URL: http://www.sciencedirect.com/science/article/B6VFK-47PCP01-4/2/84f790724367bbf2891e09ebaac435b3
Reference Type: Journal Article
Record Number: 29180
Author: K. J. Martin and R. S. Thomas
Year: 2005
Title: When is enough, enough? Market reaction to highly dilutive stock option plans and the subsequent impact on CEO compensation
Journal: Journal of Corporate Finance
Volume: 11
Issue: 1-2
Pages: 61-83
Short Title: When is enough, enough? Market reaction to highly dilutive stock option plans and the subsequent impact on CEO compensation
ISSN: 0929-1199
Keywords: CEO compensation
Stock options
Stock-based pay
Shareholder voting
Abstract: Using data from the 1998 proxy season, we find that higher levels of potential dilution from management-sponsored, executive-only stock option plans result in significantly negative cumulative abnormal returns in the 3-day period surrounding the proxy date. We also present evidence of a significantly negative relationship between the percentage vote against the option proposal and the percentage change in executive pay from the 1998 to 1999 compensation years. We interpret this finding to support the idea that boards of directors are responsive to shareholder concerns about CEO option awards following a high level of shareholder opposition.
Notes: doi: DOI: 10.1016/S0929-1199(03)00061-0
URL: http://www.sciencedirect.com/science/article/B6VFK-4991WGM-2/2/d015f66325d678f20e8eb62a04774102
Reference Type: Journal Article
Record Number: 29027
Author: M. Martynova and L. Renneboog
Year: 2008
Title: Spillover of corporate governance standards in cross-border mergers and acquisitions
Journal: Journal of Corporate Finance
Volume: 14
Issue: 3
Pages: 200-223
Short Title: Spillover of corporate governance standards in cross-border mergers and acquisitions
ISSN: 0929-1199
Keywords: Takeovers
Mergers and acquisitions
Cross-border
Takeover synergies
Corporate governance regulation
Contractual convergence
Shareholder protection
Creditor protection
Minority shareholder protection
Takeover regulation
Abstract: In cross-border acquisitions, the differences between the bidder and target corporate governance (measured by newly constructed indices capturing shareholder, minority shareholder, and creditor protection) have an important impact on the takeover returns. Our country-level corporate governance indices capture the changes in the quality of the national corporate governance regulations over the past 15 years. When the bidder is from a country with a strong shareholder orientation (relative to the target), part of the total synergy value of the takeover may result from the improvement in the governance of the target assets. In full takeovers, the corporate governance regulation of the bidder is imposed on the target (the positive spillover by law hypothesis). In partial takeovers, the improvement in the target corporate governance may occur on voluntary basis (the spillover by control hypothesis). Our empirical analysis corroborates both spillover effects. In contrast, when the bidder is from a country with poorer shareholder protection, the negative spillover by law hypothesis states that the anticipated takeover gains will be lower as the poorer corporate governance regime of the bidder will be imposed on the target. The alternative bootstrapping hypothesis argues that poor-governance bidders voluntarily bootstrap to the better-governance regime of the target. We do find support for the bootstrapping effect.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.03.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4S7JFW1-2/2/cb8e67818406ab89936582cf46a86e97
Reference Type: Journal Article
Record Number: 28952
Author: M. Martynova and L. Renneboog
Year: 2009
Title: What determines the financing decision in corporate takeovers: Cost of capital, agency problems, or the means of payment?
Journal: Journal of Corporate Finance
Volume: 15
Issue: 3
Pages: 290-315
Short Title: What determines the financing decision in corporate takeovers: Cost of capital, agency problems, or the means of payment?
ISSN: 0929-1199
Keywords: Mergers and acquisitions
Takeovers
Means of payment
Financing decision
Cost of capital
Sources of financing
Agency problem
Pecking order
Corporate governance regulation
Nested logit
Abstract: How is a takeover bid financed and what is its impact on the expected value creation of the takeover? An analysis of the sources of transaction financing has been largely ignored in the takeover literature. Using a unique dataset, we show that external sources of financing (debt and equity) are frequently employed in takeovers involving cash payments. Acquisitions with the same means of payment but different sources of transaction funding are in fact quite distinct. Acquisitions financed with internally generated funds significantly underperform those financed with debt. The takeover financing decision is influenced by the bidder's pecking order preferences, its growth potential, and its corporate governance environment, all of which are related to the cost of external capital. The choice of equity versus internal cash or debt financing also depends on the bidder's strategic preferences with respect to the means of payment.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.12.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4VDS8BB-1/2/68744793597d9c7bc735d7234a2d4bfc
Reference Type: Journal Article
Record Number: 29375
Author: H. P. Marvel
Year: 1995
Title: Tying, franchising, and gasoline service stations
Journal: Journal of Corporate Finance
Volume: 2
Issue: 1-2
Pages: 199-225
Short Title: Tying, franchising, and gasoline service stations
ISSN: 0929-1199
Abstract: An earlier version of this paper was presented at the Conference on Franchise Contracting, Organization, and Regulation, Michigan Business School. I am indebted to the conference participants, and particularly to G. Frank Mathewson, for helpful suggestions. I also received perceptive comments from the conference organizers, Francine Lafontaine and Scott Masten. I have benefited from discussions of the subject matter of this paper with Tasneem Chipty, James Delaney, Robert Fenili, Tom Hogarty, Robert Lande, Jim Peck, and Anthony Robinson. None of the above should be implicated in the conclusions put forth below.
Notes: doi: DOI: 10.1016/0929-1199(95)00009-W
URL: http://www.sciencedirect.com/science/article/B6VFK-3Y2GCVW-C/2/8fcc6d893bddd9bbcde5bc65e71e9289
Reference Type: Journal Article
Record Number: 29343
Author: R. Mason
Year: 1998
Title: An options-based model of equilibrium credit rationing
Journal: Journal of Corporate Finance
Volume: 4
Issue: 1
Pages: 71-85
Short Title: An options-based model of equilibrium credit rationing
ISSN: 0929-1199
Keywords: Equilibrium credit rationing
Option pricing
Stochastic volatility
Abstract: This paper applies options theory to the model of equilibrium credit rationing developed by [Stiglitz, J.E., Weiss, A., 1981. Credit rationing in markets with imperfect information, American Economic Review, 71, 727-752.] by noticing that, given a standard debt contract and limited liability, the payoffs to the lender and the borrower when a loan is made involve a put and call option respectively. Information asymmetry is modelled using stochastic volatility option pricing methods. There are three advantages to the options approach. First, the well-known comparative statics of option pricing provide an alternative and immediate proof for many of Stiglitz and Weiss' results. Secondly, the framework accommodates several theoretical extensions to the basic results. Finally, the approach allows an assessment of the empirical significance of equilibrium credit rationing, since the model is easily parameterised. Simulations of the model suggest that rationing is unlikely to be significant at the collateral levels observed in the U.S and U.K. small commercial loan market.
Notes: doi: DOI: 10.1016/S0929-1199(97)00010-2
URL: http://www.sciencedirect.com/science/article/B6VFK-3SX87D0-4/2/2664d46d27697bfee8381e5ad193641d
Reference Type: Journal Article
Record Number: 29354
Author: E. Maug
Year: 1997
Title: Boards of directors and capital structure: Alternative forms of corporate restructuring
Journal: Journal of Corporate Finance
Volume: 3
Issue: 2
Pages: 113-139
Short Title: Boards of directors and capital structure: Alternative forms of corporate restructuring
ISSN: 0929-1199
Keywords: Capital structure
Corporate restructuring
Internal control mechanisms
Boards of directors
Takeovers
Agency theory
Abstract: This paper discusses a model that combines internal and external control mechanisms in a firm in which assets can have alternative uses that are in some states more profitable than the current one. However, restructuring a firm in order to realize the gains from alternative uses affects managers adversely since they invest in firm-specific human capital. Managers can be motivated to restructure the firm through their compensation scheme. Alternatively, investors can acquire costly information on the firm and interfere with managers' decisions. The main focus is on independent directors, who review and monitor contracts and managers' compensation. If information is not too costly, directors are the optimal institution to check managerial discretion and the degree of managerial entrenchment depends on the compensation of independent directors. However, if directors fail to exercise control over management properly, takeovers or creditor control become second-best solutions. If information is costly to transfer, unchecked managerial control may be optimal.
Notes: doi: DOI: 10.1016/S0929-1199(96)00010-7
URL: http://www.sciencedirect.com/science/article/B6VFK-3SWTKS3-2/2/e55a45d467dbceb0455678bd0594fec0
Reference Type: Journal Article
Record Number: 29143
Author: B. Maury
Year: 2006
Title: Family ownership and firm performance: Empirical evidence from Western European corporations
Journal: Journal of Corporate Finance
Volume: 12
Issue: 2
Pages: 321-341
Short Title: Family ownership and firm performance: Empirical evidence from Western European corporations
ISSN: 0929-1199
Keywords: Family firms
Ownership structure
Corporate governance
Abstract: This paper empirically examines how family-controlled firms perform in relation to firms with nonfamily controlling shareholders in Western Europe. The sample consists of 1672 non-financial firms. Active family control is associated with higher profitability compared to nonfamily firms, whereas passive family control does not affect profitability. Active family control continues to outperform nonfamily control in terms of profitability in different legal regimes. Active and passive family control is associated with higher firm valuations, but the premium is mainly due to economies with high shareholder protection. The benefits from family control occur in nonmajority held firms. These results suggest that family control lowers the agency problem between owners and managers, but gives rise to conflicts between the family and minority shareholders when shareholder protection is low and control is high.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.02.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4GG2HYH-1/2/92d53df69f127e1c7c6664d6225d0276
Reference Type: Journal Article
Record Number: 29177
Author: C. Mayer, K. Schoors and Y. Yafeh
Year: 2005
Title: Sources of funds and investment activities of venture capital funds: evidence from Germany, Israel, Japan and the United Kingdom
Journal: Journal of Corporate Finance
Volume: 11
Issue: 3
Pages: 586-608
Short Title: Sources of funds and investment activities of venture capital funds: evidence from Germany, Israel, Japan and the United Kingdom
ISSN: 0929-1199
Keywords: Venture capital financing
Investment stage
Abstract: We compare the investment activities and sources of finance of venture capital (VC) funds in Germany, Israel, Japan and the United Kingdom. VC investments differ across countries in terms of their stage, sector and geographical focus. Sources of VC funds also differ across countries; for example, banks are particularly important in Germany and Japan, corporations in Israel, and pension funds in the United Kingdom. Although the differences in investments are related to funding sources--for example, bank and pension fund-backed VCs invest in later stage activities than individual and corporate backed funds--a large proportion of variation within as well as between countries is unrelated to sources of finance. Moreover, differences in the relation between funding source and VC activity are unrelated to the country's financial systems. We conclude that neither financial systems nor sources of finance are the main explanations for the pronounced differences in VC activities.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.02.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4CB0R4F-1/2/3c12ca7596b4bd11387e7a77a51e5505
Reference Type: Journal Article
Record Number: 29036
Author: J. J. McConnell, H. Servaes and K. V. Lins
Year: 2008
Title: Changes in insider ownership and changes in the market value of the firm
Journal: Journal of Corporate Finance
Volume: 14
Issue: 2
Pages: 92-106
Short Title: Changes in insider ownership and changes in the market value of the firm
ISSN: 0929-1199
Keywords: Insider ownership
Firm value
Equity ownership structure
Governance
Abstract: The empirically-observed cross-sectional relation between the level of insider share ownership and the level of firm value has often been interpreted to mean that a change in share ownership can lead to a change in firm value. Such an interpretation has been criticized for ignoring potential endogeneity. In this paper, we perform two sets of tests to circumvent this alleged endogeneity. First, we measure changes in value over the 6-day interval around announcements of insider share purchases and find that the cross-sectional variability in changes in value is described by a curvilinear relation between firm value and insider ownership where the value of the firm first increases, then decreases, as insider share ownership increases. Second, we conduct tests to determine (1) whether the insider purchases are a response to changes in firm characteristics that require a new optimal equilibrium ownership level or (2) whether insiders are purchasing shares to signal that the firm is undervalued. We find no evidence to support these interpretations. Overall, our results are consistent with a causal interpretation of the empirical relation between insider ownership and firm value.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.02.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4RXJYMK-2/2/c19053530671c33b497f41f587b1a977
Reference Type: Journal Article
Record Number: 29187
Author: C. R. McNeil and W. T. Moore
Year: 2005
Title: Dismantling internal capital markets via spinoff: effects on capital allocation efficiency and firm valuation
Journal: Journal of Corporate Finance
Volume: 11
Issue: 1-2
Pages: 253-275
Short Title: Dismantling internal capital markets via spinoff: effects on capital allocation efficiency and firm valuation
ISSN: 0929-1199
Keywords: Capital budgeting
Restructuring
Abstract: We investigate the linkage between changes in firm value and changes in capital allocation efficiency resulting from dismantling internal capital markets via spinoffs. We find no evidence of wholesale misallocation of capital pre-spinoff. On the average, excess value increases following spinoffs. Furthermore, changes in excess value are positively linked to changes in capital allocational efficiency following spinoff. We find that spinoff announcement returns are greater (smaller) when the parent allocates capital to the unit to be spun off in a seemingly less (more) efficient manner. Divested division capital expenditures move toward industry levels after spinoff, regardless of their relative investment opportunities.
Notes: doi: DOI: 10.1016/S0929-1199(03)00060-9
URL: http://www.sciencedirect.com/science/article/B6VFK-49D2M0C-1/2/82404d508624cf4f325544cab2af7fbe
Reference Type: Journal Article
Record Number: 29373
Author: S. C. Michael and H. J. Moore
Year: 1995
Title: Returns to franchising
Journal: Journal of Corporate Finance
Volume: 2
Issue: 1-2
Pages: 133-155
Short Title: Returns to franchising
ISSN: 0929-1199
Keywords: Franchising
Contracts
Monitoring
Entrepreneurship
Abstract: The literature on contracts predicts that some principals will pay agents rents, that is, amounts larger than those necessary to keep the agent in the contract. We calculated the earnings of the average franchisee in seventy franchise systems in various industries to determine whether rents are paid as a solution to the agency problem in franchise contracts. We found that many but not all systems paid rents, both ex post and ex ante, to the average franchisee. The results confirm those of Kaufmann and Lafontaine (1994), who found rents associated with McDonald's, but the magnitude of rents within the systems we study was generally much lower than those of McDonald's.
Notes: doi: DOI: 10.1016/0929-1199(95)00007-U
URL: http://www.sciencedirect.com/science/article/B6VFK-3Y2GCVW-9/2/3b1823107d92f9495c4e9aa8119a3545
Reference Type: Journal Article
Record Number: 29383
Author: W. H. Mikkelson and M. M. Partch
Year: 1994
Title: The consequences of unbundling managers' voting rights and equity claims
Journal: Journal of Corporate Finance
Volume: 1
Issue: 2
Pages: 175-199
Short Title: The consequences of unbundling managers' voting rights and equity claims
ISSN: 0929-1199
Keywords: Corporate governance
Voting rights
Two classes of stock
ESOPs
Abstract: Managers typically increase their voting power following the creation of two classes of common stock and the adoption of an employee stock ownership plan. These changes can worsen managers' incentives and lead to a decline in performance. Alternatively, two classes of stock and ESOPs can allow managers to adopt value-maximizing policies that would not be possible in the face of takeover pressure. We find that these events are followed by below normal operating income. However, we find no reliable evidence that the increase in managers' voting power and the resulting divergence between managers' voting power and ownership of equity claims is related to subsequent operating performance.
Notes: doi: DOI: 10.1016/0929-1199(94)90002-7
URL: http://www.sciencedirect.com/science/article/B6VFK-47DD36F-2/2/0944094a13c40c778e76f9e820cd39b2
Reference Type: Journal Article
Record Number: 29057
Author: D. Miller, I. Le Breton-Miller, R. H. Lester and A. A. Cannella Jr
Year: 2007
Title: Are family firms really superior performers?
Journal: Journal of Corporate Finance
Volume: 13
Issue: 5
Pages: 829-858
Short Title: Are family firms really superior performers?
ISSN: 0929-1199
Keywords: Family firms
Endogeneity
Founder firms
Firm performance
Abstract: Although international evidence suggests that families may be unhelpful to firm performance, recent analyses of U.S. public companies indicate that family firms outperform. This study probes these contrasting findings by investigating more fine-grained measures of family business in the U.S. Specifically, it makes a fundamental but neglected distinction between lone founder businesses in which no relatives of a founder are involved, and true family businesses that do include multiple family members as major owners or managers. The research also seeks to overcome issues of endogeneity and selection bias by examining both Fortune 1000 firms and a random sample of 100 much smaller public companies. The results show that findings are indeed highly sensitive both to the way in which family businesses are defined and to the nature of the sample. Fortune 1000 firms that include relatives as owners or managers never outperform in market valuation, even during the first generation. Only businesses with a lone founder outperform. Moreover neither lone founder nor family firms exhibited superior valuations within a randomly drawn sample of companies. Our results confirm the difficulty of attributing superior performance to a particular governance variable.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.03.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4NS3698-1/2/25fe986aa6144f014a009fa8fa371e60
Reference Type: Journal Article
Record Number: 29102
Author: J. D. Mitchell and G. V. Dharmawan
Year: 2007
Title: Incentives for on-market buy-backs: Evidence from a transparent buy-back regime
Journal: Journal of Corporate Finance
Volume: 13
Issue: 1
Pages: 146-169
Short Title: Incentives for on-market buy-backs: Evidence from a transparent buy-back regime
ISSN: 0929-1199
Keywords: On-market buy-backs
Incentives
Signalling
Financial characteristics
Abstract: In the US, open-market repurchases have a non-standard structure, lack formal procedures and there is low degree of transparency. Hence, in order to fully capture the signalling incentives of buy-backs in more general context, we examine the Australian environment where there a distinct announcement of, substantial information release during, as well as a transparent process throughout, the buy-back event. Our study finds strong incentives for on-market buy-backs related to: (i) signalling of undervaluation, (ii) signalling to reduce agency costs and/or information asymmetry, as well as (iii) a means to utilise excess debt capacity. Our most significant result is that signalling incentives, in the context of the more transparent Australian buy-back environment, are substantially greater relative to comparable existing US evidence. Accordingly, changing the US repurchase requirements to a format similar to that which now exists in Australia would encourage the release of more timely, relevant information and so improve the signalling incentives for, and consequently the power of, the US repurchase mechanism.
Notes: doi: DOI: 10.1016/j.jcorpfin.2006.12.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4N08M7S-1/2/7095807f0528ed2532d93cc34f04e93f
Reference Type: Journal Article
Record Number: 29005
Author: U. R. Mittoo and Z. Zhang
Year: 2008
Title: The capital structure of multinational corporations: Canadian versus U.S. evidence
Journal: Journal of Corporate Finance
Volume: 14
Issue: 5
Pages: 706-720
Short Title: The capital structure of multinational corporations: Canadian versus U.S. evidence
ISSN: 0929-1199
Keywords: Capital structure
Multinational corporations
Canada
Abstract: Contrary to the U.S. evidence, we show that Canadian multinational corporations (MNCs) display higher leverage than domestic firms (DCs). This higher leverage is due to lower agency costs of debt associated with MNCs' U.S. operations. We also find that the Canadian firms with international bond market access have higher leverage than firms without such access. Comparison with a U.S. matched sample shows that the sensitivity of leverage to firm-specific factors differs between the two countries, especially for the MNCs samples. Our evidence indicates that capital structures of MNCs are a complex interaction of both home and host country factors and differences in leverage determinants across countries.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.09.012
URL: http://www.sciencedirect.com/science/article/B6VFK-4TKPVB9-1/2/051fb4a1555cc9c34d73fdbc5269cdec
Reference Type: Journal Article
Record Number: 29114
Author: A. Morgan, A. Poulsen and J. Wolf
Year: 2006
Title: The evolution of shareholder voting for executive compensation schemes
Journal: Journal of Corporate Finance
Volume: 12
Issue: 4
Pages: 715-737
Short Title: The evolution of shareholder voting for executive compensation schemes
ISSN: 0929-1199
Keywords: Proxy voting
Executive compensation
Abstract: We examine shareholder voting on management-sponsored compensation proposals from 1992 through 2003 to determine how voting has evolved as a result of changes in the corporate governance environment. We investigate three questions: have regulatory changes and changes in investor sentiment affected voting; do the same factors appear to influence voting over time and has the impact of the various factors changed over time; and do additional factors such as the level of compensation and alternate definitions of dilution influence voting support? We find evidence of changing trends in voting, that shareholders have become more sensitive to potentially harmful plan provisions, and that additional factors do affect voting.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.06.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4GMGW88-1/2/d659408465f1bb5dd04c41b239b54ef4
Reference Type: Journal Article
Record Number: 29366
Author: P. A. Mori
Year: 1996
Title: Financial information disclosure, union power, and integration
Journal: Journal of Corporate Finance
Volume: 2
Issue: 3
Pages: 283-299
Short Title: Financial information disclosure, union power, and integration
ISSN: 0929-1199
Keywords: Firm organization
Merger
Unions
Abstract: Laws prescribing public disclosure of firms' financial performance create asymmetries between integrated multi-plant organizations and independent single-plant firms as to the release of information about firm profitability. The paper analyses how such asymmetries affect the merger choice through their impact on union power. Merging different production units into one firm has the effect of reducing plant unions' information about the surplus their members help produce. This in turn reduces their bargaining power and hence there arises an incentive for firm owners to merge their assets even in the absence of pecuniary or technical externalities between plants.
Notes: doi: DOI: 10.1016/0929-1199(95)00012-7
URL: http://www.sciencedirect.com/science/article/B6VFK-4177RYD-3/2/7d6c3c7649c327a8b69f17ec88ab91f0
Reference Type: Journal Article
Record Number: 29356
Author: S. Mukherji, Y. H. Kim and M. C. Walker
Year: 1997
Title: The effect of stock splits on the ownership structure of firms
Journal: Journal of Corporate Finance
Volume: 3
Issue: 2
Pages: 167-188
Short Title: The effect of stock splits on the ownership structure of firms
ISSN: 0929-1199
Keywords: Stock splits
Ownership structure
Signaling
Abstract: Although several researchers have speculated that stock splits may affect the ownership structure of firms, there is very little empirical evidence available in this regard. We investigate a broad sample of stock splits by firms without confounding events, controlling for industry and size effects. Our results show that stock splits increase the numbers of both individual and institutional shareholders, and they do not affect the proportion of equity held by institutions. Further, changes in the numbers of individual and institutional shareholders are positively related to the split factor. Abnormal announcement returns are positively correlated with changes in the total number of shareholders. These findings support the signaling hypothesis.
Notes: doi: DOI: 10.1016/S0929-1199(96)00014-4
URL: http://www.sciencedirect.com/science/article/B6VFK-3SWTKS3-4/2/b2a0dc0ef69492b469b5ebc5ff7c335a
Reference Type: Journal Article
Record Number: 29303
Author: J. H. Mulherin and A. L. Boone
Year: 2000
Title: Comparing acquisitions and divestitures
Journal: Journal of Corporate Finance
Volume: 6
Issue: 2
Pages: 117-139
Short Title: Comparing acquisitions and divestitures
ISSN: 0929-1199
Keywords: Acquisitions
Equity carve-outs
Spinoffs
Asset sales
Synergy
Abstract: We study the acquisition and divestiture activity of a sample of 1305 firms from 59 industries during the 1990-1999 period. Consistent with the importance of restructuring activity during the 1990s, we find that half of the sample firms are acquired or engage in a major divestiture. Consistent with the notion that economic change is a source of the observed restructuring activity, we find significant industry clustering in both acquisitions and divestitures. We also study the announcement effects of the two forms of restructuring and find that both acquisitions and divestitures in the 1990s increase shareholder wealth. Moreover, the wealth effects for both acquisitions and divestitures are directly related to the relative size of the event. The symmetric, positive wealth effects for acquisitions and divestitures are consistent with a synergistic explanation for both forms of restructuring and are inconsistent with nonsynergistic models based on entrenchment, empire building and hubris.
Notes: doi: DOI: 10.1016/S0929-1199(00)00010-9
URL: http://www.sciencedirect.com/science/article/B6VFK-40V4F2V-2/2/c94893caee0618f216228d3f1d417e22
Reference Type: Journal Article
Record Number: 29116
Author: J. Nam, C. Tang, J. J. H. Thornton and K. Wynne
Year: 2006
Title: The effect of agency costs on the value of single-segment and multi-segment firms
Journal: Journal of Corporate Finance
Volume: 12
Issue: 4
Pages: 761-782
Short Title: The effect of agency costs on the value of single-segment and multi-segment firms
ISSN: 0929-1199
Keywords: Equity-based compensation
Agency costs
Diversification
Abstract: This paper investigates the effectiveness of equity-based compensation in mitigating the effects of agency costs on the valuation of single-segment and multi-segment firms. In a sample of 4182 firm-year observations during the period 1993-1998, we find that firms with high equity-based compensation have higher valuation than firms with low equity-based compensation. This is true in both single-segment and multi-segment firms. The effect of equity-based compensation for multi-segment firms, where agency costs are expected to be higher, is much greater than for single-segment firms. Also, the negative value-effect of diversification is less for firms with high equity-based compensation.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.06.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4J7B0X0-1/2/4100140d210d9fd71b5e9bb30c65f607
Reference Type: Journal Article
Record Number: 29357
Author: V. Nanda and Y. Yun
Year: 1996
Title: Financial innovation and investor wealth: A study of the poison put in convertible bonds
Journal: Journal of Corporate Finance
Volume: 3
Issue: 1
Pages: 1-22
Short Title: Financial innovation and investor wealth: A study of the poison put in convertible bonds
ISSN: 0929-1199
Keywords: Poison put provisions
Convertible bonds
Financial innovation
Abstract: The takeover boom of the 1980s was accompanied by a series of innovations in debt contracts, including the poison put that allows bonds to be redeemed in the event of a corporate control change. The poison put was included in a large majority of convertible debt offerings, shortly after the first issues with such provisions. We attempt to understand the factors that contributed to the widespread adoption of this innovation in convertible bonds and the consequences for shareholder wealth. Our findings suggest that by reducing the potential for bondholder-shareholder conflicts and by conveying positive information about future takeover prospects, poison puts result in significant benefits to issuing firm shareholders, particularly if the firm is under takeover speculation. There are, however, no benefits when a firm has adopted antitakeover measures prior to the offering. There is weaker evidence that existing bondholders do worse when poison puts are present.
Notes: doi: DOI: 10.1016/S0929-1199(96)00005-3
URL: http://www.sciencedirect.com/science/article/B6VFK-3SWT51X-1/2/d67b024bbd032044706e098fa6fcf1b0
Reference Type: Journal Article
Record Number: 29247
Author: R. C. Nash, J. M. Netter and A. B. Poulsen
Year: 2003
Title: Determinants of contractual relations between shareholders and bondholders: investment opportunities and restrictive covenants
Journal: Journal of Corporate Finance
Volume: 9
Issue: 2
Pages: 201-232
Short Title: Determinants of contractual relations between shareholders and bondholders: investment opportunities and restrictive covenants
ISSN: 0929-1199
Keywords: Contracts
Covenants
Bond financing
Investment opportunities
Investment banking
Abstract: We evaluate the costs and benefits of restrictive covenants in bonds issued in 1989 and 1996. Our results indicate that firms with growth opportunities are more likely to seek to preserve flexibility in future financing activities by not including dividend or debt issuance restrictions in their bond contracts. We do not find, however, that the use of other restrictive covenants is significantly lower for firms with high investment opportunities. Instead, the use of these other covenants is primarily driven by the issuing firm's likelihood of financial distress. Our results emphasize that contractual relations between firms and bondholders reflect the specific needs of the contracting parties.
Notes: doi: DOI: 10.1016/S0929-1199(02)00007-X
URL: http://www.sciencedirect.com/science/article/B6VFK-45M6K9X-2/2/91fb76904323325d22956a9dd95b9d7d
Reference Type: Journal Article
Record Number: 29015
Author: N. Nayar and D. Stock
Year: 2008
Title: Make-whole call provisions: A case of "much ado about nothing?"
Journal: Journal of Corporate Finance
Volume: 14
Issue: 4
Pages: 387-404
Short Title: Make-whole call provisions: A case of "much ado about nothing?"
ISSN: 0929-1199
Keywords: Call feature
Shelf issue
Information effects
Abstract: The topic of make-whole call provisions on bond issues remains a relatively unexplored area in modern finance literature, with the exception of Mann and Powers [Mann, S.V. and Powers, E.A., 2003, Indexing a Bond's Call Price: An Analysis of Make-whole Call Provisions, Journal of Corporate Finance 9(5), 535-554.]. This paper examines the corporate finance implications of including such a call feature in bond issuances, and how such issuances are different from bond issuances which are not callable, or which employ regular call features. We find that bond issuances employing make-whole call provisions (1) are accompanied by a significantly positive stock price reaction, (2) exhibit superior post-issuance stock returns, and (3) are associated with positive analyst revisions in the long-term growth rate of earnings. These results suggest that bond issuances which include make-whole call provisions are indeed very different from the other issuances, and are clearly not a case of "much ado about nothing".
Notes: (Nandu)
doi: DOI: 10.1016/j.jcorpfin.2008.04.006
URL: http://www.sciencedirect.com/science/article/B6VFK-4SDX2PW-1/2/fa53655d1b5f38e207bd967e7096aa17
Reference Type: Journal Article
Record Number: 29185
Author: J. Nelson
Year: 2005
Title: Corporate governance practices, CEO characteristics and firm performance
Journal: Journal of Corporate Finance
Volume: 11
Issue: 1-2
Pages: 197-228
Short Title: Corporate governance practices, CEO characteristics and firm performance
ISSN: 0929-1199
Keywords: Corporate governance practices
CEO characteristics
Firm performance
Abstract: This paper examines the link between firm performance, CEO characteristics and changes in corporate governance practices using an unbalanced panel of 1721 firms from 1980 to 1995. This paper provides the stylized facts about corporate governance practices and details how governance practices have evolved over time. By 1995, the majority of firms had implemented differing types of charter amendments, poison pills or other governance provisions that are potentially harmful to shareholders. Most firms have adopted multiple and even redundant governance provisions. Shareholders are more likely to approve an increase in the power of the boards of directors of better performing firms, while the boards of poorly performing firms are much more likely to initiate governance changes, such as poison pills, that circumvent shareholder approval. I find no relationship between CEO age, tenure or compensation and governance changes.
Notes: doi: DOI: 10.1016/j.jcorpfin.2003.07.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4BT7JS7-1/2/52bacd9c1d38e88e46b6753f00002225
Reference Type: Journal Article
Record Number: 29138
Author: J. M. Nelson
Year: 2006
Title: The "CalPERS effect" revisited again
Journal: Journal of Corporate Finance
Volume: 12
Issue: 2
Pages: 187-213
Short Title: The "CalPERS effect" revisited again
ISSN: 0929-1199
Keywords: Event studies
Institutional activism
Corporate governance
Abstract: Smith [Smith, M., 1996. Shareholder activism by institutional investors: evidence from CALPERS. Journal of Finance 51, 227-252] and Wahal [Wahal, S., 1996. Public pension fund activism and firm performance. Journal of Financial and Quantitative Analysis 31, 1-23] identify significant positive abnormal returns surrounding the announcement of performance targetings by the California Public Employees Retirement System (CalPERS), dubbed the "CalPERS effect." More recent studies suggest that this "CalPERS effect" continues in later samples. While I confirm the early period results, I find the results reported in studies examining later periods are driven by the inclusion of early 1992-1993 targetings and from a significant bias in the market model parameters caused by estimation during periods of known under-performance. Additionally, these results are partially driven by the failure to control for contaminating events and the use unnecessarily long event windows. Contrary to previous studies, after addressing these methodological concerns, I find no evidence to support the continued existence of a "CalPERS effect".
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.07.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4GY8718-2/2/9eb52afcb4cd1175b32490d0f798bf35
Reference Type: Journal Article
Record Number: 29159
Author: J. M. Nelson, J. S. Moffitt and J. Affleck-Graves
Year: 2005
Title: The impact of hedging on the market value of equity
Journal: Journal of Corporate Finance
Volume: 11
Issue: 5
Pages: 851-881
Short Title: The impact of hedging on the market value of equity
ISSN: 0929-1199
Keywords: Hedging
Currency, commodity and interest rate derivatives
Over-performance
Abstract: We examine the annual stock performance of firms that disclose the use of derivatives to hedge over the period 1995 to 1999. We find that only 21.6% of publicly traded U.S. corporations in our sample hedged with derivative instruments over this period and their use is concentrated in the larger companies. Similar to other studies we find that when derivatives are used, interest rate and currency securities are used much more frequently than commodity products. Our sample of 1308 companies that hedge outperforms other securities by 4.3% per year on average over our sample period. This result is robust to several alternative methods of estimating abnormal returns. When we segment performance by the type of hedge used, however, we find that the over-performance is due entirely to larger firms that hedge currency. We find no abnormal returns for firms hedging either interest rates or commodities. The abnormal returns in firms hedging currency is robust to alternative models that seek to control for exchange rate fluctuations and global equity returns; however, we find no significant abnormal returns to currency hedgers when using an augmented model that controls for the role of intangible assets.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.02.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4GNKRFP-2/2/d23688f8578832f32343a762b5d3201f
Reference Type: Journal Article
Record Number: 28979
Author: J. Netter, A. Poulsen and M. Stegemoller
Year: 2009
Title: The rise of corporate governance in corporate control research
Journal: Journal of Corporate Finance
Volume: 15
Issue: 1
Pages: 1-9
Short Title: The rise of corporate governance in corporate control research
ISSN: 0929-1199
Keywords: Corporate governance
Corporate control
Mergers
Acquisition
Abstract: This article has two related tasks. First, we review the articles published in this Special Issue on Corporate Control, Mergers, and Acquisitions. These articles provide new evidence on several aspects of corporate control and governance including the value and performance effects of various ownership groups, the impact of internal governance structures, the effects of regulatory changes on specific industries and evidence on bidding strategies in takeovers. This analysis leads us to our second task - to examine the evolution of corporate control research, broadly defined. Our analysis shows a movement in research from mergers and acquisitions to a broader analysis of corporate governance, especially internal governance features. We suggest that there is a trend toward an increase in the relative importance of internal governance compared to discipline from the market from corporate control. This trend reflects an important change over the past several decades in the means through which the market disciplines corporate behavior.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.10.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4TT3427-1/2/ca94e4d6f71a725142d891bec64733b9
Reference Type: Journal Article
Record Number: 29071
Author: E. Nikoskelainen and M. Wright
Year: 2007
Title: The impact of corporate governance mechanisms on value increase in leveraged buyouts
Journal: Journal of Corporate Finance
Volume: 13
Issue: 4
Pages: 511-537
Short Title: The impact of corporate governance mechanisms on value increase in leveraged buyouts
ISSN: 0929-1199
Keywords: Leveraged buyout
Management buyout
Internal rate of return
Corporate governance
Abstract: Using a novel, hand-collected dataset, comprising 321 exited buyouts in the UK in the period 1995 to 2004, this study examines the realized value increase in exited leveraged buyouts. Testing the free cash flow theory, we show that value increase and return characteristics of LBOs are to some extent related to the corporate governance mechanisms resulting from a leveraged buyout, especially managerial equity holdings. We show that return characteristics and the probability of a positive return are mainly related to size of the buyout target and acquisitions carried out during the holding period. Furthermore, we find that the return characteristics between insider driven buyouts and outsider driven buyins are different.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.04.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4NSPVX5-1/2/057664b0e7eaaf81ce8e8b533dd8189e
Reference Type: Journal Article
Record Number: 29186
Author: T. Nohel and S. Todd
Year: 2005
Title: Compensation for managers with career concerns: the role of stock options in optimal contracts
Journal: Journal of Corporate Finance
Volume: 11
Issue: 1-2
Pages: 229-251
Short Title: Compensation for managers with career concerns: the role of stock options in optimal contracts
ISSN: 0929-1199
Keywords: Executive compensation
Stock options
Career concerns
Pay-for-performance
Abstract: We study the problem of compensating a manager whose career concerns affect his investment strategy. We consider contracts that include cash, shares, and call options, focusing on the role of options in aligning incentives. We find that managers are optimally paid in cash, supplemented by a small amount of call options; shares are excluded. The options are struck at-the-money, consistent with the near-uniform practice of compensation committees. The convexity of option payoffs helps to overcome managerial conservatism, although a nontrivial underinvestment problem persists. Our model yields several testable implications regarding cross-sectional variation in the size of option grants and pay-for-performance sensitivity.
Notes: doi: DOI: 10.1016/S0929-1199(03)00047-6
URL: http://www.sciencedirect.com/science/article/B6VFK-48TMN26-1/2/f77e4d0eba88776e5fc59c9d184942b7
Reference Type: Journal Article
Record Number: 29287
Author: D. S. North
Year: 2001
Title: The role of managerial incentives in corporate acquisitions: the 1990s evidence
Journal: Journal of Corporate Finance
Volume: 7
Issue: 2
Pages: 125-149
Short Title: The role of managerial incentives in corporate acquisitions: the 1990s evidence
ISSN: 0929-1199
Keywords: Corporate governance
Managerial ownership
Mergers
Block ownership
Board composition
Abstract: This paper examines the relationship between the likelihood a firm is acquired and the governance and financial characteristics of the firm. Given many of the developments in the corporate control market in the late 1980s, I suspect that the process governing takeover likelihood may have changed in the 1990s. I examine a sample of 342 NYSE/AMEX firms that were acquired during the 1990-1997 period and compare them to a matched sample of nonacquired firms. I find that firms that were acquired over this period can be characterized as having lower managerial ownership and higher ownership by outsiders, particularly higher ownership by nonmanagement blockholders with board representation. The fact that managerial ownership is negatively related to takeover likelihood is consistent with studies using data from 1970s and 1980s. This suggests that managerial ownership helps managers maintain control, or alternatively that ownership proxies for how much managers care about control.
Notes: doi: DOI: 10.1016/S0929-1199(01)00017-7
URL: http://www.sciencedirect.com/science/article/B6VFK-43DDWJC-2/2/67f69c937bd00491924ffb3591b95c07
Reference Type: Journal Article
Record Number: 29371
Author: S. W. Norton
Year: 1995
Title: Is franchising a capital structure issue?
Journal: Journal of Corporate Finance
Volume: 2
Issue: 1-2
Pages: 75-101
Short Title: Is franchising a capital structure issue?
ISSN: 0929-1199
Keywords: Franchising
Capital structure
Incentives
Signalling
Abstract: This paper reviews recent research on franchising and capital structure. Several key variables that affect capital costs and are common to franchised businesses are identified. The question whether or not franchising exists because franchisees provide capital that has no close substitutes for pioneering entrepreneurs is explored and criticized because alternatives to franchisees' funds are readily available and not used by franchisers. The role of franchisee financing is also examined as a key feature of capital structure in these types of industries.
Notes: doi: DOI: 10.1016/0929-1199(95)00005-S
URL: http://www.sciencedirect.com/science/article/B6VFK-3Y2GCVW-7/2/4a0c508316e82182be1f9716bb585f4e
Reference Type: Journal Article
Record Number: 29175
Author: E. T. Nwaeze
Year: 2005
Title: Replacement versus adaptation investments and equity value
Journal: Journal of Corporate Finance
Volume: 11
Issue: 3
Pages: 523-549
Short Title: Replacement versus adaptation investments and equity value
ISSN: 0929-1199
Keywords: Replacement investments
Adaptation investments
Investment option
Equity value
Abstract: I examine the relative effects of replacement investments (RX) and adaptation investments (AX) on equity value. My analysis draws from the real-options theory that stresses the link between firm value and the option a firm holds to continue current practice or to adapt resources to new opportunities. The key prediction is that replacement and adaptation investments reflect the exercise of different investment options that have different implications for firm value; the effect of each investment type on firm value depends on the relative attractiveness of the underlying investment option. The results show that, in the presence of earnings, the effect of replacement investments on equity value is negative and increasing in earnings performance; by contrast, the effect of adaptation investments on equity value is positive and decreasing in earnings performance. Further analyses show that asset sales mediate the importance of adaptation investments in determining equity value.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.01.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4C7VY3X-2/2/10fc62dfb50943dcbdfae6b6e5c8f77e
Reference Type: Journal Article
Record Number: 28983
Author: D. Offenberg
Year: 2009
Title: Firm size and the effectiveness of the market for corporate control
Journal: Journal of Corporate Finance
Volume: 15
Issue: 1
Pages: 66-79
Short Title: Firm size and the effectiveness of the market for corporate control
ISSN: 0929-1199
Keywords: Mergers and acquisitions
Market for corporate control
Firm size
Agency theory
CEO turnover
Abstract: Recent research has shown evidence that larger firms are more likely to destroy shareholder wealth through acquisitions. Those findings suggest that managers of larger firms are less likely to be disciplined by the market for corporate control than managers of smaller firms. With a sample of nearly 8000 acquisitions over the period from 1980-1999, this paper offers evidence to the contrary. The results suggest that larger firms are more likely to be the target of a disciplinary takeover than smaller firms. Further tests indicate that CEOs of larger firms are significantly more likely to be replaced following a series of poor acquisitions than CEOs of smaller firms. In total, managers of the largest firms continue to make the worst acquisitions despite the evidence that they are more likely to be punished for doing so.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.09.006
URL: http://www.sciencedirect.com/science/article/B6VFK-4TGS7D2-2/2/89b9929094bd6393b0bc87c92e0cf510
Reference Type: Journal Article
Record Number: 29055
Author: M. S. Officer
Year: 2007
Title: Are performance based arbitrage effects detectable? Evidence from merger arbitrage
Journal: Journal of Corporate Finance
Volume: 13
Issue: 5
Pages: 793-812
Short Title: Are performance based arbitrage effects detectable? Evidence from merger arbitrage
ISSN: 0929-1199
Keywords: Performance based arbitrage
Merger arbitrage
Merger spreads
Abstract: This paper examines the predictions of the performance based arbitrage hypothesis for the merger arbitrage market. Performance based arbitrage [Shleifer, A., Vishny, R.W., 1997. The limits of arbitrage. Journal of Finance, 52 (1), 35-55] is the notion that funds under management are withdrawn from arbitrageurs following trading losses, resulting in inefficient prices for securities subject to arbitrage trades. I examine general comovement in merger arbitrage spreads and the response of spreads to large arbitrage losses and substantial changes in deal flow. I find little evidence that merger arbitrage spreads exhibit systematic comovement or are substantially affected by important liquidity events in this market.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.02.006
URL: http://www.sciencedirect.com/science/article/B6VFK-4NFXG83-4/2/593f6ace86588d7d6bb8e2555a3916d6
Reference Type: Journal Article
Record Number: 29205
Author: H. Osano
Year: 2004
Title: Stock options and employees' firm-specific human capital under the threat of divestitures and acquisitions
Journal: Journal of Corporate Finance
Volume: 10
Issue: 4
Pages: 615-638
Short Title: Stock options and employees' firm-specific human capital under the threat of divestitures and acquisitions
ISSN: 0929-1199
Keywords: Stock option plans
Stock offers
Firm-specific human capital
Abstract: This paper considers whether the first-best level of firm-specific human capital investment is attained by the use of stock option plans for workers and stock offers in acquisitions even though workers are threatened with the possibility of a divestiture and acquisition. We show that the first-best level of investment is achieved by a stock option plan with a positive exercise price for workers conditional on the event of a divestiture. We also suggest that, under certain conditions, a stock offer in acquisition can resolve a collusion problem between the target firm (TF) and its workers.
Notes: doi: DOI: 10.1016/S0929-1199(03)00026-9
URL: http://www.sciencedirect.com/science/article/B6VFK-488P573-1/2/91f0f7b40c2a8c778981ed511b0b5b3d
Reference Type: Journal Article
Record Number: 29110
Author: I. Otchere
Year: 2006
Title: Stock exchange self-listing and value effects
Journal: Journal of Corporate Finance
Volume: 12
Issue: 5
Pages: 926-953
Short Title: Stock exchange self-listing and value effects
ISSN: 0929-1199
Keywords: Stock exchange
Governance structure
Performance
Self-listing
Abstract: The stock exchange industry has experienced strong competition in recent years. The commercial realities of the day have compelled some exchanges to change their ownership and governance structure from mutual to public ownership and have listed their shares on their own exchanges. This paper examines the value effects of self-listing and the attendant change in business strategy on the performance of listed exchanges. The results provide considerable support for the proposition that exchanges whose traditional sources of revenue have come under severe pressure, and those that have experienced a slow growth in net profit margin but high growth in market activities, are likely to change their ownership structure from mutual to public ownership. A comparison of the operating performance of the listed exchanges to that of a control group of non-listed exchanges shows that the self-listed exchanges have performed better than their non-listed counterparts. The self-listed exchanges also outperformed the stock market indexes and a control group of non-exchange firms that went public in the same year as the listed exchanges. I submit that better monitoring of managerial performance, the potential threat of takeover from the market for corporate control that accompanies self-listing and the reduction in agency costs associated with the mutual form of exchange contribute to unlock growth opportunities and value for the publicly traded stock exchanges.
Notes: doi: DOI: 10.1016/j.jcorpfin.2006.02.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4JS2098-1/2/f5263c9645ea9c78a0a88ca78a70adec
Reference Type: Journal Article
Record Number: 29313
Author: D. Palia and F. Lichtenberg
Year: 1999
Title: Managerial ownership and firm performance: A re-examination using productivity measurement
Journal: Journal of Corporate Finance
Volume: 5
Issue: 4
Pages: 323-339
Short Title: Managerial ownership and firm performance: A re-examination using productivity measurement
ISSN: 0929-1199
Keywords: Firm performance
Managerial ownership
Abstract: The role of productivity in firm performance is of fundamental importance to the US economy. Consistent with the corporate finance approach, this paper uses the ownership stake of a firm's managers as an argument in estimating the firm's production function. Accordingly, this paper brings together the corporate finance and productivity literature. Using a large sample of randomly selected manufacturing firms that does not suffer from any survivorship or large firm size biases, we find that managerial ownership changes are positively related to changes in productivity. We also find a higher sensitivity of changes in managerial ownership to changes in productivity for firms who experience greater than the median change in managerial ownership. These results are robust to including lagged estimates of production inputs, year dummies and separate dummies for each firm to control for unobservable firm characteristics. In addition, we find that the stock market rewards firms with increases in firm value when these firms increase their level of productivity.
Notes: doi: DOI: 10.1016/S0929-1199(99)00009-7
URL: http://www.sciencedirect.com/science/article/B6VFK-3Y51V09-2/2/867a3a9f1693ad3ced5d9da4fbd223c6
Reference Type: Journal Article
Record Number: 29262
Author: O. Palmon and J. K. Wald
Year: 2002
Title: Are two heads better than one? The impact of changes in management structure on performance by firm size
Journal: Journal of Corporate Finance
Volume: 8
Issue: 3
Pages: 213-226
Short Title: Are two heads better than one? The impact of changes in management structure on performance by firm size
ISSN: 0929-1199
Keywords: CEO
Chairman of the Board
Management Structure
Abstract: We investigate how switching between two alternative management structures affects firms, and how this impact varies with firm size. Under one structure a single executive serves as both chief executive officer (CEO) and chairman of the board (COB). Under the alternative structure two separate executives fill these positions. In order to evaluate which management structure is optimal, we examine the impact of a change in management structure on firm performance. A change from one to two executives induces negative abnormal returns for small firms, but positive abnormal returns for large firms. These impacts are also evident with accounting profitability measures of returns. Our results are consistent with the hypothesis that small firms benefit more from the clarity and decisiveness of decision-making under a single executive, while large firms benefit more from the checks and balances of having two executives in the CEO and COB positions.
Notes: doi: DOI: 10.1016/S0929-1199(01)00042-6
URL: http://www.sciencedirect.com/science/article/B6VFK-45M5P54-2/2/3b164d8bda322697b746b903ad5af003
Reference Type: Journal Article
Record Number: 28957
Author: F. Palomino, L. Renneboog and C. Zhang
Year: 2009
Title: Information salience, investor sentiment, and stock returns: The case of British soccer betting
Journal: Journal of Corporate Finance
Volume: 15
Issue: 3
Pages: 368-387
Short Title: Information salience, investor sentiment, and stock returns: The case of British soccer betting
ISSN: 0929-1199
Keywords: Investor mood
Media attention
Sports betting
Football
Market efficiency
Abstract: Soccer clubs listed on the London Stock Exchange provide a unique way of testing stock price reactions to different types of news. For each firm, two pieces of information are released on a weekly basis: experts' expectations about game outcomes through the betting odds, and the game outcomes themselves. The stock market reacts strongly to news about game results, generating significant abnormal returns and trading volumes. We find evidence that the abnormal returns for the winning teams do not reflect rational expectations but are high due to overreactions induced by investor sentiment. This is not the case for losing teams. There is no market reaction to the release of new betting information although these betting odds are excellent predictors of the game outcomes. The discrepancy between the strong market reaction to game results and the lack of reaction to betting odds may not only be the result from overreaction to game results but also from the lack of informational content or information salience of the betting information. Therefore, we also examine whether betting information can be used to predict short-run stock returns subsequent to the games. We reach mixed results: we conclude that investors ignore some non-salient public information such as betting odds, and betting information predicts a stock price overreaction to game results which is influenced by investors' mood (especially when the teams are strongly expected to win).
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.12.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4V70NB2-1/2/40f142699b3594f07c1c6f92c8dead5c
Reference Type: Journal Article
Record Number: 29211
Author: Y. W. Park and H.-H. Shin
Year: 2004
Title: Board composition and earnings management in Canada
Journal: Journal of Corporate Finance
Volume: 10
Issue: 3
Pages: 431-457
Short Title: Board composition and earnings management in Canada
ISSN: 0929-1199
Keywords: Board of directors
Earnings management
Abnormal accruals
Abstract: This study contributes to the literature on the role of the board by investigating the effect of board composition on the practice of earnings management in Canada. We find that earnings are managed upward to avoid reporting losses and earnings declines. While outside directors, as a whole, do not reduce abnormal accruals, directors from financial intermediaries reduce earnings management, and the board representation of active institutional shareholders reduces it further. We do not find that monitoring of abnormal accruals by outside directors, as a whole, or by directors from financial institutions is more effective after the issuance of the Toronto Stock Exchange's Corporate Governance Guidelines of 1994. Finally, we do not find that earnings management decreases with the average tenure of outside directors as board members of the firm, either. Our findings suggest that adding outside directors to the board may not achieve improvement in governance practices by itself, especially in jurisdictions where ownership is highly concentrated and the outside directors' labor market may not be well developed.
Notes: doi: DOI: 10.1016/S0929-1199(03)00025-7
URL: http://www.sciencedirect.com/science/article/B6VFK-48F5T9H-2/2/c91bba28c211aa3b1130b3a16ba6abd5
Reference Type: Journal Article
Record Number: 28998
Author: S. Patro
Year: 2008
Title: The evolution of ownership structure of corporate spin-offs
Journal: Journal of Corporate Finance
Volume: 14
Issue: 5
Pages: 596-613
Short Title: The evolution of ownership structure of corporate spin-offs
ISSN: 0929-1199
Keywords: G30
G32
G34
Ownership structure
Block ownership
Spin-offs
Endogeneity
Growth options
Monitoring
Firm performance
Survival
Abstract: Spin-offs inherit the ownership structure of their parents. The change from the monitoring requirements of the parent to those of an often smaller and higher risk firm constitutes a shock to this inherited ownership structure. This paper examines how block ownership changes in response to this shock and the performance and survival consequences of these changes. Block ownership increases from an average inherited level of 20.34% to 27.35% in three years. Comparison with size and industry-matched firms shows that this is not due to secular trends. Block ownership increases more when the inherited block ownership is smaller, when the spin-offs are smaller, have poorer performance and fewer growth opportunities relative to the parent, and when they operate in industries that are less related to the parents' industries. The results suggest that block ownership changes in response to the monitoring needs of spin-offs. This interpretation is supported by the positive association between changes in block ownership and subsequent firm performance and survival.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.08.009
URL: http://www.sciencedirect.com/science/article/B6VFK-4TCR1NK-1/2/b2d69a6daef7769c3f2c42d112d7115e
Reference Type: Journal Article
Record Number: 29043
Author: K. Pattenden and G. Twite
Year: 2008
Title: Taxes and dividend policy under alternative tax regimes
Journal: Journal of Corporate Finance
Volume: 14
Issue: 1
Pages: 1-16
Short Title: Taxes and dividend policy under alternative tax regimes
ISSN: 0929-1199
Keywords: Dividend policy
Taxes
Dividend imputation
Abstract: This paper examines changes in corporate dividend policy around the introduction of a dividend imputation tax system. This represented a significant change to the Australian tax framework and allows us to test the effect of differential taxation on corporate dividend policy. Consistent with the tax preference for the distribution of dividends, we find dividend initiations, all dividend payout measures and dividend reinvestment plans increased with the introduction of dividend imputation. Similarly we find that gross dividend payouts are more volatile under dividend imputation. Finally, we find that the increase in dividend payout and initiations differs across firms. In particular, we find that the higher the level of available franking tax credits the higher the firm's gross dividend payout and the more likely the firm is to initiate a dividend.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.09.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4PSK8S9-1/2/c9cf4b7505c71d0d4d8baf0efdc8cb1b
Reference Type: Journal Article
Record Number: 29214
Author: A. L. Paulson and R. Townsend
Year: 2004
Title: Entrepreneurship and financial constraints in Thailand
Journal: Journal of Corporate Finance
Volume: 10
Issue: 2
Pages: 229-262
Short Title: Entrepreneurship and financial constraints in Thailand
ISSN: 0929-1199
Keywords: Entrepreneurship
Financial constraints
Thailand
Abstract: We use new data from rural and semi-urban Thailand to examine how financial constraints affect entrepreneurial activity. The analysis uses nonparametric and reduced form techniques. The results indicate that financial constraints play an important role in shaping the patterns of entrepreneurship in Thailand. In particular, wealthier households are more likely to start businesses. Wealthier households are also more likely to invest more in their businesses and face fewer constraints. We also provide evidence that financial constraints place greater restrictions on entrepreneurial activity in the poor Northeast compared to the more developed Central region.
Notes: doi: DOI: 10.1016/S0929-1199(03)00056-7
URL: http://www.sciencedirect.com/science/article/B6VFK-49D72WC-1/2/bb1f77c149e85a0c93a7dd00f485bf92
Reference Type: Journal Article
Record Number: 29360
Author: T. H. Payne, J. A. Millar and G. William Glezen
Year: 1996
Title: Fiduciary responsibility and bank-firm relationships: An analysis of shareholder voting by banks
Journal: Journal of Corporate Finance
Volume: 3
Issue: 1
Pages: 75-87
Short Title: Fiduciary responsibility and bank-firm relationships: An analysis of shareholder voting by banks
ISSN: 0929-1199
Keywords: Corporate control
Shareholder voting
Bank fiduciary responsibility
Bank voting behavior
Bank director interlock
Abstract: An active market for corporate control has prompted corporate managers to lobby for measures that protect their positions. It has been argued that corporate managements have worked to entrench themselves at the expense of outside shareholders and have pressured institutional investors (including banks) to vote on corporate matters in a manner supportive of managements' proposals. One source of potential pressure arises when bank fiduciaries manage employee savings plans, pension funds, and engage in other fee generating corporate trust activities for firms whose shares they vote. In addition, banks often extend commercial credit to firms whose shares the trust division votes. Finally, director interlock between banks and corporations is likely to bias voting behavior. Fiduciary loyalty may be compromised by bankers' concern that failure to support management can threaten business relationships. The objective of this study is to investigate the effects of conflicting relationships on the voting behavior of banks as fiduciaries. The empirical results indicate that where director interlock and income-related relationships exist, banks tend to vote in favor of management antitakeover proposals; however, where these business relationships do not exist banks tend to vote against such proposals.
Notes: doi: DOI: 10.1016/S0929-1199(96)00006-5
URL: http://www.sciencedirect.com/science/article/B6VFK-3SWT51X-4/2/7f43c772977562fd8c5203c6cc3ab1d6
Reference Type: Journal Article
Record Number: 29054
Author: E. Perotti and S. Rossetto
Year: 2007
Title: Unlocking value: Equity carve outs as strategic real options
Journal: Journal of Corporate Finance
Volume: 13
Issue: 5
Pages: 771-792
Short Title: Unlocking value: Equity carve outs as strategic real options
ISSN: 0929-1199
Keywords: Equity carve out
Real option
Buy back
Sell out
Vertical integration
Horizontal integration
Abstract: Equity carve outs, the partial listing of a corporate subsidiary, appear to be transitory arrangements, usually dissolved within a few years by either a complete sale or a buy back. Why do firms perform expensive listings just to reverse them thereafter? We interpret carve outs of a production unit as strategic options to attract information from the market over its value as an independent entity. This improves the decision to exercise the option to sell out or to regain control. A listing is costly, as it reduces coordination of production, but generates valuable information from the market over the optimal allocation of ownership. We compute the optimal timing for the final sale or buy back decisions, the value of the strategic options embedded in the carve out and the optimal shares retained. The model explains the temporary nature of carve outs, and suggests an explanation for many empirical findings. In particular, it explains why carve outs are more common in highly uncertain sectors and in more informative markets.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.03.007
URL: http://www.sciencedirect.com/science/article/B6VFK-4NNPCD6-1/2/a7b7d3fee11570a8b4d6f59c87d1d6c5
Reference Type: Journal Article
Record Number: 29350
Author: J. C. Persons
Year: 1997
Title: Heterogeneous shareholders and signaling with share repurchases
Journal: Journal of Corporate Finance
Volume: 3
Issue: 3
Pages: 221-249
Short Title: Heterogeneous shareholders and signaling with share repurchases
ISSN: 0929-1199
Keywords: Repurchase
Dividend
Signaling
Heterogeneous shareholders
Abstract: This paper presents an asymmetric information model of share repurchases when shareholders have heterogeneous reservation values. Consistent with empirical evidence, managers in the model repurchase shares at a premium above the post-repurchase share value -- transferring wealth from shareholders who do not tender to those who do -- in order to signal that the firm is undervalued. Such dilutive repurchases would not occur under the classical assumption of perfectly elastic share supply; they depend critically on shareholder heterogeneity. It is also shown that repurchases are more efficient signals than other strategies like dividends and [`]burning money'. The model's implications are consistent with much empirical evidence regarding announcement returns, repurchase size, repurchase premiums and expiration-day price drops.
Notes: doi: DOI: 10.1016/S0929-1199(96)00012-0
URL: http://www.sciencedirect.com/science/article/B6VFK-3SX0D8F-2/2/6f5afaad5224935fc7ec7a5ecea304b9
Reference Type: Journal Article
Record Number: 29301
Author: J. C. Persons
Year: 2000
Title: Fully revealing equilibria with suboptimal investment
Journal: Journal of Corporate Finance
Volume: 6
Issue: 3
Pages: 331-344
Short Title: Fully revealing equilibria with suboptimal investment
ISSN: 0929-1199
Keywords: Signaling
Inefficient investment
Multiple equilibria
Abstract: Myers and Majluf [Myers, S.C., Majluf, N.S., 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics 13, 187-221.] showed that mispriced securities can lead managers with private information to invest inefficiently. It seems plausible that this problem would disappear in a fully revealing equilibrium, since information asymmetries are resolved and securities are priced correctly. In fact, Constantinides and Grundy [Constantinides, G.M., Grundy, B.D., 1989. Optimal investment with stock repurchase and financing as signals. Review of Financial Studies 2, 445-465.] claim that, in their model, any fully revealing equilibrium has efficient investment. This claim is incorrect, as infinitely many inefficient equilibria exist for the very example they work out. The inefficient outcomes survive the standard signaling-game equilibrium refinements. There are also examples that have fully revealing equilibria with inefficient investment but none with efficient investment.
Notes: doi: DOI: 10.1016/S0929-1199(00)00008-0
URL: http://www.sciencedirect.com/science/article/B6VFK-40X8H9S-4/2/7a4961bcf3debfeabfaec430bcdc8723
Reference Type: Journal Article
Record Number: 29024
Author: A. B. Poulsen
Year: 2008
Title: The dynamics of corporate governance: Changes in contractual relations
Journal: Journal of Corporate Finance
Volume: 14
Issue: 3
Pages: 163-165
Short Title: The dynamics of corporate governance: Changes in contractual relations
ISSN: 0929-1199
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.04.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4SB8DWB-1/2/b1495981a8af64fc052b8bca11e2e6cf
Reference Type: Journal Article
Record Number: 29189
Author: R. G. Powell and A. W. Stark
Year: 2005
Title: Does operating performance increase post-takeover for UK takeovers? A comparison of performance measures and benchmarks
Journal: Journal of Corporate Finance
Volume: 11
Issue: 1-2
Pages: 293-317
Short Title: Does operating performance increase post-takeover for UK takeovers? A comparison of performance measures and benchmarks
ISSN: 0929-1199
Keywords: Takeovers
Operating cash flows
Benchmarks
Market validation
Abstract: Using several benchmarks and operating performance measures, the results from this paper suggest that takeovers completed in the UK over the period 1985 to 1993 result in modest improvements in operating performance. Using a matching procedure similar to that employed by Loughran and Ritter [J. Finance 52 (1997) 1823], in which benchmark firms are selected on the basis of several pre-takeover characteristics, the median increase in post-takeover performance for acquiring firms ranges from 0.13% per annum to a statistically significant 1.78% per annum, depending on the definition of operating performance used and choice of deflator. Using the same matching scheme in a Healy et al. [J. Financ. Econ. 31 (1992) 135] methodology, in which post-takeover performance is regressed on a combined target and acquirer pre-takeover performance, reveals larger improvements in operating performance, ranging from 0.80% to a statistically significant 3.1%, again depending on the definition of operating performance employed and deflator chosen. While there is some evidence that factors such as industrial relatedness and the removal of the target CEO have an impact on post-takeover performance, method of payment is found to have an insignificant impact.
Notes: doi: DOI: 10.1016/j.jcorpfin.2003.06.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4B5JSTY-1/2/e46b8f3fb28168c8a0a31d52c8b0c128
Reference Type: Journal Article
Record Number: 29174
Author: E. A. Powers
Year: 2005
Title: Interpreting logit regressions with interaction terms: an application to the management turnover literature
Journal: Journal of Corporate Finance
Volume: 11
Issue: 3
Pages: 504-522
Short Title: Interpreting logit regressions with interaction terms: an application to the management turnover literature
ISSN: 0929-1199
Keywords: Interaction terms
Logit
Turnover
Abstract: Logit and probit models of turnover=f(performance, firm type, firm type*performance, controls) are often used when testing whether turnover is "more sensitive to performance" for different types of firms. Researchers using this specification typically focus on the significance of the interaction term coefficient. If the intent is to show that the likelihood (rather than the odds) of turnover changes by more for one type of firm as performance varies, then this is an inappropriate test. Simulations are used to demonstrate how focusing on this particular coefficient can generate incorrect inferences. I then show how analyzing marginal effects eliminates this inference problem.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.08.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4DXJYWK-2/2/a1217a7700356dbaa747fc76ec90069e
Reference Type: Journal Article
Record Number: 29051
Author: K. Pukthuanthong, R. Roll and T. Walker
Year: 2007
Title: How employee stock options and executive equity ownership affect long-term IPO operating performance
Journal: Journal of Corporate Finance
Volume: 13
Issue: 5
Pages: 695-720
Short Title: How employee stock options and executive equity ownership affect long-term IPO operating performance
ISSN: 0929-1199
Keywords: Initial public offerings
Stock options
Executive compensation
Abstract: To ascertain whether the form of managerial compensation affects a firm's long-term operating performance, we track IPOs for 5 years after the expiration of the stabilization period. New public companies perform better when managers receive a balanced combination of stock option grants and equity ownership. Firms with unbalanced compensation arrangements, large option grants and little equity ownership or vice versa do not perform as well. This empirical finding is consistent with a theoretical explanation based on managerial risk aversion and the alignment of managerial and owner incentives.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.02.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4NF2H94-1/2/2e7e92b412667a34009acf6c592f234d
Reference Type: Journal Article
Record Number: 29242
Author: B. A. Rayton
Year: 2003
Title: Firm performance and compensation structure: performance elasticities of average employee compensation
Journal: Journal of Corporate Finance
Volume: 9
Issue: 3
Pages: 333-352
Short Title: Firm performance and compensation structure: performance elasticities of average employee compensation
ISSN: 0929-1199
Keywords: Firm performance
Compensation structure
Performance elasticity
Average employee compensation
Abstract: Agency costs are a cost of production, and firms that do a better job of minimizing these costs should exhibit better performance. This paper tests this hypothesis by calculating the performance elasticity of average employee hourly compensation for U.S. manufacturing firms. This elasticity indicates the degree of alignment between employee and shareholder objectives. The estimated elasticity is indistinguishable from zero in low performance firms, and it equals 0.193 in high performance firms. While it is difficult to know whether an elevated performance sensitivity causes better firm performance, clearly the best performers in manufacturing industries link average employee pay to performance.
Notes: doi: DOI: 10.1016/S0929-1199(02)00017-2
URL: http://www.sciencedirect.com/science/article/B6VFK-460DN7J-1/2/2ef5df3c53b06682d02098e6c8ac5f64
Reference Type: Journal Article
Record Number: 29254
Author: B. A. Rayton
Year: 2003
Title: The residual claim of rank and file employees
Journal: Journal of Corporate Finance
Volume: 9
Issue: 1
Pages: 129-148
Short Title: The residual claim of rank and file employees
ISSN: 0929-1199
Keywords: Residual income claim
Rank and file employee
Shareholder
Abstract: This paper estimates the intensity of the value-maximization incentives for average employees generated through the combination of wage, salary, and bonus mechanisms. This is accomplished through estimation of the elasticity of average employee hourly compensation with respect to changes in firm performance. This performance elasticity indicates the degree of alignment between employee and shareholder objectives, and it can also be interpreted as an incomplete residual income claim for employees. The estimated performance elasticity for the full sample of firms is not significantly different from a CEO salary-plus-bonus performance elasticity of 0.1 published in Coughlan and Schmidt [Journal of Accounting and Economics 7 (1985) 43]. Jensen and Murphy [Journal of Political Economy 98 (1990) 225] find that CEOs received approximately US$3.25 for each US$1000 increase in shareholder wealth. This translates to an elasticity of just over 57, but most of these payments come through channels other than salaries and bonuses. Jensen and Murphy report a performance sensitivity of salary and bonus payments for CEOs that is equivalent to analogous elasticities for rank and file workers reported in this paper. While the rewards CEOs receive through salary and bonus channels are larger than those of average employees in absolute terms, these rewards represent comparable fractions of income. This paper also finds differences in the pay-performance link based on firm size. The estimated performance elasticity is 0.197 in small firms and is indistinguishable from zero in large firms. The results indicate that firms use wage, salary and bonus adjustments to direct approximately 5.3% of firm value increases to employees. Although the precise link between pay and performance is not visible with this data, these results indicate that average employees benefit when the firm performs well.
Notes: doi: DOI: 10.1016/S0929-1199(01)00045-1
URL: http://www.sciencedirect.com/science/article/B6VFK-47PCP01-8/2/bc89a6ee9b5fd48cc6fe2a2fa97b4dec
Reference Type: Journal Article
Record Number: 29074
Author: L. Renneboog, T. Simons and M. Wright
Year: 2007
Title: Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation
Journal: Journal of Corporate Finance
Volume: 13
Issue: 4
Pages: 591-628
Short Title: Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation
ISSN: 0929-1199
Keywords: Public to private
Going-private
Delisting
Private equity
LBO
MBO
IBO
MBI
Management buyins
Management buyouts
Leveraged buyouts
Abstract: This paper examines the magnitude and the sources of the expected shareholder gains in UK public to private transactions (PTPs) in the second wave from 1997 to 2003. Pre-transaction shareholders on average receive a premium of 40% and the share price reaction to the PTP announcement is about 30%. We test the sources of the anticipated value creation of the delisting and distinguish between: tax benefits, incentive realignment, control reasons, free cash flow reduction, transactions cost reduction, takeover defences, undervaluation and wealth transfers, The main sources of the shareholder wealth gains are undervaluation of the pre-transaction target firm, increased interest tax shields and incentive realignment. An expected reduction of free cash flows does not determine the premiums, nor are PTPs a defensive reaction against a takeover.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.04.005
URL: http://www.sciencedirect.com/science/article/B6VFK-4NSV11K-1/2/56436d7dcbb57d43f26e380d8310d700
Reference Type: Journal Article
Record Number: 29033
Author: L. Renneboog, J. Ter Horst and C. Zhang
Year: 2008
Title: The price of ethics and stakeholder governance: The performance of socially responsible mutual funds
Journal: Journal of Corporate Finance
Volume: 14
Issue: 3
Pages: 302-322
Short Title: The price of ethics and stakeholder governance: The performance of socially responsible mutual funds
ISSN: 0929-1199
Keywords: Ethical mutual funds
Socially responsible investing
Investment screens
Smart money
Risk loadings
Abstract: Do investors pay a price for investing in socially responsible investments (SRI) funds, or do they obtain superior returns? This paper investigates these under- and overperformance hypotheses for all SRI funds across the world. Consistent with investors paying a price for ethics, SRI funds in the US, the UK, and in many continental European and Asia-Pacific countries underperform their domestic benchmarks by - 2.2% to - 6.5%. However, with the exception of some countries such as France, Japan and Sweden, the risk-adjusted returns of SRI funds are not statistically different from the performance of conventional funds. We also find that the underperformance of SRI funds is not driven by loadings on an ethics style factor. There is mixed evidence of a smart money effect: SRI investors are unable to identify the funds that will outperform in the future, whereas they show some fund-selection ability in identifying funds that will perform poorly. Finally, corporate governance and social screens yield lower risk-adjusted returns.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.03.009
URL: http://www.sciencedirect.com/science/article/B6VFK-4S6G8Y6-1/2/1192dee1a42cd25a4914cef52c792263
Reference Type: Journal Article
Record Number: 29011
Author: A. Renucci
Year: 2008
Title: Access to financing, rents, and organization of the firm
Journal: Journal of Corporate Finance
Volume: 14
Issue: 4
Pages: 337-346
Short Title: Access to financing, rents, and organization of the firm
ISSN: 0929-1199
Keywords: Unitary-form
Multidivisional-form
Agency rents
Credit rationing
Abstract: This paper provides a theory for the choice of an organizational structure by the headquarters of a unitary structure concerned about overload. The headquarters can avoid overload by delegating operational decisions to divisions, i.e., moving the firm to a multidivisional structure. We show that, under moral hazard, these divisions receive rents for incentive purposes, and that the multidivisional structure is able to invest more. Thus, there is a trade-off between increasing investment and paying rents. We also show that this trade-off applies to situations where firms consider engaging in acquisitions and joint ventures, or where entrepreneurs consider resorting to venture capitalists.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.03.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4S32NK5-1/2/ebcb0da28cb5799c78d78947f4c082e9
Reference Type: Journal Article
Record Number: 28984
Author: D. T. Robinson
Year: 2009
Title: Size, ownership and the market for corporate control
Journal: Journal of Corporate Finance
Volume: 15
Issue: 1
Pages: 80-84
Short Title: Size, ownership and the market for corporate control
ISSN: 0929-1199
Keywords: Mergers and acquisitions
Corporate governance
Abstract: This paper is written with two goals in mind. The first is to offer a critical discussion of papers by Bauguess, Moeller, Schlingemann, and Zutter [Bauguess, Scott, Moeller, Sara, Schlingemann, Frederich and Zutter, Chad, 2009. Ownership structure and target returns. Journal of Corporate Finance, this issue], and Offenberg [Offenberg, David, 2009. Firm size and the effectiveness of the market for corporate control. Journal of Corporate Finance, this issue], both of which appear in this special issue. The second goal is to offer some perspectives about new questions that these papers bring to light.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.09.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4TDC0C4-2/2/116e33ecb889f1771d0e74fcdb60fab7
Reference Type: Journal Article
Record Number: 29083
Author: U. Rodrigues and M. Stegemoller
Year: 2007
Title: An inconsistency in SEC disclosure requirements? The case of the "insignificant" private target
Journal: Journal of Corporate Finance
Volume: 13
Issue: 2-3
Pages: 251-269
Short Title: An inconsistency in SEC disclosure requirements? The case of the "insignificant" private target
ISSN: 0929-1199
Keywords: Takeover
SEC
Disclosure
Financial statements
Acquisition
Merger
Abstract: Although the SEC's main charge is to ensure the disclosure of material information, it has not always consistently defined materiality. We show that acquisitions of privately-held targets classified as "insignificant" by the SEC appreciably affect market prices, and therefore are material by the SEC's definition. We find significant returns in transactions with targets as small as 2% - compared with the SEC's disclosure threshold of 20% - of the acquirer. Further, an average of 19 undisclosed private acquisitions per year exceed the median IPO value in the same year for our sample period. However, because the SEC deems these transactions insignificant, information like target financial statements remains undisclosed to the market. Disclosure rules regarding target financial statements thus create a regulatory disconnect, in which information that is material is nevertheless deemed "insignificant" and therefore not disclosed.
NURL: http://www.sciencedirect.com/science/article/B6VFK-4M4KK6D-1/2/2bbc34044b9c7d3a6983519fbd936293
Reference Type: Journal Article
Record Number: 29141
Author: P. Roosenboom and W. Schramade
Year: 2006
Title: The price of power: Valuing the controlling position of owner-managers in French IPO firms
Journal: Journal of Corporate Finance
Volume: 12
Issue: 2
Pages: 270-295
Short Title: The price of power: Valuing the controlling position of owner-managers in French IPO firms
ISSN: 0929-1199
Keywords: Ownership structure
Initial public offerings (IPOs)
Going public
Abstract: Going public often creates an agency conflict between the owner-manager and minority shareholders. This problem is especially severe in countries with poor legal investor protection, such as France. We examine the controlling position of owner-managers in French initial public offering (IPO) firms. We find that investors anticipate the increased agency conflict associated with a lock on control and lower firm value when the owner-manager is more powerful. Shareholder agreements in which the owner-manager agrees to share control with other pre-IPO owners enhance firm value. We also report that higher cash flow ownership by the owner-manager is positively related to firm value when he is not in full control. Finally, we document that the large (non-pecuniary) private benefits of control in France may motivate owner-managers to retain control after the IPO.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.02.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4GH49R3-3/2/4dace1e48830f035191c77461d79e66e
Reference Type: Journal Article
Record Number: 28987
Author: M. J. Rose
Year: 2009
Title: Heterogeneous impacts of staggered boards by ownership concentration
Journal: Journal of Corporate Finance
Volume: 15
Issue: 1
Pages: 113-128
Short Title: Heterogeneous impacts of staggered boards by ownership concentration
ISSN: 0929-1199
Keywords: Ownership concentration
Staggered boards
Takeover defenses
Managerial entrenchment
Corporate governance
Abstract: Previous studies provide evidence of a negative relationship between staggered boards and firm value. However, these studies use specifications that do not allow for the heterogeneous impacts of staggered boards for different subsets of firms as predicted by theory. This paper presents more detailed hypotheses regarding how the impact of staggered boards should vary with the probability of takeover. Empirical findings using outside ownership concentration as a proxy for that probability confirm predictions that while for most firms staggered boards do have a negative impact on firm value, for a substantial and identifiable subset of firms staggered boards appear benign.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.09.008
URL: http://www.sciencedirect.com/science/article/B6VFK-4THJGJM-1/2/34ac633100a0b2b9037e80fd498e2e05
Reference Type: Journal Article
Record Number: 29286
Author: H. E. Ryan and R. A. Wiggins
Year: 2001
Title: The influence of firm- and manager-specific characteristics on the structure of executive compensation
Journal: Journal of Corporate Finance
Volume: 7
Issue: 2
Pages: 101-123
Short Title: The influence of firm- and manager-specific characteristics on the structure of executive compensation
ISSN: 0929-1199
Keywords: Executive compensation
Agency conflicts
Monitoring
Abstract: We analyze the influence of firm and managerial characteristics on executive compensation. Consistent with theory, we find monitoring difficulties result in greater use of options while CEO and blockholder ownership result in less. Risky investment is positively related to options and negatively related to cash bonus and restricted stock, suggesting that firms use options to encourage managers to take risks. We find a negative (positive) relation between options and leverage (convertible debt) consistent with minimizing the agency costs of debt. Finally, we provide new evidence on managerial horizon and incentives, documenting a concave relation between cash bonus and CEO age.
Notes: doi: DOI: 10.1016/S0929-1199(00)00021-3
URL: http://www.sciencedirect.com/science/article/B6VFK-43DDWJC-1/2/760ec8cb62f03c0e172e5f9e58c4b376
Reference Type: Journal Article
Record Number: 28989
Author: H. E. Ryan Jr
Year: 2009
Title: A discussion of the efficacy of governance in the context of corporate acquisitions: Evidence on staggered boards and institutional trading and voting
Journal: Journal of Corporate Finance
Volume: 15
Issue: 1
Pages: 146-148
Short Title: A discussion of the efficacy of governance in the context of corporate acquisitions: Evidence on staggered boards and institutional trading and voting
ISSN: 0929-1199
Keywords: Mergers and acquisitions
Staggered boards
Institutional trading
Shareholder voting
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.10.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4TRCYBB-1/2/d22f3da00d32fe40e2584bd1e1e5ed95
Reference Type: Journal Article
Record Number: 29302
Author: M. Ryngaert
Year: 2000
Title: Editor's Note
Journal: Journal of Corporate Finance
Volume: 6
Issue: 2
Pages: 111-115
Short Title: Editor's Note
ISSN: 0929-1199
Notes: doi: DOI: 10.1016/S0929-1199(00)00009-2
URL: http://www.sciencedirect.com/science/article/B6VFK-40V4F2V-1/2/9d960aa14abfed617a903a93e0a7edc6
Reference Type: Journal Article
Record Number: 29347
Author: J. C. Santos
Year: 1997
Title: Debt and equity as optimal contracts
Journal: Journal of Corporate Finance
Volume: 3
Issue: 4
Pages: 355-366
Short Title: Debt and equity as optimal contracts
ISSN: 0929-1199
Keywords: Debt
Equity
Optimal contracts
Abstract: This paper shows the simultaneous optimally of debt and equity contracts in a principal-agent model. The agent (an entrepreneur) has an investment project but does not have the necessary funds to finance it. There is moral hazard in the model, generated by the dependence of the project's expected return on the (unobservable) agent's effort. Key to the optimality of these financial instruments is the nonassignable rent produced by the project and captured by the entrepreneur when the investment is successful.
Notes: doi: DOI: 10.1016/S0929-1199(97)00004-7
URL: http://www.sciencedirect.com/science/article/B6VFK-3SWSK8H-3/2/5eb5bddedfe6452406f4f4b97ed96e93
Reference Type: Journal Article
Record Number: 29352
Author: O. H. Sarig and E. Talmor
Year: 1997
Title: In defense of defensive measures
Journal: Journal of Corporate Finance
Volume: 3
Issue: 3
Pages: 277-297
Short Title: In defense of defensive measures
ISSN: 0929-1199
Keywords: Investment decisions
Defensive measures
Shareholders
Incumbent managers
Abstract: We examine how measures that defend incumbent managers against replacement by rival managers affect the information generated in control contests and how this information is used in subsequent investment decisions. We show that commonly used defensive measures allow shareholders to make better investment decisions than they can make absent these measures. Consequently, the adoption of defensive measures can increase shareholders' wealth. We find that good managers are less defended than poor managers and that managers whose interests are closely aligned with those of shareholders (e.g., via options or bonus plans) are less defended and have more control over firm decisions than managers whose interests are not so well aligned with those of shareholders. We also show that the informational role of defensive measures depends on the relative uncertainty about the quality of both parties to a control contest, and relate the predictions to the empirical evidence in the literature.
Notes: doi: DOI: 10.1016/S0929-1199(96)00016-8
URL: http://www.sciencedirect.com/science/article/B6VFK-3SX0D8F-4/2/83c13e4617cc5ac4d88d0a88b888121b
Reference Type: Journal Article
Record Number: 29327
Author: K. T. Saunders
Year: 1999
Title: The interest rate swap: Theory and evidence
Journal: Journal of Corporate Finance
Volume: 5
Issue: 1
Pages: 55-78
Short Title: The interest rate swap: Theory and evidence
ISSN: 0929-1199
Keywords: Interest rate swap
Interest rate exchange agreement
Hedging
Financial derivative
Abstract: Nonfinancial firms that use interest rate swaps are compared with nonusers for the years 1991, 1993, and 1995. Swap use grew from 6% of all firms in 1991 to 8% in 1995. Nonfinancial firms use fixed rate payer swaps more often than floating rate payer swaps. Firms that use swaps are significantly larger and have a higher debt to equity ratio relative to nonusers. Fixed rate payers receive a ratings' upgrade significantly more often than floating rate payers and experience a significantly higher percentage increase in net sales in the year of swap initiation relative to floating rate payers and the industry average. Floating rate payers have a significantly higher S&P bond rating relative to the industry average. The test results lend support to the information asymmetry theory of swap usage [Titman, S., 1992. Interest rate swaps and corporate financing choices, Journal of Finance 47, pp. 1503-1516] and lend some support to the asset substitution portion of the agency cost theory of swap usage [Wall, L.D., 1989. Interest rate swaps in an agency theoretic model with uncertain interest rates. Journal of Banking and Finance 13, pp. 261-270].
Notes: doi: DOI: 10.1016/S0929-1199(98)00017-0
URL: http://www.sciencedirect.com/science/article/B6VFK-3VTSD54-3/2/199060d1e89ae03b4a30e619edffe284
Reference Type: Journal Article
Record Number: 29195
Author: M. J. Schill
Year: 2004
Title: Sailing in rough water: market volatility and corporate finance
Journal: Journal of Corporate Finance
Volume: 10
Issue: 5
Pages: 659-681
Short Title: Sailing in rough water: market volatility and corporate finance
ISSN: 0929-1199
Keywords: Equity offerings
Market volatility
Underwriting
Underpricing
Abstract: This paper examines how market volatility affects corporate financing transactions. Firms face substantial uncertainty with respect to the price, demand, and after-market costs associated with raising public capital. The ability to effectively hedge this risk is critical to the efficient financing of firm capital needs. Using monthly US equity-related financing transactions from 1970 to 1998, I find that market volatility dampens financing transactions, particularly among small or unseasoned firms. Periods of above normal market volatility are associated with a significant 13% decline in the frequency of initial public offering (IPO) transactions and a 21% decline in the number of IPO dollars raised. Increased market volatility generates greater underwriting fees but does not affect IPO underpricing. The findings are most consistent with Mandelker and Raviv's [J. Finance 32 (1977) 683] model of costly distribution risk bearing.
Notes: doi: DOI: 10.1016/S0929-1199(03)00045-2
URL: http://www.sciencedirect.com/science/article/B6VFK-48M812P-1/2/6b4b2eb899ab76c57208511a62a88b4b
Reference Type: Journal Article
Record Number: 29196
Author: F. P. Schlingemann
Year: 2004
Title: Financing decisions and bidder gains
Journal: Journal of Corporate Finance
Volume: 10
Issue: 5
Pages: 683-701
Short Title: Financing decisions and bidder gains
ISSN: 0929-1199
Keywords: Takeovers
Financing decisions
Managerial discretion
Pecking order
Abstract: This paper analyzes the relation between bidder gains and the source of financing funds available. We document that after controlling for the form of payment, financing decisions during the year before a takeover play an important role in explaining the cross section of bidder gains. Bidder announcement period abnormal returns are positively and significantly related to the amount of ex ante equity financing. This relation is particularly strong for high q firms. We further report a negative and significant relation between bidder gains and free cash flow. This relation is particularly strong for firms classified as having poor investment opportunities. The amount of debt financing before a takeover announcement is not significantly related to bidder gains. Together, we take these findings as supportive of the pecking-order theory of financing and the free cash flow hypothesis.
Notes: doi: DOI: 10.1016/S0929-1199(03)00043-9
URL: http://www.sciencedirect.com/science/article/B6VFK-48KMMPD-1/2/0670f32e3344bb8653c2aa4dbc4eaff6
Reference Type: Journal Article
Record Number: 29169
Author: I. G. Sharpe and L.-A. E. Woo
Year: 2005
Title: Corporate control, expected underpricing, and the choice of issuance mechanism in unseasoned equity markets
Journal: Journal of Corporate Finance
Volume: 11
Issue: 4
Pages: 716-735
Short Title: Corporate control, expected underpricing, and the choice of issuance mechanism in unseasoned equity markets
ISSN: 0929-1199
Keywords: Corporate control
Underpricing
IPO
Placement
Abstract: Using unique Australian data we examine the choice of issuance mechanism for unseasoned equity (between initial public offers and direct placements) prior to exchange listing. Controlling for liquidity in the decision to go public and incorporating interrelated decisions, we find that corporate control concerns and expected underpricing differences between initial public offers and direct placements play an important role. Also the probability of an initial public offer (direct placement) decreases (increases) with information asymmetry and the reputation of the issuer. Further, the choice of issuance mechanism and the underpricing, issue size and ownership retention decisions are interrelated.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.03.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4G0HV9F-1/2/73efe8454d81b9e082c9452723e436a5
Reference Type: Journal Article
Record Number: 29268
Author: H.-H. Shin and Y. H. Kim
Year: 2002
Title: Agency costs and efficiency of business capital investment: evidence from quarterly capital expenditures
Journal: Journal of Corporate Finance
Volume: 8
Issue: 2
Pages: 139-158
Short Title: Agency costs and efficiency of business capital investment: evidence from quarterly capital expenditures
ISSN: 0929-1199
Keywords: Agency costs
Investment
Quarterly capital expenditures
Cash holdings
Firm size
Diversification
Abstract: Using the quarterly Compustat files, we present empirical findings that business capital investment is significantly higher in the fourth quarter than in other quarters. Even after controlling for business capital investment determinants, we find that the fourth quarter capital investment is significantly larger but less sensitive to investment opportunities than other quarters' capital investment. This phenomenon is more evident for firms with larger cash holdings than for firms with smaller cash holdings, for larger firms than for smaller firms, and for diversified firms than for stand-alone firms. Our findings suggest a high level of agency costs in corporate investment decisions.
Notes: doi: DOI: 10.1016/S0929-1199(01)00033-5
URL: http://www.sciencedirect.com/science/article/B6VFK-457VJGY-3/2/930af51381b75a946d27962d3afaa6c2
Reference Type: Journal Article
Record Number: 29323
Author: H.-H. Shin and Y. S. Park
Year: 1999
Title: Financing constraints and internal capital markets: Evidence from Korean [`]chaebols'
Journal: Journal of Corporate Finance
Volume: 5
Issue: 2
Pages: 169-191
Short Title: Financing constraints and internal capital markets: Evidence from Korean [`]chaebols'
ISSN: 0929-1199
Keywords: Korean chaebols
Investment-cash flow sensitivity
Internal capital market
Abstract: We compare the investment-cash flow sensitivity of Korean chaebols (conglomerates) and non-chaebol firms. We show that investment-cash flow sensitivity is low and insignificant for chaebol firms but is high and significant for non-chaebol firms. On the other hand, a chaebol firm's investment is significantly related to the growth opportunities but that of a non-chaebol firm is not. A chaebol firm's investment is significantly affected by the cash flow of other firms within the same chaebol even though they are independent legal entities. With these findings, we argue that there is an internal capital market in a chaebol and the internal capital market reduces the financing constraints of the chaebol. However, the operation of the internal capital market does not improve the efficiency of allocation of scarce funds in the Korean economy since we find that chaebols invest more than non-chaebol firms despite their relatively poor growth opportunities.
Notes: doi: DOI: 10.1016/S0929-1199(99)00002-4
URL: http://www.sciencedirect.com/science/article/B6VFK-3WRBP47-4/2/27e36e91b3babde5610d6c8367818f02
Reference Type: Journal Article
Record Number: 29328
Author: H. Short and K. Keasey
Year: 1999
Title: Managerial ownership and the performance of firms: Evidence from the UK
Journal: Journal of Corporate Finance
Volume: 5
Issue: 1
Pages: 79-101
Short Title: Managerial ownership and the performance of firms: Evidence from the UK
ISSN: 0929-1199
Keywords: Managerial ownership
UK
US
Abstract: Given the governance issues arising from the separation of ownership from control, the ability to align managerial and shareholder interests via the managerial ownership of equity is an important topic of inquiry. The findings of the primarily US based literature suggest that management is aligned at low and possibly high levels of ownership but is entrenched (pursuing self interests) at intermediate ownership levels. This paper extends the US based literature in a number of important ways. First, the analysis is extended to the UK where there are important differences, as compared to the US, in the governance system. A comparative analysis of key differences between the US and UK governance systems suggest that management should become entrenched at higher levels of ownership in the UK. Some of the reasons for this suggestion are that in the UK management do not have the same freedom as their US counterparts to mount takeover defenses and institutional investors in the UK are more able to co-ordinate their monitoring activities. The empirical results of the paper confirm that UK management become entrenched at higher levels of ownership than their US counterparts. Second, the results from extending the analysis to consider different measures of firm performance and a more generalized form of the relationship confirm the general finding of the US literature of a non-linear relationship between firm performance and managerial ownership.
Notes: doi: DOI: 10.1016/S0929-1199(98)00016-9
URL: http://www.sciencedirect.com/science/article/B6VFK-3VTSD54-4/2/c9e378382eee054dc84f3a090dbb00a2
Reference Type: Journal Article
Record Number: 29266
Author: H. Short, H. Zhang and K. Keasey
Year: 2002
Title: The link between dividend policy and institutional ownership
Journal: Journal of Corporate Finance
Volume: 8
Issue: 2
Pages: 105-122
Short Title: The link between dividend policy and institutional ownership
ISSN: 0929-1199
Keywords: Dividend policy
Institutional ownership
Abstract: This paper examines the relatively neglected link between dividend policy and institutional ownership. It is also the first example of using well-established dividend payout models to examine the potential association between ownership structures and dividend policy. Moreover, the paper presents the first results for the UK, where the institutional framework and ownership structures are different from those of the US. Using a UK panel data set, the role of institutional ownership in association to dividend payout ratios is analysed within the context of the dividend models of Lintner [American Economic Review, 46 (1956) 97], Waud [Journal of the American Statistical Association, 1996] and Fama and Babiak [Journal of the American Statistical Association, 63 (1968) 1132]. The results consistently produce strong support for the hypothesis that a positive association exists between dividend payout policy and institutional ownership. Furthermore, the results for an earnings trend model suggest a positive earnings trend component to the association between institutional ownership and the dividend payout ratio. In addition, there is some evidence in support of the hypothesis that a negative association exists between dividend payout policy and managerial ownership.
Notes: doi: DOI: 10.1016/S0929-1199(01)00030-X
URL: http://www.sciencedirect.com/science/article/B6VFK-457VJGY-1/2/a1752f53bdbdeef8d53c462bf9da8e6f
Reference Type: Journal Article
Record Number: 29314
Author: B. F. Smith and B. Amoako-Adu
Year: 1999
Title: Management succession and financial performance of family controlled firms
Journal: Journal of Corporate Finance
Volume: 5
Issue: 4
Pages: 341-368
Short Title: Management succession and financial performance of family controlled firms
ISSN: 0929-1199
Keywords: Succession
Financial performance
Family firms
Abstract: This paper examines the immediate and long-term impacts on financial performance of 124 management successions within Canadian family controlled firms. When family successors are appointed, stock prices decline by 3.20% during the 3-day (-1 to +1) event window, whereas there is no significant decrease when either non-family insiders or outsiders are appointed. However, a cross-sectional analysis indicates that the negative stock market reaction to family successors is related to their relatively young age which may reflect a lack of management experience rather than their family connection per se. Investors are uncertain about the "management quality" of family successors who have less established reputations than more seasoned non-family insiders and outsiders. Non-family member appointments tend to follow periods of poor operating performance implying that there might be more scope for improvement when a non-family successor is appointed. Unlike the US sample in McConaughy et al. [McConaughy, D.L., Walker, M.C., Henderson, G.V., Mishra, C.S., 1998. Founding family controlled firms: efficiency and value, Review of Financial Economics 7, 1-19.], which indicates that the median percentage of votes held by controlling families is less than 15%, the Canadian sample indicates a more concentrated ownership with the median percentage of family controlled votes exceeding 51%. Of the firms in our sample, 62% use dual class capitalization to maintain control within the family.
Notes: doi: DOI: 10.1016/S0929-1199(99)00010-3
URL: http://www.sciencedirect.com/science/article/B6VFK-3Y51V09-3/2/6d95059de59ba154e0d5c5d61e0bf8c7
Reference Type: Journal Article
Record Number: 29080
Author: J. K. Smith
Year: 2007
Title: Evaluating the boundaries of SEC regulation
Journal: Journal of Corporate Finance
Volume: 13
Issue: 2-3
Pages: 189-194
Short Title: Evaluating the boundaries of SEC regulation
ISSN: 0929-1199
Keywords: SEC
Regulation
Abstract: Ostensibly, the SEC's new round of regulatory activity is motivated by a bout of well-publicized business scandals and an explosive increase in financial innovations and instruments. Many critics of the "new" SEC question the proportionality and usefulness of the responses, which move the SEC well beyond reliance on disclosure and promotion of transparency. Others argue that more heavy-handed and far-reaching regulation is necessary given the vast changes in financial markets, the increasing importance of (largely unregulated) hedge funds and private equity, and corporate scandals that allege fraud and deception. This paper provides a rationale for studying recent regulatory changes and for addressing the overarching question of how to define the boundaries of SEC intervention in financial markets. The study provides an overview of papers in this special issue and concludes with suggestions for how policymakers can use research to better evaluate the costs and benefits of regulation.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.03.003
URL: http://www.sciencedirect.com/science/article/B6VFK-4NHV6XT-2/2/8bdf1b797d3c202e70e8dba403ae66e2
Reference Type: Journal Article
Record Number: 29392
Author: J. K. Smith and C. Schnucker
Year: 1994
Title: An empirical examination of organizational structure: The economics of the factoring decision
Journal: Journal of Corporate Finance
Volume: 1
Issue: 1
Pages: 119-138
Short Title: An empirical examination of organizational structure: The economics of the factoring decision
ISSN: 0929-1199
Keywords: Organization
Contracting
Trade credit
Factoring
Abstract: Sellers who extend trade credit to their business customers choose whether to integrate the management of trade credit or to enter into specialized factoring contracts. Using original data from a broad cross-section of firms we test a model of this decision. The model is based on a theory of the firm that stresses transactions costs (including information costs) as determinants of vertical integration. Consistent with expectations, we find that specificity of assets to the buyer-seller relationship is negatively related to the decision to factor and that factors are more likely to be used when information and monitoring costs are high.
Notes: doi: DOI: 10.1016/0929-1199(94)90012-4
URL: http://www.sciencedirect.com/science/article/B6VFK-47DD36X-D/2/a4dc69436827070eab6317a1e193d290
Reference Type: Journal Article
Record Number: 29225
Author: M. Spanò
Year: 2004
Title: Determinants of hedging and its effects on investment and debt
Journal: Journal of Corporate Finance
Volume: 10
Issue: 1
Pages: 175-197
Short Title: Determinants of hedging and its effects on investment and debt
ISSN: 0929-1199
Keywords: Hedging
Investment
Debt
Bankruptcy costs
Internal funds
Abstract: Froot et al. [J. Finance 48 (1993) 1629] develop a framework in which a firm trades derivatives on the financial markets to coordinate its investing and financing decisions. This work specifies this framework by assuming that the firm faces a risk of going bankrupt. By deriving an approximated analytical solution, some properties of the optimal hedging strategy and the effects of hedging on a firm's investing and financing behaviour are developed and discussed. Numerical simulations of the nonclosed-form optimal solution are also obtained to validate the approximation.
Notes: doi: DOI: 10.1016/S0929-1199(02)00037-8
URL: http://www.sciencedirect.com/science/article/B6VFK-478J2GV-1/2/68642bc685905f7e181ae243f1ce5e1e
Reference Type: Journal Article
Record Number: 29117
Author: J. D. Stowe and X. Xing
Year: 2006
Title: Can growth opportunities explain the diversification discount?
Journal: Journal of Corporate Finance
Volume: 12
Issue: 4
Pages: 783-796
Short Title: Can growth opportunities explain the diversification discount?
ISSN: 0929-1199
Keywords: Corporate diversification
Diversification discount
Growth opportunities
Firm valuation
Abstract: We investigate the possibility that the diversification discount is due to differing growth opportunities between diversified and single-segment firms. We do this by comparing diversified business segments with individual single-segment same-industry firms of comparable growth opportunities. Using a sample of 230 diversifying firms from 1981 to 1997, we find a significant valuation discount in diversified firms even when we control for the difference in growth opportunities between diversified and single-segment firms. This result suggests that differing growth opportunities between diversified and single-segment firms cannot account for the diversification discount.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.05.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4GFNG0C-1/2/c607ee29da669e663784cab938e13298
Reference Type: Journal Article
Record Number: 29359
Author: J. St-Pierre, J.-M. Gagnon and J. Saint-Pierre
Year: 1996
Title: Concentration of voting rights and board resistance to takeover bids
Journal: Journal of Corporate Finance
Volume: 3
Issue: 1
Pages: 45-73
Short Title: Concentration of voting rights and board resistance to takeover bids
ISSN: 0929-1199
Keywords: Corporate take overs
Board composition
Voting rights
Abstract: In this paper, we test the hypothesis that the probability of the target's board of directors resisting a takeover bid can be explained by two factors, transaction-specific variables and distribution of voting rights. Our study is conducted in Canada where the distribution of ownership and especially voting rights is more concentrated than in the United States. We find first that some transaction-specific variables are relevant. The past performance of the target, the premium and prior negotiations are negatively associated with the probability of resistance by the managers. Competing bids cause it to increase, but their effect is felt through their interaction with the premium. Given our specific information on prior negotiations, we interpret their effect as unambiguous evidence of risk-reducing behavior on the part of the board. The distribution of voting rights is also relevant: blocks of shares held by the directors are associated with an increase in the probability of resistance. This may be seen as evidence of managerial entrenchment. We document the degree to which these findings differ from those in the United States and seek to explain these differences. Our proxies for board composition are not statistically significant.
Notes: doi: DOI: 10.1016/S0929-1199(96)00008-9
URL: http://www.sciencedirect.com/science/article/B6VFK-3SWT51X-3/2/fcfdf5d4b20a87e1217c352b53ad05d7
Reference Type: Journal Article
Record Number: 29361
Author: M. E. Sykuta
Year: 1996
Title: Futures trading and supply contracting in the oil refining industry
Journal: Journal of Corporate Finance
Volume: 2
Issue: 4
Pages: 317-334
Short Title: Futures trading and supply contracting in the oil refining industry
ISSN: 0929-1199
Keywords: G11
L14
Futures trading
Supply contracting
Abstract: This paper examines the relation between commodity futures trading and the real side contracting behavior of firms dealing in the commodity. I argue that futures serve as a flexible form of physical contracting and should be examined in the context of the firm's contracting activities, and not strictly in the context of its financial activities. Data from an oil refining company are used to empirically study this relation. The results are consistent with a contracting view of futures use and appear inconsistent with implications of hedging theories.
Notes: doi: DOI: 10.1016/0929-1199(96)00004-1
URL: http://www.sciencedirect.com/science/article/B6VFK-3Y2GCW8-D/2/fb7bdccc5fe91ed0499dd240a616c2d6
Reference Type: Journal Article
Record Number: 29336
Author: S. Taylor and G. Whittred
Year: 1998
Title: Security design and the allocation of voting rights: Evidence from the Australian IPO market
Journal: Journal of Corporate Finance
Volume: 4
Issue: 2
Pages: 107-131
Short Title: Security design and the allocation of voting rights: Evidence from the Australian IPO market
ISSN: 0929-1199
Keywords: Differential voting rights
Corporate governance
Initial public offerings
Abstract: We examine the use of dual class stock in Australian second board firms at the time of going public. This setting provides a more powerful test of claims that departures from the [`]one-share one-vote' rule are a response to incentive problems created when maximizing firm value requires significant commitments of firm specific human capital. We find, relative to a control group, that dual class firms have a higher proportion of their value determined by the expected realization of growth options rather than assets-in-place. Although our conclusions must be tempered by the qualitative nature of much of the evidence, the value of these growth opportunities appears to be highly dependent on the human capital of the founding shareholders. The absence of substitute governance mechanisms further supports the view that insider control is an efficient organizational arrangement for these firms, as does the absence of longer term differences in performance relative to control firms. While dual class stock clearly entrenches insiders, we identify a variety of mechanisms (contractual, institutional and personal) which help to ensure that if control changes occur then any gains are shared equally by both classes of stockholder.
Notes: doi: DOI: 10.1016/S0929-1199(97)00012-6
URL: http://www.sciencedirect.com/science/article/B6VFK-3V72TS4-4/2/ec661ff462d96c9c0a7c68f70a444035
Reference Type: Journal Article
Record Number: 29089
Author: R. S. Thomas and J. F. Cotter
Year: 2007
Title: Shareholder proposals in the new millennium: Shareholder support, board response, and market reaction
Journal: Journal of Corporate Finance
Volume: 13
Issue: 2-3
Pages: 368-391
Short Title: Shareholder proposals in the new millennium: Shareholder support, board response, and market reaction
ISSN: 0929-1199
Keywords: Corporate governance
Shareholder proposals
Abstract: Although the owners of publicly traded companies have had the right to offer shareholder proposals using Rule 14a-8 for several decades, the effectiveness of the rule has been frequently questioned because few of these proposals received substantial support from other shareholders and even fewer have been implemented by boards. Using new data from the 2002-2004 proxy seasons, we analyze shareholder voting patterns on these proposals, board reactions to them, and market responses. We find some big changes from earlier periods: many more proposals are receiving majority shareholder support during our sample period relative to earlier studies, and this support has translated into directors implementing more of the actions called for by shareholders. In particular, boards are increasingly willing to remove important anti-takeover defenses, such as the classified board and poison pill, in response to shareholders' requests, something rarely seen in the past. Despite the increase in support for shareholder proposals and board action in response, we find small and insignificant stock market reaction. We conclude that shareholder proposals under Rule 14a-8 have an emerging role in reducing agency costs by increasing director responsiveness to shareholder concerns to open the market more fully to corporate control.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.02.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4NFXG83-1/2/943fee56ee4280f839f27b6eebb44c2a
Reference Type: Journal Article
Record Number: 29140
Author: S. Thomsen, T. Pedersen and H. K. Kvist
Year: 2006
Title: Blockholder ownership: Effects on firm value in market and control based governance systems
Journal: Journal of Corporate Finance
Volume: 12
Issue: 2
Pages: 246-269
Short Title: Blockholder ownership: Effects on firm value in market and control based governance systems
ISSN: 0929-1199
Keywords: Blockholder ownership
Firm value
Granger causality
System effects
Panel data analysis
Abstract: In this study, Granger tests are used to examine the relationship between blockholder ownership and the values of the largest companies in the European Union and the US. Previous studies on US data have found that blockholder ownership has no systematic effect on performance. We propose that these results may not apply to Continental Europe, where ownership concentration is typically higher, the level of investor protection is lower, and influential blockholders may have objectives other than shareholder value. In accordance with previous research, we find no significant association between blockholder ownership and prior or subsequent firm value in either the US or the UK. Nonetheless, in Continental Europe we find a negative association between blockholder ownership and firm value or accounting returns in the next period. Further analysis reveals that this association is significant only for companies with high initial levels of blockholder ownership (> 10%). We interpret this finding as evidence of conflicts of interest between blockholders and minority investors. The percentage of blockholder ownership in Continental Europe may be too high from a minority shareholder value viewpoint.
Notes: doi: DOI: 10.1016/j.jcorpfin.2005.03.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4GNTFM6-1/2/c7ea4419ea015c3a912f4f7635235035
Reference Type: Journal Article
Record Number: 28959
Author: Z. Tong
Title: Firm diversification and the value of corporate cash holdings
Journal: Journal of Corporate Finance
Volume: In Press, Corrected Proof
Short Title: Firm diversification and the value of corporate cash holdings
ISSN: 0929-1199
Keywords: Firm diversification
Corporate cash holdings
Abstract: This paper studies the effect of firm diversification on the value of corporate cash holdings. We develop two hypotheses based on efficient internal capital market and agency problems. We find that the value of cash is lower in diversified firms than in single-segment firms, and that firm diversification is associated with a lower value of cash in both financially unconstrained and constrained firms. We find that firm diversification has a negative (zero) impact on the value of cash among firms with a lower (higher) level of corporate governance. These findings are consistent with the interpretation that firm diversification reduces the value of corporate cash holdings through agency problems.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.05.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4W7RYC2-1/2/2017c358e7bc99bcfe3ebe9b1b27584b
Reference Type: Journal Article
Record Number: 29299
Author: M. F. Toyne, J. A. Millar and B. L. Dixon
Year: 2000
Title: The relation between CEO control and the risk of CEO compensation
Journal: Journal of Corporate Finance
Volume: 6
Issue: 3
Pages: 291-306
Short Title: The relation between CEO control and the risk of CEO compensation
ISSN: 0929-1199
Keywords: Corporate control
Compensation
Corporate board
Compensation risk
Abstract: Optimal ownership structure is an important issue in corporate governance debates. This study uses piece-wise regression analysis to examine the impact of ownership structure on the risk of CEO compensation. We show that when the CEO and the board of directors control low levels of voting stock (i.e., below 13% of total shares) increases in ownership are positively related to CEO compensation risk. For ownership levels above 13% but below 22%, increases in ownership are negatively related to CEO compensation risk. This evidence provides a partial explanation for the non-monotonic relationship between Tobin's Q and management ownership observed by Morck et al. (1988) [Morck, R., Shleifer, A., Vishny, R., 1988. Management ownership and market valuation: an empirical analysis, Journal of Financial Economics 20 (1988) 293-316.].
Notes: doi: DOI: 10.1016/S0929-1199(00)00004-3
URL: http://www.sciencedirect.com/science/article/B6VFK-40X8H9S-2/2/4e22e11522a6f41216686e7c8716f769
Reference Type: Journal Article
Record Number: 28970
Author: F. Urzúa I
Year: 2009
Title: Too few dividends? Groups' tunneling through chair and board compensation
Journal: Journal of Corporate Finance
Volume: 15
Issue: 2
Pages: 245-256
Short Title: Too few dividends? Groups' tunneling through chair and board compensation
ISSN: 0929-1199
Keywords: Tunneling
Groups
Board compensation
Dividends
Abstract: Group affiliation increases boards' compensation in countries as different as Korea, India, Hong Kong and Italy. In this paper, I examine a 6-year sample of controller-dominated, concentrated-ownership firms in Chile in search of a rationale for these results. I show that, for group-affiliated companies, controllers' presence on the board of directors is associated with a strong negative relation between chair and board compensation and controllers' cash-flow rights. Furthermore, I show that controllers of group-affiliated companies prefer to increase chair and board compensation rather than dividends as their cash-flow rights decrease.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.11.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4V1666B-1/2/a7f54b8d3243cd28a625b54124ea501a
Reference Type: Journal Article
Record Number: 29267
Author: J. van Bommel
Year: 2002
Title: Messages from market to management: the case of IPOs
Journal: Journal of Corporate Finance
Volume: 8
Issue: 2
Pages: 123-138
Short Title: Messages from market to management: the case of IPOs
ISSN: 0929-1199
Keywords: Initial public offerings
Capital budgeting
Abstract: An IPO's initial return contains new information about the true value of the firm and, hence, provides vital feedback for the investment decision. A high initial return encourages managers to expand, while a lower than expected post-IPO price leads to a reduction of the capital budget. Information production by market participants increases the precision of the market feedback captured in the first competitively determined stock price. Managers can entice investors to produce more information by selling larger stakes at lower prices. A too low offer price, however, attracts uninformed investors and decreases information production.
Notes: doi: DOI: 10.1016/S0929-1199(01)00040-2
URL: http://www.sciencedirect.com/science/article/B6VFK-457VJGY-2/2/8e15194bc3f10750d33817ff8ef6cc32
Reference Type: Journal Article
Record Number: 29300
Author: S. Wahal and J. J. McConnell
Year: 2000
Title: Do institutional investors exacerbate managerial myopia?
Journal: Journal of Corporate Finance
Volume: 6
Issue: 3
Pages: 307-329
Short Title: Do institutional investors exacerbate managerial myopia?
ISSN: 0929-1199
Keywords: Institutional investors
Managerial myopia
Endogeneity
Abstract: This study analyzes corporate expenditures for property, plant and equipment (PP&E), and research and development (R&D) for over 2500 US firms from 1988 to 1994. We find no support for the contention that institutional investors cause corporate managers to behave myopically. Indeed, we document a positive relation between industry-adjusted expenditures for PP&E and R&D and the fraction of shares owned by institutional investors. This relation is robust to a variety of empirical tests, including those that account for endogeneity between institutional ownership and firm-level discretionary expenditures.
Notes: doi: DOI: 10.1016/S0929-1199(00)00005-5
URL: http://www.sciencedirect.com/science/article/B6VFK-40X8H9S-3/2/feaf81bae7cf536bcc7d654ea4e6f947
Reference Type: Journal Article
Record Number: 29324
Author: J. Wald
Year: 1999
Title: Capital structure with dividend restrictions
Journal: Journal of Corporate Finance
Volume: 5
Issue: 2
Pages: 193-208
Short Title: Capital structure with dividend restrictions
ISSN: 0929-1199
Keywords: Dividends
Leverage
Profitability
Bankruptcy
Abstract: This paper develops a symmetric information model of a new firm which incorporates a constraint on dividend payments known as a balance sheet test. This test solves moral hazard problems that arise in credit markets where complete contracting over future actions is not possible. This constraint breaks down the traditional symmetric information result of separability between financial and real variables, and thus maximizing shareholder returns in this setting is not equivalent to maximizing total firm value. As a consequence, more profitable firms, those with a higher average product of capital, will have lower debt/equity ratios. Debt/equity ratios will be positively correlated with the firm's physical capital and negatively correlated with the firm's market power.
Notes: doi: DOI: 10.1016/S0929-1199(98)00020-0
URL: http://www.sciencedirect.com/science/article/B6VFK-3WRBP47-5/2/8851c0319c2253b321a201614e352677
Reference Type: Journal Article
Record Number: 29014
Author: M. D. Walker and K. Yost
Year: 2008
Title: Seasoned equity offerings: What firms say, do, and how the market reacts
Journal: Journal of Corporate Finance
Volume: 14
Issue: 4
Pages: 376-386
Short Title: Seasoned equity offerings: What firms say, do, and how the market reacts
ISSN: 0929-1199
Keywords: Seasoned equity offer
Capital structure
Agency costs
Abstract: Using a sample of 438 firms that issued seasoned equity, we investigate the ex ante reasons stated by the firm for the use of capital, the actual ex post use of funds, and the market reaction to this information. We find that, regardless of the stated use of funds, firms increase capital expenditures and research and development following an SEO. In addition, firms increase their long term debt following an SEO, even when the stated reason for the capital is to pay down debt. The market reacts more favorably to the anticipated investment increases if the firm provides specific plans for the use of the soon-to-be-raised capital. The evidence is consistent with the view that agency issues are important factors in SEOs.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.04.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4S80XF8-2/2/212d83effd290529bec7fca315d4f280
Reference Type: Journal Article
Record Number: 28963
Author: K.-M. Wan and K.-f. Wong
Title: Economic impact of political barriers to cross-border acquisitions: An empirical study of CNOOC's unsuccessful takeover of Unocal
Journal: Journal of Corporate Finance
Volume: In Press, Corrected Proof
Short Title: Economic impact of political barriers to cross-border acquisitions: An empirical study of CNOOC's unsuccessful takeover of Unocal
ISSN: 0929-1199
Keywords: Political barriers
Takeover premium
Cross-border acquisitions
Abstract: In 2005, the US Congress challenged the acquisition by CNOOC (a Chinese state-owned enterprise) of Unocal (a US firm). This challenge creates a political barrier for foreign companies to acquire US oil companies. This paper examines the stock price reaction of US oil companies to this political opposition. Using an event study methodology, we find that this political barrier resulted in a substantial decline in the market value of US oil companies. For a period of 44 days, during which six anti-CNOOC-takeover political events occurred, the cumulative decline in the market value of a portfolio of 13 US oil refining firms was $47.5 billion and that of a portfolio of 66 US oil and gas exploration firms was $11.4 billion. This study is the first to analyze and quantify the stock price reaction of US non-merging firms to political barriers to cross-border acquisitions. It also has a policy implication regarding the recent enactment of the Foreign Investment and National Security Act of 2007.
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.03.004
URL: http://www.sciencedirect.com/science/article/B6VFK-4W15KR2-1/2/b5bcc811a87a99cead8c7c80c8f19b40
Reference Type: Journal Article
Record Number: 29223
Author: S. Wang and H. Zhou
Year: 2004
Title: Staged financing in venture capital: moral hazard and risks
Journal: Journal of Corporate Finance
Volume: 10
Issue: 1
Pages: 131-155
Short Title: Staged financing in venture capital: moral hazard and risks
ISSN: 0929-1199
Keywords: Staged financing
Venture capital
Moral hazard
Risk
Abstract: This paper investigates staged financing in an environment where an entrepreneur faces an imperfect capital market and an investor faces moral hazard and uncertainty. Staged financing plays two roles in this model: to control risk and to mitigate moral hazard. Using parametric functions and comparing staged financing with upfront financing, we discover a few interesting properties of staged financing. In particular, we show that when used together with a sharing contract, staged financing acts as an effective complementary mechanism to contracting in controlling agency problems.
Notes: doi: DOI: 10.1016/S0929-1199(02)00045-7
URL: http://www.sciencedirect.com/science/article/B6VFK-46YJ586-1/2/059edf2c1c363673e96fc96c88be318c
Reference Type: Journal Article
Record Number: 29342
Author: V. A. Warther
Year: 1998
Title: Board effectiveness and board dissent: A model of the board's relationship to management and shareholders
Journal: Journal of Corporate Finance
Volume: 4
Issue: 1
Pages: 53-70
Short Title: Board effectiveness and board dissent: A model of the board's relationship to management and shareholders
ISSN: 0929-1199
Keywords: Boards of directors
Managerial discipline
Abstract: To date, there has been little modeling of the board of directors as an independent entity in the corporate finance literature. Most theoretical papers omit the board entirely and model only managers and shareholders as active players. In this paper, I model the board as an entity distinct from both management and shareholders. The analysis is based on management's power in the selection and retention of board members and it focuses on the effect of this power on the frequency of open dissent in the boardroom and the board's effectiveness in disciplining management. The model predicts behavior consistent with empirical observation and produces testable implications about the links between board compensation, structure, and information and the frequency of board dissent and the level of board effectiveness.
Notes: doi: DOI: 10.1016/S0929-1199(97)00009-6
URL: http://www.sciencedirect.com/science/article/B6VFK-3SX87D0-3/2/2581fd702e162ea9f21dcc074143d9cd
Reference Type: Journal Article
Record Number: 29038
Author: K. C. J. Wei and Y. Zhang
Year: 2008
Title: Ownership structure, cash flow, and capital investment: Evidence from East Asian economies before the financial crisis
Journal: Journal of Corporate Finance
Volume: 14
Issue: 2
Pages: 118-132
Short Title: Ownership structure, cash flow, and capital investment: Evidence from East Asian economies before the financial crisis
ISSN: 0929-1199
Keywords: Investment-cash flow sensitivity
Capital investment
Pyramids
Voting rights
Cash-flow rights
East Asia
Abstract: Using financial and ownership data from eight East Asian emerging markets before the Asian financial crisis, we document that while the sensitivity of a firm's capital investment to its cash flow decreases as the cash-flow rights of its largest shareholders increase, this sensitivity increases as the degree of the divergence between the control rights and cash-flow rights of the firm's largest shareholders increases. We interpret the results to be consistent with the free cash-flow hypothesis, which postulates that too much free cash flow in the hands of entrenched managers is likely to lead to overinvestment. This is particularly true for firms with the greatest divergence between the largest shareholders' control rights and their cash-flow rights and for firms with lower profitability.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.02.002
URL: http://www.sciencedirect.com/science/article/B6VFK-4RXJYMK-1/2/61c7d83874391e6157ea118a2f9d471a
Reference Type: Journal Article
Record Number: 29364
Author: I. Welch
Year: 1996
Title: Equity offerings following the IPO theory and evidence
Journal: Journal of Corporate Finance
Volume: 2
Issue: 3
Pages: 227-259
Short Title: Equity offerings following the IPO theory and evidence
ISSN: 0929-1199
Keywords: IPO
Seasoned equity offerings
Signaling
Model calibration
Abstract: This paper presents an IPO signaling model in which some issuers signal their higher quality not only by underpricing their IPO more, but also by waiting more patiently before they sell the remainder of the firm in a seasoned equity offering (SEO). In contrast to earlier models, this model offers empirical predictions (including functional forms) on easily observable variables: the IPO underpricing, after-market returns (reflecting the issuer's actions), and the timing of the SEO. The paper can thus calibrate and better test the theory. The evidence is that [a] signaling high-quality issuers are worth 2-3 times more than non-signaling low-quality firms; [b] the market recognizes the true quality of a firm with probability 30% per year; and [c] patience (i.e. waiting for extra funding) costs issuers about 15% of their value each year.
Notes: doi: DOI: 10.1016/0929-1199(95)00010-0
URL: http://www.sciencedirect.com/science/article/B6VFK-4177RYD-1/2/d7d783baa9b05e5da7795d103a17beba
Reference Type: Journal Article
Record Number: 29318
Author: D. A. Whidbee and M. Wohar
Year: 1999
Title: Derivative activities and managerial incentives in the banking industry
Journal: Journal of Corporate Finance
Volume: 5
Issue: 3
Pages: 251-276
Short Title: Derivative activities and managerial incentives in the banking industry
ISSN: 0929-1199
Keywords: Derivatives
Hedging
Inside ownership
Outside directors
Abstract: Using a sample of 175 publicly traded bank holding companies (BHCs), we find that managerial incentives and external monitoring affect the decision to use derivatives in the banking industry. Managers with incentives that are more closely aligned with the interests of shareholders, as reflected in a high percentage of CEO shareholdings, are less likely to use derivatives when insider holdings exceed 10%. Similarly, when outside directors own substantial equity, the firm is less likely to use derivatives. These results suggest that managers with large equity stakes take advantage of the risk-shifting opportunities of deposit insurance by not hedging. For BHCs with insider holdings below 10%, however, monitoring by outside directors is associated with a greater likelihood of derivative usage. This suggests that monitoring by outside directors may lead to more risk-averse behavior on the part of managers with small equity stakes.
Notes: doi: DOI: 10.1016/S0929-1199(99)00005-X
URL: http://www.sciencedirect.com/science/article/B6VFK-3XH3HHM-3/2/3f2c9f133f5a9b4c57ec6597c272520e
Reference Type: Journal Article
Record Number: 29362
Author: L. F. White
Year: 1996
Title: Executive compensation and dividend policy
Journal: Journal of Corporate Finance
Volume: 2
Issue: 4
Pages: 335-358
Short Title: Executive compensation and dividend policy
ISSN: 0929-1199
Keywords: G35
J33
Executive compensation
Dividend policy
Compensation contracts
Agency costs
Abstract: This study examines the use of dividend provisions in executive compensation contracts to influence dividend policy. A sample is constructed with the largest companies in the oil and gas, defense/aerospace and food processing industries, where dividend-related agency costs are expected to be high. The results indicate that the existence of a dividend incentive in the compensation plan is positively associated with higher dividend payouts and yields, and higher annual changes in dividend levels. Evidence is also provided on firm characteristics associated with the use of a compensation contract with a dividend provision. The results are consistent with the theory that firms link compensation incentives to dividend payments to reduce conflicts between shareholders and management over dividend decisions.
Notes: doi: DOI: 10.1016/0929-1199(96)00003-X
URL: http://www.sciencedirect.com/science/article/B6VFK-3Y2GCW8-F/2/29b397268b59e181e7043fa67413c2bd
Reference Type: Journal Article
Record Number: 29082
Author: M. B. Wintoki
Year: 2007
Title: Corporate boards and regulation: The effect of the Sarbanes-Oxley Act and the exchange listing requirements on firm value
Journal: Journal of Corporate Finance
Volume: 13
Issue: 2-3
Pages: 229-250
Short Title: Corporate boards and regulation: The effect of the Sarbanes-Oxley Act and the exchange listing requirements on firm value
ISSN: 0929-1199
Keywords: Sarbanes-Oxley Act
Corporate boards
Securities regulation
Corporate governance
Event study
Abstract: The Sarbanes-Oxley Act of 2002 and recently modified exchange listing requirements impose uniformly high levels of outside director monitoring on all firms. However, recent research in finance suggests that corporate governance structures, including boards of directors, are chosen endogenously by firms in response to their unique operating and contracting environments. Using the relative costs and benefits of outside director monitoring as a benchmark, I find significant cross-sectional variation in the wealth effects around the announcement and passage of these regulations. I find that firms which have high monitoring-costs and fewer benefits from outside monitoring benefited less from the regulations. In particular, I find that the wealth effects around the passage of these new regulations are positively related to firm size and age, and negatively related to growth opportunities and the uncertainty of the firm's operating environment. The results suggest that a blanket "one size fits all" governance regulation maybe detrimental to certain firms, particularly young, small, growth firms operating in uncertain business environments, that are costly for outsiders to monitor.
Notes: doi: DOI: 10.1016/j.jcorpfin.2007.03.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4NHD959-1/2/227e3af0a777901bd1fd33704f3840ee
Reference Type: Journal Article
Record Number: 28981
Author: K. H. Wruck and Y. Wu
Year: 2009
Title: Relationships, corporate governance, and performance: Evidence from private placements of common stock
Journal: Journal of Corporate Finance
Volume: 15
Issue: 1
Pages: 30-47
Short Title: Relationships, corporate governance, and performance: Evidence from private placements of common stock
ISSN: 0929-1199
Keywords: Private placement
Private equity
Equity issuance
Relationship investing
Relationship investor
Agency theory
Asymmetric information
Entrenchment
Specific investment
Relationship-specific investment, governance, blockholders
Ownership concentration
Abstract: Using data from private placement contracts, we analyze relationships between investors and issuers, and their impact on corporate governance and performance. Most investors have a relationship with the issuer pre-placement and many new relationships are formed through the placement agreement. New relationships are largely governance-related (board seats and/or 5% or greater blocks), but also include key business partnerships and/or employment arrangements. We have three main findings. First, new relationships drive the positive stock price response at announcement; placements lacking new relationships are non-events. Second, investors with relationship ties to the issuer are more likely to gain directorships as part of the placement. Third, new relationships are associated with stronger post-placement profitability and stock price performance. Overall, our findings are consistent with private placements creating value when they are associated with increased monitoring and strong governance.
Notes: doi: DOI: 10.1016/j.jcorpfin.2008.08.010
URL: http://www.sciencedirect.com/science/article/B6VFK-4TDC0C4-1/2/8190aa9e5e036299bee27a7ce600c91f
Reference Type: Journal Article
Record Number: 29161
Author: X. Wu and Z. Wang
Year: 2005
Title: Equity financing in a Myers-Majluf framework with private benefits of control
Journal: Journal of Corporate Finance
Volume: 11
Issue: 5
Pages: 915-945
Short Title: Equity financing in a Myers-Majluf framework with private benefits of control
ISSN: 0929-1199
Keywords: Equity financing
Private benefits of control
Underinvestment
Overinvestment
Announcement effect
Abstract: This paper generalizes the Myers and Majluf (1984) model by introducing an agency cost structure based on private benefits of control. This new model predicts that many corporate finance variables each have opposing effects on under- and overinvestment. Private benefits exacerbate overinvestment but, interestingly, a small amount of private benefits can enhance firm value by alleviating underinvestment. Likewise, an increase in insider ownership alleviates overinvestment but aggravates underinvestment. When private benefits are small, the adverse effect of insider ownership on underinvestment tends to dominate. When there are considerable private benefits, the incentive-alignment effect of insider ownership is pronounced. Additionally, this model reconciles existing equity financing theories on announcement effects. It helps resolve the puzzle that small-growth firms do not seem to have an asymmetric information disadvantage when they issue new equity.
Notes: doi: DOI: 10.1016/j.jcorpfin.2004.04.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4CXDTWW-2/2/12eb1566e223ef227a2d45ca0263657a
Reference Type: Journal Article
Record Number: 29226
Author: Y. Wu
Year: 2004
Title: The impact of public opinion on board structure changes, director career progression, and CEO turnover: evidence from CalPERS' corporate governance program
Journal: Journal of Corporate Finance
Volume: 10
Issue: 1
Pages: 199-227
Short Title: The impact of public opinion on board structure changes, director career progression, and CEO turnover: evidence from CalPERS' corporate governance program
ISSN: 0929-1199
Keywords: CalPERS
Corporate governance
Public opinion
Abstract: Extant research investigates the effects of legal mechanisms and shareholder activism on corporate governance. Zingales [Journal of Finance 55 (2000) 1623] calls for research concerning the effects of public opinion on corporate governance. The California Public Employees' Retirement System (CalPERS) influences public opinion by publicly naming the companies having poor corporate governance. This study hypothesizes that public naming by CalPERS damages the reputations of management and directors at these companies, and these companies respond by improving their corporate governance. This hypothesis is supported by three findings. First, companies are more likely to decrease the number of inside directors after being named publicly by CalPERS. A large proportion of departing inside directors remains full-time employees in the named companies. Second, departing inside directors are less likely to take up future directorships after their companies are named publicly by CalPERS. Finally, the likelihood of CEO dismissal increases and the relation between performance and CEO dismissal becomes stronger after companies are named publicly by CalPERS. These three findings are consistent with the hypothesis that CalPERS influences public opinion and that reputation concerns are effective in compelling companies to improve their corporate governance system.
Notes: doi: DOI: 10.1016/S0929-1199(03)00024-5
URL: http://www.sciencedirect.com/science/article/B6VFK-485PHKV-1/2/dfc75ca8af5ca4e56a29794767fe5112
Reference Type: Journal Article
Record Number: 29240
Author: B. Xie, W. N. Davidson and P. J. DaDalt
Year: 2003
Title: Earnings management and corporate governance: the role of the board and the audit committee
Journal: Journal of Corporate Finance
Volume: 9
Issue: 3
Pages: 295-316
Short Title: Earnings management and corporate governance: the role of the board and the audit committee
ISSN: 0929-1199
Keywords: Board of directors
Earnings management
Audit committee
Abstract: We examine the role of the board of directors, the audit committee, and the executive committee in preventing earnings management. Supporting an SEC Panel Report's conclusion that audit committee members need financial sophistication, we show that the composition of a board in general and of an audit committee more specifically, is related to the likelihood that a firm will engage in earnings management. Board and audit committee members with corporate or financial backgrounds are associated with firms that have smaller discretionary current accruals. Board and audit committee meeting frequency is also associated with reduced levels of discretionary current accruals. We conclude that board and audit committee activity and their members' financial sophistication may be important factors in constraining the propensity of managers to engage in earnings management.
Notes: doi: DOI: 10.1016/S0929-1199(02)00006-8
URL: http://www.sciencedirect.com/science/article/B6VFK-459JDBN-1/2/e00d6a6af49bc6ac8d20359c61bc7aa8
Reference Type: Journal Article
Record Number: 28958
Author: X. Xu, J. Fan and K. C. J. Wei
Year: 2009
Title: Conference and special issue on corporate finance and governance in emerging markets
Journal: Journal of Corporate Finance
Volume: 15
Issue: 3
Pages: 388-388
Short Title: Conference and special issue on corporate finance and governance in emerging markets
ISSN: 0929-1199
Notes: doi: DOI: 10.1016/j.jcorpfin.2009.03.001
URL: http://www.sciencedirect.com/science/article/B6VFK-4VYW68D-1/2/4483b0528b71c2b37cd87c221335cca5
Reference Type: Journal Article
Record Number: 29319
Author: X. Zhou
Year: 1999
Title: Executive compensation and managerial incentives: A comparison between Canada and the United States
Journal: Journal of Corporate Finance
Volume: 5
Issue: 3
Pages: 277-301
Short Title: Executive compensation and managerial incentives: A comparison between Canada and the United States
ISSN: 0929-1199
Keywords: Executive compensation
Performance
Incentives
Abstract: This paper compares executive pay-performance sensitivities between Canadian firms and US firms. Examining the data for 365 Canadian firms and 675 US firms over the years 1991-1994, we find that the pay-performance sensitivity associated with direct pay and stock ownership is smaller in Canadian firms than in US firms but that the difference diminishes as firm size increases. We also find that during this period Canadian firms underperformed US firms and Canadian CEOs were paid substantially lower than were their US counterparts. Our findings are consistent with the argument that the pay-performance relationship, depending on the intensity of economic regulation, affects corporate performance.
Notes: doi: DOI: 10.1016/S0929-1199(99)00008-5
URL: http://www.sciencedirect.com/science/article/B6VFK-3XH3HHM-4/2/1155d8a3639799bef3da31fd605f1e87