Connecting the Dots – Bringing External Corporate Governance into the Corporate Governance Puzzle

The Academy of Management Annals - 2015 Forthcoming

96 Pages Posted: 21 Mar 2015

See all articles by Ruth V. Aguilera

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy

Kurt A. Desender

Universidad Carlos III de Madrid

Michael Bednar

University of Texas at Austin - Red McCombs School of Business

Jun Ho Lee

University of Illinois at Urbana-Champaign - College of Business

Date Written: January 20, 2015

Abstract

Corporate governance research has largely focused on internal governance mechanisms (i.e., the board of directors, controlling owners, and managerial incentives). However, much of this work ignores the role that external corporate governance practices play in preventing managers from engaging in activities detrimental to the welfare of shareholders, and the overall firm. In this essay, we first review and organize current research on external governance mechanisms and integrate this siloed body of work within the broader corporate governance equation. We explicitly focus on six external governance mechanisms: the legal environment, the market for corporate control, external auditors, stakeholder activism, rating organizations and the media. We discuss findings showing how external governance mechanisms act both as independent forces as well as in conjunction with internal corporate governance mechanisms. We conclude the review by mapping an agenda for future research on corporate governance that better integrates internal and external governance mechanisms. Our review suggests that studying different configurations of external and internal governance mechanisms will help us to better understand what factors and conditions lead to effective corporate governance.

Keywords: Corporate governance, External corporate governance mechanisms, Configurations of governance practices

Suggested Citation

Aguilera, Ruth V. and Desender, Kurt A. and Bednar, Michael and Lee, Jun Ho, Connecting the Dots – Bringing External Corporate Governance into the Corporate Governance Puzzle (January 20, 2015). The Academy of Management Annals - 2015 Forthcoming. Available at SSRN: https://ssrn.com/abstract=2581570

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy ( email )

Boston, MA 02115
United States

Kurt A. Desender (Contact Author)

Universidad Carlos III de Madrid ( email )

Calle de Madrid, 123
Getafe, 28903
Spain

Michael Bednar

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

Jun Ho Lee

University of Illinois at Urbana-Champaign - College of Business ( email )

Champaign, IL 61820
United States

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