We study the impact of bank board structure on loan syndication and find both monitoring quality and connections of the lead bank’s board have a positive effect on three measures of the ability to syndicate a larger portion of a loan. Board monitoring quality plays a more dominant role during the financial crisis and following a negative reputation shock to the lead arranger. Board member connectedness is dominant for lower reputation lead arrangers. Our results are robust to an instrumental variable approach for endogeneity. Overall, we conclude that lead arranger board quality serves as a credible signal to participant banks.
{"title":"Bank Board Structure and Loan Syndication","authors":"L. Baran, Steven A. Dennis, Maneesh Shukla","doi":"10.2139/ssrn.3860110","DOIUrl":"https://doi.org/10.2139/ssrn.3860110","url":null,"abstract":"We study the impact of bank board structure on loan syndication and find both monitoring quality and connections of the lead bank’s board have a positive effect on three measures of the ability to syndicate a larger portion of a loan. Board monitoring quality plays a more dominant role during the financial crisis and following a negative reputation shock to the lead arranger. Board member connectedness is dominant for lower reputation lead arrangers. Our results are robust to an instrumental variable approach for endogeneity. Overall, we conclude that lead arranger board quality serves as a credible signal to participant banks.","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"362 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122819378","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}
Samanvaya Agarwal, Saipriya Kamath, K. Subramanian, Prasanna Tantri
We examine private and confidential minutes of board meetings of a majority of Indian banks, and offer insights into the issues tabled and discussed in bank boards. We find that risk issues account for only 10% of the issues tabled with regulation and compliance accounting for the most (41%) followed by business strategy (31%). Only 18% of the issues are deliberated in detail. Examining the minutes of risk management committee meetings, we find that only 31% of the issues tabled are forward-looking. Using a simple model, we infer that bank boards under-invest in risk and over-invest in regulation and compliance.
{"title":"Board Conduct in Banks","authors":"Samanvaya Agarwal, Saipriya Kamath, K. Subramanian, Prasanna Tantri","doi":"10.2139/ssrn.3822953","DOIUrl":"https://doi.org/10.2139/ssrn.3822953","url":null,"abstract":"We examine private and confidential minutes of board meetings of a majority of Indian banks, and offer insights into the issues tabled and discussed in bank boards. We find that risk issues account for only 10% of the issues tabled with regulation and compliance accounting for the most (41%) followed by business strategy (31%). Only 18% of the issues are deliberated in detail. Examining the minutes of risk management committee meetings, we find that only 31% of the issues tabled are forward-looking. Using a simple model, we infer that bank boards under-invest in risk and over-invest in regulation and compliance.","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121185937","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 examine how trading by institutional traders affects those by insiders. Using data at the trade level, we find insiders complete their trades faster when institutions trade on the same side in the stock. The effect of institutional activity on insider trading is more pronounced when insiders are more informed and if insider trades are associated with long-lived information. This finding supports the information-based hypothesis where insiders accelerate their trading due to competition with institutional investors for information. We identify two channels, brokerage and proximity, where insiders compete with institutional traders for information. We find the competition is more intense when (1) insiders and institutional investors share the same broker; and (2) institutional investors are local to the firm’s headquarter.
{"title":"Strategic Trading by Insiders in Reaction to Institutions: A Rat-Race Effect","authors":"Lai T. Hoang, Marvin Wee, Joey (Wenling) Yang","doi":"10.2139/ssrn.3822943","DOIUrl":"https://doi.org/10.2139/ssrn.3822943","url":null,"abstract":"We examine how trading by institutional traders affects those by insiders. Using data at the trade level, we find insiders complete their trades faster when institutions trade on the same side in the stock. The effect of institutional activity on insider trading is more pronounced when insiders are more informed and if insider trades are associated with long-lived information. This finding supports the information-based hypothesis where insiders accelerate their trading due to competition with institutional investors for information. We identify two channels, brokerage and proximity, where insiders compete with institutional traders for information. We find the competition is more intense when (1) insiders and institutional investors share the same broker; and (2) institutional investors are local to the firm’s headquarter.","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125587271","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 banks’ “protected-weekend” policies that restrict junior bankers from working during weekends. We use taxi rides from bank addresses in New York City to infer bankers’ working hours. We find the policies induced bankers to shift their work to late-night hours on weekdays. We then investigate whether such shifts in working hours affected the quality of work. After the policy, analysts of the policy-implementing banks make more errors in their earnings forecasts. They also herd more toward the consensus in their forecasts. We further provide evidence that junior bankers are the most adversely affected by the policy. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4774 .
{"title":"Going the Extra Mile: What Taxi Rides Tell Us about the Long-Hour Culture in Finance","authors":"Deniz Okat, Ellapulli V. Vasudevan","doi":"10.2139/ssrn.3810864","DOIUrl":"https://doi.org/10.2139/ssrn.3810864","url":null,"abstract":"We analyze banks’ “protected-weekend” policies that restrict junior bankers from working during weekends. We use taxi rides from bank addresses in New York City to infer bankers’ working hours. We find the policies induced bankers to shift their work to late-night hours on weekdays. We then investigate whether such shifts in working hours affected the quality of work. After the policy, analysts of the policy-implementing banks make more errors in their earnings forecasts. They also herd more toward the consensus in their forecasts. We further provide evidence that junior bankers are the most adversely affected by the policy. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4774 .","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"336 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130930356","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 examine the link between the genetic diversities of executive board members and bank financial misconduct. The premise is that genetic diversity results in different perspectives, skills, and abilities that impact on the effectiveness of executive board guidance and monitoring, including with respect to misconduct. Employing a panel of US banks over 1998-2019 we find that adding directors from countries with different levels of genetic diversity is negatively associated with financial misconduct as measured by enforcements and class action litigation against banks by the main regulatory agencies. In addition, the relation between genetic diversity and misconduct is hump-shaped, suggesting that there a trade-off between the beneficial and detrimental effects of genetic diversity on board monitoring and guidance. These results are robust to controlling for bank specific variables, including other board characteristics, and to the use of instrumental variables.
{"title":"The Impact of Genetic Diversity of Executive Board Directors on Corporate Misconduct: Evidence from US Banks","authors":"John Thornton, Chrysovalantis Vasilakis","doi":"10.2139/ssrn.3808117","DOIUrl":"https://doi.org/10.2139/ssrn.3808117","url":null,"abstract":"We examine the link between the genetic diversities of executive board members and bank financial misconduct. The premise is that genetic diversity results in different perspectives, skills, and abilities that impact on the effectiveness of executive board guidance and monitoring, including with respect to misconduct. Employing a panel of US banks over 1998-2019 we find that adding directors from countries with different levels of genetic diversity is negatively associated with financial misconduct as measured by enforcements and class action litigation against banks by the main regulatory agencies. In addition, the relation between genetic diversity and misconduct is hump-shaped, suggesting that there a trade-off between the beneficial and detrimental effects of genetic diversity on board monitoring and guidance. These results are robust to controlling for bank specific variables, including other board characteristics, and to the use of instrumental variables.","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130656459","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 chapter explores the experiences of a group of New Zealand-based organizations from a range of industries and sectors in responding to the challenges wrought by COVID-19. Focusing on the board of directors, we relate the lived experiences of CEOs, board chairs and directors in handling the crisis. In a purposively sampled set of interviews, we explored their priorities and practical actions and strategies in addressing the crisis. The emerging themes highlight their immediate responses, their longer term plans and the key importance of relationships both internal to the organization and externally, to help boards and CEOs to manage the crisis. We conclude with the implications for other firms and organizations of the increasing recognition that taking care of the interests of key stakeholders may not just be the right thing to do but is also in the interests and to the benefit of the organization it-self. We suggest further research on developing our understanding of the role of boards and board members.
{"title":"COVID-19 Governance Challenges: The Board’s Role in COVID-19 Crisis Management","authors":"Maureen Benson-Rea, Ljiljana Eraković, S. Watson","doi":"10.2139/ssrn.3765053","DOIUrl":"https://doi.org/10.2139/ssrn.3765053","url":null,"abstract":"This chapter explores the experiences of a group of New Zealand-based organizations from a range of industries and sectors in responding to the challenges wrought by COVID-19. Focusing on the board of directors, we relate the lived experiences of CEOs, board chairs and directors in handling the crisis. In a purposively sampled set of interviews, we explored their priorities and practical actions and strategies in addressing the crisis. The emerging themes highlight their immediate responses, their longer term plans and the key importance of relationships both internal to the organization and externally, to help boards and CEOs to manage the crisis. We conclude with the implications for other firms and organizations of the increasing recognition that taking care of the interests of key stakeholders may not just be the right thing to do but is also in the interests and to the benefit of the organization it-self. We suggest further research on developing our understanding of the role of boards and board members.","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123865297","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}
Using a parsimonious setup, we shed light on two channels through which a small amount of social pressure exerted by a CEO on board directors may increase the company value even in the absence of the classic tradeoff between the board's monitoring and advising tasks. First, the pressure reduces reporting bias that arises when the CEO's proposals submitted to the board are constrained by previously released public company reports (e.g., earnings reports). Second, the CEO's pressure increases the riskiness of directors' dissent, which motivates their information acquisition. If the pressure is sufficiently small, positive effects on reporting bias and information acquisition offset negative effects of having directors' decisions that are more biased. This setup provides novel implications regarding tolerance for a CEO's social ties especially in firms with high outsider monitoring costs, CEO-chairman duality, and differences between insiders and connected outsiders. We also propose testable empirical implications for links between board characteristics, executives' social networks, and earnings management.
{"title":"Board Directors under CEO's Social Pressure: Misreporting, Misreading, and Dissent Risk","authors":"M. Gregor","doi":"10.2139/ssrn.3737721","DOIUrl":"https://doi.org/10.2139/ssrn.3737721","url":null,"abstract":"Using a parsimonious setup, we shed light on two channels through which a small amount of social pressure exerted by a CEO on board directors may increase the company value even in the absence of the classic tradeoff between the board's monitoring and advising tasks. First, the pressure reduces reporting bias that arises when the CEO's proposals submitted to the board are constrained by previously released public company reports (e.g., earnings reports). Second, the CEO's pressure increases the riskiness of directors' dissent, which motivates their information acquisition. If the pressure is sufficiently small, positive effects on reporting bias and information acquisition offset negative effects of having directors' decisions that are more biased. This setup provides novel implications regarding tolerance for a CEO's social ties especially in firms with high outsider monitoring costs, CEO-chairman duality, and differences between insiders and connected outsiders. We also propose testable empirical implications for links between board characteristics, executives' social networks, and earnings management.","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"96 3","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131893857","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}
Ulrich Bantleon, A. d’Arcy, Marc Eulerich, Anja Hucke, Burkhard Pedell, Nicole V. S. Ratzinger‐Sakel
The three lines of defense model (TLoD) aims to provide a simple and effective way to improve coordination and enhance communications on risk management and control by clarifying the essential roles and duties of different governance functions. Without effective coordination of these governance functions, work can be duplicated or key risks may be missed or misjudged. To address these challenges, professional standards recommend that the chief audit executive (CAE) coordinates activities with other internal and external governance stakeholders (assurance providers). We consider survey responses from 415 CAEs from Austria, Germany, and Switzerland to analyze determinants that help to implement the TLoD without any challenges and to explore the extent of (coordination) challenges between the internal audit function and the respective governance stakeholders. Our results show a great variance in the extent of coordination challenges dependent on different determinants and the respective governance stakeholder.
{"title":"Coordination Challenges in Implementing the Three Lines of Defense Model","authors":"Ulrich Bantleon, A. d’Arcy, Marc Eulerich, Anja Hucke, Burkhard Pedell, Nicole V. S. Ratzinger‐Sakel","doi":"10.2139/ssrn.3663955","DOIUrl":"https://doi.org/10.2139/ssrn.3663955","url":null,"abstract":"The three lines of defense model (TLoD) aims to provide a simple and effective way to improve coordination and enhance communications on risk management and control by clarifying the essential roles and duties of different governance functions. Without effective coordination of these governance functions, work can be duplicated or key risks may be missed or misjudged. To address these challenges, professional standards recommend that the chief audit executive (CAE) coordinates activities with other internal and external governance stakeholders (assurance providers). We consider survey responses from 415 CAEs from Austria, Germany, and Switzerland to analyze determinants that help to implement the TLoD without any challenges and to explore the extent of (coordination) challenges between the internal audit function and the respective governance stakeholders. Our results show a great variance in the extent of coordination challenges dependent on different determinants and the respective governance stakeholder.","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"37 10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125704006","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 examine derivatives trading prior to takeover rumors in a sample of 1,638 publicly traded U.S. firms. The volume of options traded is abnormally high over the 5-day pre-rumor period, primarily due to the number of out-of-the-money call options traded. In addition, the direction of option trades (abnormal call volume minus abnormal put volume) prior to takeover rumors predicts forthcoming takeover announcements and rumor date returns. Identifying suspicious trades, we find evidence of individuals trading on knowledge of takeover rumor candidacy in the options market. Our results further indicate that informed traders prefer the options market to the equity market.
{"title":"Informed Options Trading Prior to Takeover Rumors","authors":"Frederick Davis, Hamed Khadivar, Thomas J. Walker","doi":"10.2139/ssrn.3707256","DOIUrl":"https://doi.org/10.2139/ssrn.3707256","url":null,"abstract":"We examine derivatives trading prior to takeover rumors in a sample of 1,638 publicly traded U.S. firms. The volume of options traded is abnormally high over the 5-day pre-rumor period, primarily due to the number of out-of-the-money call options traded. In addition, the direction of option trades (abnormal call volume minus abnormal put volume) prior to takeover rumors predicts forthcoming takeover announcements and rumor date returns. Identifying suspicious trades, we find evidence of individuals trading on knowledge of takeover rumor candidacy in the options market. Our results further indicate that informed traders prefer the options market to the equity market.","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131841911","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}
Chung-Yu Hung, M. Abernethy, C. Hofmann, Laurence van Lent
We examine whether different organizational forms influence agents’ pricing decisions. We study a secondhand car loan setting consisting of independent agents and in-house agents. We label independent agents more entrepreneurial than in-house agents and argue that entrepreneurship motivates agents to scan the environment for the opportunity to maximize their payoffs. We predict that entrepreneurial agents are more likely to increase prices when presented with the opportunity to do so. We expect this to be the case for opaque loans as they are less subject to competition compared with transparent loans, that experience stronger competition. We find that opaque loans have higher prices than transparent loans for both types of agents. Moreover, the price difference between the two loan types is greater for independent agents than for in-house agents. While prior literature suggests greater agency costs of outsourcing, our study recognizes the potential benefits of outsourcing sales activities to independent agents.
{"title":"Does organizational form matter to loan pricing?","authors":"Chung-Yu Hung, M. Abernethy, C. Hofmann, Laurence van Lent","doi":"10.2139/ssrn.3492407","DOIUrl":"https://doi.org/10.2139/ssrn.3492407","url":null,"abstract":"We examine whether different organizational forms influence agents’ pricing decisions. We study a secondhand car loan setting consisting of independent agents and in-house agents. We label independent agents more entrepreneurial than in-house agents and argue that entrepreneurship motivates agents to scan the environment for the opportunity to maximize their payoffs. We predict that entrepreneurial agents are more likely to increase prices when presented with the opportunity to do so. We expect this to be the case for opaque loans as they are less subject to competition compared with transparent loans, that experience stronger competition. We find that opaque loans have higher prices than transparent loans for both types of agents. Moreover, the price difference between the two loan types is greater for independent agents than for in-house agents. While prior literature suggests greater agency costs of outsourcing, our study recognizes the potential benefits of outsourcing sales activities to independent agents.","PeriodicalId":168140,"journal":{"name":"Corporate Governance: Internal Governance","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114317125","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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