Maria Goranova is a Professor of Organizations and Strategic Management in Lubar School of Business at the University of Wisconsin - Milwaukee. Her research examines corporate governance, ownership, and shareholder activism issues in the context of strategic management, and has been published in Strategic Management Journal, Journal of Management Studies, Organization Science, Journal of Management, Academy of Management Perspectives, Journal of Business Ethics, and others. She is co-editor of Shareholder Empowerment: A New Era in Corporate Governance (Palgrave-Macmillan), and currently a guest editor of forthcoming special issue in Corporate Governance: An International Review: “Ownership and Corporate Governance across Institutional Contexts.” Maria serves on the editorial board of Journal of Management and as an editor of CGIR.
Shareholder value maximization has spurred a long-standing and heated debate between the proponen... more Shareholder value maximization has spurred a long-standing and heated debate between the proponents of a unified corporate objective function and the supporters of multi-constituency goals of the corporation. We weigh in on the corporate purpose debate from a different point of view: that of the shareholders. Specifically, we seek to critically assess the assumptions about shareholders embedded in the shareholder value maximization doctrine and examine the implications of three contemporary shareholding practices: (a) shareholders investing concurrently in competing firms, (b) residual-risk bearing decoupling, and (c) heterogeneous shareholder interests. Our critique draws out the challenges that contemporary shareholder practices pose for corporate governance and highlights the need for strategic corporate governance, or governance policies and practices that prioritize the sustainable competitive advantage of the firm.
We investigate the effects of monitoring by boards of directors and institutional shareholders on... more We investigate the effects of monitoring by boards of directors and institutional shareholders on merger and acquisition (M&A) performance extremeness using a sample of M&A deals from 1997-2006. Both governance research and legal reforms generally have espoused a ‘raise all boats’ view of monitoring. We instead investigate whether monitoring may serve as a double-edged sword that limits CEO discretion to undertake both value-destroying M&A deals and value-creating ones. Our findings indicate that the relationship between monitoring and M&A performance is more complex than previously believed. Rather than ‘raising all boats’ in a shift towards better M&A outcomes, monitoring instead is associated with lower M&A losses, but also with lower M&A gains.
Shareholder activism has become more widespread, yet the role of corporate governance as antecede... more Shareholder activism has become more widespread, yet the role of corporate governance as antecedent to shareholder activism remains equivocal. We propose a new conceptual model that characterizes the stochastic of observable shareholder activism as a compound product of two latent components representing (a) shareholder activists’ propensity to target a company and (b) executives’ propensity to privately settle activists’ demands. Our model explicitly decouples corporate governance expectations for the two latent components embedded in activism process, and thus allows us to relax assumptions of homogenous shareholder interests and constrained managerial discretion where corporate managers are expected to privately negotiate and settle only value-creating activist demands. Bayesian analysis of zero-inflated Poisson regression reveals that corporate governance relationships with activism vary across shareholder demands and private settlements.
Since the late 1990s, the number of apologies being offered by CEOs of large companies has explod... more Since the late 1990s, the number of apologies being offered by CEOs of large companies has exploded. Communication and management scholars have analyzed whether and why some of these apologies are more effective or more ethical than others. Most of these analyses, however, have remained at the anecdotal level. Moreover, the practical, economic consequences of apologies have not been examined. Almost no rigorous or systematic empirical work exists that examines whether stakeholders 1) reward firms whose CEOs give apologies that are more, rather than less, ethical; and 2) punish firms whose corporate apologies are not ethically sound. This lacuna is surprising given that the whole purpose of an apology is to restore trust between the apologizer and the recipients of the apology. This paper explores how one group of stakeholders ― the shareholders ― responds to apologies that are more ethical. In particular, we consider market re-actions to CEO apologies and investigate whether cumulative abnormal returns (CARs) increase or decrease in the short-term when these same firms’ CEOs give apologies that are more ethical.
Shareholder Empowerment: A New Era in Corporate Governance (published by Springer), 2015
Recent trends in shareholder empowerment have spurred a heated debate whether empowered sharehold... more Recent trends in shareholder empowerment have spurred a heated debate whether empowered shareholders will ultimately cure corporate ills or adversely affect corporate fortunes. While some scholars claim that further strides in empowering shareholders will improve managerial accountability and firm performance, critics warn that shareholder empowerment will merely amplify corporate myopia and shift the problem of managerial self-serving to shareholders' self-serving. In this volume we address this paradox by bringing together both proponents and skeptics of the shareholder empowerment movement, and focusing on management scholars’ insights on the implications of shareholder empowerment for contemporary corporations and their practices.
Shareholder activism has become a dynamic institutional force, and its associated, rapidly increa... more Shareholder activism has become a dynamic institutional force, and its associated, rapidly increasing body of scholarly literature affects numerous disciplines within the organization sci- ence academy. In addition to equivocal results concerning the impact of shareholder activism on corporate outcomes, the separation of prior research into financial and social activism has left unanswered questions critical for both the scholarly discourse on shareholder activism and the normative debate on shareholder empowerment. The heterogeneity of factors in shareholder activism, such as the firm, activist, and environmental characteristics that promote or inhibit activism, along with the breadth of activism’s issues, methods, and processes, provide a plethora of theoretical and methodological opportunities and challenges for activism researchers. Our multidisciplinary review incorporates the financial and social activism streams and explores shareholder activism heterogeneity and controversy, seeking to provide an impetus for more cohesive conceptual and empirical work in the field.
Boards of directors must navigate between adopting standardized “best practices” for their CEOs’ ... more Boards of directors must navigate between adopting standardized “best practices” for their CEOs’ pay plans, on the one hand, and customizing their CEOs’ pay to align their particular CEO’s goals with those of shareholders, on the other. We build theory proposing that the incentive effects of different CEO compensation types vary consistently over CEO tenures and, therefore, that over-standardization of CEO pay plans actually can hurt shareholders. Our analysis of a sample of U.S. S&P 500 firms from 1998-2005 shows declining benefits to shareholders from performance-based compensation (i.e., options and bonuses) as CEO tenure increases, but an opposite effect for non performance-based (i.e., salary) pay. These findings can be considered a preliminary warning that normative “best practices” should not become the exclusive approach to determining CEO pay packages; instead, boards should consider more holistic approaches that incorporate the fit between CEO characteristics and organizational goals.
The widespread practice of earnings management adversely impacts the quality of financial reports... more The widespread practice of earnings management adversely impacts the quality of financial reports and increases information asymmetries between owners and managers. The present study investigates the effect of shareholder activism (as expressed by the proxy proposals sponsored by shareholders), and monitoring by the largest institutional owner on earnings management. Our longitudinal analyses indicate that the number of shareholder proposals received by firms is positively related to subsequent earnings management, yet concurrently, monitoring by the largest institutional owners is negatively related to earnings management. Our findings shed light on the equivocal results reported by prior research regarding the impact of shareholder activism on firm performance, on one hand, and ownership monitoring and performance, on the other.
Corporate governance research indicates that large owners provide effective monitoring. In this a... more Corporate governance research indicates that large owners provide effective monitoring. In this article, we expand firm-level notions of monitoring to include large institutional owners’ investment portfolios and suggest that portfolio characteristics affect owners’ motivation and capacity to monitor, which compromises the positive effects of monitoring at the firm level. Specifically, using data from 533 large firms over a 10-year period, we find that increases in the size of portfolio holdings, number of portfolio blockholdings, portfolio turnover, and the importance of a particular holding reduce monitoring effectiveness in the context of executive compensation. Overall, we provide preliminary evidence that the portfolio characteristics of the largest institutional owners contradict firm-level monitoring effects; therefore, we strongly recommend that future studies consider both firm- and portfolio-level effects simultaneously to understand monitoring effectiveness.
Corporate governance research emphasizes the influence of institutional owners on company outcome... more Corporate governance research emphasizes the influence of institutional owners on company outcomes such as strategic decisions, organizational structures, and executive compensation. However, little is known about the process companies use to gain support for management-sponsored compensation plan resolutions. This article reviews prior literature linking institutional ownership and compensation practices and investigates the little-studied process of how management tries to work with owners to secure shareholder approval of compensation plans. In addition, it provides brief cases of two Fortune 300 companies (General Mills and PepsiCo) that received positive votes on their compensation plans. The article ends with several recommendations for managers trying to gain institutional owners’ approval of future compensation plans.
As the debate over appropriate compensation disclosure continues, some firms have volunteered to ... more As the debate over appropriate compensation disclosure continues, some firms have volunteered to recognize stock option costs within their income statements. On the one hand, stock option expensing can significantly enhance the legitimacy of the organization and restore shareholders' confidence in corporate governance practices. On the other hand, expensing stock options could decrease firm earnings, leading to unfavorable comparisons to non-expensing firms. Our logit analysis of 402 S&P firms lends partial support to agency theory explanations for stock option expensing; these results depend on the costs associated with expensing. We find stronger support for the institutional theory perspective that mimetic pressures significantly increase the likelihood that firms will expense stock options, independent of the cost. Our findings have important governance implications, suggesting a more complex model of compensation disclosure in which social pressures dominate voluntary compensation disclosure decisions.
Shareholder value maximization has spurred a long-standing and heated debate between the proponen... more Shareholder value maximization has spurred a long-standing and heated debate between the proponents of a unified corporate objective function and the supporters of multi-constituency goals of the corporation. We weigh in on the corporate purpose debate from a different point of view: that of the shareholders. Specifically, we seek to critically assess the assumptions about shareholders embedded in the shareholder value maximization doctrine and examine the implications of three contemporary shareholding practices: (a) shareholders investing concurrently in competing firms, (b) residual-risk bearing decoupling, and (c) heterogeneous shareholder interests. Our critique draws out the challenges that contemporary shareholder practices pose for corporate governance and highlights the need for strategic corporate governance, or governance policies and practices that prioritize the sustainable competitive advantage of the firm.
We investigate the effects of monitoring by boards of directors and institutional shareholders on... more We investigate the effects of monitoring by boards of directors and institutional shareholders on merger and acquisition (M&A) performance extremeness using a sample of M&A deals from 1997-2006. Both governance research and legal reforms generally have espoused a ‘raise all boats’ view of monitoring. We instead investigate whether monitoring may serve as a double-edged sword that limits CEO discretion to undertake both value-destroying M&A deals and value-creating ones. Our findings indicate that the relationship between monitoring and M&A performance is more complex than previously believed. Rather than ‘raising all boats’ in a shift towards better M&A outcomes, monitoring instead is associated with lower M&A losses, but also with lower M&A gains.
Shareholder activism has become more widespread, yet the role of corporate governance as antecede... more Shareholder activism has become more widespread, yet the role of corporate governance as antecedent to shareholder activism remains equivocal. We propose a new conceptual model that characterizes the stochastic of observable shareholder activism as a compound product of two latent components representing (a) shareholder activists’ propensity to target a company and (b) executives’ propensity to privately settle activists’ demands. Our model explicitly decouples corporate governance expectations for the two latent components embedded in activism process, and thus allows us to relax assumptions of homogenous shareholder interests and constrained managerial discretion where corporate managers are expected to privately negotiate and settle only value-creating activist demands. Bayesian analysis of zero-inflated Poisson regression reveals that corporate governance relationships with activism vary across shareholder demands and private settlements.
Since the late 1990s, the number of apologies being offered by CEOs of large companies has explod... more Since the late 1990s, the number of apologies being offered by CEOs of large companies has exploded. Communication and management scholars have analyzed whether and why some of these apologies are more effective or more ethical than others. Most of these analyses, however, have remained at the anecdotal level. Moreover, the practical, economic consequences of apologies have not been examined. Almost no rigorous or systematic empirical work exists that examines whether stakeholders 1) reward firms whose CEOs give apologies that are more, rather than less, ethical; and 2) punish firms whose corporate apologies are not ethically sound. This lacuna is surprising given that the whole purpose of an apology is to restore trust between the apologizer and the recipients of the apology. This paper explores how one group of stakeholders ― the shareholders ― responds to apologies that are more ethical. In particular, we consider market re-actions to CEO apologies and investigate whether cumulative abnormal returns (CARs) increase or decrease in the short-term when these same firms’ CEOs give apologies that are more ethical.
Shareholder Empowerment: A New Era in Corporate Governance (published by Springer), 2015
Recent trends in shareholder empowerment have spurred a heated debate whether empowered sharehold... more Recent trends in shareholder empowerment have spurred a heated debate whether empowered shareholders will ultimately cure corporate ills or adversely affect corporate fortunes. While some scholars claim that further strides in empowering shareholders will improve managerial accountability and firm performance, critics warn that shareholder empowerment will merely amplify corporate myopia and shift the problem of managerial self-serving to shareholders' self-serving. In this volume we address this paradox by bringing together both proponents and skeptics of the shareholder empowerment movement, and focusing on management scholars’ insights on the implications of shareholder empowerment for contemporary corporations and their practices.
Shareholder activism has become a dynamic institutional force, and its associated, rapidly increa... more Shareholder activism has become a dynamic institutional force, and its associated, rapidly increasing body of scholarly literature affects numerous disciplines within the organization sci- ence academy. In addition to equivocal results concerning the impact of shareholder activism on corporate outcomes, the separation of prior research into financial and social activism has left unanswered questions critical for both the scholarly discourse on shareholder activism and the normative debate on shareholder empowerment. The heterogeneity of factors in shareholder activism, such as the firm, activist, and environmental characteristics that promote or inhibit activism, along with the breadth of activism’s issues, methods, and processes, provide a plethora of theoretical and methodological opportunities and challenges for activism researchers. Our multidisciplinary review incorporates the financial and social activism streams and explores shareholder activism heterogeneity and controversy, seeking to provide an impetus for more cohesive conceptual and empirical work in the field.
Boards of directors must navigate between adopting standardized “best practices” for their CEOs’ ... more Boards of directors must navigate between adopting standardized “best practices” for their CEOs’ pay plans, on the one hand, and customizing their CEOs’ pay to align their particular CEO’s goals with those of shareholders, on the other. We build theory proposing that the incentive effects of different CEO compensation types vary consistently over CEO tenures and, therefore, that over-standardization of CEO pay plans actually can hurt shareholders. Our analysis of a sample of U.S. S&P 500 firms from 1998-2005 shows declining benefits to shareholders from performance-based compensation (i.e., options and bonuses) as CEO tenure increases, but an opposite effect for non performance-based (i.e., salary) pay. These findings can be considered a preliminary warning that normative “best practices” should not become the exclusive approach to determining CEO pay packages; instead, boards should consider more holistic approaches that incorporate the fit between CEO characteristics and organizational goals.
The widespread practice of earnings management adversely impacts the quality of financial reports... more The widespread practice of earnings management adversely impacts the quality of financial reports and increases information asymmetries between owners and managers. The present study investigates the effect of shareholder activism (as expressed by the proxy proposals sponsored by shareholders), and monitoring by the largest institutional owner on earnings management. Our longitudinal analyses indicate that the number of shareholder proposals received by firms is positively related to subsequent earnings management, yet concurrently, monitoring by the largest institutional owners is negatively related to earnings management. Our findings shed light on the equivocal results reported by prior research regarding the impact of shareholder activism on firm performance, on one hand, and ownership monitoring and performance, on the other.
Corporate governance research indicates that large owners provide effective monitoring. In this a... more Corporate governance research indicates that large owners provide effective monitoring. In this article, we expand firm-level notions of monitoring to include large institutional owners’ investment portfolios and suggest that portfolio characteristics affect owners’ motivation and capacity to monitor, which compromises the positive effects of monitoring at the firm level. Specifically, using data from 533 large firms over a 10-year period, we find that increases in the size of portfolio holdings, number of portfolio blockholdings, portfolio turnover, and the importance of a particular holding reduce monitoring effectiveness in the context of executive compensation. Overall, we provide preliminary evidence that the portfolio characteristics of the largest institutional owners contradict firm-level monitoring effects; therefore, we strongly recommend that future studies consider both firm- and portfolio-level effects simultaneously to understand monitoring effectiveness.
Corporate governance research emphasizes the influence of institutional owners on company outcome... more Corporate governance research emphasizes the influence of institutional owners on company outcomes such as strategic decisions, organizational structures, and executive compensation. However, little is known about the process companies use to gain support for management-sponsored compensation plan resolutions. This article reviews prior literature linking institutional ownership and compensation practices and investigates the little-studied process of how management tries to work with owners to secure shareholder approval of compensation plans. In addition, it provides brief cases of two Fortune 300 companies (General Mills and PepsiCo) that received positive votes on their compensation plans. The article ends with several recommendations for managers trying to gain institutional owners’ approval of future compensation plans.
As the debate over appropriate compensation disclosure continues, some firms have volunteered to ... more As the debate over appropriate compensation disclosure continues, some firms have volunteered to recognize stock option costs within their income statements. On the one hand, stock option expensing can significantly enhance the legitimacy of the organization and restore shareholders' confidence in corporate governance practices. On the other hand, expensing stock options could decrease firm earnings, leading to unfavorable comparisons to non-expensing firms. Our logit analysis of 402 S&P firms lends partial support to agency theory explanations for stock option expensing; these results depend on the costs associated with expensing. We find stronger support for the institutional theory perspective that mimetic pressures significantly increase the likelihood that firms will expense stock options, independent of the cost. Our findings have important governance implications, suggesting a more complex model of compensation disclosure in which social pressures dominate voluntary compensation disclosure decisions.
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