Publication Type
Working Paper
Version
publishedVersion
Publication Date
2012
Abstract
We examine how institutional environments affect outside directors’ behaviors and their effectiveness. Extant research on the board of directors has indicated that outside directors play a significant role in exercising independent control over management and providing resources. However, we know little about whether and how the relative importance of the two functions varies across different institutional environments characterized by distinct dominant exchange modes (contractual vs. relational). By differentiating between relationship-based and contract-based exchange regimes, we develop a conceptual model to show how the differences in transaction structures influence the relative importance of outside directors as monitors and resource providers, and consequently the effectiveness of outside directors. We also argue that the relative emphasis on the two roles is contingent on culture. Furthermore, taking a dynamic perspective of institutions, we explore how outside directors’ behaviors change as institutions evolve from a relational one into a contractual one.
Keywords
Outside directors, Institutions, Economic exchange, Culture
Discipline
Business
Research Areas
Finance
Citation
YOSHIKAWA, Toru and Zhu, Hongjin.
How Do Institutional Environments Affect Directors' Behaviors and Their Effectiveness?. (2012).
Available at: https://ink.library.smu.edu.sg/lkcsb_research/3285
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.