Corporate governance

About: Corporate governance is a research topic. Over the lifetime, 118591 publications have been published within this topic receiving 2793582 citations.

Governance Institutions and Economic Activity

Abstract: Governance Institutions and Economic Activity By AVINASH DIXIT The concept of “governance” has risen from obscurity to buzzword status in just three decades. EconLit shows only 5 mentions of the word governance in the 1970s; by the end of 2008, it was mentioned 33,177 times. The much more specific phrase “economic governance” has appeared 192 times; its more popular cousin, “corporate governance,” 9,717 times. My focus is on economic governance, but I also examine its relation to corporate governance. As with any buzzword, everyone understands the concept a little differently. This is unavoidable, so I will just give my definition for the purpose of this article, and leave it at that. By economic governance I mean the structure and functioning of the legal and social institutions that support economic activity and economic transactions by protecting property rights, enforcing contracts, and taking collective action to provide physical and organizational infrastructure.

International Evidence on Cash Holdings and Expected Managerial Agency Problems

Abstract: This paper uses detailed firm-level managerial agency cost data for a sample of over 5000 firms from 31 countries to examine whether the net costs of corporate cash holdings can outweigh the net benefits. In contrast to extant U.S. and international results, we find strong evidence that when external country-level governance is weak, outside shareholders apply a valuation discount to high cash balances carried by firms whose managers are also expected to be entrenched, but do not discount high cash levels in general. Further, in a weak external governance setting we find that dividend payments are valuable for firms whose managers are expected to be entrenched, indicating that dividends are an informative indicator of good governance when investors are least protected. Only when external governance is strong do we find that high cash holdings by entrenched managers are not associated with lower firm values, consistent with the prevailing U.S. and international evidence.

Managing marketing channel opportunism: The efficacy of alternative governance mechanisms

Abstract: The authors examine three governance mechanisms according to how well they mitigate opportunism in marketing channels. Using the U.S. hotel industry as the research context, the authors investigate how opportunism is limited by (1) ownership, (2) investment in transaction-specific assets, and (3) norms of relational exchange. They also investigate how various combinations of these governance mechanisms affect opportunistic behavior in hotel channels. Overall, the results generally support emphasizing relational norms in managing opportunism in marketing channels. The results also indicate that opportunism can be exacerbated when ownership or investments in transaction-specific assets are accentuated as governance mechanisms.

Bank Governance, Regulation, and Risk Taking

Abstract: This paper conducts the first empirical assessment of theories concerning relationships among risk taking by banks, their ownership structures, and national bank regulations. We focus on conflicts between bank managers and owners over risk, and show that bank risk taking varies positively with the comparative power of shareholders within the corporate governance structure of each bank. Moreover, we show that the relation between bank risk and capital regulations, deposit insurance policies, and restrictions on bank activities depends critically on each bank's ownership structure, such that the actual sign of the marginal effect of regulation on risk varies with ownership concentration. These findings have important policy implications as they imply that the same regulation will have different effects on bank risk taking depending on the bank's corporate governance structure.

Corporate Governance and Firm Value: The Impact of the 2002 Governance Rules

Abstract: The 2001 to 2002 corporate scandals led to the Sarbanes‐Oxley Act and to various amendments to the U.S. stock exchanges’ regulations. We find that the announcement of these rules has a significant effect on firm value. Firms that are less compliant with the provisions of the rules earn positive abnormal returns compared to firms that are more compliant. We also find variation in the response across firm size. Large firms that are less compliant earn positive abnormal returns but small firms that are less compliant earn negative abnormal returns, suggesting that some provisions are detrimental to small firms. THE HIGH-PROFILE CORPORATE FAILURES IN THE UNITED STATES over the 2001‐2002 period have led to the Sarbanes‐Oxley Act of 2002 (SOX) and to various amendments to the stock exchanges’ regulations. These rules include different provisions whose purpose is to ensure alignment of incentives of corporate insiders with those of investors, and to reduce the likelihood of corporate misconduct and fraud. For example, SOX imposes higher penalties on officers who are charged with forging documents and requires more timely disclosure of equity transactions by corporate insiders. It also requires independence of audit committees, certification of financial statements by the chief executive officer and the chief financial officer, procedures to evaluate the effectiveness of the firms’ internal controls and increased oversight over audit firms. The exchange regulations require a majority of independent directors on corporate boards and independence of the board committees that choose new directors and compensate managers. Proponents of the rules argue that such rules are necessary because the corporate scandals indicate that existing monitoring mechanisms in U.S. public corporations should be improved. Yet, it is not clear whether the provisions of the rules indeed lead to more effective monitoring and to higher corporate value. To the extent that these provisions are only cosmetic in nature, they might not have any material effect on firm value. But even if the provisions have an effect, it is not clear whether all firms should benefit from them. Optimal governance structure depends both on a firm’s monitoring needs and the costs and benefits of different monitoring mechanisms. To the extent that these costs and benefits vary across firms and