The Role of Political Ideology in Corporate Governance
Park, Uisung David
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This dissertation examines how beliefs and values held by members of a board of directors can influence the decisions and actions they take in the board. I have adopted theories found in political ideology literature in order to suggest that the political ideology of the board may influence important governance decisions. In particular, I look at five corporate governance contexts: governance structure, the adoption of certain governance policy, monitoring financial misconduct and misdemeanors, and the actions boards take following financial misconduct. In each context, I find support for the idea that the political ideology of the board has affected their governance decisions and actions, i.e., separation of CEO and board chair roles, designing compensation packages for CEOs, and adoption of the clawback provision, a governance policy designed to increase managerial accountability. The results also suggest that firms with more conservative boards are less likely to experience financial misconduct such as misrepresentation and earnings manipulation. Following financial misconduct, boards tend to take different actions toward CEO depending on their ideology: conservative boards tend to replace CEOs and negative reactions from the stock market and financial analysts further encourage conservative boards to do so. Taken together, I find that the political ideology is an important factor that influences the decisison-making processes in the board. The findings demonstrate the important influence that political beliefs can play in corporate governance decisions, corroborating previous studies that find beliefs and preferences influence organizational decisions and outcomes. This study also highlights and reinforces the growing notion that the effects of corporate governance are actually quite nuanced and critically contingent on the political ideology of the individuals in governance positions. In addition, this paper builds on the emerging literature regarding the role of political ideology in organizations.
- Business administration