0000000000004473
AUTHOR
Trond Randøy
The Influence of Institutionally Embedded Ownership on Anglo-American Corporate Governance Migration into Emerging Economy IPO Firms
We argue that the corporate governance of emerging economy IPO firms is influenced by firm-specific institutionally embedded block ownership groups. Applying an extended institutional logic perspective and using a mixed-effects ordered probit model, our findings from 190 IPO-firms from 22 African countries 2000‒2016, support the notion that five major block owner categories (corporate, private equity, non-executive, business group, state) exerts very different influence on African firms’ degree of adoption of Anglo-American corporate governance measures. We find that the influence from the various block owner groups is significantly moderated by institutional quality and tribalism, but to d…
Globalization of Monitoring Practices: The Case of American Influences on the Dismissal Risk of European CEOs
Accepted version of an article from the Journal of Economics and Business This study examines globalization of monitoring practices by focusing on how American (U.S.) influences on European firms impact the dismissal risk for these firms' CEOs. Specifically, we argue that the stronger short term orientation of the American corporate governance system increase the dismissal performance sensitivity faced by European CEOs, indirectly and directly. The former materializes via European firms cross-listing on U.S. exchanges, the latter results from European firms hiring U.S. independent board members. Both influences are expected to result in increased dismissal performance sensitivity. Based on …
Founding family leadership and industry profitability
Published version of an article from the journal: Small Business Economics In this article, we argue that firms in high-margin industries can benefit from founding family influence. Specifically, in more profitable markets, the influence of the founding family provides an additional corporate governance-monitoring function. The sample consists of 294 firm-year observations from 98 publicly traded companies headquartered in Sweden, representing approximately half of all non-financial traded firms. Our support that the effect of family leadership in publicly held firms should be assessed in relation to the intensity of industry competition
Resistance to Change in the Corporate Elite
In this empirical study, we investigate the variation in firms’ response to institutional pressure for gender-balanced boards, focusing specifically on the preservation of prevailing practices of director selection and its impact on the representation of women on the board of directors. Using 8 years of data from publicly listed Nordic corporations, we show societal pressure to be one of the determinants of female directorship. Moreover, in some corporations, the director selection process may work to maintain “a traditional type of board”. In such boards, demographic diversity among male members appears to be associated with a lower share of female directors, although we cannot establish w…
The Role of Institutions in the Migration of Corporate Governance Practice into Emerging Economies The Case of Africa
This study examines the role of institutional environment in influencing the migration of corporate governance best practice into 22 emerging African economies. Using a unique and comprehensive sample hand-collected sample of 202 IPO firms from across the continent we adopt a novel institutional logics perspective in studying the diffusion of CEO salary disclosure – a central element of corporate transparency. Our findings reveal that the adoption of CEO salary disclosure by firms is more likely in more homogenous informal institutional contexts. Complementarities arising from disclosure originating from an Anglo-American shareholder value governance framework and indigenous formal institut…
Determinants of Board Structure in Microfinance Institutions: Evidence from East Africa
This study investigates the association between the unique characteristics of microfinance institutions and board structure. The agency and resource dependence theories provided theoretical guidance for this study. Using a panel dataset of 63 microfinance institutions in East Africa, we found that the presence of regulations and international influence is associated with larger boards, while the presence of founders is associated with small boards and less board independence. There is a higher level of board gender diversity in microfinance institutions managed by founders. There is greater diversity of nationalities in microfinance institutions that are internationally influenced. The imp…
The research frontier on internationalization of social enterprises
Abstract Social enterprises (SEs) are hybrid organizations that simultaneously pursue financial and social goals, while addressing institutional voids. Despite the extensive cross-border activities of SEs, the state of research addressing such flows of funds, technology and personnel is undeveloped. In this introductory article, we discuss the unique aspects of SEs and explore how the international business literature can inform our understanding of their internationalization. We outline promising areas for future research related to the drivers of and the processes underlying SE internationalization as well as its consequences. With this as a background, we introduce the five articles in t…
The Effects of Internationalization on CEO Compensation
This study examines the relation between the internationalization of firms and CEO compensation. Starting from a sample of Norwegian and Swedish listed firms, we analyze the effects of internationalization as manifest in the capital market (international cross-listing), the market for corporate control (foreign board membership), and the product and service market (export and foreign sales). We conclude that all three markets contribute positively to the compensation level of CEOs. We argue that part of the higher CEO compensation in internationally oriented firms - as compared to less internationalized firms within the same country - reflects a risk premium for reduction in job security.Pu…
On the Internationalization of Corporate Boards
This study investigates the internationalization of corporate boards, using a sample of 346 non-financial listed Nordic firms during 2001–2008. Given a high level of international activity, these firms have surprisingly few foreign directors. The picture of international expertise changes considerably, however, if we also count the international experience of national directors. The percentage of foreign directors is related primarily to financial internationalization rather than foreign sales, and thus presumably to the monitoring rather than advisory functions. The international experience of the nationals covaries with foreign sales, and increases with the share of foreign directors. Thu…
Between politics and business: Boardroom decision making in state‐owned Indonesian enterprises
Research Question/Issue. A significant part of the world's economy is controlled by state‐owned enterprises, and there is a lack of research on how the interplay between politics and business plays out in the boardroom. We address this issue by analyzing boardrooms' decision outcomes as they relate to the role of boardroom power distribution, members' motivation, and decision‐making approach. Research Findings/Insights. On the basis of information from a sample of 22 state‐owned Indonesian enterprises, we found that a decision outcome in a boardroom is influenced by three factors: the motivation and decision‐making approach of individual board members and the distribution of power in the bo…
Does competition enhance the double-bottom-line performance of microfinance institutions?
Abstract This paper investigates how competition affects the double-bottom-line performance of microfinance institutions (MFIs). While classical economic theory highlights that competition enhances efficiency and benefits both customers and firms, we argue that this is unlikely to apply to institutions operating in socially oriented industries, such as microfinance. Using a cross-country dataset of 4576 MFI-year observations (1139 unique MFIs) operating in 59 countries over a 10-year period (2005-2014), we find that competition has an adverse effect on MFIs’ economic sustainability and that competition undermines their breadth of outreach but enhances their depth of outreach. These results …
The Impact of Board Internationalization on Earnings Management
Prior literature shows that choices regarding board composition are associated with earnings management. We add to this literature by examining the effects of the presence of a foreign board member on earnings management. Using a sample of 3,249 firm-year observations representing 586 non-financial listed Nordic firms during 2001-2008, we find that the presence of a non-Nordic, foreign director is associated with significantly higher levels of earnings management. Moreover, we provide preliminary evidence that differences in accounting knowledge drive this effect. Our results suggest that it may not necessarily be beneficial to appoint a foreign director to the board.
The Silent Board: How Language Diversity May Influence the Work Processes of Corporate Boards
Manuscript Type Empirical. Research Question/Issue Corporate boards often change their working language when they acquire foreign members. Consequently, boards �talk� in one language but �think� in another. The present study explores and explains how language diversity influences work processes of corporate boards. Research Findings/Insights On the basis of a multiple case study of nine multinational corporations (MNCs) from four Nordic countries, we discovered evidence of impoverished and silenced discussions in board meetings in those case companies that were unprepared to switch to English as the new working language of the board. Some board members found it difficult to contribute to bo…
Corporate governance and company performance across Sub-Saharan African countries
Accepted version of an article from Journal of Economics and Business This paper examines the extent to which publicly listed companies across Sub-Saharan African countries have adopted “good corporate governance” practices. We investigate the association of these practices with companies’ accounting performance and market valuation. The findings indicate that companies across Sub-Saharan Africa have only partly implemented good corporate governance practices. We find a positive association between our constructed index of good corporate governance practices and accounting performance. However, we find a negative association between the corporate governance index and the market valuation. W…
The Impact of CEO Long-term Equity-based Compensation Incentives on Economic Growth in Collectivist versus Individualist Countries
This study examines the impact of the prevalence of long-term equity-based chief executive officer (CEO) compensation incentives on GDP growth, and we address the moderating role of individualist versus collectivist cultures on this relationship. We argue that long-term incentives given to CEOs in some firms may convey to other CEOs that they too may be able to receive such incentives and rewards if they emulate the incentivized and rewarded CEOs. In a longitudinal study across 22 nations over a 5-year period, we find that the higher proportion of CEOs in a country are awarded long-term equity-based incentive compensation, the greater future real GDP growth, particularly in collectivist co…
The Impact of CEO Long-Term Equity-Based Compensation Incentives on Economic Growth in Collectivist Versus Individualist Countries
This study examines the impact of the prevalence of long-term equity-based CEO compensation incentives on GDP growth, and we address the moderating role of individualist versus collectivist cultures on this relationship. We argue long-term incentives given to CEOs in some firms may convey to other CEOs that they too may be able to receive such incentives and rewards if they emulate the incentivized and rewarded CEOs. In a longitudinal study across twenty-two nations over a five-year period, we find that when a higher proportion of CEOs in a country are awarded long-term equity-based incentive compensation, the greater future real GDP growth, particularly in collectivist countries.
Changing the Corporate Elite? Not so Easy: Female Directorss Appointments Onto Corporate Boards
Scholars have previously investigated country and organizational-level factors associated with the incidence of female directors on boards. These studies, however, cannot explain why, in countries with strong gender equality and pressure for female directorships, firms are still hesitant to promote new women to their boards. To address this issue we – in this study – introduce the cognitive and affective processes related to directors’ identification with the traditional corporate elite as an explanation for the slow organizational response to pressure for gender diversity on boards. We bridge the social identity and critical mass theory to further show how these responses may vary with the…
Executive Incentive Compensation and Economic Prosperity
This paper analyzes the existence of a potential link between the prevalence of long term incentive compensation schemes and the economic prosperity of a country. This issue is previously not addressed in the literature. In a panel regression with fixed effects a strongly significant, positive effect is found between growth of GDP/capita in real terms and this prevalence, while controlling for general investment and institutional variables. However, when the 22 countries of the study are divided into European and non-European, the growth effect found for the entire material accrues only to the non-European countries. It is concluded that long term incentive contracts seem to have no effect …
The Performance Impact of Informal and Formal Institutional Differences in Cross-Border Alliances
Abstract This study addresses the simultaneous and diverse effects of differences in informal and formal institutions on cross-border alliances’ financial performance. We utilize data from 405 microfinance institutions (MFIs), based in 74 developing countries, that have alliances with partners from developed countries. We find that the impact of informal institutional differences between MFIs and their cross-border partners is sigmoid-shaped, with performance first increasing, then declining, before improving again as informal institutional differences grow large. By contrast, formal institutional differences appear to be detrimental to MFIs’ performance. Consistent with our prediction, we …
Globalization of Corporate Governance: The American Influence on Dismissal Performance Sensitivity of European CEOs
This study examines how globalization of corporate governance practices influence the risk of European CEOs being dismissed. We argue that the harsh monitoring of the American corporate governance system spills over to the rest of the world as a result of this globalization. We focus on direct and indirect American influence on the dismissal performance sensitivity among the 250 largest European publicly listed firms. The indirect influence is assumed to materialize via European firms cross-listing on U.S. exchanges, whereas the direct influence is assumed to appear as a result of European firms hiring of American independent board members. Both sources of influence are hypothesized to resu…
From Global Firms to Global Boards?
Preprint of published version of an article from Journal of International Business Studies with the title: "On the internationalization of corporate boards: the case of Nordic firms" This study investigates the internationalization of corporate boards, using a sample of 346 non-financial listed Nordic firms during 2001-2008. Given a high level of international activity, these firms have surprisingly few foreign directors. The picture of international expertise changes considerably, however, if we also count the international experience of national directors. The percentage of foreign directors is related primarily to financial internationalization rather than foreign sales, and thus presuma…
The effect of language use on the financial performance of microfinance banks: Evidence from cross-border activities in 74 countries
Abstract This multi-year study examines the relationship between financial performance and language use, observing 405 partnerships between microfinance banks and their international financial partners in 74 countries. Drawing on language research in international business, we find that microfinance banks based in English-speaking, French-speaking, and Spanish-speaking countries have higher performance. Furthermore, the linguistic distance between the home country of a microfinance bank and the home country of its international partner(s) is negatively related to its financial performance. Our large-scale study confirms the effect of language use on organization-level financial performance …
The influence of business groups on board composition in offshore financial multinational enterprises
Based on resource dependence theory we argue for an influence of business groups (BGs) on the board composition of constituent offshore financial multinational enterprises (FMNEs). Using a unique sample of 171 Caribbean FMNEs in an inter-island BG setting, we find BGs’ control in constituent firms to be indicative of the importance of the internal financing and intermediation within the group network. This control leads to a higher proportion of lawyers hired to the boards of directors in BG-constituent firms and supports the argument that lawyers provide skills in complex offshore regulatory frameworks that facilitate BGs’ optimal tax management. Furthermore, we observe that an increased a…
The Role of Language in Corporate Governance: The Case of Board Internationalization
Multinational corporations internationalize their corporate boardrooms in order to capitalize on their commercial and financial internationalization. Board internationalization provides access to specialized knowledge and skills, broadens social networks and ensures greater transparency of strategic decision-making. The entry of a foreign board member is often coupled with a change in the working language of the board. The purpose of the present study is to explore and explain how increased language diversity influences decision-making and work processes of corporate boards. We draw on previous research on board internationalization, diversity and language in multinational corporations. Bas…
The impact of international influence on microbanks’ performance: A global survey
NOTICE: this is the author’s version of a work that was accepted for publication in International Business Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Business Review, 20(2), 163-176. http://dx.doi.org/10.1016/j.ibusrev.2010.07.006 Microbanks serve micro-enterprises and poor people with financial services. This study examines how various aspects of international influence affect microbanks' financi…
What Can International Finance Add to International Strategy?
This chapter focuses on the role of corporate financial strategies to improve firms’ market valuations, and thus lower their cost of capital. The identification of successful strategies is accomplished within an overall strategic framework and related to how the firm perceives the degree of international financial integration. Five strategies for how to break out of a segmented, thin domestic capital market are highlighted together with historical success cases. The chapter illustrates the linkages between business strategy, firm motivation, and various financial strategies. JEL: F21, F23, F36, G32, G34.
Strangers on the board
The internationalization of firms has led to boards becoming more international as well. In this study, we investigate the consequences of board internationalization. In particular, by drawing on research on language and board dynamics, we identify theory-based reasons why board internationalization could increase, or decrease, earnings management practices. We use agency theory, stressing how board internationalization may positively or negatively affect monitoring quality of boards. Next to agency theory, we use theories explaining how language differences in the boardroom complicates communication and how differences in language structures (referred to as linguistic relativity in the lit…
The Institutional Determinants of Private Equity Involvement in Business Groups: The Case of Africa
This study examines the governance attributes of post-IPO (initial public offering) retained ownership of private equity in business group constituent firms in contrast to their unaffiliated counterparts, in 202 newly listed firms in 22 emerging African economies. We adopt an actor centered institutional-theoretic perspective in rationalizing institutional voids and the advantages of maintained governance by both business angels (BA) and venture capital (VC) private equity. Our findings reveal private equity retain higher post-IPO ownership in business group constituents compared to unaffiliated firms and that this is inversely moderated in the context of improving institutional quality – w…
On the Internationalization of Corporate Boards
Despite the global reach of their commercial activities, many multinational firms have proved slow in internationalizing their boards of directors. Based on a panel study of the internationalization of the boards of 347 non-financial firms from the Nordic countries, we find a higher fraction of international board membership in firms with more foreign sales, in firms with more foreign ownership and in firms whose shares are traded on foreign (mostly European) stock exchanges. Moreover, we find international directors and national directors with international experience complementary. The first-mentioned group is found to serve a monitoring role, related to financial internationalization of …
Transparency and Disclosure in the Global Microfinance Industry
Over the last couple of decades, the microfinance industry has enjoyed considerable positive public attention; however, more recently, the industry has been criticized for not really “helping the poor” and practicing low standards of transparency. In this chapter we discuss how transparency and disclosure work in relation to the key stakeholders in the microfinance industry: customers, donors, and owners. We provide a framework for assessing the demand for information: the need for transparency—and the corresponding supply of information: what is disclosed. We highlight current, or potential, market failures and their implication for public policy among customers, donors, and microbank owne…
The Impact of Entrepreneur-CEOs in Microfinance Institutions: A Global Survey
- Peer reviewed Microfinance is a global high-growth industry, in which entrepreneurship is prevalent and substantial. Based on the theoretical argument that microfinance entrepreneur-CEOs are “motivated agents” with a unique ability to hire and socialize mission-oriented staff, we hypothesize that these CEOs produce more sustainable microfinance institutions with better social performance and lower costs. This study utilizes data from 295 microfinance institutions in 73 developing countries, assessed between 1998 and 2010. Our empirical evidence suggests that entrepreneur-managed microfinance institutions feature higher social performance, greater financial sustainability, and lower costs.
Corporate Governance in Scandinavia
This article addresses the role of formal institutions and informal networks on corporate governance practices. The existing corporate governance literature has mostly examined the formal institutions, such as the effect of legal systems. Our contribution is to consider the effect of informal “small world” characteristics of ownership and board networks. We use the case of Scandinavia (Denmark, Norway and Sweden) to examine these effects. Our empirical results reveal large differences in formal board and ownership structures between the Scandinavian countries, but strong similarities in terms of law enforcement, political stability, government effectiveness, rule of law, control of corrupti…
Board Composition and Outreach Performance of Microfinance Institutions: Evidence from East Africa
The attributes of microfinance's board members have an impact on attainment of their social objectives.
The Institutional Determinants of Private Equity Involvement in Business Groups The Case of Africa
This study examines the governance attributes of post-IPO (initial public offering) retained ownership of private equity in business group constituent firms in contrast to their unaffiliated counterparts, in 202 newly listed firms in 22 emerging African economies. We adopt an actor centered institutional-theoretic perspective in rationalizing institutional voids and the advantages of maintained governance by both business angels (BA) and venture capital (VC) private equity. Our findings reveal private equity retain higher post-IPO ownership in business group constituents compared to unaffiliated firms and that this is inversely moderated in the context of improving institutional quality. Ou…
Corporate boards and ownership structure: Evidence from Sub-Saharan Africa
This study examines the relationship between board structure and ownership structure for firms listed on the stock exchanges of twelve Sub-Saharan African countries, using data for the period 2006–2009. We find that ownership concentration, foreign ownership and managerial ownership are negativelyassociated with board size. We also find that government ownership is positively associated with the proportion of outside directors while ownership concentration is negatively associated with the proportion of outside directors. These results emphasize that board and ownership structure are both corporate governance mechanisms that are used as substitutes to one another in reducing agencyproblems.
The association between microfinance rating scores and corporate governance: A global survey
Abstract The global microfinance industry has experienced high growth rates over the past decades, and the World Bank foresees a future market with billions of customers. However, the industry's continued growth is contingent on its ability to create a governance structure that supports microfinance institutions' long-term performance. Because microfinance institutions' performance is multidimensional and difficult to measure, prior research has not been successful in establishing consistent associations between governance structures and microfinance institutions' performance. We apply microfinance rating scores – a unique innovation of the microfinance industry – as a summary performance m…
On the Role of Internationalization of Firm-Level Corporate Governance – The Case of Audit Committees
Motivated by agency theory and arguments from linguistic studies, we argue in this paper the internationalization of a firm’s audit committee to be associated with weaker firm-level corporate governance. Based on 2,015 publicly traded European firms from 16 countries over 2000-2018, we find the presence of foreign directors on audit committees to have a significant negative impact on financial reporting quality (FRQ). The effect is found to be weaker in countries with strong investor protection. We find linguistic differences within audit committees an important explanation for the negative influence of foreign directors on FRQ. The results are robust to alternative FRQ measures and model s…
The Effect of Cross-Border Language Use on Financial Performance of Microfinance Banks
This empirical study investigates the financial performance effect of cross-border language use in 405 partnerships between microfinance banks and their international partners in 74 countries. Motivated by the literature on language in International Business, we find that microfinance banks that use a global language such as English have better financial performance. Further, the linguistic distance between the microfinance banks and their international partners is negatively related to the financial performance of these banks. This study highlights tangible performance outcomes of cross-border language use and suggests that language use needs to be addressed as a strategic issue in interna…
On the role of internationalization of firm-level corporate governance: The case of audit committees
Research Question/IssueMotivated by the agency theory and the findings of linguistic studies, we analyze the association between the internationalization of a firm's audit committee and its corporate governance.Research Findings/InsightsBased on data from 2159 publicly traded European firms from 15 countries for the period 2000–2018, we find that firms with foreign directors on their audit committees are associated with lower financial reporting quality. The association is mitigated by stronger country-level investor protection and a higher similarity among intra-committee languages. We further find that foreign directors on the audit committee are related to stock prices being less informa…
The Impact of Business Group Affiliation and Country-Level Institutions on Corporate Governance of Emerging Market Firms
This study outlines how the corporate governance of emerging market firms is influenced by corporate affiliation and institutional embeddedness. We argue that the stronger the business group affiliation, the less likely is the emerging market firm to adopt shareholder value enhancing corporate governance, and that this relationship is moderated by institutional quality and tribalism. Based on189 initial public offerings (IPOs) from 22 African countries between 2000and 2016, we find a significant negative relationship between business group ownership and IPO firms’ quality of corporate governance. We also find this relationship to be significantly negatively moderated by country-level instit…