Corporate governance and national institutions: A review and emerging research agenda
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Corporate governance and national institutions: A review and emerging research agenda Igor Filatotchev & Gregory Jackson & Chizu Nakajima
Published online: 24 March 2012 # Springer Science+Business Media, LLC 2012
Abstract We present a critique of corporate governance research grounded in agency theory and propose that cross-national comparison of corporate governance should consider how the nature and extent of agency relationships differ across different institutional contexts. Building on prior governance studies grounded in sociology and organizational theory we argue that performance outcomes of boards of directors, ownership concentration, and executive incentives may differ depending on the legal system and institutional characteristics in a specific country. Institutions may also affect the extent of complimentarity/substitution among different firm-level governance practices producing patterned variations in firm-level governance mechanisms. Our discussion suggests that researchers need to develop more holistic, institutionally embedded governance framework to analyze organizational outcomes of various governance practices. Keywords Corporate governance . Agency . Institutions The last decade has witnessed an explosion in studies of corporate governance around the world, including Asia. Much corporate governance research has been inspired by ideas from agency theory (e.g., Eisenhardt, 1989) and related normative, empirical, and policy debates. The central premise of agency theory is that managers as agents of I. Filatotchev (*) : C. Nakajima Sir John Cass Business School, City University London, 106 Bunhill Row, London EC1Y 8TZ, UK e-mail: [email protected] C. Nakajima e-mail: [email protected] I. Filatotchev Department of Global Business and Trade, Vienna University of Economics and Business, Augasse 2-6, 1090, Vienna, Austria G. Jackson Freie Universität Berlin, School of Business and Economics, Boltzmannstr. 20, 14165 Berlin, Germany G. Jackson e-mail: [email protected]
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shareholders (principals) may engage in self-serving behavior that can be inconsistent with the shareholders’ wealth maximization principle (Shleifer & Vishny, 1997). To constrain managerial opportunism, shareholders may use a diverse range of corporate governance mechanisms, including monitoring by boards of directors (e.g., Fama & Jensen, 1983) or large outside shareholders (e.g., Demsetz & Lehn, 1985; Holderness & Sheehan, 1988). In addition, equity-based managerial incentives may help align the interests of agents and principals (Jensen & Murphy, 1990; Murphy, 1985, 1997). Finally, managerial opportunism can be constrained by external markets, such as the threat of takeover (e.g., Grossman & Hart, 1988), product competition (Hart, 1983; Jensen, 1993), and managerial labor markets (Fama, 1980). These concepts from agency theory have informed a growing number of attempts to understand cross-national differences in corporate governance. However, such approaches remain problematic be
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