Edited by Giovanni Battista Dagnino
Chapter 14: Corporate Governance Issues in Competitive Strategy Research
Igor Filatotchev INTRODUCTION The last decade has witnessed an explosion in both policy and research devoted to corporate governance. The main objective of this chapter is to review various literatures looking at the interdependencies of corporate governance and the firm’s competitive strategy with a particular focus on the governance roles of boards and large shareholders. It also discusses contingencies and complementarities related to the practices of corporate governance in terms of their effects on business strategy and its organizational outcomes. From a theoretical point of view, most of the empirical literature on corporate governance has been rooted in agency theory, and is concerned with linking different aspects of corporate governance with firm performance. Three fundamental behavioural assumptions about agents and principals underlie agency theory: both agents and principals are assumed to be (a) rational and (b) self-interested, whereas the agent is assumed to be (c) more risk-averse than the principal (Jensen and Meckling, 1976). It is therefore argued that, in situations in which there is a conflict of interest between the agents and principals, the former are likely to select self-serving actions at the expense of the latter’s welfare (Fama, 1980; Fama and Jensen, 1983). This stream of research identifies situations in which shareholders’ and managers’ goals are likely to diverge, and examines mechanisms that can mitigate managers’ self-serving behaviour (Shleifer and Vishny, 1997). The assumption here is that, by managing the principal-agency problem between shareholders and managers, firms will operate more efficiently and perform better. To constrain managerial opportunism,...
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