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The governance role of shareholders and board of directors on firm performance: an eclectic governance-performance model

The governance role of shareholders and board of directors on firm performance: an eclectic... This study aims to examine the governance role of shareholders and board of directors in determining firm performance through an eclectic multi-theoretic model that integrates structure and incentive functions of agency theory and capability aspect of the resource-based view.Design/methodology/approachThe research model uses a large panel data set of 2,364 UK firms over the period 2000–2010 and uses alternative specifications of the model to improve robustness.FindingsThe results show that the industry experience of major shareholders as a proxy for shareholder capability has a significant positive impact on investee firm performance. The findings also reveal that the lock-in effect of the largest shareholder has a positive impact on performance, whereas the monitoring effectiveness of shareholders is not associated with ownership concentration. Moreover, the results indicate the underlying capabilities of the board of directors and their impact on corporate performance – particularly, the interlocking directorates of executives have a positive impact on firm performance but those of non-executives have a negative one. However, the previous directorship experience of non-executives has a positive impact on performance.Research limitations/implicationsThis study presents a more comprehensive and complete understanding of the governance-performance relationship beyond the narrow or partial explanations provided by single-theory-based studies or those of investigating the effect of various governance tools separately.Practical implicationsThis study provides more insights into the capability dimension of shareholders and the role of incentives in motivating shareholders to exercise stronger oversight on the management rather than just using ownership concentration. Hence, the study can serve as valuable guidance for investors, corporate managers and policymakers.Originality/valueTo the best of the knowledge, this is the first comprehensive study that uses an eclectic philosophical approach, integrating the agency theory and resource-based view, to not only examine the impact of board of directors but also investigate the governance role of shareholders in modern corporations to understand how shareholders acquire the requisite skills and information, the best practices and processes, and ultimately use the scarce and inimitable resources that help investee firms in improving their performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Accounting and Information Management Emerald Publishing

The governance role of shareholders and board of directors on firm performance: an eclectic governance-performance model

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1834-7649
DOI
10.1108/ijaim-10-2020-0172
Publisher site
See Article on Publisher Site

Abstract

This study aims to examine the governance role of shareholders and board of directors in determining firm performance through an eclectic multi-theoretic model that integrates structure and incentive functions of agency theory and capability aspect of the resource-based view.Design/methodology/approachThe research model uses a large panel data set of 2,364 UK firms over the period 2000–2010 and uses alternative specifications of the model to improve robustness.FindingsThe results show that the industry experience of major shareholders as a proxy for shareholder capability has a significant positive impact on investee firm performance. The findings also reveal that the lock-in effect of the largest shareholder has a positive impact on performance, whereas the monitoring effectiveness of shareholders is not associated with ownership concentration. Moreover, the results indicate the underlying capabilities of the board of directors and their impact on corporate performance – particularly, the interlocking directorates of executives have a positive impact on firm performance but those of non-executives have a negative one. However, the previous directorship experience of non-executives has a positive impact on performance.Research limitations/implicationsThis study presents a more comprehensive and complete understanding of the governance-performance relationship beyond the narrow or partial explanations provided by single-theory-based studies or those of investigating the effect of various governance tools separately.Practical implicationsThis study provides more insights into the capability dimension of shareholders and the role of incentives in motivating shareholders to exercise stronger oversight on the management rather than just using ownership concentration. Hence, the study can serve as valuable guidance for investors, corporate managers and policymakers.Originality/valueTo the best of the knowledge, this is the first comprehensive study that uses an eclectic philosophical approach, integrating the agency theory and resource-based view, to not only examine the impact of board of directors but also investigate the governance role of shareholders in modern corporations to understand how shareholders acquire the requisite skills and information, the best practices and processes, and ultimately use the scarce and inimitable resources that help investee firms in improving their performance.

Journal

International Journal of Accounting and Information ManagementEmerald Publishing

Published: Oct 18, 2021

Keywords: Resource-based view; Agency theory; UK firms; Governance-performance model

References