Structuring Corporate Boards for Wealth Protection and/or Wealth Creation: The Effects of National Institutional Characteristics

Kim, Young Un; Ozdemir, Salih Zeki

doi:10.1111/corg.12062

Cited by 30 publications

(57 citation statements)

References 205 publications

(336 reference statements)

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“…Schiehll and Bellavance (2009) hold that integrating nonfinancial performance measures into executive bonus plans improves corporate governance. In a similar vein, Kim and Ozdemir (2014) find that country-level investor protections may complement the effectiveness of corporate boards. Specifically, they show that firms in countries with stronger investor protections benefit more from board monitoring.…”

Section: Complementarity Hypothesismentioning

confidence: 85%

Antitakeover Statutes and Internal Corporate Governance

Lee¹,

Chung²

2016

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: This paper examines the relation between internal corporate governance and the market for corporate control by analyzing how firms' internal governance mechanisms are related to states' antitakeover statutes (ATS). Specifically, we test two competing hypotheses concerning the effect of ATS on internal governance: the substitution hypothesis and the complementarity hypothesis. Research Findings/Insights: We provide evidence that is consistent with the complementarity hypothesis that exposure to a possible takeover increases rather than decreases the need for better internal governance mechanisms. Specifically, firms that are exposed to takeover threats (i.e., firms in states without ATS or firms that opt out of states' ATS) have stronger internal governance mechanisms (i.e., adopt a greater number of governance standards) than do firms that are not exposed to takeover threats (i.e., firms in states with ATS). In a similar vein, firms adopt more internal governance standards when states abolish existing ATS. Theoretical/Academic Implications: Although prior research suggests that exposure to takeover threats reduces managerial entrenchment through its disciplinary effect, our study provides evidence that exposure to a possible takeover could exacerbate the managerial myopia problem and that firms mitigate this problem through internal governance mechanisms. The results of the present study suggest that certain governance mechanisms (e.g., state-level ATS) are more effective in addressing the agency problem in the presence of other complementary governance mechanisms (e.g., firm-level governance standards), contributing to the growing literature that calls attention to the importance of viewing various governance mechanisms from a bundle perspective. In addition, our study contributes to the literature with a new identification strategy. Our identification strategy makes use of the fact that firms would not be subject to the same shock from the abolition of ATS if they had already opted out, which enables us to analyze the relation between ATS and internal governance mechanisms more accurately. This identification strategy may benefit future studies that consider state-level changes in ATS to be exogenous shocks. Practitioner/Policy Implications: Our study provides empirical evidence concerning the complex ramifications of states' antitakeover statutes for corporate governance that policymakers and market regulators should consider in their decision-making. The complementarity, particularly between state-level laws and firm-level board functions, may deserve better attention from policymakers, regulators, and corporate managers.

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Section: Complementarity Hypothesismentioning

confidence: 85%

Antitakeover Statutes and Internal Corporate Governance

Lee¹,

Chung²

2016

Corporate Governance

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“…However, generation of value and distribution of the generated value fall into interrelated yet distinctive domains. For instance, Kim and Ozdemir (2014) classify fiduciary roles of boards into "wealth protectors" and "wealth creators" and show how national institutional environments drive the choice of these two different roles of boards. The corporate governance designed with an emphasis on protecting shareholders' rights as residual claimants may not promote risk-taking and firmspecific investments by other shareholders, thereby failing to realize the value-creating potential of firm resources.…”

Section: Discussion and Future Research Directionsmentioning

confidence: 99%

Advancing the Corporate Governance Research Agenda

Aguilera

Florackis

Kim

2016

Corporate Governance

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“…Focusing on two specific firm‐level agency problems, Aslan and Kumar () investigate how national governance factors can be combined into national governance bundles to address costs associated with controlling shareholders and debt financing. Kim and Ozdemir () find that national governance systems based on investor protection, rule of law, open market institutions act as complements or substitutes to how boards are structured to perform their role as creators and protectors of wealth. Using a sample of large transnational firms, Markarian, Parbonetti, and Previts () find that non‐Anglo Saxon firms have developed control mechanisms to emulate the Anglo‐Saxon governance regime.…”

Section: Introductionmentioning

confidence: 99%

“…Focusing on two specific firm-level agency problems, Aslan and Kumar (2014) investigate how national governance factors can be combined into national governance bundles to address costs associated with controlling shareholders and debt financing. Kim and Ozdemir (2014) find that national governance systems based on investor protection, rule of law, open market institutions *Address for correspondence: Neerav Nagar, Indian Institute of Management Ahmedabad Vastrapur, 015,India. Tel: +917,966,324,944; act as complements or substitutes to how boards are structured to perform their role as creators and protectors of wealth.…”

Section: Introductionmentioning

confidence: 99%

How Does Regulation Affect the Relation Between Family Control and Reported Cash Flows? Comparative Evidence from India and the United States

Nagar¹,

Sen²

2016

Corporate Governance

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Manuscript Type Empirical. Research Question/Issue We conduct a two‐country study to understand (i) how family and non‐family firms engage in classification shifting to manage reported operating cash flows in each country; (ii) how this behavior varies between the two countries; and (iii) how corporate governance regulation introduced independently in each country moderates the observed behavior. Research Findings/Insights We find that family ownership has different effects on quality of cash flow reporting in the two countries. Furthermore, country‐level regulation moderates these effects differently. In particular, (i) firms in both countries engage in manipulating operating cash flows, but the evidence is stronger in the United States; (ii) family firms in India engage in more shifting than non‐family firms, but this is not observed in the United States; and (iii) family (non‐family) firms in India increase (reduce) shifting, whereas only non‐family firms in the United States increase shifting after regulation. Since non‐family firms in India raise more external capital than family firms after regulation, we infer that family firms in India reacted to this competition for capital and resorted to shifting. Theoretical/Academic Implications Most studies assume that the incentives for family firm behavior are the same in different market settings. However, factors such as efficiency of public capital markets, enforcement of corporate laws and regulations, and other institutional practices can cause differences in family firm behavior across different market settings. We investigate the behavior of family and non‐family firms in each of these markets and study how a feature of the national governance system, regulatory design, moderates this behavior. Practitioner/Policy Implications Our findings should be useful to global investors and regulators in both emerging and developed markets. The results indicate how similar regulation in the two different settings can trigger differences in the behavior of firms.

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Structuring Corporate Boards for Wealth Protection and/or Wealth Creation: The Effects of National Institutional Characteristics

Cited by 30 publications

References 205 publications

Antitakeover Statutes and Internal Corporate Governance

Antitakeover Statutes and Internal Corporate Governance

Advancing the Corporate Governance Research Agenda

How Does Regulation Affect the Relation Between Family Control and Reported Cash Flows? Comparative Evidence from India and the United States

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