The Influence of Industry Characteristics on Corporate Charters and Bylaws
27 Pages Posted: 22 Jul 2014
Date Written: July 21, 2014
The corporate charter is a contract between the firm and the state. Prior literature on contracts suggests three primary motives for contracting: risk shifting, incentive alignment, and transaction cost minimization. We argue that the characteristics of the industry within which a firm operates should influence the design of corporate charters/bylaws because firms within an industry face similar risk shifting, incentive alignment, and transaction cost concerns, and so similar internal control and change in control concerns. Using data on a sample of U.S. corporations, we find evidence that: (1) there is substantial variation in governance provisions across industries; (2) the influence of selected industry characteristics differ across provisions; and (3) charter provisions cluster according to the industry characteristics that influence their incidence, which explains correlations between provisions within industries.
Keywords: corporate charter, bylaws, corporate governance
JEL Classification: K22, L20, G30
Suggested Citation: Suggested Citation