Why do Boards Differ? Because Owners Do: Assessing Ownership Impact on Board Composition

Abstract

Manuscript Type: EmpiricalResearch Question/Issue: Does the ownership structure of a firm, specifically the aggregation of the different ownership types within each firm, relate with the composition of its board? Research Findings/Insights: Using archival data from a sample comprising 1,487 U.S. firms, we find that the composition of the individual profiles of directors on corporate boards (i.e., independent, affiliated, or insider) match a firm's aggregated ownership configuration (institutional, corporate parent, family-entrepreneur control) even after parsing out the impact of CEO characteristics, firm size, and performance. Further analyses elaborate on the specific relationship between each director profile and ownership types present within the firm. Theoretical/Academic Implications: This study builds upon three conceptual perspectives: agency, resource dependency, and behavioral. We argue that each type of ownership has differing imperatives and may prefer different types of directors to fulfill their governance needs. The paper illustrates that the relationship between corporate governance, specifically board composition, and ownership is a comprehensive phenomenon that is best understood through multiple theoretical lenses. Practitioner/Policy Implications: This study shows that ownership and board composition are not substitutable governance mechanisms as commonly understood, but might be complementary mechanisms. A finding that governance mechanisms are complementary implies that regulatory or institutional pressures to modify board composition with the addition of directors with similar profiles may affect the governance in unforeseen ways.

Effect of government share ownership on corporate risk taking: Case of the United Arab Emirates

“…The social *Manuscript for review Click here to view linked References M a n u s c r i p t 2 and political interests are mainly related to public employment, social stability, and political control over the economy, whilst the economic interests are related to supplementing government revenue by additional dividends incomes, capital gains, and corporate taxes (Uddin, 2014). Since the stock market listed firms usually maintain a diffused ownership structure, the government works with other shareholders to develop a governance mechanism that is supposed to align the interests of different shareholder groups (Sur et al, 2013). However, I assume that alignment of all shareholders' interests is difficult because of the diversity of interests.…”

Defining Ownership: An empirical assessment of the ownership measures

“…We thereafter aggregated the shareholding of each of the different ownership types within each firm (Sur, Lvina, & Magnan, ) to develop the aggregated ownership measure using all 17 owner types . Such a conceptualization seems to be a better reflection of reality, as all publicly listed firms have mixed ownership, with different types of shareholders within their capital structure (Burton et al, ).…”

Whose firm is it anyway? Analyzing ownership effects on IPO performance

“…Although underrepresented in existing ownership studies, corporate ownership is rather widespread worldwide (Thomsen & Pedersen, 2000), and represented even in established US firms (Sur, Lvina, & Magnan, 2013). We argue that a corporation might own controlling interests of another firm, not for benefiting from the returns on its equity holding, but to have insight into unique technology or capabilities (Rumult, Schendel, & Teece, 1991).…”