Corporate governance and performance, the moderating effect of the entrepreneurial organisation

Norgate, Gary (2009) Corporate governance and performance, the moderating effect of the entrepreneurial organisation. (DBA thesis), Kingston University,


Despite the widespread adoption of governance best practice generated by government reports such as; Cadbury (l992), Greenbury (l995) and Higgs (2003) in response to the collapse of several multi-billion dollar public entities, accounting and governance scandals continue to proliferate. The scale of failures such as Enron, and the fact that they were not foreseen, lead the author to conclude that the relationship between the way in which a corporation is governed and how it performs is far from fully understood. A comprehensive review of existing corporate governance research highlights two major shortcomings. Firstly, literature and managerial best practice is biased towards understanding the need to control agents charged with the running of firms that they do not own, so called agency theory (Berle & Means, 1932; Williamson, 1964; Jensen & Meckling, 1976). Where other theories, namely resource dependency theory (Pfeffer &.Salancik, 1978) and stewardship theory (Boyd,1995; Donaldson, 1990), have been explored, they have been largely considered in isolation in an attempt to contradict rather than compliment the conclusions that arise from the adoption of an agency stance. Secondly, corporate governance guidelines and academic research has, thus far, failed to sufficiently define firm specific circumstance, or context specific variables, and, therefore to reflect that such variables could significantly alter the relationship that a given model of governance could have upon firm performance. Consequently, this study develops and applies a theoretically integrated research model that defines governance in terms of all three aforementioned theories and utilises the entrepreneurial venture, with its unique ownership and leadership structure, as a lens through which to observe the effects of context specific variables on the governance to performance relationship. Using a combination of publicly available, independently audited, corporate reports and primary data collected from the leaders of 204 companies listing on London's Alternative Investment Market (109 of which meet the author's definition of an entrepreneurial venture), an analysis of the collected data, using partial least squares, reveals that for both entrepreneurial and non entrepreneurial ventures, significant relationships exist between constructs of; ownership; non-financial reward; the services provided by the board; financial motivation and financial corporate performance. However, in non entrepreneurial firms, significant relationships also exist between the control of the agent construct; duality and financial corporate performance. Finally, the identified constructs of corporate governance explain 14% of return on capital employed and 17% of return on assets in entrepreneurial ventures, whereas they explain 7% and 26% respectively when the firm is deemed non entrepreneurial. These findings provide an original contribution to academia by highlighting the manner in which the choice of performance indicator can alter the nature of the observed relationship. Furthermore, by identifying the manner in which the context specific variables associated with entrepreneurialism alter the governance to performance relationship, the author has contributed fresh insight into this economically important sub set of firms, increased the granularity of academia's understanding of corporate governance and, in the case of all three of the mentioned contributions, clarified the previously confounding results that have emerged from a tendency to research single items of corporate governance defined by a single theoretical stance within samples of largely ubiquitous firms. In addition, a contribution has been made to business practice through the development of guidelines that call for managers, owners and policy makers to dig deeper into the role of the governance system and what it is that they need it to deliver given their specific circumstances and operating environment - rather than slavishly following a static model of best practice that, at best, provides the outward signs of compliance but that, in fact, has a greater potential to create a false sense of security.

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