"The Emergence of Corporate Governance from Wall St. to Main St.: Outside Directors,
Board Diversity, Earnings Management, and Managerial Incentives to Bear Risk"
M. Andrew Fields and Phyllis Y. Keys
"Corporate
Governance, Board Diversity, and Firm Value"
David A. Carter, Betty J. Simkins, and W. Gary Simpson
"An
Empirical Examination of Sponsor Influence over the Board of Directors"
Raj Varma
"The
Effect of Managerial Incentives to Bear Risk on Corporate Capital Structure and
R&D Investment"
Jouahn Nam, Richard E. Ottoo, and John H. Thornton Jr.
"Why Do
IPO Firms Conduct Primary Seasoned Equity Offerings?"
Maretno Harjoto and John Garen
"Why
Some Firms Use Collar Offers In Mergers"
Kathleen P. Fuller
"Ownership
of Cross-Listed Equities: An Investigation of Turnover, Diversification, and
Risk"
Sie Ting Lau and Thomas H. Mcinish
"Intra-day
Behavior of Treasury Sector Index Option Implied Volatilities around
Macroeconomic Announcements"
Andrea J. Heuson and
Tie Su
"The
Emergence of Corporate Governance from Wall St. to Main St.: Outside
Directors, Board Diversity, Earnings Management, and Managerial Incentives to
Bear Risk"
M. Andrew Fields and
Phyllis Y. Keys
Volume 38, No. 3, pp.
1-24
Recent corporate events have brought a heightened public
awareness to corporate governance issues. Much work has been accomplished to
date, but it is clear that much more remains to be done. This paper provides a
review of empirical research in four relevant areas of corporate governance.
Specifically, the paper provides an overview of (a) the role that outside
directors play in monitoring managers, (b) the emerging literature on the
impact of board diversity, (c) the existence of and incentives for corporate
executives to manage firm earnings, and (d) managerial incentives to bear
risk.
Keywords: corporate governance; outside directors;
diversity; earnings management; managerial incentives
JEL Classifications:
Top
"Corporate Governance, Board
Diversity, and Firm Value"
David A. Carter, Betty J. Simkins, and W. Gary Simpson
Volume 38, No. 3, pp.
This study examines the relationship between board diversity
and firm value for Fortune 1000 firms. Board diversity is defined as
the percentage of women, African-Americans, Asians, and Hispanics on the board
of directors. This research is important because it presents the first
empirical evidence examining whether board diversity is associated with
improved financial value. After controlling for size, industry, and other
corporate governance measures, we find significant positive relationships
between the fraction of women or minorities on the board and firm value. We
also find that the proportion of women and minorities on boards increases with
firm size and board size but decreases as the number of insiders increases.
Keywords: corporate governance; diversity; board of
directors; financial value
JEL Classifications:
Top
"An Empirical Examination of
Sponsor Influence over the Board of Directors"
Raj Varma
Volume 38, No. 1, pp.
Investment funds have a unique organization structure in which
a fund's board of directors frequently contracts the management of the fund
with the fund's sponsor but has a fiduciary duty to act in the interest of the
fund’s shareholders with regard to decisions such as the shareholder fees
charged by the sponsor to manage the fund. For a large sample of closed-end
funds, my findings indicate that sponsors exert considerable influence over
the board of directors through a variety of mechanisms such as the
installation of a sponsor-affiliated board leader, director compensation from
service on multiple boards for the sponsor, and control of the director
selection process. Furthermore, my examination of closed-end premiums
indicates is that the market perceives that the absence of sponsor involvement
in the director selection process is a credible signal that new directors are
not “hand-picked” by the sponsor and that this attribute is positively priced
by the market.
Keywords: closed-end fund; contracting; governance
JEL Classifications:
Top
"The Effect of Managerial
Incentives to Bear Risk on Corporate Capital Structure and R&D Investment"
Jouahn Nam, Richard E. Ottoo, and John H. Thornton Jr.
Volume 38, No. 1, pp.
In this study we use estimates of the sensitivities of
managers’ portfolios to stock return volatility and stock price to directly
test the relationship between managerial incentives to bear risk and two
important corporate decisions. We find that as the sensitivity of managers’
stock option portfolios to stock return volatility increases firms tend to
choose higher debt ratios and make higher levels of R&D investment. These
results are even stronger in a sub sample of firms with relatively low outside
monitoring. For these firms managerial incentives to bear risk play a
particularly pivotal role in determining leverage and R&D investment.
Keywords: managerial incentives; stock options;
financing policy; R&D investment; managerial risk aversion
JEL Classifications:
Top
"Why Do IPO Firms Conduct
Primary Seasoned Equity Offerings?"
Maretno Harjoto and John Garen
Volume 38, No. 1, pp.
This study examines the reason behind the IPO firm’s decision
to conduct a primary seasoned equity offering (SEO). First, we develop a
two-period model of blockholder incentives starting from the IPO stage. The
model suggests that the blockholder has an incentive to conduct a SEO after
the IPO when the firm is experiencing growth that was not anticipated at the
IPO stage. Using a sample of IPO firms during 1992 to 1997, we find that IPO
firms with higher unanticipated positive growth are more likely to conduct a
SEO during four years after their IPOs. We find that the firm’s unanticipated
shock and growth positively affect the relative size of the firm's seasoned
equity offering. We also find that the firm’s risk measure reduces the
probability of conducting a SEO and reduces the relative size of a SEO.
Keywords: corporate governance; seasoned equity
offering; unanticipated shock
JEL Classifications:
Top
"Why Some Firms Use Collar
Offers In Mergers"
Kathleen P. Fuller
Volume 38, No. 1, pp.
Collar offers are merger offers using all stock as the
method-of-payment that specify a range within which the bidder's price can
fluctuate. In this paper the wealth effects associated with collar offers are
determined, and cross-sectional regressions are employed to determine if this
offer type is a significant determinant of abnormal returns. Results indicate
that collar offers are associated with significantly positive abnormal returns
for the target firm, even greater than those of firms receiving cash offers,
but significantly negative returns for the bidder. These results raise an
interesting question: why do some bidders make collar offers? Since the
immediate wealth gains are strictly for the target and bidders making collar
offers have returns insignificantly different than those making fixed stock
offers, bidders must be utilizing collar offers for non-wealth related
reasons. Using existing theories regarding the method-of-payment choice,
various hypotheses for why firms may make collar offers are presented and
tested using a multinomial logit analysis. The choice of collar offers seems
to be significantly tied to the relative size of the merger, uncertainty
regarding the bidder’s value, and the target’s and bidder’s pre-merger insider
ownership percentages.
Keywords: corporate governance; seasoned equity
offering; unanticipated shock
JEL Classifications:
Top
"Ownership of Cross-Listed
Equities: An Investigation of Turnover, Diversification, and Risk"
Sie Ting Lau and Thomas H. Mcinish
Volume 38, No. 1, pp.
Using data for a sample of Malaysian stocks that are traded in
both Malaysia and Singapore, we show that the turnover rate (trading volume
relative to shares held) is significantly higher in the foreign market than in
the domestic market. We also find that ownership of cross-listed shares by
foreign investors is not motivated by diversification benefits. Instead, we
find that the proportion of a firm’s shares held in Singapore is directly
related to the firm’s level of systematic risk.
Keywords: cross listing; turnover; diversification
JEL Classifications:
Top
"Intra-day Behavior of Treasury
Sector Index Option Implied Volatilities around Macroeconomic Announcements"
Andrea J. Heuson and
Tie Su
Volume 38, No. 1, pp.
If option implied volatility is an unbiased, efficient
forecast of future return volatility in the underlying asset, then we should
be able to predict its path around macroeconomic announcements from responses
in cash markets. Regressions show that volatilities rise the afternoon before
announcements that move cash markets, and that post-announcement volatilities
return to normal as rapidly as cash prices do. Although implied volatilities
are predictable, the Treasury options market is efficient since informed
traders do not earn arbitrage profits once we account for trading costs.
Keywords: implied volatility; macroeconomic
announcements; market efficiency
JEL Classifications:
Top
Return to The Financial Review Home Page