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
Date Written: January 20, 2015
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
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