Showing papers on "Corporate governance published in 2011"

Endogeneity and the Dynamics of Internal Corporate Governance

Abstract: We use a well-developed dynamic panel GMM estimator to alleviate endogeneity concerns in two aspects of corporate governance research: the effect of board structure on firm performance and the determinants of board structure. The estimator incorporates the dynamic nature of internal governance choices to provide valid and powerful instruments that address unobserved heterogeneity and simultaneity. We re-examine the relation between board structure and performance using the GMM estimator in a panel of 6,000 firms over a period from 1991-2003, and find no causal relation between board structure and current firm performance. We illustrate why other commonly used estimators that ignore the dynamic relationship between current governance and past firm performance may be biased. We discuss where it may be appropriate to consider the dynamic panel GMM estimator in corporate governance research, as well as caveats to its use.

The New Political Role of Business in a Globalized World: A Review of a New Perspective on CSR and its Implications for the Firm, Governance, and Democracy

Abstract: Scholars in management and economics widely share the assumption that business firms focus on profits only, while it is the task of the state system to provide public goods. In this view business firms are conceived of as economic actors, and governments and their state agencies are considered the only political actors. We suggest that, under the conditions of globalization, the strict division of labour between private business and nation-state governance does not hold any more. Many business firms have started to assume social and political responsibilities that go beyond legal requirements and fill the regulatory vacuum in global governance. Our review of the literature shows that there are a growing number of publications from various disciplines that propose a politicized concept of corporate social responsibility. We consider the implications of this new perspective for theorizing about the business firm, governance, and democracy.

The Bind that Ties: Socioemotional Wealth Preservation in Family Firms

Abstract: A growing body of research shows that family firms are different from other organizations in significant ways. In this paper we review this literature by examining how family firms differ from nonfamily firms along five broad categories of managerial decisions. These categories encompass a set of key organizational choices concerning management processes, firm strategies, corporate governance, stakeholder relations and business venturing. We argue that socioemotional wealth or affective endowment of family owners explain many of these choices. We also examine some contingency factors (namely family stage, firm size, firm hazard, and the presence of nonfamily shareholders) that moderate the influence of socioemotional wealth preservation as a point of reference when making managerial decisions in family firms. Lastly, we explore the firm performance consequences of family ownership.

Corporate Governance and Firm Value: The Impact of Corporate Social Responsibility

Abstract: This study investigates the effects of internal and external corporate governance and monitoring mechanisms on the choice of corporate social responsibility (CSR) engagement and the value of firms engaging in CSR activities. The study finds the CSR choice is positively associated with the internal and external corporate governance and monitoring mechanisms, including board leadership, board independence, institutional ownership, analyst following, and anti- takeover provisions, after controlling for various firm characteristics. After correcting for endogeneity and simultaneity issues, the results show that CSR engagement positively influences firm value measured by industry-adjusted Tobin’s q. We find that the impact of analyst following for firms that engage in CSR on firm value is strongly positive, while the board leadership, board independence, blockholders’ ownership, and institutional ownership play a relatively weaker role in enhancing firm value. Furthermore, we find that CSR activities that address internal social enhancement within the firm, such as employees diversity, firm relationship with its employees, and product quality, enhance the value of firm more than other CSR subcategories for broader external social enhancement such as community relation and environmental concerns.

Women directors on corporate boards: From tokenism to critical mass.

Abstract: Academic debate on the strategic importance of women corporate directors is widely recognized and still open. However, most corporate boards have only one woman director or a small minority of women directors. Therefore they can still be considered as tokens. This article addresses the following question: does an increased number of women corporate boards result in a build up of critical mass that substantially contributes to firm innovation? The aim is to test if ‘at least three women’ could constitute the desired critical mass by identifying different minorities of women directors (one woman, two women and at least three women). Tests are conducted on a sample of 317 Norwegian firms. The results suggest that attaining critical mass – going from one or two women (a few tokens) to at least three women (consistent minority) – makes it possible to enhance the level of firm innovation. Moreover, the results show that the relationship between the critical mass of women directors and the level of firm innovation is mediated by board strategic tasks. Implications for both theory and practice, and future research directions are discussed.

Corporate Philanthropy and Corporate Financial Performance: The Roles of Stakeholder Response and Political Access

Abstract: Corporate philanthropy is expected to positively affect firm financial performance because it helps firms gain sociopolitical legitimacy, which enables them to elicit positive stakeholder responses...

Determinants of Information Technology Outsourcing: A Cross-Sectional Analysis

Abstract: :This paper develops and tests a model of the determinants of information technology (IT) outsourcing by integrating both business and IT perspectives. Specifically, we attempt to explain the degree of IT outsourcing using business and IT competences as represented by their cost structures and economic performances. In addition, we posit that outsourcing is dependent on business governance, particularly financial leverage. Based on factor analyses and multiple regressions using data from fIfty-five major U.S. corporations, we observed that the degree of IT outsourcing is positively related to both business and IT cost structures. We also established that the degree ofIT outsourcing is negatively related to IT performance. Finally, we conclude with implications and future research directions.

Risk Management, Corporate Governance, and Bank Performance in the Financial Crisis

Abstract: The recent financial crisis has raised several questions with respect to the corporate governance of financial institutions. This paper investigates whether risk management-related corporate governance mechanisms, such as for example the presence of a chief risk officer (CRO) in a bank’s executive board and whether the CRO reports to the CEO or directly to the board of directors, are associated with a better bank performance during the financial crisis of 2007/2008. We measure bank performance by buy-and-hold returns and ROE and we control for standard corporate governance variables such as CEO ownership, board size, and board independence. Most importantly, our results indicate that banks, in which the CRO directly reports to the board of directors and not to the CEO (or other corporate entities), exhibit significantly higher (i.e., less negative) stock returns and ROE during the crisis. In contrast, standard corporate governance variables are mostly insignificantly or even negatively related to the banks’ performance during the crisis.

Corporate Governance, Product Market Competition, and Equity Prices

Abstract: This paper examines whether firms in noncompetitive industries benefit more from good governance than do firms in competitive industries. We find that weak governance firms have lower equity returns, worse operating performance, and lower firm value, but only in noncompetitive industries. When exploring the causes of the inefficiency, we find that weak governance firms have lower labor productivity and higher input costs, and make more value-destroying acquisitions, but, again, only in noncompetitive industries. We also find that weak governance firms in noncompetitive industries are more likely to be targeted by activist hedge funds, suggesting that investors take actions to mitigate the inefficiency. ECONOMISTS OFTEN ARGUE THATmanagersoffirmsincompetitiveindustrieshave strong incentives to reduce slack and maximize profits, or else the firm will go out of business. 1 Accordingly, the need to provide managers with incentives throughgoodgovernance—and thusthebenefitsofgoodgovernance—should be smaller for firms in competitive industries. In contrast, firms in noncompetitive industries, where lack of competitive pressure fails to enforce discipline on managers, should benefit relatively more from good governance. That firms with good governance have better performance on average is well established. In a seminal article, Gompers, Ishii, and Metrick (2003, GIM) find that a hedge portfolio that is long in good governance firms (“Democracy firms”) and short in weak governance firms (“Dictatorship firms”) earns a monthly alpha of 0.71%. Governance is measured using the G-index, which consists of 24 antitakeover and shareholder rights provisions. In addition to showing that good governance is associated with higher equity returns, GIM also show that it is associated with both higher firm value and better operating performance. 2 ∗ Giroud is at the NYU Stern School of Business. Mueller is at the NYU Stern School of Business, NBER, CEPR, and ECGI. We thank Cam Harvey (the Editor), an associate editor, two anonymous referees, and seminar participants at NYU, Yale, Michigan, Illinois, the WFA Meetings in San Diego (2009), and the Harvard Law School/Sloan Foundation Corporate Governance Research Conference (2009) for helpful comments. We are especially grateful to Wei Jiang and Martijn Cremers for providing us with data.

Green Governance: Boards of Directors’ Composition and Environmental Corporate Social Responsibility:

Abstract: This study contributes to the work on board composition and firm corporate social responsibility by extending it to the environmental domain. It evaluates the relationship between boards of directors’ composition and environmental corporate social responsibility (ECSR) by integrating literatures on board composition, firm corporate social responsibility, and individual differences in attitudes toward and information about environmental issues. Using disclosed company data and the natural environment ratings data from Kinder Lydenberg Domini (KLD) Inc. for 78 Fortune 1000 companies, the study finds that a higher proportion of outside board directors is associated with more favorable ECSR and higher KLD strengths scores. Firms with boards composed of three or more female directors received higher KLD strengths scores. And, boards whose directors average closer to 56 years in age and those with a higher proportion of Western European directors are more likely to implement environmental governance structures ...

The network of global corporate control

Abstract: The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.

Disciplining the Poor: Neoliberal Paternalism and the Persistent Power of Race

Abstract: "Disciplining the Poor" lays out the underlying logic of contemporary poverty governance in the United States. The authors argue that poverty governance - how social welfare policy choices get made, how authority gets exercised, and how collective pursuits get organized - has been transformed in the United States by two significant developments. The rise of paternalism has promoted a more directive and supervisory approach to managing the poor. This has intersected with a second development: the rise of neoliberalism as an organizing principle of governance. Neoliberals have redesigned state operations around market principles; to impose market discipline, core state functions - from war to welfare - have been contracted out to private providers. The authors seek to clarify the origins, operations, and consequences of neoliberal paternalism as a mode of poverty governance, tracing its impact from the federal level, to the state and county level, down to the differences in ways frontline case workers take disciplinary actions in individual cases. The book also addresses the complex role race has come to play in contemporary poverty governance.

An introduction to Islamic finance: theory and practice

Abstract: Glossary ix CHAPTER 1 Introduction 1 CHAPTER 2 The Economic System 29 CHAPTER 3 Riba vs. Rate of Return 57 CHAPTER 4 Financial Instruments 75 CHAPTER 5 Risk Sharing as an Alternative to Debt 99 CHAPTER 6 The Islamic Financial System 113 CHAPTER 7 The Stability of the Islamic Financial System 137 CHAPTER 8 Islamic Financial Intermediation and Banking 151 CHAPTER 9 Capital Markets 173 CHAPTER 10 Non-bank Financial Intermediation 207 CHAPTER 11 Performance of Islamic Financial Services 225 CHAPTER 12 Financial Engineering 245 CHAPTER 13 Risk Management 275 CHAPTER 14 Regulation of Islamic Financial Institutions 299 CHAPTER 15 Corporate Governance 323 CHAPTER 16 Globalization and its Challenges 351 CHAPTER 17 Issues and Challenges 365 Bibliography 393 Index 399

Corporate Governance and CSR Nexus

Abstract: Some argue that managers over-invest in corporate social responsibility (CSR) activities to build their personal reputations as good global citizens. Others claim that CEOs strategically choose CSR activities to reduce the probability of CEO turnover in a future period through indirect support from activists. Still others assert that firms use CSR activities to signal their product quality. We find that firms use governance mechanisms, along with CSR engagement, to reduce conflicts of interest between managers and non-investing stakeholders. Employing a large and extensive sample of firms within Russell 2000, S&500 and Domini 400 indices during the 1993–2004 period, we find that consistent with the conflict-resolution hypothesis, the CSR choice is positively associated with governance characteristics, including board independence, institutional ownership, and analyst following. In addition, after correcting for endogeneity of CSR engagement, our results show that CSR engagement positively influences operating performance and firm value, supporting the conflict-resolution hypothesis as opposed to the over-investment and strategic-choice arguments. We find only a weak support of the product-signaling hypothesis as a major motive of CSR engagement.

CFOs versus CEOs: Equity Incentives and Crashes

Abstract: Using a large sample of U.S. firms for the period 1993-2009, we provide evidence that the sensitivity of a chief financial officer’s (CFO) option portfolio value to stock price is significantly and positively related to the firm’s future stock price crash risk. In contrast, we find only weak evidence of the positive impact of chief executive officer option sensitivity on crash risk. Finally, we find that the link between CFO option sensitivity and crash risk is more pronounced for firms in non-competitive industries and those with a high level of financial leverage.

A survey on Shari'ah governance practices in Malaysia, GCC countries and the UK

Abstract: Purpose – The purpose of this paper is to understand current Shari'ah governance practices with the purpose of promoting greater understanding of some of the crucial issues and to provide relevant information in guiding the future development of Shari'ah governance system. The paper illustrates the state of Shari'ah governance practices in Malaysia, GCC countries (Kuwait, Bahrain, United Arab Emirates, Qatar and Saudi Arabia) and the UK by highlighting five main elements of good corporate governance that consist of independence, competency, transparency, disclosure and consistency.Design/methodology/approach – Since the availability of secondary data on Shari'ah governance practices is very limited, a detailed survey questionnaire is generated for sourcing primary data from Islamic Financial Institutions (IFIs). The study utilizes descriptive analysis approach in extracting and analyzing the data and factual input derived from the questionnaire feedback.Findings – The survey findings affirm that there are...

Enhancing Collaborative Innovation in the Public Sector

Abstract: Encouraged by the proliferation of governance networks and the growing demands for public innovation, this article aims to advance “collaborative innovation” as a cross-disciplinary approach to stu...

Corporate Governance and Shareholder Initiatives: Empirical Evidence

Abstract: Judging from prior writings, many researchers and practitioners think shareholder-initiated corporate governance proposals promote value-maximizing policies. These proposals are regarded as serving an important role in the governance of public corporations. Our findings, however, do not support this view. Shareholder-initiated corporate governance resolutions tend to target poorly performing firms, as measured by market-to-book ratio, operating return, and recent sales growth. This suggests that their sponsors seek improvements. We find little evidence, however, that proposals increase share values or spur performance improvements. The average wealth effects associated with shareholder-initiated corporate governance proposals are not significantly different from zero. Sales growth subsequently declines for firms receiving proposals relative to sales growth for control firms. And changes in operating return on sales are not significantly larger for proposal firms than their controls. We also find little evidence that shareholder proposals are associated with significant changes in firm policy. Turnover among chief executive officers is not significantly higher among firms that previously attracted proposals than for other firms matched by industry and size. We find that some of the firms attracting successful proposals changed managers or restructured operations, but such changes typically were motivated by external control threats, not the shareholder proposals. Even proposals receiving a majority of share votes are not associated systematically with significant changes in target firms' policies or stock values.

Firm Innovation in Emerging Markets: The Role of Finance, Governance, and Competition

Abstract: We investigate the firm characteristics associated with innovation in over 19,000 firms across 47 developing economies. While existing finance literature on innovation is limited to large public firms in developed markets such as the United States, our database includes public and private firms, and small and medium-sized enterprises. We define innovation broadly to include introduction of new products and technologies, knowledge transfers, and new production processes. We find that access to external financing is associated with greater firm innovation. Further, having highly educated managers, ownership by families, individuals, or managers, and exposure to foreign competition is associated with greater firm innovation.

Globalizing the Boardroom - The Effects of Foreign Directors on Corporate Governance and Firm Performance

Abstract: We examine the benefits and costs associated with foreign independent directors (FIDs) at U.S. corporations. We find that firms with FIDs make better cross-border acquisitions when the targets are from the home regions of FIDs. However, FIDs also display poor board meeting attendance records, and firms with FIDs are more prone to commit intentional financial misreporting and overpay their CEOs and have lower CEO turnover sensitivity to performance. Finally, firms with FIDs are associated with significantly poorer performance, especially as their business presence in the FID’s home region becomes less important.

Governance Through Trading and Intervention: A Theory of Multiple Blockholders

Abstract: Traditional theories argue that governance is strongest under a single large blockholder, as she has large incentives to undertake value-enhancing interventions. However, most firms are held by multiple small blockholders. This paper shows that, while such a structure generates free-rider problems that hinder intervention, the same co-ordination difficulties strengthen a second governance mechanism: disciplining the manager through trading. Since multiple blockholders cannot co-ordinate to limit their orders and maximize combined trading profits, they trade competitively, impounding more information into prices. This strengthens the threat of disciplinary trading, inducing higher managerial effort. The optimal blockholder structure depends on the relative effectiveness of manager and blockholder effort, the complementarities in their outputs, information asymmetry, liquidity, monitoring costs, and the manager's contract.

Creditor Control Rights, Corporate Governance, and Firm Value

Abstract: We provide evidence that creditors play an active role in the governance of corporations well outside of payment default states. By examining the SEC filings of all U.S. nonfinancial firms from 1996 through 2008, we document that, in any given year, between 10 percent and 20 percent of firms report being in violation of a financial covenant in a credit agreement. We show that violations are followed immediately with a decline in acquisitions and capital expenditures, a sharp reduction in leverage and shareholder payouts, and an increase in CEO turnover. The changes in the investment and financing behavior of violating firms coincide with amended credit agreements that contain stronger restrictions on firm decision-making; changes in the management of violating firms suggest that creditors also exert informal influence on corporate governance. Finally, we show that firm operating and stock price performance improve following a violation. We conclude that actions taken by creditors increase the value of theaverage violating firm.

The New Governance and the Tools of Public Action: An Introduction

Abstract: In economic life the possibilities for rational social action, for planning, for reform--in short, for solving problems--depend not upon our choice among mythical grand alternatives but largely upon choice among particular social techniques ... techniques and not "isms" are the kernel of rational social action in the Western world. (1) Far-reaching developments in the global economy have us revisiting basic questions about government: what its role should be, what it can and cannot do, and how best to do it. (2) INTRODUCTION: THE REVOLUTION THAT NO ONE NOTICED A fundamental re-thinking is currently underway throughout the world about how to cope with public problems. (3) Stimulated by popular frustrations with the cost and effectiveness of government programs and by a new-found faith in liberal economic theories, serious questions are being raised about the capabilities, and even the motivations, of public-sector institutions. Long a staple of American political discourse, such questioning has spread to other parts of the world as well, unleashing an extraordinary torrent of reform. (4) As a consequence, governments from the United States and Canada to Malaysia and New Zealand are being challenged to reinvent, downsize, privatize, devolve, decentralize, deregulate and de-layer themselves, subject themselves to performance tests, and contract themselves out. Underlying much of this reform surge is a set of theories that portrays government agencies as tightly structured hierarchies insulated from market forces and from effective citizen pressure and therefore free to serve the personal and institutional interests of bureaucrats instead. (5) Even defenders of government among the reformers argue that we are saddled with the wrong kinds of governments at the present time, industrial-era governments "with their sluggish, centralized bureaucracies, their preoccupation with rules and regulations, and their hierarchical chains of command." (6) Largely overlooked in these accounts, however, is the extent to which the structure of modern government already embodies many of the features that these reforms seek to implement. In point of fact, a technological revolution has taken place in the operation of the public sector over the past fifty years both in the United States and, increasingly, in other parts of the world; but it is a revolution that few people recognize. The heart of this revolution has been a fundamental transformation not just in the scope and scale of government action, but in its basic forms. A massive proliferation has occurred in the tools of public action, in the instruments or means used to address public problems. Where earlier government activity was largely restricted to the direct delivery of goods or services by government bureaucrats, it now embraces a dizzying array of loans, loan guarantees, grants, contracts, social regulation, economic regulation, insurance, tax expenditures, vouchers, and much more. What makes this development particularly significant is that each of these tools has its own operating procedures, its own skill requirements, its own delivery mechanism, indeed its own "political economy." Each therefore imparts its own "twist" to the operation of the programs that embody it. Loan guarantees, for example, rely on commercial banks to extend assisted credit to qualified borrowers. In the process, commercial lending officers become the implementing agents of government lending programs. Since private bankers have their own world-view, their own decision rules, and their own priorities, left to their own devices they likely will produce programs that differ markedly from those that would result from direct government lending, not to mention outright government grants. Perhaps most importantly, like loan guarantees, many of these "newer" tools share an important common feature: they are highly indirect. They rely heavily on a wide assortment of "third parties"--commercial banks, private hospitals, social service agencies, industrial corporations, universities, day-care centers, other levels of government, financiers, construction firms, and many more--to deliver publicly financed services and pursue authorized public purposes. …

A Survey on Shari’Ah Governance Practices in Malaysia, GCC Countries and the UK

Abstract: Purpose – The purpose of this paper is to understand current Shari’ah governance practices with the purpose of promoting greater understanding of some of the crucial issues and to provide relevant information in guiding the future development of Shari’ah governance system. The paper illustrates the state of Shari’ah governance practices inMalaysia,GCC countries (Kuwait, Bahrain,United ArabEmirates, Qatar and Saudi Arabia) and the UK by highlighting five main elements of good corporate governance that consist of independence, competency, transparency, disclosure and consistency.Design/methodology/approach – Since the availability of secondary data on Shari’ah governance practices is very limited, a detailed survey questionnaire is generated for sourcing primary data from Islamic Financial Institutions (IFIs). The study utilizes descriptive analysis approach in extracting and analyzing the data and factual input derived from the questionnaire feedback.Findings – The survey findings affirm that there are significant differences and diverse Shari’ah governance practices in the case countries. This position acknowledges that there are shortcomings and weaknesses to the existing governance framework which needs further enhancement and improvement.Practical implications – The paper is a very useful source of information that may provide relevant guidelines in guiding the future development of Shari’ah governance practices in IFIs. Originality/value – This paper provides fresh data and recent information on the actual Shari’ah governance practices of IFIs in three jurisdictions.