This paper exploits a unique institutional setting to examine the effects of firms' political connections on the allocation of government procurement contracts. After winning the presidential election in Korea in 2007, the new president, Lee Myung Bak, appoints several members of his networks as CEOs of state-owned firms. In turn, these state firms allocate significantly more procurement contracts to private firms with a CEO from the same network. The systematically poor execution of contracts allocated to connected firms suggests that contracts are misallocated. Back of the envelope calculations suggest that each dollar in contract volume transferred from non-connected to connected firms leads to a cost of 17-26 cents to the economy, resulting in a total annual cost of about 0.21-0.32% of GDP.
{"title":"Political Connections and Allocative Distortions","authors":"David Schoenherr","doi":"10.2139/ssrn.2480261","DOIUrl":"https://doi.org/10.2139/ssrn.2480261","url":null,"abstract":"This paper exploits a unique institutional setting to examine the effects of firms' political connections on the allocation of government procurement contracts. After winning the presidential election in Korea in 2007, the new president, Lee Myung Bak, appoints several members of his networks as CEOs of state-owned firms. In turn, these state firms allocate significantly more procurement contracts to private firms with a CEO from the same network. The systematically poor execution of contracts allocated to connected firms suggests that contracts are misallocated. Back of the envelope calculations suggest that each dollar in contract volume transferred from non-connected to connected firms leads to a cost of 17-26 cents to the economy, resulting in a total annual cost of about 0.21-0.32% of GDP.","PeriodicalId":142491,"journal":{"name":"Corporate Governance 1","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-12-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128305655","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Australian Securities Exchange (ASX) Corporate Governance Council (CGC) has required all listed firms to either adopt a majority of "independent" board members without links either to management or to substantial shareholders or explain "if not, why not". While this close to a global standard, it is the opposite to US exchanges who also require "independence from management" but are explicit in stating that significant shareholding need be no barrier to independence. Within a framework of both fixed firm and combined industry-year effects such that each firm is compared with itself, we show that firm performance declines significantly as affected outside directors depart the firm to make way for "Independents". Regular Gray directors make better acquisition decisions, increase the proportion of incentives in CEO pay, and raise dividend payouts. The presence of more executives on the board significantly reduces the CEO’s pay, while combining the role of CEO and chair adds to firm value.
{"title":"Does Board \"Independence\" Destroy Corporate Value?","authors":"P. Swan, David Forsberg","doi":"10.2139/ssrn.2312325","DOIUrl":"https://doi.org/10.2139/ssrn.2312325","url":null,"abstract":"The Australian Securities Exchange (ASX) Corporate Governance Council (CGC) has required all listed firms to either adopt a majority of \"independent\" board members without links either to management or to substantial shareholders or explain \"if not, why not\". While this close to a global standard, it is the opposite to US exchanges who also require \"independence from management\" but are explicit in stating that significant shareholding need be no barrier to independence. Within a framework of both fixed firm and combined industry-year effects such that each firm is compared with itself, we show that firm performance declines significantly as affected outside directors depart the firm to make way for \"Independents\". Regular Gray directors make better acquisition decisions, increase the proportion of incentives in CEO pay, and raise dividend payouts. The presence of more executives on the board significantly reduces the CEO’s pay, while combining the role of CEO and chair adds to firm value.","PeriodicalId":142491,"journal":{"name":"Corporate Governance 1","volume":"156 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124380145","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the relationship between the liquidity of the real estate property market and that of the REIT market from the perspective of liquidity dynamics and transformation. Our results indicate that there is a lead-lag relationship between the liquidity of these two markets. The Granger Causality test shows that property market liquidity leads that of the REIT market. In addition, returns in the property market have a causal effect on the liquidity and returns of the REIT market. We estimate VAR models and compute impulse response functions to examine the dynamics of the cross-market relationships in liquidity and return between the two markets. The impulse responses show that REIT liquidity responds to property market liquidity, especially after the structure change in the REIT industry in the early 1990s. Our results also demonstrate that shocks to macroeconomic variables have significant effects on the liquidity of the two markets. Overall, our study sheds light on the contemporaneous commonality between the liquidity of the unsecuritized property market and that of the securitized REIT market.
{"title":"Liquidity Dynamics between REIT and Property Markets","authors":"Sumit Agarwal, M. Hu","doi":"10.2139/ssrn.2391025","DOIUrl":"https://doi.org/10.2139/ssrn.2391025","url":null,"abstract":"This paper investigates the relationship between the liquidity of the real estate property market and that of the REIT market from the perspective of liquidity dynamics and transformation. Our results indicate that there is a lead-lag relationship between the liquidity of these two markets. The Granger Causality test shows that property market liquidity leads that of the REIT market. In addition, returns in the property market have a causal effect on the liquidity and returns of the REIT market. We estimate VAR models and compute impulse response functions to examine the dynamics of the cross-market relationships in liquidity and return between the two markets. The impulse responses show that REIT liquidity responds to property market liquidity, especially after the structure change in the REIT industry in the early 1990s. Our results also demonstrate that shocks to macroeconomic variables have significant effects on the liquidity of the two markets. Overall, our study sheds light on the contemporaneous commonality between the liquidity of the unsecuritized property market and that of the securitized REIT market.","PeriodicalId":142491,"journal":{"name":"Corporate Governance 1","volume":"179 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124448825","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We empirically investigate the adoption of stock option plans in Japan after the corporate governance reforms of the early 2000s. We examine the determinants of stock option grants, especially focusing on the effects of herding behavior among Japanese firms and the change of accounting treatment of stock option grants. We also investigate the effects of stock option awards on firm performance, using propensity score matching. Then, following Hayes et al. (2012) identification strategy, we provide new evidence on causal relation between managerial incentives and risk-taking. We find that the adoption of stock option plans is more likely in firms that compete with the other firms that have extensively adopted stock option plans in the same industry, indicating that there is a kind of ‘spillover’ effect among those firms. We find that firms that introduce stock option plans generally face liquidity constraint and their option usage declines significantly after the adoption of accounting standards. We also find some evidences that do not support the view that providing incentives for risk-taking is a primary purpose for the use of stock options. This paper provides some new evidence of the adverse implications of stock option plans in the scheme of equity-based compensation.
本文对21世纪初日本公司治理改革后股票期权计划的采用情况进行了实证研究。我们研究了股票期权授予的决定因素，特别关注日本公司羊群行为的影响和股票期权授予会计处理的变化。我们也研究了股票期权奖励对公司绩效的影响，使用倾向得分匹配。然后，根据Hayes et al.(2012)的识别策略，我们提供了关于管理激励与风险承担之间因果关系的新证据。我们发现，在同行业中，与其他广泛采用股票期权计划的企业竞争的企业更有可能采用股票期权计划，这表明这些企业之间存在一种“溢出”效应。我们发现，引入股票期权计划的企业普遍面临流动性约束，其期权使用率在会计准则实施后显著下降。我们也发现一些证据不支持为冒险提供激励是使用股票期权的主要目的的观点。本文提供了一些新的证据，证明股票期权计划在股权补偿方案中的不利影响。
{"title":"Stock Option Awards: Effects on Firm Performance and Risk-Taking after Japan’s Corporate Governance Reforms","authors":"Hyonok Kim, Y. Yasuda, Nobuhisa Hasegawa","doi":"10.2139/ssrn.2136944","DOIUrl":"https://doi.org/10.2139/ssrn.2136944","url":null,"abstract":"We empirically investigate the adoption of stock option plans in Japan after the corporate governance reforms of the early 2000s. We examine the determinants of stock option grants, especially focusing on the effects of herding behavior among Japanese firms and the change of accounting treatment of stock option grants. We also investigate the effects of stock option awards on firm performance, using propensity score matching. Then, following Hayes et al. (2012) identification strategy, we provide new evidence on causal relation between managerial incentives and risk-taking. We find that the adoption of stock option plans is more likely in firms that compete with the other firms that have extensively adopted stock option plans in the same industry, indicating that there is a kind of ‘spillover’ effect among those firms. We find that firms that introduce stock option plans generally face liquidity constraint and their option usage declines significantly after the adoption of accounting standards. We also find some evidences that do not support the view that providing incentives for risk-taking is a primary purpose for the use of stock options. This paper provides some new evidence of the adverse implications of stock option plans in the scheme of equity-based compensation.","PeriodicalId":142491,"journal":{"name":"Corporate Governance 1","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-08-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117236716","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Executive remuneration is often criticised as being excessive and not clearly linked to firm performance. This study further examines the link between pay and performance by examining the impact of promotion-based tournament incentives. Our hypotheses draw on tournament theory of labour economics which argues that the ‘gap’ between the remuneration of CEO and other senior executives creates a tournament-style competition for promotion amongst ambitious senior executives. The efforts of these highly motivated executives have a positive influence on overall firm performance. Whilst tournament theory is well studied in the US and UK (Conyon et al. 2001; Kale et al. 2009; Gong et al. 2011), Australian evidence is sparse. Our empirical analysis therefore seeks to better understand the determinants of tournament incentives, particularly surrounding the appointment of a new CEO. Further, we test whether firm performance is influenced by the magnitude of tournament incentives. Our results suggest that tournament incentives play a significant role in enhancing firm performance, but that this positive impact is somewhat reduced after a change in CEO. We also find that closer alignment of CEO pay (through equity compensation) is positively associated with firm performance. In regards to the determinants of tournament incentives we find that tournament incentives are lowest after a change in CEO. This study therefore contributes to the topical debate on executive compensation by providing evidence on the effectiveness of tournament incentives and their relationship to firm performance in the Australian environment. It is one of the first to examine whether tournament incentives play any role in the pay-for-performance relationship in Australia and findings are likely to be of interest to researchers, policy makers, corporations and their shareholders, given the increased current focus on executive compensation and the lack of clear alignment with firm performance.
高管薪酬经常被批评为过高，而且与公司业绩没有明确联系。本研究通过考察基于晋升的比赛激励的影响，进一步考察了薪酬与表现之间的联系。我们的假设借鉴了劳动经济学的竞赛理论，该理论认为，首席执行官和其他高管薪酬之间的“差距”在雄心勃勃的高管之间创造了一种锦标赛式的晋升竞争。这些高激励高管的努力对公司整体绩效有积极影响。虽然比赛理论在美国和英国得到了很好的研究(Conyon et al. 2001;Kale等人，2009;Gong et al. 2011)，澳大利亚的证据很少。因此，我们的实证分析旨在更好地理解赛事激励的决定因素，特别是围绕新任首席执行官的任命。进一步，我们检验了公司绩效是否受到比赛激励程度的影响。我们的研究结果表明，比赛激励在提高公司绩效方面发挥了重要作用，但在CEO更换后，这种积极影响有所减弱。我们还发现，CEO薪酬(通过股权薪酬)与公司绩效呈正相关。关于比赛激励的决定因素，我们发现在CEO更换后比赛激励是最低的。因此，本研究通过提供证据证明比赛激励的有效性及其与澳大利亚环境下公司绩效的关系，有助于对高管薪酬的专题辩论。这是第一个研究比赛激励是否在澳大利亚的绩效薪酬关系中发挥作用的研究之一，研究结果可能会引起研究人员、政策制定者、公司及其股东的兴趣，因为目前人们越来越关注高管薪酬，而与公司业绩缺乏明确的一致性。
{"title":"Promotion Incentives, CEO Appointments and Firm Performance","authors":"Maria Strydom, Michaela Rankin","doi":"10.2139/ssrn.2136249","DOIUrl":"https://doi.org/10.2139/ssrn.2136249","url":null,"abstract":"Executive remuneration is often criticised as being excessive and not clearly linked to firm performance. This study further examines the link between pay and performance by examining the impact of promotion-based tournament incentives. Our hypotheses draw on tournament theory of labour economics which argues that the ‘gap’ between the remuneration of CEO and other senior executives creates a tournament-style competition for promotion amongst ambitious senior executives. The efforts of these highly motivated executives have a positive influence on overall firm performance. Whilst tournament theory is well studied in the US and UK (Conyon et al. 2001; Kale et al. 2009; Gong et al. 2011), Australian evidence is sparse. Our empirical analysis therefore seeks to better understand the determinants of tournament incentives, particularly surrounding the appointment of a new CEO. Further, we test whether firm performance is influenced by the magnitude of tournament incentives. Our results suggest that tournament incentives play a significant role in enhancing firm performance, but that this positive impact is somewhat reduced after a change in CEO. We also find that closer alignment of CEO pay (through equity compensation) is positively associated with firm performance. In regards to the determinants of tournament incentives we find that tournament incentives are lowest after a change in CEO. This study therefore contributes to the topical debate on executive compensation by providing evidence on the effectiveness of tournament incentives and their relationship to firm performance in the Australian environment. It is one of the first to examine whether tournament incentives play any role in the pay-for-performance relationship in Australia and findings are likely to be of interest to researchers, policy makers, corporations and their shareholders, given the increased current focus on executive compensation and the lack of clear alignment with firm performance.","PeriodicalId":142491,"journal":{"name":"Corporate Governance 1","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127148729","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The objective of this research is to examine the effect of bank monitoring as an alternative of corporate governance mechanisms on the borrowers’ firm value. The strengths of bank monitoring on the borrowers are measured based on the magnitude of the bank loan, the size of the loan from banks with high monitoring quality, the length of a bank loan outstanding period, and the number of lenders. The research hypotheses were tested using multiple regression model with a sample of 230 companies listed in Indonesia Stock Exchange during 2009. The empirical results show that only the size of the loan from banks with high monitoring quality and the number of lenders significantly influences the borrowers’ firm value. These findings imply that only banks with high monitoring quality could play an important role in the corporate governance and therefore increasing the firm value by their monitoring function. Furthermore, bank monitoring is less effective if a company borrows from many banks, and therefore decreasing the firm value.
{"title":"The Effect of Bank Monitoring as an Alternative of Corporate Governance Mechanism on the Borrowers’ Firm Value: Evidence from Indonesian Listed Firms","authors":"A. Hermawan, Alexandra Ryan Ahmad Dina","doi":"10.2139/ssrn.1914444","DOIUrl":"https://doi.org/10.2139/ssrn.1914444","url":null,"abstract":"The objective of this research is to examine the effect of bank monitoring as an alternative of corporate governance mechanisms on the borrowers’ firm value. The strengths of bank monitoring on the borrowers are measured based on the magnitude of the bank loan, the size of the loan from banks with high monitoring quality, the length of a bank loan outstanding period, and the number of lenders. The research hypotheses were tested using multiple regression model with a sample of 230 companies listed in Indonesia Stock Exchange during 2009. The empirical results show that only the size of the loan from banks with high monitoring quality and the number of lenders significantly influences the borrowers’ firm value. These findings imply that only banks with high monitoring quality could play an important role in the corporate governance and therefore increasing the firm value by their monitoring function. Furthermore, bank monitoring is less effective if a company borrows from many banks, and therefore decreasing the firm value.","PeriodicalId":142491,"journal":{"name":"Corporate Governance 1","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-10-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131662806","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze the impact of corporate restructuring on firm value using a unique internal corporate restructuring created between the years of 2001 and 2003 in Japan. We show that excess value significantly increases after the internal restructuring even when the degree of diversification has not changed. This result supports the argument that diversification itself may not drive “discounts” or “premiums.” We also explore these events to examine the effect of bank governance and keiretsu affiliation. Our results are consistent with the argument that recent Japanese restructuring reduces information asymmetries and agency problems, thus improving the efficiency of internal capital markets and firm value.
{"title":"Corporate Governance, Diversification, and Firm Value: Evidence from 'Spin-Ins'","authors":"Yoon Choi, S. Han","doi":"10.2139/ssrn.1913453","DOIUrl":"https://doi.org/10.2139/ssrn.1913453","url":null,"abstract":"We analyze the impact of corporate restructuring on firm value using a unique internal corporate restructuring created between the years of 2001 and 2003 in Japan. We show that excess value significantly increases after the internal restructuring even when the degree of diversification has not changed. This result supports the argument that diversification itself may not drive “discounts” or “premiums.” We also explore these events to examine the effect of bank governance and keiretsu affiliation. Our results are consistent with the argument that recent Japanese restructuring reduces information asymmetries and agency problems, thus improving the efficiency of internal capital markets and firm value.","PeriodicalId":142491,"journal":{"name":"Corporate Governance 1","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124504225","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study investigates the determinants of residual government ownership and the impact of such ownership on post-privatization performance in China. Using panel data on 514 firms for the period from 1999 to 2004, the similar sample period with previous studies, we find that government shareholders are more likely to be present in small firms, while large firms are more likely to have politically connected CEOs on their boards. Contrary to the "political interference" hypothesis, our results show that residual government ownership has a positive impact on Tobin’s Q. This study indicates that when the risk of expropriation by parent companies is high, government shareholders can add value to firms by signaling their commitment to privatization.
{"title":"The Impact of Residual Government Ownership in Privatized Firms: New Evidence from China","authors":"Jing Liao, M. Young","doi":"10.2139/ssrn.1842643","DOIUrl":"https://doi.org/10.2139/ssrn.1842643","url":null,"abstract":"This study investigates the determinants of residual government ownership and the impact of such ownership on post-privatization performance in China. Using panel data on 514 firms for the period from 1999 to 2004, the similar sample period with previous studies, we find that government shareholders are more likely to be present in small firms, while large firms are more likely to have politically connected CEOs on their boards. Contrary to the \"political interference\" hypothesis, our results show that residual government ownership has a positive impact on Tobin’s Q. This study indicates that when the risk of expropriation by parent companies is high, government shareholders can add value to firms by signaling their commitment to privatization.","PeriodicalId":142491,"journal":{"name":"Corporate Governance 1","volume":"50 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122084245","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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