I survey corporate governance activity by institutional investors in the United States, and the empirical evidence on whether this activity affects firm performance. A small number of American institutional investors, mostly public pension plans, spend a trivial amount of money on overt activism efforts. They don't conduct proxy fights, and don't try to elect their own candidates to the board of directors. Legal rules, agency costs within the institutions, information costs, collective action problems, and limited institutional competence are all plausible partial explanations for this relative lack of activity. 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.
{"title":"Shareholder Activism and Corporate Governance in the United States","authors":"Bernard Black","doi":"10.2139/ssrn.45100","DOIUrl":"https://doi.org/10.2139/ssrn.45100","url":null,"abstract":"I survey corporate governance activity by institutional investors in the United States, and the empirical evidence on whether this activity affects firm performance. A small number of American institutional investors, mostly public pension plans, spend a trivial amount of money on overt activism efforts. They don't conduct proxy fights, and don't try to elect their own candidates to the board of directors. Legal rules, agency costs within the institutions, information costs, collective action problems, and limited institutional competence are all plausible partial explanations for this relative lack of activity. 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.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"58 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1997-12-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80447831","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}
Recent research suggests that implicit incentive contracts may be based on performance measures that are observable only to the contracting parties. We derive and test implications of this insight for the relationship between executive compensation and firm performance. If corporate boards optimally use both observable and unobservable (to outsiders) measures of executive performance and the unobservable measures are correlated with future firm performance, then unexplained variation in current compensation should predict future variation in firm performance. Further, compensation should be more positively associated with future performance when observable measures are less useful for contracting. Our results are consistent with these hypotheses.
{"title":"Implicit Contracts and the Explanatory Power of Top Executive Compensation for Future Performance","authors":"Rachel M. Hayes, Scott Schaefer","doi":"10.2139/ssrn.60870","DOIUrl":"https://doi.org/10.2139/ssrn.60870","url":null,"abstract":"Recent research suggests that implicit incentive contracts may be based on performance measures that are observable only to the contracting parties. We derive and test implications of this insight for the relationship between executive compensation and firm performance. If corporate boards optimally use both observable and unobservable (to outsiders) measures of executive performance and the unobservable measures are correlated with future firm performance, then unexplained variation in current compensation should predict future variation in firm performance. Further, compensation should be more positively associated with future performance when observable measures are less useful for contracting. Our results are consistent with these hypotheses.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"1 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1997-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87950095","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 public lands exhibit many of the characteristics of a commons--overuse and charges set well below market rates. This mismanagement has been noted and criticized within government for many years, without significant actions to cure the problem. This failure is attributed to both interest group pressures and agency costs, with government officials not accountable to any owner. Privatization through disposition of these lands to stock corporations created for the purpose is explored. Corporations solve interest group problems by holding managers accountable to a single group of owners, shareholders, while dealing with other constituencies through markets and contracting at prices calculated to maximize profits. Similarly, corporations deal with agency costs through a variety of incentives and the market for corporate control. It is shown how privatizing ownership of public lands in this manner serves conservation and recreation goals by providing incentives to unbundle claims on the public lands to allow bidding by all user groups (including conservationists) who value particular aspects of these resources.
{"title":"From Stakeholders to Stockholders: A View from Organizational Theory","authors":"W. Carney","doi":"10.2139/ssrn.37366","DOIUrl":"https://doi.org/10.2139/ssrn.37366","url":null,"abstract":"The public lands exhibit many of the characteristics of a commons--overuse and charges set well below market rates. This mismanagement has been noted and criticized within government for many years, without significant actions to cure the problem. This failure is attributed to both interest group pressures and agency costs, with government officials not accountable to any owner. Privatization through disposition of these lands to stock corporations created for the purpose is explored. Corporations solve interest group problems by holding managers accountable to a single group of owners, shareholders, while dealing with other constituencies through markets and contracting at prices calculated to maximize profits. Similarly, corporations deal with agency costs through a variety of incentives and the market for corporate control. It is shown how privatizing ownership of public lands in this manner serves conservation and recreation goals by providing incentives to unbundle claims on the public lands to allow bidding by all user groups (including conservationists) who value particular aspects of these resources.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"24 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1997-09-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88869948","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}
R. La Porta, Florencio López de Silanes, Andrei Shleifer, Robert W. Vishny
Several authors suggest that trust is an important determinant of cooperation between strangers in a society, and therefore of performance of social institutions. We argue that trust should be particularly important for the performance of large organizations. In a cross-section of countries, evidence on government performance, participation in civic and professional societies, importance of large firms, and the performance of social institutions more generally supports this hypothesis. Moreover, trust is lower in countries with dominant hierarchical religions, which may have deterred networks of cooperation trust hold up remarkably well on a cross-section of countries.
{"title":"Trust in Large Organizations","authors":"R. La Porta, Florencio López de Silanes, Andrei Shleifer, Robert W. Vishny","doi":"10.3386/W5864","DOIUrl":"https://doi.org/10.3386/W5864","url":null,"abstract":"Several authors suggest that trust is an important determinant of cooperation between strangers in a society, and therefore of performance of social institutions. We argue that trust should be particularly important for the performance of large organizations. In a cross-section of countries, evidence on government performance, participation in civic and professional societies, importance of large firms, and the performance of social institutions more generally supports this hypothesis. Moreover, trust is lower in countries with dominant hierarchical religions, which may have deterred networks of cooperation trust hold up remarkably well on a cross-section of countries.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"22 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1996-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75250527","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 provide evidence on the incidence and effectiveness of shareholder monitoring by examining shareholder proposals to rescind poison pills. Our research indicates that shareholders present resolutions when they are more likely to increase the value of the firm. We find that pill rescission proposals are submitted more frequently when firm performance has been poor, when the initial market reaction to the adoption of the pill is negative, and when insider and block ownership of stock is low. In addition, pill rescission proposals receive more support when performance is poor and when the pill has characteristics that increase its potential for misuse by management. Unlike some previous studies, we find evidence that shareholder monitoring is effective. Poison pills are more likely to be restructured or rescinded when there is a shareholder resolution concerning the pill. In addition, once a pill rescission proposal is presented, the firm is more likely to restructure or rescind the poison pill if the initial market reaction to the pill adoption was negative and if the proposal was submitted by a pension fund. Overall, our results support the idea that shareholder proposals, despite the fact that they are non-binding, can be an effective mechanism in managerial oversight and an important component of the governance process of the firm.
{"title":"Shareholder Proposals to Rescind Poison Pills: All Bark and No Bite?","authors":"Christopher J. Marquette, John M. Bizjak","doi":"10.2139/ssrn.1352","DOIUrl":"https://doi.org/10.2139/ssrn.1352","url":null,"abstract":"We provide evidence on the incidence and effectiveness of shareholder monitoring by examining shareholder proposals to rescind poison pills. Our research indicates that shareholders present resolutions when they are more likely to increase the value of the firm. We find that pill rescission proposals are submitted more frequently when firm performance has been poor, when the initial market reaction to the adoption of the pill is negative, and when insider and block ownership of stock is low. In addition, pill rescission proposals receive more support when performance is poor and when the pill has characteristics that increase its potential for misuse by management. Unlike some previous studies, we find evidence that shareholder monitoring is effective. Poison pills are more likely to be restructured or rescinded when there is a shareholder resolution concerning the pill. In addition, once a pill rescission proposal is presented, the firm is more likely to restructure or rescind the poison pill if the initial market reaction to the pill adoption was negative and if the proposal was submitted by a pension fund. Overall, our results support the idea that shareholder proposals, despite the fact that they are non-binding, can be an effective mechanism in managerial oversight and an important component of the governance process of the firm.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"39 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1996-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88173146","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}
Governments and vocal institutional shareholders have been exerting pressure on companies they deem to have objectionable operations (such as tobacco or chemical producers). This paper studies the effect of the most important legislative and shareholder boycott to date, the boycott of the South Africa's apartheid regime. We find that the announcement of legislative/shareholder pressure of voluntary divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested. In sum, despite the public significance of the boycott and the multitude of divesting companies, financial markets seem to have perceived the boycott to be merely a "sideshow."
{"title":"The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott","authors":"S. Teoh, I. Welch, C. P. Wazzan","doi":"10.2139/ssrn.10203","DOIUrl":"https://doi.org/10.2139/ssrn.10203","url":null,"abstract":"Governments and vocal institutional shareholders have been exerting pressure on companies they deem to have objectionable operations (such as tobacco or chemical producers). This paper studies the effect of the most important legislative and shareholder boycott to date, the boycott of the South Africa's apartheid regime. We find that the announcement of legislative/shareholder pressure of voluntary divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested. In sum, despite the public significance of the boycott and the multitude of divesting companies, financial markets seem to have perceived the boycott to be merely a \"sideshow.\"","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"24 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1995-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89262844","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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