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Stewardship Theory and Board Structure: a contingency approach

Stewardship Theory and Board Structure: a contingency approach Melinda M. Muth and Lex Donaldson Introduction he purpose of this study was to investigate the validity of several theoretical frameworks which make different predictions about the effect of board structures on firm performance. The choice of theories was based on recognition of their prominence in governance research. The empirical analysis first tested board independence hypotheses based on two competing theories: agency and stewardship. Agency theory, with its origins in finance and economics, has received much support in academic circles. However, recently it has been challenged by stewardship theory (Donaldson & Davis 1991), which is derived from the disciplines of sociology and psychology. Stewardship predictions regarding board independence are directly opposed to those of agency theory. Agency theory and board structure In reviewing the empirical research published on the subject of boards of directors and firm performance, Zahra and Pearce (1983) have said that the ``agency approach is among the most recognised in research on the contribution of boards'' (p. 301). Pivotal to the development of agency theory is the argument that shareholders have lost effective control of large corporations as firms have grown in size. As early leaders died or retired, the subsequent dispersion of shareholdings left http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Wiley

Stewardship Theory and Board Structure: a contingency approach

Corporate Governance , Volume 6 (1) – Jan 1, 1998

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References (40)

Publisher
Wiley
Copyright
Blackwell Publishers Ltd 1998
ISSN
0964-8410
eISSN
1467-8683
DOI
10.1111/1467-8683.00076
Publisher site
See Article on Publisher Site

Abstract

Melinda M. Muth and Lex Donaldson Introduction he purpose of this study was to investigate the validity of several theoretical frameworks which make different predictions about the effect of board structures on firm performance. The choice of theories was based on recognition of their prominence in governance research. The empirical analysis first tested board independence hypotheses based on two competing theories: agency and stewardship. Agency theory, with its origins in finance and economics, has received much support in academic circles. However, recently it has been challenged by stewardship theory (Donaldson & Davis 1991), which is derived from the disciplines of sociology and psychology. Stewardship predictions regarding board independence are directly opposed to those of agency theory. Agency theory and board structure In reviewing the empirical research published on the subject of boards of directors and firm performance, Zahra and Pearce (1983) have said that the ``agency approach is among the most recognised in research on the contribution of boards'' (p. 301). Pivotal to the development of agency theory is the argument that shareholders have lost effective control of large corporations as firms have grown in size. As early leaders died or retired, the subsequent dispersion of shareholdings left

Journal

Corporate GovernanceWiley

Published: Jan 1, 1998

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