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Author: Ling Zhang
Publisher:
ISBN:
Category :
Languages : en
Pages : 141
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Book Description
Corporate governance of financial and non-financial firms is critical in modern corporations with diffuse stock ownership, which deals with the agency conflicts between managers and shareholders. Corporate governance has a profound impact on various corporate policy, and firm value in the end. This study examines the importance of corporate governance and its influences on various corporate policy and firm value and risks for both financial and non-financial firms. Chapter 1 investigates the association between the firm's liquidity level and liquidity mix on the one hand and CEO entrenchment on the other. CEO entrenchment may distort the firms' liquidity policy because managers and shareholders may have conflicting preferences between cash and lines of credit. Using lines of credit data from 1996 to 2008, we find five main results. First, entrenched CEOs hold more liquidity as measured by the sum of cash and lines of credit. Second, entrenched managers have a preference for cash over lines of credit because while cash gives them flexibility, lines of credit are accompanied with bank restrictions and monitoring. Third, entrenched CEOs also use more lines of credit because of the extra liquidity it provides, despite the associated bank monitoring. Fourth, entrenched CEOs in smaller and opaque firms tend to hold more liquidity. Five, entrenched CEO's preference for cash versus lines of credit is stronger for large and transparent firms, compared to small and opaque firms. These findings imply that firms should better align the interests of the entrenched managers with those of the shareholders in order to limit the excessive liquidity holding of firms when CEOs are entrenched and to thereby increase firms' profitability. Chapter 2 examines the relationship between bank holding company (BHC) performance, risk and "busy" board of directors, an overlooked dimension of corporate governance in the banking literature. Busy directors are defined as directors with three or more directorships. The sample covers the 2001-2010 period. We employ a simultaneous equation framework and estimate the models employing the three stage least square (3SLS) technique in order to account for endogeneity. Several interesting results are obtained. First, BHC performance, as measured by return on assets (ROA), Tobin's Q and earnings before interest and taxes (EBIT) over total assets is positively associated with busy directors. Second, BHC total risk (standard deviation of stock returns), market risk (market beta), idiosyncratic risk (standard errors of the CAPM model) credit risk (percentage of non-performing assets over total assets) and default risk (HigherZ-Score) are inversely related to it. Third, busy directors are not more likely to become problem directors, in the sense of failing the meeting-attendance-criterion (75% attendance). Fourth, the benefits of having busy directors in terms of performance improvement strengthened but the benefits of risk reduction declined during the recent financial crisis These findings partially alleviate concerns that when directors become too busy with multiple directorships, they shirk their responsibilities. Major implications for investors, regulators, and firm managers are drawn. Chapter 3 investigates the effect of CEO entrenchment on the loan syndication structure. Over the past decade, syndicated loans have played an increasingly important role in corporate financing. Unlike a traditional bank loan with only a single creditor, a syndicated loan involves a group of lenders: a lead arranger and a number of participant lenders. The syndication process, therefore, generates an additional dimension of agency problem between the lead arranger and the participant lenders, besides the traditional agency cost of debt between the borrowing firm and the lender (Diamond, 1984; Holmstrom and Tirole, 1997). Several results are obtained about syndicated loans made to firms with more entrenched CEOs. First, in these loans the number of participant lenders and their share in the loan are smaller; the lead arranger retains a larger loan share. Second, these loans are more closely held resulting in a higher Herfindahl index of loan concentration. Third, foreign lenders are less involved in these loans. Specifically, the number of foreign lenders and the percentage of loans held by foreign lenders are both smaller. Our findings shed light on the two types of agency problems associated with the syndicated loans, and have great implication for the firms' shareholders, creditors and regulators.
Author: Ling Zhang
Publisher:
ISBN:
Category :
Languages : en
Pages : 141
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Book Description
Corporate governance of financial and non-financial firms is critical in modern corporations with diffuse stock ownership, which deals with the agency conflicts between managers and shareholders. Corporate governance has a profound impact on various corporate policy, and firm value in the end. This study examines the importance of corporate governance and its influences on various corporate policy and firm value and risks for both financial and non-financial firms. Chapter 1 investigates the association between the firm's liquidity level and liquidity mix on the one hand and CEO entrenchment on the other. CEO entrenchment may distort the firms' liquidity policy because managers and shareholders may have conflicting preferences between cash and lines of credit. Using lines of credit data from 1996 to 2008, we find five main results. First, entrenched CEOs hold more liquidity as measured by the sum of cash and lines of credit. Second, entrenched managers have a preference for cash over lines of credit because while cash gives them flexibility, lines of credit are accompanied with bank restrictions and monitoring. Third, entrenched CEOs also use more lines of credit because of the extra liquidity it provides, despite the associated bank monitoring. Fourth, entrenched CEOs in smaller and opaque firms tend to hold more liquidity. Five, entrenched CEO's preference for cash versus lines of credit is stronger for large and transparent firms, compared to small and opaque firms. These findings imply that firms should better align the interests of the entrenched managers with those of the shareholders in order to limit the excessive liquidity holding of firms when CEOs are entrenched and to thereby increase firms' profitability. Chapter 2 examines the relationship between bank holding company (BHC) performance, risk and "busy" board of directors, an overlooked dimension of corporate governance in the banking literature. Busy directors are defined as directors with three or more directorships. The sample covers the 2001-2010 period. We employ a simultaneous equation framework and estimate the models employing the three stage least square (3SLS) technique in order to account for endogeneity. Several interesting results are obtained. First, BHC performance, as measured by return on assets (ROA), Tobin's Q and earnings before interest and taxes (EBIT) over total assets is positively associated with busy directors. Second, BHC total risk (standard deviation of stock returns), market risk (market beta), idiosyncratic risk (standard errors of the CAPM model) credit risk (percentage of non-performing assets over total assets) and default risk (HigherZ-Score) are inversely related to it. Third, busy directors are not more likely to become problem directors, in the sense of failing the meeting-attendance-criterion (75% attendance). Fourth, the benefits of having busy directors in terms of performance improvement strengthened but the benefits of risk reduction declined during the recent financial crisis These findings partially alleviate concerns that when directors become too busy with multiple directorships, they shirk their responsibilities. Major implications for investors, regulators, and firm managers are drawn. Chapter 3 investigates the effect of CEO entrenchment on the loan syndication structure. Over the past decade, syndicated loans have played an increasingly important role in corporate financing. Unlike a traditional bank loan with only a single creditor, a syndicated loan involves a group of lenders: a lead arranger and a number of participant lenders. The syndication process, therefore, generates an additional dimension of agency problem between the lead arranger and the participant lenders, besides the traditional agency cost of debt between the borrowing firm and the lender (Diamond, 1984; Holmstrom and Tirole, 1997). Several results are obtained about syndicated loans made to firms with more entrenched CEOs. First, in these loans the number of participant lenders and their share in the loan are smaller; the lead arranger retains a larger loan share. Second, these loans are more closely held resulting in a higher Herfindahl index of loan concentration. Third, foreign lenders are less involved in these loans. Specifically, the number of foreign lenders and the percentage of loans held by foreign lenders are both smaller. Our findings shed light on the two types of agency problems associated with the syndicated loans, and have great implication for the firms' shareholders, creditors and regulators.
Author: Klaus J. Hopt
Publisher: Walter de Gruyter GmbH & Co KG
ISBN: 3110905043
Category : Law
Languages : en
Pages : 372
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Book Description
Corporate governance has become an important issue in all industrial economies. This text has grown out of a conference entitled Comparative Corporate Governance, An International Conference, United States - Japan - Western Europe which considered the subject.
Author: David De Angelis
Publisher:
ISBN:
Category :
Languages : en
Pages : 192
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Book Description
My dissertation contains three essays in corporate finance and corporate governance. The first essay studies the effect of information frictions across corporate hierarchies on internal capital allocation decisions, using the Sarbanes Oxley Act (SOX) as a quasi-natural experiment. SOX requires firms to enhance their internal controls to improve the reliability of financial reporting across corporate hierarchies. I find that after SOX, the capital allocation decision in conglomerates is more sensitive to performance as reported by the business segments. The effects are most pronounced when conglomerates are prone to information problems within the organization and least pronounced when they still suffer from internal control weaknesses after SOX. Moreover, conglomerates' productivity and market value relative to stand-alone firms increase after SOX. These results support the argument that inefficiencies in the capital allocation process are partly due to information frictions. My findings also shed light on some unintended effects of SOX on large and complex firms. The second essay is co-authored with Yaniv Grinstein and investigates how firms tie CEO compensation to performance. We take advantage of new compensation disclosure requirements issued by the Securities and Exchange Commission in 2006. Firms vary in their choice of performance measures and horizons, and in their reliance on pre-specified goals. Consistent with optimal contracting theories, we find that firms choose performance measures that are more informative of CEO actions, and rely less on pre-specified goals when it is more costly to contract on CEO actions. The third essay investigates the design of division managers (DMs) incentive contracts again taking advantage of the disclosure requirements. I find that firms do not use relative performance evaluation across divisions and that in general most of DM compensation incentives are associated with firm performance instead of division performance. Furthermore, division performance-based incentives tend to be smaller in complex firms, when within-organization conflicts are potentially more severe. I also find that when the probability of promotion to CEO is lower, DM ownership requirements are more stringent and DM compensation incentives are greater. These results support notions that influence costs as well as promotion-based incentives are important considerations in designing DMs contracts.
Author: Jing Zhang
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
"This dissertation consists of two essays that address important questions related to corporate governance and financial reporting in the banking industry. The first essay investigates why and how bank-level shareholder rights affect the quality of loans originated for securitization. Poor loan securitization has been blamed for the financial crisis. But why so many risky loans were originated for securitization remains an unsettled question. In this study, I attempt to address this question from a corporate governance angle. Focusing on a sample of securitization activities that involve less risk transfer, I find that banks with strong shareholder rights originate poor quality loans to securitize and experience large nonperforming and charge-off in securitized loans. This association is more pronounced in banks that have large and non-management shareholders. In addition, the negative impact of shareholder rights on the quality of securitized loans is also found to be more strengthened in banks that have larger information asymmetry between managers and shareholders. Lastly, banks with the highest shareholder rights pre-crisis are found to suffer the largest losses in securitized loans during the financial crisis. Overall, the evidence supports the view that stronger shareholder rights that impose intense pressure on managers encourage the origination and securitization of riskier loans. Hence, the failure of securitization is likely due to a failure of banks' internal governance, and there could be a potential negative consequence of having powerful shareholders in banks. These findings should provide insights into the ongoing regulatory reform with regard to rebuilding corporate governance mechanisms for financial institutions.The second essay investigates the characteristics of banks that are likely to misstate their financial statements. There has been an extensive amount of research studying the determinants of financial misreporting in the non-financial industry. However, very little work has been done as to what causes financial institutions to manage their earnings, and how we can best detect accounting misstatements in banks. The objective of this paper is to analyze the characteristics of misstating banks and develop a model to predict misstatements in the banking industry. Using a sample of 247 banks that had accounting restatements, I find that banks with financial misstatements have larger abnormal loan loss provisions, abnormal securitization income, and are more likely to engage in securitization business. I also find that managers are more likely to conduct accounting manipulations when there is underperformance, a demand to raise external financing, or a high leverage ratio. Furthermore, banks involved in more complicated business are found to face a higher likelihood of having misstatements. Together, my evidence suggests that bank managers use the discretions in loan loss provisions and securitization accounting estimates to manage financial numbers, and the key motivating factors for accounting manipulations are deteriorating performance and capital market pressure. Finally, a scaled logistic probability (B-score) is derived from the prediction model, which can be used to help investors, auditors or regulators to identify accounting misstatements in the banking industry." --
Author: E. Banks
Publisher: Springer
ISBN: 0230508103
Category : Business & Economics
Languages : en
Pages : 510
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Book Description
Corporate Governance is a text which considers the problems surrounding governance and proposes solutions to help restore investor confidence in the corporate world. The book is intended for board members, corporate executives, regulators, auditors, creditors and analysts seeking a concise analysis of the governance issues facing financial and non-financial corporations round the world. The book is fully international in context and includes real-life examples and cases to emphasize the practical nature of governance problems and solutions.
Author: Donald H. Chew
Publisher: Columbia University Press
ISBN: 9780231519984
Category : Business & Economics
Languages : en
Pages : 388
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Book Description
Corporate governance constitutes the internal and external institutions, markets, policies, and processes designed to help companies maximize their efficiency and value. In this collection of classic and current articles from the Journal of Applied Corporate Finance, thought leaders such as Michael Jensen and Robert Monks discuss the corporate mission of value maximization and the accomplishments and limitations of the U.S. governance system in achieving that end. Essays address the elements driving corporate value: the board of directors, compensation for CEOs and other employees, incentives and organizational structure, external ownership and control, role of markets, and financial reporting. They evaluate best practice methods, challenges in designing equity plans, transferable stock options, the controversy over executive compensation, the values of decentralization, identifying and attracting the "right" investors, the evolution of shareholder activism, creating value through mergers and acquisitions, and the benefits of just saying no to Wall Street's "earnings game." Grounded in solid research and practice, U.S. Corporate Governance is a crucial companion for navigating the world of modern finance.
Author: Morten Balling
Publisher: Springer Science & Business Media
ISBN: 9780792348252
Category : Business & Economics
Languages : en
Pages : 378
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Book Description
The papers in this volume were presented in Budapest at the 20th Colloquium of the Société Universitaire Européenne de Recherches Financières (SUERF), arranged in association with the Robert Triffin-Szirák Foundation. Each paper deals with a different aspect of the characteristics of and trends in corporate governance. The three main topics are: Corporate governance of financial institutions; Corporate governance as exerted by financial institutions; Financial instutions as participants in the transfer of corporate governance. £/LIST£ The structure of financial markets and institutions has a significant impact on the ways in which the power to manage corporate resources is allocated. The relative roles of different types of owners and the legal framework within which they operate are currently in a state of flux throughout Europe. Financial integration in the European Union, the transition to open market economies in Central and Eastern Europe and privatization, have a profound effect on the behaviour and influence of different enterprises. This collection of papers demonstrates the range of aspects of corporate governance in a world characterized by rapid technological, political and institutional change which is currently concerning researchers and practitioners. The authors come from a wide number of countries and disciplines, and include people from leading banks and corporations, public officials and academics, providing different perspectives on corporate governance, financial markets and global convergence in eastern and western Europe. Their contributions will be of considerable interest to academics in the fields of finance and banking, monetary economics and macro-economics, and also to professionals in banks, securities houses, corporate treasuries, pension funds, consultancies, law firms, central banks and regulatory bodies.
Author: Paul Ali
Publisher: John Wiley & Sons
ISBN: 1118161122
Category : Business & Economics
Languages : en
Pages : 405
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Book Description
"The Sabanes-Oxley Act has been one of the most significant developments in corporate and securities regulation since the New Deal. This collection of important articles would be a valuable resource for anyone seeking to understand Sabanes-Oxley's far-reaching effects on corporate governance in the United States and elsewhere." —Jesse Fried, coauthor of Pay Without Performance: The Unfulfilled Promise of Executive Compensation and Professor of Law at the University of California, Berkeley "The editors have assembled the latest cutting-edge research on international corporate governance by respected academics in this field. In this handbook, the editors deal with all aspects of the significant legislative changes to corporate governance regulation. It introduces the reader to the new rules that will certainly improve the reliability and the accuracy of disclosures made by corporations. The book comes at the right moment with the recent scandals such as Enron, which will educate all readers especially shareholders of corporate stock." —Komlan Sedzro, Professor of Finance, University of Quebec at Montreal "Today, corporate governance is a topic at the center of public policy debate in most industrialized countries. The range of concerns; the variety of approaches; and their tendency to converge in some areas or diverge in others (not always in the right directions) are emphatically demonstrated by these essays. There is material here of enormous interest for scholars of comparative law and economic regulation. And significantly, the presentation of essays from legal, financial, and regulatory viewpoints demonstrates the growing practical as well as theoretical utility of interdisciplinary work in this area. Professors Ali and Gregoriou are to be warmly congratulated for their skill and initiative in assembling an important publication, as well as for their own contributions to interdisciplinary scholarship." —R. P. Austin, BA, LLM (Sydney), DPhil (Oxon), Supreme Court of New South Wales "This very international collection emphasizes the economic line of descent, while including legal and socio-legal contributions. It fills a very important gap in our empirical knowledge of corporate governance. It is accessible and comprehensive and will greatly assist readers from all relevant disciplines, who are trying to discern the shape of corporate governance as a mature field." —Dimity Kingsford Smith, Professor of Law, University of New South Wales
Author: Jonathan Michie
Publisher: Taylor & Francis
ISBN: 1000403971
Category : Business & Economics
Languages : en
Pages : 321
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Book Description
Apartheid South Africa was often thought to run in the interests of the business elite. Yet 27 years after apartheid, those business interests remain largely entrenched. Why? Did the South African business community play a role in engineering this outcome – perhaps recognising the apartheid era was over, and jumping ship in time? Conversely, the mission of the ANC was widely perceived to be to shift wealth and power into the hands of the whole community. Yet despite ‘black empowerment’ measures, corporate ownership remains largely in white hands – and certainly in the hands of an elite few, even though no longer restricted to whites. This picture is replicated across the global south, where corporate ownership tends to be concentrated in the hands of an elite, rather than being more democratically spread. Why have alternative corporate forms not been pursued more vigorously, with ownership in the hands of customers, employees, and local communities? In the case of South Africa, where the majority of customers and employees are black, this could have delivered on the ANC’s mission to replace the apartheid era with a democratic one – in terms of wealth, incomes and power, as well as in terms of voting and civic rights. This edited volume explores all these questions and looks at ways to align corporate forms with economic and social goals. The chapters in this book were originally published as special issues of International Review of Applied Economics.
Author: Mark Hirschey
Publisher: Emerald Group Publishing
ISBN: 1848555369
Category : Business & Economics
Languages : en
Pages : 268
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Book Description
Focuses on corporate governance, broadly defined as the system of controls that helps corporations and other organizations effectively manage, administer, and direct economic resources. This book focuses on: the impact of deregulation and corporate structure on productive efficiency; and the effectiveness of the fraud triangle and SAS.
