The impact of institutional changes on corporate governance mechanisms in transition economies
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The impact of institutional changes on corporate governance mechanisms in transition economies Son A. Le Æ Mark J. Kroll Æ Bruce A. Walters
Published online: 4 November 2008 Ó Springer Science+Business Media, LLC. 2008
Abstract We examine how institutional changes affect corporate governance in transition economies. We develop a transition model that specifies three stages of the transition process including the early, intermediate, and late. We develop a framework for assessing the effectiveness of widely recognized corporate governance mechanisms (CGMs) in and across these stages. Our general proposition is that as transition economies move from early, to intermediate, to late stages, effective CGMs tend to be those that are based on state administrative control power, social networks and private orders, and market forces and formal institutions, respectively. Our study has contributions and implications regarding the transition economies and the impacts of institutions on corporate governance. Keywords
Corporate governance Transition economy Institution
Transition economies are former socialist countries such as those that were part of the former Soviet Union, those in Eastern Europe, and East Asia, which are transforming from central planning to free market competition (World Bank 2002). S. A. Le (&) Department of Management and Information Systems, College of Business, Louisiana Tech University and National University of Vietnam, PO Box 10318, Ruston, LA 71272, USA e-mail: [email protected] M. J. Kroll Department of Management and Information Systems, College of Business, Louisiana Tech University, PO Box 10318, Ruston, LA 71272, USA e-mail: [email protected] B. A. Walters Department of Management and Information Systems, College of Administration and Business, Louisiana Tech University, PO Box 10318, Ruston, LA 71272, USA e-mail: [email protected]
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Their institutional framework is far different from that of developed economies (Dyck 2001; North 1990, Peng 2003). Since the extant corporate governance literature largely focuses on corporate governance in the relatively stable institutional context of developed economies, we are not informed as to the nature of corporate governance in the changing institutional context of transition economies (Young et al. 2002). Which corporate governance mechanisms (CGMs) should stakeholders in transition economies adopt to reduce agency problems? Are CGMs that are widely recognized in developed economies such as the U.S., U.K., Germany and Japan effective in transition economies given their different institutional frameworks? How do institutions and institutional changes affect the effectiveness of these CGMs in transition economies? These questions are not fully addressed by previous studies. Most recent studies have attempted to identify effective CGMs in the context of transition economies (e.g., Chan et al. 2007; Dharwadkar et al. 2000; Firth et al. 2006; Young et al. 2002). These studies, however, have not considered the pervasive
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