and minority shareholders (i.e., the principalâagent problem) and their negative ... departs significantly from the US and the UK (e.g., Hall & Soskice,. 2001 ...
DOI: 10.1111/corg.12232
EDITORIAL
Ownership structure, corporate governance and institutional environment: Going beyond managerial opportunism and the principal‐agent framework
Building on the empirical evidence collected by Berle and Means
disclosure) are quite unique and that, in other country settings, and
(1932) at the beginning of the twentieth century, the corporate
especially in emerging economies, the institutional environment
governance (CG) literature has been dominated by studies exploring
departs significantly from the US and the UK (e.g., Hall & Soskice,
the negative consequences of ownership dispersion in large public
2001; Whitley, 1999). A key result of this growing stream of research
companies (Shleifer & Vishny, 1997). Using samples from Anglo‐
is that the ownership structure, the corporate governance, and the
American institutional settings and building their theoretical frame-
institutional environment may be considered as a bundle of mecha-
work on agency theory, governance scholars have developed a number
nisms that contribute to alleviate or to exacerbate agency problems
of studies investigating the conflict of interests between top managers
in listed companies (e.g. Aslan & Kumar, 2014; Schiehll, Ahmadjian, &
and minority shareholders (i.e., the principal‐agent problem) and their
Filatotchev, 2014; Zattoni et al., 2017).
negative impact on firm performance (Kumar & Zattoni, 2014a).
Despite increasing research efforts, many important issues regard-
More recently, empirical evidence collected from several countries
ing ownership structure, corporate governance, and institutional envi-
around the world has highlighted that—outside Anglo‐American
ronment remain unexplored. The four papers published in this issue
countries—listed companies have a concentrated ownership structure
help us to extend our understanding on these interrelated and impor-
and control is in the hands of one or few shareholders, usually a family
tant variables. In the first paper, Qian, Cao, and Cao analyze the influ-
or the state (e.g., La Porta, Lopez‐de‐Silanes, Shleifer, & Vishny, 1998;
ence of the institutional environment (i.e., both formal institutions like
Zattoni & Judge, 2012). These companies are affected by a different
legal protection and law enforcement, and informal institutions like
agency problem, namely, the conflict of interests between controlling
trust and religion) on bank loans. They argue that formal and informal
and minority shareholders (i.e., a principal‐principal problem) and its
institutions have both a direct and an interactive impact on bank loans.
potential negative impact on firm performance (Aslan & Kumar, 2012
The empirical setting is represented by a sample of firms from 25
Kumar & Zattoni, 2015).
emerging economies in the period between 2002 and 2009. The
The investigation of ownership structures and corporate gover-
results support the idea that the institutional environment affects bank
nance mechanisms outside the Anglo‐American countries has allowed
loans in emerging economies. In particular, they show that, compared
scholars to understand the variety of possible configurations of these
to developed economies, law enforcement is more important than
variables. Thanks to these studies, we have matured a better view on
legal protection among formal institutions, the informal institutions of
the role of large shareholders (Kumar & Zattoni, 2014b) and on the
religion and trust have a comprehensive impact on bank loans, and
complexity of ownership structures around the world. For example,
formal and informal institutions have a substitute influence on firms'
scholars analyzed and highlighted the implications of control‐
loan financing. These findings underline the key role of both formal
enhancing mechanisms (CEMs) (e.g., Claessens, Djankov, & Lang,
and informal institutions in affecting loan conditions in emerging
2000; Cuomo, Zattoni, & Valentini, 2013; Kumar & Zattoni, 2017; La
economies, and invite governments to improve formal institutions in
Porta, Lopez‐de‐Silanes, Shleifer, & Vishny, 1999) on the amount of
order to promote firm financing and development.
financial resources necessary to control corporate assets (Zattoni,
In the second paper, Wang, Jiao, Xu, and Yang explore the role of
1999) and on the opaqueness of the ownership structure for investors
state investment departing from previous studies that focused on
(Kumar & Zattoni, 2014c).
state‐controlling stakes or aggregated stakes. Building on signaling
In addition, the exploration of ownership and corporate gover-
theory, the study argues that minority state ownership reduces initial
nance issues in both developed and emerging economies allowed
public offering (IPO) market performance, while founder‐CEOs and
scholars to understand the role of the institutional environment
nonexecutive directors not connected with state‐owned companies
(Kumar & Zattoni, 2016). These studies show, in fact, that the charac-
may attenuate this negative effect. The empirical setting is represented
teristics of the Anglo‐American institutional environment (e.g., high
by 274 small and private firms going public in China between 2004 and
investor protection, liquid and efficient capital markets, high corporate
2009. The results show that minority state ownership reduces IPO
82
© 2018 John Wiley & Sons Ltd
wileyonlinelibrary.com/journal/corg
Corp Govern Int Rev. 2018;26:82–83.
83
EDITORIAL
market performance (i.e., price premium, first day turnover rate and
RE FE RE NC ES
price increase, Tobin's Q), but not underpricing, probably due to the
Aslan, H., & Kumar, P. (2012). Strategic ownership structure and the cost of debt. Review of Financial Studies, 25, 2257–2299.
contraposition between excessive demand and state ownership's negative signaling. Moreover, results suggest that both founder‐CEOs and nonexecutive directors without connections with state‐owned companies can attenuate the negative influence of minority state ownership on several market performance measures. As such, the study highlights the potential negative role of minority state ownership in the context of small and private IPO firms in emerging economies. In addition, it provides useful indications to entrepreneurs and governments on how to use corporate governance to minimize the negative impact of state minority stakes on IPO market performance. In the third paper, Hsu, Lin, and Tsao investigate whether family ownership and control may influence a firm's choice of auditor. More precisely, the study focuses on three different characteristics: family ownership (i.e., cash‐flow rights), divergence between cash‐flow and voting rights held by family shareholders, and family identities of the CEO. The database used for the empirical testing is a sample of firms listed on the Taiwan stock exchange between 1996 and 2015. The results suggest that different configurations of family ownership and control leads to different agency issues. In particular, better alignment is found in family firms with greater family ownership, founder CEOs, and professional CEOs, while the entrenchment effect prevails when there is a high divergence between the family's cash flow and voting rights. Overall, the results show that family firms are not inclined to hire big auditors. These findings underline the heterogeneity of family firms, and of their agency effects, in relation to the choice of auditor. The study has implications for policymakers, family shareholders, and auditors. Finally, in the fourth paper, Mukherjee applies Benford's Law to investigate CEO pay. This statistical law states that, in an unbiased dataset, the first digit values are unequally allocated. Applying Benford's Law to CEO pay, the author aims to understand whether CEOs' negotiating power and preferences affect their compensation. More precisely, if performance‐based or market‐determined compensation follows Benford Law, there is no direct negotiation; on the other hand, deviations from the law indicate the presence of CEOs' bargaining power or preferences. The data on executive compensation are taken from S&P Capital IQ from 1992 to 2014. The results show that option fair value follows Benford's Law; bonus, option award, and total compensation are largely consistent with this law; salary does not follow Benford's Law. Overall, the study suggests that the CEO has greater negotiation power than other executives, there has been an increase in fixed compensation after SOX, CEOs of small firms have less negotiating power. Praveen Kumar1 Alessandro Zattoni2 1
Department of Finance, University of Houston, USA
2
Department of Business and Management, LUISS University, Italy
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