Effect of corporate governance on default risk in financial versus nonfinancial firms: Canadian evidence

This paper investigates the influence of corporate governance variables on default risk of Canadian firms after the 2008 financial crisis. We provide evidence that important governance mechanisms have differential impacts between Canadian financial and nonfinancial firms. Ownership structure, (e.g., institutional ownership and insider ownership), has a significant impact on the default risk of financial firms but not on nonfinancial firms. Nonfinancial firms with more independent boards are associated with lower default risk, while financial firms with larger boards and more independent boards have higher default risk. In addition, although cross‐listing in the US reduces the default risk for Canadian nonfinancial firms, it actually increases the risk for Canadian financial firms during the postcrisis period. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

The Use of Governance Indexes in the Governance‐Performance Relationship Literature: International Evidence

The objective of this study is threefold. First, we present a review of the international studies that have investigated the link between firm‐level governance scores and performance. To our knowledge, this study is the first to provide a comprehensive review of this recent and growing literature. Second, we discuss potential methodological shortcomings of using governance indexes. Third, we propose directions for future research. Overall, a clear positive relation is found between governance ratings and performance in Europe and in emerging economies, whereas studies conducted in the US and Canada have generated mixed evidence. The empirical problems related to measurement, substitution between governance arrangements, endogeneity, and optimization across governance choices are discussed. Solutions are proposed to alleviate these concerns. Copyright © 2011 ASAC. Published by John Wiley & Sons, Ltd.     

Governance and the decision to issue a profit warning

The theoretical concept of agency costs developed by Jensen and Meckling (1976) and Jensen (2005) are used to study the relationship between the quality of a firm's governance and its decision to issue a profit warning (PW) when it is overvalued. Based on a sample of Canadian companies between 2000 and 2004, results were only partially supportive of the hypotheses. The characteristics of the board seem to play only a secondary role in the decision to issue a profit warning when the firm is overvalued. On the other hand, as expected, governance mechanisms that factor in market values to align the interests of managers and directors with those of shareholders are negatively related to the profit warning decision. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.     

Equity recognition of mandatory accounting changes: the case of transitional goodwill impairment losses

This study investigates if and how the use of the retroactive method to account for a mandatory accounting change affects a firm's measurement and recognition choices. We examine if reporting incentives and constraints are associated with the magnitude of transitional goodwill impairment losses reported by Canadian firms implementing Section 3062 on purchased goodwill. Our results indicate firms have an incentive to both overstate and understate transitional goodwill impairment losses. We also show that financially literate and independent audit committees constrain managerial opportunism. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.     

To improve investors' valuation of accounting earnings in emerging markets: evidence from Taiwan

The valuation of accounting earnings is related to the level of earnings management used by the firm. In emerging markets where earnings management is typically pervasive, investors lose confidence in accounting earnings and thus tend to under‐value earnings. Using data from Taiwan, we show that better governance characteristics are associated with improved investor valuation of accounting earnings. Under weaker governance structures, such as excessive control on the part of majority shareholders, small board size, and chief executive officer/chairman of the board duality, the market tends to under‐value accounting earnings. Reducing controlling shareholders' ownership, increasing board size, and reinforcing the monitoring function of the board improves investors' ability to value accounting earnings. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.     

Canadian takeover announcements and the job security of top managers

This study measures the turnover rate of top managers (Chief Executive Officers or Presidents) in acquisition targets following the public announcements of takeovers in Canada. Turnover rates following the announcements of completed and unsuccessful takeover attempts did not differ from each other but were higher than the norm for CEOs from a control group of nontarget firms. The turnover rate was particularly high for widely‐held firms and negatively correlated with the preannouncement performance of the targets. Overall, results suggest that a major objective of takeovers in Canada is to reduce management failings, inefficiency, and agency costs. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.