Capabilities-strategy match and board governance: their impacts on financial performance and accountability-emphasis of government business enterprises

Seng, C 2009, Capabilities-strategy match and board governance: their impacts on financial performance and accountability-emphasis of government business enterprises, Doctor of Philosophy (PhD), Accounting and Law, RMIT University.


Document type: Thesis
Collection: Theses

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Title Capabilities-strategy match and board governance: their impacts on financial performance and accountability-emphasis of government business enterprises
Author(s) Seng, C
Year 2009
Abstract The study addresses three research questions posed by the nature of government business enterprises. The three questions are (1) Does the way management (including the board) aligns the development of GBE organisational capabilities and the formulation of strategies have an influence on the financial performance and management's emphasis for discharging accountability requirements of that GBE? (2) Does the extent of adoption of board governance structures have an influence on financial performance and accountability-emphasis given by management of a GBE? (3) Does board composition moderate the relationship between capabilities-strategy configurations and performance of a GBE?

The research questions are addressed as follow. First, the study explores the concepts of corporate governance, board governance in particular, strategy, capabilities and accountability in the context of GBEs. Second, the study investigates relationships between GBEs' governance arrangements and performance, on the one hand, and capabilities-strategy match and performance on the other hand. The concept of performance used in this study is separated into financial performance, measured by economic rate of return (ERR) (a government-developed algorithm for GBEs comprising financial accounting and market measures), and accountability-emphasis (ACCBTY) (management's attention to systems and processes used for discharging aspects of accountability). Third, the study investigates the moderating effects of GBEs' board governance arrangements on the relationship between capabilities-strategy match and performance.

The findings of the study are as follow. First, the results of a set of multivariate analyses indicate that board governance index (BGI) has a positive and significant relationship with ERR, but has no significant relationship with ACCBTY. At the individual governance mechanism level, the percentages of non-executive directors (NEDs), politically-related directors (PRDs) and financial-literate directors (FLDs) are all strongly and positively related to ERR. These findings are supported by certain prior studies from different contexts. On the ACCBTY side, these specific board governance variables are not found to support a hypothesis that the composition of the board will impact on the GBE's attention to accountability processes.

Second, the findings indicate that capabilities-strategy match (CSM) has no significant influence on ERR but has a strong and positive impact on ACCBTY. The results indicate that only the alignment between defender strategic-type and outside-in capabilities has a positive relationship with both ERR and ACCBTY. Other than the defender strategic position, alternative strategy-types will align with capabilities (e.g. prospector strategy and inside-out capabilities) to have a significant positive affect on ACCBTY, but not on ERR. Third, the study finds that GBE's board governance arrangements (BGI) have a positive moderating affect on the relationship between capabilities-strategy match and ERR. However, BGI has no moderating impact on capabilities-strategy match and ACCBTY relationship.

The findings draw the conclusion that in order to achieve their dual objectives of concurrently fulfilling financial performance and accountability-emphasis, GBEs need to adopt a defender strategic-type, develop strengths in outside-in capabilities and have their boards of directors comprise of non-executive directors, politically-linked directors and financial-literate directors. Given the limitations underlying the findings that are mentioned, the conclusion from this study has implications for government-owners and managers of GBE.
Degree Doctor of Philosophy (PhD)
Institution RMIT University
School, Department or Centre Accounting and Law
Keyword(s) Board governance
Capabilities-strategy match
Government business enterprises
Performance
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