Responding to the recent calls on scholarly attention to corporate illegal behavior, this study incorporates corporate governance into the examination of corporate misconduct. Specifically, this study explores whether outsider representation on the board of directors could effectively deter corporate illegality from two competing perspectives: agency theory and institutional theory. The boundary conditions underlying the link between board composition and corporate illegality are further examined by introducing two contingent factors, i.e., organizational ownership identity (state owned versus non-state owned) and organizational performance relative to the social aspiration level. Empirical analyses of Chinese publicly traded firms in the period from 1998 to 2005 show that outside dire...[ Read more ]

Responding to the recent calls on scholarly attention to corporate illegal behavior, this study incorporates corporate governance into the examination of corporate misconduct. Specifically, this study explores whether outsider representation on the board of directors could effectively deter corporate illegality from two competing perspectives: agency theory and institutional theory. The boundary conditions underlying the link between board composition and corporate illegality are further examined by introducing two contingent factors, i.e., organizational ownership identity (state owned versus non-state owned) and organizational performance relative to the social aspiration level. Empirical analyses of Chinese publicly traded firms in the period from 1998 to 2005 show that outside directors on the board are less likely to discourage corporate illegal behavior for non-state owned and poor performing firms, suggesting a lack of the predictive validity of the agency logic. The study promises to shed new light on the integration of different perspectives on the issue of corporate governance, by identifying under which conditions a particular perspective offers a better explanatory power than the other.