A clash of governance logics: Foreign ownership and board monitoring

Leveraging foreign institutional logic in the adoption of stock option pay amongJapanese firms

“…Laden with such institutional logic, governance practices such as the board of directors and executive compensation function differently in different contexts, and the practices that have been historically taken for granted in one context may be perceived as inappropriate in another (Fiss and Zajac, ; Sanders and Tuschke, ). However, the rising presence of global institutional investors in distant economies that have dissimilar institutional logic may lead to the coexistence of multiple institutional logics in a single institutional context (Ahmadjian and Robbins, ; Campbell, ; Desender et al ., ; Useem, ). To the extent that the prescriptions of different logics are incompatible, varying logics inevitably generate challenges and tensions for organizations exposed to them (Greenwood et al., ).…”

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“…The IFRS impact is, indeed, conditioned by the existence of a real enforcement of these standards, as well as by large differences between the IFRS and local standards (Daske et al, 2008;Li, 2010;Florou & Pope, 2012). However, the effectiveness of corporate governance practices must be examined in respect with the institutional context and firm"s ownership structure (Desender et al, 2016). The corporate governance represents a means to compel the good application of the IFRS.…”

“…8, No. 11; The mechanisms employed by domestic investors in a stakeholder-oriented context are not able to solve the agency problems facing foreign investors in shareholder-oriented countries (Desender et al, 2016). Foreign institutional investors can opt for mechanisms that are used to effectively control their funds and to reduce the fraud risk in financial statements.…”

“…A supervisory role of the board of directors has been the object of numerous studies of corporate governance (such as Adams et al, 2010). Jensen and Meckling (1976) also argued that an impartial evaluation of managers would occur more easily if the directors were independent from the direction (Hillman & Dalziel, 2003;Desender et al, 2016). Two boards with the same proportion of independent directors would not necessarily guarantee the same effective control.…”

“…It was essential to realize that these independent directors could have different incentives and skills to monitor. Furthermore, some independent directors might be less focusing on the role of monitoring and more on the role of the council, which would reduce both their incentives and the capacity of monitoring (Hillman & Dalziel, 2003;Desender et al, 2016).…”