CEO Attributes,Board Composition,and Acquirer Value Creation: A Canadian Study

We examined CEO attributes, board composition, and ownership structure for their relationship to the share performance of the acquiring company around the acquisition announcement. Based on 273 acquisitions by Canadian firms from 1998 through 2002, we have shown that the levels of CEO and director ownership as well as the level of board independence were positively associated with the short‐term financial performance of the acquirer. Board size was negatively related to value creation. Finally, cash‐based deals and cross‐border transactions were also positively related to increases in shareholder wealth for the acquirer. Copyright © 2011 ASAC. Published by John Wiley & Sons, Ltd.     

Secret Reservation Prices in Bookbuilding

Why is the issuer's reservation price not disclosed in bookbuilding?We analyze the differential effect of reservation price disclosureon the underpricing required to elicit truthful indicationsof interest from investors. We find that a policy of disclosurewould increase proceeds for firms with a reservation price sufficientlyhigh relative to possible investor valuations of the shares,but would decrease proceeds for issuers with lower reservationprices. The former group is likely to be absent from the IPOmarket, explaining why secrecy in reservation prices is thenorm.     

New product development projects: The effects of organizational culture

Despite the increasing use of project management within organizations, an attendant poor rate of success among these projects has been observed (Clancy & Stone, 2005; Ives, 2005). Seventy‐five percent of all business transformation projects fail (Collyer, 2000) and only 16% of U.S. IT projects are completed on time and on budget (Peled, 2000). In an attempt to overcome such a high project failure rate, this paper investigates the effects of organizational culture on the performance of particular types of projects: new product development (NPD) projects. Using data from 95 U.S. organizations, the study provides evidence of the significant effects of organizational culture on NPD projects.     

Boards’ Response to Shareholders’ Dissatisfaction: The Case of Shareholders’ Say on Pay in the UK

Abstract

In 2002, the UK adopted a regulation allowing shareholders to cast non-binding (advisory) votes on their firm's Directors' Remuneration Report during annual general meetings (the ‘Say-on-Pay’ rule). This study evaluates a decade of this regulation and examines how it affected the behavior of shareholders and boards in a sample of Financial Times Stock Exchange 350 firms during the period 2002–2012. I find evidence that shareholder dissatisfaction increases with excess Chief Executive Officer (CEO) compensation. This relationship does not exist for the expected level of compensation, suggesting that shareholders take a sophisticated approach when casting their vote. Boards do not appear to respond to shareholder dissatisfaction systematically; however, they do respond selectively by reducing the excessiveness of CEO compensation when performance is poor. Boards also seem to respond swiftly to shareholder dissatisfaction. There is evidence that the probability of CEO turnover increases with shareholder dissatisfaction. Overall, the evidence suggests that ‘Say-on-Pay’ regulation addressed regulatory concerns about transparency, accountability, and performance linkage.     

Is there any common knowledge news in the Euro/Dollar market?

This paper analyzes the effect of nine categories of news announcements on the quoting activity of individual foreign exchange (FX) dealers on the Euro/Dollar exchange rate from May to October 2001. We use the double autoregressive conditional Poisson model (DACP), which is designed for time series of count data, which can be both under- or overdispersed. We find that dealers' quoting activity reacts differently to the same announcements, some increasing their activity, whilst others decrease it in response to the same news. Based on the taxonomy of Evans [Evans, M. (2002), Fx trading and exchange rate dynamics. Journal of Finance 57(6), 2405–2447.], we classify our news categories in two groups: common knowledge (CK) and non-common knowledge (NCK) news, according to their effects on quoting activity and price changes. Finally we show that scheduled news announcements are NCK news, and there is no evidence for the existence of CK news amongst our announcements, which means that dealers hardly get a consensus in interpreting the news content.     

Officers’ fiduciary duties and acquisition outcomes

Using a Delaware case law that recognized officers’ distinct fiduciary duties for the first time in 2009, I examine the effect of officers' fiduciary duties (OFDs) on corporate acquisitions. I find that firms with entrenched officers prior to 2009 experienced increased announcement-period abnormal stock returns, mainly because their acquisitions created more synergies and reduced officers’ incentives to preserve control. These firms increased liability insurance premium expenditures, but reduced value-decreasing acquisition frequencies. Furthermore, the effect of OFDs is more pronounced in firms where officers are not directors, have wealth risk, face less product market competition, are insulated from the market for corporate control, or are able to avoid board monitoring. Overall, OFDs are a critical corporate governance mechanism that works in tandem with other disciplinary mechanisms.     

Asymmetric Linkages between BRICS Stock Returns and Country Risk Ratings: Evidence from Dynamic Panel Threshold Models

This study investigates the asymmetric linkages between the five BRICS (Brazil, Russia, India, China and South Africa) countries’ stock markets and three country risk ratings (financial, economic and political risk) in the presence of major global economic and financial factors. Using the dynamic panel threshold models, we find evidence of asymmetry in most cases. However, the significance and the signs of the effects of these risk ratings on the BRICS market returns differ across the lower and upper regimes. Furthermore, improvements in the global stock, West Texas Intermediate (WTI) and gold markets enhance the BRICS stock market performance. Increases in implied volatility indices lead to drops in the BRICS markets.     

The political economy of residual state ownership in privatized firms: Evidence from emerging markets

We investigate the political determinants of residual state ownership for a unique database of 221 privatized firms operating in 27 emerging countries over the 1980 to 2001 period. After controlling for firm-level and other country-level characteristics, we find that the political institutions in place, namely, the political system and political constraints, are important determinants of residual state ownership in newly privatized firms. Unlike previous evidence that political ideology is an important determinant of privatization policies in developed countries, we find that right- or left-oriented governments do not behave differently in developing countries. These results confirm that privatization is politically constrained by dynamics that differ between countries.     

The Corrosive Effect of Offshore Financial Centers on Multinational Firms’ Disclosure Strategy

Abstract

This study investigates whether U.S. multinational firms with subsidiaries located in offshore financial centers (OFCs) (i.e. offshore firms) are more likely to be opaque in their voluntary disclosure relative to U.S. multinationals without such subsidiaries (non-offshore firms). We use management earnings forecasts to capture corporate voluntary disclosure. Consistent with the opportunism view, but inconsistent with the efficiency argument, our results (including robustness checks) show that offshore firms are less likely to issue earnings forecasts, disclose forecasts less frequently, exhibit a stronger tendency to withhold bad news forecasts, and release less precise forecasts than non-offshore firms. Moreover, of the three distinct dimensions of OFCs’ institutional environment, namely, low taxation, lax regulation, and secrecy policy, each plays a role in negatively shaping firms’ disclosure strategy. Thus, OFCs’ institutional features exacerbate the opacity that plagues firms seeking to avoid taxes via their OFC subsidiaries. Our results are consistent with the notion that, beyond the scope of taxes, multinational firms’ use of OFCs has a corrosive effect on market information dynamics. Hence, OFCs have a much wider impact on the U.S. economy as well as other major economies than just tax avoidance or evasion.