| Integrating Agency and Stewardship Theories: The Moderating Role of the Environment |
| | Buchholtz, Ann K. | U. of Georgia | abuchholtz@cba.uga.edu | (706) 542-9465 |
| | Kidder, Deborah L. | U. of Connecticut | deb@sba.uconn.edu | (860) 486-6418 |
| | Research in corporate governance has been marked by disagreement about the way in which the board should govern the CEO.
Based on an economic model of man, agency theory is concerned with the divergence between CEO and shareholder interests
that can result from the separation of ownership and control. Agency theory focuses on the need for monitoring and control to
protect the shareholder from the CEO's possible pursuit of self-interest. In contrast, stewardship theory suggests that tight controls
can be counterproductive if they mitigate the CEO's desire to engage in pro-organizational behavior. From the stewardship perspective,
CEOs should be empowered and given the autonomy needed to be effective stewards of the firm's resources. We draw upon social
exchange theory and the concept of psychological contracts to integrate agency and stewardship theory. To that end, we develop a
contingency framework that identifies the moderating effects of environmental complexity and dynamism. We then explore how the
relationship of the board to the CEO will evolve over time. Finally, we discuss implications of the framework for corporate governance
research and practice. |
| | Keywords: Chief Executive Officers; Psychological Contracts; Corporate Governance |
| Foreign Share Ownership and Corporate Behavior in Japan |
| | Ahmadjian, Christina Linn | Columbia U. | cla15@columbia.edu | (212)-854-4417 |
| | Robbins, Gregory E. | Columbia U. | ger11@columbia.edu | (212)-932-1709 |
| | This paper examines the relationship between foreign share ownership and executive compensation, downsizing, and asset divestiture in a sample of 1499 large Japanese firms between 1987 and 1996. |
| | Keywords: corporate governance; Japan; organizational change |
| A Behavioral Perspective of Strategic Initiative Adoption: The Case of Stock Repurchase Programs |
| | Sanders, William Gerard | Brigham Young U. | gsanders@byu.edu | (801)-378-7607 |
| | Carpenter, Mason A. | U. of Wisconsin, Madison | mcarpenter@bus.wisc.edu | (608) 262-9449 |
| | In recent years the demands placed on executives as a consequence of shareholder
activism have increased dramatically. This activism poses significant risk to CEOs'
tenure and wealth. As a result, CEOs may be more likely to see that their firms'
adopt shareholder-friendly strategic initiatives (i.e., initiatives that are generally
received positively by the market) in an attempt to pacify shareholder activism and
protect their administration. Such behavioral motivation may occur even when
objective factors indicate that particular strategic initiatives are not the highest
and best use of scarce corporate resources. The adoption of strategic initiatives
has been studied extensively through the lenses of institutional theory and rational
economic perspectives. In this paper we explore behavioral motivations for adopting
strategic initiatives. We predict that the adoption of shareholder friendly
initiatives should be more likely when factors affecting the uncertainty of CEO
tenure and wealth are pronounced. We test hypotheses to this effect by examining
the adoption of corporate stock repurchase programs. Findings are largely
supportive of the hypotheses. Stock repurchase program adoption was more likely
when CEO future wealth was uncertain as reflected in the amount of pay granted in
the form of stock options, particularly when conditions were conducive to executives
lacking confidence in their ability to generate high levels of performance.
In addition, failure to meet ex ante performance expectations was positively associated
with repurchase programs. Contrary to our predictions, the level of blockholder
stock ownership was negatively associated with adoption. |
| | Keywords: managerialism; strategic initiative adoption; behavioral decision making |
| Managing Impressions: Managerial Choices and the Proxy Statement Performance Graph |
| | Moskowitz, Gary T. | Southern Methodist U. | gmoskowi@mail.cox.smu.edu | (214)-768-1575 |
| | This paper examines the reactions of corporate managers to a change in the Securities and Exchange Commission's proxy statement disclosure rules. In 1992, the SEC required that companies include in their proxy statement a performance graph showing the five year returns on the company's stock, its peers, and the broad stock market. This new rule created an impression management issue, embedded in the governance structure of the firm. Managers who were unhappy about the appearance of the five year graph could include an additional graph that presented a more favorable impression of the company's performance. Following agency theory and prior governance research, I hypothesize that an additional graph is more likely if the company underperformed its peers, paid its CEO a higher salary, and lacked the shareholder monitoring provided by a large blockholder. These hypotheses are tested on a sample of large firms. The results show that relative performance on the required graph and CEO pay are significant predictors of an additional graph, but the presence of a five percent shareholder is not. I conclude that impression management is important to managers, and that, from a public policy perspective, governance reforms based on information disclosure should consider the ability of executives to selectively communicate favorable information. |
| | Keywords: Impression management; Corporate governance; Agency theory |