Ownership concentration and board structure: Alignment and entrenchment effects in an emerging market

Abstract

This paper explores if controlling shareholders' influence on the board structure allows entrenchment or alignment effects to prevail. Informed primarily by the principal–principal theory and supported by the stewardship and resource dependence theories, this study samples 235 publicly listed Philippine firms from 2015 to 2019 and employs instrumental variable fixed effect panel and probit regression analyses. Results show ownership concentration is positively associated with the proportion of nonindependent, nonexecutive directors on the board and the likelihood of CEO duality, indicating that boards are not completely independent and are likely to generate entrenchment effects.

Celebrity CEOs, digital transformation and firm performance in China: the moderating role of controlling shareholders and institutional investors

“…Therefore, celebrity CEOs may see digital transformation as a strategic action to maintain high firm performance levels under increasing societal expectations and pressure to maintain their celebrity status and the corresponding personal benefits. However, controlling shareholders may indirectly limit the power of CEOs in the management process to curb opportunistic behavior and internal control issues ( Shleifer and Vishny, 1986 ; Jiang and Kim, 2020 ; Lizares, 2022 ), and the asset-stripping behavior of major shareholders may erode the limited resources available for strategic development, thereby suppressing the digital transformation strategy that relies heavily on corporate resources ( Fan and Wong, 2002 ). Simultaneously, under the full supervision of institutional investors, celebrity CEOs’ authority and discretion may weaken ( Aggarwal et al, 2011 ; Kacperczyk et al, 2015 ; Pu et al, 2023 ), which may also inhibit the degree to which digital transformation is promoted.…”

“…However, it is important to strengthen supervision and checks on celebrity CEOs to prevent them from adopting overly risky behaviors to achieve personal goals, potentially causing losses to the firm. Second, as the proportion of ownership by controlling shareholders and institutional investors increases while they play a supervisory role, they may also excessively interfere with and restrict the discretionary power of management, thus inhibiting the promotional effect of the executive team’s rich management experience and professional skills on firm development ( Lizares, 2022 ). This can adversely affect strategic decision-making and performance.…”

“…First, as the ownership stake of controlling shareholders increases, they have sufficient motivation to supervise and manage the management team to protect their shareholders’ interests ( Wang et al, 2019 ; Iwasaki and Mizobata, 2020 ), thereby restraining opportunistic behavior and internal control issues within the management team and effectively alleviating the first type of agency problem ( Jensen and Meckling, 1976 ). However, this also indirectly limits the CEO’s power in the process of business management ( Lizares, 2022 ). The CEO’s initiatives and efforts also decrease with the strengthening of shareholder control ( Shleifer and Vishny, 1986 ; Jiang and Kim, 2020 ), thereby weakening the role of celebrity CEOs in promoting digital transformation to preserve their identity and interests.…”

An Investigation of the Link between Major Shareholders’ Behavior and Corporate Governance Performance before and after the COVID-19 Pandemic: A Case Study of the Companies Listed on the Iranian Stock Market

“…According to Cao et al (2022), minority shareholders participating in voting processes can play critical oversight roles over management, ameliorate the level of interior control, and diminish management overconfidence (Cao et al 2022). Lizares (2022) argued that the concentration of ownership is positively correlated with the proportion of independent and non-executive directors on the board and the likelihood of CEO duplicity, indicating that councils are not entirely separate and are likely to have strong efficacy (Lizares 2022). Karim et al (2021) stated that the impact of board ownership on board effectiveness has been partially confirmed (Karim et al 2021).…”

R&D expenditures and CEO compensation policy: The effect of corporate control and market competition on managerial opportunism

“…The first agency problem from the separation of ownership and control, and has been described by Jensen and Meckling (1976); this is referred to henceforth as Type I agency problem. The second agency problem occurs when large shareholders expropriate minority shareholders; this problem has been delineated by La Porta et al (1999), Claessens et al (2000), Yeh and Liao (2021), and Lizares (2022) and is referred to henceforth as Type II agency problem. In general, family firms suffer less severe Type I agency problems than non‐family firms, but they suffer more serious Type II agency problem (Ali et al, 2007; Jiang et al, 2022).…”