Bundles of Firm Corporate Governance Practices: A Fuzzy Set Analysis

Abstract

Manuscript Type Empirical Research Question/Issue We explore how the combinations of firm‐level corporate governance (CG) practices embedded in different national governance systems lead to high firm performance. Research Findings/Insights Using fuzzy set/qualitative comparative analysis, we uncover a variety of findings. First, we show that within each of the stylized national CG models, there are multiple bundles of firm‐level governance practices leading to high firm performance (i.e., equifinality). Second, we provide evidence of complementarity as well as functional equivalence between CG practices. Finally, we demonstrate that there can be heterogeneity (“differences in kind”) in firm governance practices within each stylized model of CG. Theoretical/Academic Implications We build on the configurational and complementarity‐based approaches to make the following theoretical claims. First, governance practices within firm bundles do not always relate to each other in a monotonic and cumulative fashion as this entails higher costs and possibly over‐governance. Second, practices in bundles do not need to be aligned toward the insider or the outsider model (“similar in kind”). We argue that non‐aligned practices can also be complementary, creating hybrid governance forms. Third, we predict functional equivalence across bundles of CG practices which grants firms agency on which of the practices to implement in order to achieve high performance. Practitioner/Policy Implications We contribute to comparative CG research by demonstrating that there are multiple governance paths leading to high firm performance, and that these practices do not always belong to the same national governance tradition. Therefore, our findings alert of the perils of “one size fits all” governance solutions when designing and implementing CG policies.

Risk Disclosure Analysis in the Corporate Governance Annual Report Using Fuzzy-Set Qualitative Comparative Analysis

“…Our contribution to prior literature is twofold: Firstly, we apply fuzzy-set qualitative comparative analysis (fsQCA) a methodology that has recently been used in the context of CG issues (García-Castro et al, 2013). The main advantage of the fsQCA method is that it explores combinatory effects among multiple CG practices, as well as the possible equifinality of different combinations in reaching the same outcome, and it captures the likely complexity of resulting combinations (Garcia-Castro et al, 2013).…”

Towards an XBRL-Enabled Corporate Governance Reporting Taxonomy: An Empirical Study of NYSE-Listed Financial Institutions

“…According to García-Castro et al (2013), two national models of CG can be categorised: the outsider model, which is also shareholder-oriented, and the insider model, which is also the stakeholder-oriented model (Krafft et al, 2013). Outsider configuration is specified by a large general market capitalization, a comparatively low level of employment protection and high employee investments (García-Castro et al, 2013).…”

“…Outsider configuration is specified by a large general market capitalization, a comparatively low level of employment protection and high employee investments (García-Castro et al, 2013).…”

“…According to Aguilera and Jackson (2010), the world of CG can be systematically differentiated between one-tier or unitary and dual or two-tier boards. According to Jungmann (2006), a one-tier board represents the interests of shareholders, while non-executive independent board directors provide advice on corporate decisions and financial performance and monitor management deci-sions (Fama, 1980 There are also research initiatives which intend to combine taxonomies from country and firm-level perspectives (García-Castro et al, 2013).…”

“…Employee loyalty is defined as the extent to which employees can be retained by the company and is often measured in terms of the turnover of skilled employees leaving the company (García-Castro et al, 2013). Academic studies show that country legislation and cultural aspects also have an impact on employee loyalty (Aguilera and Jackson, 2003).…”