How does the executive pay gap influence audit fees? The roles of R&D investment and institutional ownership

Using a sample of US firms from 2003–2014, this study examines how the executive pay gap affects audit fees for firms with different levels of R&D investment and institutional ownership. Consistent with managerial power theory, we find that the executive pay gap is positively associated with audit fees, and that the positive association is attenuated by intense R&D investment and higher institutional ownership. We also find that the executive pay gap more strongly affects audit fees after the passage of the 2010 Dodd–Frank Act and the PCAOB's 2012 call to identify the audit risk related to executive incentive compensation. Additional analyses show that the moderating effects of R&D investment and institutional ownership on the pay gap–audit fees association are not conditional on auditor tenure, but the moderating effect of institutional ownership is stronger for firms hiring specialist auditors. Collectively, our findings suggest that auditors consider the business context, such as innovation initiative and external monitoring, when assessing audit risk related to the executive pay gap.     

Institutional investor type,earnings management and benchmark beaters

This paper classifies institutional investors into transient or long-term by their investment horizons to examine the association between institutional investor type and firms’ discretionary earnings management strategies in two mutually exclusive settings – firms that (do not) use accruals to meet/beat earnings targets. The results support the view that long-term institutional investors constrain accruals management among firms that manage earnings to meet/beat earnings benchmarks. This suggests long-term institutional investors can mitigate aggressive earnings management among these firms. Transient institutional ownership is not systematically associated with aggressive earnings management and is evident only among firms that manage earnings to meet/beat their earnings benchmarks. This indicates transient institution-associated managerial myopia may not be as prevalent as posited by critics. This study highlights the importance of explicitly considering the type of institutional investor and the specific setting when investigating the association between institutional ownership and corporate earnings management.     

On the association between institutional ownership and aggressive corporate earnings management in Australia

This study examines the association between institutional ownership and Australian firms' aggressive earnings management strategies. In contrast to similar studies, this study does not assume that the two views on how institutional ownership associates with firms' earnings management behaviour are mutually exclusive. The association between institutional ownership and firms' income increasing discretionary accruals is expected to vary as the level of institutional ownership increases. The results support the predicted non-linear association between institutional ownership and income increasing discretionary accruals. In particular, a positive association is found at the lower institutional ownership levels, consistent with the view that transient (short-term oriented) institutional investors create incentives for managers to manage earnings upwards. On the other hand, a negative association is found at the higher institutional ownership levels, consistent with the view that long-term oriented institutional investors' monitoring limits managerial accruals discretion. These findings suggest that institutional investors can act as a complementary corporate governance mechanism in mitigating myopic aggressive earnings management by corporations when they have a sufficiently high ownership level.     

城市商业银行股权结构改革的制度经济学解释

产权结构的优化依然是城市商业银行完善公司治理、提高银行经营效率的决定因素。城市商业银行制度演变的逻辑起点,决定了地方政府对城市商业银行的绝对控制权的掌握,进而决定了城市商业银行产权制度安排的非效率特征,也决定了城市商业银行的产权结构改革的趋势。正是城市商业银行的产权结构的制度安排现状,成为产权制度强制性变迁的路径依赖。"金股"机制前提下的多元化股权制度安排,不失为城市商业银行产权变迁的政策切入点。     

Post-privatization state ownership and bank risk-taking: Cross-country evidence

We examine the relation between state residual ownership and bank risk-taking for privatized banks from 45 countries. Applying propensity score matching, we find that privatized banks tend to exhibit higher levels of risk-taking post-privatization than their publicly listed non-privatized counterparts. Moreover, partially privatized banks exhibit higher levels of risk-taking than fully privatized banks. We also observe a positive and significant relation between the level of residual state ownership and risk-taking. These findings are consistent with the distorted objectives associated with government control, as suggested by the political benefits of control, and with the soft budget constraint views of state ownership. The distortion can be mitigated by the quality of a country's institutional and regulatory environments. Finally, our results show that the effect of state ownership on risk-taking is more pronounced in countries with a higher dominance of state-owned enterprises, and it was more prevalent during the global financial crisis.     

Do foreign ownership and home-host country distance matter? Evidence on the impact of bank market power on liquidity creation in a selected Southeast Asian country

This paper examines the roles of foreign ownership and home-host country distance in the impact of bank market power on bank liquidity creation in a selected Southeast Asian country (Malaysia) over the period 2001−2017. A key finding is that the impact of market power on liquidity creation is either significantly negative or insignificant for domestic banks, but is significantly positive for foreign banks, irrespective of the liquidity creation measures used. This finding points to evidence of “home-field advantage” of domestic banks as the banks possess greater ability to withstand interest margin compression, while competing with foreign banks in liquidity creation market. Moreover, this paper finds that foreign banks originated from countries with cultural, economic and institutional distance to the host country require greater market power to boost their liquidity creation performance, as compared to their domestic counterparts. Further analysis also indicates that the influence of host-home country distance is more evident among small foreign banks which have lower franchise value. Overall, the findings of this paper suggest that although bank competition policies may promote customer welfare, foreign banks should be granted with some degree of market power in the host country to help alleviating the banks’ operational challenges arising from home-host country distance.     

Ownership, Governance, and Bank Performance: Korean Experience

The paper examines the effect of ownership and governance on firm performance. Tracing the post financial crisis experience, 1998–2002, of the Korean commercial bank industry, the paper investigates whether the involvement of foreign investors in the ownership structure had any significant effect on the banks' performance i.e., return and risk measures. Further, it examines the effects of the presence of outside directors, especially directors from foreign countries, in the corporate board structure impacts banks performance. Evidence indicates that the extent of the foreign ownership level, not the mere existence of foreign ownership, has a significant positive association with the bank return and a significant negative association with the bank risk. The number of outside board of directors does not have any significant affect on performance however the presence of a foreign director on that board is significantly associated with bank return and risk. These findings are relatively robust under the different specifications of performance measures.     

Capital market pressure,real earnings management,and institutional ownership stability - Evidence from Poland

This study investigates whether and how institutional ownership stability influences real earnings management. We find that institutional investors holding stable equity stakes play an important monitoring role in reducing real earnings management by managers pressured by capital market forces to “meet or beat” earnings targets. We also document no relationship between institutional ownership stability and real earnings management in companies with entrenched managers protected from capital market pressure by a dual-class ownership structure. Our findings of the negative association between real earnings management and institutional ownership stability also indicate that firms with more stable ownership are engaged in lesser sales manipulation and overproduction. In addition, we reveal that pressureresistant institutions (pension funds and mutual funds) that reduce real earnings management are an essential part of the external governance mechanism in an emerging economy.     

Distribution of institutional ownership and corporate firm performance

We investigate the association between corporate firm performance and the level and stability of institutional ownership within a simultaneous equation model. Our main ownership stability measures include ownership persistence and the time-lengths over which investors hold non-zero shares or maintain their shareholding. We find that there is a positive relationship between firm performance and institutional ownership stability, accounting for the shareholding proportion. This relationship is robust to the employment of ownership turnover measures used in the literature and consistent with the view that stable institutional investors play an effective role in monitoring. When we disaggregate institutional investors into pressure-insensitive and pressure-sensitive categories, we find that stable shareholding of each group has a positive impact on performance, with the first group exerting a larger effect. The channels of the effect include, but are not limited to, decreased information asymmetry and increased incentive-based compensation.     

Financial institutional blockholders and earnings quality: Do blockholders contestability and countries' institutions matter?

We examine the relationship between financial earnings quality and block ownership by institutional investors. This relation is vital given the tremendous growth of institutional ownership and the significant influence of large institutional blockholders on financial earnings quality. Our findings indicate that the presence of institutional blockholders drives higher financial earnings quality. Results from an instrumental variable (IV) approach suggest our documented effects are directional. Next, cross-sectional tests prove that the relationship is more pronounced among firms adopting IFRS and those in countries with minority shareholder protection. Moreover, our results reveal that property rights and the lack of contestability partially mitigate the positive association between institutional ownership and earnings quality. Our findings inform the ongoing debate on the influence of institutional ownership on earnings, which institutional and regulatory dimensions affect earnings, and through what channels these effects run. Overall, our results suggest that beyond corporate governance practices that enhance financial earnings quality, different countries' institutions and regulations settings influence the relation of institutional ownership to earnings quality.     

Institutional investors and bank governance: An international analysis of bank earnings management

Despite the growing importance of institutional investors in global capital markets and the link between bank earnings management and financial crash risk, little is known about the role of institutional investors in mitigating bank earnings management. We conduct the first international analysis of this issue using a broad sample of banks and institutional investors. We find a negative relation between institutional ownership and bank earnings management, after controlling for the stringency of a country's bank regulations and other relevant bank and country characteristics. Additionally, institutional ownership is more negatively related to earnings management in countries with more-stringent bank disclosure requirements or when ownership is held by domestic rather than foreign institutional investors. Institutional ownership is also more negatively related to earnings management in countries in which insiders extract more private benefits or when ownership is held by institutional blockholders. Our findings have important policy implications regarding institutional investors' engagement with banks.     

Institutional Shareholders and Bank Capital

We examine the relationship between institutional ownership and bank capital. Using a large sample of U.S. banks, we show that banks with greater institutional ownership operate with substantially higher capital ratios. The results are robust to controlling for standard determinants of bank capital structure, including market- and accounting-based risk measures. The results hold both for indexers and non-indexers, indicating that the effect of institutional ownership on bank capital cannot be explained by self-selection. We further address endogeneity concerns using an instrumental variable strategy based on the inclusion of banks in the S&P index. We find supporting evidence that the superior monitoring abilities of institutional investors, which reduce the severity of agency costs, is the main explanation for our results.     

Bank efficiency and foreign ownership: Do good institutions matter?

This paper contributes to the literature on foreign ownership and bank efficiency by examining whether the efficiency of foreign banks depends on the institutional quality of the host country and on institutional differences between the home and host country. Using stochastic frontier analysis for a sample of 2095 commercial banks in 105 countries for the years 1998–2003, we find that foreign ownership negatively affects bank efficiency. However, in countries with good governance this negative effect is less pronounced. We also find that higher quality of the institutions in the home country and higher similarity between home and host country institutional quality reduce foreign bank inefficiency.     

Does the ownership structure matter for banks’ capital regulation and risk-taking behavior? Empirical evidence from a developing country

This paper applies the two-stage least squares (2SLS) estimator to examine the bi-directional relationship between banks’ capital regulation and risk-taking behavior concerning the impact of ownership structure. We have used a balanced panel dataset of banks from a developing country over the most recent period between 2006 and 2014. The empirical findings of this study suggest that higher capital regulation enhances banks’ stability when it combats with credit risk but higher credit risk often persuades abating capital ratio. Particularly, the key results are as follows: (i) the higher association of minority active shareholding in stability issues is positive; (ii) the higher contribution of active share holding promotes banks’ capital ratio; (iii) the lower ownership concentration prevents credit risk; (iv) private commercial banks are more risk averse and stable than state-owned banks and other type of banks; and (v) notably, Islamic banks show their superiority through overall performance despite their lower capital stability than conventional banks. Besides, no models show significant non-linear relationship between capital regulation and risk-taking except models of stability show a U-shaped relation in capital equation, indicating that when regulatory pressure works in a country then bank lose solvency at the initial stage. Finally, it also provides some imperative policy implications which will be very useful for a wide range of stakeholders.     

Institutional ownership stability and BHC performance

In this study, the association between performance of BHCs and institutional ownership stability is investigated and contrasted to those found for the less regulated utility and industrial firms in order to determine whether regulation displaces owner monitoring. We employ a simultaneous equations model treating firm performance and institutional ownership stability as endogenous variables. Several results are obtained. First, BHC performance is positively associated with institutional ownership stability. Second, this association is weaker for BHCs than for comparable utility and industrial firms, possibly because of the substitution of regulation for owner monitoring in banking. Third, this association is stronger in the recent deregulated years and for BHCs with lower likelihood of regulatory intervention.     

Estructura de propiedad y su efecto en la política de dividendos en el contexto mexicano

In this paper we focus on analyzing if the ownership structure has any effect on the dividend policy in the Mexican market. The decision to pay dividends is one of the key elements within corporate policy, since that dividend policy has an influence on the company value. Therefore, decisions such as adopting a growth policy of the company through the profits reinvestment or destine these profits to dividends pay, could be influenced by the ownership structure. We base our analysis on three types of ownership structure: families, institutions (mainly banks) and small blocks of shareholders. Our results show that the concentration of ownership in families has a negative influence on the dividends payment, while the presence of institutional shareholders has an inverse effect. This indicates that the presence of large shareholders different to families have a dissimilar effect on dividend policy. Our work contributes to the literature in the context of emerging countries such as Mexico, since much of the existing research has focused primarily in environments such as Europe or the United States, where markets are well regulated with widely distributed property.     

Governance mechanisms in Spanish banks. Does ownership matter?

This paper examines the governance of Spanish banks regarding two main issues. First, does poor economic performance activate governance interventions that favor the removal of executive directors and the merger of non-performing banks? And, second, does the relationship between governance intervention and economic performance vary with the ownership form of the bank? We find a negative relationship between performance and governance intervention for banks, but the results change for each form of ownership and each type of intervention. Internal-control mechanisms work for Independent Commercial banks, but Savings banks show weaker internal mechanisms of control and the only significant relationship between performance and governance intervention that appears is for mergers. The Spanish Savings banks, with a peculiar form of ownership that, in fact, implies a lack of ownership, give voice to several stakeholder groups with no clear allocation of property rights. Nevertheless, their economic performance is not generally affected. Product-market competition compensates for those weaker internal governance mechanisms, and non-performing banks are not fully protected from disappearing.     

Ownership structure and its effect on dividend policy in the Mexican context

This work focused on analyzing whether the ownership structure has any effect on the dividend policy of companies in the Mexican market. The decision of dividend payment is one of the major elements in corporate policy, as this dividend policy influences the value of the company. Therefore, decisions such as adopting a company growth policy through the reinvestment of profits, or better yet allocating them to the payment of dividends, are going to be influenced by the type of ownership structure that dominates the company. The analysis was based on three types of ownership structures such as: families, institutions (mainly banks) and small blocks of shareholders. Our results show that the concentration of property in families negatively influences the payment of dividends, whereas the presence of institutional shareholders has an inverse effect on the payment of the same. This indicates that the presence of big shareholders foreign to the families has a different effect on the payment policy of dividends in the Mexican context. This work provides literature information about the context of emerging countries as is the case of Mexico, given that much of the existing investigations focus on European or North American contexts, where the markets are well regulated and property is broadly distributed.     

How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans

Legal and institutional differences shape the ownership and terms of bank loans across the world. We show that under strong creditor protection, loans have more concentrated ownership, longer maturities, and lower interest rates. Moreover, the impact of creditor rights on loans depends on borrower characteristics such as the size and tangibility of assets. Foreign banks appear especially sensitive to the legal and institutional environment, with their ownership declining relative to domestic banks as creditor protection falls. Our multidimensional empirical model paints a more complete picture of how financial contracts respond to the legal and institutional environment than existing studies.     

Corporate philanthropy in the US stock market: Evidence on corporate governance,value relevance and earnings manipulation

This study examines the financial attributes of corporate philanthropy derived from the agency motives for corporate giving. Further, this study assesses the value relevance of corporate giving and investigates the impact of giving on investor perceptions and future profitability and growth. Also, it investigates the association between charitable spending and earnings manipulation. The findings indicate that the adoption of structured philanthropic initiatives and the use of in-kind contributions encourage corporate giving. Monitoring exercised by leverage and corporate governance affects corporate giving downwards. Firms that experience a management change are subject to more public scrutiny and tend to give more. Corporate giving is value relevant and is negatively related to analyst forecast error and positively to analyst coverage. Charitable firms tend to engage less in earnings manipulation. However, firms with significant growth options may direct slack resources to discretionary charitable causes. In-kind contributions are negatively related to managerial opportunism.