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A useful and complementary approach to understand what drives corporate leaders to choose certain corporate governance practices is to look beyond the individual traits and characteristics of the leader, examining the effect of the elements of the institutional environment on managerial decisions. Drawing on the contextual approach to leadership and insights from institutional theory, this study examines the impact of government integrity, as an omnibus contextual factor of leadership, on corporate governance practices. Specifically, from the field study, we find that government integrity has a positive causal effect on corporate leaders' accountability to shareholders and the board of directors. We also find the same positive effect of government integrity on auditing and reporting reports and on the protection of minority interests. The positive impact of government integrity on corporate leaders' actions is also confirmed using a laboratory study. In the controlled laboratory environment, we show that a social norm of promoting leadership integrity, deriving from the broad context, positively impacts on corporate responsibility especially in contexts where the government lacks credibility. Specifically, we find that corruption and bribery by corporate leaders is low in contexts that are transparent and high in contexts with low government integrity. These findings have important implications for policymakers, practitioners as well as for shareholders.
This paper presents the results of a multi-level event study of the effects of the 2008 financial crisis on leadership behavior. Following assumptions from the threat-rigidity hypothesis, we expect that across firms and countries, this crisis led to an increase in directive leadership. In line with this hypothesis, we also anticipate that this change is context-specific. The impact of the 2008 financial crisis on the change in directive leadership is analyzed for over 20,000 managers in 980 organizations across 36 countries. We find that the financial crisis went along with a significant increase in directive leadership, and that this effect was stronger in the manufacturing sector, and in countries with a high degree of power distance. Our results support the threat-rigidity hypothesis, and contribute to leadership research by showing that the context is not only a moderator but actually shapes leadership behavior. This opens up a new avenue of leadership research where context is an antecedent of leadership behavior more generally, and where the methodological set-up allows for causal inference.
While responding to calls for research and regulatory concerns regarding the influence of country level characteristics on the completeness and quality of financial statements, we examine the simultaneous influences of corruption and culture on levels of compliance with mandatory disclosure requirements. We use a panel dataset of European companies, for 2008 to 2011, and measure compliance with IFRS goodwill disclosure requirements utilising a disclosure index. Corruption is measured using the Corruption Perception Index (CPI) and Schwartz (2008) bipolar cultural dimensions are used as measures of culture. We find that compliance levels vary significantly across sample firms, countries and over time. The level of corruption and two of the three cultural dimensions (Hierarchy and Mastery) are significantly related to these levels of compliance. These findings also hold for the changes in compliance levels over time. On that basis, the paper makes original contributions to our understanding of determinants of compliance levels with IFRS mandatory disclosure requirements.
Although some researchers have suggested that narcissistic CEOs may have a positive influence on organizational performance (e.g., Maccoby, 2007; Patel & Cooper, 2014), a growing body of evidence suggests that organizations led by narcissistic CEOs experience considerable downsides, including evidence of increased risk taking, overpaying for acquisitions, manipulating accounting data, and even fraud. In the current study we show that narcissistic CEO's subject their organizations to undue legal risk because they are overconfident about their ability to win and less sensitive to the costs to their organizations of such litigation. Using a sample of 32 firms, we find that those led by narcissistic CEOs are more likely to be involved in litigation and that these lawsuits are more protracted. In two follow-up experimental studies, we examine the mechanism underlying the relationship between narcissism and lawsuits and find that narcissists are less sensitive to objective assessments of risk when making decisions about whether to settle a lawsuit and less willing to take advice from experts. We discuss the implications of our research for advancing theories of narcissism and CEO influence on organizational performance.
We explore the relation between government integrity and firms’ investment efficiency in the context of China’s deepening reforms and its strengthening the social credit system. We find that government integrity is positively associated with the investment efficiency of listed companies in China. Government integrity is negatively related to corporate underinvestment, but insignificantly related to corporate overinvestment. Higher government integrity reduces underinvestment in non-state-owned firms, but this relation is not significant in state-owned firms. Furthermore, we find that the negative relation between government integrity and underinvestment is only significant for firms in industries that receive supportive government policies. This study enriches research on corporate investment by adopting the perspective of government integrity, and supplements the literature on government integrity and its economic consequences. Our study also provides micro-level empirical evidence that strengthening government integrity will promote the economic transformation of China.
We present a simple model of an entrepreneur going public in an environment with poor legal protection of outside shareholders. The model incorporates elements of Becker's (1968) crime and punishment' framework into a corporate finance environment of Jensen and Meckling (1976). We examine the entrepreneur's decision and the market equilibrium. The model is consistent with a number of empirical regularities concerning the relationship between investor protection and corporate finance.
Although in the early years of the Journal leadership research was rare and focused primarily on traits differentiating leaders from nonleaders, subsequent to World War II the research area developed in 3 major waves of conceptual, empirical, and methodological advances: (a) behavioral and attitude research; (b) behavioral, social-cognitive, and contingency research; and (c) transformational, social exchange, team, and gender-related research. Our review of this work shows dramatic increases in sophistication from early research focusing on personnel issues associated with World War I to contemporary multilevel models and meta-analyses on teams, shared leadership, leader-member exchange, gender, ethical, abusive, charismatic, and transformational leadership. Yet, many of the themes that characterize contemporary leadership research were also present in earlier research.
Kashima and Kashima's (1998) linguistic dataset has played a prominent role in the economics of culture, providing the instrumental variables used in two seminal works to identify the causal effect of culture on institutional quality. However, for economists, this dataset has a number of weaknesses, including poor overlap with a key cultural dataset and reliance on sources of linguistic information of uneven quality. We address these issues by constructing a new linguistic dataset based on an authoritative source of linguistic information, the World Atlas of Language Structures. The resulting dataset has greater overlap with key sources of cultural information, is arguably less subject to selection bias, and provides more refined information regarding key dimensions of linguistic variation. We show that the variables in this dataset are significantly correlated with commonly used measures of individualism and egalitarianism. In addition, we reexamine the key results from the literature on culture and institutions, showing the causal relationship between culture and institutions is robust to the use of the new linguistic instruments.
Using an institutional theory framework we theorize, hypothesize, and empirically show that higher levels of formal and informal corruption environments found in a firm's operating portfolio are related to higher levels of corporate social irresponsibility (CSiR). Failing to consider corruption's informal dimension leads to potentially false perceptions about a multinational enterprise's (MNE) operating environment, particularly when the formal dimension is low but the informal corruption dimension is high, as is the case in about one third of our sample. Including the informal corruption environment component provides additional explanatory power over the formal corruption environment alone in predicting CSiR and yields a superior understanding of both the formal and informal dimensions of the corruption institutional environment's influence on corporate social irresponsibility levels of MNEs. Managerial implications and future research directions are discussed.
This analysis considers the impact of the top managers in an organization on the organization's outcomes, specifically strategic choices and performance levels. The focus is not on the chief executive alone, but rather on the entire top management team. Using a macro view, these organizational outcomes are perceived to be related to the values and cognitive bases of those high-power individuals in the organization. In developing the model, emphasis is on the background characteristics of the top managers as opposed to the psychological dimensions. A series of propositions that should be tested to support the upper echelons theory are presented. The topics of these propositions include age, functional track, other career experiences, education, socioeconomic roots, financial position, and group characteristics. The creation of this model is just the beginning of the work that is necessary to evaluate and understand the upper echelons theory. Further input is needed from areas such as the executive recruiting industry. Additionally, clinical and statistical studies are both necessary to fully develop this theory. (SRD)
This article synthesizes the large but diverse literature on organizational legitimacy, highlighting similarities and disparities among the leading strategic and institutional approaches. The analysis identifies three primary forms of legitimacy: pragmatic, based on audience self-interest; moral, based on normative approval: and cognitive, based on comprehensibility and taken-for-grantedness. The article then examines strategies for gaining, maintaining, and repairing legitimacy of each type, suggesting both the promises and the pitfalls of such instrumental manipulations.
One of the institutions in which the gender gap remains a contestable issue is the board of directors, where the proportion of female directors is still low. While some countries have achieved higher proportions of female directors on their corporate boards, others have not registered even a single one. Drawing on social role theory, that places emphasis on traditional gender activities, this study starts by arguing that board directorship is an agentic role and more suitable for men. The study shows that key social institutions have the potential to alleviate such stereotypical attitudes or to maintain the status quo. Employing a robust statistical technique in two-stage least squares (2SLS), this study finds that the representation of women in other key national institutions, such as in politics, positively affects the appointment of female directors on boards. On the other hand, religiosity has a negative causal effect on female board appointments.
In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together elements of the theory of each of these three areas, our analysis casts new light on and has implications for a variety of issues in the professional and popular literature, such as the definition of the firm, the “separation of ownership and control,” the “social responsibility” of business, the definition of a “corporate objective function,” the determination of an optimal capital structure, the specification of the content of credit agreements, the theory of organizations, and the supply side of the completeness-of-markets problem.
Multinational enterprises (MNEs) often encounter government corruption when operating in host countries; however, in the international management literature, it is typically assumed that government officials pursue national interests rather than their own. We introduce a two-dimensional framework to further the understanding of public sector corruption and identify its implications for MNEs. Using an institutional perspective, we examine how the pervasiveness and arbitrariness of corruption can affect an MNE's organizational legitimacy and strategic decision making. We apply our analysis to the mode of entry decision.
The use of interrater reliability (IRR) and interrater agreement (IRA) indices has increased dramatically during the past 20 years. This popularity is, at least in part, because of the increased role of multilevel modeling techniques (e.g., hierarchical linear modeling and multilevel structural equation modeling) in organizational research. IRR and IRA indices are often used to justify aggregating lower-level data used in composition models. The purpose of the current article is to expose researchers to the various issues surrounding the use of IRR and IRA indices often used in conjunction with multilevel models. To achieve this goal, the authors adopt a question-and-answer format and provide a tutorial in the appendices illustrating how these indices may be computed using the SPSS software.
The article examines the relationship between leaders' positive psychological traits and their transformational leadership behaviors. The article uses two theories, the hope theory and optimism theory, to examine this relationship. The article also focuses on how positive psychological traits and transformational leadership relate to a firm's performance. The strength and form of the mentioned relationships are also assessed to see if they differ between newer start-up firms and more established firms in the high-technology industry.
The ineffectiveness of several privatized firms within emerging economies underscores the importance of agency theory issues and their impact on the privatization-performance relationship. We argue that weak governance and limited protection of minority shareholders intensify traditional principal-agent problems (perquisite consumption and entrenchment) and create unique agency problems (expropriation). We suggest that postprivatization performance can be enhanced by using appropriate ownership, management, and corporate structures that mitigate agency problems in the context of weak governance, and we highlight avenues for research.
The purpose of this study is to examine whether firms from countries presenting higher levels of corruption are more likely to have higher levels of earnings management than their counterparts from countries with lower levels of corruption. It also explicitly examines how this relationship compares between emerging and developed economies.
Using multiple regression analysis, this study tests the hypothesis of positive association between the countries’ level of corruption and the level of earnings management using a sample of foreign firms with American Depositary Receipts in the US market.
Findings indicate that higher corruption perception is related to higher incentives for firms to manipulate earnings in the case of emerging countries. Such results are not identified in developed countries where the level of minority investors’ protection is higher. Findings also indicate that in developed countries earnings management is negatively related to investor protection, which is not the case for emerging countries.
As far as the authors are aware, this study is the first to examine the effects of corruption on earnings management on the basis of accounting firm-level data.
UK private and public companies face substantially equivalent regulation on auditing, accounting standards and taxes. We hypothesize that private-company financial reporting nevertheless is lower quality due to different market demand, regulation notwithstanding. A large UK sample supports this hypothesis. Quality is operationalized using Basu's (1997) time-series measure of timely loss recognition and a new accruals-based method. The result is not affected by controls for size, leverage, industry membership and auditor size, or by allowing endogenous listing choice. The result enhances understanding of private companies, which are predominant in the economy. It also provides insight into the economics of accounting standards.
In the wake of the financial crisis, there has been much discussion about whether boards (particularly of banks) are sufficiently accountable. However, while a significant literature has grown up in relation to the study of accountability in various disciplines, particularly public administration and politics, in the field of corporate governance there has been little consideration of what accountability means or entails. This is problematic: without a clearer idea of the elusive concept of accountability, debates about board accountability may be at cross-purposes. It will be difficult to assess whether particular corporate governance mechanisms promote board accountability, and if not, why not. The lack of clarity can also mask accountability deficits. This paper addresses this gap, setting out why accountability is important and offering an account of what accountability means in the corporate governance context, focusing on board accountability, in order to provide a framework for future research.
We used incentivized experimental games to manipulate leader power—the number of followers and the discretion leaders had to enforce their will. Leaders had complete autonomy in deciding payouts to themselves and their followers. Although leaders could make prosocial decisions to benefit the public good they could also abuse their power by invoking antisocial decisions, which reduced the total payouts to the group but increased leader’s earnings. In Study 1 (N = 478), we found that both amount of followers and discretionary choices independently predicted leader corruption. In Study 2 (N = 240), we examined how power and individual differences (e.g., personality, hormones) affected leader corruption over time; power interacted with testosterone in predicting corruption, which was highest when leader power and baseline testosterone were both high. Honesty predicted initial level of leader antisocial decisions; however, honesty did not shield leaders from the corruptive effect of power.
See a podcast of our paper: https://www.youtube.com/watch?v=JoLLPNZLBAo
This paper explains the impact of corruption on the level of earnings opacity internationally. The results of a regression of measures of earnings opacity on corruption show a significant relationship between the level of corruption and the level of earnings opacity after controlling for economic development, human development, economic freedom, and size of government.
The relationship between culture and language was examined across 39 languages spoken in 71 cultures. Correlations were computed across languages and cultures between the use of first- and second-person singular pronouns (e.g., "I" and "you") and global cultural dimensions such as Individualism, which were previously extracted in large-scale cross-cultural surveys. The personal pronouns were analyzed in terms of the number of first- and second-person singular pronouns and whether the pronouns can be dropped when used as the subject of a sentence in speech. Cultures with pronoun drop languages tended to be less Individualistic than those with nonpronoun drop languages. The number of personal pronouns correlated with some cultural dimensions that reflected different conceptions of the person. Personal deixis (person-indexing pronouns) may provide a window through which cultural practices can be investigated.
Recent scholarship in business and leadership strongly suggests that integrity is not fundamentally a moral concept. This paper presents an account of leadership integrity that defends its ethical meaning while identifying important cognitive structures that clarify the confusion surrounding integrity attributions. The paper begins with a brief review of historical, philosophical, and business discussions of integrity. Using the insights from these discussions, I argue that integrity is fundamentally, but not exclusively, a moral concept that supports the ethical claims of leadership theories. I then review current leadership theories and derive a definition of integrity as a moral concept. Using this definition, I explain how a leader's integrity is founded on identity-conferring commitments to values and then describe three types of leadership integrity to better understand these constructs. I conclude with a few research questions that seek to advance leadership integrity research with the goal of advancing our understanding of ethical leadership.
We wondered how corruption, endemic in Nigeria, is experienced by a specific and understudied set of actors—entrepreneurs. Semi-structured interviews with founders/CEOs of firms in three industries associated with high levels of corruption revealed entrepreneurs—rather than victims of bribe demanding government agents—are themselves active perpetrators of bribery, adopting a set of “bribery best practices” governed by a well-embedded set of social norms, rules, routines, and power relations to deliberately subvert formal state budgetary systems. While reforming institutions is a key focus of anti-corruption policies in many Sub-Saharan African countries, our results suggest a bottom-up approach to remediation based on understanding the practice from the perspective of those who actively engage in it.
Based on Whitley’s “National Business Systems” (NBS) institutional framework (Whitley 1997; 1999), we theorize about and empirically investigate the impact of nation-level institutions on firms’ corporate social performance (CSP). Using a sample of firms from 42 countries spanning seven years, we construct an annual composite CSP index for each firm based on social and environmental metrics. We find that the political system, followed by the labor and education system, and the cultural system are the most important NBS categories of institutions that impact CSP. Interestingly, the financial system appears to have a relatively less significant impact. We discuss implications for research, practice and policy-making.
We compare the strategy method and the direct response method in public good experiments in a within-subject design. This comparison is interesting because the strategy method is frequently used to investigate preference heterogeneity. We find that people identified by the strategy method as conditional cooperators also behave as conditional cooperators under the direct response method. Free-rider types contribute systematically less than all others but show the most systematic deviation from the predicted contributions, because they contribute in the first half of the direct response experiment. Overall, our results support the behavioral validity of the strategy method in public good experiments.
Researchers have long been interested in how an executive's self-concept affects his or her behav- iors, but have lacked a theoretically grounded, validated construct for conducting systematic inquires. The concept of 'core self-evaluation' (CSE), which has been recently validated in the psychologyliterature, concisely encompasses and consolidatesthe common, overlappingportions of four previously unconnected personality dimensions: self-esteem, self-efficacy, locus of con- trol, and emotional stability. CSE has great potential to provide substantial leverage for research on executive self-concept. We review and reconcile prior research on related constructs in exec- utive settings (including narcissism, hubris, and overconfidence) and argue that CSE should be adopted as a robust, well-validated umbrella construct for research on executive self-concept. Indeed, a very high level of CSE, or hyper-CSE, aligns closely with what is often colloquially called 'hubris.' We anticipate that hyper-CSE executives—who possess supreme levels of self- confidence, self-potency, and conviction that they will prevail—will manifest this trait in their job behaviors. We develop a set of integrated propositions that describe the implications of CSE for strategic decision processes, strategic choices, and organizational performance. Finally, we propose additional avenues for research. Copyright 2005 John Wiley & Sons, Ltd.
This article reviews the leadership literature from 1990–2005 in twenty-one major journals in order to determine the nature and extent of attention to the organizational context as a factor affecting leaders' behavior and their effectiveness. Both conceptual and empirical articles were rated as having “moderate/strong,” “slight,” or “no” emphasis on the organizational context. Those articles classified in the moderate/strong category were analyzed under seven organizational context components. Suggestions are included for improving the breadth and depth of empirical knowledge about the interaction of leadership and the organizational context.
z-Tree (Zurich Toolbox for Ready-made Economic Experiments) is a software for developing and conducting economic experiments. The software is stable and allows programming almost any kind of experiments in a short time. In this article, I present the guiding principles behind the software design, its features, and its limitations
With globalization and the growth in emerging economies, multinational enterprises (MNEs) now frequently confront challenges associated with corrupt governments. Already, a growing body of research has demonstrated that corruption significantly reduces a countrys aggregate inflows of foreign direct investment through its effects on firm performance. We move the analysis of corruption from aggregate financial flows toward managerial theory and practice by examining how firms adjust their strategy for entering foreign markets in corrupt environments and how different types of corruption affect firms choices. Building on institutional theory, we predict that MNEs will respond to pervasive and arbitrary corruption in a host country by selecting particular types of equity and nonequity modes of entry. Using data on 220 telecommunications development projects in 64 emerging economies, we find that firms adapt to the pressures of corruption via short-term contracting and entry into joint ventures. We also find that the arbitrariness surrounding corrupt transactions has a significant impact on firms decisions, in addition to the overall level of corruption. In contrast to extant research, we show that MNEs use nonequity-entry modes or partnering as an adaptive strategy to participate in markets despite the presence of corruption.
Leadership should be viewed as being embedded in a societal context and influenced by (as well as influencing) the institutional environment of organizations. Extant research on leadership, however, has largely neglected the effect of the institutional environment. To redress this imbalance we examine leadership in the context of institutional change in secondary school education in England. Specifically, we examine the co-existence of an emerging, government-prescribed, results-oriented approach to leadership (the new institution) with a more traditional professional value-based approach (the old institution). Our methodological approach utilized both quantitative and qualitative methods. The quantitative analysis suggests that there are no significant performance differences between the two leadership approaches. Furthermore, school context does not appear to influence the leadership style employed. The qualitative analysis enabled us to better interpret these findings and to examine the enactment of leadership. The analysis suggests that although the new regulatory environment has fostered the development of the results-oriented leadership, it has not fully replaced professional value-based leadership. Rather, we found pockets of resistance to the policy-prescribed approach precisely in those areas that were targeted by the policy, namely, in schools with high percentage of socially deprived students. We conclude that a complex relationship exists between leadership and its institutional context.
I offer an institutional theory of corporate social responsibility consisting of a series of propositions specifying the conditions under which corporations are likely to behave in socially responsible ways. I argue that the relationship between basic economic conditions and corporate behavior is mediated by several institutional conditions: public and private regulation, the presence of nongovernmental and other independent organizations that monitor corporate behavior, institutionalized norms regarding appropriate corporate behavior, associative behavior among corporations themselves, and organized dialogues among corporations and their stakeholders. Concerns about corporate social responsibil- ity have grown significantly during the last two decades. Not only has the issue become com- monplace in the business press and among business and political leaders (Buhr & Graf- strom, 2004) but a body of academic literature has also emerged around it (Margolis & Walsh, 2003; Walsh, Weber, & Margolis, 2003). Neverthe- less, little theoretical attention has been paid to understanding why or why not corporations act in socially responsible ways (Rowley & Berman,
in leadership in varying contexts. A unique and global analysis of the contextual factors that
affect women in political leadership, this paper extends prior research in the field. This is a
cross-country study where we ask, “How are societal-level institutional forces related to
women's participation in political leadership?” We collected data from 8 secondary sources
on 181 countries and conducted linear regression analyses with six institutional influences:
the business environment, societal development, the economic environment, physical and
technological infrastructure, political freedom, and culture. Results indicate that to increase
the political leadership participation of women, we need to evaluate the following: customs
and trade regulations, graft, the gender gap in political empowerment, public spending on education,
the economic viability of the country, access to power and the internet, political freedom,
and cultural variables like performance orientation, collectivism, and power distance.
A bestseller since its First Edition, Institutions and Organizations remains the key source for a comprehensive overview of the institutionalist approach to organization theory. W. Richard Scott presents a historical overview of the theoretical literature, an integrative analysis of current institutional approaches, and a review of empirical research related to institutions and organizations. He offers an extensive review and critique of institutional analysis in sociology, political science, and economics as it relates to recent theory and research on organizations.
The advancement of social theory requires an analytical approach that systematically seeks to explicate the social mechanisms that generate and explain observed associations between events. These essays, written by prominent social scientists, advance criticisms of current trends in social theory and suggest alternative approaches. The mechanism approach calls attention to an intermediary level of analysis in between pure description and story-telling, on the one hand, and grand theorizing and universal social laws, on the other. For social theory to be of use for the working social scientist, it must attain a high level of precision and provide a toolbox from which middle range theories can be constructed.
The paper explores the impact of the quality of accounting in a given country, as measured by an index of earnings opacity, on the country's level of corruption. The results of a regression of corruption on earnings opacity for a sample of 34 countries show significant relationships between the level of corruption and the level of earnings opacity after controlling for economic development, human development, size of government and economic freedom.
Purpose – The purpose of this paper is to focus specifically on the role of corruption in affecting financial markets. Recently, there are several studies that examine how one country’s level of corruption might affect asset prices in other countries. The aim of this article is to summarize how corruption may affect the bond and stock markets. Design/methodology/approach – The paper is organized as follows. Section 1 defines corruption and briefly examines the causes of corruption. Section 2 examines various measures of corruption and provides a ranking of countries. Section 3 explains how corruption may affect business and provide anecdotal evidence. Section 4 provides a summary of some empirical evidence of corruption on firm performances. Section 5 concludes. Findings – Across international financial markets, corruption is found to be associated with higher firm’s borrowing cost, lower stock valuation, and worse corporate governance. Originality/value – This paper provides a brief summary on research related to corruption and its impact on financial markets. Anecdotal evidence has shown the disruptive effect of corruption, and theoretical literature largely confirms this effect. Empirical studies show that the cost of corruption is highly significant in many different areas of the economy. In particular, across international financial markets, corruption is found to be associated with higher borrowing cost, lower stock valuation, and worse corporate governance.