Derivative financial instrument use in Australia

This paper examines the relation between derivatives use and financial characteristics of Australian industrial and mining firms. The firm characteristics proxy for financial distress, tax losses, managerial ownership, growth opportunities, the ability to generate operating cash flows and liquidity. We also control for firm size, dividends and exposure to foreign exchange risk. The results show that firm size and leverage are the main explanatory variables for derivative use for both industrial and mining firms     

MANAGERIAL OWNERSHIP,TAKEOVER DEFENSES,AND DEBT FINANCING

We examine the effect of agency conflicts on debt financing and show that managerial ownership and its interaction with takeover defenses affect these decisions. We find that (1) the relation between leverage and takeover defenses becomes insignificant when we control for the interaction of these defenses with managerial ownership, and (2) firms with large managerial ownership operate at high debt levels unless they have a large number of takeover defenses. Therefore, a two‐dimensional aspect of governance that includes the interaction between managerial ownership and takeover defenses is useful in understanding the effect of agency conflicts on firms' debt financing decisions.     

Forecasting Emerging Market Exchange Rates from Foreign Equity Options

The use of derivatives to infer future exchange rates has long been a subject of interest in the international finance literature. With the recent currency crises in Mexico, Southeast Asia, and Brazil, work on exchange rate expectations in emerging markets is of particular interest. For some emerging markets, foreign equity options are the only liquid exchange‐traded derivatives with currency information embedded in their prices. Given that emerging markets sometimes undergo currency realignment with discrete jumps in their exchange rate, estimation of risk‐neutral probability density functions from foreign equity option data provides valuable evidence concerning market expectations. To illustrate the use of foreign equity options in estimating market beliefs, we consider Telmex options around the 1994 peso devaluation and find evidence that markets anticipated the change in the Mexican government's foreign exchange policy.     

Managerial ownership and the disposition effect

This paper examines the relationship between mutual fund managers’ ownership and the disposition effect. Using recently disclosed managerial ownership data required by new SEC rules, we document that a significant number of mutual funds exhibit the disposition effect. Funds with managerial ownership exhibit significantly less disposition effect than those without, and the disposition measure decreases with managers’ percentage ownership. We also find that the disposition effect is negatively related to the degree of board independence and fund performance. Our findings suggest that the disposition effect is significantly affected by fund governance and higher managerial ownership may help mitigate the problem.     

Managerial ownership dynamics and firm value

From 1988 to 2003, the average change in managerial ownership is significantly negative every year for American firms. We find that managers are more likely to significantly decrease their ownership when their firms are performing well and more likely to increase their ownership when their firms become financially constrained. When controlling for past stock returns, we find that large increases in managerial ownership increase Tobin's q. This result is driven by increases in shares held by officers, while increases in shares held by directors appear unrelated to changes in firm value. There is no evidence that large decreases in ownership have an adverse impact on firm value. We rely on the dynamics of the managerial ownership/firm value relation to mitigate concerns in the literature about the endogeneity of managerial ownership.     

公司治理、管理者动机与衍生金融工具使用

基于中国上市公司2007~2013年财务数据,研究公司治理对管理者使用衍生金融工具的影响,并结合中国制度背景,深入分析和检验企业产权、政策监管对公司治理效应的影响。实证结果表明,公司治理对管理者使用衍生金融工具的动机存在重要影响,公司治理水平越高,管理者越倾向于利用衍生金融工具避免财务困境风险;相反,管理者越倾向于利用衍生金融工具规避薪酬风险。研究还发现,公司治理的作用机制会受到所有权性质的影响,国有控制属性会弱化公司治理效应,对衍生金融工具交易的政策监管差异是重要原因。     

Impact of managerial ownership on investment and liquidity constraints: Evidence from Chinese listed companies

We examine the impact of managerial ownership on investment and financial constraints in the context of China. Using the system generalized method of moments estimation of an investment Euler equation, we find that investment decisions are related to managerial ownership in two ways. First, managerial ownership exerts a positive direct effect on corporate investment decisions by aligning management’s incentives with the interests of shareholders. Second, managerial ownership helps to reduce the degree of financial constraints faced by firms, suggesting that managerial ownership acts as a form of credible guarantee to lenders, signaling the quality of investment projects to the capital markets. Our findings suggest that recent policies enacted by the Chinese government, aimed at reforming ownership structure and encouraging managerial ownership in listed firms, help reduce agency costs and asymmetric information; thereby facilitating firms’ investment efficiency. Our findings will be of interest to scholars, practitioners, and policy makers interested in the financial impacts of management-compensation contracts.     

Portfolio manager ownership and fund performance

This paper documents the range of portfolio manager ownership in the funds they manage and examines whether higher ownership is associated with improved future performance. Almost half of all managers have ownership stakes in their funds, though the absolute investment is modest. Future risk-adjusted performance is positively related to managerial ownership, with performance improving by about 3 basis points for each basis point of managerial ownership. These findings persist after controlling for various measures of fund board effectiveness. Fund manager ownership is higher in funds with better past performance, lower front-end loads, smaller size, longer managerial tenure, and funds affiliated with smaller families. It is also higher in funds with higher board member compensation and in equity funds relative to bond funds. Future performance is positively related to the component of ownership that can be predicted by other variables, as well as the unpredictable component. Our findings support the notion that managerial ownership has desirable incentive alignment attributes for mutual fund investors and indicate that the disclosure of this information is useful in making portfolio allocation decisions.     

Corporate performance, managerial ownership and endogeneity: A simultaneous equations analysis for the Athens stock exchange

This paper investigates the relationship between managerial ownership and firm performance by considering the endogenous nature of the ownership variables. We conducted our analysis by applying a simultaneous equations framework. We empirically controlled the direction and significance of this relationship, using a panel comprised of 146 firms quoted on the Athens Stock Exchange between 2000 and 2004. The main findings of our analysis indicated that when managerial ownership is treated as endogenous, there is a positive impact on corporate value. Given the particularly high degree of managerial ownership that is observed in the firms listed in the Athens Stock Exchange, we argue that the estimated positive relationship can be mainly explained by the existing high levels of managerial ownership.     

Managerial ownership and firm performance: Evidence from China's privatizations

We examine the relationship between managerial ownership and firm performance for a sample of Chinese State-owned enterprises (SOEs) privatized over the period 1992-2000. The results indicate that managerial ownership has a positive effect on firm performance. Although return on assets (ROA) and return on sales (ROS) decline post-privatization, firms with high managerial ownership and, specially, high CEO ownership, exhibit a smaller performance decline. The difference is highly significant, with or without controlling for residual state ownership and changes in the firm's operating environment. We also find that the influence on firm performance becomes less significant at higher levels of CEO ownership. In contrast, performance continues to increase with managerial ownership. This finding suggests that, beyond a certain point, the distribution of shares would be more effective if extended to the whole management team instead of being limited to the chief executive.     

Foreign Currency Derivatives versus Foreign Currency Debt and the Hedging Premium

This paper compares the effect on firm value of different foreign currency (FC) financial hedging strategies identified by type of exposure (short‐ or long‐term) and type of instrument (forwards, options, swaps and foreign currency debt). We find that hedging instruments depend on the type of exposure. Short‐term instruments such as FC forwards and/or options are used to hedge short‐term exposure generated from export activity while FC debt and FC swaps into foreign currency (but not into domestic currency) are used to hedge long‐term exposure arising from assets located in foreign locations. Our results relating to the value effects of foreign currency hedging indicate that foreign currency derivatives use increases firm value but there is no hedging premium associated with foreign currency debt hedging, except when combined with foreign currency derivatives. Taken individually, FC swaps generate more value than short‐term derivatives.     

Deviations from optimal CEO ownership and firm value

The transaction cost theory of managerial ownership and firm value predicts that deviations from optimal managerial ownership reduce firm value. This paper empirically tests the transaction cost theory by studying the relation between deviations on either side of optimal CEO ownership and firm value. We find that both above-optimal and below-optimal deviations reduce firm value. We find that a change in CEO ownership is associated with a higher (lower) abnormal return if it moves the ownership towards (away from) the optimal level. These findings are consistent with the transaction cost theory of managerial ownership and firm value.     

Managerial ownership,board monitoring and firm performance in a family‐concentrated corporate environment

Using data from Hong Kong, a market that has family‐concentrated ownership structure, we examine the relation between managerial ownership, the board of directors and firm performance. We first conduct analysis on the managerial ownership and firm performance to derive the turning points where either ‘convergence of interest’ or ‘entrenchment’ effect of managerial ownership is dominant. Based on these estimated turning points, we find that at low and high level of ownership, effective board mitigates the entrenchment effect associated with managerial ownership; at medium level of ownership, board effectiveness is less demanded. These findings suggest that managerial ownership and board monitoring are substitutes in mitigating the agency problem between managers and shareholders. We also find that effective board curbs the excessive compensation by entrenched managers to themselves at low level of managerial ownership.     

THE EFFECTS OF BANK CONSOLIDATION ON RISK CAPITAL ALLOCATION AND MARKET LIQUIDITY

We investigate the effects of financial market consolidation on the allocation of risk capital in a financial institution and the implications for market liquidity in dealership markets. An increase in financial market consolidation can increase liquidity in foreign exchange and government securities markets. We assume that financial institutions use risk‐management tools in the allocation of risk capital and that capital is determined at the firm level and allocated among separate business lines or divisions. The ability of market makers to supply liquidity is influenced by their risk‐bearing capacity, which is directly related to the amount of risk capital allocated to this activity.     

Ownership concentration,foreign shareholding,audit quality,and stock price synchronicity: Evidence from China

This paper investigates the effects of largest-shareholder ownership concentration, foreign ownership, and audit quality on the amount of firm-specific information incorporated into share prices, as measured by stock price synchronicity, of Chinese-listed firms over the 1996–2003 period. We show that synchronicity is a concave function of ownership by the largest shareholder with its maximum at an approximate 50% level. Further, we find that synchronicity is higher when the largest shareholder is government related. We also find that foreign ownership and auditor quality are inversely associated with synchronicity. Finally, we show that the amount of earnings information reflected in stock returns is lower for firms with high synchronicity.     

Managerial incentives and corporate leverage: evidence from the United Kingdom

This paper investigates the effect of managerial incentives and corporate governance on capital structure using a large sample of UK firms during the period 1999–2004. The analysis revolves around the view that managerial incentives are important in determining a firm's leverage. However, we argue that the exact impact of these incentives on leverage is likely to be determined by firm‐specific governance characteristics. To conduct our investigation, we construct a simple corporate governance measure using detailed ownership and governance information. We present evidence of a significant non‐monotonic relationship between executive ownership and leverage. There is also strong evidence suggesting that corporate governance practices have a significant impact on leverage. More importantly, the results reveal that the nature of the relation between executive ownership and leverage depends on the firm's corporate governance structure.     

Pre-IPO ownership structure and its impact on the IPO process

We investigate the impact of pre-issue ownership structure on the key decisions surrounding an IPO. We find that managerial ownership is significantly related to (1) the proportion of shares offered, (2) share allocation, and (3) direct issue-related expenses. This suggests that pre-IPO ownership by managers influences their incentive to maintain control and to lower the cost of going public. In comparison, large pre-IPO non-managerial shareholders are more concerned about exiting, and their presence tends to increase issue size and costs. Our findings indicate that differences in pre-IPO owners’ incentives and bargaining power as implied by their pre-IPO shareholdings can significantly influence the IPO process.     

The Impact of Managerial Entrenchment on Agency Costs: An Empirical Investigation Using UK Panel Data

This paper empirically investigates the relationship between managerial entrenchment and agency costs for a large sample of UK firms over the period 1999–2005. To measure managerial entrenchment, we use detailed information on ownership and board structures and managerial compensation. We develop a managerial entrenchment index, which captures the extent to which managers have the ability and incentives to expropriate wealth from shareholders. Our findings, which are based on a dynamic panel data analysis, show that there is a strong negative relationship between managerial entrenchment and our inverse proxy for agency costs, namely asset turnover ratio. There is also evidence that short‐term debt and dividend payments work as effective corporate governance devices for UK firms. Finally, our findings reveal that agency costs are persistent over time. The results are robust to a number of alternative specifications, including varying measures of managerial entrenchment and agency costs.     

An analysis of majority owner‐managed companies in the UK

This paper investigates the characteristics of 73 UK companies in which managers have an ownership stake of greater than 50 per cent. We find that majority owner‐managed companies make less use of alternative corporate control systems and are less likely to remove their chief executive officer or other board members following poor performance. However, our sample firms actually outperform diffusely held companies of similar size in the same industry. The determinants of majority control appear more closely related to the characteristics of the controlling shareholders rather than the firm's operating environment. Changes in the ownership structure of our sample companies owe more to changes in owner‐specific characteristics and security issuance than they are related to changes in the company's operating environment or company performance. We conclude that despite the obvious agency costs of managerial entrenchment for closely held companies, for the present sample at least the incentive alignment benefits of large director shareholdings are beneficial to outside shareholders.     

Financial distress,corporate control,and management turnover

We empirically investigate the effect of financial distress on corporate ownership and control. Our analysis is based on a panel of 267 German firms that suffered from repeated interest coverage shortfalls between 1996 and 2004. We track each firm’s development over the distress cycle with particular attention to corporate ownership, restructuring, and management turnover. We find a significant decrease in ownership concentration. Private investors gradually give up their dominating role and thereby cease to be an effective source of managerial control. By contrast, ownership representation by banks and outside investors almost doubles. Shareholdings by executive and non-executive directors also substantially increase but have no effect on managerial tenure. Forced management turnover is mostly initiated by outside investors and banks and often occurs subsequent to debt restructurings, block investments, and takeovers.