Governance Bundles, Firm Performance and the Substitutability and Complementarity of Governance Mechanisms

This paper extends the theory of bundles of corporate governance mechanisms to address agency issues within the Anglo-Saxon system of corporate governance. The focus of our study is to detail the role of firm performance as a key determinant of how the governance mechanisms of monitoring and incentive alignment serve as complements or as substitutes in addressing agency issues. Previous research has looked at these mechanisms in isolation from each other, with limited regard for the contingencies of firm performance and external monitoring. We propose that it is best to look at these mechanisms as a bundle of mechanisms to protect shareholder interests, and that firm performance is a key determinant of the composition of this bundle.