This paper aims to examine how different governance devices operate and interact to promote small-and-medium sized firms’ (SMEs) ability to change strategically. A presentation of Brunninge, Nordqvist and Wiklund (2017°

1. THE EFFECTS OF OWNERSHIP, BOARD
COMPOSITION ANDTOP MANAGEMENTTEAMS ON
STRATEGIC CHANGES IN SMEs
Olof Brunninge, Mattias Nordqvist and Johan Wiklund (SPRINGER 2007, SMALL BUSINESS ECONOMICS)
An oral presentation by Floriane GANLAKY
Master 1- law and economics (Université de Nanterre)
December 2019

2. OUTLINE
OBJECTIVE:This paper aims to examine how different governance devices operate and interact to promote small-and-medium
sized firms’ (SMEs) ability to change strategically.
1- INTRODUCTION
2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
3- EMPIRICAL MODEL
4- DISCUSSION OF RESULTS
5- CONCLUSION

3. OUTLINE
OBJECTIVE:This paper aims to examine how different governance devices operate and interact to promote small-and-medium
sized firms’ (SMEs) ability to change strategically.
1- INTRODUCTION
2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
3- EMPIRICAL MODEL
4- DISCUSSION OF RESULTS
5- CONCLUSION

4. 1- INTRODUCTION
CONTEXTUALISATION
¡ Most of corporate governance researches have investigated, most commonly, one type of governance
mechanism, the board, neglecting the others.
¡ Previous governance research has not paid sufficient attention to the interaction effects of different
governance mechanisms.
¡ Research focusing on performance does not take into account that governance choices have to result in
action, such as strategic change, before they can have performance implications.
Add value: The paper examine the impact of three corporate governance devices on SMEs’ strategic changes
but also the interaction between those governance mechanisms.
Interest: Studies on the influence of corporate governance on strategic change can enhance our knowledge on
the conditions for change in general and lead to important implications for managerial practice.

5. 1- INTRODUCTION
CONTEXTUALISATION
Ø SME characterics
¡ Closely held and governance issues are more entwined: In large firms (publicly held), it is clear that
different governance mechanisms (commonly) are separated of each other. It is particularly serious
shortcoming in studies of SME.
¡ Owner-managed: Ownership, board, and top management often overlap, with same people, or people
from same family, involved at all levels.
Ø Strategic change
¡ It is a process involving most parts of a firm and its relation to the environment, and thus a
comprehensive scale is needed for its measurement: corporate diversification, product innovation or
entering new international markets, venturing and strategic renewal activities.

6. 1- INTRODUCTION
CONTEXTUALISATION
Ø SME characteristics
¡ Closely held and governance issues are more entwined: In large firms (publicly held), it is clear that
different governance mechanisms (commonly) are separated of each other. It is particularly serious
shortcoming in studies of SME.
¡ Owner-managed: Ownership, board, and top management often overlap, with same people, or people
from same family, involved at all levels.
Ø Strategic change
¡ It is a process involving most parts of a firm and its relation to the environment, and thus a
comprehensive scale is needed for its measurement: corporate diversification, product innovation or
entering new international markets, venturing and strategic renewal activities.

7. 1- INTRODUCTION
CONTEXTUALISATION
Ø SME characteristics
¡ Closely held and governance issues are more entwined: In large firms (publicly held), it is clear that
different governance mechanisms (commonly) are separated of each other. It is particularly serious
shortcoming in studies of SME.
¡ Owner-managed: Ownership, board, and top management often overlap, with same people, or people
from same family, involved at all levels.
Ø Strategic change
¡ It is a process involving most parts of a firm and its relation to the environment, and thus a
comprehensive scale is needed for its measurement: corporate diversification, product innovation or
entering new international markets, venturing and strategic renewal activities.

8. 1- INTRODUCTION
CONTEXTUALISATION
Ø SME are characterized as:
¡ Closely held and governance issues are more entwined: In large firms (publicly held), it is clear that
different governance mechanisms (commonly) are separated of each other. It is particularly serious
shortcoming in studies of SME.
¡ Owner-managed: Ownership, board, and top management often overlap, with same people, or people
from same family, involved at all levels.
Ø Strategic change
¡ It is a process involving most parts of a firm and its relation to the environment, and thus a
comprehensive scale is needed for its measurement: corporate diversification, product innovation or
entering new international markets, venturing and strategic renewal activities.

9. OUTLINE
OBJECTIVE:This paper aims to examine how different governance devices operate and interact to promote small-and-medium
sized firms’ (SMEs) ability to change strategically.
1- INTRODUCTION
2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
3- EMPIRICAL MODEL
4- DISCUSSION OF RESULTS
5- CONCLUSION

10. 2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
Main Hypothesis
A main hypothesis is made on the problematic:
“Governance variables related to ownership, the board of directors and the top management team all
affect strategic change and there is impact from an the interaction effects of these governance
mechanisms.”
This main hypothesis is dispatched in Five (05) parts.

11. 2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
Hypothesis 1
è H1: Closely held SMEs exhibit less strategic change than other SMEs
Theorical base Empirical base
Agency theory stress that the extent of involvement in
risky activities is likely to be influenced by the ownership
and governance of firm: equity ownership influences
managers’ risk-taking propensity and managers become
risk averse as their ownership in the firm increase. (Fama,
1980; Fama and Jensen, 1983; Jensen and Meckling, 1976)
Characterized by Longer ownership concentration to the
same individual or a limited group of individuals: Such firms
are conservatives and resistants to change as owners unite
around the same values, interests and strategic practices.
(Goodstein and Boeker, 1991;Tushman and Romanelli,
1985).
Applying this litterature to SME, owner-management can lead to risk aversion and lack of willingness to
engage in strategic change activities. As Strategic change typically involves taking risk, H1 has been
made.

12. 2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
Hypothesis 2
è H2:The presence of outside directors on the board has a positive effect on strategic change.
Theorical base Empirical base
Agency theory: Board of director provide the formal link
between owner and the managers responsible for the
day-to-day operations of the firm. (Fama and Jensen, 1983,
p. 311).
q Owners have direct and detailed insights into internal
process of the firm so there is less need for the
control function of board (Cowling, 2003).
However, there are examples of SMEs having active
boards with outside members, using the boards as a
means for strategy development.
q As outside board members are not tied to the day-to-
day operations of the firm they are likely to think more
freely concerning the strategic alternatives open to the
firm (Fiegener, 2005;Ward, 1991)
Therefore, outside board members in closely held firms can point out new strategic directions but also
provide information and advices during change process.

13. 2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
Hypothesis 3
è H3: Larger Top Management teams size has a positive effect on strategic change.
Theorical base Empirical base
Agency theory suggests that top managers’ inclination to
change strategy is linked to the ownership structure of the
firm. Because managers’ wealth increases with growth and
diversification, rather than through the total equity value
of the firm (Bethel and Liebeskind, 1993).
Contrary to TMT consists of one person (the CEO),
larger TMTs are likely to have more resources and skills
available to them in decision-making, larger size also
increase cognitive diversity, adding perspectives available in
strategy-making. (Amason and Sapienza, 1997).
By increasing cognitive diversity a larger and functionally more varied group can increase creativity in
decision-making and point to new alternatives for future development of the firm.

14. 2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
Hypothesis 4
è H4:The presence of outside directors has a stronger positive effect on strategic change
among closely held firms
Theorical base Empirical base
Agency theory: In firms that are not closely held, where
ownership and management are separated, one important
role for boards is to safeguard shareholders’ investments
in the face of potential managerial opportunism
(opportunistic management can choose which information
it divulge and which to contain, and whether to present
accurate or biased information), putting emphasis on
monitoring and control.
q The board is less likely to participate in strategic
decisions in SMEs if the CEO is the majority owner
(Fiegener, 2005); (Hoskisson et al., 1994).
In closely held firms, the risk of opportunistic behavior by management is lower, the board can therefore
focus less on control and more on service activities, such as on stewardship and strategic development.

15. 2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
Hypothesis 5
è H5:The size of theTMT has a stronger positive effect on strategic change when there are no
outside directors.
Theorical base Empirical base
Agency theory: Moreover, one of the board’s key roles is
to monitor and control top management which includes
giving voice in strategic decisions (Fama and Jensen, 1983).
Formally, the board and the TMT are separate entities of
an organizational structure, where the TMT and its CEO
are responsible for the everyday operations of the firm.
If there are no outside directors on the board, it may
develop a myoptic and narrow view of the firm, stailling
strategic change. But larger TMTs are likely to have more
skills and abilities to draw upon in identifying needs and
paths for strategic change. (Cowling, 2003; Rindova, 1999)
Therefore, if there are no outside directors on the board, the ability of theTMT to internally generate
different viewpoints and options for change becomes increasingly important.

16. OUTLINE
OBJECTIVE:This paper aims to examine how different governance devices operate and interact to promote small-and-medium
sized firms’ (SMEs) ability to change strategically.
1- INTRODUCTION
2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
3- EMPIRICAL MODEL
4- DISCUSSION OF RESULTS
5- CONCLUSION

17. 3- EMPIRICAL MODEL
The sample
§ Survey of an original sample population of 2455 firms.
ü Firms’ CEO are contacted by telephone and all interviewed were sent a mail
survey
ü The survey for the independent and control variables was in 1997 whereas it
was in 2000 for the dependant variable
§ Final sample of 889 firms
ü Swedish firms
ü Stratified according to industrial sector, employment size (with respect to the
classification Small or medium size) and ownership (independent firms or
member of business groups)

18. 3- EMPIRICAL MODEL
DependantVariable
The dependant variable has been observed in 2000. It is an index constructed by
summing 13 dichotomous variables.
The operationalization of strategic change includes:
§ 3 dummy variables relatives to changes to the internal organization of the firm
§ 6 concerning its markets, and products
§ 3 others on retrenchment
§ 2 on proactive actions

19. 3- EMPIRICAL MODEL
IndependantVariables
Three (03) independant variables observed in1997
§ Closely Held: dummy indicating whether or not the firm was Closely Held (The
definition includes as closely held: owner-managed firms, family businesses, and
incorporated partnerships..
§ Outside director: dummy coded the variable ‘‘0’’ for those firms that had no outside
directors and ‘‘1’’ for those that did.
§ TMT Size:This variable is coded ‘‘1’’ indicating that theTMT consisted of the CEO
only.

20. 3- EMPIRICAL MODEL
ControlVariables
Five (05) variables have been included to control the bias.
¡ Firm age: Number of years old
¡ Firm size:Total number of employees
¡ Entrepreneurial Orientation: Index founded on 9 items
¡ Board size: Number of directors (excluding possible employee
representantives)
¡ Number of board Meetings: Measure the activity of the board on annual
basis;
¡ Industry categories: 8 dummy variables and one quantitative

21. OUTLINE
OBJECTIVE:This paper aims to examine how different governance devices operate and interact to promote small-and-medium
sized firms’ (SMEs) ability to change strategically.
1- INTRODUCTION
2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
3- EMPIRICAL MODEL
4- DISCUSSION OF RESULTS
5- CONCLUSION

22. 4- DISCUSSION OF RESULTS
Results of the regression

23. 4- DISCUSSION OF RESULTS
The discussion
¡ The control variables of industry, firm age, firm size and EO were first included in a base model. The
results are reported in column two of the table. This model explains about 10% of the variance
(p<0.001). A strong positive effect can be noted for EO, suggesting that firms with a more
entrepreneurial orientation are more likely to become involved in strategic change activities. A
positive effect is also found for firm size, suggesting that larger firms are more prone for strategic
change. No effects are noted for the industry control variables or age.
¡ From the second to the last step, Governance control variables, variables of interest ( to test H1, H2
and H3) and interaction effects (to test hypothesis 4 and 5 ) are respectively integrates. Let’s focus on
the full model.
¡ This model makes a significant contribution over and above the base model (DR2= 0.07, p<0.001)
¡ All the hypothesis are validate

24. OUTLINE
OBJECTIVE:This paper aims to examine how different governance devices operate and interact to promote small-and-medium
sized firms’ (SMEs) ability to change strategically.
1- INTRODUCTION
2- REVIEW OFTHE LITERATURE AND HYPOTHESIS
3- EMPIRICAL MODEL
4- DISCUSSION OF RESULTS
5- CONCLUSION

25. 5- CONCLUSION
Main Findings
¡ Closely held firms exhibit less strategic changes than do SMEs relying on
more widespread ownership structure.
¡ To some extent, closely held firms can overcome these weaknesses and
achieve strategic changes expanding the circle of individuals involved in
decision-making
¡ Some routes are utilizing outside directors on the board and/or
extending the size of they Top Management team (especially in absence
of outside director).

26. 5- CONCLUSION
Limitations
As data are collected on a limited and uniform sample,
¡ Largely unobserved heterogeneity,
¡ Relatively low variance in our regression models explain that the model fit is limited
¡ So, care must be taken in generalizing our findings to other institutional contexts
because
• The data for this study has been collected in Sweden.
• Swedish governance system shares features of the Anglo-American as well as the
German systems, but is not identical to either

27. 5- CONCLUSION
Suggestions for further researches
While our present study makes a contribution in this direction, it also raises questions
for further investigation.
¡ The dynamics that different governance mechanisms, such as outside directors and
TMTs, add to strategy-making in small firms opens up interesting avenues for future
research.
¡ For example, it would be interesting to examine the degree of independence and
specific expertise held by the outside directors on the board.

28. THANKS FOR YOUR ATTENTION!!!