MODELING THE HETEROGENEITY OF CORPORATE GOVERNANCE MECHANISMS ACROSS INDUSTRIES: A MULTI-GROUP ANALYSIS USING PLS PATH MODELING

Abstract

The aim of this research is to examine the heterogeneity of corporate governance mechanisms (i.e., ownership concentration, board independence and CEO duality) across technology-based and mature industries. Our research extends existing corporate governance literature by conceptualizing that the effectiveness of corporate governance mechanisms is contingent upon industry settings. Specifically, the performance of technology-based firms depends on management capacity to respond to rapid market and technological changes. In mature industries, on the contrary, firms generally face a relatively stable business environment and producing standardized products. We employed multi-group analysis in the Partial Least Squares (PLS) path modeling to analyze the heterogeneous effects of corporate governance mechanisms on firm performance. Multi-group analysis in PLS path modeling is more powerful than linear regression because the former can detect multigroup difference-effect and handle violation of normality assumption in causal inference for archival financial accounting research. Using a sample of publicly listed firms from manufacturing and plantation sectors in Malaysia, we found that ownership concentration and board independence (but not CEO duality) are heterogeneous with respect to corporate governance and firm performance. We conclude that a fine-grained industry setting offers more insights on the effectiveness of corporate governance mechanisms.