focus on an in- dividual country so they are unable to offer insights into the nature of the CGFP relationship in different analysis contexts..
- CGFP relationship: The corporate governance-firm performance relationship.
- Corporate governance watch 2010.
- A critical review of corporate governance.
- Corporate governance:.
- Available from: https://doi.org/10..
- A survey of corporate governance.
- Cor- porate governance in emerging economies: A review of the principal-principal perspective.
- Available from: https://doi.org/.
- Comparative and inter- national corporate governance.
- https://doi.org .
- Corporate Governance: An International Review..
- Is national gov- ernance quality a key moderator of the boardroom gender diversity-firm performance relationship? International evi- dence from a multi-hierarchical analysis.
- Corporate governance and performance around the world: What we know and what we don’t.
- Theory of the firm: Managerial be- haviour, agency cost, and ownership structure.
- Corporate Governance: An In- ternational Review.
- The impact of corporate governance mechanisms on the performance of UAE firms: An em- pirical analysis.
- International corporate governance..
- Available from: https://doi.org .
- Corporate governance and firm per- formance.
- The efficacy of principle- based corporate governance practices and firm financial per- formance: An empirical investigation.
- //doi.org .
- Corporate governance structure and per- formance of Malaysian listed companies.
- A test of the resource dependence model.
- The research frontier in corporate governance.
- An orga- nizational approach to comparative corporate governance:.
- ”one size fits all” corporate governance code of best practice..
- Corporate governance in ASEAN financial corporations: Reality or illusion? Corpo- rate Governance: An International Review.
- Corporate governance structures and performance of firms in Asian market: A comparative analy- sis between Singapore and Vietnam.
- Corporate governance in Asia.
- Corporate governance structures and the perfor- mance of Malaysian public listed companies.
- Impact of corporate governance practices on financial performance: Empirical evidence from Pakistan.
- The relationship between corporate governance practices and financial performance in New Zealand: An em- pirical investigation [Doctoral thesis].
- An in- tegrated framework of corporate governance and firm val- uation.
- Investor protection and corporate governance.
- Internal corporate governance structures and firm fi- nancial performance: Evidence from South African listed firms [Doctoral thesis]: University of Glasgow

Xem thử không khả dụng, vui lòng xem tại trang nguồn
hoặc xem Tóm tắt