Impact Analysis of Corporate Board Structure on Firm-Level Outcomes in Weak Institutional Regimes

Abstract

This dissertation aimed at analyzing various aspects of corporate board, the roles of different actors in it and their impact on firm-level outcomes. By providing a framework on the governance differences that exist across strong and weak institutional contexts, this study focused its attention on the way board functions and impacts organizational consequences in weak institutional regimes. The roles played by boards of directors differ across strong and weak institutional contexts. In strong institutional economies, boards’ main function is to work on behalf of the shareholders with an aim of minimizing managerial opportunism and maximize shareholders’ wealth. On the contrary, in weak institutional regimes characterized by concentrated ownership and control, boards’ role shifts from overseeing managers to acting as mediators between dominant shareholders who are also part of management, and the outside dispersed shareholders and play a role in preventing expropriation of the latter by the former. However, the efficacy of firm-level governance mechanisms depends largely on the quality of external governance and institutions which causes organizational activities to differ significantly between strong and weak institutional regimes. Having said that, ineffectiveness of external governance mechanisms in weak institutional framework creates more challenges for boards of directors to perform their duties effectively. By addressing this issue which is of critical importance in corporate governance research and focusing on an emerging economy which is often under-researched for this type of studies, each and every chapter of this dissertation contributed to the literature on corporate boards and institutional environments and at the same time provided directions for future research works.This dissertation aimed at analyzing various aspects of corporate board, the roles of different actors in it and their impact on firm-level outcomes. By providing a framework on the governance differences that exist across strong and weak institutional contexts, this study focused its attention on the way board functions and impacts organizational consequences in weak institutional regimes. The roles played by boards of directors differ across strong and weak institutional contexts. In strong institutional economies, boards’ main function is to work on behalf of the shareholders with an aim of minimizing managerial opportunism and maximize shareholders’ wealth. On the contrary, in weak institutional regimes characterized by concentrated ownership and control, boards’ role shifts from overseeing managers to acting as mediators between dominant shareholders who are also part of management, and the outside dispersed shareholders and play a role in preventing expropriation of the latter by the former. However, the efficacy of firm-level governance mechanisms depends largely on the quality of external governance and institutions which causes organizational activities to differ significantly between strong and weak institutional regimes. Having said that, ineffectiveness of external governance mechanisms in weak institutional framework creates more challenges for boards of directors to perform their duties effectively. By addressing this issue which is of critical importance in corporate governance research and focusing on an emerging economy which is often under-researched for this type of studies, each and every chapter of this dissertation contributed to the literature on corporate boards and institutional environments and at the same time provided directions for future research works.LUISS PhD Thesi