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This study examines whether qualitative disclosure in tax footnotes affects the market valuation of tax avoidance activities. We predict that more disclosures in tax footnotes mitigate investors' concerns over the agency risk of managers engaging in potentially illegal tax avoidance and improve the transparency of firm performance, thus increasing firm valuation. Consistent with the prediction, we find that the market valuation of tax avoidance increases when firms' tax footnotes disclose more qualitative information related to their tax avoidance activities. We provide several tests to show mechanisms underlying our main findings and mitigate concerns about alternative explanations. Overall, our study suggests that the tax-related disclosures in tax footnotes are useful for investors assessing the value of tax avoidance. [ABSTRACT FROM AUTHOR]

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Bridge components are subject to both structural loads and environmental stressors, rendering them susceptible to accelerated deterioration and potential collapse in the absence of effective maintenance and rehabilitation strategies. Moreover, the phenomenon of wet-dry cycling, coupled with elevated chloride concentrations prevalent in coastal regions, further expedites the degradation process of bridges, thereby escalating maintenance frequency and repair costs. In response to this challenge, the integration of innovative materials such as Ultra High-Performance Concrete (UHPC) is being explored for the development and implementation of maintenance and rehabilitation strategies. This study presents a comparative analysis between conventional methods and UHPC applications for bridge repairs, utilizing Life Cycle Cost Analysis (LCCA) to encompass both agency and user costs, and applies Monte Carlo simulation to account for the variability of the modeling factors. A practical case study illustrates the applicability of the LCCA methodology, revealing that the utilization of UHPC contributes to a reduction in the total life cycle cost for bridge maintenance and rehabilitation. Life expectancy, Average Daily Traffic (ADT), and the duration of construction activities during rehabilitation emerge as the most influential factors affecting life cycle costs. The main contributions of the study are the development of the life-expectancy model and step-by-step Life-Cycle Cost Analysis (LCCA) methodology. Findings from this study aim to identify cost-effective retrofitting techniques for maintaining bridges in a "State of Good Repair." [ABSTRACT FROM AUTHOR]

Digital transformation has emerged as a powerful force in reshaping the business landscape and enabling organizations to enhance their capabilities. One critical aspect of this change is how it impacts an enterprise’s innovation ability. To explore this question, we select data regarding China’s A-share listed enterprises from 2007 to 2021 as the research sample. We employ crawler technology to gather keywords related to “digital transformation” from annual reports, portraying detailed journeys of enterprises’ digital transformation. Through descriptive statistics and multiple covariance tests, a linear relationship is established between digital transformation and innovation ability. Benchmark regression is conducted and a robustness test is utilized to determine the robustness of the benchmark regression. The mechanism, heterogeneity, and moderating effects of this study are also tested. The results reveal that digital transformation makes a significant positive contribution to the innovation capability of enterprises. Meanwhile, among different types of enterprises, the impact of digital transformation on enterprise innovation capability shows heterogeneity. In terms of the impact mechanism, digital transformation can enhance the innovation output of enterprises by reducing the agency cost and improving the risk-taking level of enterprises, so as to further improve the innovation capability of enterprises. The research results of this paper provide essential theoretical support for the digital transformation of enterprises and the government’s formulation of enterprises’ digitalization strategies. More profoundly, it provides significant reference for how to further promote the digital transformation of Chinese enterprises. [ABSTRACT FROM AUTHOR]

We explore the informational properties of earnings that compensation contracting requires for performance measurement. While conditional conservatism could be desirable because it can help to alleviate agency conflicts, its downside relates to the trade-off between conservatism and other important properties, such as persistence. We infer boards' performance measurement preferences from a novel dataset of earnings realizations used to calculate executive bonus payouts (which we label compensation earnings), which can be either GAAP or non-GAAP. On average, compensation earnings do not exhibit any conditional conservatism in the full sample. The lack of conservatism holds even in subsamples with strong corporate governance and subsamples with high ex ante agency costs, suggesting optimal contract design rather than opportunism. Finally, our analyses indicate that compensation earnings are more persistent and informative than GAAP earnings. Overall our results suggest that boards trade off conservatism for other properties in measuring performance for executive compensation. [ABSTRACT FROM AUTHOR]

This paper addresses the notion of electronic economics by examining financial technology (fintech) firms' performance and corporate governance quality, using data from the United States. The findings support our maintained assumption that due to the economics of electronic platforms perused by financial technology firms, these firms outperform firms from other industries (non-Fintech). The final sample comprises 1,712 company-year observations between 2010 and 2019 (pre-COVID-19). The evidence suggests that our corporate governance quality index, developed from Organisation of Economic Cooperation and Development (www.oecd.org/corporate/corporate-governance-factbook.htm, 2019) guidelines, accurately captures corporate governance quality in the United States, principally due to the inclusion of an anti-bribery policy indicator, in the index. The results suggest that this evidence is not merely an artefact due to the corporate governance quality index potentially capturing priced risk factors. Our findings reveal that fintech firms have superior corporate governance quality than non-fintech and that fintech firms place more reliance on internal versus external corporate governance mechanisms, vis-a-vis companies in other industries. [ABSTRACT FROM AUTHOR]

We investigate regulatory actions in response to violations of mandatory derivatives disclosure rules (SFAS 161) and the outcomes of these regulatory interventions using a hand-collected sample of derivatives disclosures. Derivatives are used by nearly two-thirds of U.S. nonfinancial firms, and they are one of the most complex types of financial contracts. Consequently, inadequate derivatives disclosures could pose significant challenges to financial statement users in assessing the risk and financial health of enterprises. First, we document that firms with high proprietary and agency costs are less likely to comply with SFAS 161. Next, by examining derivatives-related SEC comment letters, we further show that this noncompliance significantly increases the likelihood of receiving a comment letter. We also find that comment letter resolution is longer for firms with strong proprietary motivations than for those with strong agency incentives. Finally, we find that compliance with regard to derivatives disclosures following comment letter resolution improves for firms with high agency costs but not for firms with high proprietary costs. Collectively, our results imply that, when derivatives-related proprietary costs are high, benefits of noncompliance likely outweigh the costs. Moreover, the SEC's review effectiveness depends crucially on whether firms' initial motivation for noncompliance is proprietary versus agency. [ABSTRACT FROM AUTHOR]

Using a hand-collected sample of U.S. multinational firms' foreign and domestic cash holdings, we evaluate the earnings persistence implications of changes in foreign and domestic cash and whether stock prices reflect these implications. Building on the earnings decomposition approach in Dechow, Richardson, and Sloan 2008 Journal of Accounting Research, 46 (3): 537–566, we find that, in the overall sample, changes in foreign cash are as persistent for future earnings as changes in domestic cash. In the cross-section, we find that foreign cash changes have higher persistence when foreign operations offer better growth opportunities and when repatriation taxes are lower. We then examine whether investors correctly price the persistence implications of foreign and domestic cash changes. We find a positive association between current foreign cash changes and one-year-ahead stock returns, suggesting that investors underreact to foreign cash changes or equivalently underestimate the earnings persistence of foreign cash changes. We further document that investors are more likely to misprice foreign cash changes when information processing costs are higher and when firms have poorer information environments. Our study sheds light on a recent paper by Harford, Wang, and Zhang 2017 The Review of Financial Studies 30 (5): 1490–1538, who find that investors discount foreign cash changes, which they attribute to agency costs and investment inefficiencies. Our findings suggest that the discount is more likely due to investor mispricing of foreign cash changes. [ABSTRACT FROM AUTHOR]

This paper explores the influence of military directors in protecting shareholders' wealth through CEO compensation and corporate dividend payout policies. Based on manually collected data on corporate boards of non-financial companies operating in Pakistan, the results indicate a significant negative association between the presence of military directors on corporate boards and CEO compensation, thus supporting the notion that such directors are effective in monitoring and curtailing excessive rent seeking behaviour by the agents. In other words, presence of military directors on Pakistani corporate boards reduces agency costs and in turn enhances shareholders' wealth. Results also indicate significant positive relationship between presence of military directors on boards and dividend payout, hence signifying that such directors are effective in enhancing shareholders' wealth by reducing free cash flow opportunities that would otherwise be deployed by agents for their private benefits. We further found military directors with business education and wider networks to have significant positive association with dividend payout but not the case with CEO compensation. We control for board attributes, agent heterogeneity and firm-specific attributes in all our models. Overall, the benefits of military directors' inclusion on corporate boards in Pakistan have far broader strategic, economic and policy implications on the nation besides resolving the principal-agent problems in the boardroom. [ABSTRACT FROM AUTHOR]

To contribute to the research on the role of financial activities in corporate development, this study addresses the critical issue of short-term debt financing for long-term investment (SDFLI) and its impact on the sustainable development of carbon-intensive enterprises in China. By analyzing panel data from the A-share listed carbon-intensive enterprises in China spanning from 2010 to 2021, this study aims to shed light on the significance of this phenomenon and its implications. The empirical findings reveal the existence of a maturity mismatch between investment and financing in carbon-intensive enterprises, which exerts a significant negative impact on total factor productivity (TFP) and poses challenges to their sustainable development. Furthermore, the adverse effects of maturity mismatches vary across different types of enterprises based on factors such as ownership, industry characteristics, financing constraints, and internal controls. The results of the mediation effect model demonstrate that maturity mismatch hampers the sustainable development of carbon-intensive enterprises by reducing investment efficiency and increasing agency costs. Additionally, the moderating role of innovation in carbon-intensive enterprises between maturity mismatch and sustainable development is also examined. This research provides insights to establish policies for facilitating sustainable development in carbon-intensive enterprises. [ABSTRACT FROM AUTHOR]

This research examines how the interactive effects of financial flexibility value and accounting conservatism influence corporate investment decisions and further explores the moderating effect of a firm's mispricing on the above relationship. The findings show that firms with high financial flexibility and conservatism in the prior period are less likely to over-invest in the current period, because managers tend to make conservative decisions. Moreover, equity financing results in over-investment among overpriced firms, which is robust after considering a firm's hedging factor and high agency costs. [ABSTRACT FROM AUTHOR]

This paper empirically investigates the effects of the green credit policy (GCP) on the total amount, quality, and quantity of green innovation in renewable energy enterprises (REEs) by employing the difference-in-differences (DID) model. Analyses examining the channel, moderating, and economic effects are conducted using a sample of Chinese listed companies between 2008 and 2021. The results indicate that the GCP significantly promotes the total amount, quality, and quantity of green innovation in REEs. This impact on REEs is mainly through a reduction in green agency costs and an increase in research and development (R&D) spending. In addition, the promotional effects are more predominant in firms subjected to intensified environmental enforcement and benefiting from increased governmental subsidies. Moreover, this positive impact is particularly evident in regions with less environmental pollution and lower economic development. Overall, the adoption of green innovation in REEs, facilitated by the GCP, substantially enhances not only the enterprise value but also the environmental performance of the participating companies. Our findings offer a novel perspective for research related to green innovation within the context of the GCP. This could further contribute to the realization of green development strategies and the construction of a low-carbon society. [ABSTRACT FROM AUTHOR]

Increasingly organizations have dedicated systems and personnel (recipients) to receive and handle internal whistleblower reports. Yet, the complexity of handling whistleblower reports is often underestimated, and there is a dearth of literature that attempts to describe or analyse the challenges internal recipients face. This paper uses an agency theory inspired lens to provide insight into the complexity of internal whistleblowing, with the aim to identify focal points for improving internal whistleblowing processes. We conceive of internal recipients as agents of two principals in the event of whistleblowing: owner/top management as well as whistleblowers. We identify sources of agency problems and agency costs within these double-agent relationships. We provide avenues for solving these problems and reducing the agency costs. We close by offering paths for future research. [ABSTRACT FROM AUTHOR]

Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates may speak against family management. However, a large share of family-owned firms is run by family managers. Our study develops a theoretical model that provides an explanation for this paradox, linked to the multitasking problem of managing economic and non-economic tasks in family firms. Comparing the performance of family and non-family managers under moral hazard and imperfect performance measurement, we find that incentive pay leads to an effort distortion towards economic outcomes for both manager types, however less so for family managers. This effort distortion is less pronounced when economic and non-economic management tasks are complements. We show that family managers with excellent skills regarding non-economic goals of the owner family often outperform non-family managers even if they have poor skills in economic tasks or, what is more, if they have lower average abilities altogether. We further show that the interdependence between economic and non-economic goals in the manager's job tends to have a moderating effect on the family manager's relative performance. Our study contributes to the literature about family management and agency costs in family firms and has practical implications for family firms' hiring decisions. By highlighting the importance of non-economic goals, it moreover adds to the current discussion about the compliance with firms' sustainability goals. Plain English Summary: Family firms are the most common firm type around the world. Many of them, also those in later family generations, are run by members of the business-owning family. This is surprising since prior research has identified strong reasons that speak against family management such as nepotism, altruism, lower managerial skills, and a small pool of qualified family candidates. Our study contributes to solving this puzzle by developing a theoretical economic model. We show in this model that hiring a family manager is oftentimes the optimal decision when managers have to perform multiple tasks and, more specifically, need to take care of both economic and non-economic goals of the business-owning family. Non-economic goals comprise family goals (e.g., maintaining family harmony, reputation, tradition, and dynastic control) but also stakeholder-oriented sustainability goals (e.g., maintaining good relations with employees and avoiding environmental pollution). Achieving such non-economic goals, however, is often interrelated with economic tasks or goals. For example, to become a stable and highly reputable employer implies that you may have to forgo shutting down an unprofitable business unit, which saves jobs but has negative consequences for the firm's competitive position and financial performance. This interrelationship between the two tasks or goals, together with the fact that the achievement of non-economic goals is often more difficult to measure than the achievement of economic goals, makes it difficult to provide effective managerial incentives for them. We find that, under incentive contracts, non-family managers direct more attention towards economic goals while family managers, as such, are more reluctant to neglect non-economic goals. That is why family managers may be the optimal hiring choice despite them often having lower abilities across the two tasks. With the results from our theoretical model, our study contributes to the literature on family managers and agency costs in family firms by providing a new explanation for the high prevalence of family managers in family firms, namely the agency costs resulting from the managers' multitask problem in family firms. By highlighting the importance of non-economic goals, our study moreover adds to the current discussion about how to select and incentivize managers to pursue (social and environmental) sustainability goals. Our study has practical implications for family firms and their hiring practices regarding family members. In fact, we show that, in many cases, it is perfectly reasonable and meaningful to select and hire a family manager to run the family business even if he or she exhibits relatively weak skills in economic tasks. The relative benefit of family over non-family managers increases with a higher importance attached to non-economic (sustainability) goals by the owner family, with a better measurement of a manager's achievement regarding these goals, and with a stronger reinforcing interdependence between economic and non-economic goals. [ABSTRACT FROM AUTHOR]

This paper explores the relationship between market concentration, agency cost and firm performance using an unbalanced panel of 1911 publicly listed manufacturing firms in India for the period 2001 to 2020. It classifies firms according to ownership types and evaluates the effects of agency cost and market concentration on performance of firms. The study considers agency costs that result from principal-agent (PA agency costs) as well as from principal-principal conflicts (PP agency cost). Additionally, it shows how the interaction between various concentration indices and agency costs (PP and PA agency prices) affects performance. Using a generalized methods of moments technique to estimate three dynamic models, the study finds that both types of agency costs have a strong negative impact on performance, market concentration has a negative impact but is limited to certain types of firms and the combined effects between concentration and agency cost are strong which shows that an increase in market concentration causes a decline in performance due to an increase in agency cost. Thus, our findings support the prediction that competition acts as a disciplining device to reduce agency costs which in turn helps to reduce managerial slack and improve firm performance. Our study has several policy implications. [ABSTRACT FROM AUTHOR]

An asymmetric payoff function exists in CEO compensation: the sensitivity between CEO cash compensation and negative stock returns is higher than that to positive stock returns. The underlying rationale for such an asymmetrical relationship is that the difficulty of the ex post settling up of cash compensation prompts boards to reduce compensation when there is bad news. In this paper, we examine firms that adopt clawback provisions and find no evidence of such an asymmetry in these firms. The finding is consistent with the clawback provision's ex post settling up characteristics. Our paper contributes to the literature by showing that clawback provisions favorably impact the structure of CEO compensation by reducing agency costs related to the ex post settling up problem. [ABSTRACT FROM AUTHOR]

Investor sentiment does not only have negative impacts. It may also improve green total factor productivity by invigorating funds. This research constructs a new indicator at the firm level to measure the green total factor productivity of firms. We research the effect of investor sentiment on firms' green total factor productivity using a sample of Chinese heavy polluters listed on Shanghai and Shenzhen A-shares between 2015 and 2019. Through a series of tests, the mediating role of agency costs and financial situations is confirmed. It is discovered that the digitization of businesses facilitates the effect of investor sentiment on the green total factor productivity of businesses. And when managerial competence reaches a certain threshold, the impact of investor sentiment on green total factor productivity is amplified. Tests for heterogeneity reveal that high investor sentiment has a larger impact on green total factor productivity in firms with superior supervision. [ABSTRACT FROM AUTHOR]

We investigate whether a firm's social capital and the trust that it engenders are viewed favorably by bondholders. Using firms' environmental and social (E&S) performance to proxy for social capital, we find no relation between social capital and bond spreads over the period 2006–2019. However, during the 2008–2009 financial crisis, which represents a shock to trust and default risk, high-social-capital firms benefited from lower bond spreads. These effects are stronger for firms with higher expected agency costs of debt and firms whose E&S efforts are more salient. During the crisis, high-social-capital firms were also able to raise more debt, at lower spreads, and for longer maturities. We find no evidence that the governance element of ESG is related to bond spreads. The gap between E&S performance of firms in the bottom and top E&S terciles has narrowed since the financial crisis, especially in the year prior to accessing the bond market. [ABSTRACT FROM AUTHOR]

We investigate the circumstances under which socially responsible investing (SRI) enhances firm long-term financial performance, and therefore provides incentives for firms to self-regulate their environmental performance. Aggregating portfolios across SRI mutual funds, we estimate the effect of SRI investment with environmental screening criteria on firm cost of equity capital. We find that accounting for interactions between firm and non-shareholder stakeholders, and potential agency costs associated with certain environmental activities of the firm, SRI can facilitate the alignment of firms' environmental and financial goals. We also find that an industry group's environmental performance and diversity influence the extent to which a firm in that group can benefit from SRI investment. [ABSTRACT FROM AUTHOR]

This paper investigates the effect of earnings management practices on firm performance and focuses on how economic policy uncertainty (EPU) moderates the association between earnings management and firm performance. The analysis is based on a sample of French listed companies on the CAC ALL tradable index for the period from 2010 to 2017. Our results show that earnings management is positively associated with firm performance. This finding suggests that accrual- based earnings management, real earnings management and classification shifting are beneficial when managers use accounting choices to reduce agency costs and create value for shareholders. We also find that high EPU triggers a credible signal of lower disclosure quality. It plays an important role in promoting the opportunistic use of earnings management, which harms firm performance. This study is interesting for potential investors, since it underlines the negative effect of managerial opportunistic behaviour on firm performance under policy uncertainty. [ABSTRACT FROM AUTHOR]

This article reviews research on the economics of information in real estate. It covers equity investment in private and public markets and intermediation by brokers. The review shows how, by examining the nature and extent of information frictions in these important markets, research has improved our understanding of potential market failures and corrections which can improve market functioning. [ABSTRACT FROM AUTHOR]

This study investigates firm growth in the Middle East and North African (MENA), a region which is relatively under studied. Our data consists of firms listed on the regional United Arab Emirates (UAE) stock exchanges, which constitute an emerging market with smaller and less developed exchanges than most Western countries. Empirical results reveal that smaller firms grew faster than larger firms with three exceptions. These occurred in energy, telecommunications, and industrial manufacturing sectors, which also exhibit higher firm ownership concentration and significant institutional ownership. In addition, firms with higher ownership concentration also exhibited a cashflow that is statistically significant in increasing firm growth. This finding is consistent with economic theories on the reduced agency costs and higher efficiencies associated with concentrated ownership. These findings contribute to the scholarly literature on growth as they extend the discussion to the drivers of growth in different institutional contexts. Plain English Summary: This study examines the relationship between firm size and growth in the under studied Middle East and North African (MENA) region. Results suggest that similar to previous studies on Western firms, smaller firms grow faster than larger ones in the MENA region, with three notable industry exceptions. Firms in energy, telecommunications, and industrial manufacturing sectors show no clear relationship between size and growth. These industries also exhibit both higher ownership concentration and significant state ownership, which theory suggest may lead to lower agency costs, greater efficiency, and thus higher growth. Findings are significant for research and policy studies on firm growth and suggest that financing and governance structures may play a surprisingly important role in firm growth patterns. [ABSTRACT FROM AUTHOR]

This study proposes a renewal of the contemporary Islamic banking Murabaha financing model as it aggravates financial fragility with waning economic efficiency. We adapt the working capital framework of successful US companies like Amazon and Walmart and model an innovative Murabaha facility as trade credit within the real sector of the economy. We then test its robustness in a range of simulation tests. Our approach is novel and stands in contrast to the familiar financial sector fixed-income facilities, characteristic of Western economies, stealthily mimicked as mark-up (interest rate based) Murabaha by Islamic banks. We argue that this is neither appropriate nor effective for Islamic economies, making them fragile under monetary pressures in crises like the current coronavirus and energy ones. Our simulation results indicate that the trade credit Murabaha not only transforms debt into a risk-sharing one but also offers more competitive financing rates, reduces systemic risk, and improves financial stability. Furthermore, our results imply that the trade credit Murabaha can increase the efficiency of Islamic financial systems and make them more resilient to shocks. Consequently, this paper discusses the integration of our novel Murabaha within a recreated architecture of Universal Banking. As an implication, this should promote business activity and contribute to global growth. Finally, we recommend how to deploy our novel Murabaha based on trade credit (as opposed to the currently deployed fixed-income-mimicked Murabaha) to alleviate twin agency debt costs (risk shifting, underinvestment) and solve the ownership transfer problem of modern Islamic banking. [ABSTRACT FROM AUTHOR]

Cloud applications are becoming central and critical to the delivery of financial services. Despite their significance, banks face increased exposure to transaction risks related to the use of cloud services and internal and external pressures to improve their risk management practices. In this study, we use a unique data set from a bank's cloud register to examine the effectiveness of internal governance on an ongoing cloud outsourcing transaction between a bank and cloud service provider. We employ structural equation modeling and a simple linear regression to test for transaction misalignment and causes of governance inefficiencies. We find that a strong degree of misalignment is largely due to poor design of internal controls and a weak control system that does not provide acceptable indications of residual risk likelihood. The findings indicate that cloud risks are driven not only by agency costs, but also by firm-specific risks which contribute to a number of transaction uncertainties and governance misalignment. [ABSTRACT FROM AUTHOR]

Using a dataset of 170 firms that successfully fundraised via the two most prominent UK equity crowdfunding platforms, we investigate whether and how having successfully run an equity crowdfunding campaign is associated to the reputation of follow-on venture capital investors attracted. From the comparison with a control group of firms that received a seed round from business angels, we found that firms that have run a successful equity crowdfunding campaign attract lower reputable VCs. These results are confirmed when controlling for endogeneity and for firms' characteristics. Considering the shareholder structure chosen by the firm raising equity crowdfunding, we found that firms opting for a direct shareholder structure, which entails higher coordination and agency costs, attract less reputable VCs compared to firms opting for the nominee shareholder structure. [ABSTRACT FROM AUTHOR]

Hybrid ownership—sharing partial business ownership with the state—is a new form of political connections that entrepreneurs in developing countries may employ to improve their access to key resources. This study investigates hybrid ownership as a strategic decision of entrepreneurs running small businesses in Vietnam—a transition economy. Utilising the resource dependence theory and legitimacy viewpoint, we propose and evidently show that increased state ownership in hybrid firms leads to improved performance. However, increasing state ownership beyond a minority share threshold harms firm performance due to the presence of agency costs. Also, the involvement of the state in firm governance reduces the benefits gained from having state ownership. Plain English Summary: Is the more the better? How much state ownership really matters for hybrid firms to enhance their performance? More state ownership means more access to resources and privileges; but too much state ownership may reduce firm efficiency due to its poor governance. Analysing more than one million observations of small businesses in Vietnam, this study offers three insightful implications. First, for academics, institutional conditions should be considered when investigating political connections, especially in an emerging market context. Second, for practitioners, political connections in the form of hybrid ownership when being held at an adequate level can boost firm performance. However, an exceeding level of state ownership in hybrid firms may become harmful. Third, for policymakers, we suggest that forming hybrid business ownership with the private sector helps firms make use of state-owned resources. This collaboration is a win-win solution as long as the state ownership remains at an adequate level. [ABSTRACT FROM AUTHOR]

The role of liquidity in the banking industry is increasingly under the spotlight since the Global Financial Crisis (GFC) in 2007. Prior evidence offers contrasting findings on the role played by liquidity in banks: whilst it ensures systemic financial stability, at the same time it raises agency costs. Notwithstanding this, European banks benefited from a generous liquidity injection following the launch of the Quantitative Easing (QE) programme by the European Central Bank (ECB) in 2015–2016. We leverage on the release of the QE and investigate whether investors' reactions to the announcements of new liquidity injections vary according to bank-level characteristics of the European banks: namely, their financial soundness, asset portfolio quality and the level of transparency. Our findings document an overall negative market reaction to the QE announcements; at a more fine-grained level of analysis we highlight that banks falling short of the regulatory requirements are not expected to benefit from additional liquidity. This study contributes to the literature on the role of liquidity in banks by showing important boundary conditions to the beneficial role of liquidity in banks, that is—because of the regulatory capital requirements—liquidity is only valuable to investors if it can be reinvested once constraints are overcome. [ABSTRACT FROM AUTHOR]

This paper examines the impact of product market competition on the dividend policy of Indian firms. We have taken product market competition as the proxy of external corporate governance. This study has used 1142 non-financial, non-utility, and non-government Indian firms listed in NSE from 2001 to 2018. For the purpose, five different product market competition and three various dividend measures were employed. Also, the interaction between product market competition (external) and board corporate governance (internal) on dividend policy was examined using a newly developed board corporate governance index (BCGI). The findings suggest that non-competitive firms are more likely to pay higher dividends than competitive firms. Non-competitive firms face more significant agency problems and therefore, pay higher dividends than competitive firms. Finally, the study found that the influence of internal corporate governance on dividends to be much higher and significant in the case of non-competitive firms compared to competitive firms. Overall, the findings of this study offer consistent evidence that external corporate governance and dividend policy are substitutes, and higher agency costs and higher internal governance strengthens this relationship. The outcomes of this study can help the managers to more precisely take dividend decisions by looking at the competition level in the market. The results suggest that managers should pay less dividends when firms operate in a high-competitive industry and vice-versa. The policymakers should design corporate governance norms after considering the competitiveness of the industry. [ABSTRACT FROM AUTHOR]

We explore the relation between the maturity of new debt issues and firms' choice between bank loans and public bonds. We use borrowing firms' asset maturity and effective tax rates to instrument for the debt maturity, and bank competition and bank liquidity in the borrowers' state to instrument for the debt choice. The analysis provides evidence of causality in both directions. Consistent with theories based on information asymmetry and agency costs, we find that firms which seek to increase the borrowing term by one standard deviation are 30% less likely to choose bank loans, while firms which prefer bank loans have 70 months shorter maturity on average. Our results remain significant, albeit with smaller economic magnitudes, when we use different samples, include firm fixed effects, or use heteroskedasticity based instruments as in Lewbel (J Bus Econ Stat 30(1):67–80, 2012). [ABSTRACT FROM AUTHOR]

This study examines the effect of voluntary disclosure in annual reports on tax avoidance activities. The agency theory of tax avoidance suggests that tax sheltering is associated with important agency costs, underlining the importance of corporate governance mechanisms such as voluntary disclosure in shaping tax planning. Using a sample of 3448 firm-year observations of French listed firms over 2007–2013, the results show that voluntary disclosure is associated with lower tax avoidance activities, providing evidence that this disclosure can be seen as an effective monitoring tool that reduces the insiders' likelihood to engage in rent extraction through tax avoidance activities. The results also indicate that the negative effect of voluntary disclosure on tax avoidance is significant only when family control is below 40%, suggesting that the disciplinary role of voluntary disclosure is limited to firms with relatively low family control levels. Overall, our findings are consistent with the agency theory of tax avoidance and highlight the important role of corporate disclosure in improving corporate governance. [ABSTRACT FROM AUTHOR]

This study examines to what extent investment-cash flow sensitivity in business groups' is affected by internal capital markets (characterized by related-party transactions) and shareholding structure. We approach the subject by exploring potential financing advantages as contrasted with the agency problem. Using a hand-collected data set to quantify related-party transactions and classify control-enhancing structures, we find that group-affiliated firms with a higher scale of related-party transactions have lower levels of investment-cash flow sensitivity. Further, our results show that related-party transactions are both associated with investment opportunity and the type of shareholding structure, which support both financing advantage and agency hypotheses. The evidence shows that business groups transfer intra-group capital from low-growth to high-growth member firms, but it also demonstrates that the outcomes of these transfers are affected by the type of control-enhancing structure. Additional analysis shows that the agency problem tends to dominate the financing advantage effect in cross-shareholding structures, which leads to overinvestment. [ABSTRACT FROM AUTHOR]

Accepting the argument made by Manne, Epstein and others that firms wishing to allow their employees to insider trade should be permitted to do so, this article shows that there is still a crucial role for government in regulating insider trading. In particular, allowing employees to profit by insider trading is a form of employee compensation that, in contradistinction from conventional forms of equity compensation, results in unknowable and effectively unlimited costs to the company. Since providing employee compensation in this form causes the company to lose control of its compensation expense, even if insider trading were legal, virtually every company would rely on conventional forms of employee compensation and prohibit its employees from insider trading. But, pace Manne, Epstein and others, companies lack the means to detect insider trading by their employees, and even when they do catch employees insider trading, companies can impose only mild contractual sanctions, generally not exceeding disgorgement of profits and dismissal. As a result, although an efficient agreement between a company and its employee would prohibit the employee from insider trading, this prohibition cannot be effectively enforced by the company. Government, with its usual law enforcement powers, is better able to detect insider trading and can impose more severe sanctions on violators, including criminal penalties. Government should thus enforce a ban on insider trading in those instances, which will be virtually all instances, in which a company prohibits its employees from insider trading. The efficient solution is thus a hybrid system of private prohibition and public enforcement. Such a system is not unusual but the norm. Employers prohibit employees from embezzling their money and stealing their property, and employees are subject to contractual sanctions and dismissal for violating these prohibitions, but we still need statutes against theft to generate an optimal level of deterrence. This is all the more true when the employee misappropriates information, which is much harder to detect than a theft of money or property. [ABSTRACT FROM AUTHOR]

A defining feature of initial coin offerings (ICOs) is that entrepreneurs bear the full marginal investment cost but profit only partially from the marginal investment payoff. This design may exacerbate agency conflicts inherent in corporate finance. As a consequence, signals of entrepreneurial quality such as CEO loyalty, which is an established concept in social psychology and can easily be linked to potential agency conflicts in corporate settings, might be a first-order determinant of economic outcomes in the ICO market. Consistent with this, I find that loyal CEOs have to offer lower financial incentives to attract investors and are still able to raise more proceeds, conduct ICOs more thoroughly, and are less likely to fail. The findings are consistent with the hypothesis that asymmetric information between entrepreneurs and investors entail agency costs that are decreasing in CEO loyalty. [ABSTRACT FROM AUTHOR]

Bank-owned life insurance (BOLI) is life insurance purchased by bank holding companies (BHCs) for key employees, whose proceeds can be shared by the company and employees' heirs. We investigate reported benefits of purchasing BOLI to shed light on the dramatic increase in BOLI assets using a sample of 2040 firm-year observations from 2004 to 2013. We document that a BHC owning BOLI enjoys an average annual earnings increase of $12.5 million and an estimated annual tax shield of $3.4 million. This tax shield is nearly twice the size of average total CEO compensation. We provide empirical evidence that BOLI complements other forms of executive compensation. We empirically test potential agency costs associated with using BOLI as compensation but find no evidence of such costs. Further investigation shows that BHCs use BOLI to attract talented executives and benefit shareholders. We conclude that the significant benefits documented in this study provide convincing rationale for the increasing use of BOLI in recent years. [ABSTRACT FROM AUTHOR]

This research aims to investigate the level of agency costs faced by the universities in the UK, and how these costs impact the performance of these universities. A sample of 118 government-funded universities has been selected to collect financial data regarding various proxies of agency costs and quality of education. The research has utilised a multivariate regression model and t-tests to study the impact of agency costs on the quality of education in the UK universities. The results costs indicate that the UK universities suffer from extremely high level of agency costs however, the impact of these costs on the performance of these universities is contrary to their impacts on performance of the organisations in other sectors, that is, these costs positively contribute to the quality of education in these universities. [ABSTRACT FROM AUTHOR]

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Using large reductions in import tariffs as an exogenous shock to the competitive environment, this paper examines how an increase in foreign competition affects the importance of corporate governance. Consistent with prior studies, weak governance is associated with lower firm value, lower operating performance, lower labor productivity, higher capital expenditures, higher non-production expenses, and higher wages in the absence of increased competition. However, the differences between weak and strong governance firms along each of these dimensions are reduced or eliminated after a tariff cut. The effects are concentrated among firms in previously noncompetitive industries, defined as having sales concentration above the median or import penetration below the median in the year before the tariff cut. These conclusions are supported through the use of multiple alternative measures of operating performance and corporate governance. Altogether, the evidence indicates that an increase in competition can mitigate agency costs and serve as a substitute for traditional corporate governance mechanisms. [ABSTRACT FROM AUTHOR]

This study investigates the association between CEO perquisites and bank loan spreads. We collect detailed data on CEO perquisites from the proxy statements of S&P 500 firms between 1993 and 2015 to study this issue. The empirical evidence supports the agency cost view that the lending banks demand significantly higher returns (spread), more collateral, and stricter covenants from firms with higher CEO perquisites. We further confirm that the effect of these perquisites remains after we control for various corporate governance and agency cost factors. We conclude that banks consider CEO perquisites as a type of agency cost when they make lending decisions. [ABSTRACT FROM AUTHOR]

Regulators generally discourage bank CEOs also holding the role of board Chairman, as this governance structure can hinder independent decision-making and effective risk oversight. This study examines the issue of CEO Duality, identifying a positive relation to greater risk-taking across a battery of sensitivity tests. In further analysis, the study controls for differences in supervisory monitoring levels to examine its impact. Banks led by CEO Chairmen which are subject to lower levels of supervision continue to report a robust association to risk-taking, as before. However, this association dissipates for banks which are subject to heightened supervisory monitoring. These findings indicate that agency costs related to Duality may be moderated by greater regulation. This paper weighs-in on the controversy relating to a single contentious governance structure (i.e., CEO Duality), thus informing boards, regulators and researchers of the need to consider the overall interplay of monitoring mechanisms. [ABSTRACT FROM AUTHOR]

In this paper, we investigate the impact of government control on investors' valuation of cash held by listed firms in China. We find strong and robust evidence that government control leads to a lower value of cash. Further evidence suggests that this negative impact is associated with significant agency costs of political expropriation rather than low financial constraints of the soft-budget effect. Moreover, our extended analyses reveal that the negative impact of government control on the value of cash depends on regional institutional development. In particular, in regions with high institutional development, government control reduces the value of cash, while in areas that are less developed, this negative impact is attenuated to some extent. Overall, our findings shed new light and add a further dimension to the literature, broadening our understanding of the impact of government intervention on the listed firms under its control. [ABSTRACT FROM AUTHOR]

This study examines the relationship between corporate non-financial disclosure ratings, the Italian Legislative Decrees 231/2001 and 254/2016, and three outcomes of Italian listed firms: performance, risk and agency cost. Based on stakeholder–agency theory, this study conceptualizes the role of firms' non-financial disclosures in reducing asymmetric information and agency costs between managers and broad stakeholders. Utilizing the Standard Ethics Rating (SER) as a measure of firms' non-financial disclosure rating, this study finds that SER ratings are positively related to firm value and are negatively related to firms' risk and agency costs. This study also provides evidence that the adoption of Italian Legislative Decrees 231/2001 and 254/2016, along with external verifications from the SER of firms' non-financial disclosure, has a positive impact on firm outcomes. Corporate managers and investors should recognize the value added from regulations that foster non-financial disclosures and ratings issued by an independent rating agency (e.g., Standard Ethics) as they both enhance firm performance and reduce risk and agency costs. [ABSTRACT FROM AUTHOR]

Real world contracts often contain incentive clauses that fail to fully specify conditions triggering payments, giving rise to legal disputes. When complete contract generate Pareto efficient allocations the L&E literature advocates that courts should fill in the missing clauses. This logic does not directly extend to environments with moral hazard, where complete contracts result in constrained efficient allocations. Despite this inefficiency we find that when agency and marginal agency costs are congruent, the legal system can do no better than guide its courts to complete contracts according to the parties' intentions. [ABSTRACT FROM AUTHOR]

How do public procurement practices influence effective public financial management (PFM) in Africa? Notwithstanding the several public procurement reforms to improve PFM in Africa, outcomes have not been sustainable. Prior studies have failed to explain this phenomenon. With a descriptive case study design based on comprehensive datasets, this paper explains this situation with three key factors underlying the public procurement environment in three African countries: Ethiopia, Central African Republic, and Ghana. From the agency theory lenses, these factors affect the agency cost in public administrative systems necessary for addressing the agency problems in public procurement management towards desired PFM outcomes. [ABSTRACT FROM AUTHOR]

This paper extends the discussion about the bus network design in face of the mobility patterns associated with different degrees of urban dispersion. Based on an analytical approach, a comparison of total costs among different network structures is made for a ring-radial city, which is the other most common regular city layout. The results clarify what structure is the best solution for different scenarios of dispersion and city and transport characteristics. Simultaneously, the effect of the street pattern on the applicability of each structure is evaluated comparing these results to a previous research for a grid city. Three basic structures are analyzed: a radial scheme, a direct-trip-based network, and a hybrid structure as a transfer-based alternative. Each structure is dominant for a specific range of dispersion: radial networks for scenarios of high concentration, direct-trip-based systems for intermediate degrees of dispersion, and transfer-based structures when the activities are decentralized. However, constraints on stop capacity modify these ranges. Each structure presents a different distribution of travel time in the transit chain and agency costs that determine the most competitive alternative. In addition, the behavior of the structures and the evolution of costs regarding urban decentralization are practically the same for both street patterns: system costs grow with increasing mobility dispersion, the range of applicability for each structure is the same, and changes in their applicability when main input parameters vary are very similar. Therefore, these results make it possible to generalize about the conclusions obtained independently of the street layout. [ABSTRACT FROM AUTHOR]

We examine whether the proportion of CEO inside debt holdings (pension and deferred compensation) to stock holdings benefit both shareholders and debtholders by relating CEO inside debt to a firm's dividend payout policies. Based on the positive association of CEO inside debt and the propensity and the size of the dividend payout, we find that firms paying their CEOs with large inside debt present the lower cost of debt and default risk, and these benefits transfer to better firm performance and valuation. Moreover, we find that CEO inside debt is related to superior firm performance only in dividend-paying firms. Dividends tend to increase when firms with high agency costs of equity use inside debt. We conclude that dividends serve as a channel through which CEO inside debt compensation mitigates both agency costs of debt and agency costs of equity. [ABSTRACT FROM AUTHOR]

Using a unique dataset including all rights issues of new shares and other equity-like securities announced by Italian listed banks between 1989 and 2014, and exploiting the ideal setting provided by the Italian Banking Law, which allows for listed co-operative banks, we test if the 'one head-one vote' principle of co-operative banks and the 'one share-one vote' voting system of joint stock banks imply different costs of equity. Our empirical results, obtained using an event-study methodology, regressions and matching estimators, support our research hypothesis that the one head-one vote principle makes it more difficult raising new capital compared to one share-one vote principle, and contribute to the literature on demutualization and cooperative hybrids. [ABSTRACT FROM AUTHOR]

Worldwide, more than 1.25 million people die annually in road traffic accidents and between 20 and 50 million more are injured. By 2030, highwayrelated crashes are projected to be the 5th leading cause of death in the world. Road accidents have several contributing factors, including roadway conditions, vehicle conditions, and factors related to the road users. While some of these factors have been studied extensively by researchers very few focused on quantifying the relationship between accidents frequency and pavement quality. Before 1990s, due to the lack of pavement data collection technology, it was very difficult to carry out state-wide scale studies relating pavement quality and road safety. However, in the past decades, there has been a huge growth and awareness in the importance of road safety, leading to a significant increase of research in the topic. Researchers start ed to study other contributing factors to accidents occurrence and due to the development of high-speed friction measurement tools, agencies can now include friction into network level Pavement Management Systems (PMSs). The objective of this article is to contribute to the incorporation of safety concerns into Pavement Management by performing an exploratory analysis to assess the impact in the agency, user and total costs of performing two different maint enance policies. The methodology consisted in evaluating the evolution of the condition of the road pavements using pavement performance prediction models, followed by the prediction of the expected number of accidents and, finally the calculation of the agency and user costs. The results obtained provided a strong starting point to understand the requirements to solve this type of problems that not only affect road agencies but also the society in general. [ABSTRACT FROM AUTHOR]

A debate exists on the issue of whether a governance system is value additive or even necessary for a privately-held firm. One side of the debate suggests that, since agency problems do not exist in a small private firm, it does not need a costly governance system. The other side argues that a private firm indeed faces agency costs in the form of altruism and, therefore, could extract net gains from a governance system. In this paper, we empirically investigate whether a good governance system crates or destroys value of private family firms. We first demonstrate that a multifamily firm encounters larger agency costs stemming from inter-family conflicts, and therefore, has larger incentive than a single-family firm to institute a superior governance system. We then show that a multifamily firm, owing to its better governance system, outperforms its single-family counterpart. [ABSTRACT FROM AUTHOR]

This study examines the impact of multiple directorships on the value destruction associated with increases in cash holdings. We find that the marginal value of cash increases with multiple directorships. Furthermore, the positive relationship between cash value and multiple directorships is more pronounced for firms with higher managerial agency problems. Additional analyses suggest that multi-board directors limit a firm's holdings of excess cash, and especially directors having current industry affiliations have better ability to perform their monitoring function. Firms with multi-board directors make better cash acquisitions. Multiple directorships improve subsequent operating performance associated with capital expenditures and R&D investments. When firms have limited investment opportunities, multiple directorships result in more dividend payouts of cash. Collectively, our results suggest that multiple directorships are associated with a more efficient use of cash, thereby providing direct benefits to shareholders. [ABSTRACT FROM AUTHOR]

The present study presents a comprehensive framework for optimal highway capacity expansion through lane(s) addition. The applicability of the proposed framework is demonstrated using data from a multi-lane urban arterial. In the proposed methodology, annualized widening costs (agency lane addition cost and work zone user delay cost) and excess user costs for do-nothing scenario (excess travel delay cost, excess vehicle operating cost and excess crash cost) were estimated for each analysis year within highway life cycle to estimate a range of traffic volumes for highway capacity expansion. Furthermore, a sensitivity analysis was conducted to evaluate the sensitivity of optimal time for highway capacity expansion to: (1) annual traffic growth rates (2) agency to user cost relative weights and (3) annual discount rate. Study results revealed that optimal highway capacity expansion time corresponds to an ADT ranging between approximately 34,430 and 37,600 vehicles per day for the case study traffic mix conditions. The sensitivity analysis results revealed that increase in agency to user cost relative weight and annual traffic growth rate would result in later and earlier optimal highway capacity expansion, respectively, while variations in annual discount rate have minimal impact on optimal highway capacity expansion timings. It is anticipated that the application of proposed framework can result in a sustainable decision by saving a huge amount of agency expenditures and excess user costs due to non-optimal decisions. [ABSTRACT FROM AUTHOR]