Editorial

Anglo-American versus Asian CorporateGovernance Environments

William JudgeEditor in Chief

A ny student of the field of corporate governance knowsthat the vast majority of the scholarly literature has

previously examined corporate governance antecedents andeffects in the United States by American scholars. Whileinterest and research has blossomed in United Kingdom,that governance environment has many similarities to theAmerican one. Fortunately, this emphasis on governance inthe Anglo-American context is beginning to diversify, andgovernance scholars trained and living in other countries arenow examining governance dynamics in non-Anglo-American governance environments (Durisin & Puzone,2009). This diversification of governance environmentsstudied by a wider array of governance scholars is a goodthing for the field, and our journal is ambitiously seeking toparlay this diversification into a global perspective on com-parative corporate governance, not just an Anglo-Americanone.

As fate would have it, half of the empirical studies in thisissue are focused on Anglo-American governance environ-ments and the other half of the empirical studies are focusedon Asian governance environments. As a result, this issueoffers a unique glimpse into the very different governancepractices and outcomes in the east and west.

Our lead article in this issue was authored by Kaczmarek,Kimino, and Pye and it examines board task-related fault-lines in UK firms. For those who are not familiar with thisterm, a “faultline” is a demographic split or schism within aworking group that challenges the group’s effectiveness.Unlike traditional board composition research, faultlineresearch considers how relatively homogeneous sub-groupsbased upon sub-group members’ alignment along theirmultiple attributes can decrease group effectiveness (Lau &Murnighan, 1998). Using social identity theory coupled withthe group effectiveness literature, Kaczmarek and associatesfound that board task-related faultlines are generally associ-ated with lower levels of financial performance in FT350firms. Furthermore, they find that board busyness and CEOtenure exacerbates the negative relationship between board

faultlines and financial performance. Interestingly, they alsoreport that incentive compensation arrangements amelioratethe negative relationship between board faultlines and firmperformance. Overall, this study suggests that board com-position and group dynamics systematically influence finan-cial performance in large firms based in the UnitedKingdom.

Our second article was conducted by Asian accountingscholars interested in learning more about the antecedentsand effects of auditor choice for firms operating in theUnited States. Using agency theory, Liu and Lai posit thatfirms that are organizationally complex will generate higherlevels of information asymmetry which can be partially miti-gated by working with high quality and reputable auditingfirms. Specifically, they theorize and find that the greater theorganizational complexity of the US firm, the more benefi-cial a high quality auditing firm is. Using multiple measuresof organizational complexity, audit quality and firm value,this study finds that this relationship is fairly robust.

Our third article redirects attention to boardroom dynam-ics and outcomes in Japanese firms. Specifically, Nakano andNguyen hypothesize that board size will be negatively asso-ciated with corporate risk taking. Previous research inAnglo-American economies has generally demonstrated anegative relationship between board size and corporate risktaking (e.g., Cheng, 2008). However, Anglo-Americanboards are dominated by outside directors while Japaneseboards are dominated by inside directors. Furthermore, theJapanese institutional environment is quite different. Assuch, it is not clear whether this negative relationship wouldhold up in the Japanese context. Based on a relatively recentsample of large, publicly-held Japanese firms, the data revealthat the relationship between board size and corporate risktaking is not as strong in Japan as it is in the United States.However, when investment opportunities are considered,this relationship holds for firms with relatively limitedinvestment opportunities (but it does not hold for firmsconfronted with extensive investment opportunities). These

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findings are fascinating not only to the field of corporategovernance, but they also potentially help to explain Japan’ssluggish economic growth over the past three decades.

Last, but not least, Bae, Kim, and Kim provide a fascinat-ing empirical study of how family ownership and controlinfluences not-for-profit organizations in South Korea. It isrelatively well known that family ownership and control ismuch more prevalent in East Asian economies than inAnglo-American economies (Claessens, Djankov, & Lang,2000). Less studied is how governance dynamics operate innot-for-profit organizations. In this study, Kim and associ-ates demonstrate that founding family control in not-for-profit universities in Korea depresses university perfor-mance in the form of donations, and various measures ofoverall student quality. They conclude that expropriationoccurs in not-for-profit organizations due to family control,similar to expropriation found in for-profit firms.

Overall, these four studies reveal the unique benefits andchallenges of pursuing a global theory of the antecedentsand effects of corporate governance. The challenges are torefine and extend theories and methods developed in anAnglo-American context. The benefits are a more holistic,and global perspective on this phenomenon which we callcorporate governance. Clearly, the empirical evidence doesnot suggest that global convergence is occurring, but gover-nance environments are dynamic and hybrid arrangements

are springing up (Yoshikawa & Rasheed, 2009). Because ofthe increasing evidence suggesting the importance of under-standing institutional context in comparative corporate gov-ernance, our next biannual conference will focus ondeveloping typologies and taxonomies of governance envi-ronments throughout the world in September at the JudgeBusiness School at Cambridge University. I hope to see youthere and learn from your insights into this fascinating theo-retical puzzle.

REFERENCES

Cheng, S. 2008. Board size and variability of corporate perfor-mance. Journal of Financial Economics, 87: 157–176.

Claessens, S., Djankov, S., & Lang, L. 2000. The separation of own-ership and control in East Asian corporations. Journal of Finan-cial Economics, 58: 81–112.

Durisin, B. & Puzone, F. 2009. Maturation of corporate governanceresearch, 1993–2007: An assessment. Corporate Governance: AnInternational Review, 17: 266–291.

Lau, D. & Murnighan, J. 1998. Demographic diversity and fault-lines: The compositional dynamics of organization groups.Academy of Management Review, 23: 325–340.

Yoshikawa, T. & Rasheed, A. 2009. Convergence of corporate gov-ernance: Critical review and future directions. Corporate Gov-ernance: An International Review, 17: 388–404.

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