Managerial Discretion and the Practice of Corporate Governance

2012 ◽  
Author(s):  
John Hendry
Keyword(s):  
Corporate Governance ◽  
Managerial Discretion

scholarly journals Corporate governance and transaction cost economics: A study of the equity governance structure

2016 ◽  
Vol 12 (1) ◽  
pp. 33-44 ◽  
Author(s):  
Jimmy A. Saravia Matus ◽  
Silvia Saravia-Matus
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Transaction Costs ◽  
Transaction Cost ◽  
Transaction Cost Economics ◽  
Governance Structure ◽  
Firm Valuation ◽  
Managerial Discretion ◽  
Full Analysis ◽  
First Time

This paper extends the Transaction Cost Economics (TCE) theory of the equity governance structure by introducing a (hitherto absent) full analysis of the key TCE issue of bilateral dependency between the firm and its shareholders. In addition, the paper discusses the implications of the analysis for the topic of corporate governance and firm performance. We find that when bilateral dependency holds contractual hazards are mitigated as predicted by TCE, but that when it does not contractual safeguards are altered to the disadvantage of shareholders and managerial discretion costs increase as reflected by lower firm valuation. Importantly, our study documents for the first time a class of transactions where business relationships persist indefinitely even though transaction costs are not minimized.

scholarly journals Reaffirming the importance of managerial discretion in corporate governance: a comment on Andersen (2017)

2019 ◽  
Vol 19 (2) ◽  
pp. 240-254 ◽  
Author(s):  
Moustafa Salman Haj Youssef ◽  
Da Teng
Keyword(s):  
Corporate Governance ◽  
Empirical Studies ◽  
Managerial Discretion ◽  
Validity And Reliability ◽  
Theoretical Frameworks ◽  
Content Type ◽  
Top Executives ◽  
Theoretical View ◽  
Different Dimensions ◽  
Practical Implications

PurposeThe purpose of this study is to refute the work of Andersen (2017) by suggesting a different theoretical view and to argue that the concept of managerial discretion is one of the core dimensions that cannot be discarded when studying corporate governance.Design/methodology/approachThis paper uses theoretical frameworks from recent literature, definitions and empirical studies on the concept of managerial discretion and corporate governance.FindingsSeveral studies have empirically tested and measured the concept of managerial discretion, some have provided validity and reliability of the concept and others have showed the direct impact of discretion on firm performance.Practical implicationsResearch on managerial discretion provides owners and board of directors a clear advice on how much discretion can be granted to top executives by taking into consideration the different dimensions of the external and internal environment.Originality/valueThis paper concludes that corporate governance research will not improve if it abandons the concept of managerial discretion.

Corporate governance, foreign direct investment, and bank income smoothing in African countries

2019 ◽  
Vol 15 (4) ◽  
pp. 670-690 ◽  
Author(s):  
Inês Pinto ◽  
Cristina Gaio ◽  
Tiago Gonçalves
Keyword(s):  
Developing Countries ◽  
Corporate Governance ◽  
Financial Reporting ◽  
Direct Investment ◽  
Managerial Discretion ◽  
Income Smoothing ◽  
Governance Mechanisms ◽  
African Countries ◽  
Content Type ◽  
Corporate Governance Mechanisms

Purpose The purpose of this paper is to investigate the role of corporate governance mechanisms and foreign direct investment (FDI) to restrain or stimulate the use of loan loss provisions (LLPs) by managers to smooth earnings in African banks. Design/methodology/approach This study uses a sample of 112 listed and non-listed banks from 20 African countries, covering the period 2011–2017. Models are estimated using the pooled ordinary least squares regression, as well as Blundell and Bond (1998) system GMM. Findings The results suggest that bank managers use LLPs to reduce income volatility and that ownership concentration increases income smoothing. The findings also show that FDI plays a fundamental role to restrain managerial discretion in developing countries, increasing corporate governance practices in the host country. Practical implications These findings are relevant for banking regulators and supervisors in order to determine which corporate governance mechanisms can be used in developing countries to increase the quality of financial reporting. A policy model that promotes FDI boosts financial reporting transparency, contributing to greater financial markets development. Originality/value The authors extend the existing literature on the influence of corporate governance mechanisms in limiting managerial discretion by focusing on the role that foreign shareholders may have in disciplining banks financial reporting quality in countries with weak institutional quality.

scholarly journals Managerial discretion and corporate governance: The bonded relationship

2021 ◽  
Vol 18 (3) ◽  
pp. 75-85
Author(s):  
Moustafa Haj Youssef ◽  
Da Teng
Keyword(s):  
Decision Making ◽  
Corporate Governance ◽  
Board Of Directors ◽  
Empirical Studies ◽  
External Environment ◽  
Managerial Discretion ◽  
Theoretical Frameworks ◽  
Top Managers ◽  
Original Argument ◽  
Different Dimensions

Our study aims to demonstrate the importance of managerial discretion to corporate governance research and deepen our understanding of managerial discretion. Adopting theoretical frameworks and definitions from 93 conceptual and empirical studies on managerial discretion and corporate governance, we argue that extant studies have presented explicit empirical and theoretical definitions of managerial discretion; and have proved the validity, reliability, and replicability of the concept. We argue that corporate governance scholarship cannot move forward without managerial discretion as it provides shareholders and board of directors’ essential guidance on how much freedom in decision-making is to be granted to top managers by deeming the different dimensions of the internal and external environment into consideration. We reinstate our original argument that corporate governance research is not better off without managerial discretion. We also provide a new vantage for corporate governance and managerial discretion scholars to distinguishing between the latitude of actions and latitude of objectives

The concept of managerial discretion in corporate governance – better off without it?

2017 ◽  
Vol 17 (3) ◽  
pp. 574-587 ◽  
Author(s):  
Jon Aarum Andersen
Keyword(s):  
Corporate Governance ◽  
Design Methodology ◽  
Empirical Studies ◽  
Reliability And Validity ◽  
Managerial Discretion ◽  
Content Type ◽  
Top Managers ◽  
Low Degree ◽  
Definition Of ◽  
Practical Implications

Purpose This paper aims to assess the concept of managerial discretion with respect to its theoretical and empirical usefulness for corporate governance research. Design/methodology/approach This paper scrutinises applied theoretical claims, definitions and methods, as well as a number of empirical studies on managerial discretion. Findings To date, no empirical definition of the concept has been presented and no measurement has been developed and tested for reliability and validity that contains all three factors of the managerial discretion concept, as proposed by Hambrick and Finkelstein (1987). Practical implications Research on managerial discretion does not provide owners and directors of boards with any advice on granting top managers a high or low degree of discretion. Originality/value This paper concludes that corporate governance scholarship will improve if it abandons the concept of managerial discretion.

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