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Corporate Governance and Strategic Change in SMEs: The Effects of Ownership, Board Composition and Top Management Teams

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Abstract

This paper investigates how governance mechanisms affect the ability of small- and medium-sized enterprises (SMEs) to introduce strategic change. Previous research typically assumes that governance mechanisms operate independently of each other. Building on agency theory and insights from the literature on small firm governance, we hypothesize that governance variables related to ownership, the board of directors and the top management team all affect strategic change and that it is important to examine the interaction effects of these governance mechanisms. Using a longitudinal sample of over 800 SMEs, our general logic and hypotheses are supported by the analyses. We find that closely held firms exhibit less strategic change than do SMEs relying on more widespread ownership structures. However, to some extent, closely held firms can overcome these weaknesses and achieve strategic change by utilizing outside directors on the board and/or extending the size of the top management teams. Implications for theory and management practice in SMEs are discussed.

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Authors and Affiliations

  1. EMM, Jönköping Intl. Business School, Jonkoping, 55111, Sweden

    Olof Brunninge, Mattias Nordqvist & Johan Wiklund

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  1. Olof Brunninge
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  2. Mattias Nordqvist
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  3. Johan Wiklund
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Correspondence to Olof Brunninge.

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All three authors have contributed equally to the paper. Their names are listed alphabetically.

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Brunninge, O., Nordqvist, M. & Wiklund, J. Corporate Governance and Strategic Change in SMEs: The Effects of Ownership, Board Composition and Top Management Teams. Small Bus Econ 29, 295–308 (2007). https://doi.org/10.1007/s11187-006-9021-2

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