Any student of the field of corporate governance knows that the vast majority of the scholarly literature has previously examined corporate governance antecedents and effects in the United States by American scholars. While interest and research has blossomed in United Kingdom, that governance environment has many similarities to the American one. Fortunately, this emphasis on governance in the Anglo-American context is beginning to diversify, and governance scholars trained and living in other countries are now examining governance dynamics in non-Anglo-American governance environments (Durisin & Puzone, 2009). This diversification of governance environments studied by a wider array of governance scholars is a good thing for the field, and our journal is ambitiously seeking to parlay this diversification into a global perspective on comparative corporate governance, not just an Anglo-American one.
As fate would have it, half of the empirical studies in this issue are focused on Anglo-American governance environments and the other half of the empirical studies are focused on Asian governance environments. As a result, this issue offers a unique glimpse into the very different governance practices and outcomes in the east and west.
Our lead article in this issue was authored by Kaczmarek, Kimino, and Pye and it examines board task-related faultlines in UK firms. For those who are not familiar with this term, a “faultline” is a demographic split or schism within a working group that challenges the group's effectiveness. Unlike traditional board composition research, faultline research considers how relatively homogeneous sub-groups based upon sub-group members' alignment along their multiple attributes can decrease group effectiveness (Lau & Murnighan, 1998). Using social identity theory coupled with the group effectiveness literature, Kaczmarek and associates found that board task-related faultlines are generally associated with lower levels of financial performance in FT350 firms. Furthermore, they find that board busyness and CEO tenure exacerbates the negative relationship between board faultlines and financial performance. Interestingly, they also report that incentive compensation arrangements ameliorate the negative relationship between board faultlines and firm performance. Overall, this study suggests that board composition and group dynamics systematically influence financial performance in large firms based in the United Kingdom.
Our second article was conducted by Asian accounting scholars interested in learning more about the antecedents and effects of auditor choice for firms operating in the United States. Using agency theory, Liu and Lai posit that firms that are organizationally complex will generate higher levels of information asymmetry which can be partially mitigated by working with high quality and reputable auditing firms. Specifically, they theorize and find that the greater the organizational complexity of the US firm, the more beneficial a high quality auditing firm is. Using multiple measures of organizational complexity, audit quality and firm value, this study finds that this relationship is fairly robust.
Our third article redirects attention to boardroom dynamics and outcomes in Japanese firms. Specifically, Nakano and Nguyen hypothesize that board size will be negatively associated with corporate risk taking. Previous research in Anglo-American economies has generally demonstrated a negative relationship between board size and corporate risk taking (e.g., Cheng, 2008). However, Anglo-American boards are dominated by outside directors while Japanese boards are dominated by inside directors. Furthermore, the Japanese institutional environment is quite different. As such, it is not clear whether this negative relationship would hold up in the Japanese context. Based on a relatively recent sample of large, publicly-held Japanese firms, the data reveal that the relationship between board size and corporate risk taking is not as strong in Japan as it is in the United States. However, when investment opportunities are considered, this relationship holds for firms with relatively limited investment opportunities (but it does not hold for firms confronted with extensive investment opportunities). These findings are fascinating not only to the field of corporate governance, but they also potentially help to explain Japan's sluggish economic growth over the past three decades.
Last, but not least, Bae, Kim, and Kim provide a fascinating empirical study of how family ownership and control influences not-for-profit organizations in South Korea. It is relatively well known that family ownership and control is much more prevalent in East Asian economies than in Anglo-American economies (Claessens, Djankov, & Lang, 2000). Less studied is how governance dynamics operate in not-for-profit organizations. In this study, Kim and associates demonstrate that founding family control in not-for-profit universities in Korea depresses university performance in the form of donations, and various measures of overall student quality. They conclude that expropriation occurs in not-for-profit organizations due to family control, similar to expropriation found in for-profit firms.
Overall, these four studies reveal the unique benefits and challenges of pursuing a global theory of the antecedents and effects of corporate governance. The challenges are to refine and extend theories and methods developed in an Anglo-American context. The benefits are a more holistic, and global perspective on this phenomenon which we call corporate governance. Clearly, the empirical evidence does not suggest that global convergence is occurring, but governance environments are dynamic and hybrid arrangements are springing up (Yoshikawa & Rasheed, 2009). Because of the increasing evidence suggesting the importance of understanding institutional context in comparative corporate governance, our next biannual conference will focus on developing typologies and taxonomies of governance environments throughout the world in September at the Judge Business School at Cambridge University. I hope to see you there and learn from your insights into this fascinating theoretical puzzle.