The Present and Future of Corporate Governance: Re-Examining the Role of the Board of Directors and Investor Relations in Listed Companies
Lex Research Topics in Corporate Law & Economics Working Paper No. 2013-3
50 Pages Posted: 22 Apr 2013 Last revised: 28 Jun 2013
Date Written: May 21, 2013
In this paper, we first shed light on the factors that underlie the differences between the ‘shareholder wealth maximization’ and the ‘long-term commitment’ models of corporate governance. By introducing a third type of governance model, we show that a three-dimensional approach provides a better understanding of the dynamics of corporate governance practices. The examination of the three-dimensional model’s focus on growth and value creation provides a powerful catalyst for companies implementing a well-functioning governance structure. Our analysis is supported by case studies of, for instance, Facebook and LinkedIn that illustrate how shareholder value and long-term commitment are very much affected by a firm’s growth and innovation prospects. The second part of the paper provides important insights into practices and strategies that could promote growth and value-creation in listed companies. We show that it is a daunting task to define best practices. However, we use two hand-collected data sets that consist of (1) seventy venture capital backed companies that were involved in IPOs on US stock markets between 2011 and the first half of 2012, and (2) the top-forty of the world’s largest companies in the Financial Times Global 500 2012 List to show how board dynamics can give companies a clear competitive advantage. To gauge the importance of an innovative investor relations’ strategy as an important condition for firm performance, we examine the impact of establishing frequent and timely interactions with investors.
Keywords: board of directors, corporate governance, diversity, economic growth, entrepreneurship, Facebook, FT Global 500, initial public offerings, investor conferences, investor relations, long-termism, principal agency theory, short-termism, value creation, venture capital
JEL Classification: G34, K20, K22, L21, L25, L26, O16
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