While agency theory has long dominated corporate governance research, we suggest that the common transplanting of the dyadic principal-agent problem into the corporate context has blurred key differences between principals and the firm as an entity. We redress this imbalance by advancing a conceptual framework of principal costs vis-a-vis the firm. We first show how principal costs can exist even in the single-principal corporate context, based on owner consumption and competence characteristics, which allows us to also distinguish principal costs from both agency costs and principal-principal expropriation costs. We then extend our principal costs theory to the multi-principal context, in which we highlight how principal costs, including private benefits of influence, can exist even in corporations with no controlling shareholder enjoying private benefits of control. In this latter context, we redirect the agency theoretic lens of incentive and informational concerns toward active minority shareholders whose actions generate principal costs vis-a-vis the firm, as well as passive shareholders who fail to constrain such principal costs. We conclude with a discussion of the broader implications of our theory for current and future corporate governance research, practice, and public policy.

How do CEOs allocate risk across the personal and corporate domains in which they operate? Prior research has largely examined how differences in managerial risk preferences translate into firm-level outcomes, often treating corporate decisions as direct expressions of underlying preferences. We propose a complementary perspective in which CEOs manage total risk exposure across domains, with personal financial portfolios and corporate policies jointly contributing to that exposure. This perspective highlights a central tension between cross-domain alignment and intertemporal rebalancing in CEO risk-taking, yielding two related predictions. First, across CEOs, higher personal financial risk exposure is associated with riskier corporate financial policies, reflecting differences in target exposure. Second, within a given CEO over time, changes in personal portfolio risk induce compensatory adjustments in firm-level risk-taking, as CEOs rebalance toward their target level of exposure. We test these predictions using detailed longitudinal data on CEOs’ personal financial portfolios and firm-level financial policies in Norway. Consistent with our framework, we find that CEOs with higher personal risk exposure pursue higher leverage and lower cash holdings. At the same time, within CEO–firm matches, increases in personal portfolio risk are associated with reductions in firm-level risk-taking, and vice versa. These relationships are stronger when CEOs have greater power relative to the board. Our findings introduce a cross-domain portfolio perspective on managerial decision-making and show that cross-sectional alignment and intertemporal rebalancing can be understood as complementary manifestations of a common underlying mechanism of risk allocation.

Prior research on the internationalization of firms from emerging countries has fruitfully invoked institutional theory to emphasize the legitimacy benefits that firms that obtain from showing isomorphism with international norms such as Corporate Social Responsibility (CSR). Without denying the intuitive appeal for these firms to communicate acceptance of CSR, we suggest that firms face a legitimacy trade-off, where the hoped-for legitimacy benefits of isomorphism must be weighed against other home-country institutional considerations. We advance and test this notion that firms will navigate this institutional complexity by engaging in anisomorphism, i.e., espousing general acceptance with international values but with selective 'translation' based on home country differences. We test our predictions by analysing firms' communication of CSR, using a unique dataset comprised of 245 firms observed over the period from 2000 to 2018. Consistent with our predictions, we find that firms from countries more reliant on natural resource extraction (e.g., mining and fossil fuel industries) de-emphasize the environmental component of CSR, and firms from more autocratic countries de-emphasize the human rights component of CSR. Additionally, and consistent with our presumption of firms' weighing the international versus home-country legitimacy trade-off, we find that these main effects are sensitive to changes in firms' levels of internationalization.

This study extends prior research on corporate political behaviour (CPB) and firms' pursuit of political legitimacy in response to monolithic government pressures by developing and testing a framework for analysis of CPB in response to polylithic pressures. We suggest that traditional forms of CPB may be ill-suited to polylithic governmental pressures, such as when firms need to navigate between conflicting home- and host-country political worldviews and policies. We posit that in such complex political situations, firms will turn to a more subtle form of CPB (i.e., rhetorical commitment versus avoidance) as a hoped-for solution to their international political legitimacy challenge. Our contingency perspective also highlights how geopolitical factors (i.e., whether governments of home and host countries are clearly aligned versus misaligned) will influence whether firms express their support for a home government's foreign policy or avoid any such expression of support. We empirically test the predictive power of our framework by analysing how these political factors led Chinese firms to opt for rhetorical commitment versus rhetorical avoidance vis-a-vis the Chinese government's Belt and Road Initiative (BRI). We conclude with a discussion of how our framework for analysis and our supportive findings can inform and extend research on CPB and political legitimacy.

While research on family-owned firms has typically sought to contrast their motivations/expected behaviors to those of nonfamily-owned firms, we argue that such a bifurcation masks meaningful differences among family-owned firms. We develop and test a tripartite typology of family-owned firms and link this typology to differences in expected behaviors. We contextualize and test our hypotheses using the recent Brazilian financial market reform, where firms could self-select into new trading sub-segments characterized by increased stringency of corporate governance requirements. We find that our tripartite typology of family-owned firms predicts which firms will opt for better governance practices, and also how the financial market will respond. We conclude with implications of our theoretical framework and findings for future research on corporate governance, family-owned firms, and institutional change.

The institutionalized status of markets is undoubtedly due to their presumed ability to aggregate individual bids into a single unbiased estimate of value. While not denying this emergent property of market processes, we propose and test an alternative perspective that explains how market processes can also generate the propagation of individual valuation errors that aggregate into price bubbles. Theoretically, we advance a microinstitutional perspective that draws from social and evolutionary psychology linking market processes to a more general process of institutionalization, whereby individuals seeking the adaptive benefits of conformity may—due to bounded and socially biased rationality—instead generate maladaptive individual and collective outcomes. Empirically, we craft an efficient experimental market and find three sets of evidence consistent with our microinstitutionalization perspective. We first show—at the individual level—that market participants exhibit a social bias toward conformity with the market’s collective valuation, even when the emergent market valuation is demonstrably incorrect. We then show—at the market level—that the range of valuations over time also decreases in a conforming direction, again independent of valuation accuracy. Last, we provide the first experimental test of the long-assumed effect of social ambiguity on institutionalization, finding that market participants’ over-attention to the collective valuation is indeed sensitive to variation in social ambiguity. We conclude by highlighting the relevance of our theoretical perspective, method, and findings for future research on institutions and institutionalization processes, as well as future studies on social influence and conformity-based errors.Funding: S. S. Levine acknowledges research grants from Singapore Management University; the University of Texas at Dallas; and the European Research Council (agreement 695256).Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2022.0173 .

We begin by noting an apparent contradiction in assumptions regarding family businesses: Scholars tend to see the business-owning family as a mostly harmonious unit dedicated to the pursuit of collective financial and non-financial interests, while the business press tends to emphasize destructive conflicts between family members. We seek to provide a contingency perspective to reconcile these contrasting perspectives, building upon principles from evolutionary biology. Specifically, we highlight how two fundamental forces (genetic relatedness and kinship certainty) can predict greater family harmony versus family conflict both across business-owning families and within a business-owning family over time. We conclude by discussing the empirical implications of our theoretical perspective, particularly for work on the role of family relations in shaping business outcomes.

The role of corporate leaders has changed vastly in the past few decades. In particular, the past decade has been marked by the rise of stakeholder pressures from activist shareholders looking to extract shareholder value, social activists seeking social participation, and increasing consumer and media attention on corporate leaders. As societal issues have gained recognition and stakeholders are increasingly powerful in governance, organizations and their leaders are held to a level of accountability never seen before in new areas including stakeholder governance and diversity. Corporate leaders are more diverse than they have been in the past, expected to be attune to stakeholder pressures, and presumably more capable of promoting a social agenda within their own organizations. The symposium seeks to understand how increasing pressures from stakeholders, as well as ensuing calls for diversity in the business elite have affected organizational decisions concerning the careers of corporate leaders. The studies explore the interplay of these newer societal pressures on organizations and uncover the degree of accountability imposed on their corporate leaders. How symbolic capital reduces negative spillovers for corporate directors Presenter: Seok-Hyun (Stephen) Hwang; Hong Kong Baptist U. Presenter: Edward J. Zajac; Northwestern U. How Decision Makers’ career histories impact the Gender diversity of CEO successor candidate pool Presenter: Andre Havrylyshyn; Darla Moore School of Business, U. of South Carolina Presenter: Donald Joseph Schepker; U. of South Carolina Regulatory violations of stakeholder rights and verbal displays of CEO value: Effects on dismissal Presenter: Daniel Zyung; Southern Methodist U. Presenter: Wei Shi; U. of Miami Class-based performance? How social class background influences performance and CEO career outcomes Presenter: Michelle K. Lee; Smith School of Business, Queen's U. Presenter: Shelby Gai; Michigan State U.

This study advances and tests the notion that the phenomenon of guilt by association-- whereby innocent organizations are penalized due to their similarity to offending organizations-- is shaped by two distinct forms of generalization. We analyze how and why evaluators’ interpretative process following instances of corporate misconduct will likely include not only inductive generalization (rooted in similarity judgments and prototype-based categorization) but also deductive generalizing (rooted in evaluators’ theories and causal-based categorization). We highlight the role and relevance of this neglected distinction by extending guilt-by-association predictions to include two unique predictions based on deductive generalization. First, we posit a recipient effect: if an innocent organization falls under a negative stereotype that causally links the innocent firm with corporate misconduct, then that innocent firm will suffer a greater negative spillover effect, irrespective of its similarity to the offending firm. Second, we also posit a transmission effect: if the offending firm falls under the same negative stereotype, then the negative spillover effect to other similar firms will be lessened. We also analyze how media discourse can foster negative stereotypes, and thus amplify these two effects. We find support for our hypotheses in an analysis of stock market reactions to corporate misconduct for all U.S. and international firms using reverse mergers to gain publicly traded status in the United States. We discuss the implications of our theoretical perspective and empirical findings for research on corporate misconduct, guilt by association, and stock market prejudice.

Given the recent rise in conversations on social issues such as diversity, equity, and inclusion, in this symposium we first seek to focus on questions that ask how internal and external governance mechanisms can affect the composition (e.g., in terms of gender, race/ethnicity) of top management teams and boards – that is, who gets appointed to the leadership. In addition, echoing prior calls that much more needs to be done to understand the causes rather than the consequences of managerial characteristics if we seek to further our insights into how such characteristics eventually become manifested in firm outcomes, we also intend to have a discussion on how corporate governance mechanisms can shape the often-studied individual attributes (e.g., values, cognitions, even personalities) of top executives.

While institutional theorists have long viewed governmental mandates as a prototypical coercive pressure generating homogeneous organizational compliance, we suggest that such mandates are often subject to enforcement uncertainty, resulting in a pressure more aptly characterized as “semicoercive” and a compliance result more aptly characterized as heterogeneous. We advance and test a theoretical framework to predict the specific form of heterogeneous compliance in semicoercive contexts, with particular attention to the differential sensitivity of firms to pressures to comply, based on differences in their specific legal, political, and social context. We use the setting of a mandated corporate governance reform in China requiring listed Chinese firms to add independent directors and find general evidence of noncompliance and more specific evidence consistent with the predictions from our sociopolitical framework. We discuss the implications of our theoretical approach and findings for future research on institutional environments, governmental regulations, organizational compliance, and corporate governance.

Corporate governance scholars have long been interested in understanding boards’ selection of new CEOs and the ongoing Board/CEO relationship, with particular emphasis on how micro- and macro-social factors can shape (and bias) these critical decisions. We extend this research in behavioral corporate governance by advancing a complementary perspective rooted in evolutionary psychology, in which we identify potential biases in board-level decisions vis-à-vis perceptions of CEOs’ physiological features, specifically formidability signals. We first suggest that these evolutionary biases will predict the likelihood of the board’s selection of formidable CEOs, positing that situational conditions, by shifting the perceived cost/benefit trade-offs associated with CEO formidability, will lead boards to be more likely to hire formidable CEOs when threats from interfirm competition are salient, and less likely to hire such CEOs when threats from intrafirm misconduct are salient. We suggest that these evolutionary biases will also affect the board's structuring of the post-selection Board/CEO relationship. Specifically, where boards perceive a congruence between CEO formidability and the situation at hand, we expect a more collaborative Board/CEO relationship, and where boards perceive incongruence, we expect a more control-oriented Board/CEO relationship. We conclude by discussing the theoretical and empirical implications of our perspective for future governance research.

This study analyzes how the interplay of economic and political interests across countries, firms, and senior executives affects the propensity of firms’ disclosing a political orientation. Specifically, we develop and test an integrative theoretical framework that considers how three complementary theoretical mechanisms across country-, firm-, and executive-levels of analysis simultaneously predict which firms are more likely to talk politics versus remain silent. We find support for our framework using Chinese publicly listed firms’ response to a home government policy. We conclude with a discussion of how our multi-level and multi-mechanism approach and our supportive findings could inform future research on corporate political behavior.

The corporate scandals and market crashes of the 2000s generated significant criticism of the shareholder value orientation (SVO) in the USA. We offer a sociopolitical analysis of how this criticism triggered changes in stock-based executive compensation, a central practice associated with the SVO. We first analyze how corporate stakeholders redefined different forms of stock-based compensation, motivated new regulations and wielded direct challenges to specific firms. We then predict how firm-specific differences in external challenges and intra-firm power relationships were related to changes in the use of stock options and restricted stock grants (RSGs), testing our predictions using a longitudinal dataset of S&P 500 executives between 2002 and 2012. We find that firms facing negative media coverage of their executive compensation practices made less use of both forms of stock-based compensation, while firms facing shareholder activism only made less use of stock options, the form that was more heavily criticized. In addition, firms with more powerful CEOs utilized RSGs more heavily and did so even when facing media criticism. Our findings demonstrate that while stock options were vulnerable to change, stock-based compensation remained resilient because the structural power of CEOs, a core corporate governance feature of the SVO, also remained resilient.

This study addresses the growing calls among international business and international entrepreneurship scholars for greater research attention to the effect of leaders’ characteristics on their firms’ risky internationalization choices. Focusing on the fundamental leader characteristic identified in the international entrepreneurship literature, i.e., risk propensity, we develop and test an original framework for analysis, which suggests that CEOs with greater risk propensity will tend to steer their firms towards greater degrees of internationalization and towards more risky venues/locations (countries at a greater cultural distance) and vehicles/entry modes (acquisitions versus alliances). We also more precisely assess our underlying assumption of agentic CEOs affecting firms’ internationalization decisions by positing and testing additional moderator relationships, in which we suggest that the effect of CEO risk propensity on the riskiness of firms’ internationalization choices will be (1) amplified when CEOs enjoy greater power, and (2) attenuated for firms with greater internationalization experience. Empirically, our analyses show significant and robust support for both our main effect and moderator hypotheses. Our study has implications for the burgeoning literature on the micro-foundations of internationalization, as well as the upper echelons and international entrepreneurship literatures.

A common prediction in research on practice diffusion is a "strength in numbers" effect (i.e., that a growing number of past adopters will increase the number of future adopters). We advance and test a theoretical perspective to explain when and how practice prevalence may also generate a "weakness in numbers" effect. Specifically, to explain the diffusion of reverse mergers-a controversial practice that allows a private firm to go public by merging with a publicly listed "shell company"-we suggest that prevalence affects their diffusion in a complex way based on two divergent social influence pathways, creating (a) a direct, positive effect of practice prevalence on potential adopters, who view prevalence as evidence of the practice's value; and (b) an indirect, negative effect mediated through third-party evaluators (i.e., investors and the media), who view prevalence as a cause for concern and skepticism. We also highlight the utility of this theoretical framework by analyzing how a decline in the status of past adopters exerts a negative effect on diffusion through both social influence pathways. Employing structural equation modeling techniques, we find support for the hypothesized relationships, and we discuss the implications of the study for future research on practice diffusion.

The present study theoretically and empirically analyzes how shareholder activism, as a reputation-damaging event for outside directors on those firms’ boards, subsequently affects the attractiveness of those directors in the market for directors. We devote particular attention to predicting specific heterogeneity in the labor market’s response by considering the differential value of some directors as legitimacy conferrers. Specifically, we suggest that both elite-status and minority (i.e., female and/or ethnic minority) outside directors are particularly valued for their contributions to organizational legitimacy and will experience a degree of reputational immunity following a reputation-damaging event. We test and find support for our hypotheses using a sample of shareholder activism that occurred in the U.S. between 2012 and 2016, and employing propensity score matching combined with the difference-in-differences approach. We discuss the implications of our findings as they relate to the research on corporate directors, organizational legitimacy, and labor markets.