Institutional Evolution and Corporate Boards

Victor Zitian Chen, Bersant Hobdari, Pei Sun, Jerry Goodstein

    Research output: Chapter in Book/Report/Conference proceedingConference abstract in proceedingsResearchpeer-review

    Abstract

    We argue that corporate boards are a dynamic repository of human- and social capital in response to external institutional evolution. Theoretically, integrating institutional economics, agency theory and resource dependence theory, we explain that evolution of market-, legal- and political institutions restructures the particular context in which board members play their two primary roles: monitoring the CEO on behalf of the shareholders, suggested by the agency theory, and supporting the CEO by providing resources, knowledge and information, suggested by the resource dependence theory. Such particular contexts entail the external competitive environment and the principal-agency relationship in corporate governance, amplify (or weaken) the need for certain type of board roles, and ultimately require corporations to reconfigure the human- and social capital embedded within the board. Additionally, since the board changes are typically proposed by the block shareholders, whose motivation for doing so is closely associated with a corporation’s financial performance, we further argue that financial performance is a key moderator of the relationships between institutional evolution and changes in board makeups. Using an unbalanced panel covering more than 3000 firms from 17 Western European countries (15 European Union countries plus Norway and Switzerland) and 28 emerging economies over the period 2000-2012, we have found supportive empirical evidence.
    We argue that corporate boards are a dynamic repository of human- and social capital in response to external institutional evolution. Theoretically, integrating institutional economics, agency theory and resource dependence theory, we explain that evolution of market-, legal- and political institutions restructures the particular context in which board members play their two primary roles: monitoring the CEO on behalf of the shareholders, suggested by the agency theory, and supporting the CEO by providing resources, knowledge and information, suggested by the resource dependence theory. Such particular contexts entail the external competitive environment and the principal-agency relationship in corporate governance, amplify (or weaken) the need for certain type of board roles, and ultimately require corporations to reconfigure the human- and social capital embedded within the board. Additionally, since the board changes are typically proposed by the block shareholders, whose motivation for doing so is closely associated with a corporation’s financial performance, we further argue that financial performance is a key moderator of the relationships between institutional evolution and changes in board makeups. Using an unbalanced panel covering more than 3000 firms from 17 Western European countries (15 European Union countries plus Norway and Switzerland) and 28 emerging economies over the period 2000-2012, we have found supportive empirical evidence.
    LanguageEnglish
    Title of host publicationProceedings of the 56th Annual Meeting of the Academy of International Business : Local Contexts in Global Business
    EditorsKlaus Meyer, Tunga Kiyak
    Place of PublicationEast Lansing, MI
    PublisherAcademy of International Business
    Date2014
    Pages237
    StatePublished - 2014
    EventAIB 2014 Annual Meeting : Local Context in Global Business - Westin Bayshore, Vancouver, Canada
    Duration: 23 Jun 201426 Jun 2014
    Conference number: 56
    http://aib.msu.edu/events/2014/

    Conference

    ConferenceAIB 2014 Annual Meeting
    Number56
    LocationWestin Bayshore
    CountryCanada
    CityVancouver
    Period23/06/201426/06/2014
    Internet address
    SeriesAcademy of International Business. Annual Meeting. Proceedings
    Volume2014
    ISSN2078-4430

    Cite this

    Chen, V. Z., Hobdari, B., Sun, P., & Goodstein, J. (2014). Institutional Evolution and Corporate Boards. In K. Meyer, & T. Kiyak (Eds.), Proceedings of the 56th Annual Meeting of the Academy of International Business: Local Contexts in Global Business (pp. 237). East Lansing, MI: Academy of International Business. Academy of International Business. Annual Meeting. Proceedings, Vol.. 2014
    Chen, Victor Zitian ; Hobdari, Bersant ; Sun, Pei ; Goodstein, Jerry. / Institutional Evolution and Corporate Boards. Proceedings of the 56th Annual Meeting of the Academy of International Business: Local Contexts in Global Business. editor / Klaus Meyer ; Tunga Kiyak. East Lansing, MI : Academy of International Business, 2014. pp. 237 (Academy of International Business. Annual Meeting. Proceedings, ???volume??? 2014).
    @inbook{104e54ef259446cab48b922aad0d3764,
    title = "Institutional Evolution and Corporate Boards",
    abstract = "We argue that corporate boards are a dynamic repository of human- and social capital in response to external institutional evolution. Theoretically, integrating institutional economics, agency theory and resource dependence theory, we explain that evolution of market-, legal- and political institutions restructures the particular context in which board members play their two primary roles: monitoring the CEO on behalf of the shareholders, suggested by the agency theory, and supporting the CEO by providing resources, knowledge and information, suggested by the resource dependence theory. Such particular contexts entail the external competitive environment and the principal-agency relationship in corporate governance, amplify (or weaken) the need for certain type of board roles, and ultimately require corporations to reconfigure the human- and social capital embedded within the board. Additionally, since the board changes are typically proposed by the block shareholders, whose motivation for doing so is closely associated with a corporation’s financial performance, we further argue that financial performance is a key moderator of the relationships between institutional evolution and changes in board makeups. Using an unbalanced panel covering more than 3000 firms from 17 Western European countries (15 European Union countries plus Norway and Switzerland) and 28 emerging economies over the period 2000-2012, we have found supportive empirical evidence.",
    author = "Chen, {Victor Zitian} and Bersant Hobdari and Pei Sun and Jerry Goodstein",
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    Chen, VZ, Hobdari, B, Sun, P & Goodstein, J 2014, Institutional Evolution and Corporate Boards. in K Meyer & T Kiyak (eds), Proceedings of the 56th Annual Meeting of the Academy of International Business: Local Contexts in Global Business. Academy of International Business, East Lansing, MI, Academy of International Business. Annual Meeting. Proceedings, vol. 2014, pp. 237, Vancouver, Canada, 23/06/2014.

    Institutional Evolution and Corporate Boards. / Chen, Victor Zitian; Hobdari, Bersant; Sun, Pei; Goodstein, Jerry.

    Proceedings of the 56th Annual Meeting of the Academy of International Business: Local Contexts in Global Business. ed. / Klaus Meyer; Tunga Kiyak. East Lansing, MI : Academy of International Business, 2014. p. 237.

    Research output: Chapter in Book/Report/Conference proceedingConference abstract in proceedingsResearchpeer-review

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    T1 - Institutional Evolution and Corporate Boards

    AU - Chen,Victor Zitian

    AU - Hobdari,Bersant

    AU - Sun,Pei

    AU - Goodstein,Jerry

    PY - 2014

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    N2 - We argue that corporate boards are a dynamic repository of human- and social capital in response to external institutional evolution. Theoretically, integrating institutional economics, agency theory and resource dependence theory, we explain that evolution of market-, legal- and political institutions restructures the particular context in which board members play their two primary roles: monitoring the CEO on behalf of the shareholders, suggested by the agency theory, and supporting the CEO by providing resources, knowledge and information, suggested by the resource dependence theory. Such particular contexts entail the external competitive environment and the principal-agency relationship in corporate governance, amplify (or weaken) the need for certain type of board roles, and ultimately require corporations to reconfigure the human- and social capital embedded within the board. Additionally, since the board changes are typically proposed by the block shareholders, whose motivation for doing so is closely associated with a corporation’s financial performance, we further argue that financial performance is a key moderator of the relationships between institutional evolution and changes in board makeups. Using an unbalanced panel covering more than 3000 firms from 17 Western European countries (15 European Union countries plus Norway and Switzerland) and 28 emerging economies over the period 2000-2012, we have found supportive empirical evidence.

    AB - We argue that corporate boards are a dynamic repository of human- and social capital in response to external institutional evolution. Theoretically, integrating institutional economics, agency theory and resource dependence theory, we explain that evolution of market-, legal- and political institutions restructures the particular context in which board members play their two primary roles: monitoring the CEO on behalf of the shareholders, suggested by the agency theory, and supporting the CEO by providing resources, knowledge and information, suggested by the resource dependence theory. Such particular contexts entail the external competitive environment and the principal-agency relationship in corporate governance, amplify (or weaken) the need for certain type of board roles, and ultimately require corporations to reconfigure the human- and social capital embedded within the board. Additionally, since the board changes are typically proposed by the block shareholders, whose motivation for doing so is closely associated with a corporation’s financial performance, we further argue that financial performance is a key moderator of the relationships between institutional evolution and changes in board makeups. Using an unbalanced panel covering more than 3000 firms from 17 Western European countries (15 European Union countries plus Norway and Switzerland) and 28 emerging economies over the period 2000-2012, we have found supportive empirical evidence.

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    Chen VZ, Hobdari B, Sun P, Goodstein J. Institutional Evolution and Corporate Boards. In Meyer K, Kiyak T, editors, Proceedings of the 56th Annual Meeting of the Academy of International Business: Local Contexts in Global Business. East Lansing, MI: Academy of International Business. 2014. p. 237. (Academy of International Business. Annual Meeting. Proceedings, Vol. 2014).