The Effects of Public Venture Capital Investments on Corporate Governance: Evidence From IPO Firms in Emerging Markets

This study examines the impact of public venture capital (hereafter PVC) investments on corporate governance of initial public offering (hereafter IPO) firms in emerging markets. Using data collected from Taiwan PVC investments during 1996–2005, we analyse three corporate governance features in IPO firms: earnings management, board characteristics, and excess control by controlling shareholders. We find that PVC‐backed firms use fewer accounting accruals in their IPO financial statements than non‐PVC‐backed firms. This result suggests that PVC‐backed IPO firms engage in less earnings management than non‐PVC‐backed IPO firms. We also find PVC‐backed firms tend to set up their boards with fewer non‐independent directors and supervisors at IPO. This result indicates that PVC‐backed IPO firms have better board structures than non‐PVC‐backed IPO firms. Finally, we find that controlling shareholders are less likely to exert excess control in PVC‐backed firms than in non‐PVC‐backed firms. Overall, our results indicate that PVC investments add value to new IPO firms not only in financing their capital needs but also in creating better corporate governance structures in emerging markets.     

Board composition,grey directors and corporate failure in the UK

This study examines the effect of board composition on the likelihood of corporate failure in the UK. We consider both independent and non-independent (grey) non-executive directors (NEDs) to enhance our understanding of the impact of NEDs' personal or economic ties with the firm and its management on firm performance. We find that firms with a larger proportion of grey directors on their boards are less likely to fail. Furthermore, the probability of corporate failure is lower both when firms have a higher proportion of grey directors relative to executive directors and when they have a higher proportion of grey directors relative to independent directors. Conversely, there is a positive relationship between the likelihood of corporate failure and the proportion of independent directors on corporate boards. The findings discussed in this study support the collaborative board model and the view that corporate governance reform efforts may have over emphasised the monitoring function of independent directors and underestimated the benefits of NEDs' affiliations with the firm and its management.     

The determinants of director remuneration,executive tenure and individual executive disclosure in North African IPO firms

This paper examines the impact of board governance mechanisms, namely board size, independence ratio, opacity of earnings disclosure, and ratio of genuinely independent nonexecutive directors to total board size on director remuneration, executive tenure and likelihood of individual executive salary disclosure in a unique and comprehensive sample of 69 North African IPO firms. I find evidence of the enhanced governance role of true independent nonexecutives in family as opposed to non-family firms in improving disclosure of individual salaries and moderating lengths of executive tenure. However while their role is only significant in the context of family firms the evidence suggests that their presence is associated with higher levels of remuneration. The evidence also ascribes a greater role for business angel as opposed to more formal private equity financing which is more applicable within the highly social networked economy of the Maghreb region.     

独立董监之适任性、影响力与新上市柜公司初期评价之关系

台湾新上市柜(IPO)公司自2002年2月19日起须依照“上市上柜审查条例”设置二席以上独立董事和一席以上独立监察人,集团企业与总经理兼任董事长职务之公司依规定尚应聘任较多之席次。本研究探讨独立董监之适任性、影响力与IPO公司初期评价间之关系。实证结果指出,独立董事具执业会计师资格、曾担任上市柜公司的董事长、总经理或副总经理,以及相对于最终控制者之董事席次比率愈大,市场解读为适任性佳,愈具有影响力,对承销价制定、投资人初期评价有正向之作用。就独立监察人而言,并束发现独立监察人专业背景对IPO初期评价具攸关性。     

Venture capital and private equity investors,governance, and success of IPOs: Evidence from India

In this article, we examine the role of domestic and foreign venture capital and private equity (VCPE) firms in India. We find robust evidence that portfolio firms backed by foreign VCPE firms incorporate effective governance structures after the initial public offering (IPO). Specifically, these firms are associated with smaller, more independent, and gender-diverse boards. Furthermore, our results suggest that foreign VCPE firms continue their association with their portfolio firms in the post-IPO period by nominating directors to the boards. Our results also suggest that portfolio firms backed by foreign VCPE firms are associated with better long-term operating performance and profitability. This positive effect is exacerbated by the presence of independent and female directors. Collectively, our results support the view that good governance practices are key to the long-term success of a business, especially in economies that lack good legal systems, developed financial markets, and alternative investment opportunities and where developing trust between parties in a transaction is crucial.     

The consequences of political donations for IPO premium and performance

This study explores the effect of directors' political contributions on IPOs' valuation and firm survival. We find that individual contributions by directors bring significant benefits to the IPO firms. Specifically, we show that political contributions of board members, particularly those of CEOs and founders, increase the IPO premium and the survivability of IPO firms. We find that the relationship between directors' political contributions and IPO premium is particularly strong among non-venture-backed firms, while the link between directors' political contributions and firm survival is more pronounced for venture-backed firms with strong corporate governance. Our findings are robust to endogeneity concerns and to alternative measures of political donations and IPO performance. Our results confirm the relevance of signaling and resource dependence theories.     

Monitoring Role of Venture Capital in the Initial Public Offerings: Evidence from Korea

Because the government has initiated the development of venture capital firms in Korea, independent venture capital firms have been significantly influenced by government regulations and interventions; in contrast, corporations have made venture investments internally to avoid the regulations. This study investigates whether the Korean institutional environment harms the monitoring role of independent venture capital firms, while it does not significantly impact corporate venture capital firms. In an IPO setting, we find that earnings management (long-term performance) significantly decreases (increases) with the ownership of corporate venture capital firms. However, we do not find a significant relation between the ownership of independent venture capital firms and earnings management or long-term performance. The results suggest that Korean independent venture capital firms do not play a role in monitoring their investee companies; in contrast, corporate venture capital firms play a monitoring role.     

Venture Capitalists and the Oversight of Private Firms

This article examines the representation of venture capitalists on the boards of private firms in their portfolios. If venture capitalists are intensive monitors of managers, their involvement as directors should be more intense when the need for oversight is greater. I show that venture capitalists' representation on the board increases around the time of chief executive officer turnover, while the number of other outsiders remains constant. I also show that distance to the firm is an important determinant of the board membership of venture capitalists, as might be anticipated if the oversight of local firms is less costly than more distant businesses.     

Executive compensation and corporate governance in China

We investigate executive compensation and corporate governance in China's publicly traded firms. We also compare executive pay in China to the USA. Consistent with agency theory, we find that executive compensation is positively correlated to firm performance. The study shows that executive pay and CEO incentives are lower in State controlled firms and firms with concentrated ownership structures. Boardroom governance is important. We find that firms with more independent directors on the board have a higher pay-for-performance link. Non-State (private) controlled firms and firms with more independent directors on the board are more likely to replace the CEO for poor performance. Finally, we document that US executive pay (salary and bonus) is about seventeen times higher than in China. Significant differences in US-China pay persist even after controlling for economic and governance factors.     

风险投资对创业板IPO折价影响的实证研究

本文以截至2011年6月30日在我国创业板上市的236家公司作为研究对象,研究风险投资对创业板IPO折价的影响。研究发现：（1）有风险投资参与的企业IPO折价显著高于无风险投资参与的企业,支持声誉效应假说,即风险投资机构以IPO折价来提早退出投资项目,以此来建立自己的声誉,从而吸引更多的资金流入;（2）在对有风投参股的投资公司做进一步分析后发现一一随着风投参与度的增大,IPO调整折价率并未出现明显的提升,创业板企业IPO时风险投资机构的数量、风险投资机构持股比例与调整折价率关系不显著。     

Who are the active investors? : Evidence from venture capital

This paper examines the determinants and consequences of investor activism in venture capital. Using a hand-collected sample of European venture capital deals, it shows the importance of human capital. Venture capital firms with partners that have prior business experience are more active recruiting managers and directors, helping with fundraising, and interacting more frequently with their portfolio companies. Independent venture capital firms are also more active than ‘captive’ (bank-, corporate-, or government-owned) firms. After controlling for endogeneity, investor activism is shown to be positively related to the success of portfolio companies.     

Do women directors improve firm performance in China?

This paper examines the effect of board gender diversity on firm performance in China's listed firms from 1999 to 2011. We document a positive and significant relation between board gender diversity and firm performance. Female executive directors have a stronger positive effect on firm performance than female independent directors, indicating that the executive effect outweighs the monitoring effect. Moreover, boards with three or more female directors have a stronger impact on firm performance than boards with two or fewer female directors, consistent with the critical mass theory. Finally, we find that the impact of female directors on firm performance is significant in legal person-controlled firms but insignificant in state-controlled firms. This paper sheds new light on China's boardroom dynamics. As governments increasingly contemplate board gender diversity policies, our study offers useful empirical guidance to Chinese regulators on the issue.     

Firm Performance: Do Non‐Executive Directors Have Minds of their Own? Evidence from UK Panel Data

I investigate the relation between firm performance and both ownership structure and board composition. Use of the GMM methodology permits simultaneous control of both endogeneity of the independent variables and fixed effects. The data comprise an original, large, hand-collected panel dataset of UK firms for the period 1991–2001. Results indicate that the direction of causality runs from ownership and board composition to performance. I find a cubic relation between performance and ownership by executive directors. The proportion of non-executives on the board, but not their proportional ownership, is significantly and positively related to firm performance. Finally, the relation between performance and blockholdings by institutional and non-institutional owners is negative. Thus, results indicate that only non-executive directors are effective monitors.     

The Role of Dividends, Debt and Board Structure in the Governance of Family Controlled Firms

Abstract:  We investigate whether family controlled firms use dividends, debt and board structure to exacerbate or mitigate agency problems between controlling and minority shareholders in a capital market environment with high investor protection and private benefits of control. Results indicate family controlled firms employ higher dividend payout ratios, higher debt levels and lower levels of board independence compared to non-family firms. This suggests family controlled firms use either dividends or debt as a substitute for independent directors. We also find that dividends and debt are more effective governance mechanisms in mitigating the families' expropriation of minority shareholders' wealth. Independent directors are, in contrast, more effective in controlling owner-manager conflict in non-family firms.     

Earnings management in the pre-IPO process: Biases and predictors

We analyze a sample of 3,293 IPOs from 29 countries to investigate the firm, industry, and country characteristics related to earnings management during the IPO process. We find that IPO firms tend to have significantly positive discretionary accruals (DCA) both prior to and after the IPO, suggesting that IPO firms tend to engage in pre-IPO earnings management. However, we also find that using a proxy for earnings management in the IPO year may lead to biased conclusions concerning pre-IPO earnings management. Firms that are more likely to need access to capital markets in the future (firms with high leverage, and firms backed by a venture capitalist) are less likely to engage in pre-IPO earnings management. Firms operating in countries with a superior rule of law are also less likely to engage in earnings management. Lastly, we find that firms may engage in pre-IPO earnings management in part to avoid returning to the capital markets to raise more funds (capital market staging). This result is robust to possible endogeneity bias stemming from management self-selection.     

China’s Securities reforms and IPO wealth loss

We revisit initial public offering (IPO) underpricing in China before and after the 2001 China Securities Regulatory Commission reforms targeting the IPO process and strengthening corporate governance, using Habib and Ljungqvist’s (2001) wealth loss measure instead of headline underpricing. Habib and Ljungqvist argue that the extent to which owners care about underpricing depends on both headline underpricing and the percentage of IPO shares issued relative to total shares outstanding. We find that in the post-reform period, relative to the pre-reform period, the wealth loss for pre-IPO owners is lower, the incremental effect of the association between wealth loss and state-retained ownership is significantly positive, and a higher proportion of independent directors on the board moderates the wealth loss. Our findings suggest that the more market-oriented IPO process and the corporate governance reforms provide insiders of Chinese IPO firms with greater opportunities to influence IPO pricing and thereby reduce their wealth loss.     

CEO DIRECTORS,EXECUTIVE INCENTIVES,AND CORPORATE STRATEGIC INITIATIVES

I study how directors who are chief executive officers (CEOs) of other firms affect board effectiveness. I find that CEOs are paid more and their compensation is less sensitive to firm performance when other CEOs serve as directors. This is not an employment risk premium because CEO directors are not associated with higher turnover‐performance sensitivity. Also, CEO directors have no effect on corporate innovation but are associated with higher acquisition returns, especially for complex deals. My results suggest that the advisory benefits of CEO directors must be balanced against the distortions in executive incentives associated with their board service.     

Analysing the determinants of narrative risk information in UK FTSE 100 annual reports

We investigate the relationship between the quantity of narrative risk information in corporate annual reports and ownership, governance, and US listing characteristics. We find that corporate risk reporting is negatively related to share ownership by long-term institutions, and thus the results of this study put forth that this important class of institutional investor has investment preferences for firms with a lower level of risk disclosure. Concerning governance, we find that different types of board director fulfil different functions, with both the number of executive and the number of independent directors positively related to the level of corporate risk reporting, but not the number of dependent non-executive directors. This supports a recent emphasis in the UK on the independent aspects of non-executive directors for good corporate governance. Separate investigation of business, financial, and internal control aspects of risk reporting that correspond to the three classes of risk-reporting guidance in the UK reveals that the pattern of risk information in the annual report may be dependent upon the form that reporting regulation takes.     

It Takes Two: The Incidence and Effectiveness of Co‐CEOs

This study examines the phenomenon of co‐CEOs within publicly traded firms. Although shared executive leadership is not widespread, it occurs within some very prominent firms. We find that co‐CEOs generally complement each other in terms of educational background or executive responsibilities. Our results show that firms most likely to appoint co‐CEOs have lower leverage, a more limited firm focus, less independent board structure, fewer advising directors, lower institutional ownership, and greater levels of merger activity. The governance structure of co‐CEO firms suggests that co‐CEOships can serve as an alternative governance mechanism, with co‐CEO mutual monitoring substituting for board or external monitoring and co‐CEO complementary skills substituting for board advising. An event study indicates that the market reacts positively to appointments of co‐CEOs while a propensity score analysis shows that the presence of co‐CEOs increases firm valuation.     

Coaches or Speculators? The Role and Impact of Venture Capital on Executive Compensation in Chinese Listed Companies

In this paper, we utilize a panel dataset that covers 1245 listed companies which accomplished their IPO during 2006 to 2014 in China to investigate the impact of venture capital (VC) firms on executive compensation, equity incentive and pay-performance-sensitivity. We make several key findings: First, we find the presence of VCs can significantly raise the executive compensation. Second, high reputation VCs and private VCs increases the likelihood of granting executive equity incentives, whereas foreign VCs are significantly negatively related with executive equity incentive. Third, the pay-performance sensitivity of government VCs and foreign VCs is significant on stock return (RET) whereas insignificant on accounting performance (ROA). Moreover, the increasing VCs share in portfolio companies enhance the pay performance sensitivity on RET. Our results show that before VCs final exiting their post-IPO portfolio companies in China, VCs’ impact on executive compensation are more consistent with grandstanding theories and intending to provide higher cash compensation to encourage executives to raise the companies’ stock price, which is indicating VCs’ changing role from a coach into a speculator after the portfolio companies’ IPO.