Corporate Board Characteristics, Managerial Entrenchment and Diversification Strategy: Evidence from Tunisian Context

Kouki Marouan
2015 International Journal of Business and Management  
The aim of this paper is to analyze the role of the board of directors and the management entrenchment in the explanation of diversification strategy of the Tunisian firms. In particular we focus on the characteristics of these two opposite directions bodies where the first controls the second in explaining the strategic choices of the firm. We find evidence for the negative effect of the board size and outside directors on the diversification strategy of the firm. The empirical result points
more » ... cal result points also the negative effect of the CEO duality, which is inconsistent with the agency hypothesis. Keywords: board of directors, manager ownership, entrenchment, diversification strategy According to Jensen (1986), Stulz (1990 ), La Porta et al. (1999 market imperfections with higher asymmetric information may allow large shareholders and manager to exploit the company for their own wealth. Such agency costs are likely to occur for diversified firms in emerging markets where ownership is more concentrated and investor protection is too low. Meckling (1976), Thietart (1992) argue that when ownership and management are separated which reduce the performance and the strategic profit of the firms, the composition, the number and the independence of the board of directors must garantie monitoring mechanisms to reduce all the agency costs. Li (1994) considers that the differences in corporate governance in many countries appear to be the result of changes in the organizational structure of the company, especially ownership patterns and boards composition. According to Charreaux (2000) the board of directors is considered one of the privileged control mechanism contributing to the goal of creating value, is responsible for protecting the interests of stakeholders in the firm, it must also play various missions in order to align the interests of executives with those of shareholders. Contrary to Yates (2005) , Beiner and Schmid (2005) show that large shareholders and corporate governance mitigate value destroying diversification. Denis et al. (1997 Denis et al. ( , 2002 find that managerial ownership is negatively related to the development of diversification strategy. In this context, greater latitude and discretions are given to manager to pursue self-serving interests and own utility at the expense of the principal. These results are also
doi:10.5539/ijbm.v10n7p184 fatcat:uk5h4fqckbdw5b425gjqrjjvly