The effects of corporate antitakeover provisions on long-term investment: empirical evidence

This paper's empirical results indicate that the average effect of antitakeover provisions on subsequent long‒term investment is negative. The interpretation of these results depends on whether one thinks that there was too much, too little, or just the right amount of long‒term investment prior to the antitakeover provision adoption. We use agency theory to devise more refined empirical tests of the effects of antitakeover provision adoption by managers in firms with different incentive and monitoring structures. Governance variables (e.g. percentage of outsiders on corporate boards, and separate CEO/chairperson positions) have an insignificant impact on subsequent long‒term investment behavior. However, consistent with agency theory predictions, managers in firms with better economic incentives (higher insider ownership) tend to cut subsequent long‒term investment less than managers in firms with less incentive alignment. Furthermore, managers in firms with greater external monitoring (due to higher institutional ownership) also tend to cut subsequent long‒term investment less than managers in firms with less external monitoring. Thus, the decrease in subsequent long‒term investment is significantly less for firms where the managers have greater incentives to act in shareholders' interests. Finally, there are interesting effects of the control variables. First, high book equity/market equity firms cut total long‒term investment more. Second, firms that were takeover targets or rumored to be takeover targets cut long‒term investment more. These results suggest that inefficient firms cut long‒term investment more when an antitakeover provision is adopted. © 1997 John Wiley & Sons, Ltd.     

The effect of takeover defenses on the dividend decision

Many firms have sought protection from hostile takeovers by passing defensive amendments to their corporate charter and/or lobbying their state legislatures for statutory protection. Agency theory would suggest that any such takeover defenses alter the principal-agent relationship. A consequence of such a change may be a change in corporate decision making. The objective of this research is to test the effect that passage of antitakeover amendments has on a firm's dividend policy. We use six alternate measures of dividend activity: total dividends paid, dividends per share and dividends relative to earnings, cash flow, market value, and book value. Our results indicate that firms that adopt antitakeover amendments, when compared to an industry control sample, tend to have a slower rate of growth in dividend payout as measured by the proxy variables. These results suggest that entrenchment is not a likely outcome of such amendments.     

Foreign Equity Ownership and Information Asymmetry: Evidence from Japan

Using a large sample of Japanese firms, we investigate whether the level of foreign ownership in a firm is inversely related to information asymmetry between firm (managers) and market (outside investors). Since information asymmetry is not directly observable and, thus, is difficult to measure empirically, our analysis focuses on the link between foreign shareholding and a measurable consequence of information asymmetry; that is, the timing and magnitude of intertemporal return‐earnings associations. The empirical results support our hypothesis, and subsequent tests based on residual foreign ownership show that the relation between foreign ownership and information asymmetry is robust to the addition of various control variables such as market capitalization and cross‐corporate holdings. We also show that foreign investors tend to avoid stocks with high cross‐corporate holdings. Overall, our results suggest that foreign (institutional) investors are likely to be efficient processors of public information and are attracted to Japanese firms with low information asymmetry.     

Do institutional shareholders police management?

Some have argued that legislation limits the ability of institutional shareholders to discipline shirking management teams. However the level of takeover activity in the 1980s suggests that the cost of using takeovers to discipline management has decreased. This may give institutional shareholders the ability to participate actively in corporate governance. This paper presents an empirical examination that is consistent with this hypothesis. First, institutional ownership concentration varies across firms according to the benefits of policing firms in 1988. The relationship is less pronounced in 1980. Second, firms characterized by concentrated institutional ownership are more likely to use takeovers as the disciplinary mechanism. © 1997 John Wiley & Sons, Ltd.     

Takeover threats,antitakeover amendments and stock price reaction

We examine the influence of takeover threats on the stock price of firms proposing antitakeover amendments. Stock prices of the majority of firms, which are not takeover targets during the four years surrounding the amendments, are unaffected, while prices of firms that become takeover targets within two years increase significantly. We document weak evidence of wealth losses only for a sample of prior targets. Our findings suggest that shareholders of the average firm are not harmed by antitakeover amendments because they provide either a better bargaining position or an information signal to the market.     

Large shareholders and firm value: Are high-tech firms different?

This paper explores the relationship between ownership structure and firm value in firms listed on the Warsaw Stock Exchange. The results of the estimations, taking into account simultaneity and reverse causality, show that the relationship between ownership concentration and firm value differs across firms belonging to the sector of innovative technologies and more ‘mature’ firms. The results give support to the hypothesis that ‘mature’ firms with higher ownership concentration are likely to perform better than firms with more dispersed ownership. In contrast, in high-tech companies, with large share of knowledge related activities, higher ownership concentration is associated with lower firm value. This effect is robust to various alternative specifications.     

Shareholder Heterogeneity and Conflicting Goals: Strategic Investments in the Japanese Electronics Industry

This article investigates the effects of the changing institutional environment on strategic orientations of Japanese electronics firms during the 1990s. We examine the effects of three different types of shareholders on strategic directions of their invested firms. The first one, foreign portfolio investors, characterizes the emerging influence that pressed for change in corporate strategies. The two domestic shareholders, corporate investors and financial institutions, represent the conventional forces for continuity. Between the two domestic forces, though, while corporate investors attempted to maintain status quo, financial institutions have shifted towards market‐oriented behaviour of investment. Specifically, we explore: (1) the influence of each type of shareholder on a firm's diversification strategy and capital commitment; and (2) the moderating effects of firm performance on the relationships between ownership structure and strategic choices. The results suggest that foreign investors prefer the focused product portfolio and conservative capital commitment. They also prefer the reduction of capital investment when the financial performance of their invested firms is poor. Domestic financial institutions are now similarly sensitive to the performance of their invested firms when those firms make strategic investments. By contrast, domestic corporate shareholders remain indifferent to performance, while they aim to maintain relational business ties with invested firms.     

机构投资者持股、治理环境与审计意见购买

以2003—2018年A股上市公司为样本的分析表明,机构投资者持股能显著抑制基于签字审计师变更的审计意见购买行为。这种抑制作用的发挥需要依赖良好的内外部治理环境,因机构投资者类型而存在显著差异,但不因机构投资者稳定性或专注性而发生显著变动。此外,在控制持股比例后,机构投资者数量的抑制作用不再显著。上述结果为机构投资者治理成效提供了积极证据,也为相关部门更好地培育中长期投资者、提高上市公司质量提供了借鉴。     

Hedge funds versus private equity funds as shareholder activists in Germany — differences in value creation

We investigate the valuation effects of German firms targeted by hedge funds and by private equity investors. We argue that both types of investors differ from other blockholders by their strong motivation and ability to actively engage and reduce agency costs. Consequently, we find positive abnormal returns following a change in ownership structure. However, these effects differ markedly between both investors, as proxy variables for agency costs only explain the market reaction for our private equity subsample. We conclude that private equity funds seem to be more successful at creating shareholder value, which could be due to their longer-term perspective and a higher adaptability to the surrounding corporate governance system.     

Corporate Governance,Investment, and Firm Valuation in Asian Emerging Markets

We investigate the effects of corporate governance and family ownership on firm valuation through investment efficiency in Asian emerging markets. Using 3 years of time series data from the Credit Lyonnais Securities Asia corporate governance score for 10 Asian emerging markets, we find that good corporate governance leads to better or more efficient investment decisions and eventually to higher firm value. We also find that investors reward firms for improvement in corporate governance. The findings do not hold for Asian firms with a family or concentrated ownership structure. The results are not driven by changes in accounting standards in these markets.     

Determinants and Valuation Implications of Compulsory Stock Option Disclosures in a Weak Regulatory Setting—The Case of France

Using a sample of listed French firms in 2005, the year of mandatory IFRS adoption in the European Union (EU), we investigate the determinants of disclosure compliance of stock option expenses under IFRS 2, Share‐based Payment. Stock options are a popular means of executive compensation in France relative to other EU countries. Prior to 2005, French accounting standards and corporate governance regulations did not require recognition of option expense amounts and required minimal supplementary disclosures. There was also a perception that enforcement was imperfect, in particular with respect to IFRS 2. Given this setting, we explore what factors influence the willingness of firms to follow compulsory IFRS requirements in a weak regulatory setting. We find that overall compliance with IFRS 2 disclosure requirements increases with U.S. and U.K. institutional ownership, U.S. cross‐listing, provision of English language statements, and decreases with CEO and family ownership of the firm. We also investigate how stock market prices are affected by the recognition and disclosure of stock option expenses according to IFRS 2 in this regulatory setting and find that investors value option expenses positively, particularly when accompanied by high‐disclosure compliance. Our findings have implications for other jurisdictions in the process of adopting or converging to IFRS.     

目标公司股权结构对敌意收购的影响——中信证券收购广发证券的案例研究

兼并、收购、接管(敌意收购)和买断,是公司控制权市场常见的几种表现形式。本文通过中信证券收购广发证券的案例研究,从敌意收购的过程、动因、反收购措施及市场反应的角度对其进行了分析,并指出目标公司的股权集中度、交叉持股、非上市公司特征等股权结构方面对敌意收购的影响。     

Investor visits to corporate sites and cost stickiness

A corporate site visit is an effective way to obtain information on a firm. Most studies focus on the information advantages of corporate site visits, but evidence of their impact on firm operations is limited. In this paper, we investigate whether investors’ corporate site visits affect cost stickiness. Using data on investor corporate site visits to Chinese listed firms from 2013 to 2018, we find that these visits can inhibit cost stickiness. This finding holds in robustness tests and when controlling for endogeneity, including firm fixed effects, and using the Heckman selection model and the instrumental variables method. Further analyses reveal this inhibition is more pronounced for nonstate-owned enterprises and the results are more significant regarding cost stickiness in firms consuming nonlabor materials and firms visited by institutional investors. Moreover, we explore plausible mechanisms through which corporate site visits inhibit cost stickiness, such as through a monitoring channel and a learning channel. Our study contributes to academic evidence on the benefit and value of corporate site visits to firm operations, showing these visits can be a useful way to build connections between investors and firms.     

An Examination of the Naïve‐Investor Hypothesis in Accruals Mispricing in Tunisian Firms

This study extends previous studies on accrual anomaly to investigate the emerging market's mispricing of accruals. Using Mishkin (1983) test, hedge portfolio test and Fama and MacBeth (1973) regression, we test whether the Tunisian Stock Exchange price rationally reflects the 1‐year ahead earnings implications of its earnings components. We find that earnings and their cash flow and accrual components are not rationally priced by the market. Additionally, this paper examines the role of sophistication investors in the pricing of earnings and their components. Our results show that accruals for firms with higher level of institutional ownership are not mispriced, while accruals for firms with lower institutional ownership are overpriced significantly by the market.     

Determinants of bidder competition in corporate takeovers

The importance of bidder competition in the corporate takeover process has long been recognized in theoretical models. This paper provides empirical tests of those models. The results indicate that resistance by target management to an initial bid encourages multiple bidders. Competing bidders are less likely to enter in cases where the target is large, but more likely to arise when the initial bidder is highly levered. High initial bids (preemptive bids) are found to discourage entry by additional firms. Surprisingly, targets with high levels of free cash flow tend not to be the recipients of multiple bids.     

A Comparison Between One‐Tier and Two‐Tier Board Structures in France

French companies operate in a unique environment characterized by the strong involvement of block shareholders such as families and banks. Furthermore, the French legal system allows firms to choose between a one‐tier or a two‐tier board structure. This study investigates whether this choice can affect the firm's operating and stock performance. Our regression results provide strong evidence that ownership and board structures are used together as corporate governance tools. In particular, the agency cost of debt is strongly affected by their interaction when institutional investors are also bank lenders. Our test results show that while family control has a negative impact on corporate governance, French institutional blockholders play a positive role as monitors of one‐tier structures. In contrast, they are more likely to misuse the two‐tier board system by promoting interlocked directorship, board opacity and their own interests as creditors. Our regression analysis reveals that foreign institutional investors do not have any impact on firm performance, regardless of board structure. Finally, we do not find any inverse relationship between board size and efficiency in France.     

Institutions and preferences in settings of causal complexity: foreign institutional investors and corporate restructuring practices in France

In this article, we illustrate how the interaction between institutional arrangements and the presence of different categories of firm stakeholders with specific preferences provides important insights to understand the conditions under which corporate restructuring practices are introduced. Institutions shape the range of actors' strategic options and mediate the translation of the preferences of firm stakeholders into corporate policies. Nonetheless, strategic choice remains possible since firm stakeholders constitute subgroups with different interests and incentives that influence how they operate in an institutional framework. In particular, we examine under what conditions UK/US-based institutional investors and equity-based compensation incentives are associated with the implementation of asset divestitures and employee layoffs in France. We uncover three key findings. First, the presence of hedge funds and equity-based pay influence the likelihood of French companies undertaking asset divestitures. Second, the impact of hedge funds on employee layoffs is contingent on the ownership structure of firms. Third, layoffs in France are driven by inferior performance – a result that contrasts with the American experience whereby employee layoffs are also used as a strategic mechanism to deal with institutional investors in good times. Our findings demonstrate the importance of the institutional constraints of (national level) employment protection and the moderating effects of ownership structure (firm level) on the strategic and employment policies of French companies.     

A note on equity ownership and corporate value in Greece

This study attempts to investigate whether corporate performance is affected by the ownership structure, using data from companies quoted on the Athens Stock Exchange for the period 1996–1998. Given such an objective, the basic hypothesis examined, is that corporate performance as measured by Tobin's Q ratio is a function of ownership and other control variables. Our econometric approach relies on the use of a combination of time series and cross section data (panel‐data analysis), a procedure that avoids many statistical problems. After examining the role of each identifiable shareholder, we find a positive relationship between institutional investors and corporate performance. Copyright © 2004 John Wiley & Sons, Ltd.     

Disclosure, Corporate Governance and Foreign Share Ownership on the Zimbabwe Stock Exchange

We investigate the association of foreign share ownership with firm‐level disclosure and corporate governance structures in Zimbabwe, a developing country in Southern Africa. Our motivation for the study derives from the literature, which suggests that foreign investors: (1) generally have a preference for companies in which they are well informed and where their investments are more likely to be protected, and (2) avoid companies in developing countries because of weak corporate governance structures and low disclosure. Using data drawn from companies listed on the Zimbabwe Stock Exchange, we examine the effect of disclosure and corporate governance on foreign share ownership. We find that disclosure, proportion of non‐executive directors, institutional share ownership and audit committee independence are all positively and significantly associated with foreign share ownership. Our results also demonstrate that market capitalization, return on equity and liquidity ratios are significantly associated with foreign share ownership. These results are consistent with the notion that foreign investors have a preference for companies with effective corporate governance structures, companies with less information asymmetry, as well as companies with healthy cash positions. The results have implications for policy‐makers in developing countries in their endeavour to improve liquidity on stock markets through the participation of foreign investors. The results are also useful to managers in developing countries who are keen to increase the market value of their company, thereby reducing their cost of capital.     

Institutional investors' corporate site visits and aggressive financial reporting

This paper investigates the impact of institutional investors' corporate site visits on financial reporting aggressiveness. While prior research has shed light on the monitoring impact of institutional shareholding on firms' financial reporting practices, institutional investors' preference regarding financial reporting remains unclear. Using a sample of Chinese firms listed on the Shenzhen Stock Exchange from 2012 to 2019, we find that institutional investors' on-site visits significantly increase financial reporting aggressiveness of hosting firms. The on-site visit effect is more salient in firms that are more sensitive to the influence of institutional investors, for example, firms with a less powerful chief executive officer, financially constrained firms, and firms operating in competitive industries. Our study highlights that under a setting of weak minority shareholder protection such as in China, managers are likely to recognize revenue aggressively to please powerful shareholders who paid intensive attention to them.