Adaptive conjoint analysis: A new approach to defining corporate governance

Abstract

Manuscript Type: EmpiricalResearch Question/Issue: The method introduced to the corporate governance literature by this paper captures the construct of corporate governance in a small number of attributes, using responses made by directors and shareholders to an adaptive conjoint analysis questionnaire.Research Findings/Insights: We demonstrate how to identify the key attributes of corporate governance from directors' and shareholders' relative preferences among a set of corporate governance attributes. The dominance of CEO duality as a relatively more important attribute is a key finding.Theoretical/Academic Implications: Adaptive conjoint analysis is a useful technique for research into governance issues characterized by constrained choice. For future researchers seeking to capture governance in a limited number of measures, we have identified four attributes considered by directors and shareholders to comprise effective corporate governance, with the single measure of CEO duality being the most important.Practitioner/Policy Implications: This parsimonious set of attributes can guide the design of future corporate governance regulations, to avoid costly over-regulation. We do not suggest that restrictions on multiple directorships or an appropriate board size should be added to current requirements, and the surprisingly low perceptions of audit partner tenure and audit committee size as important to good corporate governance suggest that these attributes could be excluded from future regulations.

Perceptions of shareholders and directors on corporate governance: what we learn about director primacy

“…Adrian et al . () have identified limitations associated with the ACA method adopted in this study. In addition, although there was some commonality in their responses, our conclusions are based on a relatively small number of interviewees.…”

“…The combined and common views of shareholders and directors on their relative preferences among a set of corporate governance attributes were reported in Adrian et al . (). That paper introduced the interactive survey method of ACA to the corporate governance literature.…”

“…Our selection of attributes by which we define effective corporate governance is based on current governance requirements, relevant theories (agency theory and signalling theory) and findings from prior literature. The list of attributes (Table ) is verified through interviews with practitioners and experts in corporate governance, including academics, industry professionals, and directors (Adrian et al ., ).…”

“…In the same setting as the current study, Adrian et al . () identified that shareholders and directors (as a combined group) most strongly identify with CEO duality as a measure of effective corporate governance, followed in order of preference by board composition and audit committee composition. Using data derived from the same instrument, this paper analyses the separate views of the two groups of stakeholders on how corporate governance should operate, focusing on the differences, and augments the analysis with interviews that focus on key views and potential conflicts.…”

“… The attributes used in this paper have been used in two prior studies by Adrian et al . (, ) in examining stakeholder perceptions of effective corporate governance. …”