Beiqi Lin, Chelsea Liu, Kelvin Jui Keng Tan, Qing Zhou
This thesis examines the relationship between CEO turnover and bankrupt firm emergence using 836 bankruptcy cases under Chapter 11 of the U.S. Bankruptcy Code from 1989 to 2016. To resolve the intensified information asymmetry during bankruptcy proceedings, we hypothesise that CEO turnover could be used by high-quality firms as a positive signal to the market to indicate good fundamentals and a higher likelihood of emergence. We provide strong evidence that CEO turnover can positively predict bankrupt firm emergence. We further show that the positive effect of CEO turnover on firm emergence is further amplified in more intensified information asymmetry types of bankruptcy proceedings such as free falls, in which there was no prior negotiation between creditors and the firm. We also show that the use of a CEO turnover strategy is costly in the sense of a longer emergence duration, which is consistent with our expectation that this costly signal is effective to decouple high-quality firms from low-quality firms. However, our claim of CEO turnover as a voluntary/strategic signalling tool can also be explained by an alternative explanation, namely, the improved management theory. This theory argues that low-quality firms may replace their incompetent CEOs to pursue better management, which improves the likelihood of firm emergence. Nevertheless, using a negative exogenous shock sample during the Global Financial Crisis, our claim appears to hold, as good-fundamental firms utilise CEO turnover as a strategic signal more frequently than bad-fundamental firms do. Our results are consistent with the scapegoat theory, which states that CEO dismissal is the result of a strategic signal sent by the board rather than an indication of a CEO’s incompetence, causing such a CEO to be viewed as a scapegoat. Finally, our results are robust to the Global Financial Crisis and other alternative specifications.
{"title":"CEO Turnover and Bankrupt Firms’ Emergence","authors":"Beiqi Lin, Chelsea Liu, Kelvin Jui Keng Tan, Qing Zhou","doi":"10.1111/jbfa.12482","DOIUrl":"https://doi.org/10.1111/jbfa.12482","url":null,"abstract":"This thesis examines the relationship between CEO turnover and bankrupt firm emergence using 836 bankruptcy cases under Chapter 11 of the U.S. Bankruptcy Code from 1989 to 2016. To resolve the intensified information asymmetry during bankruptcy proceedings, we hypothesise that CEO turnover could be used by high-quality firms as a positive signal to the market to indicate good fundamentals and a higher likelihood of emergence. We provide strong evidence that CEO turnover can positively predict bankrupt firm emergence. We further show that the positive effect of CEO turnover on firm emergence is further amplified in more intensified information asymmetry types of bankruptcy proceedings such as free falls, in which there was no prior negotiation between creditors and the firm. We also show that the use of a CEO turnover strategy is costly in the sense of a longer emergence duration, which is consistent with our expectation that this costly signal is effective to decouple high-quality firms from low-quality firms. However, our claim of CEO turnover as a voluntary/strategic signalling tool can also be explained by an alternative explanation, namely, the improved management theory. This theory argues that low-quality firms may replace their incompetent CEOs to pursue better management, which improves the likelihood of firm emergence. Nevertheless, using a negative exogenous shock sample during the Global Financial Crisis, our claim appears to hold, as good-fundamental firms utilise CEO turnover as a strategic signal more frequently than bad-fundamental firms do. Our results are consistent with the scapegoat theory, which states that CEO dismissal is the result of a strategic signal sent by the board rather than an indication of a CEO’s incompetence, causing such a CEO to be viewed as a scapegoat. Finally, our results are robust to the Global Financial Crisis and other alternative specifications.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"144 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128266917","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}
In a dynamic environment, companies are required to adapt. The way for companies to stay competitive in industrial competition is to make strategies. Previous research has shown that strategic renewal can provide long-term success for corporate organizations (Agarwal & Helfat, 2009). Renewal enables companies to stay ahead of their competitors and gaining competitive advantage that leads to superior performance (Lieberman & Montgomery, 1988). In making strategic renewal, organizations need to develop learning orientations, ambidexterity competencies, sustainable innovation capabilities, and the presence of transformational leaders. The improvement of these four factors is expected to improve company performance, especially in a perfect market such as the banking industry. We tried to find the conclusion of the paper using the literature review method.
{"title":"The Impact of Strategic Renewal in Banking Industry Performance","authors":"Gilang Wijaya Kusuma, L. Sudhartio","doi":"10.2139/ssrn.3623905","DOIUrl":"https://doi.org/10.2139/ssrn.3623905","url":null,"abstract":"In a dynamic environment, companies are required to adapt. The way for companies to stay competitive in industrial competition is to make strategies. Previous research has shown that strategic renewal can provide long-term success for corporate organizations (Agarwal & Helfat, 2009). Renewal enables companies to stay ahead of their competitors and gaining competitive advantage that leads to superior performance (Lieberman & Montgomery, 1988). In making strategic renewal, organizations need to develop learning orientations, ambidexterity competencies, sustainable innovation capabilities, and the presence of transformational leaders. The improvement of these four factors is expected to improve company performance, especially in a perfect market such as the banking industry. We tried to find the conclusion of the paper using the literature review method.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134317210","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}
Prior literature documents that acquirers earn declining returns to acquisitions as they continue acquiring. Using a novel typology of serial acquirers, we show that subsequent acquisitions by acquirers are predictable ex ante. Controlling for market anticipation, there is little evidence that acquirers earn declining returns in their acquisitions sequence. We also find strong evidence of persistence in performance in acquirers, both for prior winners and prior losers. However persistent winners are not frequent acquirers. Persistent losers appear to be overvalued at the time of the acquisition and pay with overvalued stock, leaving them better off than if they had never acquired. Our methodology significantly enhances our understanding of acquisition dynamics compared to previous studies.
{"title":"Anticipating Acquirers","authors":"Antonio J. Macias, P. Rau, Aris Stouraitis","doi":"10.2139/ssrn.3526572","DOIUrl":"https://doi.org/10.2139/ssrn.3526572","url":null,"abstract":"Prior literature documents that acquirers earn declining returns to acquisitions as they continue acquiring. Using a novel typology of serial acquirers, we show that subsequent acquisitions by acquirers are predictable ex ante. Controlling for market anticipation, there is little evidence that acquirers earn declining returns in their acquisitions sequence. We also find strong evidence of persistence in performance in acquirers, both for prior winners and prior losers. However persistent winners are not frequent acquirers. Persistent losers appear to be overvalued at the time of the acquisition and pay with overvalued stock, leaving them better off than if they had never acquired. Our methodology significantly enhances our understanding of acquisition dynamics compared to previous studies.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133680739","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}
Yiwei Fang, Franco Fiordelisi, I. Hasan, Woon Sau Leung, Gabriel Wong
We score 10-K text to measure company culture in four dimensions (collaborative, controlling, competitive, and creative). Investigating culture’s role in stability, firms with higher controlling culture fared significantly better during the 2008-09 crisis. The results are robust to alternative crisis episodes and further endogeneity tests. Such positive effect is more evident during bad than normal times. Due to persistence, culture measured up to 10 years prior still predicts returns during the crisis. Finally, firms with stronger controlling culture experienced fewer layoffs, smaller investment cuts, and greater debt issuance. Overall, the controlling culture improves firm stability through reduced capital constraints.
{"title":"Corporate Culture and Firm Value: Evidence from Crisis","authors":"Yiwei Fang, Franco Fiordelisi, I. Hasan, Woon Sau Leung, Gabriel Wong","doi":"10.2139/ssrn.3623400","DOIUrl":"https://doi.org/10.2139/ssrn.3623400","url":null,"abstract":"We score 10-K text to measure company culture in four dimensions (collaborative, controlling, competitive, and creative). Investigating culture’s role in stability, firms with higher controlling culture fared significantly better during the 2008-09 crisis. The results are robust to alternative crisis episodes and further endogeneity tests. Such positive effect is more evident during bad than normal times. Due to persistence, culture measured up to 10 years prior still predicts returns during the crisis. Finally, firms with stronger controlling culture experienced fewer layoffs, smaller investment cuts, and greater debt issuance. Overall, the controlling culture improves firm stability through reduced capital constraints.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125789457","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 effects of board diversity on corporate cost of equity (CoE). Using a composite index for diversity, we find that greater diversity leads to lower CoE. In further analysis, we report that this association is more prominent when the firm is experiencing lower internal (or external) monitoring or facing higher agency issues or suffering from greater financial constraints. Our results are robust to, e.g. propensity score matching; instrumental variable approach; use of alternate measures of CoE; use of additional (possibly influential omitted) variables, and various other sensitivity and endogeneity tests.
{"title":"Board Diversity and Cost of Equity (CoE)","authors":"A. Hossain, L. Kryzanowski","doi":"10.2139/ssrn.3627645","DOIUrl":"https://doi.org/10.2139/ssrn.3627645","url":null,"abstract":"We examine the effects of board diversity on corporate cost of equity (CoE). Using a composite index for diversity, we find that greater diversity leads to lower CoE. In further analysis, we report that this association is more prominent when the firm is experiencing lower internal (or external) monitoring or facing higher agency issues or suffering from greater financial constraints. Our results are robust to, e.g. propensity score matching; instrumental variable approach; use of alternate measures of CoE; use of additional (possibly influential omitted) variables, and various other sensitivity and endogeneity tests.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"74 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121606287","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 grand challenges that humanity faces—poverty, inequality, hunger, conflict, climate change, deforestation, and pandemics, among others—hinder the progress of sustainable development. These issu...
{"title":"Corporate Governance for Responsible Innovation: Approaches to Corporate Governance and Their Implications for Sustainable Development","authors":"A. Scherer, Christian Voegtlin","doi":"10.5465/AMP.2017.0175","DOIUrl":"https://doi.org/10.5465/AMP.2017.0175","url":null,"abstract":"The grand challenges that humanity faces—poverty, inequality, hunger, conflict, climate change, deforestation, and pandemics, among others—hinder the progress of sustainable development. These issu...","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122168780","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 divergence of environmental, social, and governance (ESG) ratings. Based on data from six prominent rating agencies - namely, KLD (MSCI Stats), Sustainalytics, Vigeo Eiris (Moody's), RobecoSAM (SP Global), Asset4 (Refinitiv), and MSCI IVA- we decompose the divergence into three sources: different scope of categories, different measurement of categories, and different weights of categories. We find that scope and measurement divergence are the main drivers, while weights divergence is less important. In addition, we detect a rater effect where a rater's overall view of a firm influences the assessment of specific categories.
{"title":"Aggregate Confusion: The Divergence of ESG Ratings","authors":"Florian Berg, Julian F. Kölbel, R. Rigobón","doi":"10.2139/ssrn.3438533","DOIUrl":"https://doi.org/10.2139/ssrn.3438533","url":null,"abstract":"This paper investigates the divergence of environmental, social, and governance (ESG) ratings. Based on data from six prominent rating agencies - namely, KLD (MSCI Stats), Sustainalytics, Vigeo Eiris (Moody's), RobecoSAM (SP Global), Asset4 (Refinitiv), and MSCI IVA- we decompose the divergence into three sources: different scope of categories, different measurement of categories, and different weights of categories. We find that scope and measurement divergence are the main drivers, while weights divergence is less important. In addition, we detect a rater effect where a rater's overall view of a firm influences the assessment of specific categories.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"280 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114385152","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}
Boards are working harder over time, but are they working better? Using text-based algorithms to construct a dataset with over 30,000 firm-year observations from 1996 to 2010, we document that the governance reforms of the early 2000s may have had unintended consequences. While readily observable board characteristics have not changed much over time, boards have increasingly delegated responsibilities to committees, staffed by independent directors. We find evidence that this delegation may have erected barriers to communication and elective board decision-making. Investors discount the informativeness of the personal stock purchases for independent directors who are active committee members; returns to firms announcing an acquisition decrease as board delegation increases. Reform-induced delegation does not appear to be value-enhancing; a conservative estimate suggests that Tobin’s q of the typical firm in the sample decreases by 1.7% after the reforms. Board committees are relatively understudied, but our results suggest that ignoring them leads to a very incomplete picture of board governance.
{"title":"Death by Committee? An Analysis of Corporate Board (Sub-) Committees","authors":"Renée B. Adams, V. Ragunathan, Robert Tumarkin","doi":"10.2139/ssrn.2736027","DOIUrl":"https://doi.org/10.2139/ssrn.2736027","url":null,"abstract":"Boards are working harder over time, but are they working better? Using text-based algorithms to construct a dataset with over 30,000 firm-year observations from 1996 to 2010, we document that the governance reforms of the early 2000s may have had unintended consequences. While readily observable board characteristics have not changed much over time, boards have increasingly delegated responsibilities to committees, staffed by independent directors. We find evidence that this delegation may have erected barriers to communication and elective board decision-making. Investors discount the informativeness of the personal stock purchases for independent directors who are active committee members; returns to firms announcing an acquisition decrease as board delegation increases. Reform-induced delegation does not appear to be value-enhancing; a conservative estimate suggests that Tobin’s q of the typical firm in the sample decreases by 1.7% after the reforms. Board committees are relatively understudied, but our results suggest that ignoring them leads to a very incomplete picture of board governance.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"92 4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126030247","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 how boards' reputational concerns influence executive compensation and the use of hidden pay. Independent boards reduce disclosed pay to signal their independence, but are more likely than manager-friendly boards to use hidden pay or to distort incentive contracts. Stronger reputational pressures lead to lower disclosed pay, weaker managerial incentives, and higher hidden pay, whereas greater transparency of executive compensation has the opposite effects. Although reputational concerns can induce boards to choose compensation contracts more favorable to shareholders, we show there is a threshold beyond which stronger reputational concerns harm shareholders. Similarly, excessive pay transparency can harm shareholders.
{"title":"Public Thrift, Private Perks: Signaling Board Independence with Executive Pay","authors":"Pablo Ruiz-Verdú, Ravi Singh","doi":"10.2139/ssrn.3654004","DOIUrl":"https://doi.org/10.2139/ssrn.3654004","url":null,"abstract":"We analyze how boards' reputational concerns influence executive compensation and the use of hidden pay. Independent boards reduce disclosed pay to signal their independence, but are more likely than manager-friendly boards to use hidden pay or to distort incentive contracts. Stronger reputational pressures lead to lower disclosed pay, weaker managerial incentives, and higher hidden pay, whereas greater transparency of executive compensation has the opposite effects. Although reputational concerns can induce boards to choose compensation contracts more favorable to shareholders, we show there is a threshold beyond which stronger reputational concerns harm shareholders. Similarly, excessive pay transparency can harm shareholders.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132582170","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 studies the impact of bureaucratic checks on firm value using the revision of the regulations on disciplinary actions of the Communist Party of China (CPC) in 2015 as a natural experiment. We document a positive and substantial market reaction following this unexpected policy change that tightens and formalizes the constraints on bureaucrats’ misconduct. The impact is less pronounced for firms with state controlling shareholders or state ownership, firms having CEOs or directors with CPC memberships, and these operate in regions with better institutional quality. The subsequent revision in 2018 that emphasized political obedience is not associated with positive market reactions. Our results have policy implications for the design of the incentive structure within bureaucratic organizations.
{"title":"Do Bureaucratic Checks Improve Firm Value? Evidence from a Natural Experiment","authors":"Jiafu An, Seth Armitage, W. Hou, Xianda Liu","doi":"10.2139/ssrn.3588383","DOIUrl":"https://doi.org/10.2139/ssrn.3588383","url":null,"abstract":"This paper studies the impact of bureaucratic checks on firm value using the revision of the regulations on disciplinary actions of the Communist Party of China (CPC) in 2015 as a natural experiment. We document a positive and substantial market reaction following this unexpected policy change that tightens and formalizes the constraints on bureaucrats’ misconduct. The impact is less pronounced for firms with state controlling shareholders or state ownership, firms having CEOs or directors with CPC memberships, and these operate in regions with better institutional quality. The subsequent revision in 2018 that emphasized political obedience is not associated with positive market reactions. Our results have policy implications for the design of the incentive structure within bureaucratic organizations. <br>","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116442461","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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