Most recent papers:

• Corporate governance indices and construct validity.
  Bernard Black, Antonio Gledson Carvalho, Vikramaditya Khanna, Woochan Kim, Burcin Yurtoglu.
  Corporate Governance. October 19, 2017
  Manuscript Type Conceptual and empirical. Research Question/Issue Many studies of firm‐level corporate governance rely on aggregate “indices” to measure underlying, unobserved governance. But we are not confident that we know how to build these indices. Often we are unsure both as to what is “good” governance, and how one can proxy for this vague concept using observable measures. We conduct an exploratory analysis of how researchers can address the “construct validity” of firm‐level governance indices, which poses a major challenge to all studies that rely on these indices. Research Findings/Insights We assess the construct validity of governance indices for four major emerging markets (Brazil, India, Korea, and Turkey), developed in prior work. In that work, we built country‐specific indices, using country‐specific governance elements that reflect local norms, institutions, and data availability, and showed that these indices predict firm market value in each country. The use of country‐specific indices puts great stress on the construct validity challenge of assessing how well a governance measure matches the underlying concept. We address here how well these four country‐specific indices, and subindices for aspects of governance such as board structure or disclosure, coherently measure unobserved, underlying actual governance. Theoretical/Academic Implications We provide guidance on how researchers can address the construct validity of corporate governance indices. Practitioner/Policy Implications The uncertain construct validity of most corporate governance indices suggests caution in relying on research using these indices as a basis for firm‐level governance changes, or country‐level legal reforms.

  October 19, 2017   doi: 10.1111/corg.12215   open full text
• The ABCs of empirical corporate (governance) research.
  Renée Adams.
  Corporate Governance. September 27, 2017
  There is no abstract available for this paper.

  September 27, 2017   doi: 10.1111/corg.12229   open full text
• Do OECD‐type governance principles have economic value for Vietnamese firms at IPO?
  Ngo My Tran, Ann Jorissen, Walter Nonneman.
  Corporate Governance. September 25, 2017
  Manuscript Type Empirical Research Question Using agency and resource dependency insights this paper examines first which type of firm‐level antecedents trigger the adoption of OECD‐type governance principles by Vietnamese listed firms at IPO. Subsequently this paper investigates whether the adoption of these governance principles leads to higher firm values at IPO and whether stricter governance is related to transparency after IPO. Research Findings With respect to the antecedents of OECD‐type governance in Vietnam this study finds that firms with foreign shareholders and younger firms adopt these governance principles. The adoption of stricter governance principles, especially in terms of strict supervisory board independence, as well as the appointment of directors with multiple director seats are beneficial for firm value at IPO. Governance transparency after IPO is unrelated to a firm's governance characteristics but positively associated with increasing firm size. Theoretical/Academic Implications The results show that agency insights are applicable in a context of concentrated ownership, low investor protection and weak enforcement, since stricter board independence leads to higher firm value. In addition resource dependence theory explains the choice of directors and provides evidence that boards with better network potential lead to higher firm value in this relationship‐based emerging market. Practitioner/Policy Implications Vietnamese firms benefit from higher value at IPO when they adopt stricter internal governance mechanisms and appoint directors holding multiple board seats. However, to ensure compliance with governance and transparency principles, formal institutional changes related to stricter enforcement of the regulation are of utmost importance.

  September 25, 2017   doi: 10.1111/corg.12228   open full text
• Founding Family and Auditor Choice: Evidence from Taiwan.
  Hwa‐Hsien Hsu, Che‐Hung Lin, Shou‐Min Tsao.
  Corporate Governance. September 13, 2017
  Research Question/Issue From an agency perspective, we investigate whether family ownership and control configurations are systematically associated with a firm's choice of auditor. Our analysis focuses on three different characteristics of family ownership and control: family ownership (cash flow rights), disparity between cash flow and voting rights held by family owners (cash–vote divergence), and the family identities of CEOs. Research Findings/Insights Our findings suggest that different family ownership and control configurations lead to different agency effects. The alignment effect prevails in family firms with greater family ownership, founder CEOs, and professional CEOs, whereas the entrenchment effect prevails when there is greater cash–vote divergence. Despite the presence of two distinct types of agency effects, regardless of differences in family ownership and control configurations, none of these firms are inclined to appoint higher‐quality auditors. Theoretical/Academic Implications This study advances our understanding of the varied agency effects arising from family ownership, cash–vote divergence, and the family identities of CEOs, as well as the impact of family ownership and control features on auditor choice. Our empirical evidence provides a unique insight, showing that higher‐quality auditors do not tend to be appointed in firms where family alignment with outside investors is relatively strong, as this lowers demand for such auditors. In addition, although family entrenchment may create greater outside investor demand for higher‐quality auditors, such demand is difficult to realize. Practitioner/Policy Implications Auditors are an important external governance mechanism. This study offers insights for policy makers, family owners, auditors, and other capital market participants, with regard to the varied effects of different family ownership and control features on auditor choice.

  September 13, 2017   doi: 10.1111/corg.12226   open full text
• Founder‐CEOs and Corporate Turnaround among Declining Firms.
  Michael A. Abebe, Chanchai Tangpong.
  Corporate Governance. August 19, 2017
  Manuscript Type Empirical Research Question/Issue Despite the growing interest in leaders’ role in the turnaround process, there is a paucity of research on founder‐CEOs’ role in achieving successful turnaround among declining firms. In this study, using insights from the organizational identification literature, we argue that founder‐CEOs play an important role in turnaround attempts due to their strong organizational commitment and psychological attachment to the declining firm as well as the relative absence of agency problem issues common among their non‐founder counterparts. Research Findings/Insights Using data from a matched pair sample of 142 U.S. firms that experienced performance decline, we found that founder‐CEO leadership significantly increases turnaround success in declining firms. We also found that, among turnaround firms, those led by founder‐CEOs tend to put more emphasis on market‐based turnaround strategies, such as new product introductions, and less emphasis on retrenchment actions, such as divestments. Theoretical/Academic Implications Our findings contribute to corporate turnaround research by providing a more nuanced view of leaders’ role in the turnaround process by specifically exploring the effect of founder CEO leadership. Furthermore, this study contributes to the turnaround literature by highlighting the strategic choices of founder‐CEO led firms and how these choices influence successful turnaround. Finally, by introducing organizational identification perspective, this study provides additional theoretical explanation of leadership antecedents of successful turnarounds. Practitioner/Policy Implications The findings of this study suggest that board of directors, shareholders and consultants who often participate in turnaround management should carefully consider retaining founder‐CEOs and endorsing their leadership during the turnaround process. Further, the findings provide turnaround specialists and other stakeholders with further understanding of not only the importance of product market strategies in the turnaround process but also founder‐CEOs’ role in fostering such strategies.

  August 19, 2017   doi: 10.1111/corg.12216   open full text
• Methodological issues in governance research: An editor's perspective.
  Igor Filatotchev, Mike Wright.
  Corporate Governance. June 06, 2017
  Manuscript type Review Research Question/Issue What can be learnt with regard to methods in corporate governance research from editorial experience in handling corporate governance manuscripts? We draw on our experience as editors and guest editors of various journals in highlighting some of the methodological challenges in corporate governance research. We consider methodological issues relating to both quantitative and qualitative studies. Within these broad approaches, we discuss implications of theorizing, ownership and types of firms, governance and institutional contexts, omission of governance variables, human and social capital of board members, endogeneity/causality issues, executive remuneration, configurations and interactions of governance constructs, other governance mechanisms, and data sources. Discussion of these issues also highlights the need for more theoretical and empirical consideration of contingent factors influencing governance relationships. We identify possible ways forward and future research avenues. Research Findings/Insights There is a need for corporate governance studies to devote greater recognition to the heterogeneity of various governance factors such as ownership types and director expertise. Studies have generally paid insufficient attention to the configurations of corporate governance. Theoretical/Academic Implications Future research needs to address the connections between the methodological recognition of heterogeneity and configurations and the implications for theorizing. Practitioner/Policy Implications Failure to address these methodological issues implies that conclusions drawn from corporate governance research for practice and policy could well be misleading.

  June 06, 2017   doi: 10.1111/corg.12211   open full text
• Turf war or collusion: An empirical investigation of conflict of interest between large shareholders.
  Zhonghui “Hugo” Wang.
  Corporate Governance. June 06, 2017
  Manuscript Type Empirical Research Question/Issue Does the smaller blockholder monitor or collude with a larger counterpart in a two‐blockholder firm? Does the larger blockholder prefer not to share private benefits with the smaller blockholder or partially yield control to the smaller counterpart in a coalition? What are the contingent factors that influence the conflict of interest among large shareholders? Research Findings/Insights In two‐blockholder firms, the voting power of the larger blockholder negatively impacts the presence of the cumulative voting rule, even if the rule is positively associated with firm value and provides the smaller blockholder a better opportunity to elect directors despite the competition from the larger blockholder. Voting power concentration negatively impacts the adoption of the cumulative voting rule in two‐blockholder firms. The more voting power a smaller blockholder can employ to contest the largest blockholder, the more likely the two‐blockholder firm will observe the cumulative voting rule. Two‐blockholder firms are more likely to observe the cumulative voting rule when a coalition of blockholders has voting power that falls far below a threshold that warrants control of the firm. Theoretical/Academic Implications The empirical analysis of the paper suggests that the larger blockholder is willing to defend the control of the firm and the ability to pursue private benefits at the cost of firm value. The smaller blockholder is more likely to yield to the power of the larger blockholder and choose to collude rather than compete with the largest blockholder. The motivation and ability of a smaller blockholder to monitor the larger blockholder is contingent upon the voting power balance of the two blockholders. Practitioner/Policy Implications Minority investors should be alert to potential collusion among large shareholders. Regulators should consider enforcing the cumulative voting rule more widely to facilitate shareholder democracy and improve firm value.

  June 06, 2017   doi: 10.1111/corg.12207   open full text
• Does voluntary corporate social performance attract institutional investment? Evidence from China.
  Mingzhu Wang, Yugang Chen.
  Corporate Governance. May 29, 2017
  Manuscript Type Empirical Research Question/Issue This study analyses whether institutional investment in China is affected by the voluntary corporate social performance (CSP) of firms, after controlling for ownership structure, corporate governance, compensation, and other firm characteristics. Research Findings/Insights Firms with superior voluntary CSP attract more institutional investment, which remains robust after controlling for the reverse causality problem. Mutual funds are the main driver of the institutional investment pattern in China and they invest more in firms that achieve better voluntary CSP with respect to employment equality and customer care. Insurance companies and social security funds invest more in firms that take care of their customers. Qualified foreign institutional investors (QFIIs) are the only type of institutional investors tilting their investment in favor of firms doing well at saving energy. Theoretical/Academic Implications Our empirical evidence suggests that different types of institutional investors show preferences toward different aspects of investee firms’ voluntary CSP. We innovatively separate firms’ voluntary CSP into expected components that can be explained by firm characteristics and unexpected components (surprises) that cannot be explained by firm characteristics. Although institutional investors, in general, and mutual funds and QFIIs, in particular, own more shares in firms with more voluntary CSP surprises, only mutual funds trade on them in the subsequent year. Practitioner/Policy Implications Foreign institutional investors invest more in firms with better voluntary CSP, especially with respect to energy‐saving and environmental issues, but they do not show a significant preference toward firms with better corporate governance in China. Our paper offers implications for policy makers in transitory and emerging economies with regard to encouraging foreign institutional investors’ equity investment.

  May 29, 2017   doi: 10.1111/corg.12205   open full text
• Methodological rigor of corporate governance studies: A review and recommendations for future studies.
  Brian K. Boyd, Steve Gove, Angelo M. Solarino.
  Corporate Governance. May 29, 2017
  Manuscript Type Article/Review Research Question/Issue This study presents the results of a longitudinal content analysis of governance articles published in both CGIR and other leading management outlets. Our aim with this review is to identify problematic areas, as well as opportunities to improve the methodological rigor of governance studies. Research Findings/Insights We examine key design aspects of corporate governance articles. We identify and compare trends (1) over time and (2) across publishing outlets. Specifically examined are the geographic scope of samples, design characteristics (i.e., single‐ versus multi‐year data, the use of archival, survey, experimental, and qualitative designs, data sources, and reliance on concurrent versus longitudinal data), survey response rates and the use of tests for non‐response bias, the statistical analysis techniques used, reporting of results (number and proportion of hypotheses supported, non‐significant, and counter‐significant, use of statistical power analysis, reporting of descriptive statistics and correlations, use and significance of control variables, and endogeneity controls), and the sophistication of the models tests (i.e., mediation and moderation). Theoretical/Academic Implications Based on the results of the review, recommendations for academic researchers are offered in the following areas: (1) designing theoretical tests which both incorporate and go beyond main effects; (2) evaluating a research design's analytical parameters on an a priori basis to maximize reliability, validity, and the potential for publication; (3) incorporating assessment of sensitivity and robustness checks into the analysis; and (4) comprehensive reporting of results including post hoc power analysis, complete and expanded correlation matrix(es), reporting and assessing counter‐results, and avoiding HARKing.

  May 29, 2017   doi: 10.1111/corg.12208   open full text
• Informed trading by foreign institutional investors as a constraint on tunneling: Evidence from China.
  Xiaoxiang Zhang, Xiaotong Yang, Roger Strange, Qiyu Zhang.
  Corporate Governance. May 12, 2017
  Manuscript Type Empirical Research Question/Issue This paper investigates how the trading activities of foreign institutional investors (FIIs) affect the tunneling activities of controlling shareholders in an emerging economy (China). Research Findings/Insights We use an unbalanced panel dataset of 167 FIIs with investments in Chinese real estate firms during the period 2003 to 2011, which gives us 1006 firm‐year observations in total. We find strong support for our hypothesis of an inverted U‐shaped relationship between FII trading turnover and the extent of tunneling by controlling shareholders. Theoretical/Academic Implications In many emerging economies, the institutional environment for investor protection is weak. Powerful controlling shareholders may take the opportunity to extract private benefits via tunneling activities to the detriment of minority shareholders, and informed minority investors may also take advantage of less well‐informed investors. There are thus multiple principal–principal agency conflicts. FIIs are a particularly important group of informed investors. On the one hand, large‐scale aggressive trading by FIIs should drive stock prices to fundamentals, provide market discipline to management, and thus limit tunneling. On the other hand, FIIs may opt to exploit their private knowledge to gain trading profits at the expense of uninformed investors, and implicitly support tunneling. We highlight these potential effects, and demonstrate empirically an inverted U‐shaped relationship between FII trading turnover and the extent of tunneling. Practitioner/Policy Implications Tunneling is a serious issue, particularly in emerging economies where the institutional arrangements for minority investor protection are often weak. FII involvement may enhance market discipline, but may also exacerbate the problem, so policymakers need to guard against potential adverse effects. An ownership cap on FII shareholdings is unlikely to be effective, but policymakers might strengthen QFII license revocation policies and issue more licenses to promote competition among FIIs.

  May 12, 2017   doi: 10.1111/corg.12206   open full text
• Buying gold at the price of silver? Controlling shareholders and real estate transactions in korean listed firms.
  Dong‐Ryung Yang.
  Corporate Governance. May 09, 2017
  Manuscript Type Empirical Research Question/Issue This paper examines real estate transactions among Korean listed firms, their affiliated companies and controlling shareholders from 1999 to 2011. The goal of this study is to test whether the controlling individuals gain higher returns from the trades than the other parties in a persistent manner. Research Findings/Insights Investigating price changes across the transactions reveals that the controlling shareholders consistently earn higher returns than the listed firms, while this is not the case for the affiliated firms. The listed firms, in expectation of bleak potential in value growth, acquire real estate properties from their controlling shareholders while disposing of properties with promising prospect of growth in value. When the listed firms either buy or lease a property from controlling shareholders, the market value of the acquired property increases less than the leased. Theoretical/Academic Implications All of the findings confirm a tunneling nature of the listed firms’ real estate transactions with their controlling shareholders. Practitioner/Policy Implications The findings show a possibility that listed firms and the controlling shareholders can plot property transactions so as to offer biased profits for the individuals at the expense of minority shareholders. Such profitability becomes viable by manipulating transaction timing and does not necessitate predatory pricing of the assets transferred.

  May 09, 2017   doi: 10.1111/corg.12193   open full text
• The effects of politically connected outside directors on firm performance: Evidence from Korean chaebol firms.
  Jae Yong Shin, Jeong‐Hoon Hyun, Seungbin Oh, Hongsuk Yang.
  Corporate Governance. April 26, 2017
  Manuscript Type Empirical Research Question/Issue While most prior studies on the value of political connections focus on the political connections of controlling shareholders and top management, we examine the performance impact of appointing politically connected outside directors (PCODs) in Korean chaebol firms. Research Findings/Insights Using a manually collected sample of PCODs in Korean chaebol firms, we find that larger, high‐performing, less volatile firms with a larger board and higher divergence between voting rights and cash flow rights are more likely to appoint PCODs in the next year. We also report that firms with a high number of PCODs exhibit better operating performance and enjoy lower risk. On the other hand, we find evidence of weak monitoring ability by PCODs. Overall, we suggest that the number of PCODs correlates positively with firm performance, and that the value effect of PCODs increases with the importance of internal trade among group affiliates, the existence of inside directorship by controlling shareholders, and potential settlements from pending litigation. We further differentiate between PCODs and find that former government officials as PCODs drive our findings. Theoretical/Academic Implications This study contributes to corporate governance knowledge by revealing the relationship between PCODs and firm performance via an empirical inquiry into the role of PCODs on the board. As the controlling shareholders of Korean chaebol firms obtain greater private benefits of control, and such firms may face active government involvement in curbing controlling shareholders’ rent extraction, we examine the role and effects of PCODs in these situations and find evidence of the PCOD's value‐enhancing effect. We also complement and extend prior studies by providing more direct mechanisms through which PCODs can add value above and beyond firms’ ownership structure. Additionally, we expand the concept of political connection by analyzing outside directors’ human and social capital from the resource dependence theory perspective. Our attempt complements prior research's exclusive focus on connections of large shareholders or top executives to political parties and is more comprehensive in illustrating the firm's dynamic business environment. Practitioner/Policy Implications The results of our study are potentially useful to regulators, who will benefit from an understanding of how the presence of PCODs on boards affects firm performance. In particular, our results suggest that in countries where recent reforms aim to improve minority investor protection and market confidence, regulators should consider the composition of outside directors as well as explicit board independence. The results of our study may also be useful to investors, financial analysts, and auditors, as they highlight the importance of considering specific features of board composition when assessing firms’ future operating performance and risk mechanisms.

  April 26, 2017   doi: 10.1111/corg.12203   open full text
• Financial performance and non‐family CEO turnover in private family firms under different conditions of ownership and governance.
  Francesca Visintin, Daniel Pittino, Alessandro Minichilli.
  Corporate Governance. April 20, 2017
  Manuscript Type Empirical Research Question/Issue Family firms, as insider‐controlled companies, should be less likely to exhibit CEO turnover after poor performance and may thus promote enhanced focus on long‐term goals. However, when a non‐family CEO is in charge, the relatively limited empirical evidence is contrasting. Some studies find that only family CEOs are immune from the threat of dismissal following poor financial performance, while other studies show that family firms discipline their CEOs for poor financial performance regardless of their family status. In this work, we try to reconcile these contrasting findings and investigate what ownership and governance conditions influence the owners’ pressure on the CEO to achieve short‐term financial results. Research findings/insights Drawing on a longitudinal dataset that covers the entire population of Italian medium and large family companies, we find that when family ownership is concentrated in the hands of few family shareholders or there is a low number of family members involved in the board of directors, non‐family CEOs are less likely to be dismissed after poor performance. Theoretical/Academic Implications Our study, adopting the behavioral agency theory as the guiding framework, highlights the importance for governance decisions of the potential goal divergence among principals in closely held ownership structures. Our results also add to the still scant literature on the relationship between family owners and non‐family CEOs. Practitioner/Policy Implications Our research suggests that, in the decision to hire a non‐family CEO, family business owners should not only assess their gaps in managerial skills but also carefully consider the ownership structure and family involvement conditions. On the side of professional non‐family managers, our results offer insights on ways to address the employment relationship with the controlling family.

  April 20, 2017   doi: 10.1111/corg.12201   open full text
• An institutional perspective on corruption in transition economies.
  Anna Alon, Amy M. Hageman.
  Corporate Governance. March 19, 2017
  Manuscript Type Empirical Research Question/Issue Companies operating in transition economies encounter a broad range of potential challenges. In the area of tax, firms make direct tax payments but may also encounter unofficial tax costs in the form of bribery or extortion. We focus on institutional determinants, including formal rules, informal rules, and enforcement, to examine conditions under which firms are more likely to encounter these transactions. We operationalize formal rules as rule‐based trust and informal rules as dispositional trust. Research Findings/Insights Based on a sample of over 5000 firms representing 20 transition economies, we show that when rule‐based trust is high, the presence of tax enforcement activities in the form of visits and inspections by tax officials does not change the relationship between rule‐based trust and unofficial payments. However, when dispositional trust is low, unofficial payments are more likely if verification activities occur. Theoretical/Academic Implications We adopt a more holistic view and focus on the joint consideration of different institutional determinants and firm outcomes. In doing so, the article demonstrates the complexity of firms’ tax environments where enforcement mechanisms can have unwelcome consequences, and, under certain conditions, create conditions for the persistence of corruption. Practitioner/Policy Implications This paper highlights the importance of the institutional landscape, especially considering the history of institutional voids in many transition economies. The results have implications for corporate governance and caution regulators and practitioners to consider institutional complexities when implementing reforms or establishing businesses in transition economies.

  March 19, 2017   doi: 10.1111/corg.12199   open full text
• Risk governance, structures, culture, and behavior: A view from the inside.
  Elizabeth Sheedy, Barbara Griffin.
  Corporate Governance. March 09, 2017
  Manuscript Type Empirical Research Questions/Issues Risk governance (emphasizing internal structures and risk culture) is a relatively new approach to the governance of financial institutions that is being widely adopted in the industry. Due to obvious assessment challenges, to date no evidence exists regarding the effectiveness of risk structures nor the status of risk culture in financial institutions. We therefore investigate the extent to which bank employees view risk structures as effective and risk culture as favorable. We also investigate how risk structures and risk culture together influence risk behavior. Research Findings/Insights Risk structures were typically rated as effective with the exception of remuneration. Risk culture varied at the business unit level as well as by firm and country. Senior leaders tended to have a rosier perception of risk culture than staff generally. Favorable risk culture together with effective risk structures was associated with high levels of desirable and low levels of undesirable risk behavior. Theoretical/Academic Implications The study provides a window into internal bank governance using a novel survey methodology. Many governance papers rely exclusively on external measures of governance; these do not guarantee effective internal risk governance. Practitioner/Policy Implications Further managerial and supervisory attention should be paid to ensure that culture and remuneration structures support risk management in financial institutions. As risk culture varies at the local level, it should be measured and managed at the local level. Senior leaders cannot rely on their own perceptions but should rely instead on independent assessments of risk culture.

  March 09, 2017   doi: 10.1111/corg.12200   open full text
• Principal–principal agency problems and stock price crash risk: Evidence from the split‐share structure reform in China.
  Jian Sun, Rongli Yuan, Feng Cao, Baiqiang Wang.
  Corporate Governance. March 08, 2017
  Manuscript Type Empirical Research Question/Issue On April 2005, the China Securities Regulatory Commission (CSRC) launched the split‐share structure reform to mitigate principal–principal agency problems. Using the reform as an exogenous shock, we examine the impact of principal–principal agency problems on stock price crash risk. Specifically, this study attempts to answer two questions: (1) Does the split‐share structure reform in China decrease stock price crash risk? (2) Is the above effect induced by the mitigation of principal–principal agency problems? Research Findings/Insights We find that the reform induces a significant decrease in crash risk after controlling for other predictors of crash risk, and this effect is more pronounced in firms with a higher proportion of shares held by controlling shareholders. Moreover, we find that the negative impact of the reform on stock price crash risk is more pronounced in firms with a high level of tunneling prior to the reform, which indicates that reform induces less tunneling, and adversely affects crash risk. Theoretical/Academic Implications This study contributes to the literature in two ways. First, this study constitutes the first effort to explore the determinants of stock price crash risk from the perspective of principal–principal agency problems. Second, this study enriches the growing literature on the economic consequences of the split‐share structure reform in China. Practitioner/Policy Implications We draw two important implications from our results. First, our findings highlight that regulatory intervention is an important way to enhance corporate governance. This is particularly beneficial in China, a transitional economy which may lag in terms of general protection of investors and information disclosure. Second, this study also confirms that minority shareholders and listed firms benefit from the reform. Both are crucial to the healthy development of the capital market in China.

  March 08, 2017   doi: 10.1111/corg.12202   open full text
• Corporate governance implications of new methods of entrepreneurial firm formation.
  David Ahlstrom, Douglas J. Cumming, Silvio Vismara.
  Corporate Governance. March 05, 2017
  There is no abstract available for this paper.

  March 05, 2017   doi: 10.1111/corg.12189   open full text
• Do Voluntary Clawback Adoptions Curb Overinvestment?
  Yu‐Chun Lin.
  Corporate Governance. March 02, 2017
  Manuscript Type Empirical Research Question/Issue This study tests whether the adoption of clawback provisions mitigates overinvestment. A clawback provision is a recoupment policy that allows certain bonuses previously paid to executives to be cancelled or “clawed back” if financial statements are restated. Research Findings/Insights This study focuses on 1,093 voluntary clawback adopters in the United States during 2006–2012 and uses propensity score matching to obtain a matched sample. We then perform a difference‐in‐differences analysis to assess pre‐ and post‐adoption changes in overinvestment. The empirical results show that (i) clawback provisions mitigate overinvestment, and (ii) overinvestment decreases most for those executives identified as overconfident or receiving higher option compensation. Theoretical/Academic Implications Agency conflict between shareholders and executives distorts a firm's investment decisions. According to the agency‐based explanation, better financial reporting quality decreases information asymmetry. Clawback provisions improve financial reporting and mitigate potential overinvestment under agency conflict. To the best of our knowledge, no other published study has discussed executives’ investment behavior or has reported that one benefit of clawback provisions is mitigating ex post overinvestment. It is important for regulators and academics to understand how clawback provisions impact executives’ behavior. Practitioner/Policy Implications The results of this study provide political implications for mandatory clawback provisions under Section 954 of the Dodd‐Frank Act after 2016 in the US. Given that we show that voluntarily adopting clawback provisions curbs overinvestment, it is important to examine whether this new act should place restrictions on the form of executive pay.

  March 02, 2017   doi: 10.1111/corg.12194   open full text
• Can Benford's Law explain CEO pay?
  Shibashish Mukherjee.
  Corporate Governance. March 02, 2017
  Manuscript Type Empirical Research Question/Issue This study applies the statistical properties of Benford's Law to CEO pay. Benford's “Law” states that in an unbiased dataset, the first digit values are usually unequally allocated when considering the logical expectations of equal distribution. In this study we question whether the striking empirical properties of Benford's Law could be used to analyze the negotiating power and preferences of CEOs. We argue that performance‐based or market‐determined compensations should follow Benford's Law, demonstrating no direct negotiation by the CEOs. Conversely, deviation from Benford's Law could reveal CEO negotiating power or even preference. Research Findings/Insights Our analysis shows that market‐determined “Option Fair Value” (the dollar value of stock options when exercised) conforms closely to Benford's Law, as opposed to “Salary”, which is fully negotiated. “Bonus”, “Option Award”, and “Total Compensation” are generally also largely consistent with Benford's Law, but with some exceptions. We interpret these exceptions as negotiation by the CEOs. Surprisingly, we found that CEOs prefer to be paid in round figure values, especially “5”. We use Benford's Law to study the negotiating powers of CEOs vs. that of other executives. Finally, we compare the negotiating tactics of CEOs before and after SOX and analyze the impact of firm size on their compensation. Theoretical/Academic Implications This study introduces Benford's Law and its applications within the corporate governance literature. Practitioner/Policy Implications This method could be used by academics, industry and regulators to uncover compensation patterns within large business departments and/or organizations or even entire industry segments.

  March 02, 2017   doi: 10.1111/corg.12195   open full text
• Country‐level governance quality, ownership concentration, and debt maturity: A comparative study of Brazil and Chile.
  Henrique Castro Martins, Eduardo Schiehll, Paulo Renato Soares Terra.
  Corporate Governance. February 23, 2017
  Manuscript type Empirical Research Question/Issue This study investigates the interplay between country‐level governance quality and the capital structure choice at the firm level in Brazil and Chile. We examine the association between a firm's ownership concentration and its debt maturity structure and whether country‐level governance quality influences this association. Research Findings/Insights Using a large firm‐level dataset from Brazil and Chile for the period 2008–2013, we find a positive association between low ownership concentration and debt maturity. However, this association becomes negative when the largest shareholder has high ownership concentration. This result suggests that long‐term debt and ownership concentration act as substitute monitoring mechanisms. Moreover, debt maturity is inversely related to our aggregated index of country‐level governance quality, suggesting that in countries with governance systems that effectively protect debt holders, firms with high benefits of control (high ownership concentration) will use debt with shorter repayment periods in order to benefit from frequent monitoring by debt holders. Overall, our results support the view that financial markets tend to pressure firms with high benefits of control or greater agency conflict to make a tradeoff between the benefits of control and the cost and maturity structure of debt financing. Theoretical/Academic Implications This study contributes to the research on comparative corporate governance and capital structure. We also respond to recent calls to bridge the gap between under‐ and over‐socialized views of corporate governance by examining the interplay between firm‐ and country‐level governance variables. Our findings suggest a substitution effect between monitoring by equity holders and by debt holders, and that country‐level governance quality exerts a disciplinary influence over a firm's choice of debt maturity structure. Practitioner/Policy Implications Investors seeking to enter emerging markets such as Brazil and Chile can benefit from considering national governance factors that enhance debt holders’ external monitoring effectiveness. Because our findings show the importance of considering and improving the quality of country‐level governance, they are also useful for policy makers aiming to reform corporate governance practices in emerging markets.

  February 23, 2017   doi: 10.1111/corg.12192   open full text
• Reexamining CEO duality: The surprisingly problematic issues of conceptualization and measurement.
  Steve Gove, Marc Junkunc, Olga Bruyaka, Luiz Ricardo Kabbach de Castro, Martin Larraza‐Kintana, Santiago Mingo, Yue Song, Pooja Thakur Wernz.
  Corporate Governance. January 15, 2017
  Manuscript Type Empirical Research Question/Issue While corporate governance research is the beneficiary of advances in research methodologies and statistical techniques, less attention has been placed on variable measurement. This paper draws into question the conceptualization and measurement of CEO duality by highlighting its largely unrecognized instability and the challenges instability imposes on measuring dichotomous variables. CEO duality is widely used in corporate governance research and frequently operationalized dichotomously as a dummy variable. We present examples of the frequent changes in duality within organizations which challenge our current view of CEO duality. Research Findings/Insights We find that the instability of CEO duality in practice varies considerably at both the national and within‐firm levels. We find that a mismatch exists between the current conceptualization of CEO duality, actual patterns of data, and the measures used by governance researchers. The paper draws attention to the limits of conceptualizing and measuring what is seemingly dichotomous data, reviews these in research and in practice, and provides examples, recommendations and assessments of alternate ways existing data can be used. Theoretical/Academic Implications Our results draw into question the reliance on a simple dichotomous conceptualization and operationalization of CEO duality in governance research. Data limitations of corporate governance research may be alleviated by directly assessing stability of duality within firms and reimagining concepts in ways that can be measured using existing data. Practitioner/Policy Implications CEO duality, a legal but discouraged governance structure, may be changed intentionally or result from a variety of temporary firm‐level factors. Assessing the longitudinal patterns in duality and underlying causes for temporary changes in duality should be incorporated into evaluations of firm governance structures.

  January 15, 2017   doi: 10.1111/corg.12190   open full text
• Managerial Labor Market during Institutional Transition: A study of CEO compensation and voluntary turnover.
  Lerong He, Tara Shankar Shaw, Junxiong Fang.
  Corporate Governance. December 23, 2016
  Manuscript Type Empirical Research Question/Issue This paper investigates the influence of CEO compensation on voluntary turnover and the moderating role of the managerial labor market. It explores how institutional contingencies related to labor market transparency, mobility, and competitiveness shape supply and demand conditions of the managerial labor market, and consequently affect the relationship between CEO underpayment and turnover. Research Findings/Insights Using a sample of Chinese listed firms between 2002 and 2011, we document that underpaid CEOs are associated with a larger likelihood of voluntary turnover in China. Importantly, we find that CEO underpayment will increase the likelihood of voluntary turnover to a greater extent when executive compensation disclosure is mandatory, when regional labor mobility is higher, and when industry growth rate is larger. Overall, our study demonstrates that underpayment below the market rate motivates CEOs to exit their organizations and such a reaction is more likely to materialize when managerial labor market conditions are favorable enough to create a strong pull force. Theoretical/Academic Implications This study adopts an interdisciplinary perspective built on institutional theory, organizational psychology, and labor economics to examine the role of the managerial labor market during institutional transition. It integrates the social psychological explanation of turnover with the perspective of labor economics by linking both pull side and push side drivers of organizational participation with demand and supply conditions of the managerial labor market. Practitioner/Policy Implications This study suggests that the design of executive compensation should consider the ongoing labor market rate for retention and motivation reasons, especially when managerial talent is under tight supply and strong demand.

  December 23, 2016   doi: 10.1111/corg.12187   open full text
• Agency Costs of Moving to Tax Havens: Evidence from Cross‐border Merger Premia.
  Burcin Col.
  Corporate Governance. December 09, 2016
  Manuscript Type Empirical Research Question/Issue This paper explores the valuation effects of the tradeoff between tax avoidance and corporate governance through tax haven M&As. Firms can achieve tax savings by selling to an acquirer based in a tax haven, making the newly created multinational a haven resident. Changing a firm's tax home through a 100 percent acquisition is also accompanied by a change in legal system and corporate governance. Therefore, tax savings could come at the expense of corporate governance degradation making the value implications of such tax avoidance attempts an important empirical issue. Research Findings/Insights Using an international sample of cross‐border M&As from 1989 to 2012, we find value evidence supporting the agency costs hypothesis. For 100 percent M&As, a lower target premium is associated with those transactions where the tax haven acquirer has weaker investor protection than the target. Theoretical/Academic Implications Our findings provide value evidence regarding the agency costs of tax‐motivated M&As as a result of the secrecy laws and limited investor protection of tax havens. Practitioner/Policy Implications This study provides a perspective for executives of multinational firms to take into account the value consequences associated with secrecy laws and weak investor protection while considering a possible relocation to tax havens. It also offers further insight to policymakers concerning the costs of limited investor protection and lack of transparency.

  December 09, 2016   doi: 10.1111/corg.12177   open full text
• Does Bank Institutional Setting Affect Board Effectiveness? Evidence from Cooperative and Joint‐Stock Banks.
  Antonio D'Amato, Angela Gallo.
  Corporate Governance. November 22, 2016
  Manuscript Type Empirical Research Question/Issue Do cooperative banks suffer from board deficiencies less frequently and severely than joint‐stock banks? To answer this question, we analyze banks operating in Italy during the period 2006–2012 to examine whether the governing bodies of cooperative banks are less effective in carrying out their duties than those of joint‐stock banks. Deficiencies in the governing body are measured by sanctions imposed by the supervisory authority. Research Findings/Insights Findings revealed that the boards of directors of cooperative banks were sanctioned more often than board of directors of joint‐stock banks. Furthermore, board turnover mediates the relationship between the cooperative status and board deficiencies. Theoretical/Academic Implications This study provides empirical evidence in support of the weakness of corporate governance in cooperative banks. Methodologically, our approach is novel in that we adopt a measure of board effectiveness/deficiency based on an independent third‐party perspective (supervisory authority) that is not biased by the different objective function of the two types of banks. Practitioner/Policy Implications The findings have several policy and managerial implications. We contribute to the ongoing debate on the proposal for flexible regulation of corporate governance for cooperative banks and emphasize that policy‐makers and regulators should rethink the corporate governance structures of cooperative banks. In particular, the study reveals how board turnover should be carefully monitored to reduce board deficiencies at the bank level.

  November 22, 2016   doi: 10.1111/corg.12185   open full text
• Multiple Large Shareholders, Excess Leverage and Tunneling: Evidence from an Emerging Market.
  Agyenim Boateng, Wei Huang.
  Corporate Governance. November 13, 2016
  Manuscript Type Empirical Research Question/Issue Past empirical efforts in corporate governance have examined the effects of large shareholders with excess control rights on tunneling activities. However, no study has systematically investigated the effects of multiple large shareholders on excess leverage policies and tunneling in an emerging country environment where minority rights protection is weak. In this study, we examine the role of multiple large shareholders and the effects of control contestability of multiple large shareholders on firm excess leverage decision and tunneling by controlling shareholders. Research Findings/Insights Using a sample of 2,341 Chinese firms for the years 2001 to 2013, we document that the contestability of multiple non‐controlling large shareholders relative to controlling shareholders reduces the adoption of excess leverage policies, tunneling and enhances capital investment. Another intriguing finding is that the government, as a controlling shareholder, exerts significant influence and reduces the monitoring effectiveness of multiple larger shareholders. Theoretical/Academic Implications By addressing the role of multiple large shareholders on excess leverage decisions, this study makes an important contribution to the corporate governance literature. We extend the recent developments in agency theory regarding the role of multiple large shareholders in constraining expropriation of controlling shareholders with excess control rights and their effect on firm leverage decisions. Our results support the theoretical models which indicate that the presence of multiple large shareholders is an important and efficient internal governance mechanism that mitigates a firm's agency costs, particularly, in an emerging market environment where corporate governance is weak and inadequate to curb the tunneling problem.

  November 13, 2016   doi: 10.1111/corg.12184   open full text
• International Evidence on the Relationship between Insider and Bank Ownership and CSR Performance.
  Kerstin Lopatta, Reemda Jaeschke, Felix Canitz, Thomas Kaspereit.
  Corporate Governance. September 22, 2016
  Manuscript Type Empirical Research Question/Issue This study examines the relationship between blockholder and bank ownership and a firm's corporate social responsibility (CSR) performance. We analyze a multinational panel data sample for the period 2003–2012. Research Findings/Insights We find that the degree of blockholder ownership is negatively related to CSR performance, whereas the degree of bank ownership is positively related to CSR performance. The negative (positive) relationship between blockholder (bank) ownership and CSR performance is more pronounced in firms with high ownership dispersion. Theoretical/Academic Implications Our study contributes to existing literature by investigating the effects of blockholder and bank ownership on CSR performance within an international context. Prior research has predominantly examined local markets. Additionally, we identify ownership dispersion to strengthen the relationship between investors and CSR and thus provide further evidence on the factors influencing investors' CSR preferences. Conducting an instrumental variables approach supports our findings that bank ownership is positively, and blockholder ownership is negatively, related to CSR performance. Practitioner/Policy Implications Our results may assist firms in understanding the demand for CSR by blockholders and bank owners. An awareness of this demand may help firms to optimize their CSR performance in line with their investors' preferences. The knowledge produced in this article could assist firms in adopting the optimal level of CSR performance. Viewed from another perspective, knowing that either blockholder or bank ownership is present allows other shareholders, for instance sustainability funds, to anticipate the long‐run equilibrium level of firm‐specific CSR performance.

  September 22, 2016   doi: 10.1111/corg.12174   open full text
• Introducing Neural Computing in Governance Research: Applying Self‐Organizing Maps to Configurational Studies.
  Mark John Somers, Jose Casal.
  Corporate Governance. August 15, 2016
  Manuscript Type Empirical Research Issue/Question Self‐organizing maps (SOMs), a neural computing paradigm, were introduced as a methodology to enhance and extend configurational governance research. The capabilities of SOMs include assessment of nonlinear relationships among study variables and projection of firms and clusters in two‐dimensional space based on their relative similarity. Research Findings/Insights To demonstrate their application to governance research, SOMs were used to study patterns of immunity to institutional governance logics in the financial services industry. Firm sensemaking and governance logics were assessed by analyzing the language and meaning of corporate codes of conduct. Content analysis was guided by the DICTION software program. DICTION uses data dictionaries to analyze the meaning of text documents based on word usage. Our results supported a configurational model characterized by distinct groupings of firms with varying degrees of acceptance of prevailing institutional governance logics. Practitioner/Policy Implications SOM analysis demonstrated that context influences firm governance logics. Specifically, different interpretations of environmental pressures led to different adaptive responses suggesting reconsideration of the notion of universal or best governance practices.

  August 15, 2016   doi: 10.1111/corg.12173   open full text
• Adaptive Conjoint Analysis: A New Approach to Defining Corporate Governance.
  Christofer Adrian, Sue Wright, Alan Kilgore.
  Corporate Governance. June 30, 2016
  Manuscript Type Empirical Research Question/Issue The method introduced to the corporate governance literature by this paper captures the construct of corporate governance in a small number of attributes, using responses made by directors and shareholders to an adaptive conjoint analysis questionnaire. Research Findings/Insights We demonstrate how to identify the key attributes of corporate governance from directors' and shareholders' relative preferences among a set of corporate governance attributes. The dominance of CEO duality as a relatively more important attribute is a key finding. Theoretical/Academic Implications Adaptive conjoint analysis is a useful technique for research into governance issues characterized by constrained choice. For future researchers seeking to capture governance in a limited number of measures, we have identified four attributes considered by directors and shareholders to comprise effective corporate governance, with the single measure of CEO duality being the most important. Practitioner/Policy Implications This parsimonious set of attributes can guide the design of future corporate governance regulations, to avoid costly over‐regulation. We do not suggest that restrictions on multiple directorships or an appropriate board size should be added to current requirements, and the surprisingly low perceptions of audit partner tenure and audit committee size as important to good corporate governance suggest that these attributes could be excluded from future regulations.

  June 30, 2016   doi: 10.1111/corg.12169   open full text
• Corporate Governance in Banks.
  Kose John, Sara De Masi, Andrea Paci.
  Corporate Governance. April 22, 2016
  Manuscript Type Review Research Question/Issue We survey the literature on corporate governance in banks in the US and international settings. We discuss how the specialness of banks, deposit insurance, high bank leverage, and bank regulation interact with bank governance. We evaluate bank governance from three perspectives: (1) maximizing bank equity value, (2) maximizing total enterprise value, and (3) maximizing social objectives. Our survey includes evidence on how bank governance differs from that of manufacturing firms. We also survey studies on managerial incentives in banks and their implications for bank performance and risk taking before and during the 2007–2008 financial crisis. Research Findings/Insights The high leverage (usually above 90 percent) of banking institutions gives rise to a trade‐off between strengthening equity governance and maximizing enterprise value. Aligning managers very closely with shareholders can give rise to strong incentives for risk shifting to the detriment of firm value. The bank risk choices might also go against the societal objectives of a stable financial system. Theoretical/Academic Implications We provide a framework for the optimal design of bank governance and bank regulation, considering the objectives of both depositors and society‐at‐large in addition to those of bank shareholders. This framework could be especially important in determining risk choices by banks and the effects of such on the stability of the financial system. Practitioner/Policy Implications Our analysis of the literature surveyed has policy implications for bank regulation, top‐management compensation in banks, and directives for design of governance in banks. We discuss implications for direct regulation of banks and regulation of bank governance. The findings surveyed provide guidance for board independence, board size, board composition, and incentive features in top‐management compensation.

  April 22, 2016   doi: 10.1111/corg.12161   open full text
• Cross‐National Governance Research: A Systematic Review and Assessment.
  Eduardo Schiehll, Henrique Castro Martins.
  Corporate Governance. April 07, 2016
  Manuscript Type Review Research Question/Issue Using a systematic literature review approach, we survey 192 cross‐national comparative studies published in 23 scholarly journals in the fields of accounting, economics, finance, and management for the period 2003 to 2014. The purpose is to synthesize and appraise the extant empirical research on the interplay between country‐ and firm‐level governance mechanisms and the effects on firm outcomes. Particular focus is placed on studies that examine firm economic performance. Research Findings/Results We identify and distinguish between two groups of cross‐national governance studies. The first type compares macro, country‐level outcomes and the second compares three different firm‐level outcomes: economic performance, governance mechanisms, and strategic decisions. We compare the theoretical frameworks used and further analyze the country‐level factors and firm‐level governance attributes that have been combined to investigate their interplay and the effects on firm outcomes. We find substantial variation in the use and measurement of country‐level factors as well as a variety of causal forms used to explain the combined effects of country‐ and firm‐level governance mechanisms. This wide variability precludes comparison, and consequently prevents identifying consistent patterns of influence between country‐level governance factors and firm‐level governance mechanisms and/or performance. We identify research gaps and provide fruitful directions for future research on this topic. Theoretical Implications The cross‐national governance research has been guided mainly by an economic perspective focusing on international differences in the effectiveness of specific governance mechanisms. Few comparative studies have integrated an institutional perspective or examined the external forces that drive the diffusion and use of specific governance mechanisms. Such integrative framework would improve the understanding of cross‐national differences in the salient dimensions of country‐level governance factors and how they mediate the effectiveness of firm‐level governance mechanisms. Practitioner Implications Our results reveal that firm‐ and country‐level governance mechanisms have been interacted and combined, either to address various agency problems or to compensate for a weak national environment. This calls for regulators and investors to consider national governance factors when assessing firm‐level governance practices.

  April 07, 2016   doi: 10.1111/corg.12158   open full text
• Looking Inside the Black Box: The Effect of Corporate Governance on Corporate Social Responsibility.
  Tanusree Jain, Dima Jamali.
  Corporate Governance. March 16, 2016
  Manuscript Type Review Research Question/Issue This study provides a systematic multi‐level review of recent literature to evaluate the impact of corporate governance mechanisms (CG) at the institutional, firm, group, and individual levels on firm level corporate social responsibility (CSR) outcomes. We offer critical reflections on the current state of this literature and provide concrete suggestions to guide future research. Research Findings/Insights Focusing on peer‐reviewed articles from 2000 to 2015, the review compiles the evidence on offer pertaining to the most relevant CG mechanisms and their influence on CSR outcomes. At the institutional level, we focus on formal and informal institutional mechanisms, and at the firm level, we analyze the different types of firm owners. At the group level, we segregate our analysis into board structures, director social capital and resource networks, and directors' demographic diversity. At the individual level, our review covers CEOs' demography and socio‐psychological characteristics. We map the effect of these mechanisms on firms' CSR outcomes. Theoretical/Academic Implications We recommend that greater scholarly attention needs to be accorded to disaggregating variables and yet comprehending how multiple configurations of CG mechanisms interact and combine to impact firms' CSR behavior. We suggest that CG‐CSR research should employ a multi‐theoretical lens and apply sophisticated qualitative and quantitative methods to enable a deeper and finer‐grained analysis of the CG systems and their influence on CSR. Finally, we call for cross‐cultural research to capture the context sensitivities typical of both CG and CSR constructs. Practitioner/Policy Implications Our review suggests that for structural changes and reforms within firms to be successful, they need to be complemented by changes to the institutional makeup of the context in which firms function to encourage/induce substantive changes in corporate responsible behaviors.

  March 16, 2016   doi: 10.1111/corg.12154   open full text
• A New Look at Regulating Bankers’ Remuneration.
  Anna Zalewska.
  Corporate Governance. January 11, 2016
  Manuscript Type Conceptual Research Questions/Issues Executive remuneration, whether as a tool for resolving agency problems or as a sign of them, has been discussed in the literature for decades. The discussion, however, has been focused on non‐financial firms, and bankers’ remuneration, particularly in the context of corporate governance, has been overlooked until recently. However, following the financial crisis, regulators have begun intervening into banking boards’ responsibilities, including remuneration. This raises numerous questions, in particular, how far the existing non‐financial literature applies to banks, and if not, why and how this impacts on appropriate corporate governance in banking, and what challenges this brings? Research Findings/Insights The paper argues that due to numerous externalities, notably the interconnectivity and systemic risk of the banking sector, a traditional approach to remuneration based on resolving the principal‐agent conflict is inappropriate. Active involvement of regulators is needed to balance the short‐term performance of the banking sector with the long‐term needs of society. This, however, means that remuneration and corporate governance of banks is no longer an individual bank issue but is a national and probably an international phenomenon. In some cases this may require fundamental changes to the national governance structure, culture, and practices. Theoretical/Academic Implications The analysis questions the suitability of the common idea of assessing corporate governance in banks in the same way as is done for non‐financial institutions. Given that several traditional non‐financial board responsibilities have been partially passed over to regulators in the banking sector, a new theoretical model of corporate governance is needed for banks. The paper examines relational contracts (echoed to some extent in stewardship, stakeholder, and network theories), and argues that these cannot be expected to be successful in the banking environment. Practitioner/Policy Implications The paper highlights the importance of tying the corporate governance of banks with other regulatory measures employed to restrict risk taking. It also stresses the need for harmonization of corporate governance metrics for the banking sector at a national/international level.

  January 11, 2016   doi: 10.1111/corg.12149   open full text
• The Importance of Shareholder Activism: The Case of Say‐on‐Pay.
  Konstantinos Stathopoulos, Georgios Voulgaris.
  Corporate Governance. November 22, 2015
  Manuscript Type Review Research Question/Issue This study focuses on the role of Say‐on‐Pay as a mechanism that aims to promote the efficiency of corporate governance by providing an additional channel for the expression of shareholder “voice.” Initially introduced in the UK, Say‐on‐Pay has subsequently been adopted in a large number of countries and it has recently received significant attention from regulators, media, and the general public. The purpose of this study is to review prior literature related to Say‐on‐Pay and its impact on firm value and corporate decision making. Research Findings/Insights Our study highlights the interdisciplinary nature of research on Say‐on‐Pay. We also shed light on conceptual gaps and empirical discrepancies in prior studies, indicating that many questions linked to Say‐on‐Pay and its importance for the executive pay‐setting process remain largely unanswered. Theoretical/Academic Implications At a theoretical level, we highlight potential areas for development of the existing theoretical framework for Say‐on‐Pay, which is at present rather limited and primarily influenced by agency theory. At an empirical level, we propose a substantial number of avenues for fruitful future research on this topic. Practitioner/Policy Implications In the light of recent proposals for extending the role of Say‐on‐Pay within the corporate governance framework, our findings are particularly relevant to regulators. More thought is needed about changing its nature from advisory to binding, as the degree of its effectiveness and the dynamics of the voting process are still unclear. Our study could also be informative for the media and the general public, especially given the increasing attention afforded to Say‐on‐Pay.

  November 22, 2015   doi: 10.1111/corg.12147   open full text
• Corporate Governance Codes: A Review and Research Agenda.
  Francesca Cuomo, Christine Mallin, Alessandro Zattoni.
  Corporate Governance. November 22, 2015
  Manuscript Type Review Research Question/Issue This study reviews previous country‐level and firm‐level studies on corporate governance codes up to 2014 in order to highlight recent trends and indicate future avenues of research. Research Findings/Results Our data show that research on codes increases over time consistently with the diffusion and the relevance of the empirical phenomenon. Despite previous studies substantially enriching our knowledge of the antecedents and consequences of governance codes, our study shows there are still several opportunities to make significant contributions in this area. Theoretical Implications Agency theory is the dominant theoretical framework, although other theoretical perspectives (especially the institutional one) are increasingly adopted. Future studies should be aimed at widening and combining various theoretical lenses so as to develop new interpretations and a better understanding of governance codes. Practical Implications Legislators and policymakers should continue to develop and update the recommendations of national governance codes in order to address the potential failures of corporate governance mechanisms in place.

  November 22, 2015   doi: 10.1111/corg.12148   open full text
• Call for Proposals – Inaugural ICGS Conference ‘Restoring Trust in Business through Corporate Governance’ September 18‐19, 2015 at the Copenhagen Business School.
  Meriger Javier.
  Corporate Governance. January 19, 2015
  There is no abstract available for this paper.

  January 19, 2015   doi: 10.1111/corg.12105   open full text
• Institutional Investors on Boards and Audit Committees and Their Effects on Financial Reporting Quality.
  María Consuelo Pucheta‐Martínez, Emma García‐Meca.
  Corporate Governance. May 07, 2014
  Manuscript Type Empirical Research Question/Issue This study examines how the presence of representatives of institutional investors as directors on boards or on audit committees enhances financial reporting quality, reducing the probability that the firm receives qualified audit reports. We focus on directors who maintain business relations with the firm on whose board or committee they sit (pressure‐sensitive directors). We also investigate the specific role of bank directors and examine their effects on financial reporting quality when they act as shareholders and directors. Research Findings/Insights Our results suggest that institutional directors are effective monitors, which leads to higher quality financial reporting and, therefore, a lower likelihood that the firm receives a qualified audit report. Consistent with the relevant role of business relations with the firm, we find that directors appointed to both boards and audit committees by pressure‐sensitive investors have a larger effect on financial reporting quality as it is more likely that the auditor issues an unqualified audit opinion. Nevertheless, when analyzed separately, only savings bank representatives on the board increase financial reporting quality. Theoretical/Academic Implications The results confirm that board characteristics have an important influence on financial reporting quality, in line with the views that have been expressed by several international bodies. The findings also suggest that both researchers and policy makers should no longer consider institutional investors as a whole, given than directors appointed by different types of institutional investors have various implications on financial reporting quality, measured by the type of audit opinion. Practitioner/Policy Implications This study makes its core contribution by empirically showing that directors appointed by different types of institutional investors have diverse implications on financial reporting quality. This evidence can be potentially helpful in providing a basis for regulatory actions, namely those aiming to influence the structure of the board of directors. The results have important implications for supervisors and regulators, who will benefit from an understanding of how the presence of directors on boards of savings and commercial banks in nonfinancial firms affects financial reporting quality in a bank‐based system.

  May 07, 2014   doi: 10.1111/corg.12070   open full text
• Frequent Stock Repurchases, False Signaling, and Corporate Governance: Evidence from Korea.
  Seung Hun Han, Bong‐Soo Lee, Minji Song.
  Corporate Governance. May 06, 2014
  Manuscript Type Empirical Research Question/Issue We examine the relation between stock repurchases and their potential false signaling of undervaluation using unique Korean data. Research Findings/Insights We find that the firms that repurchase stocks frequently are less undervalued and have lower post‐announcement operating performance than firms that repurchase stocks infrequently. We further find that agency cost and industry‐adjusted Tobin's Q of frequent repurchase firms negatively affect abnormal returns from the repurchase announcement. Corporate governance, especially ownership structure and board independence, affects the probability of frequent signaling. Theoretical/Academic Implications Our results suggest that the main motivation for frequent stock repurchases is likely to be false signaling, and that corporate governance can mitigate false signaling caused by agency cost. Practitioner/Policy Implications Frequent stock repurchases are not necessarily motivated by firm undervaluation. Rather, the degree of agency problems and managers' abuse of information asymmetry tend to increase the frequency of stock repurchases. Therefore, frequent stock repurchases are associated with false signaling by managers; this false signaling can be lowered through better corporate governance. This finding supports the monitoring effect of corporate governance systems.

  May 06, 2014   doi: 10.1111/corg.12069   open full text
• Rewarding Poor Performance: Why Do Boards of Directors Increase New Options in Response to CEO Underwater Options?
  Yuanyuan Sun, Taekjin Shin.
  Corporate Governance. April 07, 2014
  Manuscript Type Empirical Research Question/Issue When the stock options granted to CEOs go underwater, boards of directors tend to award additional stock options to their CEOs. Drawing on agency theory and attribution theory, this study explores social psychological mechanisms that explain why boards of directors increase new option grants to CEOs in response to underwater options. Research Findings/Insights Using the compensation data of CEOs at 966 US firms, we found that contextual factors such as market conditions and industry performance affected boards of directors' decisions to grant new stock options. Consistent with our hypotheses, boards of directors granted a greater number of new options to CEOs in response to CEOs' underwater options during the recession period than the recovery period, and they granted fewer new options when the firm's industry performance was high rather than low. Theoretical/Academic Implications This study incorporates attribution theory in understanding boards of directors' causal attribution of firm performance and its impact on executive compensation. It complements earlier studies on causal attribution by exploring the role of contextual factors. It also contributes to the research by examining the attribution process of boards of directors rather than that of top management, as well as the consequences of the causal attribution in terms of ex‐post adjustment in executive option compensation. Practitioner/Policy Implications This study provides up‐to‐date and improved evidence on boards' decision making about executive stock options. Practitioners and policy makers can benefit from the study's findings that board members rely on contextual information about the market and the competition when they make causal attribution of firm performance changes, which tends to affect their decisions about executive compensation.

  April 07, 2014   doi: 10.1111/corg.12065   open full text
• Politically Connected Firms and Earnings Informativeness in the Controlling versus Minority Shareholders Context: European Evidence.
  Carolina Bona‐Sánchez, Jerónimo Pérez‐Alemán, Domingo Javier Santana‐Martín.
  Corporate Governance. March 14, 2014
  Manuscript Type Empirical Research Question/Issue Focusing on an environment where ownership concentration is prevalent and where the presence of politically connected directors on the board is the natural form of political connection, we analyze the effect of political connections on earnings informativeness. We also examine a question that has not been considered in previous research, namely, the impact of the level of divergence between the dominant owner's voting and cash flow rights on earnings informativeness for politically connected firms. Research Findings/Insights We find that the presence of politicians on the board negatively affects earnings informativeness. We also find a positive impact of the divergence between the dominant owner's voting and cash flow rights on the informativeness of accounting earnings in politically connected firms. Theoretical/Academic Implications We show that the relationship between political ties and earnings informativeness is explained by an information effect, whereby politicians and shareholders are interested in providing as little information to the market as possible in order to protect political ties from public scrutiny and prevent the leakage of competitive advantages to competitors. Additionally, we show that the positive effect of divergence between the dominant owner's voting and cash flow rights on earnings informativeness in firms that belong to a pyramid is explained both by an alignment effect, whereby political connections promote transparency, as well as by a stewardship effect, whereby the ultimate owner of the pyramid, acting as a steward, places politicians on the board to increase the firm's reputation and reports earnings in good faith. Practitioner/Policy Implications The results of our study may be useful to regulators interested in increasing transparency in order to promote a more efficient allocation of resources. In particular, the results suggest that in countries where recent reforms aim to improve investor protection and market confidence, regulators should encourage the disclosure of firm political ties. The results of our study may also be useful to investors, financial analysts and auditors, as they highlight the importance of considering specific features of the corporate governance system when assessing the credibility of accounting information.

  March 14, 2014   doi: 10.1111/corg.12064   open full text
• Large Shareholders, Shareholder Proposals, and Firm Performance: Evidence from Japan.
  Tsung‐ming Yeh.
  Corporate Governance. February 04, 2014
  Manuscript Type Empirical Research Question/Issue Previous studies, primarily based on evidence from the United States, fail to link shareholder activism to firm performance, with one explanatory factor being that the legal and regulatory system in the United States limits the anti‐director rights of shareholders. This study is motivated by the question of whether legally binding shareholder resolutions can pressure management to improve firm performance and to enhance firm value. Research Findings/Insights By investigating 135 publicly listed Japanese firms which received shareholder resolutions from 2004 to 2010, this study finds supportive evidence for shareholder proposals. Announcement‐associated abnormal returns are higher for firms receiving election‐related proposals by large sponsors, than those unrelated to board election. Furthermore, an improving trend begins to appear in the post‐resolution year, particularly significant for firms receiving proposals to remove board members. Theoretical/Academic Implications This study provides new evidence suggesting that large shareholder activism in Corporate Japan can perform roles that used to be played by main banks before the 1990s. It also suggests that in countries where there is no active takeover market, large shareholders can effectively discipline entrenched management through active engagement. Practitioner/Policy Implications This study offers insights to corporate managers on the importance of communicating with large shareholders and addressing their concerns.

  February 04, 2014   doi: 10.1111/corg.12052   open full text
• Agency Theory in Practice: a Qualitative Study of Hedge Fund Activism in Japan.
  John Buchanan, Dominic Heesang Chai, Simon Deakin.
  Corporate Governance. January 16, 2014
  Manuscript Type Empirical Research Question/Issue We look at the reaction to hedge fund activism of managers and shareholders in Japanese firms and explore the implications of our findings for agency theory. Research Findings/Insights Confrontational shareholder activism of the kind practiced by American and British hedge funds in Japan during the 2000s failed to gain acceptance from Japanese investors and managers or to alter the internal focus of corporate governance practices in Japanese firms. Theoretical/Academic Implications We use a qualitative research design which treats the standard agency‐theoretical model of the firm as only one possible approach to understanding corporate governance, to be tested through empirical research, rather than as an assumption built into the analysis. We find that Japanese managers do not generally regard themselves as the shareholders' agents and that, conversely, shareholders in Japanese firms do not generally behave as principals. Our findings suggest that the standard principal‐agent model may be a weak fit for firms in certain national contexts. Practitioner/Policy Implications For policymakers, our work demonstrates the importance of understanding the distinctive features of national‐level corporate governance arrangements. For practitioners, it cautions against the view that national corporate governance systems are converging around the model of shareholder primacy and directs attention to the need for investors to be informed of the diversity of practices across different countries.

  January 16, 2014   doi: 10.1111/corg.12047   open full text
• The Effect of Family Governance on Corporate Time Horizons.
  Imke Kappes, Thomas Schmid.
  Corporate Governance. August 15, 2013
  Manuscript Type Empirical Research Question/Issue This paper empirically tests the effect of family governance on intertemporal choice. We contribute to the literature on corporate time horizons by formulating an innovative approach to the measurement of long‐term orientation. This approach uses an index that captures investment, employee, and financing behavior. Research Findings/Insights Our research makes use of a dataset consisting of 701 German firms (6,205 firm‐years) observed over the period from 1995 to 2009. We provide evidence that firms actively managed by founders and/or their families are significantly more long‐term oriented than the control group. Our findings also show that these firms persist in maintaining a long‐term approach in cases in which pressure on short‐term results is high. Theoretical/Academic Implications This paper supports the hypothesis that trans‐generational considerations can result in family‐managed firms having longer time horizons. As such, our findings reinforce prior claims that agency outcomes can significantly differ in the context of family governance. Furthermore, our results accentuate the validity of the claim to separately account for multiple aspects of family governance in family firm research, in particular management vs. ownership. Practitioner/Policy Implications Our results will be helpful for investors in selecting investment targets that match their personal time preferences. In particular, it appears difficult to exert pressure on family managers to extract short‐term profits. Policymakers may want to consider removing any barriers to the transferring of family firms between generations. Their orientation towards the long‐term can make family‐run companies sources of stability in their respective economies. This is also due to their less pronounced reaction to pressure.

  August 15, 2013   doi: 10.1111/corg.12040   open full text
• Foreign Direct Investors as Change Agents: The Swedish Firm Experience.
  Kathy S. Fogel, Kevin K. Lee, Wayne Y. Lee, Johanna Palmberg.
  Corporate Governance. June 24, 2013
  Manuscript Type Empirical Research Question Prior studies examine corporate governance either at the firm level, with limited attention paid to societal culture and norms, or at the nation‐state level, with limited attention paid to the management practices of firms. In this study we examine the impact on the corporate governance of Swedish firms brought about by foreign investors. We argue that in countries like Sweden with strong culturally embedded norms and control exercised by dominant domestic shareholders, control‐seeking foreign investors can act as agents of change to improve firm performance through more efficient capital utilization and labor productivity. Research Findings We find that the entry of foreign equity investors over the years 1992–2008 surrounding Sweden's formal admission to the European Union in 1995 enhanced the financial performance of large publicly traded, domestic owner‐controlled firms in Sweden. The heightened performance of Swedish firms was not simply a result of cross‐border portfolio investments by institutions as the literature on shareholder activism implies. Rather, significant advancements in firm performance occurred only when an increase in voting participation by foreign direct investors was coincident with a decrease in the excess voting power of the largest domestic shareholder, which gave foreign equity investors a critical “voice” in the management of the firm. Theoretical Implications Informal institutions influence corporate governance by aligning corporate goals with socially acceptable outcomes. Corporate governance practices, if culturally embedded, cannot be easily displaced even when the gains in economic efficiency are large. Corporate owners stand to benefit from the maintenance of the status quo and may not welcome radical changes that can lead to a “creative destruction” of their market power and political dominance. Foreign portfolio investors who focus solely on cash flow rights of the firm cannot effectively change decision making in the boardroom. Foreign direct investors, who actively seek voting shares and control rights, will have the utmost potential to effect change in corporate governance by advocating for new corporate priorities and objectives at board meetings.

  June 24, 2013   doi: 10.1111/corg.12035   open full text
• Innovation and Family Ownership: Empirical Evidence from India.
  Suman Lodh, Monomita Nandy, Jean Chen.
  Corporate Governance. June 23, 2013
  Manuscript Type Empirical Research Question/Issue This study examines the direct effect of family ownership on innovation in emerging markets by using data from Indian family‐controlled publicly listed firms as its sample. In particular, we study (1) the direct effects of family ownership on innovation and (2) the influences of business group affiliation on these family firms. Research Findings/Insights Using an unbalanced panel of 395 Bombay Stock Exchange (BSE) listed Indian firms during the years 2001 and 2008, we found that the impact of family ownership on innovation productivity is positive (after controlling for possible endogeneity). We further emphasized the business group affiliation of family firms and distinguished between the innovation activities of group‐affiliated and stand‐alone family firms. We found that affiliating with top 50 business groups increases the innovation activities of these family firms. Theoretical/Academic Implications Theoretically, we complement agency theory by incorporating both the institutional perspective and the external resourcing perspective to provide a more robust framework for examining the impact of family ownership on innovation in emerging markets. Methodologically, we adopted a more rigorous econometrics method by providing a panel analysis that used a system GMM estimator and addressed the endogeneity issue thoroughly, which represented a significant improvement over the shortcomings of the methodologies found in the existing literature. Practitioner/Policy Implications Our findings suggest that the Indian government should provide support for affiliating family firms with business groups while improving policies on information disclosures; it should also establish a proper corporate governance mechanism for private and public family business. The findings further suggest that a corporate governance code should encourage family firms to have an independent professional CEO.

  June 23, 2013   doi: 10.1111/corg.12034   open full text