Monitoring or empowering CEOs? The moderating effect of shareholder rights

Abstract

This paper explains the conflicting evidence found on agency and stewardship theories in the previous literature, by introducing shareholder rights as a moderator for the board independence-firm performance relationship. Consistent with agency (stewardship) theory, increasing (decreasing) board independence increases firm performance when shareholder rights are low (high). The results are more pronounced after the Sarbanes Oxley Act of 2002, when firms where required to increase their percentage of independent directors regardless of their governance structure. We conclude that corporate governance cannot be thought of as one-size-fits-all: a multi-theoretical approach is recommended to better understand the various aspects of corporate governance. © 2018 Elsevier B.V.