URL: http://www.sciencedirect.com/science/article/B6VFK-4876CGC-2/2/c26764a9d3d590fc71187b0678f90cfd
Reference Type: Journal Article
Record Number: 29317
Author: J. R. Booth and D. N. Deli
Year: 1999
Title: On executives of financial institutions as outside directors
Journal: Journal of Corporate Finance
Volume: 5
Issue: 3
Pages: 227-250
Short Title: On executives of financial institutions as outside directors
ISSN: 0929-1199
Keywords: Boards of directors
Outside directors
Financial policy
Capital structure
Abstract: We find that the presence of commercial bankers on the board is positively related to aggregate firm debt. Separating by type of debt, the presence of commercial bankers on the board is positively related to short-term, long-term, and total bank debt. We also find that while the presence of unaffiliated commercial bankers on the board is positively related to bank borrowing, the presence of affiliated commercial bankers on the board is not. The results are consistent with the theory that commercial bankers supply bank debt market expertise, but not with the theory that they sit on boards to monitor lending relationships.
Notes: doi: DOI: 10.1016/S0929-1199(99)00004-8
URL: http://www.sciencedirect.com/science/article/B6VFK-3XH3HHM-2/2/bdded67a657b4b2b40a61390fa137768
Reference Type: Journal Article
Record Number: 29227
Author: L. Booth
Year: 2003
Title: Discounting expected values with parameter uncertainty
Journal: Journal of Corporate Finance
Volume: 9
Issue: 5
Pages: 505-519
Short Title: Discounting expected values with parameter uncertainty
ISSN: 0929-1199
Keywords: Cash flow
Growth rate
Equity cost
Abstract: In valuing future cash flows, the standard practice is to take the current cash flow and then extrapolate at an expected growth rate, which can vary at different points in time. This practice stems from the standard way of dealing with time value of money problems under certainty. However, with uncertain cash flows, this practice underestimates the expected cash flows when the growth rates are serially correlated. As a result, both value and the equity cost, calculated as an internal rate of return, are biased low. Given the prevalence of serial correlation in the economy, this paper demonstrates how to incorporate the effects of serial correlation in a simple way and demonstrates by way of a simulation that the effects can be significant. As a result, it casts doubt on the usefulness of several standard valuation approaches and results.
Notes: doi: DOI: 10.1016/S0929-1199(02)00020-2
URL: http://www.sciencedirect.com/science/article/B6VFK-45XTV92-1/2/c3f3ba613bec543d332332fb9f9d9990
Reference Type: Journal Article
Record Number: 29155
Author: N. Boubakri, J.-C. Cosset and O. Guedhami
Year: 2005
Title: Liberalization, corporate governance and the performance of privatized firms in developing countries
Journal: Journal of Corporate Finance
Volume: 11
Issue: 5
Pages: 767-790
Short Title: Liberalization, corporate governance and the performance of privatized firms in developing countries
ISSN: 0929-1199
Keywords: Corporate governance
Liberalization
Performance
Privatization
Abstract: This paper seeks to provide an answer to the following question: when and how does privatization work? Using a sample of 230 firms headquartered in 32 developing countries, we document a significant increase in profitability, efficiency, investment and output. Our analysis shows that the changes in performance vary with the extent of macro-economic reforms and environment, and the effectiveness of corporate governance. In particular, economic growth is associated with higher profitability and efficiency gains, trade liberalization is associated with higher levels of investment and output, while financial liberalization is associated with higher output changes. Further, control relinquishment by the government is a key determinant of profitability, efficiency gains and output increases. Finally, we find higher improvements in efficiency for firms in countries in which stock markets are more developed and where property rights are better protected and enforced. These results for a sample of developing countries differ from those reported in a contemporaneous study by D'Souza et al. [D'Souza, J., Megginson, W.L., Nash, R.C., 2001. Why do privatized firms improve performance? Evidence from developed countries. Unpublished working paper. University of Oklahoma] which focuses on developed countries. These diverging findings suggest that privatization in developing countries indeed obeys to particular constraints and has a dynamic of its own.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.05.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4F1SVS7-1/2/af9ed73dc219471ebc434ac386f05e51
Reference Type: Journal Article
Record Number: 29002
Author: N. Boubakri, J.-C. Cosset and W. Saffar
Year: 2008
Title: Political connections of newly privatized firms
Journal: Journal of Corporate Finance
Volume: 14
Issue: 5
Pages: 654-673
Short Title: Political connections of newly privatized firms
ISSN: 0929-1199
Keywords: Privatization
Political connection
Characteristics
Performance
Abstract: We investigate the extent of political connections in newly privatized firms. Using a sample of 245 privatized firms headquartered in 27 developing and 14 developed countries over the period 1980 to 2002, we find that 87 firms have a politician or an ex-politician on their board of directors. Politically-connected firms are generally incorporated in major cities, are highly leveraged, and operate in regulated sectors. The likelihood of observing political connections in these firms is positively related to government residual ownership, and negatively related to foreign ownership. Political fractionalization and tenure, as well as judicial independence are also key explanatory variables. Finally, politically-connected firms exhibit a poor accounting performance compared to their non-connected counterparts.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.08.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4T8SKYT-2/2/59cbf44391b53723278882250a724b5d
Reference Type: Journal Article
Record Number: 29305
Author: M. E. Bradbury and Y. T. Mak
Year: 2000
Title: Ownership structure, board composition and the adoption of charter takeover procedures
Journal: Journal of Corporate Finance
Volume: 6
Issue: 2
Pages: 165-188
Short Title: Ownership structure, board composition and the adoption of charter takeover procedures
ISSN: 0929-1199
Keywords: Corporate takeover
Voting rights
Board composition
Abstract: This paper examines the takeover charter amendments made by 128 firms listed on the New Zealand Stock Exchange. By December 31, 1995, firms were to have adopted one of three charter amendments that varied the timing and content of information required to be provided in takeover bids. The results show that after controlling for the probability of takeover and firm size, unaffiliated directors, representing blockholders, are associated with a less restrictive takeover amendment. We also find evidence that equity owned and controlled by executive and affiliated directors is related to the choice of takeover amendment. We find no relation between the choice of takeover amendment and the level of institutional shareholding, the proportion of public directors or the joint role of CEO and board chairman.
Notes: doi: DOI: 10.1016/S0929-1199(00)00012-2
URL: http://www.sciencedirect.com/science/article/B6VFK-40V4F2V-4/2/0ab9664fd6c49b47c13096bc2f1adfda
Reference Type: Journal Article
Record Number: 28953
Author: D. J. Bradley, J. S. Gonas, M. J. Highfield and K. D. Roskelley
Year: 2009
Title: An examination of IPO secondary market returns
Journal: Journal of Corporate Finance
Volume: 15
Issue: 3
Pages: 316-330
Short Title: An examination of IPO secondary market returns
ISSN: 0929-1199
Keywords: IPO secondary returns
Underpricing
Partial adjustment
Sentiment investors
Aggregate demand uncertainty
Abstract: IPO stock prices increased approximately 2.3% on the first day of secondary market trading over the period 1993 through 2003. While these aftermarket returns are accentuated during 1999 and 2000, they persist after the bubble burst and even increase as a percentage of total underpricing. We explore several non-mutually exclusive hypotheses to explain our findings including price support, laddering, retail sentiment, and information asymmetry. Our results are most consistent with the view that higher secondary market returns accrue to IPOs with more information asymmetries possibly due to price and aggregate demand uncertainty.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.01.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4VFC7WN-1/2/a70e966d3213c0fc112301a98497e252
Reference Type: Journal Article
Record Number: 29124
Author: I. E. Brick, O. Palmon and J. K. Wald
Year: 2006
Title: CEO compensation, director compensation, and firm performance: Evidence of cronyism?
Journal: Journal of Corporate Finance
Volume: 12
Issue: 3
Pages: 403-423
Short Title: CEO compensation, director compensation, and firm performance: Evidence of cronyism?
ISSN: 0929-1199
Keywords: Director compensation
CEO compensation
Firm performance
Cronyism
Abstract: We model CEO and director compensation using firm characteristics, CEO characteristics, and governance variables. After controlling for monitoring proxies, we find a significant positive relationship between CEO and director compensation. We hypothesize that this relationship could be due to unobserved firm complexity (omitted variables), and/or to excess compensation of directors and managers. We also find evidence that excess compensation (both director and CEO) is associated with firm underperformance. We therefore conclude that the evidence is consistent with excessive compensation due to mutual back scratching or cronyism. The evidence suggests that excessive compensation has an effect on firm performance that is independent of the poor governance variables discussed by previous studies.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.08.005
URL: http://www.sciencedirect.com/science/article/B6VFK-4H57JK2-1/2/80bf308af778d0d246356227f198c31c
Reference Type: Journal Article
Record Number: 29349
Author: J. A. Brickley, J. L. Coles and G. Jarrell
Year: 1997
Title: Leadership structure: Separating the CEO and Chairman of the Board
Journal: Journal of Corporate Finance
Volume: 3
Issue: 3
Pages: 189-220
Short Title: Leadership structure: Separating the CEO and Chairman of the Board
ISSN: 0929-1199
Keywords: Corporate Governance
CEOs
Board of Directors
Abstract: Shareholder activists and regulators are pressuring U.S. firms to separate the titles of CEO and Chairman of the Board. They argue that separating the titles will reduce agency costs in corporations and improve performance. The existing empirical evidence appears to support this view. We argue that this separation has potential costs, as well as potential benefits. In contrast to most of the previous empirical work, our evidence suggests that the costs of separation are larger than the benefits for most large firms.
Notes: doi: DOI: 10.1016/S0929-1199(96)00013-2
URL: http://www.sciencedirect.com/science/article/B6VFK-3SX0D8F-1/2/8a8a222cde70a7e4b5b8180abe05e8c1
Reference Type: Journal Article
Record Number: 29388
Author: J. A. Brickley, R. C. Lease and C. W. Smith
Year: 1994
Title: Corporate voting: Evidence from charter amendment proposals
Journal: Journal of Corporate Finance
Volume: 1
Issue: 1
Pages: 5-31
Short Title: Corporate voting: Evidence from charter amendment proposals
ISSN: 0929-1199
Keywords: Corporate control
Voting
Charter amendments
Abstract: Some argue that managers effectively control corporate voting: hence the process is meaningless. Others contend that shareholder voting motivates managers to maximize firm value. We provide evidence on this debate by analyzing the results from a large sample of management-sponsored anti-takeover amendments. Our results do not support the extreme form of either hypothesis. The evidence suggests that shareholder voting is important and indicates the circumstances where voting is most likely to constrain managers. Our results also have implications for the use of voting in political and other non-corporate contexts.
Notes: doi: DOI: 10.1016/0929-1199(94)90008-6
URL: http://www.sciencedirect.com/science/article/B6VFK-47DD36X-8/2/988c148d99c333c92c2e4c9714ba9a5d
Reference Type: Journal Article
Record Number: 29277
Author: J. A. Brickley and J. L. Zimmerman
Year: 2001
Title: Changing incentives in a multitask environment: evidence from a top-tier business school
Journal: Journal of Corporate Finance
Volume: 7
Issue: 4
Pages: 367-396
Short Title: Changing incentives in a multitask environment: evidence from a top-tier business school
ISSN: 0929-1199
Keywords: Incentives
Business schools
Research
Abstract: This study focuses on changes in incentives at the William E. Simon Graduate School of Business Administration in the early 1990s to redirect effort from academic research to classroom teaching. We find a substantial and almost immediate jump in teaching ratings following the changes in incentives. Longer-run learning and turnover effects are present. Evidence also suggests that research output fell. This case illustrates the power of organizational incentives to redirect effort in a multitask environment, even in the presence of apparent human-capital constraints.
Notes: doi: DOI: 10.1016/S0929-1199(01)00026-8
URL: http://www.sciencedirect.com/science/article/B6VFK-44B1WWV-2/2/8a16f898fe0c00bdda42168ba89fe094
Reference Type: Journal Article
Record Number: 29263
Author: A. Bris
Year: 2002
Title: Toeholds, takeover premium, and the probability of being acquired
Journal: Journal of Corporate Finance
Volume: 8
Issue: 3
Pages: 227-253
Short Title: Toeholds, takeover premium, and the probability of being acquired
ISSN: 0929-1199
Keywords: Toeholds
Takeovers
Corporate control
Informed trading
Abstract: Most of the theoretical literature on tender offers has been devoted to illustrating the positive effects of the toehold on the bidder's profits. Empirical research, however, shows that a high proportion of bidders do not trade on the target's shares prior to the tender offer announcement. This paper presents a model in which the bidder trades in the open market before announcing a tender offer and the incumbent shareholders form beliefs about the rival's quality given the order size. Market liquidity allows the potential bidder to partially hide her trade, and thus insiders are not able to ascertain whether an increase in volume indicates toehold acquisition. Stock price prior to the announcement date and market perception about the probability of a takeover are therefore contingent on players actions. We show that in some situations no trade will be optimal, and a negative relationship between takeover premium and toehold size arises. Interestingly, stock liquidity and initial stake are positively related. Our results also provide a theoretical basis for the observed pre-bid stock price dynamics. In particular, we show that the ratio between price runup and bid premium is increasing in the toehold size.
Notes: doi: DOI: 10.1016/S0929-1199(01)00055-4
URL: http://www.sciencedirect.com/science/article/B6VFK-45M5P54-3/2/ebf1225677ba3d0036add6d9f2bdd268
Reference Type: Journal Article
Record Number: 29028
Author: A. Bris, N. Brisley and C. Cabolis
Year: 2008
Title: Adopting better corporate governance: Evidence from cross-border mergers
Journal: Journal of Corporate Finance
Volume: 14
Issue: 3
Pages: 224-240
Short Title: Adopting better corporate governance: Evidence from cross-border mergers
ISSN: 0929-1199
Keywords: Corporate governance
Market regulation
Cross-border acquisitions
Abstract: Cross-border mergers allow firms to alter the level of protection they provide to their investors, because target firms usually import the corporate governance system of the acquiring company by law. Therefore, cross-border mergers provide a natural experiment to analyze the effects of changes in corporate governance on firm value, and on an industry as a whole. We construct measures of the change in investor protection induced by cross-border mergers in a sample of 7330 [`]national industry years' (spanning 39 industries in 41 countries in the period 1990-2001. We find that the Tobin's Q of an industry -- including its unmerged firms -- increases when firms within that industry are acquired by foreign firms coming from countries with better shareholder protection and better accounting standards. We present evidence that the transfer of corporate governance practices through cross-border mergers is Pareto improving. Firms that can adopt better practices willingly do so, and the market assigns more value to better protection.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.03.005
URL: http://www.sciencedirect.com/science/article/B6VFK-4S6P1YH-1/2/ef821dbf4f2c1abf62162005c36d69b2
Reference Type: Journal Article
Record Number: 29019
Author: P. Brockman, J. S. Howe and S. Mortal
Year: 2008
Title: Stock market liquidity and the decision to repurchase
Journal: Journal of Corporate Finance
Volume: 14
Issue: 4
Pages: 446-459
Short Title: Stock market liquidity and the decision to repurchase
ISSN: 0929-1199
Keywords: Payout policy
Repurchases
Dividends
Liquidity
Abstract: We examine the impact of stock market liquidity on managerial payout decisions. We argue that stock market liquidity influences payout policy through a first-order effect on the share repurchase decision, and a second-order or residual effect on the dividend decision. Managers compare the tax and flexibility advantages of a repurchase against its liquidity cost disadvantage. All else equal, higher market liquidity encourages the use of repurchases over dividends. Our empirical results confirm that stock market liquidity plays a significant role in repurchase and dividend initiations, as well as in recurring payout decisions. Unlike previous studies that measure liquidity changes following the repurchase decision, we examine liquidity levels prior to the payout decision. We show that managers condition their repurchase decision on a sufficient level of market liquidity, consistent with Barclay and Smith's [Barclay, M.J., Smith, C.W. Jr., 1988. Corporate payout policy: cash dividends versus open-market repurchases. Journal of Financial Economics 22, 61-82.] theoretical analysis and Brav et al.'s [Brav, A., Graham, J.R., Campbell, R.H., Michaely, R., 2005. Payout policy in the 21st century. Journal of Financial Economics 77, 483-528.] CFO survey results. Repurchases have recently become the payout decision of choice in part because of rising stock market liquidity.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.06.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4SR713F-1/2/2e5b9027eb7777aaa40751ae316df0f2
Reference Type: Journal Article
Record Number: 29304
Author: Y. Brook, R. J. Hendershott and D. Lee
Year: 2000
Title: Corporate governance and recent consolidation in the banking industry
Journal: Journal of Corporate Finance
Volume: 6
Issue: 2
Pages: 141-164
Short Title: Corporate governance and recent consolidation in the banking industry
ISSN: 0929-1199
Keywords: Takeovers
Corporate governance
Abstract: Using the universe of publicly traded banks at year-end 1993, we find that target banks' outside directors, but not inside directors, tend to own more stock than their counterparts in other banks. Having an outside blockholder is also associated with banks becoming targets. In contrast to existing research on industrial firms, board structure does not help determine which sample banks sell. Neither the fraction of outsiders on a bank's board nor having an outside-dominated board differentiate the target banks in our sample. Instead, outside directors/shareholders and blockholders appear to be primarily responsible for encouraging bank managers to accept an attractive merger offer
Notes: doi: DOI: 10.1016/S0929-1199(00)00011-0
URL: http://www.sciencedirect.com/science/article/B6VFK-40V4F2V-3/2/63604c0fb7ff5548583f636d62f3b741
Reference Type: Journal Article
Record Number: 28954
Author: J. Brookman and P. D. Thistle
Year: 2009
Title: CEO tenure, the risk of termination and firm value
Journal: Journal of Corporate Finance
Volume: 15
Issue: 3
Pages: 331-344
Short Title: CEO tenure, the risk of termination and firm value
ISSN: 0929-1199
Keywords: CEO termination
Corporate governance
CEO tenure
CEO turnover
Survival analysis
Abstract: We examine CEOs' risk of termination, its determinants and its effect on firm value. Using survival analysis, we find that the risk of termination increases for about thirteen years before decreasing slightly with CEO tenure; 82% of CEOs have tenure of less than thirteen years. We also find that tenure increases with performance and compensation and decreases with monitoring by the board. Changes in the risk of termination do not have a significant effect on firm value. Taken as a whole, our results are consistent with the view that corporate governance functions reasonably well for the vast majority of firms.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.01.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4VCNP6R-1/2/a965a7173ebd9f9ab62d5da74a59bb08
Reference Type: Journal Article
Record Number: 28967
Author: D. T. Brown, C. E. Fee and S. E. Thomas
Year: 2009
Title: Financial leverage and bargaining power with suppliers: Evidence from leveraged buyouts
Journal: Journal of Corporate Finance
Volume: 15
Issue: 2
Pages: 196-211
Short Title: Financial leverage and bargaining power with suppliers: Evidence from leveraged buyouts
ISSN: 0929-1199
Keywords: Bargaining power
Leveraged buyout
Suppliers
Abstract: This paper investigates whether leveraged buyouts (LBOs) increase the bargaining power of firms with their suppliers. We find that suppliers to LBO firms experience significantly negative abnormal returns at the announcements of downstream LBOs. We also find that suppliers who have likely made substantial relationship-specific investments are more negatively affected, both in terms of abnormal stock returns and reduced profit margins, than suppliers of commodity products or transitory suppliers. Interestingly, leveraged recapitalization announcements are not associated with negative returns to suppliers, suggesting that increased leverage without an accompanying change in organizational form does not, on average, lead to price concessions from suppliers.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.10.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4TXF7W5-1/2/09f4fab10d3a9f4ae17d16cf8b3ade93
Reference Type: Journal Article
Record Number: 29385
Author: D. T. Brown, C. M. James and R. M. Mooradian
Year: 1994
Title: Asset sales by financially distressed firms
Journal: Journal of Corporate Finance
Volume: 1
Issue: 2
Pages: 233-257
Short Title: Asset sales by financially distressed firms
ISSN: 0929-1199
Keywords: Liquidation
Financial distress
Debt
Capital structure
Abstract: This paper examines asset sales by financially distressed firms. Contrary to the results for healthy firms, we find significantly lower returns to shareholders when asset sales proceeds are used to repay debt than when sales proceeds are retained by the firm. We find that asset sales proceeds are more likely to be paid out to creditors, as opposed to being retained by the firm, the larger the proportion of short-term senior bank debt in the firm's capital structure and the poorer the selling firm's investment opportunities. Our results suggest that creditors significantly influence the liquidation decisions of financially distressed firms.
Notes: doi: DOI: 10.1016/0929-1199(94)90004-3
URL: http://www.sciencedirect.com/science/article/B6VFK-47DD36F-4/2/9373633671b5091aef2b58f0cc482319
Reference Type: Journal Article
Record Number: 29106
Author: W. O. Brown, E. Helland and J. K. Smith
Year: 2006
Title: Corporate philanthropic practices
Journal: Journal of Corporate Finance
Volume: 12
Issue: 5
Pages: 855-877
Short Title: Corporate philanthropic practices
ISSN: 0929-1199
Keywords: Corporate philanthropy
Corporate governance
Boards of directors
Monitoring
Agency costs
Abstract: We study corporate philanthropy using an original database that includes firm-level data on dollar giving, giving priorities, governance, and managerial involvement in giving programs. Results provide some support for the theory that giving enhances shareholder value, as firms in the same industry tend to adopt similar giving practices and firms that advertise more intensively also give more to charity. But much of our evidence indicates that agency costs play a prominent role in explaining corporate giving. Firms with larger boards of directors are associated with significantly more cash giving and with the establishment of corporate foundations. Consistent with effective monitoring by creditors, firms with higher debt-to-value ratios give less cash to charities and are less likely to establish foundations. The empirical work considers the impact of industry regulation on giving and controls for state philanthropy laws and fiduciary responsibility laws.
Notes: doi: DOI: 10.1016/j.jcorpfin.2006.02.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4JDN6BR-1/2/d28899c91b67b7b0026a6505c2ee114e
Reference Type: Journal Article
Record Number: 29129
Author: S. Bryan, R. Nash and A. Patel
Year: 2006
Title: Can the agency costs of debt and equity explain the changes in executive compensation during the 1990s?
Journal: Journal of Corporate Finance
Volume: 12
Issue: 3
Pages: 516-535
Short Title: Can the agency costs of debt and equity explain the changes in executive compensation during the 1990s?
ISSN: 0929-1199
Keywords: Agency costs
Executive compensation
Stock options
Abstract: Contracting theory predicts that greater equity-related compensation will decrease the agency problems of equity but may exacerbate the agency problems of debt. We present evidence that the agency costs of debt may have declined during the 1990s. Specifically, changes in the financial characteristics of our sample firms suggest that underinvestment, asset substitution, and financial distress became less likely. Furthermore, agency costs of equity increased during the 1990s, primarily because firms became more difficult to monitor. Together, the findings provide an explanation for why more firms used option-based compensation in the latter 1990s, and why the proportion of options in compensation structure increased throughout the decade of the 1990s.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.09.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4HC6KSH-1/2/912e10cfd185c56cc2e4a08d80765fd9
Reference Type: Journal Article
Record Number: 29137
Author: W. Y. Busaba
Year: 2006
Title: Bookbuilding, the option to withdraw, and the timing of IPOs
Journal: Journal of Corporate Finance
Volume: 12
Issue: 2
Pages: 159-186
Short Title: Bookbuilding, the option to withdraw, and the timing of IPOs
ISSN: 0929-1199
Keywords: Initial public offerings
Option to withdraw
Bookbuilding
Price discovery
Real option
Abstract: The ability to withdraw IPOs when demand is weak increases expected proceeds and provides issuers with option value. To enhance this value, the SEC adopted in 2001 the [`]public-to-private' safe harbor Rule 155 and simplified Rule 477 for withdrawing offerings. The option value can exceed the underpricing associated with soliciting investor demand. Hence, issuers might prefer bookbuilding despite the associated underpricing even if they could sell via fixed price at full expected value. The option value increases faster than underpricing with ex ante uncertainty, generating predictions regarding the use of bookbuilding and the timing of IPOs, and leading to a distinct theory of hot IPO markets.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.12.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4GG8VRY-1/2/3dc35f2548f2c4bbb606dba3c5ac1abc
Reference Type: Journal Article
Record Number: 29221
Author: A. Buysschaert, M. Deloof and M. Jegers
Year: 2004
Title: Equity sales in Belgian corporate groups: expropriation of minority shareholders? A clinical study
Journal: Journal of Corporate Finance
Volume: 10
Issue: 1
Pages: 81-103
Short Title: Equity sales in Belgian corporate groups: expropriation of minority shareholders? A clinical study
ISSN: 0929-1199
Keywords: Corporate groups
Private benefits
Tunneling
Event study
Abstract: In Belgian corporate groups, complex pyramidal structures and interlocking ownership lead to separation of ownership and control. This may generate incentives for the controlling shareholder to divert resources within the group through intragroup equity sales. This in turn could lead to significant private benefits at the expense of the minority shareholders. We test this hypothesis by investigating the stock price reaction to the announcement of equity sales in Belgian groups. Our results suggest that intragroup equity sales create value for minority shareholders. Equity sales between group members and non-group members do not seem to affect the value for minority shareholders in Belgian groups.
Notes: doi: DOI: 10.1016/S0929-1199(02)00047-0
URL: http://www.sciencedirect.com/science/article/B6VFK-4700V1V-1/2/2089e4bd964ce6e2dfa03b7ff7d3bcae
Reference Type: Journal Article
Record Number: 29021
Author: S. S. Byers, L. P. Fields and D. R. Fraser
Year: 2008
Title: Are corporate governance and bank monitoring substitutes: Evidence from the perceived value of bank loans
Journal: Journal of Corporate Finance
Volume: 14
Issue: 4
Pages: 475-483
Short Title: Are corporate governance and bank monitoring substitutes: Evidence from the perceived value of bank loans
ISSN: 0929-1199
Keywords: Governance
Loan announcements returns
Abstract: We extend the literature regarding the importance of corporate governance and bank monitoring by examining the association between loan announcement wealth effects and the corporate governance characteristics of the borrowers. Using a sample of over 800 commercial loan announcements over a period of more than 20 years we find that loan announcements are more likely to have positive wealth effects for firms with weak internal corporate governance. However, we also find that this relation between perceived bank monitoring and board independence and incentive-based pay exists only for firms with weak external governance, specifically the market for corporate control.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.06.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4SS1S6V-1/2/03e386ecf25eefc68e4701cdfd761e68
Reference Type: Journal Article
Record Number: 29231
Author: S. Byoun and W. T. Moore
Year: 2003
Title: Stock vs. stock-warrant units: evidence from seasoned offerings
Journal: Journal of Corporate Finance
Volume: 9
Issue: 5
Pages: 575-590
Short Title: Stock vs. stock-warrant units: evidence from seasoned offerings
ISSN: 0929-1199
Keywords: Warrants
Seasoned equity
Information signaling, Sequential financing
Abstract: Recent theories based on sequential financing and information signaling reveal a special role for warrants. Data from initial public offerings (IPOs) of stock-warrant units have been used to test the theories, and we extend the analysis to seasoned offerings. Consistent with predictions from both families of theories, we find that issues made by smaller and younger firms are more likely to involve stock-warrant units, and firms with greater stock price volatility are more likely to issue units in seasoned offerings. Moreover, firms with relatively high levels of long-term debt, and those whose issues are underwritten by less prestigious underwriters are more likely to employ stock-warrant unit financing. Consistent with information signaling, we find that firms with high managerial ownership are more likely to issue units. Firms that include warrants in their stock offerings are predicted to have experienced higher abnormal stock returns than if they had issued shares alone. Thus, consistent with both theoretical explanations, some firms can reduce capital costs by adding warrants to shares in seasoned offerings.
Notes: doi: DOI: 10.1016/S0929-1199(02)00038-X
URL: http://www.sciencedirect.com/science/article/B6VFK-48RXTPN-2/2/8e08c60493cf35f3e4e80a9cdfa41e86
Reference Type: Journal Article
Record Number: 29183
Author: D. T. Byrd and M. S. Mizruchi
Year: 2005
Title: Bankers on the board and the debt ratio of firms
Journal: Journal of Corporate Finance
Volume: 11
Issue: 1-2
Pages: 129-173
Short Title: Bankers on the board and the debt ratio of firms
ISSN: 0929-1199
Keywords: Boards of directors
Capital structure
Commercial banks
Abstract: We investigate the impact that bankers on the board have upon a firm's debt ratio, debt to total capital, 1 year subsequent to their appointment. We find that the presence of lending bankers on a firm's board negatively affects the debt ratio, while the impact of non-lending bankers varies with the firm's probability of financial distress. The results suggest that non-lending bankers provide expertise and certification for distressed firms while exercising a monitoring role for non-distressed firms. In contrast, the results suggest that lenders on the board exercise a monitoring role independent of the firm's financial distress. When combined with established findings in the literature, we conclude that there may be two ways to avoid conflict between a board-appointed banker's fiduciary responsibility and the interests of her bank. When the potential for conflict is high, lenders may forgo board positions, while non-lending bankers may merely alter their role on the board.
Notes: doi: DOI: 10.1016/j.jcorpfin.2003.09.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4BXTKHN-1/2/dbe0424431f923370e830387e940482b
Reference Type: Journal Article
Record Number: 29245
Author: W. T. Callahan, J. A. Millar and C. Schulman
Year: 2003
Title: An analysis of the effect of management participation in director selection on the long-term performance of the firm
Journal: Journal of Corporate Finance
Volume: 9
Issue: 2
Pages: 169-181
Short Title: An analysis of the effect of management participation in director selection on the long-term performance of the firm
ISSN: 0929-1199
Keywords: Corporate governance
Director selection
Corporate performance
CEO
Board of directors
Abstract: A major criticism of corporate boards of directors is the absence of objectivity in appraising and monitoring management [The Business Lawyer, 48 (1992) 59-77]. Recently, Shivdasani and Yermack [Journal of Finance LIV (5) (1999) 1829] find that CEO involvement in board selection is associated with a greater proportion of gray and a lower proportion of outside director appointments. The question addressed here is whether corporate performance, as measured by Tobin's q, is affected by management influence in the board nominating process. Agrawal and Knoeber [Journal of Financial and Quantitative Analysis, 31 (3) (1996) 377] find interdependence among seven mechanisms to control agency problems between managers and stockholders. Their finding suggests that cross-sectional OLS regressions of firm performance on a single mechanism may be misleading and that interpretation of multiple regression methods is weakened by multicollinearity. In this study, a principal component analysis (PCA) is employed to mitigate such problems. An index of management involvement in director nomination is constructed for a sample of 106 firms from 1989 to 1992 via a PCA method utilizing selected governance mechanisms within the nominating process. We find a positive relationship between management participation in the director selection process and corporate performance.
Notes: doi: DOI: 10.1016/S0929-1199(02)00004-4
URL: http://www.sciencedirect.com/science/article/B6VFK-450315S-1/2/cb7e9644d12f5525396f0534f173a87f
Reference Type: Journal Article
Record Number: 29259
Author: T. L. Campbell and P. Y. Keys
Year: 2002
Title: Corporate governance in South Korea: the chaebol experience
Journal: Journal of Corporate Finance
Volume: 8
Issue: 4
Pages: 373-391
Short Title: Corporate governance in South Korea: the chaebol experience
ISSN: 0929-1199
Keywords: Top executive turnover
South Korean corporate governance
Government policy
Abstract: Utilizing a large sample of South Korean firms, this paper explores the impact of corporate governance in an emerging market country dominated by a few large business groups. Firms affiliated with the top five groups (chaebol) exhibit significantly lower performance and significantly higher sales growth relative to other firms. Furthermore, top executive turnover is unrelated to performance for top chaebol firms, indicating a breakdown of internal corporate governance for the largest business groups. Internal corporate governance appears much more effective for firms unrelated to the top chaebol as managers at poorly performing firms are significantly more likely to lose their job. These results imply that the lack of properly functioning internal corporate governance among the top chaebol, which dominate the Korean economy, may have increased the severity of the recent financial crisis.
Notes: doi: DOI: 10.1016/S0929-1199(01)00049-9
URL: http://www.sciencedirect.com/science/article/B6VFK-46FJ8G1-5/2/5fe231f5be9f0c720eb483d6da295557
Reference Type: Journal Article
Record Number: 29199
Author: S. Cantale and A. Russino
Year: 2004
Title: Putable common stock
Journal: Journal of Corporate Finance
Volume: 10
Issue: 5
Pages: 753-775
Short Title: Putable common stock
ISSN: 0929-1199
Keywords: Underpricing
Finance
Instruments
Abstract: The underpricing of initial public offerings is a well-documented phenomenon in the financial literature. The purpose of this paper is to show how this empirical regularity could be solved by an appropriate choice of financing instruments, namely, by an intelligent mix of common stocks and put options. The latter additional instrument, modeled in this paper as a lump sum paid by insiders of the firm to outsiders, helps alleviate the asymmetry of information existing between insiders and outsiders of the corporation, allowing good firms to sell the package they offer at the full information value.
Notes: doi: DOI: 10.1016/S0929-1199(03)00044-0
URL: http://www.sciencedirect.com/science/article/B6VFK-48M812P-2/2/b4a1793f9093a894fba44640eaca1413
Reference Type: Journal Article
Record Number: 29119
Author: M. Cao and S. Shi
Year: 2006
Title: Signaling in the Internet craze of initial public offerings
Journal: Journal of Corporate Finance
Volume: 12
Issue: 4
Pages: 818-833
Short Title: Signaling in the Internet craze of initial public offerings
ISSN: 0929-1199
Keywords: IPO
Clustering
Signaling
Underpricing
Abstract: We explain the clustering of underpricing in initial public offerings (IPOs). The model features an industry with aggregate demand uncertainty and asymmetric information about firms' quality. In the IPO market, firms can signal quality by underpricing or under-issuing new shares. Expected aggregate demand for the industry's products increases with the publicity that the industry creates through IPO underpricing. We show that asymmetric information and expectations on aggregate product demand interact with each other to generate multiple equilibria. Underpriced IPOs cluster in one equilibrium but not in the other. We use these results to explain why the clustering often occurs in particular industries, is short-lived, and is sensitive to economic conditions.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.11.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4J2M4BS-1/2/c70ef51b2331e20f5e247c1c4ffe9da3
Reference Type: Journal Article
Record Number: 29170
Author: M. Carapeto
Year: 2005
Title: Bankruptcy bargaining with outside options and strategic delay
Journal: Journal of Corporate Finance
Volume: 11
Issue: 4
Pages: 736-746
Short Title: Bankruptcy bargaining with outside options and strategic delay
ISSN: 0929-1199
Keywords: Bankruptcy
Bargaining
Prepack
Conventional Chapter 11
Outside options
Strategic delay
Abstract: This paper compares the bargaining process in conventional Chapter 11 arrangements with one alternative structure, known as "prepacks". In prepacks, unsecured creditors' payments depend only on the value of the outside option, which is given by the liquidation value of their claims. In conventional Chapter 11s, unsecured creditors' outside option is smaller, but they additionally obtain a percentage of the remaining firm value, which compensates for the higher bankruptcy costs in these cases. It is shown that the presence of asymmetric information can lead to situations of extended bargaining, requiring further plans of reorganization before an agreement is reached. Claimants placing a low value on a firm are more likely to delay producing a plan of reorganization that would be immediately accepted.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.10.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4G3R9KX-1/2/090487265814d49435933c544e49f4b0
Reference Type: Journal Article
Record Number: 29094
Author: A. Carvalhal da Silva and A. Subrahmanyam
Year: 2007
Title: Dual-class premium, corporate governance, and the mandatory bid rule: Evidence from the Brazilian stock market
Journal: Journal of Corporate Finance
Volume: 13
Issue: 1
Pages: 1-24
Short Title: Dual-class premium, corporate governance, and the mandatory bid rule: Evidence from the Brazilian stock market
ISSN: 0929-1199
Keywords: Dual-class premium
Corporate governance
Mandatory bid rule
Brazil
Abstract: This paper conducts a systematic analysis of the determinants of the relative price difference between voting and non-voting shares, i.e., the "dual-class premium," within the context of a mandatory bid rule. While the removal of the mandatory bid rule can increase potential gains from control, it can also weaken protection for minority shareholders. We provide evidence that the latter effect dominates by showing that the premium increases (decreases) in response to enhancement (lowering) of investor protection via regulatory alterations in the rule. The premium is lower in government-owned firms, which may be an indicator that control transfers, that allow benefits from the mandatory bid rule to accrue to minority shareholders, are less likely in government-owned firms. We also find that the premium is inversely related to an index designed to capture the firm's corporate governance practices. The results suggest that expropriations of minority shareholders are more likely at firms with poor corporate governance provisions and weak takeover rules relating to mandatory bids.
Notes: doi: DOI: 10.1016/j.jcorpfin.2006.12.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4N0PFS8-1/2/af37e3f20ca7ff986ec24119910d1250
Reference Type: Journal Article
Record Number: 29103
Author: A. Chakraborty, S. Sheikh and N. Subramanian
Year: 2007
Title: Termination risk and managerial risk taking
Journal: Journal of Corporate Finance
Volume: 13
Issue: 1
Pages: 170-188
Short Title: Termination risk and managerial risk taking
ISSN: 0929-1199
Keywords: Executive compensation
Management turnover
Incentive contacts
Volatility
Abstract: We test the hypothesis that managers who face a high termination risk make less risky investments than the managers who face a low termination risk. A 10% increase in our measure of termination risk is associated with a 5%-23% decline in stock returns volatility for the median firm in our sample. We also find that for CEOs who are more likely to be fired in the event of investment failure, the inhibiting effect of termination risk appears to offset the positive effect of convexity of managerial compensation on managerial risk taking. These results are robust to alternative definitions of forced turnover and various measures of firm performances.
Notes: doi: DOI: 10.1016/j.jcorpfin.2006.04.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4K717R4-1/2/0255111bd36b5889c30022f39a5c186b
Reference Type: Journal Article
Record Number: 29210
Author: K. Chan, J. Wang and K. C. J. Wei
Year: 2004
Title: Underpricing and long-term performance of IPOs in China
Journal: Journal of Corporate Finance
Volume: 10
Issue: 3
Pages: 409-430
Short Title: Underpricing and long-term performance of IPOs in China
ISSN: 0929-1199
Keywords: IPO
China
Underpricing
Long-term performance
Abstract: We study the underpricing and long-term performance of A- and B-share initial public offerings (IPOs) issued in China during the 1993-1998 period. The average underpricing for A- and B share IPOs are 178% and 11.6%, respectively. The underpricing of A-share IPOs is positively related to the number of days between the offering and the listing and the number of stock investors in the province from which the IPO comes, and negatively related to the number of shares being issued. None of these characteristics explain the underpricing of B-share IPOs. In the long run, A-share IPOs slightly underperform the size- and/or book/market (B/M)-matched portfolios while B-shares outperform the benchmark portfolios.
Notes: doi: DOI: 10.1016/S0929-1199(03)00023-3
URL: http://www.sciencedirect.com/science/article/B6VFK-4846S7N-1/2/e2681aaf8c7630a226f44f3521abc3a6
Reference Type: Journal Article
Record Number: 28977
Author: D. M. Chance
Title: Liquidity and employee options: An empirical examination of the Microsoft experience
Journal: Journal of Corporate Finance
Volume: In Press, Corrected Proof
Short Title: Liquidity and employee options: An empirical examination of the Microsoft experience
ISSN: 0929-1199
Keywords: Employee stock options
Liquidity
Compensation
Turnover
Abstract: In recent years several companies have offered employees the opportunity to transfer certain out-of-the-money options to a dealer. This paper examines one such high-profile program offered by Microsoft in 2003. The program was not very transparent in that employees were forced to decide whether to tender their options before knowing how much they would be offered, and it had only a modest rate of participation. Nonetheless, the market easily absorbed intense selling pressure as the options were transferred and hedged. The dealer, JPMorgan Chase, though profiting from the transfer, apparently failed to hedge the volatility risk it accepted from the employees and lost nearly the entire value it paid for the options. The overall experience has important implications for the design of programs that are intended to solve problems of low morale and increased turnover caused by underwater options.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.01.005
URL: http://www.sciencedirect.com/science/article/B6VFK-4VJ4WMX-1/2/884bcdc8f58c2c39f740ea338951990a
Reference Type: Journal Article
Record Number: 29377
Author: P. K. Chaney and C. M. Lewis
Year: 1995
Title: Earnings management and firm valuation under asymmetric information
Journal: Journal of Corporate Finance
Volume: 1
Issue: 3-4
Pages: 319-345
Short Title: Earnings management and firm valuation under asymmetric information
ISSN: 0929-1199
Keywords: Earnings management
Asymmetric information
Accounting disclosure policies
Firm valuation
Abstract: This paper seeks to provide an explanation for why corporate officers manage the disclosure of accounting information. We show that earnings management affects firm value when value-maximizing managers and investors are asymmetrically informed. In equilibrium, the strategic management of reported earnings influences investors' assessments of the market values of companies' shares.
Notes: doi: DOI: 10.1016/0929-1199(94)00008-I
URL: http://www.sciencedirect.com/science/article/B6VFK-3XY2J7C-2/2/e14037a5cc879f2ee27d475eaa76352b
Reference Type: Journal Article
Record Number: 29340
Author: P. K. Chaney and C. M. Lewis
Year: 1998
Title: Income smoothing and underperformance in initial public offerings
Journal: Journal of Corporate Finance
Volume: 4
Issue: 1
Pages: 1-29
Short Title: Income smoothing and underperformance in initial public offerings
ISSN: 0929-1199
Keywords: Earnings management
Income smoothing
Initial public offerings
Abstract: This paper investigates how firms that made initial public offerings of equity between 1975 and 1984 report earnings. For a sample of 489 firms, we find a positive association between a proxy for income smoothing and firm performance. That is, firms that perform well tend to report earnings with less variability relative to cash from operations compared to other firms. In addition, the five-year earnings response coefficient is greater for firms that are able to smooth earnings relative to cash flows. This result is consistent with a hypothesis that the market makes better assessments of the information content of earnings for firms with smoother earnings. Finally, we show that IPO firms tend to use discretionary accruals to smooth income relative to the prior year's earnings.
Notes: doi: DOI: 10.1016/S0929-1199(97)00007-2
URL: http://www.sciencedirect.com/science/article/B6VFK-3SX87D0-1/2/f3e2f169adc4b956531dbed48a049e24
Reference Type: Journal Article
Record Number: 29000
Author: C. Chang, C.-D. Fuh and Y.-H. Hsu
Year: 2008
Title: ESO compensation: The roles of default risk, employee sentiment, and insider information
Journal: Journal of Corporate Finance
Volume: 14
Issue: 5
Pages: 630-641
Short Title: ESO compensation: The roles of default risk, employee sentiment, and insider information
ISSN: 0929-1199
Keywords: Stock options
Sentiment
Default model
Jump diffusion
Insider information
Abstract: This paper derives a pricing model for employee stock options (ESO) that includes default risk and considers employee sentiment. Using ESO data from 1992 to 2004, the study finds that the average executive's subjective value is about 55% of the Black-Scholes value. Only employees who over-estimate firm returns (or insiders who know that the firm is under-valued) by about 10% per annum will prefer ESOs over cash compensation. Our model also shows that work incentives offered by ESOs may be far lower than those implied by Black-Scholes but that ESOs may induce less risk-taking behavior, contrary to typical moral hazard arguments. Findings may impact relevant accounting regulations as well as compensation decisions.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.08.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4T8SKYT-1/2/e2ea45847a1cabcef14810f171fcdf73
Reference Type: Journal Article
Record Number: 28969
Author: E. C. Chang and S. M. L. Wong
Year: 2009
Title: Governance with multiple objectives: Evidence from top executive turnover in China
Journal: Journal of Corporate Finance
Volume: 15
Issue: 2
Pages: 230-244
Short Title: Governance with multiple objectives: Evidence from top executive turnover in China
ISSN: 0929-1199
Keywords: Managerial turnovers
Multiple firm objectives
Firm performance
State ownership
Abstract: We examine the relationship between Chief Executive Officer (CEO) turnover and the performance of listed Chinese firms and obtain two results. First, we find a negative relationship between the level of pre-turnover profitability and CEO turnover when firms are incurring financial losses, but no such relationship when they are making profits. Second, there is an improvement in post-turnover profitability in loss-making firms, but no such improvement in profit-making firms. These results indicate the existence of a time-varying objective function, whereby shareholders have a greater incentive to discipline their CEOs on the basis of financial performance when their firms are incurring financial losses rather than profits.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.10.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4TX33JC-1/2/47778f076ae7a6a1fefc94c4073e1714
Reference Type: Journal Article
Record Number: 29053
Author: Y. Y. Chang and S. Dasgupta
Year: 2007
Title: Beyond internal capital markets: The in-house transmission of adverse sales shocks and the collateral channel
Journal: Journal of Corporate Finance
Volume: 13
Issue: 5
Pages: 743-770
Short Title: Beyond internal capital markets: The in-house transmission of adverse sales shocks and the collateral channel
ISSN: 0929-1199
Keywords: Internal capital markets
Collateral channel
Transmission mechanism
Abstract: We study how shocks to some business segments affect investment in a firm's non-shock segments. We find that subsequent investment in the non-shock segments is significantly lower compared to segments of firms that do not experience shocks. Surprisingly, lower availability of internal funds does not account for the lower investment. We find that segment shocks propagate within the firm by decreasing the value of collateral assets and reducing the availability of external finance. Our results support the operation of an external finance collateral channel ([Kiyotaki, N., Moore, J., 1997. Credit cycles. Journal of Political Economy 105, 211-248.]) previously discussed in the literature.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.02.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4NHV6XT-1/2/aa7b1ba18bffe631f67e5e5fb8c0c688
Reference Type: Journal Article
Record Number: 29292
Author: K. W. Chauvin and C. Shenoy
Year: 2001
Title: Stock price decreases prior to executive stock option grants
Journal: Journal of Corporate Finance
Volume: 7
Issue: 1
Pages: 53-76
Short Title: Stock price decreases prior to executive stock option grants
ISSN: 0929-1199
Keywords: Stock option
CEOs
Compensation
Abstract: This study examines abnormal stock price changes prior to executive stock option grants. Executives have the incentive and opportunity to manage the timing of their communications of inside information to the market during the period just prior to the date of their stock-option grant so as to reduce the exercise price of their options. Executives benefit from temporary stock price decreases before the grant date and by stock price increases after the grant date. Executive stock option grants create a unique opportunity for insiders to profit by manipulating the timing of information flowing to the market without engaging in insider trading. Using data on 783 stock-option grants to chief executive officers, we find a statistically significant abnormal decrease in stock prices during the 10-day period immediately preceding the grant date.
Notes: doi: DOI: 10.1016/S0929-1199(00)00019-5
URL: http://www.sciencedirect.com/science/article/B6VFK-42MFFPR-3/2/0f3d91415d81aa252f93ac2362c39f9a
Reference Type: Journal Article
Record Number: 29065
Author: C. R. Chen and Y. Huang
Year: 2007
Title: Author Affiliation Index, finance journal ranking, and the pattern of authorship
Journal: Journal of Corporate Finance
Volume: 13
Issue: 5
Pages: 1008-1026
Short Title: Author Affiliation Index, finance journal ranking, and the pattern of authorship
ISSN: 0929-1199
Keywords: Finance journal ranking
Author Affiliation Index
Authorship pattern
Abstract: In this paper we use a new method to rank finance journals and study the pattern of authorship/co-authorship across journals. Defined as the ratio of articles authored by faculty at the world's top 80 finance programs to the total number of articles by all authors, the Author Affiliation Index is a cost-effective and intuitively easy-to-understand approach to journal rankings. Forty-one finance journals are ranked according to this index. If properly constructed, the Author Affiliation Index provides an easy and credible way to supplement the existing journal ranking methods. Our ranking system reveals the journal-researcher clientele, and we find that collaboration (co-authoring) between faculty within elite programs exists only in top-tier and near-top-tier journals. Publications in lower-tier journals by researchers of elite programs are driven by their co-authors. Collaboration between faculty in elite and non-elite programs, however, is more prevalent than that within elite programs across all tiers of journals. Co-authorship among top 80 programs, nevertheless, is more common in top-tier journals, while co-authorship between top 80 and other programs is more dominant in lower-ranked journals.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.04.011
URL: http://www.sciencedirect.com/science/article/B6VFK-4NN0W5C-1/2/1cca2b8021eae269cf44f4a3bd5e8b73
Reference Type: Journal Article
Record Number: 29125
Author: G. Chen, M. Firth, D. N. Gao and O. M. Rui
Year: 2006
Title: Ownership structure, corporate governance, and fraud: Evidence from China
Journal: Journal of Corporate Finance
Volume: 12
Issue: 3
Pages: 424-448
Short Title: Ownership structure, corporate governance, and fraud: Evidence from China
ISSN: 0929-1199
Keywords: Ownership
Corporate governance
Fraud
China's enforcement actions
Abstract: Our study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. The data come from the enforcement actions of the Chinese Securities Regulatory Commission (CSRC). The results from univariate analyses, where we compare fraud and no-fraud firms, show that ownership and board characteristics are important in explaining fraud. However, using a bivariate probit model with partial observability we demonstrate that boardroom characteristics are important, while the type of owner is less relevant. In particular, the proportion of outside directors, the number of board meetings, and the tenure of the chairman are associated with the incidence of fraud. Our findings have implications for the design of appropriate corporate governance systems for listed firms. Moreover, our results provide information that can inform policy debates within the CSRC.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.09.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4HG69MW-1/2/220d33b3a95c63b1762a8f174f950e43
Reference Type: Journal Article
Record Number: 28951
Author: K. C. W. Chen, Z. Chen and K. C. J. Wei
Year: 2009
Title: Legal protection of investors, corporate governance, and the cost of equity capital
Journal: Journal of Corporate Finance
Volume: 15
Issue: 3
Pages: 273-289
Short Title: Legal protection of investors, corporate governance, and the cost of equity capital
ISSN: 0929-1199
Keywords: Corporate governance
Cost of equity
Legal protection of investors
Abstract: This study examines the effect of firm-level corporate governance on the cost of equity capital in emerging markets and how the effect is influenced by country-level legal protection of investors. We find that firm-level corporate governance has a significantly negative effect on the cost of equity capital in these markets. In addition, this corporate governance effect is more pronounced in countries that provide relatively poor legal protection. Thus, in emerging markets, firm-level corporate governance and country-level shareholder protection seem to be substitutes for each other in reducing the cost of equity. Our results are consistent with the finding from McKinsey's surveys that institutional investors are willing to pay a higher premium for shares in firms with good corporate governance, especially when the firms are in countries where the legal protection of investors is weak.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.01.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4VC0YDG-1/2/01b2a2edf4ee43c79eccb96dc29e8e4c
Reference Type: Journal Article
Record Number: 29151
Author: Y. Cheng
Year: 2005
Title: Post-listing underperformance: Is it really bad to move trading locations?
Journal: Journal of Corporate Finance
Volume: 12
Issue: 1
Pages: 97-120
Short Title: Post-listing underperformance: Is it really bad to move trading locations?
ISSN: 0929-1199
Keywords: Post-listing puzzle
Long-term abnormal returns
Pseudo market timing
Abstract: We reexamine the post-listing puzzle by studying the stock performance of 2103 firms that moved from NASDAQ to NYSE or AMEX, or from AMEX to NYSE during 1973-1999. The matched four-factor regressions demonstrate that the listing firms do not underperform. Size-and-book-to-market matched factor regression finds that the "post-listing drift" is confined to the small set of firms moving from NASDAQ to AMEX during 1981-1990, within size deciles 3-6 and book-to-market quintiles 1-3. A further control of the industry effect is able to resolve the remaining abnormal returns. Our results are consistent with the pseudo market timing hypothesis in Schultz, (2003) [Schultz, P., 2003. Pseudo market timing and the long-run underperformance of IPOs. J. Fin. 58, 483-517.].
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.10.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4FF8WXD-1/2/3acd8b0258b4f2c2975ad9479d0200bb
Reference Type: Journal Article
Record Number: 29109
Author: W. K. A. Cheung and K. C. J. Wei
Year: 2006
Title: Insider ownership and corporate performance: Evidence from the adjustment cost approach
Journal: Journal of Corporate Finance
Volume: 12
Issue: 5
Pages: 906-925
Short Title: Insider ownership and corporate performance: Evidence from the adjustment cost approach
ISSN: 0929-1199
Keywords: Insider ownership
Corporate performance
Tobin's Q
Adjustment costs
System-GMM
Abstract: This paper examines the relation between insider ownership and corporate performance in the presence of adjustment costs and investigates how the adjustment costs are determined. In a model specification without adjustment costs, we find that insider ownership is significantly positively associated with corporate performance. But once we allow for adjustment costs, the relationship no longer exists. We find that insider ownership and corporate performance can be explained by their respective lagged values and that many firm characteristics that were previously useful in explaining these two variables turn out to be statistically insignificant. In addition, there is no evidence that insider ownership and corporate performance affect each other. This is consistent with the adjustment cost argument. It is also consistent with the "endogeneity" argument suggested by Demsetz [Demsetz, H. 1983. The structure of ownership and the theory of the firm. Journal of Law and Economics 26, 375-390.], Demsetz and Lehn [Demsetz, H., Lehn, K., 1985. The structure of corporate ownership: causes and consequences. Journal of Political Economy 93, 1155-1177.], and Demsetz and Villalonga [Demsetz, H., Villalonga, B., 2001. The ownership structure and corporate performance. Journal of Corporate Finance 7, 209-233.]. Finally, we document that the speed of adjustment of insider ownership is positively related to insiders' market timing but negatively to the number of insiders and that the speed of adjustment of Tobin's Q is positively associated with financial leverage and stock price volatility.
Notes: doi: DOI: 10.1016/j.jcorpfin.2006.02.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4JDN6BR-2/2/e6175feaa1645928b8167d18ee3ded1b
Reference Type: Journal Article
Record Number: 29232
Author: C. Choe
Year: 2003
Title: Leverage, volatility and executive stock options
Journal: Journal of Corporate Finance
Volume: 9
Issue: 5
Pages: 591-609
Short Title: Leverage, volatility and executive stock options
ISSN: 0929-1199
Keywords: Leverage
Volatility
Executive stock options
Optimal contract
Abstract: This paper studies how an optimal wage contract can be implemented using stock options, and derives the properties of the optimal contract with stock options. Specifically, we show how the exercise price and the size of the option grant should change in response to changes in exogenous parameters. First, for a fixed exercise price of executive stock options, the size of the option grant decreases in the riskiness of a desired investment policy, decreases in the volatility of return from the risky project, and increases in leverage. Second, for a fixed size of the option grant, the optimal exercise price of managerial stock options increases in the riskiness of a desired investment policy, increases in the volatility of return from the risky project, and decreases in leverage. Several empirical predictions are drawn from these conclusions regarding the pay-performance sensitivity of management compensation.
Notes: doi: DOI: 10.1016/S0929-1199(02)00049-4
URL: http://www.sciencedirect.com/science/article/B6VFK-477FTWV-1/2/fc95b707f1de6c27620921c11e545fed
Reference Type: Journal Article
Record Number: 29344
Author: B. Chowdhry and J. D. Coval
Year: 1998
Title: Internal financing of multinational subsidiaries: Debt vs. equity
Journal: Journal of Corporate Finance
Volume: 4
Issue: 1
Pages: 87-106
Short Title: Internal financing of multinational subsidiaries: Debt vs. equity
ISSN: 0929-1199
Keywords: Multinational capital structure
Internal financing of subsidiaries
Abstract: Multinational subsidiaries are generally financed with a mixture of internal debt and equity from the parent corporation. Yet, financial theory has relatively little to say regarding the debt-equity tradeoff and the timing of dividend repatriation in an international setting. In this paper, we derive optimal rules for financing multinational subsidiaries that take into account tax rate differentials and the exploitation of tax-loss credits. We develop a formal multi-period dynamic model to characterize the optimal dividend repatriation policy and the optimal choice of debt-equity mix. The model generates several testable empirical implications that are consistent with available empirical evidence and several others that have not been either discussed or empirically tested in the literature.
Notes: doi: DOI: 10.1016/S0929-1199(97)00011-4
URL: http://www.sciencedirect.com/science/article/B6VFK-3SX87D0-5/2/9c2f00586eb470309da2b7780c51b499
Reference Type: Journal Article
Record Number: 29386
Author: B. Chowdhry and V. Nanda
Year: 1994
Title: Financing of multinational subsidiaries: Parent debt vs. external debt
Journal: Journal of Corporate Finance
Volume: 1
Issue: 2
Pages: 259-281
Short Title: Financing of multinational subsidiaries: Parent debt vs. external debt
ISSN: 0929-1199
Keywords: Multinational taxation, Subsidiary capital structure
Debt financing
Transfer pricing
Abstract: Financing a multinational subsidiary by intra-firm parent debt has the advantage that while interest payments on the debt are tax deductible, there are no offsetting bankruptcy costs. Tax authorities put limits on the rate the parent is allowed to charge since the multinational firm has incentives to exaggerate the interest rate on the intra-firm debt when the foreign corporate tax rate is higher than the domestic rate. Since the interest rate on external debt -- which entails potential bankruptcy costs -- is determined competitively in the market, this can be used as a benchmark to justify the rate charged on intra-firm debt. We show that the firm would finance the subsidiary partly by intra-firm parent debt and partly by external debt, both of equal seniority, but it sometimes would choose to pay its external debtors in full even when it is not contractually obligated to do so. For any given level of total debt financing, higher corporate tax rates in the foreign country are associated with a larger proportion of debt financing by external debt, higher interest rates and a larger probability of bankruptcy; higher corporate tax rates in the home country are associated with a smaller proportion of debt financing by external debt, lower interest rates and a smaller probability of bankruptcy.
Notes: doi: DOI: 10.1016/0929-1199(94)90005-1
URL: http://www.sciencedirect.com/science/article/B6VFK-47DD36F-5/2/23e48c9183e0d592ef9507f63720e9a8
Reference Type: Journal Article
Record Number: 29363
Author: B. Chowdhry and A. Sherman
Year: 1996
Title: International differences in oversubscription and underpricing of IPOs
Journal: Journal of Corporate Finance
Volume: 2
Issue: 4
Pages: 359-381
Short Title: International differences in oversubscription and underpricing of IPOs
ISSN: 0929-1199
Keywords: F30
G24
G32
Initial public offerings
Underpricing
Oversubscription
International IPOs
Abstract: We argue that when the offer price of an initial public offering (IPO) is set many days before the issue closes for bidding by investors, relevant price information leaks and becomes public knowledge before investors have finished bidding for firm's shares. Consequently, there are instances when all investors realize ex ante that the offer price is [`]too low' and we observe a large oversubscription for the firm's shares, as well as instances when the investors realize that the offer price is [`]too high' and the issue fails. If failure is costly, then the offering is underpriced in order to reduce the likelihood that the issue will fail. This is in addition to the underpricing, as suggested in Rock (1986), to compensate the uninformed investors for the adverse selection problem they face in the allocation of shares. Our argument thus explains why underpricing may be larger in situations when there is information leakage. We further argue that if the issuer collects the interest float on checks deposited by investors for shares they bid, this interest revenue reduces the cost associated with underpricing and thus provides an incentive to underprice the issue further. Our analysis explains some stylized facts about differences in oversubscription and underpricing across countries and allows us to explore some empirical and policy implications. For instance, we show that the method used in the United Kingdom and in most Asian countries may lead to more underpricing and more extreme levels of oversubscription than the method used for firm commitment offerings in the United States.
Notes: doi: DOI: 10.1016/0929-1199(96)00002-8
URL: http://www.sciencedirect.com/science/article/B6VFK-3Y2GCW8-G/2/6164b95490ca287dcb6422e19383587b
Reference Type: Journal Article
Record Number: 29249
Author: A. A. Christie, M. P. Joye and R. L. Watts
Year: 2003
Title: Decentralization of the firm: theory and evidence
Journal: Journal of Corporate Finance
Volume: 9
Issue: 1
Pages: 3-36
Short Title: Decentralization of the firm: theory and evidence
ISSN: 0929-1199
Keywords: Decentralization
Organization design
Decision rights
Abstract: Value maximization requires either that knowledge is transferred to those with the right to make decisions, or that decision rights are transferred to those who have the knowledge. A tradeoff of knowledge transfer costs and control costs is required. Characteristics of firms' investment opportunity sets (IOSs) that affect knowledge transfer costs and control costs are identified. Testable predictions about the relations between these characteristics and firms' decentralization decisions are developed and tested. The evidence presented is consistent with our predictions and is robust to different ways of measuring variables.
Notes: doi: DOI: 10.1016/S0929-1199(01)00036-0
URL: http://www.sciencedirect.com/science/article/B6VFK-47PCP01-3/2/b84a57bb78905c56c518f2c73d039959
Reference Type: Journal Article
Record Number: 29326
Author: K. H. Chung and J.-K. Kim
Year: 1999
Title: Corporate ownership and the value of a vote in an emerging market
Journal: Journal of Corporate Finance
Volume: 5
Issue: 1
Pages: 35-54
Short Title: Corporate ownership and the value of a vote in an emerging market
ISSN: 0929-1199
Keywords: Voting right
Shapley value
Oceanic game
Ownership structure
Abstract: Empirical evidence suggests that the voting premium in the Korean securities market is strongly related to the structure of corporate ownership. We find that the premium attached to voting stock is positively and significantly associated with the control value of a block of shares held by minority shareholders. We also find that the premium is negatively related to both the fraction of shares that are voting shares and the market value of equity. Empirical results indicate that private benefits of control in Korea are worth about 10% of the value of equity.
Notes: doi: DOI: 10.1016/S0929-1199(98)00014-5
URL: http://www.sciencedirect.com/science/article/B6VFK-3VTSD54-2/2/bb88de2bc684ab881f3bd9c6b7e976a6
Reference Type: Journal Article
Record Number: 29272
Author: R. Chung, M. Firth and J.-B. Kim
Year: 2002
Title: Institutional monitoring and opportunistic earnings management
Journal: Journal of Corporate Finance
Volume: 8
Issue: 1
Pages: 29-48
Short Title: Institutional monitoring and opportunistic earnings management
ISSN: 0929-1199
Keywords: Corporate governance
Institutional investors
Earnings management
Abstract: Investment institutions with substantial shareholdings in a firm have the resources and incentives to monitor and influence management decisions. Whether the institutions actually monitor and exert pressure on managers is an empirical question. Previous studies have reported mixed results on this question. We examine whether large institutional shareholdings in a firm deter earnings management by its managers when those executives otherwise have incentives to increase or decrease reported profits. Using discretionary accounting accruals as the measure of earnings management, we find that the presence of large institutional shareholdings inhibit managers from increasing or decreasing reported profits towards the managers' desired level or range of profits. The evidence is consistent with institutional investors monitoring and constraining the self-serving behavior of corporate managers.
Notes: doi: DOI: 10.1016/S0929-1199(01)00039-6
URL: http://www.sciencedirect.com/science/article/B6VFK-44SJGX0-2/2/a61a05ea96a7a18a7f1a87d24c538b33
Reference Type: Journal Article
Record Number: 29308
Author: C. S. Ciccotello and M. J. Hornyak
Year: 2000
Title: Cooperation via contract: An analysis of research and development agreements
Journal: Journal of Corporate Finance
Volume: 6
Issue: 1
Pages: 1-24
Short Title: Cooperation via contract: An analysis of research and development agreements
ISSN: 0929-1199
Keywords: Joint R&D
Contract design
Reputation
Abstract: We examine research and development (R&D) agreements between government agencies and other organizations. Consistent with theories of contractual "hold up," contracts are longer and more complete when the parties envision a joint product as opposed to when they merely plan to share information. Contracts are less complete when the parties have an ongoing business relationship, suggesting an interaction between reputation and explicit contracting. While our experiment cannot dismiss the possibility that these empirical regularities simply reflect the nature of the parties' joint investment, the findings are consistent with arguments that theories of contracting for tangible inputs also pertain to R&D.
Notes: doi: DOI: 10.1016/S0929-1199(99)00014-0
URL: http://www.sciencedirect.com/science/article/B6VFK-3YS9BS2-2/2/6d6fec6e388c38ad0845f3b5921f04ed
Reference Type: Journal Article
Record Number: 29290
Author: C. S. Ciccotello and C. J. Muscarella
Year: 2001
Title: Contracts between managers and investors: a study of master limited partnership agreements
Journal: Journal of Corporate Finance
Volume: 7
Issue: 1
Pages: 1-23
Short Title: Contracts between managers and investors: a study of master limited partnership agreements
ISSN: 0929-1199
Keywords: Contract design
Master limited partnerships
Organizational changes
Abstract: We analyze a sample of 119 master limited partnership agreements to examine the linkages between the contractual design and performance of organizations. Consistent with either efficient self-selection or focus arguments, partnerships that contractually limit their scope of operations tend to have superior industry-adjusted operating performance. We also find that contracting can substitute for equity ownership as a control mechanism. Partnerships with agreements unfavorable to investors tend to have higher proportions of insider equity ownership, compared to those with agreements more protective of investors.
Notes: doi: DOI: 10.1016/S0929-1199(00)00017-1
URL: http://www.sciencedirect.com/science/article/B6VFK-42MFFPR-1/2/86a87301be9af90e5bb6cfee8cf992c1
Reference Type: Journal Article
Record Number: 29164
Author: M. S. Cichello
Year: 2005
Title: The impact of firm size on pay-performance sensitivities
Journal: Journal of Corporate Finance
Volume: 11
Issue: 4
Pages: 609-627
Short Title: The impact of firm size on pay-performance sensitivities
ISSN: 0929-1199
Keywords: Incentives
Firm size
Managerial ownership
Abstract: Previous work by Aggarwal and Samwick [Aggarwal, R., Samwick, A., 1999. The other side of the tradeoff: the impact of risk on executive compensation. Journal of Political Economy 107 pp. 65-105] has documented the importance of controlling for the variance of firm stock returns when estimating pay-performance sensitivities. They find that pay-performance sensitivities are an order of magnitude greater for small vs. large variance firms. Using a comparable sample of CEOs, I provide evidence that when properly controlling for firm size, the negative effect of variance in stock returns on estimated pay-performance sensitivities is greatly diminished. In particular, when using dollar returns as the measure of firm performance, it is imperative to properly control for firm size.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.09.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4GNKRFP-1/2/20595dd556110d7b065d41a37b838f45
Reference Type: Journal Article
Record Number: 29222
Author: J. E. Clarke, C. E. Fee and S. Thomas
Year: 2004
Title: Corporate diversification and asymmetric information: evidence from stock market trading characteristics
Journal: Journal of Corporate Finance
Volume: 10
Issue: 1
Pages: 105-129
Short Title: Corporate diversification and asymmetric information: evidence from stock market trading characteristics
ISSN: 0929-1199
Keywords: Diversification
Asymmetric information
Adverse selection
Abstract: We examine the relation between firm diversification and asymmetric information empirically using metrics drawn from the market microstructure literature. We find that the average diversified firm in our sample has somewhat less severe asymmetric information problems than a similarly constructed portfolio of stand-alone firms chosen to approximate the segments of the conglomerate. We also find that the information asymmetry of diversified firms is very similar to that of individual focused firms that approximate the conglomerates along several dimensions not including industry composition. We conclude that greater diversification is not on average associated with increased asymmetric information.
Notes: doi: DOI: 10.1016/S0929-1199(02)00050-0
URL: http://www.sciencedirect.com/science/article/B6VFK-4B5GNVV-3/2/8086784c58114d55ca17b63dbe5866ea
Reference Type: Journal Article
Record Number: 29010
Author: C. P. Clifford
Year: 2008
Title: Value creation or destruction? Hedge funds as shareholder activists
Journal: Journal of Corporate Finance
Volume: 14
Issue: 4
Pages: 323-336
Short Title: Value creation or destruction? Hedge funds as shareholder activists
ISSN: 0929-1199
Keywords: Shareholder activism
Corporate governance
Monitoring
Hedge funds
Abstract: I examine the effects of shareholder activism by hedge funds from 1998-2005. When hedge funds accumulate more than 5% of a firm, they must file a regulatory disclosure with the SEC that indicates whether their investment intentions are active or passive. Firms which are targeted by hedge funds for active purposes earn larger excess stock returns and improvements in operating performance (ROA) than a control group of firms that are targeted by the same hedge funds for passive purposes. These operational improvements appear to be driven by the divestiture of under-performing assets. I examine the organizational structure of the hedge funds and find that funds engaging in activism are more likely to have longer lock-ups and withdrawal notification periods than their non-activist peers; indicating that liquidity concerns may be an important determinant in the efficacy of activism. Finally, I document that the returns to the hedge fund are larger for their active blocks than their passive blocks, indicating that activist shareholders may use higher returns to mitigate the cost of their monitoring effort.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.04.007
URL: http://www.sciencedirect.com/science/article/B6VFK-4SFS0K8-1/2/c20b83a9ec573007d9eaa807686c7db7
Reference Type: Journal Article
Record Number: 29330
Author: J. W. Coles and W. S. Hesterly
Year: 1998
Title: Transaction costs, quality, and economies of scale: examining contracting choices in the hospital industry
Journal: Journal of Corporate Finance
Volume: 4
Issue: 4
Pages: 321-345
Short Title: Transaction costs, quality, and economies of scale: examining contracting choices in the hospital industry
ISSN: 0929-1199
Keywords: Organization
Contracting
Hospitals
Abstract: This study examines make or buy decisions for 196 hospitals in the United States using transaction costs as the basis for analysis. We examine the potential effects of quality and economies of scale on these decisions. We find evidence to support the view that transaction costs, quality and economies of scale play an important role in the integration decision and that this role depends on whether the transaction is industry-specific or generic in nature. This study examines the contracting choices of many firms across multiple transactions with a significantly larger data set than previous work in the area.
Notes: doi: DOI: 10.1016/S0929-1199(98)00011-X
URL: http://www.sciencedirect.com/science/article/B6VFK-3V5VTYC-2/2/55b97b411e3b3714a372a502ec6cbbed
Reference Type: Journal Article
Record Number: 29084
Author: C. D. Collver
Year: 2007
Title: Is there less informed trading after regulation fair disclosure?
Journal: Journal of Corporate Finance
Volume: 13
Issue: 2-3
Pages: 270-281
Short Title: Is there less informed trading after regulation fair disclosure?
ISSN: 0929-1199
Keywords: Earning announcements
Informed trading
Regulation
Summary informativeness
Abstract: I provide new tests of regulatory impact on informed trading in the stock market. After the implementation of Reg FD there is a significant decrease in the Hasbrouck [Hasbrouck, J., 1991a. The summary informativeness of stock trades: an econometric analysis. Review of Financial Studies 4, 571-595.] summary informativeness statistic, a measure of informed trading based on intra-daily trade level data. But, the switch to decimalization on the New York Stock Exchange has a much larger impact on this measure. These results highlight the difficulty in attributing specific effects to broad based regulatory events.
Notes: doi: DOI: 10.1016/j.jcorpfin.2006.11.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4MM8BBN-1/2/cbafdcb324e0c121f56490aeeef8d341
Reference Type: Journal Article
Record Number: 29134
Author: M. J. Conyon and L. E. Read
Year: 2006
Title: A model of the supply of executives for outside directorships
Journal: Journal of Corporate Finance
Volume: 12
Issue: 3
Pages: 645-659
Short Title: A model of the supply of executives for outside directorships
ISSN: 0929-1199
Keywords: Corporate governance
Firm performance
Boards of directors
Abstract: Why do firms allow their executives to accept outside directorships? Are firms acting in the best interests of their shareholders by allowing them to do so? We develop a theoretical model where accepting an outside directorship alters the CEO's effect on the value of the home firm. Our model illustrates that executives will choose to spend more time on external directorships than is optimal for the home firm. Our theoretical model is consistent with other recent empirical finance research on the effects of external directorships.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.08.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4H5DY8V-1/2/64f7141dd8646813897193967492ab75
Reference Type: Journal Article
Record Number: 28973
Author: D. O. Cook and T. Tang
Title: Macroeconomic conditions and capital structure adjustment speed
Journal: Journal of Corporate Finance
Volume: In Press, Corrected Proof
Short Title: Macroeconomic conditions and capital structure adjustment speed
ISSN: 0929-1199
Keywords: Dynamic capital structure
Speed of adjustment
Macroeconomic conditions
Abstract: Using two dynamic partial adjustment capital structure models to estimate the impact of several macroeconomic factors on the speed of capital structure adjustment toward target leverage, we find evidence that firms adjust their leverage toward target faster in good macroeconomic states relative to bad states. This evidence holds whether or not firms are subject to financial constraints. Our results are robust to an alternative method of calculating states and to omitting zero-debt boundary firms and are not driven by firm size, deviation from target, or leverage definitions.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.02.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4VRH57R-1/2/50e7d44bb1a083e63e3024939639dc7e
Reference Type: Journal Article
Record Number: 29052
Author: K. Cools and C. Mirjam van Praag
Year: 2007
Title: The value relevance of top executive departures: Evidence from the Netherlands
Journal: Journal of Corporate Finance
Volume: 13
Issue: 5
Pages: 721-742
Short Title: The value relevance of top executive departures: Evidence from the Netherlands
ISSN: 0929-1199
Keywords: Top management departure
Dismissal
Corporate governance
Internal monitoring
Value relevance
Abstract: On theoretical grounds, monitoring of top executives by the (supervisory) board is expected to be value relevant. The empirical evidence is ambiguous and we analyze three non-competing explanations for this ambiguity: (i) The positive effect on firm value of board monitoring is hidden in stock price effects due to the simultaneous occurrence of the positive real effect of monitoring and the opposing information effect. (ii) The combination of board monitoring and monitoring by other parties prevents assessing the value relevance of board monitoring in isolation. (iii) The confounding effect of a simultaneous successor appointment typically generates an upward biased estimate. Based on an analysis of price effects and trading volumes at announcement, we conclude that monitoring by the supervisory board is valued by investors: Forced departures of executive directors, also without a successor appointment, are value relevant in the Netherlands where external control mechanisms and shareholder control were virtually absent in the period studied (1991-2000).
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.04.012
URL: http://www.sciencedirect.com/science/article/B6VFK-4NKXWH2-1/2/a850405731bdd9b1d701ebe073bfa89a
Reference Type: Journal Article
Record Number: 29190
Author: M. J. Cooper, A. Khorana, I. Osobov, A. Patel and P. R. Rau
Year: 2005
Title: Managerial actions in response to a market downturn: valuation effects of name changes in the dot.com decline
Journal: Journal of Corporate Finance
Volume: 11
Issue: 1-2
Pages: 319-335
Short Title: Managerial actions in response to a market downturn: valuation effects of name changes in the dot.com decline
ISSN: 0929-1199
Keywords: Name changes
Valuation effects
Inefficient markets
Internet firms
Dot.com bubble
Abstract: We investigate stock price reactions to Internet-related name changes in a market downturn. In contrast to the Internet boom period, during which there was a surge of dot.com additions, in the bust period, there is a dramatic reduction in the pace of dot.com additions accompanied by a rapid increase in dot.com name deletions. Following the Internet "crash" of mid-2000, investors react positively to name changes for firms that remove dot.com from their name. This dot.com deletion effect produces cumulative abnormal returns on the order of 64% for the 60 days surrounding the announcement day. Our results add support to a growing body of literature that documents that investors are potentially influenced by cosmetic effects and that managers rationally time corporate actions to take advantage of these biases.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.02.005
URL: http://www.sciencedirect.com/science/article/B6VFK-4CYR07H-1/2/01d96aa15d19328f3e10336a20f57237
Reference Type: Journal Article
Record Number: 29219
Author: B. Cornell
Year: 2004
Title: Compensation and recruiting: private universities versus private corporations
Journal: Journal of Corporate Finance
Volume: 10
Issue: 1
Pages: 37-52
Short Title: Compensation and recruiting: private universities versus private corporations
ISSN: 0929-1199
Keywords: Corporate finance
Executive compensation
Principal
Agent
Abstract: This paper attempts to shed light on the continuing debate regarding executive compensation by comparing the income of S&P 500 CEOs with that of the presidents of elite private universities. The results reveal that university presidents are paid only a fraction of what CEOs are paid less than 5% in 2000. Nonetheless, universities are able to attract leaders with qualifications and accomplishments equivalent to that of the most distinguished CEOs. Furthermore, university presidents appear to be willing to work as hard and as much in the interests of their constituents as corporate CEOs despite the lack of any meaningful incentive clauses in their contracts. These results suggest that the standard principal-agent model used in evaluating compensation needs to be extended significantly before it can be applied to situations in which a few select people are recruited for highly paid jobs that offer the chance to lead major institutions.
Notes: doi: DOI: 10.1016/S0929-1199(02)00025-1
URL: http://www.sciencedirect.com/science/article/B6VFK-48N3HF3-1/2/4b2a828c668d79985934148a891a3cd9
Reference Type: Journal Article
Record Number: 29276
Author: B. Cornell and Q. Liu
Year: 2001
Title: The parent company puzzle: when is the whole worth less than one of the parts?
Journal: Journal of Corporate Finance
Volume: 7
Issue: 4
Pages: 341-366
Short Title: The parent company puzzle: when is the whole worth less than one of the parts?
ISSN: 0929-1199
Keywords: Parent company puzzle
Taxes
Mispricing
Abstract: This paper examines seven instances in which the market value of a parent company was less than the market value of its publicly traded subsidiary. Efforts are made to explain this "parent company puzzle" in terms of taxes, agency costs, liquidity effects and noise trader risk. None of them work. The only explanation consistent with the evidence is a mispricing of the subsidiary shares associated with noise trader demand and impediments to arbitrage. As further evidence in support of this view, five corporate control transactions, all designed to exploit the apparent mispricing, were initiated while this research was in progress.
Notes: doi: DOI: 10.1016/S0929-1199(01)00025-6
URL: http://www.sciencedirect.com/science/article/B6VFK-44B1WWV-1/2/9c8c3abd251a215c190ea6359f6316cb
Reference Type: Journal Article
Record Number: 28961
Author: M. M. Cornett, J. J. McNutt and H. Tehranian
Title: Corporate governance and earnings management at large U.S. bank holding companies
Journal: Journal of Corporate Finance
Volume: In Press, Corrected Proof
Short Title: Corporate governance and earnings management at large U.S. bank holding companies
ISSN: 0929-1199
Keywords: Corporate governance
Earnings management
Financial performance
Financial institutions
Abstract: This paper examines whether corporate governance mechanisms affect earnings and earnings management at the largest publicly traded bank holding companies in the United States. We first find that performance, earnings management, and corporate governance are endogenously determined. Thus, OLS estimation can lead to biased coefficients and a simultaneous equations approach is used. We find that CEO pay-for-performance sensitivity (PPS), board independence, and capital are positively related to earnings and that earnings, board independence, and capital are negatively related to earnings management. We also find that PPS is positively related to earnings management. Finally, PPS and board independence are positively related and the relationship is bidirectional. While both PPS and board independence are associated with higher earnings, our results indicate that more independent boards appear to constrain the earnings management that greater PPS compels.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.04.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4W7B0CT-1/2/9ea384cc86d2ea39d4fb063393c2a92e
Reference Type: Journal Article
Record Number: 29257
Author: S. R. Cox and D. M. Roden
Year: 2002
Title: The source of value of voting rights and related dividend promises
Journal: Journal of Corporate Finance
Volume: 8
Issue: 4
Pages: 337-351
Short Title: The source of value of voting rights and related dividend promises
ISSN: 0929-1199
Keywords: Voting rights
Dual-class
Ownership structure
Dividends
Abstract: This paper examines the relative share pricing of 98 firms with two classes of common stock trading in the United States from 1984 to 1999. The firms feature common stock classes with differential voting rights and, in some cases, differential rights to dividends. The observed voting premiums are higher than those reported in previous studies of U.S. firms and are dependent on the form of dividend promise to the low-vote shareholder. The voting premium is higher in the presence of a control threat, when insiders do not hold controlling voting power, and during periods of poor firm performance.
Notes: doi: DOI: 10.1016/S0929-1199(01)00051-7
URL: http://www.sciencedirect.com/science/article/B6VFK-46FJ8G1-3/2/3b88920d6812016f4baa848a2f5ca857
Reference Type: Journal Article
Record Number: 29076
Author: R. Cressy, F. Munari and A. Malipiero
Year: 2007
Title: Playing to their strengths? Evidence that specialization in the private equity industry confers competitive advantage
Journal: Journal of Corporate Finance
Volume: 13
Issue: 4
Pages: 647-669
Short Title: Playing to their strengths? Evidence that specialization in the private equity industry confers competitive advantage
ISSN: 0929-1199
Keywords: Buyouts
Private equity
Performance
Specialization
Abstract: The paper examines whether private equity (PE)-backed buyouts have higher post-buyout operating profitability than comparable companies as a result of the alleged superior governance mechanism of private equity ("The Jensen hypothesis") and whether relative investment specialisation by industry or stage provides the PE firm with a competitive advantage over its peers ("The advantages-to-specialization hypotheses"). A sample of 122 UK buyouts over the period 1995-2002 and a matched sample of non-PE-backed UK companies are constructed to test the three hypotheses. We find that over the first 3 post-buyout years (i) operating profitability of PE-backed companies is greater than those of comparable companies by 4.5%, consistently with the Jensen hypothesis; (ii) industry specialization of PE firms adds 8.5% to this premium, consistently with the industry-specialization hypothesis; (iii) stage (buyout) specialization does not impact profitability but may provide a spur to growth, inconsistently with the stage-specialization hypothesis. Finally, initial profitability of the PE-backed company plays a major role in post-buyout profitability, suggesting that skill in investment selection and financial engineering techniques may be more important than managerial incentives in generating higher PE company performance.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.04.007
URL: http://www.sciencedirect.com/science/article/B6VFK-4NRCRRS-2/2/9b92bfee63dda809910ed8b81728e41a
Reference Type: Journal Article
Record Number: 29044
Author: M. Cucculelli and G. Micucci
Year: 2008
Title: Family succession and firm performance: Evidence from Italian family firms
Journal: Journal of Corporate Finance
Volume: 14
Issue: 1
Pages: 17-31
Short Title: Family succession and firm performance: Evidence from Italian family firms
ISSN: 0929-1199
Keywords: Family successions
Family firms
Founder-run firms
Abstract: This article contributes to the growing empirical literature on family firms by studying the impact of the founder-chief executive officer (CEO) succession in a sample of Italian firms. We contrast firms that continue to be managed within the family by the heirs to the founders with firms in which the management is passed on to outsiders. Family successions, that is, successions by the founder's heirs, are further analyzed by assessing the impact of the sectoral intensity of competition on the post-succession performance. This analysis also addresses the endogeneity in the timing of the CEO succession by controlling for a pure mean-reversion effect in the firm's performance. We find that the maintenance of management within the family has a negative impact on the firm's performance, and this effect is largely borne by the good performers, especially in the more competitive sectors. These results indicate that there is no inherent superiority of the family-firm structure and emphasize the importance of conducting an analysis of governance in a variety of institutional settings.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.11.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4R8NB8C-1/2/f380fd50ba4e2db6c3ca34110745cbbc
Reference Type: Journal Article
Record Number: 29256
Author: H. Cui and Y. T. Mak
Year: 2002
Title: The relationship between managerial ownership and firm performance in high R&D firms
Journal: Journal of Corporate Finance
Volume: 8
Issue: 4
Pages: 313-336
Short Title: The relationship between managerial ownership and firm performance in high R&D firms
ISSN: 0929-1199
Keywords: Managerial ownership
Firm performance
Tobin's Q, R&D
High-tech firms
Abstract: Several studies have examined the relationship between managerial ownership and firm performance/value (e.g., [Journal of Financial Economics 20 (1988) 293; Journal of Financial Economics 27 (1990) 595; Journal of Corporate Finance 5 (1999) 79]). Using different samples, these studies provide general support for the argument that increases in managerial ownership create countervailing interest alignment and entrenchment effects, leading to a nonlinear relationship between managerial ownership and firm performance. However, the actual form of this nonlinear relationship differs across the studies. The present paper examines the relationship between managerial ownership and performance for high R&D firms that are listed on the NYSE, AMEX and NASDAQ. We find that Tobin's Q initially declines with managerial ownership, then increases, then declines again and, finally, increases again--a W-shaped relationship. The findings from our study point to the importance of industry effects in the relationship between managerial ownership and firm performance.
Notes: doi: DOI: 10.1016/S0929-1199(01)00047-5
URL: http://www.sciencedirect.com/science/article/B6VFK-46FJ8G1-2/2/70463aa5a47ed39fed3811b450e89bec
Reference Type: Journal Article
Record Number: 29139
Author: D. Cumming, G. Fleming and A. Schwienbacher
Year: 2006
Title: Legality and venture capital exits
Journal: Journal of Corporate Finance
Volume: 12
Issue: 2
Pages: 214-245
Short Title: Legality and venture capital exits
ISSN: 0929-1199
Keywords: Venture capital
Exits
IPO
Acquisition
Law and finance
Abstract: This paper introduces an analysis of the impact of Legality on the exiting of venture capital investments. We consider a sample of 468 venture-backed companies from 12 Asia-Pacific countries, and these countries' venture capitalists' investments in US-based entrepreneurial firms. The data indicate IPOs are more likely in countries with a higher Legality index. This core result is robust to controls for country-specific stock market capitalization, MSCI market conditions, venture capitalist fund manager skill and fund characteristics, and entrepreneurial firm and transaction characteristics. Although Black and Gilson (1998) [Black, B.S., Gilson, R.J., 1998. Venture capital and the structure of capital markets: banks versus stock markets. Journal of Financial Economics 47, 243-77] speculate on a central connection between active stock markets and active venture capital markets, our data in fact indicate the quality of a country's legal system is much more directly connected to facilitating VC-backed IPO exits than the size of a country's stock market. The data indicate Legality is a central mechanism which mitigates agency problems between outside shareholders and entrepreneurs, thereby fostering the mutual development of IPO markets and venture capital markets.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.12.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4H74M1V-1/2/6442d3c795945ef4665c08e219d8ce52
Reference Type: Journal Article
Record Number: 29068
Author: D. Cumming, D. S. Siegel and M. Wright
Year: 2007
Title: Private equity, leveraged buyouts and governance
Journal: Journal of Corporate Finance
Volume: 13
Issue: 4
Pages: 439-460
Short Title: Private equity, leveraged buyouts and governance
ISSN: 0929-1199
Keywords: Management buyouts
Private equity
Total factor productivity
Financial and real returns
Corporate governance
Abstract: This paper provides an overview of the literature on private equity and leveraged buyouts, focusing on global evidence related to both governance and returns to private equity and leveraged buyouts. We distinguish between financial and real returns to this activity, where the latter refers to productivity and broader performance measures. We also outline a research agenda on this topic.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.04.008
URL: http://www.sciencedirect.com/science/article/B6VFK-4NT93SB-1/2/90e4f427a553e49f9ab6f68f78710646
Reference Type: Journal Article
Record Number: 29176
Author: D. J. Cumming
Year: 2005
Title: Capital structure in venture finance
Journal: Journal of Corporate Finance
Volume: 11
Issue: 3
Pages: 550-585
Short Title: Capital structure in venture finance
ISSN: 0929-1199
Keywords: Venture capital
Capital structure
Financial contracting
Abstract: Prior research has argued that convertible preferred equity is the optimal form of venture capital (VC) finance, based on datasets with up to 213 observations from the United States, where unique tax biases exist in favor of convertible preferred. This paper introduces a comparable sample of 3083 Canadian corporate and limited partnership venture financing transactions spanning the years 1991-2000. The data indicate that a variety of securities are used, and convertible preferred equity has not been the most frequent. Empirical tests offer strong support for the proposition that the mix of financing instruments minimizes the costs arising from a set of agency problems.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.02.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4C83CWR-1/2/d8d6477f7021967d80a7871f6a890d2e
Reference Type: Journal Article
Record Number: 29075
Author: C. J. Cuny and E. Talmor
Year: 2007
Title: A theory of private equity turnarounds
Journal: Journal of Corporate Finance
Volume: 13
Issue: 4
Pages: 629-646
Short Title: A theory of private equity turnarounds
ISSN: 0929-1199
Keywords: Private equity
Takeovers
Leverage buyouts
Corporate governance
Abstract: This paper explores the advantage of private equity in fixing turnaround situations. Meaningful corporate value creation may require addressing operational problems, replacing management, or changing the incentive structure. Change may be implemented under either without change of ownership or through a buyout. The paper derives scenarios under which transferring ownership to private equity prior to implementing a turnaround can emerge as an optimal solution, even when current ownership can conceivably implement the same operational changes as private equity. Also considered is the possibility of investment syndication in which the private equity buyer shares the transaction with other private equity firms. Various alternatives are considered for implementing turnarounds; in particular, ones that allow for management replacement and others that are effectively management buyouts.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.04.006
URL: http://www.sciencedirect.com/science/article/B6VFK-4NRMD5N-1/2/82f25cdd56dfe10d81a650714c434116
Reference Type: Journal Article
Record Number: 29239
Author: S. Dahiya and D. Yermack
Year: 2003
Title: Litigation exposure, capital structure and shareholder value: the case of Brooke Group
Journal: Journal of Corporate Finance
Volume: 9
Issue: 3
Pages: 271-294
Short Title: Litigation exposure, capital structure and shareholder value: the case of Brooke Group
ISSN: 0929-1199
Keywords: Tobacco
Litigation
Capital structure
Plea bargaining
Abstract: We examine value creation and destruction in the tobacco industry due to the radical litigation strategy of Brooke Group CEO Bennett LeBow. Brooke Group had tiny market share, low margins, high leverage and highly concentrated management ownership. Beginning in 1996, the firm reached settlements in lawsuits brought against all cigarette companies by class action plaintiffs and US state governments. Brooke Group's actions, which included promises to cooperate in litigation against its rivals, spurred other companies to reach settlements on less favorable terms. These events led to massive wealth destruction within the industry but impressive returns for shareholders of Brooke Group.
Notes: doi: DOI: 10.1016/S0929-1199(02)00008-1
URL: http://www.sciencedirect.com/science/article/B6VFK-45N85BY-1/2/dba75d8b1a8d4aa6361c32d419d1fbf0
Reference Type: Journal Article
Record Number: 28992
Author: S. Dahiya and D. Yermack
Year: 2008
Title: You can't take it with you: Sunset provisions for equity compensation when managers retire, resign, or die
Journal: Journal of Corporate Finance
Volume: 14
Issue: 5
Pages: 499-511
Short Title: You can't take it with you: Sunset provisions for equity compensation when managers retire, resign, or die
ISSN: 0929-1199
Keywords: Executive stock options
Vesting
Forfeiture
Abstract: Company stock option plans have diverse "sunset" policies for modifying terms of options held by managers who exit the firm. In our S&P 500 sample, these forfeiture, vesting, and expiration provisions are less generous in companies characterized by fast growth, dependence on skilled human capital, and high strategic interaction with competitors. While these results apply for workers who retire at the end of their careers, almost no variation exists in the treatment of workers who resign with the possibility of working elsewhere. For CEOs over age 60, companies' sunset rules imply large discounts to option award values and estimates of total compensation.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.08.006
URL: http://www.sciencedirect.com/science/article/B6VFK-4T8YSTJ-1/2/e911a029ddf720e1325b61d5b98fd8d2
Reference Type: Journal Article
Record Number: 29179
Author: J. Dahya and J. J. McConnell
Year: 2005
Title: Outside directors and corporate board decisions
Journal: Journal of Corporate Finance
Volume: 11
Issue: 1-2
Pages: 37-60
Short Title: Outside directors and corporate board decisions
ISSN: 0929-1199
Keywords: Cadbury
CEO
Directors
Governance
UK
Abstract: Between 1993 and 2000, at least 18 countries saw publication of guidelines proposing minimum representation of outside directors on corporate boards. Underlying this movement is an apparent presumption that boards with significant outside directors will make different and, perhaps, better decisions than boards dominated by insiders. As the first-mover in this movement, the United Kingdom provides a laboratory for a "natural experiment" to examine this presumption empirically. We find that UK boards that complied with the exogenously imposed standard were more likely to appoint outside chief executive officers (CEOs). Additionally, announcement period stock returns indicate that investors appear to view appointments of outside CEOs as good news. Apparently, boards with more outside directors make different (and perhaps better) decisions.
Notes: doi: DOI: 10.1016/j.jcorpfin.2003.10.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4BN0NH6-1/2/e6fd6a9994d871422eab864ba87d895f
Reference Type: Journal Article
Record Number: 29072
Author: N. Dai
Year: 2007
Title: Does investor identity matter? An empirical examination of investments by venture capital funds and hedge funds in PIPEs
Journal: Journal of Corporate Finance
Volume: 13
Issue: 4
Pages: 538-563
Short Title: Does investor identity matter? An empirical examination of investments by venture capital funds and hedge funds in PIPEs
ISSN: 0929-1199
Keywords: Venture capital funds
Hedge funds
Private investments in public equity
Abstract: I examine the emerging phenomenon of PIPEs (private investments in public equity) invested by venture capital funds (VCs) and hedge funds (HFs) and analyze whether and how these investors add value to firms by comparing a sample of 113 VC-invested PIPEs to a sample of 397 PIPEs with HFs. I find that VCs gain substantial ownership, request board seats, and often keep their stake after the PIPEs. In contrast, HFs rarely join the board of directors and typically cash out their positions shortly after the PIPE. The stock performance of VC-invested firms is significantly better than HF-invested firms both in the short run and in the long run. The positive valuation effect of having VCs as PIPE investors appears to be a certification effect rather than a monitoring effect. A key implication from these findings is that investor identity matters.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.04.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4NNPCD6-2/2/2974d2ba974263a3f119b670fe39a062
Reference Type: Journal Article
Record Number: 29147
Author: A. Damodaran, K. John and C. H. Liu
Year: 2005
Title: What motivates managers?: Evidence from organizational form changes
Journal: Journal of Corporate Finance
Volume: 12
Issue: 1
Pages: 1-26
Short Title: What motivates managers?: Evidence from organizational form changes
ISSN: 0929-1199
Keywords: Organizational form
Ownership structure
Corporate governance
Restructuring
Abstract: We formulate and test several hypotheses on managerial motivation using organizational form changes in the real estate industry. We find that firms that switch to a more restrictive structure have increases in stock value and managerial ownership. Firms moving to a less restrictive structure have larger wealth effects when higher monitoring exists. Higher degree of financial distress and forced CEO replacement at the time of organizational form change are taken to be proxies for higher degree of (creditor) monitoring. The wealth effects are decreasing in the firm's level of free cash flow at the time of organizational form change.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.03.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4FG89D4-1/2/4ec3a1246f67cfddfd32b1425c58a03d
Reference Type: Journal Article
Record Number: 28964
Author: K. Daniels, D. Diro Ejara and J. Vijayakumar
Title: An empirical analysis of the determinants and pricing of corporate bond clawbacks
Journal: Journal of Corporate Finance
Volume: In Press, Corrected Proof
Short Title: An empirical analysis of the determinants and pricing of corporate bond clawbacks
ISSN: 0929-1199
Keywords: financial innovation
covenants
clawback
dilution
corporate control
Abstract: This paper presents empirical analysis of the factors that affect a firm's decision to use a clawback provision in debt and the yield impact of including the clawback provision. The results show that relatively smaller firms with low credit rating and low profitability favor the usage of clawback provisions. We also find that debt with clawback provisions have the highest yield spread followed by callable bonds and straight debt. Convertible bonds that offer investors the option to convert to equity have lower yield spread. This implies that issuers can trade off flexibility for higher interest cost and that the clawback feature may be a significant financial innovation which reduces information asymmetry and creates an entry point for small firms to gain access to the public bond markets.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.03.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4W0WJ4G-1/2/1cf641651b1754eefc4c9dee2b0fec91
Reference Type: Journal Article
Record Number: 29331
Author: M. G. Danielson and J. M. Karpoff
Year: 1998
Title: On the uses of corporate governance provisions
Journal: Journal of Corporate Finance
Volume: 4
Issue: 4
Pages: 347-371
Short Title: On the uses of corporate governance provisions
ISSN: 0929-1199
Keywords: Corporate governance
Charter amendments
Poison pills
Antitakeover laws
Abstract: We document a large and broad-based increase in the use of corporate governance provisions in the late 1980s. As a result, most large publicly traded firms have complex governance structures. This violates an assumption implicit in many empirical studies that provision use is mutually independent. While overall provision use is not systematically related to industry grouping, the uses of some types of provisions are correlated. Most notably, supermajority vote requirements, classified boards, and shareholder meeting requirements tend to be used in concert. Firms reincorporating to Delaware tend to eliminate cumulative voting, and coverages by certain types of state antitakeover laws are correlated. We also find that firms with poison pills tend to have relatively high institutional ownership, low managerial ownership, and a high proportion of independent directors.
Notes: doi: DOI: 10.1016/S0929-1199(98)00012-1
URL: http://www.sciencedirect.com/science/article/B6VFK-3V5VTYC-3/2/6fc24fbe66464855784ba69280370663
Reference Type: Journal Article
Record Number: 29130
Author: M. G. Danielson and J. M. Karpoff
Year: 2006
Title: Do pills poison operating performance?
Journal: Journal of Corporate Finance
Volume: 12
Issue: 3
Pages: 536-559
Short Title: Do pills poison operating performance?
ISSN: 0929-1199
Keywords: Poison pill
Takeover defense
Operating performance
Abstract: Contrary to arguments that poison pills degrade firm performance, we find that operating performance modestly improves during the 5-year period after pill adoption. Performance improvements are present in a wide range of firms, and are independent of adoption year and whether the firm is R&D intensive. Although recent arguments suggest that the protection offered by pills is strongest when combined with a staggered board, the performance changes also are unrelated to board structure. This evidence undermines the widely held view that poison pills have systematically negative effects on firm performance.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.10.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4J146M3-1/2/46de233a03e738c5ac1c70e92f87a82a
Reference Type: Journal Article
Record Number: 29131
Author: H. Daouk, C. M. C. Lee and D. Ng
Year: 2006
Title: Capital market governance: How do security laws affect market performance?
Journal: Journal of Corporate Finance
Volume: 12
Issue: 3
Pages: 560-593
Short Title: Capital market governance: How do security laws affect market performance?
ISSN: 0929-1199
Keywords: Capital market governance
Insider trading
Earnings opacity
Short-selling constraints
Market performance
Abstract: This paper examines the link between capital market governance (CMG) and several key measures of market performance. Using detailed data from individual stock exchanges, we develop a composite CMG index that captures three dimensions of security laws: the degree of earnings opacity, the enforcement of insider laws, and the effect of removing short-selling restrictions. We find that improvements in the CMG index are associated with decreases in the cost-of-equity capital (both implied and realized), increases in market liquidity (trading volume, market depth, and U.S. foreign investments), and increases in market pricing efficiency (reduced price synchronicity and IPO underpricing). The results are quite consistent across individual components of CMG and over alternative market performance measures.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.03.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4GPW3DX-1/2/8e86db047173687cc737a86f8622b84d
Reference Type: Journal Article
Record Number: 29166
Author: J. R. Davies, D. Hillier and P. McColgan
Year: 2005
Title: Ownership structure, managerial behavior and corporate value
Journal: Journal of Corporate Finance
Volume: 11
Issue: 4
Pages: 645-660
Short Title: Ownership structure, managerial behavior and corporate value
ISSN: 0929-1199
Keywords: Ownership structure
Capital expenditure
Corporate value
Tobin's Q
Abstract: The nonlinear relationship between corporate value and managerial ownership is well documented. This has been attributed to the onset of managerial entrenchment, which results in a decrease of corporate value for increasing levels of managerial holdings. We propose a new structure for this relationship that accounts for the effect of conflicting managerial incentives, and external and internal disciplinary monitoring mechanisms. Using this specification as the basis for our analysis, we provide evidence that the managerial ownership-corporate value relationship is co-deterministic. This finding is at odds with recent work which reports that corporate value determines managerial ownership but not vice-versa.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.07.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4G0B77X-1/2/42e0e2d138cba923c42e1663b31a4c1e
Reference Type: Journal Article
Record Number: 29173
Author: A. de Jong, D. V. DeJong, G. Mertens and C. E. Wasley
Year: 2005
Title: The role of self-regulation in corporate governance: evidence and implications from The Netherlands
Journal: Journal of Corporate Finance
Volume: 11
Issue: 3
Pages: 473-503
Short Title: The role of self-regulation in corporate governance: evidence and implications from The Netherlands
ISSN: 0929-1199
Keywords: International economics
Financial economics
Law and economics
Corporate governance
Regulation
Abstract: This paper studies The Netherlands' private sector self-regulation initiative ("The Peters Committee") to improve corporate governance practices. We examine the relation between firm value and corporate governance characteristics before and after the private sector initiative. We find the initiative had no effect on corporate governance characteristics or their relationship with firm value. Event study results suggest the market was skeptical about the success of self-regulation of corporate governance practices in The Netherlands. Our results on The Netherlands self-regulation initiative suggest little should be expected from initiatives that rely on monitoring without enforcement (e.g., similar or weaker initiatives in other European Union (EU) countries).
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.01.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4C7VY3X-1/2/9b859f0fafe376b9c24df70d766eb006
Reference Type: Journal Article
Record Number: 29035
Author: H. de La Bruslerie and C. Deffains-Crapsky
Year: 2008
Title: Information asymmetry, contract design and process of negotiation: The stock options awarding case
Journal: Journal of Corporate Finance
Volume: 14
Issue: 2
Pages: 73-91
Short Title: Information asymmetry, contract design and process of negotiation: The stock options awarding case
ISSN: 0929-1199
Keywords: Stock options
Optimal incentive contract
Asymmetry of information
Negotiation
Managerial power
Abstract: Stock option plans are used to increase managerial incentives, and business practices usually set the exercise price equal to the stock market price. The purpose of this paper is to underline the importance of a process of negotiation leading to a possible equilibrium contract satisfying both managers and shareholders. The two key variables of the model are the percentage of equity capital offered by the shareholders to the managers and the exercise price of the options that may be at a discount. We explicitly introduce risk aversion and information asymmetries in the form of (i) an economic uncertainty in the gain of cash flow, (ii) possibly biased information between the two parties and (iii) a noise in the valuation price of the stock in the market. The existence of a process of negotiation between shareholders and managers leading to a possible disclosure of private information is highlighted. As a conclusion, we show that "efficient" stock option plans should be granted in a context of trade-off between the percentage of capital awarded to managers and the discount in stock price.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.01.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4RNJ8MC-1/2/bf35dcb8caca697c6110bd2859fd09c6
Reference Type: Journal Article
Record Number: 29293
Author: A. de Miguel and J. Pindado
Year: 2001
Title: Determinants of capital structure: new evidence from Spanish panel data
Journal: Journal of Corporate Finance
Volume: 7
Issue: 1
Pages: 77-99
Short Title: Determinants of capital structure: new evidence from Spanish panel data
ISSN: 0929-1199
Keywords: Capital structure
Institutional characteristics
Cash flow
Free cash flow
Abstract: This paper analyzes the firm characteristics which are determinants of capital structure according to different explanatory theories, and how institutional characteristics affect capital structure. We have developed a target adjustment model, which has then been confirmed by our empirical evidence. It highlights the fact that the transaction costs borne by Spanish firms are inferior to those borne by US firms. Our results are consistent with tax and financial distress theories and with the interdependence between investment and financing decisions; they also provide additional evidence on the pecking order and free cash flow theories. Finally, the evidence obtained confirms the impact of some institutional characteristics on capital structure.
Notes: doi: DOI: 10.1016/S0929-1199(00)00020-1
URL: http://www.sciencedirect.com/science/article/B6VFK-42MFFPR-4/2/4d508f9ece29ee3e11ae53654494ffd2
Reference Type: Journal Article
Record Number: 29365
Author: S. De, M. Fedenia and A. J. Triantis
Year: 1996
Title: Effects of competition on bidder returns
Journal: Journal of Corporate Finance
Volume: 2
Issue: 3
Pages: 261-282
Short Title: Effects of competition on bidder returns
ISSN: 0929-1199
Abstract: This study offers several new perspectives on the effects of competition in takeover contests on bidder returns. Using a more extensive database than existing studies and employing several different measures of success in takeovers, we find that success in competitive acquisitions decreases shareholder wealth relative to both failure and success in observed single-bidder takeovers. Further, we consider and test hypotheses regarding bidder returns, including hypotheses suggested by the preemptive bidding theory. In general, our results neither support the preemptive bidding theory nor the hypotheses linking the method of payment and the observed level of competition. We also test hypotheses relating to returns across the multiple events in a multiple-bid contest that competition among bidders generates. The results of these tests underscore the importance of timing as well as success of a bid to the bidder's subsequent performance.
Notes: doi: DOI: 10.1016/0929-1199(95)00011-9
URL: http://www.sciencedirect.com/science/article/B6VFK-4177RYD-2/2/f70b63ac3e2dc8170b2495cc563d4036
Reference Type: Journal Article
Record Number: 29275
Author: E. Dedman and S. W. J. Lin
Year: 2002
Title: Shareholder wealth effects of CEO departures: evidence from the UK
Journal: Journal of Corporate Finance
Volume: 8
Issue: 1
Pages: 81-104
Short Title: Shareholder wealth effects of CEO departures: evidence from the UK
ISSN: 0929-1199
Keywords: Corporate governance
Managerial departure
Board structure
Abstract: This paper examines share price behaviour surrounding announcements of CEO departures from UK firms listed on the All Share Index between 1990 and 1995. We find that many firms choose not to announce CEO departures, and that these firms have poorer performance records, and higher chances of future failure, than those firms who officially announce CEO turnover to the London Stock Exchange. The market reacts negatively to announcements of top executive departures, especially when the CEO is dismissed or leaves to take up another job. Share price reactions to the disclosure of top executive departure are significantly affected by the financial risk of the firm and whether the board announces a replacement CEO.
Notes: doi: DOI: 10.1016/S0929-1199(01)00027-X
URL: http://www.sciencedirect.com/science/article/B6VFK-44SJGX0-5/2/81bceec29869e11257db69640d2737f5
Reference Type: Journal Article
Record Number: 29150
Author: C. C. Dee, A. Lulseged and T. S. Nowlin
Year: 2005
Title: Executive compensation and risk: The case of internet firms
Journal: Journal of Corporate Finance
Volume: 12
Issue: 1
Pages: 80-96
Short Title: Executive compensation and risk: The case of internet firms
ISSN: 0929-1199
Keywords: Executive compensation
Risk
Internet
New economy
Abstract: A major prediction of agency theory is that there is a trade-off between risk and incentive compensation. Aggarwal and Samwick (1999) [Aggarwal, R., Samwick, A., 1999. The other side of the trade-off: the impact of risk on executive compensation. Journal of Political Economy, 107, 65-105.] directly test and find results consistent with agency theory--pay-performance sensitivity is decreasing in risk. However, Prendergast, 2002 and Prendergast, 2000 [Prendergast, C. 2002. The tenuous trade-off between risk and incentives. Journal of Political Economy 110 (5), 1071-1102; Prendergast, C. 2000. What trade-off risk and incentives? The American Economic Review 90 (2), 421-425.] offers a number of reasons why the sensitivity of pay to performance can be higher in risky environments. We use data from a sample of Internet firms for 1997-1999 to provide empirical evidence on these competing arguments regarding the relation between risk and CEO compensation. Consistent with Aggarwal and Samwick (1999), our results show that pay-performance sensitivity declines with increases in variance in a base model. After controlling for size, we find that pay-performance sensitivity is positively related to risk, consistent with the theoretical predictions in Prendergast, 2002 and Prendergast, 2000. However, sensitivity tests in later periods show that the Aggarwal and Samwick (1999) results are more robust to changes in the economic environment.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.12.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4GFV5J0-1/2/2212679482d86dff7ac09424d233d31e
Reference Type: Journal Article
Record Number: 29297
Author: D. N. Deli and S. L. Gillan
Year: 2000
Title: On the demand for independent and active audit committees
Journal: Journal of Corporate Finance
Volume: 6
Issue: 4
Pages: 427-445
Short Title: On the demand for independent and active audit committees
ISSN: 0929-1199
Keywords: Accounting certification
Audit committee
Outside directors
Abstract: We extend the literature on director independence and the role of the board by focusing on the importance of audit committees in the contracting process. We find that the demand for independent and active audit committees is positively related to the demand for accounting certification. In particular, we find that the likelihood of a firm having a completely independent and active audit committee is negatively related to firm growth opportunities and managerial ownership and positively related to firm size and leverage. Our results suggest that audit committees are an important organizational construct related to the demand for accounting certification.
Notes: doi: DOI: 10.1016/S0929-1199(00)00016-X
URL: http://www.sciencedirect.com/science/article/B6VFK-42G0MJ1-4/2/a9cdda5cf4dc4e8d9773e64a1be6be4b
Reference Type: Journal Article
Record Number: 29271
Author: D. N. Deli and R. Varma
Year: 2002
Title: Closed-end versus open-end: the choice of organizational form
Journal: Journal of Corporate Finance
Volume: 8
Issue: 1
Pages: 1-27
Short Title: Closed-end versus open-end: the choice of organizational form
ISSN: 0929-1199
Keywords: Closed-end fund
Open-end fund
Mutual fund
Organizational form
Abstract: We investigate the choice of organizational form for investment funds. We find that funds that hold less liquid securities with less transparent prices are more likely to be closed-end. The relation is economically meaningful as well as statistically significant. Our results are consistent with Fama and Jensen's [J. Law Econ. 26 (1983a) 327; J. Law Econ. 26 (1983b) 301] prediction that redeemable shares are not efficient when assets are relatively illiquid and asset prices are difficult to observe.
Notes: doi: DOI: 10.1016/S0929-1199(01)00038-4
URL: http://www.sciencedirect.com/science/article/B6VFK-44SJGX0-1/2/852572bef8a86823f0925665020bdc1d
Reference Type: Journal Article
Record Number: 29281
Author: H. Demsetz and B. Villalonga
Year: 2001
Title: Ownership structure and corporate performance
Journal: Journal of Corporate Finance
Volume: 7
Issue: 3
Pages: 209-233
Short Title: Ownership structure and corporate performance
ISSN: 0929-1199
Keywords: Ownership structure
Corporate performance
Endogenous variable
Abstract: This paper investigates the relation between the ownership structure and the performance of corporations if ownership is made multi-dimensional and also is treated as an endogenous variable. To our knowledge, no prior study has treated the corporate control problem this way. We find no statistically significant relation between ownership structure and firm performance. This finding is consistent with the view that diffuse ownership, while it may exacerbate some agency problems, also yields compensating advantages that generally offset such problems. Consequently, for data that reflect market-mediated ownership structures, no systematic relation between ownership structure and firm performance is to be expected.
Notes: doi: DOI: 10.1016/S0929-1199(01)00020-7
URL: http://www.sciencedirect.com/science/article/B6VFK-4435022-1/2/188dfcaacd4a316698ecf062dd2e0ded
Reference Type: Journal Article
Record Number: 29217
Author: D. J. Denis
Year: 2004
Title: Entrepreneurial finance: an overview of the issues and evidence
Journal: Journal of Corporate Finance
Volume: 10
Issue: 2
Pages: 301-326
Short Title: Entrepreneurial finance: an overview of the issues and evidence
ISSN: 0929-1199
Keywords: Entrepreneurial finance
Venture capital
Private equity
Abstract: This article provides an overview of the rapidly growing entrepreneurial finance literature. The studies reviewed in the article focus on four primary areas of inquiry: (i) alternative sources of capital, (ii) financial contracting issues, (iii) public policy, and (iv) the dynamics of private equity returns. Although much has been learned in each area, this survey highlights several areas in which our understanding of the issues remains incomplete.
Notes: doi: DOI: 10.1016/S0929-1199(03)00059-2
URL: http://www.sciencedirect.com/science/article/B6VFK-496G0D4-2/2/f3fc7db5b2a11984ee3fdda0c413527d
Reference Type: Journal Article
Record Number: 29391
Author: D. J. Denis and D. K. Denis
Year: 1994
Title: Majority owner-managers and organizational efficiency
Journal: Journal of Corporate Finance
Volume: 1
Issue: 1
Pages: 91-118
Short Title: Majority owner-managers and organizational efficiency
ISSN: 0929-1199
Keywords: Ownership structure
Corporate control
Founders
Abstract: By virtue of their ownership position, majority owner-managers appear to be less constrained than managers of firms with more diffuse ownership structures. Despite this, there is no evidence that majority-owned firms perform poorly and there is evidence that majority ownership is surviving as an organizational form. This implies that either these firms substitute other organizational constraints on managerial behavior or that majority control is efficient for some firms. Our analysis uncovers no evidence that majority owner-managers are constrained by other organizational mechanisms. We find that the choice of majority ownership is related to owner-specific rather than firm-specific characteristics. Approximately 80% of the sample majority-owned firms are either characterized by family involvement or are managed by the founder of the firm. Once this family/founder involvement in managing the firm diminishes, the firm is significantly less likely to be majority-controlled.
Notes: doi: DOI: 10.1016/0929-1199(94)90011-6
URL: http://www.sciencedirect.com/science/article/B6VFK-47DD36X-C/2/3817be81457b1d1c008e444cfdb77c56
Reference Type: Journal Article
Record Number: 29127
Author: D. J. Denis, P. Hanouna and A. Sarin
Year: 2006
Title: Is there a dark side to incentive compensation?
Journal: Journal of Corporate Finance
Volume: 12
Issue: 3
Pages: 467-488
Short Title: Is there a dark side to incentive compensation?
ISSN: 0929-1199
Keywords: Options
Incentives
Compensation
Fraud
Abstract: We report a significant positive association between the likelihood of securities fraud allegations and a measure of executive stock option incentives. This relation is robust to the inclusion of other components of the compensation structure and to other possible determinants of fraud allegations. In addition, we find that the positive relation between the likelihood of fraud allegations and option intensity is stronger in firms with higher outside blockholder and higher institutional ownership. These findings support the view that stock options increase the incentive to engage in fraudulent activity and that this incentive is exacerbated by institutional and block ownership.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.08.006
URL: http://www.sciencedirect.com/science/article/B6VFK-4HNSPMV-1/2/096af7fef0850b95ce3b81c0740600d8
Reference Type: Journal Article
Record Number: 29171
Author: D. K. Denis and D. K. Shome
Year: 2005
Title: An empirical investigation of corporate asset downsizing
Journal: Journal of Corporate Finance
Volume: 11
Issue: 3
Pages: 427-448
Short Title: An empirical investigation of corporate asset downsizing
ISSN: 0929-1199
Keywords: Downsizing
Firm debt ratio
Diversification
Abstract: We study 130 large asset downsizings in 1985-1994. We find that downsizings are most often accomplished by selling assets. The decision to downsize is negatively related to operating performance at both the firm and industry levels and is positively related to firm debt ratio and level of diversification. Following their downsizings, the sample firms are more focused, have lower debt ratios, and experience statistically significant increases in operating performance. These results suggest that large downsizings are efficient responses to declining circumstances. However, we also find that their occurrence is strongly dependent upon an active market for corporate control.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.04.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4D2004D-1/2/c5257dc25fbef43f2120f6da2a90ec81
Reference Type: Journal Article
Record Number: 29165
Author: S. Deshmukh and S. C. Vogt
Year: 2005
Title: Investment, cash flow, and corporate hedging
Journal: Journal of Corporate Finance
Volume: 11
Issue: 4
Pages: 628-644
Short Title: Investment, cash flow, and corporate hedging
ISSN: 0929-1199
Keywords: Investment spending
Cash flow
Corporate hedging
Asymmetric information
Underinvestment
Abstract: We examine the underinvestment rationale for corporate hedging and test the hypothesis that if firms hedge to reduce both their reliance on external funds and the volatility of internal cash flow, then their investment spending should be less sensitive to prehedged cash flow. Our results are consistent with this hypothesis and indicate that investment spending is less sensitive to cash flow for hedgers than for nonhedgers. We also find that among hedgers, investment spending is less sensitive to cash flow when the extent of hedging is higher. Our results are generally robust to five different measures of cash flow.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.02.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4GR8MYY-1/2/378f4199092deb19a9afe2aa543e469f
Reference Type: Journal Article
Record Number: 29378
Author: E. Detragiache
Year: 1995
Title: Adverse selection and the costs of financial distress
Journal: Journal of Corporate Finance
Volume: 1
Issue: 3-4
Pages: 347-365
Short Title: Adverse selection and the costs of financial distress
ISSN: 0929-1199
Keywords: Financial distress
Asymmetric information
Bankruptcy
Abstract: Previous work suggests that, when the debtor has private information on the future profitability of the firm, financial distress is costly even if debt can be renegotiated. This paper shows that adverse selection problems can be completely avoided by offering creditors a mix of cash and equity in the renegotiation. Empirical evidence indicates that this is common practice in corporate debt workouts. However, asymmetric information leads to inefficiencies if equity is not treated as the residual claim in bankruptcy. In this case, equilibria exist in which distressed firms go to court too often.
Notes: doi: DOI: 10.1016/0929-1199(94)00009-J
URL: http://www.sciencedirect.com/science/article/B6VFK-3XY2J7C-3/2/244dd4312caabb67b5261096d483c219
Reference Type: Journal Article
Record Number: 28974
Author: M. Dewally and S. W. Peck
Title: Upheaval in the boardroom: Outside director public resignations, motivations, and consequences
Journal: Journal of Corporate Finance
Volume: In Press, Corrected Proof
Short Title: Upheaval in the boardroom: Outside director public resignations, motivations, and consequences
ISSN: 0929-1199
Keywords: Corporate governance
Directors
Resignations
Abstract: We investigate the motives and circumstances surrounding outside directors' decisions to publicly announce their board resignations. Directors who leave "quietly" are in their mid-sixties and professional directors, i.e., retirees, who are retiring entirely from professional life. Directors who announce their resignation are in their mid-fifties and active professionals. Half the time they say they are leaving because they are "busy." These directors leave from firms with some weakness in their performance, but with no overt manifestations of cronyism such as excessive compensation of either the CEO or directors. The other half of the time directors leave while publicly criticizing the firm. These directors are finance professionals who were members of the audit and compensation committees. They resign from firms with weak boards and financial performance with evidence that managers have manipulated earnings upwards. Public criticism appears to pressure these boards to make management changes associated with improved stock price performance. We conclude that while such public resignations are motivated by the reputational concerns of directors, they can act as a disciplining device for poor board performance.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.02.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4VPV5C7-1/2/d2e0277e7fa46e926fb2cc28df189c3b
Reference Type: Journal Article
Record Number: 29064
Author: D. Dietrich
Year: 2007
Title: Asset tangibility and capital allocation
Journal: Journal of Corporate Finance
Volume: 13
Issue: 5
Pages: 995-1007
Short Title: Asset tangibility and capital allocation
ISSN: 0929-1199
Keywords: Internal capital markets
Incomplete contracts
Asset tangibility
Abstract: Firms comprise divisions that often differ with respect to the degree of asset tangibility. As the strength of borrowing constraints depends on the liquidation value of assets, these firms influence their debt capacity by allocating funds across divisions. We argue that a company whose capital allocation is not verifiable suffers from a dynamic inconsistency problem, as it tends to allocate resources in favor of divisions with fewer tangible assets, leading to a tight borrowing constraint. When capital allocation is verifiable, committing to invest only little there eases this constraint, although it implies a deviation from a return maximizing allocation.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.05.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4NRT39B-1/2/486fbbc83f45282b681599f1adeac307
Reference Type: Journal Article
Record Number: 29144
Author: V. Dimitrov and P. C. Jain
Year: 2006
Title: Recapitalization of one class of common stock into dual-class: Growth and long-run stock returns
Journal: Journal of Corporate Finance
Volume: 12
Issue: 2
Pages: 342-366
Short Title: Recapitalization of one class of common stock into dual-class: Growth and long-run stock returns
ISSN: 0929-1199
Keywords: Dual-class structure
Corporate governance
Long-run performance
Abstract: We study a sample of 178 firms that changed from a one-share one-vote into a dual-class common stock structure during 1979-1998. We find that dual-class recapitalizations are shareholder value enhancing corporate initiatives. Using accounting data, Lehn et al. (1990) [Lehn, K., Netter, J., Poulsen, A., 1990. Consolidating corporate control: dual-class recapitalizations versus leveraged buyouts. Journal of Financial Economics 27, 557-580] provide evidence that dual-class recapitalizing firms grow faster than firms in a control group and undertake secondary equity offerings (SEOs) to finance growth. We show that growth is indeed beneficial to the shareholders. The stockholders, on average, earn significant positive abnormal returns of 23.11% in a period of 4 years following the announcement month. Furthermore, abnormal returns are even larger (52.61%) for the dual-class firms that issue equity. This evidence is especially supportive of the value enhancing hypothesis as it is contrary to the prevailing result that SEOs are generally followed by large negative returns. We do not find any evidence of managerial entrenchment.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.10.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4FNNCB8-1/2/86d8cbcbef7872701bb993801459fbea
Reference Type: Journal Article
Record Number: 29132
Author: J. Dlugosz, R. Fahlenbrach, P. Gompers and A. Metrick
Year: 2006
Title: Large blocks of stock: Prevalence, size, and measurement
Journal: Journal of Corporate Finance
Volume: 12
Issue: 3
Pages: 594-618
Short Title: Large blocks of stock: Prevalence, size, and measurement
ISSN: 0929-1199
Keywords: Ownership
Corporate governance
Blockholders
G3, Corporate finance and governance
Abstract: Large blocks of stock play an important role in many studies of corporate governance and finance. Despite this important role, there is no standardized data set for these blocks, and the best available data source, Compact Disclosure, has many mistakes and biases. In this paper, we document these mistakes and show how to fix them. The mistakes and biases tend to increase with the level of reported blockholdings: in firms where Compact Disclosure reports that aggregate blockholdings are greater than 50%, these aggregate holdings are incorrect more than half the time and average holdings for these incorrect firms are overstated by almost 30 percentage points. For researchers using uncorrected blockholder data as a dependent variable, these errors will increase the standard error of coefficient estimates but do not appear to cause bias. However, we find that if blockholders are used as an independent variable, economically significant errors-in-variables biases can occur. We demonstrate these biases using a representative analysis of the relationship between firm value and outside blockholders. An online appendix to our paper provides a "clean" data set for our sample firms and time period. For researchers who need to work outside of this sample, we also test the efficacy of alternative (cheaper) fixes to this data problem, and find that truncating or winsorizing the sample can reduce about half of the bias in our representative application.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.04.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4GR8MYY-2/2/b21dedbe884380ed8806726533d9362a
Reference Type: Journal Article
Record Number: 29241
Author: A. W. Dnes
Year: 2003
Title: Hostages, marginal deterrence and franchise contracts
Journal: Journal of Corporate Finance
Volume: 9
Issue: 3
Pages: 317-331
Short Title: Hostages, marginal deterrence and franchise contracts
ISSN: 0929-1199
Keywords: Contracts
Hostages
Franchising
Abstract: In this paper, I examine the nature of hostages in long-term contracts. The definition of a hostage is improved relative to the rents attached to a contract. In addition, I show that hostages need to reflect marginal deterrence (fitting the crime) and operate similarly to the same principle in the criminal law. Some empirical observations are presented from franchise systems and support the marginal-deterrence hypothesis.
Notes: doi: DOI: 10.1016/S0929-1199(02)00009-3
URL: http://www.sciencedirect.com/science/article/B6VFK-45M6K9X-1/2/92a6e1ceb63019a413fca93c4131b25e
Reference Type: Journal Article
Record Number: 29152
Author: M. Dong, C. Robinson and C. Veld
Year: 2005
Title: Why individual investors want dividends
Journal: Journal of Corporate Finance
Volume: 12
Issue: 1
Pages: 121-158
Short Title: Why individual investors want dividends
ISSN: 0929-1199
Keywords: Dividends
Individual investors
Survey
Abstract: The question of why individual investors want dividends is investigated by submitting a questionnaire to a Dutch investor panel. The respondents indicate that they want dividends partly because the cost of cashing in dividends is lower than the cost of selling shares. Their answers provide strong confirmation for the signaling theories of Bhattacharya (1979) [Bhattacharya, S., 1979. Imperfect information, dividend policy and the "bird in the hand" fallacy. Bell Journal of Economics 10, 259-270] and Miller and Rock (1985) [Miller, M., Modigliani, F., 1961. Dividend policy, growth and the valuation of shares. Journal of Business 34, 411-433]. They are inconsistent with the uncertainty resolution theory of Gordon (1961, 1962) [Gordon, M., 1961. The Investment, Financing, and Valuation of the Corporation, Richard D. Irwin, Homewood, IL; Gordon, M., 1962. The savings, investment and valuation of a corporation. Review of Economics and Statistics 44, 37-51.] and the agency theories of Jensen (1986) [Jensen, M.C., 1986. Agency costs of free cash flow, corporate finance and takeovers. American Economic Review 76, 323-329] and Easterbrook (1984) [Easterbrook, F.H., 1984. Two agency-cost explanations of dividends. American Economic Review 74, 650-659]. The behavioral finance theory of Shefrin and Statman (1984) [Shefrin, H.M., Statman, M., 1984. Explaining investor preference for cash dividends. Journal of Financial Economics 13, 253-282] is not confirmed for cash dividends but is confirmed for stock dividends. Finally, our results indicate that individual investors do not tend to consume a large part of their dividends. This raises some doubt as to whether a reduction or elimination of dividend taxes will stimulate the economy.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.04.006
URL: http://www.sciencedirect.com/science/article/B6VFK-4GH49R3-1/2/d7a4bfeccb6e782b98ac6943ae1ba422
Reference Type: Journal Article
Record Number: 29291
Author: A. V. S. Douglas
Year: 2001
Title: Managerial replacement and corporate financial policy with endogenous manager-specific value
Journal: Journal of Corporate Finance
Volume: 7
Issue: 1
Pages: 25-52
Short Title: Managerial replacement and corporate financial policy with endogenous manager-specific value
ISSN: 0929-1199
Keywords: Managerial discipline
Financial commitments
Firm-specific value
Bankruptcy investigations
Dynamic consistency
Abstract: This paper studies financial policy, investment decisions and the threat of dismissal when managers value control and investments generate manager-specific value. A high probability of investigation focuses the manager on the profitability of replacement and therefore manager-specific value. The probability of an investigation increases when the firm enters bankruptcy. Thus, high debt levels focus the manager on investments that dissuade replacement during bankruptcy procedures. Dividends relax the manager's focus on manager-specific value since there is a lower probability of an investigation following a missed dividend. The ability to make dividend payments, however, is related to ex-post performance and can improve replacement decisions. When managerial quality is commonly known, the expected value of the firm is maximized with a combination of debt and dividend commitments. When managerial quality is hidden information, it is optimal for the combination of debt and dividend commitments to signal quality.
Notes: doi: DOI: 10.1016/S0929-1199(00)00018-3
URL: http://www.sciencedirect.com/science/article/B6VFK-42MFFPR-2/2/1d011d85b32c003a270782106c7339d2
Reference Type: Journal Article
Record Number: 29255
Author: A. V. S. Douglas
Year: 2002
Title: Capital structure and the control of managerial incentives
Journal: Journal of Corporate Finance
Volume: 8
Issue: 4
Pages: 287-311
Short Title: Capital structure and the control of managerial incentives
ISSN: 0929-1199
Keywords: Manager-shareholder-bondholder incentive conflicts
Information asymmetries
Managerial rents
Corporate efficiency
Abstract: We present a theory of capital structure based on the power of shareholders, bondholders and managers to control the incentive conflicts in large corporations. The manager-owner conflict produces a trade-off between inefficiency in the low state and rents in the high state, and the shareholder-bondholder conflict produces under-investment as in Myers [Journal of Financial Economics 19 (1997) 147]. Since managers and bondholders both prefer more efficient actions in the low state, the two conflicts are interdependent. With risk-less levels of debt, there are no shareholder-bondholder agency costs, but managerial control over the incentive-setting process produces excessive rents. With risky debt, shareholders focus more on returns in the high state so that shareholder-bondholder agency costs increase but managerial rents decrease. Efficient levels of debt holder protection facilitate a reduction in manager-owner agency costs that outweighs shareholder-bondholder agency costs, and are decreasing in firm performance. The results are consistent with the separate empirical results relating control to both compensation and leverage, and suggest how future studies can be integrated.
Notes: doi: DOI: 10.1016/S0929-1199(01)00048-7
URL: http://www.sciencedirect.com/science/article/B6VFK-46FJ8G1-1/2/bc1a19e2e3b1d7b1feeaca71ee87fd79
Reference Type: Journal Article
Record Number: 29251
Author: J. A. Doukas and C. Pantzalis