Final published version
Licence: CC BY-NC: Creative Commons Attribution-NonCommercial 4.0 International License
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Are outside directors on the small and medium-sized enterprise board always beneficial?
T2 - Disclosure of firm-specific information in board-management relations as the missing mechanism
AU - Uhlaner, Lorraine
AU - De Massis, Alfredo
AU - Jorissen, Ann
AU - Du, Yan
PY - 2021/11/1
Y1 - 2021/11/1
N2 - In board governance literature and practice, the presence of outside directors is presumed to have a beneficial effect on board effectiveness and firm performance. This study challenges this prevailing view by exploring the boundary conditions and intermediate mechanism preventing the potential benefits of outside directors. Our results reveal that reality is more complex than previously assumed. Using unique data from a sample of 561 Belgian small and medium-sized enterprises, we find that the presence of outside directors has a neutral or even negative effect under certain boundary conditions on board service engagement in the small and medium-sized enterprises context. Family ownership control and infrequent board meetings are two important contingencies that reduce management’s propensity to disclose firm-specific information to the board in the presence of outside directors. The disclosure of such information, in turn, serves as a critical mechanism to offset firm-specific information asymmetry, associated with better board service engagement and (indirectly) enhanced firm performance. Based on our study, we articulate new theoretical insights for understanding board governance in small and medium-sized enterprises, which integrate existing board governance theories with the dominant coalition context, serving as a springboard for future board governance research.
AB - In board governance literature and practice, the presence of outside directors is presumed to have a beneficial effect on board effectiveness and firm performance. This study challenges this prevailing view by exploring the boundary conditions and intermediate mechanism preventing the potential benefits of outside directors. Our results reveal that reality is more complex than previously assumed. Using unique data from a sample of 561 Belgian small and medium-sized enterprises, we find that the presence of outside directors has a neutral or even negative effect under certain boundary conditions on board service engagement in the small and medium-sized enterprises context. Family ownership control and infrequent board meetings are two important contingencies that reduce management’s propensity to disclose firm-specific information to the board in the presence of outside directors. The disclosure of such information, in turn, serves as a critical mechanism to offset firm-specific information asymmetry, associated with better board service engagement and (indirectly) enhanced firm performance. Based on our study, we articulate new theoretical insights for understanding board governance in small and medium-sized enterprises, which integrate existing board governance theories with the dominant coalition context, serving as a springboard for future board governance research.
KW - board dynamics
KW - board-management relations
KW - board of directors
KW - board service engagement
KW - corporate governance
KW - family-controlled firms
KW - firm financial performance
KW - group information processing
KW - information asymmetry
KW - information disclosure
KW - outside directors
KW - resource dependence theory
KW - SMEs (small and medium-sized enterprise)
U2 - 10.1177/0018726720932985
DO - 10.1177/0018726720932985
M3 - Journal article
VL - 74
SP - 1781
EP - 1819
JO - Human Relations
JF - Human Relations
SN - 0018-7267
IS - 11
ER -