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Cultural and geographical distances create friction in multinational enterprises (MNEs), friction that indigenous firms do not experience in the same manner. This friction or liabilities of distance is conceptualized as governance costs in this chapter. Unfortunately, governance costs seem to be a rather equivocal concept, although it is one of the building blocks of internalization theory, and the raison d’être of the idea that certain kind of transactions have to be internalized to overcome the most prohibitive consequences of business activities across cultural and geographical distances. By going back to an award-winning paper, published in IBR in 2009, we put forward some nuances and reflections upon theory and findings presented in that paper, as well as upon implications and behavior of governance costs. The reason for this endeavor is grounded in the idea that theories must be challenged, empirical finding, just as well. Building upon survey data from 159 Norwegian MNEs, we explore and test six hypotheses by structural equation modeling (SEM). The results indicate that information fallacies seem to be the main driver of monitoring – and bargaining costs in the relationship between MNE HQs and their foreign subsidiaries, and thereby also the indirect driver of the observed negative effects of monitoring and bargaining on subsidiary performance. On the other hand, trust shaped by bonding activities seems to be an important factor in reducing bargaining costs and improving subsidiary performance.

The cost of equity (COE) and corporate governance structure are the most critical factors affecting competition among publicly held companies. Accordingly, the present paper aims to examine the relationship between corporate governance and the COE in the wake of the Islamic State of Iraq and Syria (ISIS) in Iraq.

Our statistical sample includes 34 companies listed on the Iraq Stock Exchange from 2012 to 2017. Board structure (i.e. board size, board independence, CEO tenure, board meetings frequency and CEO duality) and ownership structure (managerial ownership, institutional ownership and state ownership) are considered proxies for corporate governance structure. Besides, the authors employ the Capital Asset Pricing Model to measure the COE as our dependent variable. Multiple regression analysis and Exploratory Factor Analysis are also used to estimate the research models.

Our results suggest that corporate governance structure plays a significant role in reducing COE during the ISIS era. Furthermore, the authors find that corporate governance can be an alternative to COE reduction in Iraq’s absence of national security. Our findings also indicate that board size, board meeting frequency, managerial ownership and institutional ownership are negatively associated with COE.

Although this study has been thoroughly considered and cautiously planned, the specific period chosen to conduct the research (i.e. the ISIS era) could be a significant limitation since financial disclosure of listed companies may have been of lower quality during this period. However, to relatively alleviate this limitation and maintain the authenticity of the findings, the authors exclude low-quality financial statements, particularly non-audited financial reports, from the statistical sample. Furthermore, practitioners of emerging markets that are suffering from a weak external corporate governance combination can use the findings of this paper as a guideline to compensate the existing market deficiencies by improving internal corporate governance for observing further cash sources with lower cost. The findings also propose to international agencies that the business environment in Iraq is heavily affected by the ISIS phenomenon and needs financial aid to recover from its side effects. Furthermore, macroeconomists may use this paper to make more decisive macroeconomic indicators predictions.

This paper is among the pioneer investigations and elaborates on how the agency conflict is resolved effectively. The board and managerial characteristics and different forms of ownership might be applicable to provide cheaper funds for companies listed in emerging markets suffering from weak external corporate governance combinations.

This paper aims to examine the effect of Shariah Advisory Panel (SAP) on both the level of agency cost and fund performance against conventional corporate governance, within corporate and Shariah governance settings, between Shariah and conventional mutual fund (CMF), in an emerging economy of Malaysia during the period 2008-2015.

Panel data regression is appropriately used within corporate governance research because of empirical issues of unobserved heterogeneity effects to avoid spurious evidence. The secondary data of 172 CMFs and 80 Shariah mutual funds are gathered hand-collected from annual reports and master prospectuses for the purpose of analysis between the period 2008 and 2015, generating 2,016 fund-year observations.

SAP is found to have a positive effect on agency costs. Consequently, it leads to empirical evidence that substantiates a negative and marginally significant association with fund performance when designated by accounting measure. Thus, the Shariah monitoring proxy is not a good mechanism for controlling agency costs inconsistent with performance maximizing (agency cost minimizing) outcomes.

The unique data set of mutual funds used in this research may restrict the generalization of the findings unless mentioned and explained specifically the data characteristics. The single proxy for Shariah monitoring could be better off by having a list of different measures.

The paper highlights and suggests a consistent improvement in regulation that could be performed by policymakers pertaining to the non-trivial additional cost of implying Shariah governance.

This paper provides empirical evidence of the SAP effects from the view of a more complex monitoring structure in consequence of having an additional layer of governance, devoting on the trade-off between benefit and cost to shareholders.

This paper aims to investigate the effect of specific subsets of digital technologies and governance mechanisms (i.e. relational and contractual) on the efficiency of the automotive supply chain (SC).

Building on the Transaction Costs Economic (TCE) theory, and on the literatures on the governance and Digital Transformation of SCs, the research employs a multi-respondent survey on a sample of 101 Italian automotive suppliers. It analyses the interplay between investments in network and physical–digital interface technologies and buyer–supplier relationship governance models in a joint product development effort. The related effects on costs, from the automotive suppliers' perspective, are considered.

The results confirm the TCE assumptions on governance mechanisms being appropriate to enhance cost performance, but in particular show that digital technologies shape the governance of buyer–supplier relationships with different patterns. The features of synchronisation and accessibility, as ensured by network technologies, are found to strengthen the impact of contractual governance, while the adoption of physical–digital interface technologies, and their enhanced features of virtualisation and traceability, further enhance the impact of relational governance on the efficiency improvements of suppliers.

SC actors need to recognise the importance of long-term collaboration and superior coordination through investments in specific subsets of digital technologies, to ensure a higher product and production data codifiability, transparency and thus integration at both an intra- and an inter-firm level.

This study is one of the first to have considered Digital Transformation in SCs from the suppliers' perspective and its implications on the efficiency of relationship governance with buyers.

By distinguishing opportunism-based and bounded rationality-based transaction costs, the study examines how firms use equity/relational governance and boundary spanners' guanxi to govern their exploration alliances in a transaction cost economizing way.

This study used a survey methodology for data collection, and the sample consists of 150 exploration alliances formed by large Taiwanese information and electronic firms.

Findings of this study show that exploration alliances incur considerable transaction costs and require high-level equity control and relational governance. The positive exploration of alliance-equity ownership relationship will be weakened by boundary spanners' guanxi when guanxi serves to harmonize conflicts and mitigate opportunism-based transaction costs, thereby reducing the need for using costly equity ownership to govern exploration alliances. In contrast, the positive exploration alliance-relational governance relationship will be amplified when guanxi becomes a source of legitimacy in the Chinese guanxi institution. This relation-augmenting effect will drive more relational governance because guanxi and relational governance together allow alliance managers to obtain sufficient legitimacy in the formation of a common dominant frame, thereby mitigating bounded rationality-based transaction costs.

By distinguishing various moderating effects of boundary spanners' guanxi and separating transaction costs into two forms, this study contributes to the existing literature as well as advances our understanding of alliance governance decisions in the Chinese business environment.

The purpose of this paper is to investigate the impact of external and internal corporate governance mechanisms on agency costs.

The author uses data from German firms that were listed in the regulated market of the Frankfurt Stock exchange during 2006-2011. Agency costs were measured using stochastic frontier analysis, a relatively new approach to estimate agency costs. The regression analysis is applied to test the model.

The results indicate that an industry specialized audit firm, the presence of a large audit firm, abnormal audit fees, management ownership and variable management compensation are significantly negatively associated with the level of a firms’ agency costs. In contrast, this seems not to be true for the existence of an audit committee for which the results of the paper document a non-significant association.

The paper contributes to the existing literature in several ways. First, the research design is to the best of the authors’ knowledge the first that investigates the influence of different corporate governance mechanisms on the level of agency costs. Second, previous studies are mainly focused on the US audit market. This focus on the US audit market leaves uncertainties regarding the direction and magnitude of the empirical relationship in the European and German environmental context. Finally, the paper provides initial empirical evidence for a sample of German IFRS listed companies (IFRS – International Financial Reporting Standards).

This study aims to examine the impact of agency cost, Islamic board characteristics and corporate governance on the performance of Islamic institutions.

Based on the selected criteria, 92 Islamic banks (IBs) from 20 countries were selected for further research. The authors used generalized method moments (GMM) estimation method. The agency cost and Shariah board characteristics are the explanatory variables. The author uses the age of the bank and the size of the bank for variable control.

Empirical results indicate that first, agency costs represented by cast/total assets negatively affect IBs’ return on equity and net income. As agency costs rise, IBs’ financial performance declines. Second, Shariah supervisory board (SSB) size and board independence affect IB performance. The study found that SSB size positively affects IB performance.

This research contributes to the literature on IBs in different countries, which policymakers and practitioners can use to improve agency cost functions and Shariah board characteristics. Second, this analysis shows that IBs require specific attention for agency charges, given their operations and business structures. This study contributes to agency theory, which requires Islamic banking information and practices. Finally, the author has aided regulators and IBs by identifying the sources of agency cost practices that can be resolved. The other bank governance contribution is twofold. First, the author studied dual board governance in IBs (SSB and ordinary boards of directors). Second, the author examines how SSB and traditional board governance affect IB performance. This research focuses on banks listed on stock exchanges in the 20 countries analysed.

The research has policy and practical implications for central banks and IBs. By outlining appropriate regulatory guidelines and reporting systems, regulatory authorities can ensure Sharia compliance and protect the independence of IB Shariah department officers. Regulators and relevant stakeholders must ensure Sharia compliance, audits, inspections, reporting and accurate disclosure for IBs.

This paper offers original contributions to professionals in the field of IBs and stakeholders investigating the relationship between agency costs, governance of IBs, characteristics of Islamic supervisory boards and the performance of IBs.

Contemporary supply chain relationships inherently rely on delegation of work between organizations and, thus, are subject to agency problems for which a wide range of governance mechanisms exist. This review of agency theory (AT), across four distinct fields, explains the connection between governance mechanisms and supply chain relationship types.

The study uses a systematic literature review (SLR) of articles using AT in a supply chain context from the operations and supply chain management, general management, marketing, and economics fields.

The authors categorize the governance mechanisms identified to create a typology of agency relationships in supply chains.

The developed typology provides parsimonious theory on different forms of supply chain agency relationships and takes a step towards a “supply chain-oriented agency theory” explaining and predicting relationship types and governance in supply chains. Furthermore, a future research agenda calls for more accurate measuring of agency costs, to examine residual gains alongside residual losses, to take a dual-sided perspective of agency relations and to adopt AT to examine more complex supply networks.

The review provides a menu of governance mechanisms and describes situations under which these mechanisms could be deployed to guide managers when developing their supply chain relationships.

The first review to combine and elaborate views from four major disciplines using AT as a lens to supply chain relationships. Expanding the traditional set of governance mechanisms provides academics and practitioners with a bigger “menu” of options to consider.

This paper aims to investigate the impact of corporate governance practices on cost efficiency and financial stability for a sample of Islamic and conventional banks. In the analysis, the author uses a set of corporate governance variables that include, the board size, board independence, director gender, board meetings, board attendance, board committees, chair independence and CEO characteristics.

The author uses corporate governance data of Islamic banks that is unique in this field. In the analysis, the author also uses stochastic frontier analysis and panel vector autoregression models to quantify long-run and short-run statistical relationships between the operational efficiency of Islamic Banks and corporate governance practices.

According to the results, Islamic and conventional banks exhibit important differences in the effects of corporate governance practices on cost efficiency and financial stability. Results show that with a blind general adoption of corporate governance practices, Islamic banks may suffer a loss in their value since the adoption of the third layer of binding practices, over and above the already existing ones, imposed by the Sharia Board and the Board of Directors, may lead to cumbersome business operations. This conclusion is of importance to Islamic Banks since they struggle to survive in a very competitive international environment.

The author believes that the results may be of a certain value to regulators, policymakers and managers of Islamic banks. Based on the results, the author postulate that Islamic banks should select carefully international corporate governance practices.

Islamic banks should not adopt additional third layer of binding practices as that would result lower performance and instability that would be damaging for the economy

This study employs a unique sample of Islamic banks that includes corporate governance data hand collected. Our findings of the corporate governance impact on Islamic banks performance and stability are therefore unique in the literature.

This study aims to investigate the relationship between corporate governance risk and agency costs across different countries.

Corporate governance risk indicators were obtained from the Institutional Shareholder Services Europe (S.A.) for 4,135 firms across 27 countries. Agency costs and other control variables were derived from companies’ annual financial reports using the DataStream database. Ordinary least squares multiple regression analysis model was used to test the study hypothesis.

Agency costs have a significant negative impact on corporate governance risk across countries. The extent of corporate governance mechanisms used, however, varies across geographic regions and industry types. The relationship between corporate governance risk and agency costs is more obvious in the non-financial than financial sector. These results were robust after several statistical checks.

The findings will help stakeholders, including corporate management, regulators and investors to improve corporate governance mechanisms and capital allocation decisions across countries.

Evidence is provided on the role of agency costs in corporate governance risk across geographic regions for financial and non-financial companies. The paper also overcomes common problems in corporate governance research such as construct validity, limited data and endogeneity.