This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

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This article is intended to enhance the position of stakeholder theory as an integrating theme for the business and society field. It offers an instrumental theory of stakeholder management based on a synthesis of the stakeholder concept, economic theory, behavioral science, and ethics. The core theory—that a subset of ethical principles (trust, trustworthiness, and cooperativeness) can result in significant competitive advantage—is supplemented by nine research propositions along with some research and policy implications.

Instrumental stakeholder theory: a synthesis of ethics and economics

This paper examines the use of seven mechanisms to control agency problems between managers and shareholders. These mechanisms are: shareholdings of insiders, institutions, and large blockholders; use of outside directors; debt policy; the managerial labor market; and the market for corporate control. We present direct empirical evidence of interdependence among these mechanisms in a large sample of firms. This finding suggests that crosssectional OLS regressions of firm performance on single mechanisms may be misleading. Indeed, we find relationships between firm performance and four of the mechanisms when each is included in a separate OLS regression. These are insider shareholdings, outside directors, debt, and corporate control activity. Importantly, the effect of insider shareholdings disappears when all of the mechanisms are included in a single OLS regression, and the effects of debt and corporate control activity also disappear when estimations are made in a simultaneous systems framework. Together, these findings are consistent with optimal use of each control mechanism except outside directors.

https://www.cambridge.org/core/services/aop-cambridge-core/content/view/2C4D10B81D73FB2C2FCF97289354417B/S0022109000000612a.pdf/div-class-title-firm-performance-and-mechanisms-to-control-agency-problems-between-managers-and-shareholders-div.pdf

Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders

Outside directors, board independence, and shareholder wealth☆

Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders

We demonstrate that the overall gains (the weighted average of gains to the bidder and target firms) from a recent sample of bank mergers are slightly positive, but statistically indistinguishable from zero. This lends support to recent studies which fail to find any significant cost savings resulting from bank mergers. We also demonstrate the characteristics of mergers that the market perceives as most valuable. These attributes include high prior levels of profitability for the bidder, considerable operations overlap between the target and the bidder, and a method of financing that reveals positive information about the bidder or the synergies likely to be created by the merger.

The overall gains from large bank mergers

The effect of poison pill securities on shareholder wealth

Valuation uncertainty, institutional involvement, and the underpricing of IPOs: The case of REITs

We develop a model in which the mode of acquisition conveys information concerning the value of the bidder. The model incorporates the possibility that offers containing both cash and stock can be made in a setting consistent with the U.S. tax code. We demonstrate that bidders with unfavorable private information about their equity value choose offers containing some stock to avoid the capital gains tax consequences of cash offers. The model yields a number of unique predictions about the construction of acquisition offers. We present evidence consistent with the model. WHEN ONE FIRM ACQUIRES another it can pay for the acquisition with cash, stock, or a combination of the two. Recent studies find that announcement returns to bidding firms who make cash offers are higher than when stock offers are made.' Models consistent with this evidence note that, as in Myers and Majluf (1984), a bidder with private information about the value of its assets only offers stock when its shares are overvalued by target shareholders. Recognizing this adverse selection, target shareholders reduce their estimate of the bidder's value. Thus, without some benefit in stock over cash as a means of payment, a "lemons" problem arises for stock offers, and bidders only choose cash offers. Our paper advances the use of stock in an offer through its tax advantages. In the United States, to realize the benefits available in "nontaxable" offers, an offer must contain at least fifty percent stock. Thus, when the bidder has private information about the value of its assets, stock off6rs can still occur because of their tax advantage. The intuition is as follows. Target holders can postpone the realization of capital gains when they receive stock in a takeover, so, other things equal, they demand higher prices in cash takeovers. While the offer of stock may have tax advantages, the shares swapped are valued by the target as if they were offered by the average bidder making a stock offer. Thus, a pool of higher private valuation bidder types choose cash offers in spite of the tax consequences. A pool of lower private valuation types

Michael D. Ryngaert

Papers

Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders

The overall gains from large bank mergers

The effect of poison pill securities on shareholder wealth

Valuation uncertainty, institutional involvement, and the underpricing of IPOs: The case of REITs

The Mode of Acquisition in Takeovers: Taxes and Asymmetric Information