Globalization of
Corporate Governance:
A European Perspective
TROND RANDØY & JOCHEN JUNGEILGES
AGDER UNIVERSITY COLLEGE, NORWAY
LARS OXELHEIM
LUND UNIVERSITY, SWEDEN
Presented at Fudan University May 13, 2006
1
Introduction

Research issue:
 Does American influence in large public European
firms affect their corporate governance?
 Does American influence in top European firms affect
dismissal risk?

Background:
 Global increase in CEO pay
 Global focus on corporate governance
 Globalization and firm performance
2
Motivation


Access to global financing essential for growing
countries.
Globalization of capital affects firms:

30-35% of all shares in Scandinavia
 Upgrading
(even harmonization) of national corporate
governance systems (OECD, 1999)
 Investors are willing to pay a premium for wellgoverned firms (McKinsey, 2000)

Do some of the gains of American (institutional
ownership) corporate governance come at the
cost of other stakeholders – such as higher
dismissal risk?
3
CEO succession model
Controls;
-firm size
-firm industry
-observation year
-country
-CEO age
-CEO tenure)

Dismissal model;

change of
being
dismissed nonvoluntarily
Performance
American influence
-Corporate control
-Corporate monitoring
(listing)
4
Hypotheses: cross-listing
 HYPOTHESIS
1: THERE IS A POSITIVE
RELATIONSHIP BETWEEN AMERICAN EXCHANGE
LISTING AND PERFORMANCE CONTINGENT
DISMISSAL RISK.

Agency theory: higher rewards & higher risks



Increased monitoring by auditors/regulators
 Might not be necessary with large European owners?
Change of corporate culture – English as corporate language
Signaling

Compliance with information needs of US based investors
5
Hypotheses: board membership

HYPOTHESIS 2: THERE IS A POSITIVE RELATIONSHIP
BETWEEN AMERICAN BOARD MEMBERSHIP AND
PERFORMANCE CONTINGENT DISMISSAL RISK

Agency theory: higher rewards & higher risks




Strengthening of incentive-based systems
Change of corporate culture – English as corporate language
Affect the behavior of the board
Signaling

Increased trust among US based investors
6
Population: succession events


270 succession events in top 250 European public firms
between 2000-2004
Data collected by Booz, Allen & Hamilton, and additional
variables supplemented by us (15% non-response)
7
Country and industry data from
succession events
8
Descriptive statistics: CEO age & tenure,
cross-listing and American board membership
67% of succession event from firms with American cross-listing
18% of succession event from firms with American board membership
9
Industry performance and dismissal
Voluntary dismissals
Forced dismissals
10
Bivariate tests: Spearman’s Rank
Corr. & Cramer’s V
11
Methodology:
Binary response model: Logit
Estimation procedure: Max Likelihood
MacFadden’s R2 or Pseudo R2
12
CEO dismissal risk:
multivariate models
* p<.05 (two-tailed)
** p<.01 (two-tailed)
*** p<.001 (two-tailed)
13

Main findings

American cross-listing does not increase performance
contingent dismissal risk in European firms


American board membership increase performance
contingent dismissal risk in European firms


Does not alter dismissal behavior – too weak of a
mechanism
Corporate governance of boards is affected by nationality
of board members – affects behavior
Limitations & weaknesses
effects – are European firms with
American influence different than other firms
 We still don’t know if there are to few or too many
dismissals
 Confounding
14