Corporate governance changes, firm strategy and compensation mechanisms in a privatization context

Abstract

Purpose – The purpose of this paper is to analyze certain organizational changes that occur after privatization. More specifically, the authors analyze from an agency theory perspective how changes at the corporate governance level (ownership type/structure and board of directors) influence firm strategy, and what implications these issues have for the design of compensation mechanisms. Design/methodology/approach – The methodology employed in the study can be described as a longitudinal multiple case study approach. A multiple case study enables the comparison of pre- and post-privatization periods in five Spanish companies. This methodology is especially suitable to track the organizational changes occurring in relation to the firms’ internal management. Findings – First, the variables that traditionally relate to greater board independence in monitoring do not suffer from variation after privatization. Second, the interests of the firms’ new ownership have an impact on firm strategy after privatization. Finally, compensation system design clearly aligns with firm strategy after privatization. Research limitations/implications – The research is based on a multiple case study approach, which limits the scope and generalizability of the findings. Originality/value – Whereas research in privatization generally adopts a macroeconomic or political perspective, organizational and managerial implications are current aspects in need of further examination. This research offers a study that integrates three sets of variables (corporate governance, strategy and compensation) that have been rarely analyzed in this context.