Strategy versus control orientation and firm performance: Evidence from Europe

• Published in: Entrepreneurial Business and Economics Review Vol. 12; no. 1; pp. 153 - 176
• Main Authors: Troilo, Michael, Orlova, Svetlana Alekseevna, Zdziarski, Michał, Stocker, Miklós
• Format: Journal Article
• Language: English
• Published: Krakow Uniwersytet Ekonomiczny w Krakowie 01.01.2024; Cracow University of Economics
• Subjects: Accountability; Boards of directors; Business Economy / Management; Capital expenditures; Corporate governance; Dependency theory; Financial performance; Property rights; Return on assets; Rule of law; Social responsibility; Socio-Economic Research; Stockholders; Strategic management; Firm performance; Corporate Governance Codes; Institutions; Corporate Governance; StrategyControl Ratio
• ISSN: 2353-883X; 2353-8821
• DOI: 10.15678/EBER.2023.120109

Objective: The objective of the article is to investigate the relationship between strategy and control in na-tional-level corporate governance (CG) codes impact firm-level financial and strategic performance.Research Design Methods: We build on existing CG literature to offer a conceptual matrix showing the evo-lution of CG codes as they balance strategy and control. We relate the emphasis on strategy versus control at the national level to the firm level for both strategic outcomes as well as more traditional financial measures. Using Compustat data from 12 700 unique firms across 31 countries for the period 1990-2016, we estimate the impact of CG codes on various financial performance measures with multivariate regression and logistics (logit) models.Findings: We find that there is a positive and significant relationship between higher emphasis on strategy in CG codes and return on assets (ROA). We also find a positive and significant relationship between the former and the probability of paying dividends, investing in research and development (RD), and spend-ing on capital expenditures (CAPEX).Implications Recommendations: Stronger legal institutions associate with a higher emphasis on strategy in CG codes. We suggest that policymakers should refine their CG Codes to focus more on strategy where feasible given our findings. We also recommend strengthening legal institutions, such as rule of law, as this will accel-erate the evolution of CG codes from monitoring to strategy.Contribution Value Added: Our findings indicate that policymakers should refine their CG codes to emphasize strategy where feasible. In addition, strengthening legal institutions would accelerate the evolution of CG codes.