Corporate Governance, Strategy, and Supply Management Performance: An Empirical Analysis of Companies Listed in the SãO Paulo Stock Exchange
Getulio Vargas Foundation (FGV) - Finance, Accounting and Controllership Department of Fundação Getulio Vargas (São Paulo, Brazil)
Ervin L. Black Sr.
Brigham Young University - Marriott School of Management
International Law & Management Review, Vol. 2, Winter 2005
Recently, increased competition has prompted companies to enhance their organizational efficiency. One of the areas most influenced by this pressure is supply management, which uses a large percentage of corporate assets and has the potential to negatively affect customer service. Another central area of organizational efficiency is corporate governance, which is regarded as a determining factor for administrative excellence. This paper examines whether the corporate governance structures of firms with diversified suppliers differ from those of firms with more specialized or concentrated suppliers. This study consists of multiple cross sections that cover the period between 1997 and 2001 and incorporates data collected from 176 industrial companies from fourteen industrial segments that listed stocks in Bovespa, the São Paulo Stock Exchange. This study based its exploration on the premise that minimized inventory and minimized days' sales in inventory ratios define the best-performing supply management. The two following propositions summarize the principal results of this study. First, increased independence of the chairman of the board of directors tends to result in less efficient supply management. This conclusion is drawn from the following two findings: (i) an independent chairman of the board uses more diversified suppliers than an internal chairman and (ii) greater supplier diversification is directly associated with a larger inventory. Second, an independent board of directors correlates with less efficient results due to its significant and positive association with day's sales in inventory ratio. These results collectively suggest that strategies utilized by independent corporate governance structures tend to result in less efficient supply management.
Keywords: Corporate Governance, Brazilian Industries, Supply Management, Firm Diversification
JEL Classification: G30, L20, L23, L60Accepted Paper Series
Date posted: March 21, 2006
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