Business Commons^™

Disproportional Ownership Structure And Ipo Long-Run Performance Of Entrepreneurial Firm In China, Jerry X. Cao, Gary Gang Tian, Vincent Tang, Xiaoming Wang

Research Collection Lee Kong Chian School Of Business

This paper examines the relationship between ownership structures and IPO long-run performance in China. Although entrepreneurial firms underperform the market in general after IPO but the poor performance is mainly caused by the IPOs with ownership control wedge. Entrepreneurial firms with one share one vote structure outperform those with ownership control wedge by 30% for 3 years post-IPO in either buy-and-hold or cumulative monthly returns. Entrepreneurial firms with excess ownership control wedge have higher frequency of undertaking value-destroying related party transactions. These findings suggest that entrepreneurial firms need to improve corporate governance such as disproportional ownership structure to better safeguard …

Economic Effects Of Sox Section 404 Compliance: A Corporate Insider Perspective, Cindy Alexander, Scott Bauguess, Gennaro Bernile, Alex Lee, Jennifer Marietta-Westberg

Research Collection Lee Kong Chian School Of Business

We use survey responses from 2,901 corporate insiders to assess the costs and benefits of compliance with Section 404 of the Sarbanes-Oxley Act. The majority of respondents recognize compliance benefits, but they do not perceive these benefits to outweigh the costs, on average. This is particularly true among smaller companies where the start-up costs are proportionately larger. However, the perceived efficiency of compliance increases with auditor attestations, years of compliance experience, and after the remediation of a material weakness. Notably, the perceived effects of compliance depend largely on firm complexity, but are mostly unrelated to firm governance structure.

Corporate Myths : Sourcing And Vendor Management In Asia Pacific, Singapore Management University

Perspectives@SMU

Sourcing and vendor management need the urgent attention of senior management. The current uptick in poor and corrupt sourcing practices and weak governance provide a compelling reason.

Political Connection And Firm Value, James S. Ang, David K. Ding, Tiong Yang Thong

Research Collection Lee Kong Chian School Of Business

We study the effect of political connection (PC) on company value in an environment where low PC is due to better institutions and not confounded by favorable social/cultural factors. We find that in Singapore, the only country that fits this description, PC in general adds little to the value of a company. However, in industries that are subject to more stringent government regulations, PC appears to be somewhat important. Robustness checks show that alternative PC variables give rise to similar results, and the addition of control variables do not drastically change the findings. Politically connected firms have higher managerial ownership …

Liquidity, Governance And Adverse Selection In Asset Pricing, Sascha Strobl

FIU Electronic Theses and Dissertations

A plethora of recent literature on asset pricing provides plenty of empirical evidence on the importance of liquidity, governance and adverse selection of equity on pricing of assets together with more traditional factors such as market beta and the Fama-French factors. However, literature has usually stressed that these factors are priced individually. In this dissertation we argue that these factors may be related to each other, hence not only individual but also joint tests of their significance is called for.

In the three related essays, we examine the liquidity premium in the context of the finer three-digit SIC industry classification, …

The Discretionary Effect Of Ceos And Board Chairs On Corporate Governance Structures, Matteo P. Arena, Marcus V. Braga-Alves

Finance Faculty Research and Publications

In this study we analyze the effect of latent managerial characteristics on corporate governance. We find that CEO and board chair fixed effects explain a significant portion of the variation in board size, board independence, and CEO-chair duality even after controlling for several firm characteristics and firm fixed effects. The effect of CEOs on corporate governance practices is attributable mainly to executives who simultaneously hold the position of CEO and board chair in the same firm. Our results do not show a decline in CEO discretionary influence on corporate governance after the enactment of the Sarbanes–Oxley Act and stock exchange …

Say Pays! Shareholder Voice And Firm Performance, Vicente Cuñat, Mireia Gine, Maria Guadalupe

Upjohn Institute Working Papers

This paper estimates the effect of increasing shareholder “voice” in corporations through a new governance rule that provides shareholders with a regular vote on pay: Say on Pay. We apply a regression discontinuity design to Say on Pay shareholder proposals to deal with prior expectations and the endogeneity of internal governance rules. Adopting Say on Pay leads to large increases in market value (5.4 percent), firm profitability, and long-term performance. In contrast, we find small effects on the level and structure of pay. This suggests that Say on Pay operates as a regular confidence vote, increasing efficiency, and market value.

Can A Code Of Ethics Improve Manager Behavior And Investor Confidence? An Experimental Study, Bruce I. Davidson, Douglas E. Stevens

Accountancy Faculty Publications

Policy makers and corporations have recently emphasized a code of ethics as an effective aspect of corporate governance. The corporate governance literature in accounting, however, provides little empirical or theoretical support for this emphasis. We address this gap between public policy and the literature by studying the effectiveness of a code of ethics in an experimental setting. Using Bicchieri's (2006) model of social norm activation, we predict that a code of ethics will improve manager return behavior and investor confidence to the extent that it activates social norms that control opportunistic behavior. Further, we predict that adding a certification choice …

The Danger Of Difference: Tensions In Directors’ View Of Corporate Board Diversity, Kimberly D. Krawiec, John M. Conley, Lissa L. Broome

Faculty Scholarship

This Article describes the results from fifty-seven interviews with corporate directors and a limited number of other persons (including institutional investors, search firm personnel, and the like) regarding their views on corporate board diversity. It highlights numerous tensions in these views. Most directors, for instance, proclaim that diverse boards are good, but very few directors can articulate their reasons for this belief. Some directors have suggested that diverse boards work better than non-diverse boards, but gave relatively few concrete examples of specific instances where a female or minority board member made a special contribution related to that director’s race or …

Who Calls The Shots?: How Mutual Funds Vote On Director Elections, Stephen J. Choi, Jill E. Fisch, Marcel Kahan

All Faculty Scholarship

Shareholder voting has become an increasingly important focus of corporate governance, and mutual funds control a substantial percentage of shareholder voting power. The manner in which mutual funds exercise that power, however, is poorly understood. In particular, because neither mutual funds nor their advisors are beneficial owners of their portfolio holdings, there is concern that mutual fund voting may be uninformed or tainted by conflicts of interest. These concerns, if true, hamper the potential effectiveness of regulatory reforms such as proxy access and say on pay. This article analyzes mutual fund voting decisions in uncontested director elections. We find that …

Carrots And Sticks: How Vcs Induce Entrepreneurial Teams To Sell Startups, Brian J. Broughman, Jesse M. Fried

Articles by Maurer Faculty

Venture capitalists (VCs) usually exit their investments in a startup via a trade sale. But the entrepreneurial team – the startup’s founder, other executives, and common shareholders – may resist a trade sale. Such resistance is likely to be particularly intense when the sale price is low relative to VCs’ liquidation preferences. Using a hand-collected dataset of Silicon Valley firms, we investigate how VCs overcome such resistance. We find, in our sample, that VCs give bribes (carrots) to the entrepreneurial team in 45% of trade sales; in these sales, carrots total an average of 9% of deal value. The overt …

Mandating Board-Shareholder Engagement?, Lisa Fairfax

All Faculty Scholarship

This Article not only argues that corporations must be encouraged to enhance the level of communication between shareholders and the board, but also maintains that the benefits of increased engagement are significant enough that we should consider developing standards for incentivizing, if not mandating, more robust board-shareholder engagement for corporations that fail to respond to such encouragement. In the last several years, shareholders not only have gained increased authority over corporate elections and governance matters, but also have demonstrated a willingness to use that authority to challenge, and even reject, management policies and practices. Shareholders also have begun to demand …

Shareholders And Social Welfare, William W. Bratton, Michael L. Wachter

All Faculty Scholarship

This article addresses the question whether (and how) the shareholders matter for social welfare. Answers to the question have changed over time. Observers in the mid-twentieth century believed that the socio-economic characteristics of real world shareholders were highly pertinent to social welfare inquiries. But they went on to conclude that there followed no justification for catering to shareholder interest, for shareholders occupied elite social strata. The answer changed during the twentieth century’s closing decades, when observers came to accord the shareholder interest a key structural role in the enhancement of economic efficiency even as they also deemed irrelevant the characteristics …

Independent Directors And Shared Board Control In Venture Finance, Brian J. Broughman

Articles by Maurer Faculty

In most VC-backed firms neither the entrepreneurs nor the VC investors control the board. Instead control is typically shared with a mutually appointed independent director holding the tie-breaking seat. Contract theory, which treats control as an indivisible right held by one party, does not have a good explanation for this practice. Using a bargaining game similar to final offer arbitration, I show that an independent director as tie-breaker can reduce holdup by moderating each party’s ex post threat position, potentially expanding the range of firms which receive external financing. This project contributes to the literature on incomplete contracting and holdup, …

The Long Road Back: Business Roundtable And The Future Of Sec Rulemaking, Jill E. Fisch

All Faculty Scholarship

The Securities and Exchange Commission has suffered a number of recent setbacks in areas ranging from enforcement policy to rulemaking. The DC Circuit’s 2011 Business Roundtable decision is one of the most serious, particularly in light of the heavy rulemaking obligations imposed on the SEC by Dodd-Frank and the JOBS Act. The effectiveness of the SEC in future rulemaking and the ability of its rules to survive legal challenge are currently under scrutiny.

This article critically evaluates the Business Roundtable decision in the context of the applicable statutory and structural constraints on SEC rulemaking. Toward that end, the essay questions …

Adapting To The New Shareholder-Centric Reality, Edward B. Rock

All Faculty Scholarship

After more than eighty years of sustained attention, the master problem of U.S. corporate law—the separation of ownership and control—has mostly been brought under control. This resolution has occurred more through changes in market and corporate practices than through changes in the law. This Article explores how corporate law and practice are adapting to the new shareholder-centric reality that has emerged.

Because solving the shareholder–manager agency cost problem aggravates shareholder–creditor agency costs, I focus on implications for creditors. After considering how debt contracts, compensation arrangements, and governance structures can work together to limit shareholder–creditor agency costs, I turn to available …

Sue On Pay: Say On Pay’S Impact On Directors’ Fiduciary Duties, Lisa Fairfax

All Faculty Scholarship

This Article advances a normative case for using say on pay litigation to enhance the state courts’ role in policing directors’ compensation decisions. Outrage over what many perceive to be excessive executive compensation has escalated dramatically in recent years. In 2010, such outrage prompted Congress to mandate say on pay—a nonbinding shareholder vote on executive compensation. In the wake of say on pay votes, some shareholders have brought suit against directors alleging that a negative vote indicates a breach of directors’ fiduciary duties. To date, the vast majority of courts have rejected these suits. This Article insists that such rejection …

Proposals For Corporate Governance Reform: Six Decades Of Ineptitude And Counting, Douglas M. Branson

Articles

This article is a retrospective of corporate governance reforms various academics have authored over the last 60 years or so, by the author of the first U.S. legal treatise on the subject of corporate governance (Douglas M. Branson, Corporate Governance (1993)). The first finding is as to periodicity: even casual inspection reveals that the reformer group which controls the "reform" agenda has authored a new and different reform proposal every five years, with clock-like regularity. The second finding flows from the first, namely, that not one of these proposals has made so much as a dent in the problems that …