DO THE CHARACTERISTICS OF THE BOARD OF DIRECTORS CHANGE ACCORDING TO THE STAGES OF COMPANY'S LIFE CYCLE?
Keywords:
Resource Dependence Theory, Board of directors, Organizational life cycle, Board interlockingAbstract
From the Resource Dependence Theory perspective, the board of directors reflects the company's environment, seeking to maximize resources since each member contributes with different skills, experiences, and connections. The literature suggests that companies adapt their structures as they evolve in the stages of the organizational life cycle, affecting the corporate governance structures and ownership structures differently. The research aims to identify the life cycle stages’ effect on the board of directors’ characteristics. The research sample consists of companies listed in B3 from 2012 to 2018. The variables of the constructs referring to the board of directors include characteristics of size, gender, independence, expertise (in management, support areas, and operational areas), degree of interlocking (with the financial sector and the sector in which it operates), and cooptation. For the life cycle, we created dummy variables based on the model developed by Dickinson (2011) using the composition of the Cash Flow Statement. We concluded that companies classified in the maturity stage have a reduction in the number of members of the board in the cooption of members with expertise in the management area. On the other hand, in growth stage’s companies, there was an increase in members cooptation with such expertise. In general, we have found that the organizational life cycle stages (maturity and growth) have different effects on changes in the board of directors.
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References
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Ames, D., Coyne, J., & Kim, K. (2020). The impact of life cycle stage on firm acquisitions. International Journal of Accounting & Information Management, 28(2), 223-241. https://doi.org/10.1108/IJAIM-02-2019-0027
Anthony, J. H., & Ramesh, K. (1992). Association between accounting performance measures and stock prices: A test of the life cycle hypothesis. Journal of Accounting and Economics, 15(2-3), 203-227. https://doi.org/10.1016/0165-4101(92)90018-W
Balogh, A. (2016). Does life-cycle influence board composition? Working paper. Available at SSRN 2851327, University of Sydney. https://dx.doi.org/10.2139/ssrn.2851327
Baltagi, B. (2008). Econometric analysis of panel data. John Wiley & Sons.
Bonacich, P. (1987). Power and centrality: A family of measures. American Journal of Sociology, 92(5), 1170-1182. https://doi.org/10.1086/228631
Bonn, I., & Pettigrew, A. (2009). Towards a dynamic theory of boards: An organizational life cycle approach. Journal of Management & Organization, 15(1), 2-16. https://doi.org/10.5172/jmo.837.15.1.2
Boyd, B. (1990). Corporate linkages and organizational environment: A test of the resource dependence model. Strategic Management Journal, 11(6), 419-430. https://doi.org/10.1002/smj.4250110602
Cameron, K. S., Kim, M. U., & Whetten, D. A. (1987). Organizational effects of decline and turbulence. Administrative Science Quarterly, 32 (2), 222-240. https://doi.org/10.2307/2393127
Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. The Financial Review, 38(1), 33-53. https://doi.org/10.1111/1540-6288.00034
Chen, H. L. (2014). Board capital, CEO power and R&D investment in electronics firms. Corporate Governance: An International Review, 22(5), 422-436. https://doi.org/10.1111/corg.12076
Coles, J. L., Daniel, N. D., & Naveen, L. (2014). Co-opted boards. The Review of Financial Studies, 27(6), 1751-1796. https://doi.org/10.1093/rfs/hhu011
Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of Financial Economics, 87(2), 329-356. https://doi.org/10.1016/j.jfineco.2006.08.008
Costa, W. B. da, Macedo, M. A. da S., Yokoyama, K. Y., & Almeida, J. E. F. de. (2017). The determinants of the life cycle stages of Brazilian public companies: A study based on financial accounting variables. Brazilian Business Review, 14(3), 304–320. https://doi.org/10.15728/bbr.2017.14.3.3
Daily, C. M. (1995). The relationship between board composition and leadership structure and bankruptcy reorganization outcomes. Journal of Management, 21(6), 1041-1056. https://doi.org/10.1177/014920639502100602
Daily, C. M., & Dalton, D. R. (1994). Bankruptcy and corporate governance: The impact of board composition and structure. Academy of Management Journal, 37(6), 1603-1617. https://doi.org/10.5465/256801
Daily, C. M., McDougall, P. P., Covin, J. G., & Dalton, D. R. (2002). Governance and strategic leadership in entrepreneurial firms. Journal of Management, 28(3), 387-412. https://doi.org/10.1016/S0149-2063(02)00133-2
Dalziel, T., Gentry, R. J., & Bowerman, M. (2011). An integrated agency–resource dependence view of the influence of directors' human and relational capital on firms' R&D spending. Journal of Management Studies, 48(6), 1217-1242. https://doi.org/10.1016/j.jfineco.2005.07.005
DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2006). Dividend policy and the earned/ contributed capital mix: A test of the life-cycle theory. Journal of Financial Economics, 81(2), 227-254. https://doi.org/10.1016/j.jfineco.2005.07.005
Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. The Accounting Review, 86(6), 1969-1994. https://doi.org/10.2308/accr-10130
Faff, R., Kwok, W. C., Podolski, E. J., & Wong, G. (2016). Do corporate policies follow a life-cycle?. Journal of Banking & Finance, 69, 95–107. https://doi.org/10.1016/j.jbankfin.2016.04.009
Fávero, L. P., & Belfiore, P. (2016). Análise de dados: Modelos de regressão com Excel®, Stata® e SPSS®. Elsevier Brasil.
Filatotchev, I., Toms, S., & Wright, M. (2006). The firm's strategic dynamics and corporate governance life‐cycle. International Journal of Managerial Finance, 2(4), 256-279. https://doi.org/10.1108/17439130610705481
Gonçalves, F. F., Almeida, J. E. F., Bortolon, P. M., & Pündrich, G. P. (2019). O ciclo de vida das firmas e as características do conselho de administração. Anais do X Congresso Nacional de Administração e Contabilidade-AdCont 2019. IAG| PUC-Rio.
Habib, A., & Hasan, M. M. (2019). Corporate life cycle research in accounting, finance and corporate governance: A survey, and directions for future research. International Review of Financial Analysis, 61, 188-201. https://doi.org/10.1016/j.irfa.2018.12.004
Haynes, K. T., & Hillman, A. (2010). The effect of board capital and CEO power on strategic change. Strategic Management Journal, 31(11), 1145-1163. https://doi.org/10.1002/smj.859
Hillman, A. J., Cannella, A. A., & Paetzold, R. L. (2000). The resource dependence role of corporate directors: Strategic adaptation of board composition in response to environmental change. Journal of Management Studies, 37(2), 235-256. https://doi.org/10.1111/1467-6486.00179
Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3), 383-396. https://doi.org/10.5465/amr.2003.10196729
Hillman, A. J., Shropshire, C., & Cannella Jr, A. A. (2007). Organizational predictors of women on corporate boards. Academy of Management Journal, 50(4), 941-952. https://doi.org/10.5465/amj.2007.26279222
Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: a review. Journal of Management, 35(6), 1404-1427. https://doi.org/10.1177/0149206309343469
Jawahar, I. M., & McLaughlin, G. L. (2001). Toward a descriptive stakeholder theory: An organizational life cycle approach. Academy of Management Review, 26(3), 397-414. https://doi.org/10.5465/amr.2001.4845803
Lynall, M. D., Golden, B. R., & Hillman, A. J. (2003). Board composition from adolescence to maturity: a multitheoretic view. Academy of Management Review, 28(3), 416-431. https://doi.org/10.5465/amr.2003.10196743
Perrault, E., & McHugh, P. (2015). Toward a life cycle theory of board evolution: Considering firm legitimacy. Journal of Management & Organization, 21(5), 627-649. https://doi.org/10.1017/jmo.2014.92
Pfeffer, J. (1972). Size and composition of corporate boards of directors: The organization and its environment. Administrative Science Quarterly, 17(2), 218-228. https://doi.org/10.2307/2393956
Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. New York: Harper & Row.
Novaes, P. V., & Almeida, J. E. (2020). The role of firms’ life cycle stages on voluntary disclosure and cost of equity capital in Brazilian public companies. Brazilian Business Review, 17, 601-620. https://doi.org/10.15728/bbr.2020.17.6.1
O’Connor, T. & Byrne, J. (2015). Governance and corporate life-cycle. International Journal of Managerial Finance, 11 (1), 23-43. https://doi.org/10.1108/IJMF-03-2013-0033
Oliveira, A. S. de, & Girão, L. F. de A. P. (2018). Acurácia na previsão de lucros e os estágios do ciclo de vida organizacional: Evidências no mercado brasileiro de capitais. Revista de Educação e Pesquisa em Contabilidade, 12(1), 121-144. https://doi.org/10.17524/repec.v12i1.1530
Ortiz‐de‐Mandojana, N., Aragón‐Correa, J. A., Delgado‐Ceballos, J., & Ferrón‐Vílchez, V. (2012). The effect of director interlocks on firms' adoption of proactive environmental strategies. Corporate Governance: An International Review, 20(2), 164-178. http://dx.doi.org/10.1111/j.1467-8683.2011.00893.x
Sánchez, L. P. C., Guerrero-Villegas, J., & González, J. M. H. (2017). The influence of organizational factors on board roles. Management Decision, 55(5), 842-871. https://doi.org/10.1108/MD-12-2015-0566
Shen, W., & Cannella Jr, A. A. (2002). Revisiting the performance consequences of CEO succession: The impacts of successor type, postsuccession senior executive turnover, and departing CEO tenure. Academy of Management Journal, 45(4), 717-733. https://doi.org/10.5465/3069306
Wernerfelt, B. (1985). The dynamics of prices and market shares over the product life cycle. Management Science, 31(8), 928-939. https://doi.org/10.1287/mnsc.31.8.928
Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. MIT Press.
Zahra, S. A., & Pearce, J. A. (1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15(2), 291-334. https://doi.org/10.1177/014920638901500208
Ames, D., Coyne, J., & Kim, K. (2020). The impact of life cycle stage on firm acquisitions. International Journal of Accounting & Information Management, 28(2), 223-241. https://doi.org/10.1108/IJAIM-02-2019-0027
Anthony, J. H., & Ramesh, K. (1992). Association between accounting performance measures and stock prices: A test of the life cycle hypothesis. Journal of Accounting and Economics, 15(2-3), 203-227. https://doi.org/10.1016/0165-4101(92)90018-W
Balogh, A. (2016). Does life-cycle influence board composition? Working paper. Available at SSRN 2851327, University of Sydney. https://dx.doi.org/10.2139/ssrn.2851327
Baltagi, B. (2008). Econometric analysis of panel data. John Wiley & Sons.
Bonacich, P. (1987). Power and centrality: A family of measures. American Journal of Sociology, 92(5), 1170-1182. https://doi.org/10.1086/228631
Bonn, I., & Pettigrew, A. (2009). Towards a dynamic theory of boards: An organizational life cycle approach. Journal of Management & Organization, 15(1), 2-16. https://doi.org/10.5172/jmo.837.15.1.2
Boyd, B. (1990). Corporate linkages and organizational environment: A test of the resource dependence model. Strategic Management Journal, 11(6), 419-430. https://doi.org/10.1002/smj.4250110602
Cameron, K. S., Kim, M. U., & Whetten, D. A. (1987). Organizational effects of decline and turbulence. Administrative Science Quarterly, 32 (2), 222-240. https://doi.org/10.2307/2393127
Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. The Financial Review, 38(1), 33-53. https://doi.org/10.1111/1540-6288.00034
Chen, H. L. (2014). Board capital, CEO power and R&D investment in electronics firms. Corporate Governance: An International Review, 22(5), 422-436. https://doi.org/10.1111/corg.12076
Coles, J. L., Daniel, N. D., & Naveen, L. (2014). Co-opted boards. The Review of Financial Studies, 27(6), 1751-1796. https://doi.org/10.1093/rfs/hhu011
Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of Financial Economics, 87(2), 329-356. https://doi.org/10.1016/j.jfineco.2006.08.008
Costa, W. B. da, Macedo, M. A. da S., Yokoyama, K. Y., & Almeida, J. E. F. de. (2017). The determinants of the life cycle stages of Brazilian public companies: A study based on financial accounting variables. Brazilian Business Review, 14(3), 304–320. https://doi.org/10.15728/bbr.2017.14.3.3
Daily, C. M. (1995). The relationship between board composition and leadership structure and bankruptcy reorganization outcomes. Journal of Management, 21(6), 1041-1056. https://doi.org/10.1177/014920639502100602
Daily, C. M., & Dalton, D. R. (1994). Bankruptcy and corporate governance: The impact of board composition and structure. Academy of Management Journal, 37(6), 1603-1617. https://doi.org/10.5465/256801
Daily, C. M., McDougall, P. P., Covin, J. G., & Dalton, D. R. (2002). Governance and strategic leadership in entrepreneurial firms. Journal of Management, 28(3), 387-412. https://doi.org/10.1016/S0149-2063(02)00133-2
Dalziel, T., Gentry, R. J., & Bowerman, M. (2011). An integrated agency–resource dependence view of the influence of directors' human and relational capital on firms' R&D spending. Journal of Management Studies, 48(6), 1217-1242. https://doi.org/10.1016/j.jfineco.2005.07.005
DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2006). Dividend policy and the earned/ contributed capital mix: A test of the life-cycle theory. Journal of Financial Economics, 81(2), 227-254. https://doi.org/10.1016/j.jfineco.2005.07.005
Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. The Accounting Review, 86(6), 1969-1994. https://doi.org/10.2308/accr-10130
Faff, R., Kwok, W. C., Podolski, E. J., & Wong, G. (2016). Do corporate policies follow a life-cycle?. Journal of Banking & Finance, 69, 95–107. https://doi.org/10.1016/j.jbankfin.2016.04.009
Fávero, L. P., & Belfiore, P. (2016). Análise de dados: Modelos de regressão com Excel®, Stata® e SPSS®. Elsevier Brasil.
Filatotchev, I., Toms, S., & Wright, M. (2006). The firm's strategic dynamics and corporate governance life‐cycle. International Journal of Managerial Finance, 2(4), 256-279. https://doi.org/10.1108/17439130610705481
Gonçalves, F. F., Almeida, J. E. F., Bortolon, P. M., & Pündrich, G. P. (2019). O ciclo de vida das firmas e as características do conselho de administração. Anais do X Congresso Nacional de Administração e Contabilidade-AdCont 2019. IAG| PUC-Rio.
Habib, A., & Hasan, M. M. (2019). Corporate life cycle research in accounting, finance and corporate governance: A survey, and directions for future research. International Review of Financial Analysis, 61, 188-201. https://doi.org/10.1016/j.irfa.2018.12.004
Haynes, K. T., & Hillman, A. (2010). The effect of board capital and CEO power on strategic change. Strategic Management Journal, 31(11), 1145-1163. https://doi.org/10.1002/smj.859
Hillman, A. J., Cannella, A. A., & Paetzold, R. L. (2000). The resource dependence role of corporate directors: Strategic adaptation of board composition in response to environmental change. Journal of Management Studies, 37(2), 235-256. https://doi.org/10.1111/1467-6486.00179
Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3), 383-396. https://doi.org/10.5465/amr.2003.10196729
Hillman, A. J., Shropshire, C., & Cannella Jr, A. A. (2007). Organizational predictors of women on corporate boards. Academy of Management Journal, 50(4), 941-952. https://doi.org/10.5465/amj.2007.26279222
Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: a review. Journal of Management, 35(6), 1404-1427. https://doi.org/10.1177/0149206309343469
Jawahar, I. M., & McLaughlin, G. L. (2001). Toward a descriptive stakeholder theory: An organizational life cycle approach. Academy of Management Review, 26(3), 397-414. https://doi.org/10.5465/amr.2001.4845803
Lynall, M. D., Golden, B. R., & Hillman, A. J. (2003). Board composition from adolescence to maturity: a multitheoretic view. Academy of Management Review, 28(3), 416-431. https://doi.org/10.5465/amr.2003.10196743
Perrault, E., & McHugh, P. (2015). Toward a life cycle theory of board evolution: Considering firm legitimacy. Journal of Management & Organization, 21(5), 627-649. https://doi.org/10.1017/jmo.2014.92
Pfeffer, J. (1972). Size and composition of corporate boards of directors: The organization and its environment. Administrative Science Quarterly, 17(2), 218-228. https://doi.org/10.2307/2393956
Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. New York: Harper & Row.
Novaes, P. V., & Almeida, J. E. (2020). The role of firms’ life cycle stages on voluntary disclosure and cost of equity capital in Brazilian public companies. Brazilian Business Review, 17, 601-620. https://doi.org/10.15728/bbr.2020.17.6.1
O’Connor, T. & Byrne, J. (2015). Governance and corporate life-cycle. International Journal of Managerial Finance, 11 (1), 23-43. https://doi.org/10.1108/IJMF-03-2013-0033
Oliveira, A. S. de, & Girão, L. F. de A. P. (2018). Acurácia na previsão de lucros e os estágios do ciclo de vida organizacional: Evidências no mercado brasileiro de capitais. Revista de Educação e Pesquisa em Contabilidade, 12(1), 121-144. https://doi.org/10.17524/repec.v12i1.1530
Ortiz‐de‐Mandojana, N., Aragón‐Correa, J. A., Delgado‐Ceballos, J., & Ferrón‐Vílchez, V. (2012). The effect of director interlocks on firms' adoption of proactive environmental strategies. Corporate Governance: An International Review, 20(2), 164-178. http://dx.doi.org/10.1111/j.1467-8683.2011.00893.x
Sánchez, L. P. C., Guerrero-Villegas, J., & González, J. M. H. (2017). The influence of organizational factors on board roles. Management Decision, 55(5), 842-871. https://doi.org/10.1108/MD-12-2015-0566
Shen, W., & Cannella Jr, A. A. (2002). Revisiting the performance consequences of CEO succession: The impacts of successor type, postsuccession senior executive turnover, and departing CEO tenure. Academy of Management Journal, 45(4), 717-733. https://doi.org/10.5465/3069306
Wernerfelt, B. (1985). The dynamics of prices and market shares over the product life cycle. Management Science, 31(8), 928-939. https://doi.org/10.1287/mnsc.31.8.928
Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. MIT Press.
Zahra, S. A., & Pearce, J. A. (1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15(2), 291-334. https://doi.org/10.1177/014920638901500208
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2022-07-15
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