The board chair effect across countries: An institutional view

Abstract

Research Summary: Strategic leadership scholars have produced consistent evidence that the CEO effect on firm performance depends on the latitude of actions CEOs enjoy in their particular context. We argue that as the governance leaders of their firms, board chairs choose a firm's objectives more than they do its actions. As a result, the board chair effect should vary with latitude of objectives, rather than latitude of actions. We explore this possibility by comparing the board chair effect in two countries with relatively high latitude of objectives-Germany and China-with the board chair effect in two countries with relatively low latitude of objectives-the United States and United Kingdom. Results confirm that latitude of objectives influences the effect of board chair heterogeneity on firm performance. Managerial Summary: Do board chairs matter to different degrees in different countries? Building on prior workshowing that U.S. board chairs account for a significant portion of firm performance, we collected data on board chairs from four different countries to find out if this effect differs by institutional environment. We find that board chairs matter for firm performance across countries, but that board chairs in Germany and China exhibit a considerably larger effect on firm performance than do board chairs in the United States and United Kingdom. We interpret these findings as evidence that board chairs enjoy wider discretion with regard to organizational objectives

The role of the board chair—A literature review and suggestions for future research

“…In fact, suggesting one board configuration over another by emphasizing only financial performance could be the wrong path to pursue because no single model fits companies of all sizes and types (Dalton & Dalton, 2005;. The board choice effects are contingent on different organizational (Peng, Li, Xie, & Su, 2010;Ramdani & Witteloostuijn, 2010) and institutional contexts (Anginer, Demirguc-Kunt, Huizinga, & Ma, 2016;Krause et al, , 2019Naseem et al, 2019), which we attempt to capture in our proposed framework and subsequently discuss. Efendi, Srivastava, & Swanson, 2007;Farber, 2005;Farrell, Yu, & Zhang, 2013;O'Connor, Priem, Coombs, & Gilley, 2006 (Ntim, Lindop, & Thomas, 2013;Ntim & Soobaroyen, 2013), which warrants caution in suggesting one board chair choice over another.…”

“…Studies in this category mostly explored the direct or moderating effects of board configurations, that is, duality or role separation on firms' financial outcomes using four key sets of measurements, such as return on assets and return on equity (Duru, Iyengar, & Zampelli, 2016; Gaur, Bathula, & Singh, 2015; Hadani, Dahan, & Doh, 2015; Krause et al, 2019; Naseem, Lin, Rehman, Ahmad, & Ali, 2019; Peng, Zhang, & Li, 2007; Pi & Timme, 1993; Ramdani & Witteloostuijn, 2010; Rechner & Dalton, 1991; Syriopoulos & Tsatsaronis, 2012), Tobin's Q (Elsayed, 2007; Jermias & Gani, 2014; Mínguez‐Vera & Martín‐Ugedo, 2010; Poutziouris, Savva, & Hadjielias, 2015; S. Singh, Tabassum, Darwish, & Batsakis, 2018), IPO underpricing or withdrawal (Chahine & Tohmé, 2009; Helbing, Lucey, & Vigne, 2019; Lin & Chuang, 2011), and financial performance in terms of investments and diversifications (Kim et al, 2009; Lim, 2015; Lim & McCann, 2013; D. Singh & Delios, 2017). The majority of these studies agreed that CEO duality is negatively related to firm financial performance (Duru et al, 2016; Grove, Patelli, Victoravich, & Xu, 2011; Jermias & Gani, 2014; Judge, Naoumova, & Koutzevol, 2003; Kaymak & Bektas, 2008; Naseem et al, 2019; Pi & Timme, 1993; Sanan, Jaisinghani, & Yadav, 2019; Schepker et al, 2018) and argued that role separation can facilitate better financial outcomes for companies (de Jonghe, Disli, & Schoors, 2012; De Maere et al, 2014; Li & Naughton, 2007; Rechner & Dalton, 1991; Stockmans, Lybaert, & Voordeckers, 2013; Syriopoulos & Tsatsaronis, 2012).…”

“…In fact, suggesting one board configuration over another by emphasizing only financial performance could be the wrong path to pursue because no single model fits companies of all sizes and types (Dalton & Dalton, 2005; Krause et al, 2014). The board choice effects are contingent on different organizational (Peng, Li, Xie, & Su, 2010; Ramdani & Witteloostuijn, 2010) and institutional contexts (Anginer, Demirguc‐Kunt, Huizinga, & Ma, 2016; Krause et al, 2014, 2019; Naseem et al, 2019), which we attempt to capture in our proposed framework and subsequently discuss.…”

“…The home country and the norms and values of the national context of companies can have a considerable influence on their corporate governance systems (Balsam et al, 2016), and the effect of the board chair on firm performance can be strongly shaped by the institutional context of the organization (Krause et al, 2019). Studies in this stream of research have provided important findings, such as whether CEO duality adds value in developing economies (Naseem et al, 2019;D.…”

“…The first reason is that the board chair assumes a great deal of formal responsibility for the companies and organizations for which they serve. Although the exact legal framework surrounding the role of a board chair may differ among countries, the typical responsibilities of the board chair within the broader corporate governance system include planning and leading board directors meetings, representing the board in contacts with key stakeholders, acting as the link between the board and CEO and the top management team of the company, and securing that the board is on top of ensuring that the company fulfills its legal duties and complies with the relevant corporate governance standards (e.g., Bezemer, Nicholson, & Pugliese, 2018; Krause, Li, Ma, & Bruton, 2019; Withers & Fitza, 2017). Therefore, the role of the chairperson encompasses more aspects than leading the board's control and monitoring tasks (e.g., Knockaert, Bjornali, & Erikson, 2015).…”