In an earlier editorial (Judge, 2011), I argued that a global theory of corporate governance must consider the role of ownership structure due its powerful impact on governance behaviors and outcomes throughout the world. In this issue, I refine and extend that argument by considering a particular aspect of ownership structure – namely, the various types of owners, and the varying impacts that these owners bring to the global governance puzzle. Notably, each and every one of the research articles in this general issue examines a specific type of owner and, collectively, we learn much from these five empirical studies.
Our lead article is written by Dam and Scholtens, as they seek to understand how various ownership types are related to corporate social responsibility ratings for firms in 16 European nations. These ratings were composed of three different components: (1) breadth of stakeholder orientation, (2) emphasis on ethical norms and procedures, and (3) concern for the natural environment. Three types of owners were found to be negatively related to corporate social responsibility ratings: specifically, the greater the employee, corporate, or individual ownership stake, the lower the corporate social responsibility rating. Just as notable was the fact that institutional, bank, and state ownership stakes were unrelated to social responsibility outcomes in this European sample of firms. It is interesting to speculate why employee, corporate, and individual owners might be more shareholder focused than institutional, bank, and state owners are in Europe. Clearly, we have only begun to scratch the surface as to how and why firms govern themselves.
Kuo and Hung authored our second article, and they focus on family ownership in Taiwanese firms. They find that family control decreases investment cash-flow sensitivity in high Q firms, but not in low Q firms. Furthermore, excess control rights exacerbated this relationship, while board independence dampened this relationship. In light of the heavy reliance on family ownership in many countries, these findings are particularly noteworthy.
Our third article focuses attention on how various owners within the Korean economy influence investments in technological innovation (operationalized as R&D intensity and patent productivity). This fascinating study was authored by Choi, Park and Hong. Interestingly, Park and associates did not find that ownership concentration is systematically related to the degree of technological innovation, but specific types of owners were. Specifically, institutional and foreign ownership were both found to be positively associated with technological innovation. However, state and insider ownership were found to be unrelated. Thus, the more exposed Korean firms were to ownership influences attuned to the global economy, the better the technological innovation outcomes.
Next, Lewellyn and Muller-Kahle shift our attention to financial firms operating in the United States. They seek to understand how CEO power might influence organizational risk taking using a novel theoretical framework known as approach-inhibition theory. The basic idea behind this theory is that more powerful individuals tend to focus on positive outcomes and take excessive risks, while less powerful individuals tend to focus on negative outcomes and, hence, avoid excessive risk taking. While they explore a number of structural attributes surrounding the CEO, it is instructive that the two ownership types that were explored in this study yielded interesting findings. Specifically, these authors found that the greater the outside ownership of these financial firms, the lower the risk taking. However, CEO ownership was hypothesized to be positively associated with risk taking, but this relationship was not significant for this particular sample and time period. Hence, outside owners of financial firms in the United States appear to suppress risk taking – a very important finding with regard to the global financial crisis.
Finally, Huyghebaert and Wang provided our fifth empirical study in this particular issue. This study focuses on principal-principal conflicts within Chinese listed firms. Interestingly, they find that the greater the government ownership of Chinese firms, the higher the levels of expropriation of minority interests. Clearly, the state plays a very important role in the Chinese economy, and these findings offer further evidence that high levels of state ownership yield different governance outcomes compared to firms with lower levels of state ownership. Clearly, Chinese corporate governance, similar to Chinese capitalism, beats to a different drummer.
Of course, I only skimmed the surface of many of these pioneering studies, so I encourage you to read in detail those articles which interest you most. Nonetheless, a global theory of corporate governance may need to consider the unique role of various types of owners within the context of their specific governance environment, as evidenced by these five studies.