Results also suggest that ethical mutual funds underwent a catching up phase, before delivering financial returns simialar to those of conventional mutual funds. Empirical Evidence on Corporate Governance in Europe. Guenster and R. Otten Journal: Journal of Asset Management This study builds portfolios consisting of well-governed and poorly governed companies and compares their performance. The results show a positive relationship between these variables and corporate governance.
This relationship weakens substantially after adjusting for country differences. The authors find a negative relationship between governance standards and earning based performance ratios. Eichholtz and N.
Repeating the analysis with the complete database that includes more than 5, companies and a control sample of firms with high corporate real estate ratios, they find a strong and significantly positive relation between the governance index and several performance variables, indicating that the partial lack of relation between governance and performance in the real estate sector might be explained by REIT effect. Braun and M. They investigate the determinants for being targeted and the corresponding voting results.
The authors hypothesize that a lack of industry competition in combination with higher managerial entrenchment increases the likelihood of being targeted. The empirical results support this hypothesis. Otten and A. Rad Journal: Pacifics-Basin Financial Journal The authors observe no evidence of significant differnces in risk-adjusted returns between ethical and conventional funds during This result however is sensitive to the chosen time period.
During domestic ethical funds under-performed their conventional counterparts significantly, whereas during ethical funds matched the performance of conventional funds more closely. Jackson, L. Journal: Harvard Buisness Law Review The authors argue that the propsed changes to the SEC's rules in the Williams Act, which regulates the disclosure of large blocks of stock in public companies, should similarly be examined in the larger context of the optimal balance of power between incumbent directors and these blockholders.
They discuss the beneficial and documented role that outside blockholders play i corporate governance and the adverse effect that any tightening of the Williams Act's disclosure thresholds can be expected to have on such blockholders. Executie Pensions Author: Bebchuk and R. Journal: Journal of Corporation Law This paper presents evidence that omitting the value of pension benefits significantly undermines the accuracy of existing estimates of executive pay, its ariability, and its sensitvity to performance companies.
Journal: University of Pennsylvania Law Review This paper identifies explanations for the increasing prevalence of antitakeover provisions in IPO charters. Specifically, the author analyzes explanations based on 1 the role of antitakeover arrangements in encouraging founders to break up their initial control blocks, 2 efficient private benefits of control, 3 agency problems amoung pre-IPO shareholders, 4 agency problems between pre-IPO shareholders and their IPO lawyers, 5 asymmetric information between founders and public investors about the firm's future growth prospects, and 6 bounded attention and imperfect pricing at the IPO stage.
Journal: Harvard Law Review This article reconsiders the basic allocation of power between boards and shareholders in publicly traded companies with dispersed ownership. Professor Bebchuk's analysis and his empirical evidence indicate that shareholders' existing power to replace directors is insufficient to secure the adoption of value-increasing governance arrangements that management disfavors. He puts forward an alternative regime that would allow shareholders to initiate and adopt rules-of-the-game decisions to change the company's charter or state of incorporation.
Cohen Journal: Journal of Financial Economics This paper investigates empirically how the value of publicly traded firms is affected by arrangements that protect management from removal. The authors find that staggered boards are associated with an economically meaningful reduction in firm value as measured by Tobin's Q. They also provide suggestive evidence that staggered boards bring about, and not merely reflect, a reduced firm value.
This paper shows that the correlation with reduced firm value is stronger for staggered boards that are established in the corporate charter which shareholders cannot amend than for staggered boards established in the company's bylaws which shareholders can amend. Hamdani Journal: University of Pennsylvania Law Review Because of this fundamental difference between companies with and without a controlling shareholder, any governance-rating methodology that applies a single metric to companies or countries worldwide is bound to produce an inaccurate or even distorted picture.
Bundling and Entrenchment Author: Bebchuk, L. Kamar Journal: Harvard Law Review This article provides the first systematic evidence that managements have been using bundling to introduce antitakeover defenses that shareholders would likely reject if they were to vote on them seperately.
The authors study a hand-collected dataset of public mergers and find that while shareholders were strongly opposed to staggered boards during this period and generally unwilling to approve charter amendments introducing a staggered board on a stand-alone basis, the deal planners ofeten bundled the mergers studied with a move to staggered-board structure. In mergers in which the combined firm was on of the parties, a part'y odds of being chosen to survive as the combined firm were significantly higher if it had a staggered board and the other party did not.
Fried Journal: Academy of Management Perspectives In this paper, the authors outline some of the main elements of their critique of contemorary executive compensation and corporate governance arrangements, as well as their proposals and suggested reforms. The authors show that managerial influence can explain many features of the compensation landscape, and explain how this influence has led to opaque and distorted pay arrangements.
This paper concludes with a discussion of proposals for making more transparent, improving the design of pay arrangements, and increasing board accountability. Fried Journal: Journal of Economic Perspectives This paper provides an overview of the main theoretical elements and empirical underpinnings of a "managerial power" approach to executive compensation. Under this approach, the design of executive compensation is viewed not only as an instrument for addressing the agency problem between managers and shareholders but also as apart of the agency problem itself.
Boards of publicly traded companies with dispersed ownership, the authors argue, cannot be expected to bargain at arm's length with managers. As a result, managers wield substantial influence over their own pay arrangements, and they have an intrest in reducing the saliency of the amount of their pay and the extent to which that pay is de-coupled from managers' performance.
Roe Journal: Stanford Law Review This theoretical paper develops a theory of path dependence of corporate structure. Two sources of path dependence - structure driven and rule driven - are identified and analyzed. The authors' theory of path dependence sheds light on why the advanced economies, despite pressures to converge, vary in their ownership structures.
Weisbach Journal: Review of Financial Studies This review on the state of corporate government research features seven papers on corporate governance that were presented in a meeting of the NBER's corporate governance project. For each of these areas, the authors discuss the importance of the area and the questions it focuses on, and how the paper in the special issue makes a significant contribution to this area. What matters in Corporate Governance? Author: Bebchuk, L. Cohen and A. Ferrell Journal: Review of Financial Studies The authors put forward an entrenchment index based on staggered boards, limits to shareholder bylaw amendments, poison pills, golden parachutes, and supermajority requirments for mergers and charter amendments.
Increases in the index level are monotonically associated with economically significant reductions in firm valuation. Cohen and C. Wang Journal: Journal of Financial Economics During the period , stock returns were correlated with the G-Index based on twenty-four governance provisions Gompers, Ishii and Metrick and the E-Index based on the six provisions that matter most Bebchuk, Cohen, and Ferrell This correlation, however, did not persist during the subsequent period The authors provide evidence that both the identified correlation and its subsequent disappearance were due to market participants' gradually learning to appreciate the difference between firms scoring well and poorly on the governance indices.
Wang Journal: Working Paper While staggered boards have been documented to be negatively correlated with firm valuation, such association might be due to staggered boards either bringing about lower firm value or merely reflecting the tendency of low-value firms to have staggered boards. In this paper, the authors use two natural experiments to shed light on the causality question. The findings are consistent with the market's viewing staggered boards as bringing about a reduction in firm value.
The findings are thus consistent with leading institutional investors' policies in favor of board de-staggering, and with the view that the ongoing process of board de-staggering in public firms can be expected to enhance shareholder value. Wang Journal: Working Paper The authors analyze the relationship that golden parachutes have with expected acquisitions premia and with firm value.
They find that golden parachutes are associated with higher expected acquisition premia, and that this association is at least partly due to the effect of golden parachutes on incentives. They also find that firms that adopt a golden parachute experience a reduction in their industry-adjusted Tobin's Q, as well as negative abnormal stock returns both during the inter-volume period of adoption and subsequently.
CoatesIV and G. Subramanian Journal: Stanford Law Review This reply develops and defends the authors earlier analysis of the powerful antitakeover force of staggered boards. The authors find that having a majority if independent directors does not address the concren that defensive tactics might be abused. They also find "effective" staggered boards do not appear to have a significant beneficial effect on premiums in negotiated transactions.
Cremers and U. The authors find that CPS is correlated with i lower industry-adjusted accounting profitability, ii lower stock returns accompanying acquisitions announced by the firm and higher likelihood of a negative stock return accompanying such announcements, iii higher odds of the CEO recieving a lucky otion grant at the lowest price of the month, iv lower performance sensitivity of CEO turnover, and v lower stock market returns accompanying the filing of proxy statements for periods where CPS increases.
Grinstein and U. Peyer Journal: Journal of Finance This paper studies the relationship between opportunistic timing of option grants and corporate governance, focusing on at-the-money "lucky" grants awarded at the lowest price of the grant month. The authors find that lucky grants to CEOs and directors are associated with higher CEOcompensation from other sources, and are correlated with a lack of majority of independent directors on the board, no independent compensation committee with an outside blockholder, or a long-serving CEO.
For any given firm, the odds of a lucky grant increased when the payoffs from luck were high and when a preceding grant was lucky. Ciciretti and I. However in a period of 11 to 24 days, the gap between deletion and addition events tends to be bridged. These findings suggest that penalty for exit from SR index might depend more from the reaction of ethically screened funds, than from an expected negative shock on shareholder value.
Franks, C. Mayer and S. Rossi Journal: Review of Financial Studies This article reports a unique analsis of private engagements by a pension activist fund. In contrast with most previous studies of activism, The authors report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially ouperforms benchmarks and The authors estimate that abnormal returns are largely associated with engagements reather than stock picking.
Levine Journal: Handbook of New Institutional Economics This paper provides a concise, selective review of research on the role of legal institutions in shaping the operation of financial systems. While a burgeoning literature finds that financial development exerts a first-order impact on economic growth, the law and finance literature seeks to understand the role of legal institutions in explaining international differences in financial systems.
Author: Beck, T. On balance, The authors find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity, ommitted variables or observed country-specific effects. Demigiruc-Kunt and R. Levine Journal: Journal of Comparative Economics A growing body of work suggest that cross-country differences in legal origin help explain differences in financial development.
This paper empirically assesses two theories of why legal orgin influences financial development. The authors use historical comparisons and cross-country regressions to assess the role of these two channels. Demigiruc-Kunt and V. Maksimovic Journal: Journal of Finance Financial and institutional development weakens the constraining effects of financial, legal, and corruption obstacles and it is the small firm that benefit the most. There is only a weak relation between firms' perception of the quality of the courts in their country and firm growth.
The authors also provide evidence that the corruption of bank officials constrains firm growth. Levine and N. Loayza Journal: Journal of Financial Economics This paper evaluates the empirical relation between the level of financial intermediary development and i economic groth, ii total factor productivity growth, iii physical capital accumulation, and iv private savings rates.
The authors find that 1 financial intermedediaries exert a large, positive impact on total factor productivity growth, which feed through to overall GDP growth and 2 the long-run links between financial intermediary development and both physical capital growth and private savings rates are tenuous. Olson Journal: Industrial and Labor Relations Review The authors find that strikes substantially affect shareholder equity. Over a twenty-year period, the average strike involving 1, or more workers resulted in a 4.
Costs varied widely across industries. Capital markets are usually able to anticipate whether an impending contract deadline will result in a strike or settlement. Huselid Journal: Working paper Using survey data, the authors find that high performance Human Resource Management HRM systems have an economically and statistically positive effect on firm performance.
Both an integrated system and a compensation-focused strategy are associated with significantly higher firm performance than is a traditional "personnel" strategy. Huselid, P. Pickus and M. They suggest that HRM can have an economically significant effect on firm performance through a shared perspective of the HRM system as a source of strategy implementation and a means to achieve important buisness priorities.
Journal: Journal of Financial Research This paper finds that socially responsible funds do not differ significantly from conventional funds in attributes such as characteristics of assets held, and portfolio diversification. Moreover, the effect of diversification on investment performance is not different between the two groups. Bortolotti Journal: International Research Conference on Corporate Governance in Emerging Markets This paper evaluates the stock price effects of Chinese Financial reforms trying to relate expected returns to changes in fundamentals.
The results show that Nontradable shares NTS reform was beneficial for the market as a whole, and especially for those companies with lower disclosure standards. Stulz Journal: Journal of Financial Economics This paper evaluates the importance of factors that have been put forth as having contributed to the poor performance of banks during the credit crisis. The evidence is supportive of theories that emphasize the fragility of banks financed with short-term capital market funding.
The better-performing banks had less leverage and lower returns imediately before the crisis. Differences in banking regulations across countries are generally uncorrelated with the performance of banks during the crisis, except that large banks from countries with more restrictions on bank activities performed better and decreased loans less.
Whereas a simple equally-weighted CSR index had a negative correlation with economic performance. SRI investors are less concerned about returns than conventional investors. They are also less likely to switch funds. Author: Benson, K. Brailsofrd and J. However returns of SRI funds are generated through different industry exposures when compared to conventional funds. Claessens Journal: World Bank Research Observer This theoretical paper presents a framework to help explain enforcement, the impact on corporate governance when rules are not enforced, and what can be done to improve corporate governance in weak enforcement environments.
The limited empirical evidence suggests that private enforcement tools are often more effective than public tools. Concentrated ownership aligns incentives and encourages monitoring, but it weakens other corporate governance mechanisms and can impose significant costs. Nicolaievsky Journal: Journal of Financial Economics The corporate charters of a sample of Mexican firms show that private firms often significantly enhance the legal protection offered to investors, but public firms rarely do so.
The authors construct a model that endogenizes the degree of investor protection that firms provide, using as a springboard the assumption that legal regimes differ in their ability to enforce precisely filtering contracts that provide protection only in those cases where expropriation can occur. Their model generates predictions about the types of contracts that would be employed and the levels of investor protection that would prevail across different legal regimes in both private and public firms.
Stanton and J. Zechner Journal: Journal of Finance The authors derive the optimal labor contract for a levered firm in an economy with perfectly competitive capital and labor markets. Employees become entrenched under this contract and so face large human costs of bankruptcy. The firm's optimal capital structure therefore depends on the trade-off between these human costs and the tax benefits of debt. Optimal debt levels consistent with those observed in practice emerge without relying on frictions such as moral hazard or asymmetric information.
Does Stakeholder Orientation Matter? Wicks, S. Kotha and T. Jones Journal: Academy of Management Hournal In this study, the authors contributed to stakeholder theory development by 1 deriving two distinct stakeholder management models from extant research, 2 testing the descriptive accuracy of these models, and 3 including important variables from the strategy literature in the tested models. The results provide support for a strategic stakeholder management model but no support for an intrinsic stakeholder commitment model.
Implications of these findings for management practice and future research are discussed. Gomez-Mejia Journal: Academy of Management Journal This paper finds evidence to support that in polluting industries, good environmental performance increases CEO pay; that environmental governance mechanisms strengthen this linkage; and that pollution prevention strategies affect executive compensation more than end-of-pipe pollution control.
Mehta and S. Mullainathan Journal: Quarterly Journal of Economics This paper proposes a general methodology to measure the extent of tunneling activities. The methodology rests on isolating and then testing the distinctive implications of the tunneling hypothesis for the propagation of earning shocks across firms within a group. When applying the methodology to data on Indian buisness groups, the authors find a significant amount of tunneling, much of it occuring via nonoperating components of profit.
Lapointe Journal: Working paper In this article the authors propose to extend the streams of research about smart beta strategies and about Socially Responsible Investment SRI by studying the impact of using an SRI universe on the properties of smart beta portfolios and by studying the impact of using smart beta strategies on the performance of SRI portfolios. Can labor Regulation Hinder Economic Performance?
Evidence from India Author: Besley, T. Burgess Journal: Quarterly Journal of Economics The authors show that Indian states that amended the Industrial Disputes Act in a pro-worker direction experienced lowered output, employment,incestment, and productivity in registered or formal manufacturing. Regulating in a pro-worker direction was also associated with increases in urban poverty.
This suggests that attempts to redress the balance of power between capital and labor can end up hurting the poor. Journal: Indian Journal of Labour Economics This paper offers a critique of recent empirical studies on the impact of labor regulation on industrial performance in India.
It criticizes the widely-used index of state-level labor regulation devised by Besley and Burgess , and the econometric methodology they use to establish that excessively proworker regulation led to poor performance in Indian manufacturing. This paper also reviews other evidence on the actual enforcement of labor laws, labor flexibility, and industrial employment.
Piesse Journal: Biennial Pacific Rim Conference of the WEAI at Taipei This paper shows that while foreign banks have high credit-deposit ratios, the domestic banks of India experienced much greater improvements in technical efficiency in the context of credit. The most significant improvements in technical efficiency are registered by the domestic de novo banks. There is weak evidence that foreign banks may be bullish only with respect to blue chip borrowers.
Dimova Journal: Journal of Comparative Economics In India, banking sector reforms and dergulation were initiated in , encouraging entry and establishing a level playing field for all banks. Evidence suggests that after the reforms, ownership was no longer a significant determinant of performance.
Rather, competition induced public-sector banks to eliminate the performance gap that existed between them and both domestic and foreign private-sector banks. Sengupta Journal: Journal of Buisness Ethics This article provides evidence linking corporate governance mechanisms to higher bond ratings and lower bond yields. Governance mechanisms can reduce default risk by mitigating agency costs and monitoring managerial performance and by reducing information asymmetry between the firm and the lenders.
The authors find firms that have greater institutional ownership and stronger outside control of the board enjoy lower bond yields and higher ratings on their new bond issues. However, concentrated institutional ownership has an adverse effect on yields and ratings. Patten Journal: Journal of Accounting and Economics This study examines the market reaction of chemical firms to a particular environmental catastrophe, and the evidence indicates that a significant negative intra-industry reaction occurred.
However, firms with more extensive environmental disclosures in their financial report prior to the chemical leak experienced a less negative reaction than firms with less extensive disclosures. This result suggests that investors interpreted such disclosures as a positive sign of the firm managing its exposure to future regulatory costs. Journal: New Palgrave Dictionary of Economics and the Law A small number of American institutional investors, mostly public pension plans, spend a trivial amount of mooney on overt activism efforts.
They don't conduct proxy fights, and don't try to elect their own candidates to the board of directors. The currently available evidence, taken as a whole, is consistent with the proposition that the institutions achieve the effects on firm performance that one might expect from this level of effort- namely, not much.
Khanna Journal: Journal of Empirical Legal Studies The May announcement by Indian securities regulators of plans to adopt corporate governance reforms is accompanied by a 4 percent increase in the price of large firms over a two-day event window the announcement date plus the next trading day , relative to smaller public firms not affected by the intial reforms ; the difference grows to 7 percent over a five-day event window and 10 percent over a two-week window. Cross-listed firms gained more than other firms, suggesting that local regulation can sometimes complement, rather than substitute for, the benefits of cross-listing.
Kim Journal: Journal of Financial Economics This paper uses a Korean law as an exogenous shock to assess how board structure affects firm market value. The law mandates 50 percent outside directors and an audit committee for large public firms, but not smaller firms. The legal shock produces large share price increases for large firms, relative to mid-sized firms; share prices jump in when the reforms are announced. Gorga Journal: Journal of Corporate Finance This paper constructs a corporate governance index, and shows that the index, as well as subindices for ownership structure, board procedure, and minority shareholder rights, predict higher lagged Tobin's q.
In contrast to other studies, greater board independence predicts lower Tobin's. Firm characteristics also matter: governance predicts market value for nonmanufacturing but not manufacturing firms, small but not large firms, and high-growth but not low-growth firms. The authors also find that country characteristics strongly influence both which aspects of governance predict firm market value, and at which firms that association is found.
Metzger, T. O'Brien and Y. Shin Journal: Journal of Corporation Law This report reviews South Korea's corporate governance system and recommends legal reforms to improve Korean corporate governance and protect against a repeat of Korea' governance-related financial crisis of The report's principal recommendations include enhancing the role of public company boards of director, strengthening independent director and non-interested shareholder review of related party transactions, and requiring cumulative voting and preemptive rights for public companies.
Evidence from Korea Author: Black, B. Jang and W. The authors also find that Korean firms with 50 percent outside directors have 0. This effect, too, is likely causal. Kochan Journal: Working paper This paper argues that the era of shareholder maximizing that emerged in the s and has dominated since then has produced a set of perverse economic outcomes that have limited or stopped economic progress for the majority of the workforce and holds back an economic recovery capable of closing the jobs deficit and improving living standards.
Building a more sustainable economy will, therefore, require replacing this narrow conception of the purpose of the firm with a broader theory and with policy and institutional reforms that rebalance the power of investors, corporate executives, workers, and their representatives. Milward and A. Oswald Journal: Economic Journal This study provides evidence on the consequences of trade union activity for the level and growth of employment using a microeconomic data set of British workplaces.
Trade unions depress the rate of employment growth or increase the extent of employment decline by about 3 percent per year. When looking within countries, however, the authors reject the pessimistic model of 'trade-off' between WLB and productivity. WLB outcomes are significantly associated with better management, so that well-run firms are both more productive and offer better conditions for their employees.
Author: Bloom, N. Kretshmer and J. They find a positive correlation between firm productivity and FFWP. This association disappears, however, once they control for a measure of the quality of management practices. Journal: Financial Stability Board This report responds to the call by the G20 Finance Ministers and Governors to submit to the Pittsburgh Summit detailed specific proposals on corporate governance reforms, global standards on pay structure and greater disclosure and transparency, to strengthen adherence to the FSB Principles for Sound Compensation Practices, issued in April Massa and A.
Simonov Journal: Journal of Financial Economics This paper studies the link between a firm's quality of governance and its alliance activity. The authors consider alliances as a commitment technology that helps a company's Chief Executive Officer overcome agency problems that relate to the inability to ex ante motivate division managers.
This paper shows that well-governed firms are more likely to avail themselves of this technology to anticipate es post commitment problems and resolve them. Governance also mitigates agency issues between alliance partners; dominant alliance partners agree to a more equal split of power with junior partners that are better governed. Samama Journal: Working paper The authors argue that a fundamental reason for the short term perspective of corporate executives is the short-term orientation of shareholders and financial markets that drive the performance benchmarks of CEOs.
Long-term committed shareholders can provide substantial benefits to the company they invest in and although some shareholders are prepared to take a more long-term view, they are generally not rewarded for their loyalty to the company. The authors believe that because they are a scarce resource and provide benefits to the company and other shareholders that have all the features of a public good, long-term shareholders need to recieve financial incentives.
Becht and A. Roell Journal: Handbook of the Economics Finance This paper reviews the theoretical and empirical research on the main mechanisms of corporate control, discuss the main legal and regulatory institutions in different countries, and examine the comparative corporate governance literature. A fundamental dilemma of corporate governance emerges from this overview: regulation of large shareholder intervention may provide better protection to small shareholders; but such regulations may increase managerial discretion and scope for abuse.
Casares Field, J. Karpoff and C. Raheja Journal: Journal of Financial Economics The author show that: i board size and independence increase as firms grow in size and diversify over time; ii board independence is negatively related to the manager's influence and positively related to constraints on such influence; and iii board size reflects a trade-off between the firm-specific benefits of monitoring and the cost of such monitoring.
The data do not support the view that boards are structured randomly or to facilitate managers' consumption of value-decreasing private benefits. Derwall, A. Koedijk, and J. The stakeholder-relations index SI was positively associated with long-term risk-adjusted returns, earning announcement returns, and errors in analysts' earning forecasts over the period Cosset and O.
Guedhami Journal: Journal of Financial Economics This paper investigates the role of ownership structure and investor protection in postprivatization corporate governace. The authors find that the government relinquishes control over time to the benefit of local institutions, individuals, and foreign investors, and that private ownership tends to concentrate over time. Firm size, growth and industry affiliation, privatization method, as well as the level of institutional development and investor protection, explain the cross-firm differences in ownership concentration.
The positive effect of ownership concentration on firm performance matters more in countries with weak investor protection. Boyer Journal: Working paper This paper looks at the performance of clean technology firms over the last five years, utilizing a sample of companies comprised of firms in 34 countries. The authors look at which countries have the highest performance based on stock returns and industry performance relative to the Russell index. Thus, the paper indicates what industries are performing well today, as well as which industries are promising tomorrow and which countries have a comparative advantage in which areas of clean technology.
Savaria Journal: Journal of Investing This paper finds that combining socially responsible stocks into portfolios could reduce diversifiable risk component. SR investing does not impair financial prospects of a portfolio. Journal: Review of Financial Studies This article proposes, and empirically verifies, that observed governance practices are partly the outcome of network effects among firms with common directors. While firms attempt to select directors whose other directorships are at firms with similar governance practices "familiarity effect" , this matching of governance practices is imperfect because other factors also affect the director choice.
This generates an "influence effect" as directors acquainted with different practices at other firms influence the firm's governance to move toward the practices of those other firms. These network effects cause governance practices to converge. De Nicolo Journal: Journal of Finance This paper reviews the empirical literature with regards to bank chhoosing more risky portfolios in the face of increased competition, and concludes that the evidence is best described as mixed.
The authors show that existing theoretical analyses of this topic are fragile, since there exists fundamental risk-incentive mechanisms that operate in exactly the opposite direction, causing banks to become more risky as their markets become more concentrated. Brav, I. Golstein and W. Jiang Journal: Journal of Financial Economics This paper documents frequent attempts by activist arbitrageurs to open-end discounted closed-end funds, particularly after the proxy reform which reduced the costs of communication among shareholders.
Open-ending attempts have a substantial effect on discounts, reducing them, on average, to half of their original level. The size of the discount is a major determinant of whether a fund gets attacked. Other important factors include the costs of communication among shareholders and the governance structure of the targeted fund. Brooks and S. Pavelin Journal: Financial Management Firms with higher social performance scores tend to achieve lower returns, while firms with the lowest possible CSP scores of zero outperformed the market.
Various aspects of corporate social behavior must be examined separately in order to achieve an accurate picture on their impact of returns. Mathews Journal: Journal of Financial Economics The authors model corporate voting outcomes when an informed trader, such as a hedge fund, can establish separate positions in a firm's shares and votes empty voting. The authors find that the trader's presence can improve efficiency overall despite the fact that it sometimes ends up selling to a net short position and then voting decrease firm value.
An efficiency improvement is likely if other shareholders' votes are not highly correlated with the correct decision or if it is relatively expensive to seperate votes from shares on the record date. Graham, C. Harvey and R. Michaely Journal: Journal of Financial Economics The authors find that the link between dividends and earnings has weakened.
Many managers now favor repurchases because they are viewed as being more flexible than dividends and can be used in an attempt to time the equity market or to increase earnings per share. Executives believe that institutions are indifferent between dividends and repurchases and that payout policies have little impact on their investor clientele.
In general, management views provide little support for agency, signaling, and clientele hypotheses of payout policy. Tax considerations play a secondary role. Jiang and H. Kim Journal: Working paper This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U. Census Bureau. A typical target firm improves its production efficiency within two years after activism, and this improvement is concentrated in industries with a high degree of product market competition.
By following plants that were sold post-intervention the authors also find that efficient capital redeployment is an important channel via which activists create value. Kim Journal: Foundations and Trends in Finance This article reviews shareholder activism by hedge funds. The authors analyze possible value creation brought about by activist hedge funds, both for shareholders in the target companies and for investors in the hedge funds.
The evidence generally supports the view that hedge fund activism creates value for shareholders by effectively influencing the governance, capital structure decisions, and operating performance of target firms. Jiang, F. Partnoy and R.
The authors find that activist hadge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. The abnormal stock return upon announcement of activism is approximately 7 percent, with no reversal during the subsequent year.
Target firms experience increases in payout and operating performance and higher CEO turnover after activism. The authors find large positive abnormal return to hedge fund activists, which is higher than the return to other equity-oriented hedge funds. Thomas Journal: Journal of Finance This paper finds hat activist hedge funds in the United States propse strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases.
The abnormal return around the announcement of activism is approximately 7 percent, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. The analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.
Coles and R. Terry Journal: Journal of Financial Economics This paper finds that the average stock-market reaction to announcements of poison pills is positive when the board has a majority of outside directors and negative when it does not. The probability that a subsequent control contest is associated with an auction is also positively related to the fraction of outsiders on the board.
These results are largely driven by directors who are retired executives from other companies. Cabolis Journal: EFA Moscow Meetings Paper This paper finds that the announcement effect of a cross-border merger for the target firm is higher-relative to a matching, domestic acquisition-the better the shareholder protection and the accounting standards in the country of origin of the acquirer.
In addition, this result is only significant when the acquirer comes from a more protective country, which suggests that target firms avoid adopting weaker protection via private contracting. Chung Journal: Journal of Finance The purpose of this study is to investigate the relation between investor protection and firm liquidity. This paper's empirical findings verify that firm liquidity is significantly affected by investor protection. Regression and matched-sample results show that Hong Kong-based equities exhibit narrower spreads and thicker depths than their China-based counterparts.
Deere Journal: Journal of Buisness This article investigates empirically the hypothesis that unionization alters firm behavior. The empirical evidence is broadly consistent with the notion that unionized firms attempt to limit union appropriation of quasi rents.
Higher firm-specific unionization rates are associated with less investment in physical capital, research and development, and advertising; slower employment growth; and a greater reliance on debt finance. Caylor Journal: Journal of Accounting and Public Policy The authors create Gov-Score, a summary governance measure based on 51 firm-specific provisions representing both internal and external governance, and show that a parsimonious index based on seven provisions underlying Gov-Score fully drives the relation between Gov-Score and firm value.
The authors find five of these measures to be unrelated to firm valuation. They document that only one of the seven governance provisions important for firm valuation was mandated by either the Sarbanes-Oxley Act of or the three major U. Caylor Journal: Institutional Shareholder Services firms with weaker corporate governance perform more poorly. They have lower stock returns in the preceding three, five, and ten-year periods than do firms with stronger corporate governance.
Author: Bruno, V. Claessens Journal: World Bank Policy Research Working Paper This paper finds that in any legal regime a few specific governance practices improve performance. Companies with good governance practices operating in stringent legal environments, however, show a valuation discount relative to similar companies operating in flexible legal environments. At the same time, a stronger country-level regime does not reduce the valuation discount of companies with weak governance practices.
Chong and E. Mansur Journal: National Bureau of Economic Research This paper investigates how cap-and-trade regulation affects profits. In late April , the EU CO2 allowance price dropped 50 percent, equating to a 28 billion Euro reduction in the value of aggregate annual allowances. Despite reductions in environmental costs, the authors find that stock prices fell for firms in both carbon- and electricity-intensive industries, particularly for firms selling primarily within the EU.
Do Outside Directors Monitor Managers? Hickman Journal: Journal of Financial Economics The authors categorize outside directors as either independent of or having affiliation with managers, and find that bidding firms on which independent outside directors hold at least 50 percent of the seats have significantly higher announcement-date abnormal returns than other bidders.
However, the relationship between bidding firms' abnormal stock returns and the proportion of board seats held by independent outside directors is nonlinear, suggesting it is possible to have too many independent outside directors. All results are lost if the traditional inside-outside board classification method is used. Using media coverage of firm's CSR activities as a proxy for the visibility of CSR, the authors find that the higher CSR media coverage is associated with higher firm value and higher excess stock returns.
Moreover, the effect of visibility is stronger for firms that actively engage in CSR, highlighting the complementary role between CSR and visibility. Vijh Journal: Journal of Finance Acquisitions enable target chief executive officers CEOs to remove liquidity restrictions on stock and option holdings and diminish the illiquidity discount.
The authors show that CEOs with higher holdings illiquidity discount are more likely to make acquisitions get acquired. Further, target CEOs with a higher illiquidity discount accept a lower premium, offer less resistance, and more often leave after acquisition. Similarly, aquirer CEOs with higher holdings pay a higher premium, expedite the process, and make diversifying acquisitions using stock payment.
Electing Directors Author: Cai, J. Garner and R. Walkling Journal: Journal of Finance The authors document that shareholder votes are significantly related to firm performance, governance, director performance, and voting mechanisms. However, most variables, except meeting attendance and ISS recommendations, have little economic impact on shareholder votes- even poorly performing directors and firms typically recieve over 90 percent of votes cast.
Nevertheless, fewer votes lead to lower "abnormal" CEO compensation and a higher probability of removing poison pills, classified boards and CEOs. Honohan Journal: World Bank Policy Research Report The world bank report provides evidence to show that financial development has a strong independent role in increasing general prosperity. Countries that build a secure institutional environment for financial contracts, making it possible for banking and organized securities markets to prosper, will see these efforts bear fruit in the fight against poverty.
Nelson and M. Weisbach Journal: Journal of Finance This paper analyzes the process of private negotiations between financial institutions and the companies they attempt to influence. It relies on a private database consisting of the correspondence between TIAA-CREF and 45 firms is contacted about governance issues between and In more than 70 percent of the cases, this agreement is reached without shareholders voting on the proposal.
The authors verify independently that at least 87 percent of the targets subsequently took actions to comply with these agreements. Child Journal: Journal of Financial Economics this paper finds that where the status quo political arrangements persist, preexisting ownership arrangements go unchanged or become more entrenched.
Where major political changes occurred, corporate ownership would undergo substantial changes. Also, the state has become increasingly important as an owner of domestic firms as well as foreign firms.
Simkins and W. Simpson Journal: Financial Review This study examines the relationship between board diversity and firm value for Fortune firms. Board diversity is defined as the percentage of women, African Americans, Asians, and Hispanics on the board of directors. The authors find significant positive relationships between the fraction of women or minorities on the board and the firm value. The authors 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.
Clementi and G. MacDonald Journal: Quarterly Journal of Economics The authors introduce investor protection into a standard overlapping generations model of capital accumulation. Better investor protection implies better risk-sharing.
Because of entrepreneurs' risk aversion, this results in a larger demand for capital. This is the demand effect. A second effect the supply effect follows from general equilibrium restrictions. Better protection i. It also concludes that multinational companies are more likely to adopt CSR than those operating solely in their home country but that the profile of their CSR tends to reflect the profile of the country of operation rather than the country of origin.
Kali and Y. Wiwattanakantang Journal: Journal of Buisness This paper found that firms with connections to banks and politicans had greater access to long-term loans, and appeared to use fewer short-term loans than those without connections. Author: Chen, G. Firth, N. Gao and O. Rui Journal: Journal of Corporate Finance The study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China.
The results show that ownership and board characteristics are important in explaining fraud. The authors find that the proportion of outside directors, the number of board meetings, and the tenure of the chairman are associated with the incidence of fraud. Evidence from Unionized workers Author: Chen, H.
Kacperczyk and H. Ortiz-Molina Journal: Review of Finance Firms in more unionized industries have statistically and economically significant lower bond yield spreads. The effect is even greater with firms that have weak financial conditions. Higher unionization is associated with lower likelihood that a firm is an acquisition target and unionization reduces bond yield spreads by more when firms takeover barriers are lower. Hong and J. Stein Journal: Journal of Financial Economics The authors develop a stock market model with differences of opinion and short-sales constraints.
When breadth is low - i. Thus reductions in breadth should forecast lower returns. The authors find that stocks whose change in breadth in the prior quarter is in the lowest decile of the sample underperform those in the top decile by 6. Adjusting for size, book-to-market, and momentum, the figure is 4. Hong, W. Jiang and J. Kubik Journal: Journal of Finance The authors investigate the effects of managerial outsourcing on the performance and incentives of mutual funds.
Fund families outsource the management of a large fraction of their funds to advisory firms. These funds underperform those run internally by about 52 basis points per year. After instrumenting for a fund's outsourcing status, the estimated underperformance is three times larger. The authors find that outsourced funds face higher powered incentives; they are more likely to be closed after poor performance and excessive risk-taking. Metcalf Journal: Accounting Review This legal note analyzes the claims in Spicer , which finds a relationship between financial indicators and corporate social responsibility.
These authors find evidence that 'size' and other background factors ommitted from Spicer devalue the original results. Chen and K. Wei Journal: Journal of Financial and Quantitative Analysis This paper examines the effect of shareholder rights on reducing the cost of equity and the impact of agency problems from free cash flow on this effect. The authors find that firms with strong shareholder rights have a significantly lower implied cost of equity after controlling for risk factors, price momentum, analysts' forecast biases, and the industry effects than do firms with weak shareholder rights.
They also show that the effect of shareholder rights on reducing the cost of equity is significantly stronger for firms with more severe agency problems from free cash flows. Directors' Ownership in the U. Goldstein and W. Jiang Journal: Journal of Finance this paper empirically investigates directors' ownership in the mutual fund industry.
The results show that, contrary to anecdotal evidence, a significant portion of directors hold shares in the funds they oversee. Ownership is positively and significantly correlated with most variables that are predicted to indicate greater value from directors' monitoring. The authors also show considerable heterogeneity in ownership across fund families, suggesting family-wide policies play an important role. Chen, K. You are now leaving Barings. We make no representations about the accuracy or completeness of the information contained in any external sites and assume no liability of the content or presentation of external sites.
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|Brian chong investment trends john||This correlation, however, did not persist during the subsequent period Asia Pacific Australia. The empirical evidence is broadly consistent with the notion that unionized firms attempt to limit union appropriation of quasi rents. The authors also show considerable heterogeneity in ownership across fund families, suggesting family-wide policies play an important role. Codes of good governance appear to have generally improved the governance of countries that have adopted them.|
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