We examine the determinants of the size and composition of corporate boards for a sample of 82 US companies that survived during the period 1935-2000. Our hypotheses lead to predictions that firm ...size, growth opportunities, merger activity, and geographical expansion are important determinants of these board characteristics. We find empirical evidence that the four variables are significant determinants of the size and/or composition of boards. After controlling for these determinants of board characteristics, we find no robust relation between firm performance and either board size or composition.
Sarbanes-Oxley and corporate risk-taking Bargeron, Leonce L.; Lehn, Kenneth M.; Zutter, Chad J.
Journal of accounting & economics,
02/2010, Letnik:
49, Številka:
1
Journal Article
Recenzirano
We empirically examine whether risk-taking by publicly traded US companies declined significantly after adoption of the Sarbanes-Oxley Act of 2002 (SOX). Several provisions of SOX are likely to ...discourage risk-taking, including an expanded role for independent directors, an increase in director and officer liability, and rules related to internal controls. We find several measures of risk-taking decline significantly for US versus non-US firms after SOX. The magnitudes of the declines are related to several firm characteristics, including pre-SOX board structure, firm size, and R&D expenditures. The evidence is consistent with the proposition that SOX discourages risk-taking by public US companies.
We examine the relation between bidder returns and the probability of chief executive officer (CEO) turnover in acquiring firms. Using a sample of 714 acquisitions during 1990 to 1998, we find that ...47% of CEOs of acquiring firms are replaced within 5 years, including 27% by internal governance, 16% by takeovers, and 4% by bankruptcy. A significant inverse relation exists between bidder returns and the likelihood of CEO turnover. This relation is not associated with governance structure. It also is not significantly different in stock versus cash acquisitions, which appears to be inconsistent with Shleifer and Vishny's theory of "stock market driven" acquisitions.
This paper suggests the topic of corporate agility as a fruitful area for corporate governance research. Corporate agility, which refers to a firms ability to adapt to changes in its environment, is ...likely to be a critical, yet understudied, determinant of firm performance and survival. This paper proposes an inverse relation between the centralization of decision-making in firms and agility. It also proposes that certain governance structures often viewed as increasing agency costs, such as insider-controlled boards and dual class stock, may actually increase agility and thereby improve firm performance and the chances of survival. The paper concludes with a discussion of specific ways in which agility might be incorporated into the corporate governance literature.
•The topic of corporate agility is a fruitful area for corporate governance research.•Corporate agility refers to a firm's ability to adapt to changes in its environment.•Corporate agility is likely to be inversely related with centralization of decision-making.•Governance structures involve a tradeoff - mitigating agency costs v. promoting agility.•For example, more outside directors might mitigate agency costs but hinder agility.
Most corporate research has focused on (i) dimensions of governance that are relatively easy to measure (e.g., ownership structure, boards of directors, and executive compensation) and (ii) the role ...that governance arrangements play in mitigating agency costs. This paper takes an evolutionary perspective to corporate governance in which the concept of corporate agility, i.e., the ease with which firms adapt to changes in their respective environments, plays a prominent role. I argue that decentralization, which is understudied in the literature, promotes agility and predict that it is directly related to corporate performance and survival during periods of rapidly changing environments. The paper also discusses how some governance features that often are viewed through the lens of either mitigating or exacerbating agency costs are cast in a different light when their effects on corporate agility are considered.
Deregulation provides a natural experiment for examining how governance adapts to structural changes in the business environment. We investigate the evolution of governance structure, characterized ...by ownership concentration, compensation policy, and board composition, in the U.S. airline industry during a 22-year period surrounding the Airline Deregulation Act of 1978. Consistent with theory, we find that after deregulation (i)
equity ownership is more concentrated, (ii)
CEO pay increases, (iii)
stock option grants to CEOs increase, and (iv)
board size decreases. Airlines’ governance structures gravitate toward the system of governance mechanisms used by unregulated firms. The adaptation process is gradual, however, suggesting that it is costly to alter organizational capital. We also present evidence on the relation between governance structure and firm survival.
In the period surrounding World War I, US firms sharply increased investment in fixed assets and working capital to accommodate large increases in demand associated with the war. Concurrently, the US ...adopted an excess profits tax, which created a tax bias in favor of equity financing. Despite this tax bias, firms in need of external funds largely issued debt, not equity, to finance investment spikes when the excess profits tax was in effect. Further, we find these firms systematically reduced debt after the war, whereas other firms did not. The results support models that link the dynamics of firms’ financing decisions with the dynamics of their investment opportunities and are inconsistent with models that emphasize taxes as a primary determinant of financing decisions.
In 1931, California became the last U.S. state to adopt limited liability. Prior to that, from its inception as a state in 1849, stockholders of California corporations faced pro rata unlimited ...liability. California's unique liability rule during 1849–1931 provides a natural experiment for testing Woodward's (1985) and Alchian and Woodward's (1987, 1988) hypothesis that limited liability reduces transaction costs and facilitates the transferability of shares. Using a small sample of publicly traded California firms and a corresponding sample of benchmark companies, we find that trading volume and share turnover were significantly lower for California firms when California had unlimited liability. After California adopted limited liability, trading volume and share turnover increased significantly for California firms relative to non-California firms. In addition, bid–ask spreads were significantly higher for California firms during the period of unlimited liability and they declined for California firms relative to non-California firms after California adopted limited liability. The results support Alchian and Woodward's hypothesis that limited liability reduces transaction costs and promotes the transferability of shares.
•We find evidence that limited liability reduces transaction costs.•We find evidence that limited liability facilitates shares transferability.•Trading volume for Cal. firms increased after Cal. adopted limited liability.•Bid–ask spreads for Cal. firms narrowed after Cal. adopted limited liability.
Employee–management trust and M&A activity Bargeron, Leonce; Lehn, Kenneth; Smith, Jared
Journal of corporate finance (Amsterdam, Netherlands),
12/2015, Letnik:
35
Journal Article
Recenzirano
We examine the relation between the trust that employees have in management and the M&A activity of firms. We measure this trust by using rankings compiled by the Great Place to Work Institute (GPWI) ...from 1998 to 2011. Although the volume of M&A activity is not significantly different for firms with strong cultures of trust (“SCT firms”) versus other firms, the relative size of acquisitions announced by SCT firms is significantly smaller than the size of acquisitions announced by other firms. Furthermore, when SCT firms announce relatively large acquisitions, bidder returns and the percent change in the combined values of bidders and targets are lower than the corresponding returns for other firms. Finally, when SCT firms make large acquisitions, they are significantly more likely to suffer a loss in their GPWI ranking as compared with other SCT firms. Overall, the results are consistent with the conclusion that the M&A policies of firms are influenced by a culture of trust between employees and management.
•Firms with cultures of trust (“SCT firms”) announce relatively small acquisitions.•Bidder returns are lower for large acquisitions made by SCT firms than other firms.•The culture of SCT firms generally suffers after they make large acquisitions.
Some of the forces that influence the structure of corporate ownership are explored. Ownership data show that the concentration of equity ownership in US corporations varies widely. An attempt is ...made to explain these variations in terms of the advantages and disadvantages to the firm's shareholders of greater diffuseness in ownership structure. It is contended that the structure of corporate ownership varies with value maximization. Variables that are empirically significant in explaining the variation in ownership structure for the 511 US corporations examined include: 1. firm size, 2. instability of profit rate, 3. whether or not the firm is a regulated utility or financial institution, and 4. whether or not the firm is in the mass media or sports industry. The Berle-Means (1933) thesis implying that diffuse ownership structures adversely affect corporate performance is called into question; no significant relationship is found between ownership concentration and accounting profit rates.
