Beyond Agency Theory: A Configurational Theory of Corporate Governance Effectiveness in an Emerging Economy

Abstract

This study develops and tests a configurational theory of corporate governance effectiveness that moves beyond the limitations of agency theory in explaining governance outcomes in emerging economies. Drawing on a sample of 98 companies listed on the Nigerian Exchange Group, the study employs fuzzy-set qualitative comparative analysis (fsQCA) to identify the combinations of board characteristics, ownership structures, audit functions, and institutional pressures that are sufficient for achieving high governance effectiveness. The analysis reveals three distinct configurational pathways---termed institutional substitution, board-centric, and hybrid alignment---each representing a qualitatively different logic of governance effectiveness. These findings provide strong empirical support for the principle of equifinality, demonstrating that multiple, distinct governance arrangements can be equally effective in an emerging economy characterised by institutional voids, concentrated ownership, and weak enforcement. The study integrates agency theory, institutional theory, and configurational theory to offer a nuanced understanding of how governance effectiveness emerges from the alignment of internal mechanisms with external institutional pressures. The results challenge the universalist assumptions underlying many governance codes and suggest that regulatory strategies in emerging economies should move away from prescriptive, one-size-fits-all approaches toward principles-based frameworks that enable firms to develop context-appropriate governance configurations. The findings carry significant implications for policymakers, practitioners, and scholars seeking to understand and improve corporate governance in contexts where formal mechanisms often fail to operate as intended.