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Author: Yuwei Wang Publisher: ISBN: Category : Languages : en Pages :
Book Description
This dissertation includes two related chapters that investigate corporate governance. In the first chapter, we examine the effectiveness of board monitoring on CEOs. It is widely believed that outsider boards are better monitors. In fact, regulations now require that the board of directors of publicly traded firms be composed of a majority of independent directors (or outsiders). However, this paper documents that an insider-dominated board can monitor the CEO just as well as an outsider board can when the firm's CEO is hired from outside. The results suggest that what matters is not so much as the structure of the board, but the "independence" between the board and the CEO it monitors. Specifically, we find that insider boards monitor more of their firms' CEOs if the CEO is hired from outside than from within. In addition, outsider boards monitor both inside and outside CEOs the same way. We also find little difference between insider and outsider boards when they monitor outside CEOs. The main contribution of this paper is to show that an insider board can be an effective monitor as long as it is independent of the CEO. In other words, what is important is board independence, not board structure per se. In chapter two, we examine the relation between the change in a firm's value and its CEO selection sources: internal promotion versus external hire in both high and low product competition environments. Our results show that firms will be better off hiring an outside CEO (external hire) when the firms operate in a low product competition industry. Specifically, the evidence shows that hiring an outside CEO for a firm in a low product competition industry will increase the firm's value by about 3% for the entire tenure of the CEO. The main contribution of this paper is to show that product market competition is an important factor in CEO selection.
Author: Yuwei Wang Publisher: ISBN: Category : Languages : en Pages :
Book Description
This dissertation includes two related chapters that investigate corporate governance. In the first chapter, we examine the effectiveness of board monitoring on CEOs. It is widely believed that outsider boards are better monitors. In fact, regulations now require that the board of directors of publicly traded firms be composed of a majority of independent directors (or outsiders). However, this paper documents that an insider-dominated board can monitor the CEO just as well as an outsider board can when the firm's CEO is hired from outside. The results suggest that what matters is not so much as the structure of the board, but the "independence" between the board and the CEO it monitors. Specifically, we find that insider boards monitor more of their firms' CEOs if the CEO is hired from outside than from within. In addition, outsider boards monitor both inside and outside CEOs the same way. We also find little difference between insider and outsider boards when they monitor outside CEOs. The main contribution of this paper is to show that an insider board can be an effective monitor as long as it is independent of the CEO. In other words, what is important is board independence, not board structure per se. In chapter two, we examine the relation between the change in a firm's value and its CEO selection sources: internal promotion versus external hire in both high and low product competition environments. Our results show that firms will be better off hiring an outside CEO (external hire) when the firms operate in a low product competition industry. Specifically, the evidence shows that hiring an outside CEO for a firm in a low product competition industry will increase the firm's value by about 3% for the entire tenure of the CEO. The main contribution of this paper is to show that product market competition is an important factor in CEO selection.
Author: Minhua Yang Publisher: ISBN: Category : Corporate governance Languages : en Pages : 76
Book Description
This dissertation is composed by two essays that explore the changes in corporate governance around the passage of Sarbanes-Oxley (SOX) 2002. In the first essay, I examine the relation between board structure and compensation as a bargaining game between the board and the CEO. Bargaining game theories describe an endogenous process of determining the structure of director and CEO compensation. The Sarbanes-Oxley Act (SOX) altered the equilibrium of power between the board and CEO by changing the monitoring role of the board. SOX essentially provides a natural experiment to test how a shock to the bargaining game alters the balance of power between directors and the CEO. Using the ratio of director compensation to CEO compensation to proxy for bargaining power, I find a significant increase following the passage of SOX, consistent with directors gaining bargaining advantage. Moreover, firms with strong shareholder rights exhibit even greater evidence of power shifting to the directors. Overall, the results suggest that directors gain more power relative to the CEO in determining compensation plans and strong shareholder rights help firms to align directors' incentives with those of shareholders. In the second essay, I examine the relation between CEO compensation structure and acquirer returns. In the literature, researchers find that executive compensation structures influence corporate acquisition decisions. Equity-based executive compensation should reduce the non-value-maximizing behavior of acquiring managers. A series of corporate reforms such as SOX and the FASB expensing rule affected the structure of CEO equity-based compensation. I find a significant increase in CEO restricted stock compensation and a significant decrease in CEO option-based compensation following these reforms. I also find that CEOs with strong managerial power are more likely to receive more restricted stock in their compensation package after the 2002 reforms. Finally, I find a significant positive relation between the restricted stock compensation of acquiring firm CEOs and abnormal stock returns after 2002. This provides empirical support on the effectiveness of the shift away from options towards restricted stock in executive compensation packages. Restricted stock is associated with better merger decisions.
Author: Tih Koon Tan Publisher: ISBN: Category : Chief executive officers Languages : en Pages : 83
Book Description
This dissertation is composed by two essays that explore corporate governance issues in S & P firms. The first essay examines changes in corporate governance after a firm gets added to the S & P 500 index? Using firms added from 1994 to 2007, this paper examines how governance mechanisms change for these firms. Specifically, I look at both the overall governance and details on how each mechanism changes. I find that governance improves after being added to the index. Controlling for firm size, leverage, prior firm performance, and growth opportunities, the market reacts positively to governance improvements as a whole. In addition, changes in governance are positively associated with changes in operating performance. In the second essay, the departure of a CEO often raises questions about who will replace him/her. This study examines the homogeneity/heterogeneity nature of the internal labor market using a novel measure, a heterogeneity index, which captures the concentration of executive compensation levels. I find that a more homogeneous internal labor market is associated with (1) a greater likelihood of an internal replacement, (2) a higher probability of a CEO turnover, and (3) a bigger tournament prize. In addition, the negative performance-turnover relationship is strengthened by a more homogeneous internal labor market. The heterogeneity index seems to proxy for internal labor market competition.
Author: Waquar Ahmad Publisher: ISBN: Category : Consolidation and merger of corporations Languages : en Pages :
Book Description
This dissertation titled "Essays in Corporate Governance" contains two essays in matters relating to corporations and their governance practices. The titles and the abstracts of the two papers are presented below. Does it pay to play? Political donations around mergers and acquisitions: This study focuses on corporate political donations around mergers and acquisitions of U.S. firms. I track the political contributions made by firms involved in large U.S. mergers from 2000 to 2010 by focusing on four different ways that corporations contribute to political parties: political action committee (PAC) donations, PAC to PAC donations, soft money and 527 committees' donations, and individual donations. Consistent with politicians' rent-seeking behavior, I document evidence that participants in mergers and acquisitions alter their donations around these deals in attempts to influence the deal outcome and appear to do so particularly around deals where donations may be more effective. Overall, I find that large shifts in donations around mergers and acquisitions increase the likelihood of deal completion. After controlling for firm and merger characteristics, the firms involved in mergers make more political contributions after a deal is announced compared to periods before the announcement and after a deal is finalized. This behavior is more pronounced when the deal continues for an extended period of time, which is consistent with the notion that these deals may face more regulatory hurdles and donations may likely impact the merger outcome. Furthermore, I document higher bidder and target abnormal donations after a merger announcement when the market reaction is negative. Finally, donation intensity increases when the merger would cause the industry concentrations ratios to increase above normal. These results collectively suggest that firms aggressively manage political donations around merger and acquisition activity, potentially indicating agency conflicts driving these donations. Director Alpha: An objective measure of director contribution: The appointment of high value directors is associated with immediate positive market reaction, and the presence of high value directors in the board enhances long-run firm value. We identify the contribution of directors by alpha, or the abnormal risk-adjusted stock returns that are generated in other firms on whose boards they sit. We find that investors react positively when high alpha directors are appointed to high alpha boards. CEOs and individuals with MBA or CPA designations are more likely to be high value directors. We find that high alpha directors contribute significantly to firm value. For the typical firm, our parameter estimates imply that replacing a negative alpha director with a positive one is associated with a 3.3% improvement in firm value.
Author: An Chee Low Publisher: ISBN: Category : Compensation management Languages : en Pages : 160
Book Description
Abstract: Problems of endogeneity often cloud interpretation in corporate governance research. In this dissertation, I make use of changes in takeover laws as exogenous shocks to examine how managers react to a weakening of the corporate governance structure. In the first essay, I examine how the increased protection from hostile takeovers affects managerial incentives to change firm risk, while in the second essay I examine how firm size and firm investment behavior changes in response to the exogenous shocks. In both cases, I find that managers take actions that are beneficial to themselves but are detrimental to shareholders. Empirical evidence in the first essay show that risk-averse managers decrease firm risk in response to an exogenous increase in takeover protection in Delaware during the mid-1990s. I also find that the decrease in firm risk is concentrated among firms with low managerial equity-based incentives. Further, firms respond to the increased protection accorded by the regime shift by providing managers with greater incentives for risk-taking. Overall, the evidence supports the hypothesis that equity-based compensation can be used to align managerial interests with that of shareholders. In the second essay, I find that managers increase their firm size in response to the increased protection from hostile takeovers. The increase is predominantly among firms with low growth and high cash holdings which are exactly the firms where the agency costs of free cash flow are most costly to shareholders (Jensen, 1986). I also predict important differences in managerial empire-building through internal investments versus external acquisitions in the 1980s and 1990s based on changes in stocks and options-based incentives. Consistent with my predictions, managers prefer to empire-build through internal investments during the 1980s, while in 1990s they choose to grow more through external acquisitions.
Author: Ms. Nadya Malenko Publisher: ISBN: Category : Languages : en Pages :
Book Description
This dissertation provides a theoretical analysis of several corporate governance mechanisms in the presence of information asymmetries and agency conflicts between shareholders, managers, and directors. The first essay of the dissertation analyzes decision-making in corporate boards and studies how board characteristics and the design of board meetings affect board decisions. Two other essays are on shareholder activism. The second essay focuses on voting for non-binding shareholder proposals and examines its effectiveness in conveying shareholder views to the management. The third essay considers another common form of shareholder activism, private negotiations with the management, and studies the activist's choice between private negotiations and public confrontation. The first essay, "Communication and Decision-Making in Corporate Boards, " develops a theory of communication and collective decision-making in a board of directors whose members have private information about the issue under discussion. The key element of the model is that the quality of board communication is endogenous, because it depends on the time and effort directors are willing to put into communicating their information to others. Directors may have biases regarding the decision and may be reluctant to disagree with the prevailing opinion in the boardroom. I show that when effective communication is personally costly for directors, both stronger preferences for conformity and stronger biases may improve the board's decisions because directors will have stronger incentives to convince others of their position. These results have implications for the design of board policies, including the use of open vs. secret ballot voting, the establishment and composition of committees, and the frequency of executive sessions of outside directors. The second essay, "Non-Binding Voting for Shareholder Proposals, " which is co-authored with Doron Levit and is forthcoming in the Journal of Finance, considers another setting where information relevant for the firm's decisions is dispersed among many agents, namely, the firm's large shareholders. Our main question is whether voting for non-binding shareholder proposals fulfills its intended role of conveying shareholders' expectations to the management. We show that when the interests of the manager and shareholders are not aligned, non-binding voting generally fails to convey shareholder views to the manager. This distinguishes voting for non-binding proposals from standard voting for binding proposals, where some information is always conveyed. In practice, the effectiveness of shareholder proposals may be affected by external governance mechanisms, such as the market for corporate control in the form of activist investors. Our analysis demonstrates that the presence of an activist investor can enhance the advisory role of non-binding voting only if there is substantial conflict of interest between the activist and shareholders. Although shareholder proposals have become increasingly common in recent years, submitting a proposal to a shareholder vote is often viewed by activist investors as a tactic of last resort. According to survey evidence, activists generally try to achieve their objectives through private negotiations with the management and use confrontational tactics only if these negotiations are not successful. The third essay, "Behind-the-Scene Negotiations in Shareholder Activism, " examines under which circumstances negotiations between the activist and the management fail. I study these negotiations in a bargaining framework where the manager is privately informed about his private benefits. The model provides implications for the likelihood of proposal withdrawals and announcement effects of proposal submissions. It demonstrates, in particular, that the announcement of an activist's intervention may have a negative price effect even if the intervention is known to be beneficial to the company.
Author: Radhakrishnan Gopalan Publisher: ISBN: 9780542786884 Category : Corporate governance Languages : en Pages : 109
Book Description
My dissertation consists of three essays on Corporate Governance. The first essay studies a situation where corporate governance assumes importance because the manager and shareholders may disagree about optimal decisions due to heterogeneous prior beliefs. An important contribution of the essay is to characterize the optimal governance arrangement in such situations and to highlight the optimality of joint control. We apply our theory to an entrepreneur/manager's choice between private and public ownership and derive a number of testable predictions.
Author: Yuwei Wang
Author: Yuwei Wang
Author: Isabella Otero Lazzari
Author: Minhua Yang
Author: Tih Koon Tan
Author: Taemin Cha
Author: Yong Lee
Author: Waquar Ahmad
Author: An Chee Low
Author: Ms. Nadya Malenko
Author: Radhakrishnan Gopalan