Internationalization, family business and corporate governance: An emerging market perspective

Abstract

This paper examines the influence of firm internationalization on corporate governance elements such as CEO compensation, CEO duality and Board structure, in a longitudinal sample of Indian firms. Emerging markets like India are also characterized by a large number of family owned and managed businesses. Therefore, we attempt to unravel the moderating influences of family business on the internationalization-governance relationship. We utilized multidimensional and comprehensive measures to assess firms' degree of internationalization and to identify family business firms. The use of multiple theoretical lenses drawing from the information processing, agency and resource dependence streams enabled us to provide a more comprehensive understanding of the nature of the impact of internationalization on governance. The extent of internationalization positively influences CEO compensation and the percentage of outside directors on company boards, whereas it negatively influences CEO duality. These findings offer strong support for the information processing and resource dependence perspectives. We find some evidence that family businesses negatively moderate the underlying relationship between internationalization and governance. Therefore, on the one hand family businesses mitigate the primary principal-agency problems, but on the other hand they exacerbate the secondary principal-principal agency problem. This paper contributes to the relatively sparse literature examining internationalization influences on governance, particularly in emerging economies. It provides several insights through employing multiple theoretical lenses in examining internationalization- governance relationships in emerging economy contexts.