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For a sample of over 700 celebrity appointments to corporate boards of directors over the period 1985–2006, we find positive excess market returns at the time of their announcement. The 1-, 2-, and 3-year long-run performance of the appointing firms provide corroborating evidence of the value of these appointments. We conclude that the appointment of celebrities as directors increase a firm’s visibility in a fashion consistent with Merton’s (J Finance 42:483–510, 1987) investor recognition hypothesis.

This study examines the phenomenon of co-CEOs within publicly traded firms. Although shared executive leadership is not widespread, it occurs within some very prominent firms. We find that co-CEOs generally complement each other in terms of educational background or executive responsibilities. Our results show that firms most likely to appoint co-CEOs have lower leverage, a more limited firm focus, less independent board structure, fewer advising directors, lower institutional ownership, and greater levels of merger activity. The governance structure of co-CEO firms suggests that co-CEOships can serve as an alternative governance mechanism, with co-CEO mutual monitoring substituting for board or external monitoring and co-CEO complementary skills substituting for board advising. An event study indicates that the market reacts positively to appointments of co-CEOs while a propensity score analysis shows that the presence of co-CEOs increases firm valuation.

This article examines the informational quality of implied volatility in forecasting future realized volatility using daily SP both historical and conditional volatility estimates using GARCH and EGARCH models possess limited explanatory power. A delta-hedged trading strategy with long positions in calls, however, generates significantly negative profits that imply a misspecification of constant volatility models. These results suggest that implied volatility estimates from constant volatility models contain valuable information, even though the model might be misspecified.

This study tests for the international presence of dividend catering across a sample of twenty-three countries. We find evidence of catering among firms incorporated in common law countries but not for those in civil law nations. Catering persists even after controlling for the effect of the firm’s lifecycle. We conclude that when the legal regime and its accompanying set of investor protections permit, investors force dividends from managers, but they also attempt to extract such payouts indirectly by placing a high value on dividend paying firms. The relative failure of civil law firms to cater might be explained by idiosyncratic behaviors in the consumption of the private benefits of control or a lack of interest in responding to temporary market misevaluations of their equity.

This study investigates the effects of Regulation FD and the Global Research Analyst Settlement on market share within the US securities industry as well as the determinants of market share during 1996–2004. We find that these regulations did not cause top brokers to lose market share in spite of their reduction of information asymmetries existing within the brokerage industry. They did, however, significantly reduce the quarterly variability in market share changes. We find that Regulation FD and the Global Research Analyst Settlement reduce the importance of an all-star analyst, issuer affiliation, and analyst optimism for gaining brokerage market share. We further discover that the Global Research Analyst Settlement increases the importance of coverage as a market share determinant while reducing the value of analyst experience for non-top brokers. We find that our results remain robust even when we limit our analysis to a set of pure brokerage firms.

Studies by LaPorta et al. (2000, 2002) show that the strong protection of investor rights encourage the development of capital markets and are associated with higher levels of firm valuation as measured by Tobin's Q. Related research finds that well-developed capital markets produce higher rates of economic growth and allocate capital more efficiently. These studies fail, however, to explain how the investor protection environment produces higher firm values or facilitates the more efficient allocation of investment capital. Using a sample of 158 ADRs representing 26 different countries, this study provides such a linkage by examining the effect of investor protection levels on share liquidity and the firm's cost of capital. We find that lower levels of investor protection reduce share liquidity while simultaneously resulting in a higher cost of equity capital. The combination of less liquidity with a higher cost of capital suggests an explanation for the lower values observed for firms incorporated in co...

Manuscript Type: Review Research Question: This review essay examines the mechanisms by which crosslisting of a firm’s shares on a foreign stock exchange and its subsequent exposure to an international capital market can induce changes in corporate governance. We also review reasons why a firm might elect to use crosslisting to improve investor perception of the quality of its governance. Research Findings/Results: After a review of the existing literature, we conclude that there is substantial support for legal bonding in the decision to crosslist, with lesser evidence consistent with reputational bonding. We also conclude that firm growth opportunities and the need for external capital are critical factors in a decision to crosslist. Theoretical Implications: This study synthesizes the extensive empirical work done on crosslisting and consequent changes in corporate governance structures. It also highlights a number of areas that require further research including more direct testing of governance changes following crosslisting, the effect of crosslisting on corporate equity ownership structures, and the investment/new securities issuance behavior of firms subsequent to crosslisting. This research will help to chart the path of future academic study by scholars of international corporate governance. Practical Implications: This review of the empirical evidence will contribute to the identification of a set of best practices that can lead to improved governance for firms worldwide. Furthermore, the discussion of what remains unexamined by governance researchers will help to shape the contours of future policy and legislative debate.

This study investigates patterns in dividend payment across nine common law and sixteen civil law countries over 1994-2007. We begin by examining whether the recent decline in the number of dividend payers is solely a US phenomenon or part of a more global trend. We find that at the beginning of our sample period, 72% of our sample firms pay dividends, but by 2007, this percentage decreases to 55%, with the decline more acute in common law countries. Our analysis further shows that the growing incidence of non-dividend paying firms can be explained by an increase in the percentage of firms that have never paid dividends. We find that common law firms are less likely to initiate new dividend programs than those in civil law nations, although they tend to have more abundant growth opportunities. We further establish that this global decline in the propensity to pay dividends is more pronounced in firms incorporated in common law jurisdictions. Finally, we find that both the percentage increase in aggregate dividends and the dividend payout ratio is higher in civil law countries.

Using a comprehensive sample of mutual funds and fund families for the period 1992-2004, this paper examines the impact of fund management companies' organizational forms on the level of agency costs observed within mutual funds. We find that, all else being equal, (1) funds managed by public fund families charge higher fees than those managed by private fund families; (2) public fund families are more likely to be implicated in the recent fund scandals; (3) public fund families acquire more funds than private fund families; and (4) funds of public fund families significantly underperform funds of private fund families. Collectively, these findings suggest that agency costs are higher in mutual funds managed by public fund families. Our results are consistent with the idea that the agency conflict between the fund management company and fund shareholders is more acute for public management companies because of their shorter-term focus.

This study examines how changes in block ownership effects firm value and performance for a sample of US firms over the period 1993–2001. We find that the creation of a new block has a significant impact on shareholder wealth while block elimination does not. The wealth effect is most pronounced when the new block-holder is a corporation. We also determine that announcement period returns are larger when purchasers are classified as permanent rather than temporary block-holders. We find that the creation of a permanent block-holder improves industry-adjusted operating performance more than that of a temporary block-holder. Block elimination, however, does not impact the firm's subsequent operating performance. Our analysis of the sequencing of changes in the number of block-holders shows that firm value increases only when a block purchase produces an initial block-holder. We find that the superior long-term market performance of firms with new block-holders is due to the presence of permanent block-holders.

Namesake funds provide a unique sample for studying the two agency conflicts that exist within a mutual fund. The first is between the fund management company and fund shareholders, and the second is between the fund management company and the fund manager. A typical namesake fund manager sits on his or her fund’s board, frequently as the chairman, is the majority owner of the fund management company, and has significant investments in the fund he or she manages. Our results indicate that namesake funds charge higher fees, suggesting that the boards of namesake funds are less effective. We find that namesake funds are more tax efficient, consistent with the idea that managerial ownership helps align the interests of managers with those of shareholders. Because of fewer career concerns, namesake fund managers herd less while assuming greater unsystematic risk. We find weak evidence that namesake fund managers outperform their benchmarks and peers. Finally, we observe that namesake funds attract higher levels of investor cash flow.

We examine the size, profitability and delisting experience during 1980–1999 of new lists in the Pacific Basin countries. We also examine the impact of the legal environment on post-listing behavior. We find that new lists are more numerous in common law countries. They are smaller than seasoned firms, regardless of legal regime. New lists are more profitable in civil law countries, but this is due to the high profitability of Japanese new lists. Asian new lists have lower rates of delisting compared to U.S. firms. The delisting frequency of seasoned firms exceeds that of new lists for our sample countries.

This paper investigates the influence of managerial entrenchment on private placements by examining the firm's decision to appoint representatives of the private investors to the board without shareholder approval. By analyzing a sample of U.S. firms that appoint directors in combination with private offerings between 1995 and 2000, we find that firms with greater managerial entrenchment are more likely to bypass shareholder approval. Firms that bypass shareholders are less likely to appoint independent directors or to elect one of these directors as chairman. We also show that the market reacts more positively to the private offering announcement when the firm submits its board candidates for shareholder approval. Further, firms that bypass approval underperform compared to firms that obtain it. Overall our findings suggest that managers avoid shareholder approval to perpetuate entrenchment.

Recent scandals involving late trading, market timing, and other trading abuses have prompted the SEC to propose changes in the governance of mutual funds. Among these changes are the requirements for an independent chairman and a board consisting of at least 75% independent directors. Using a large sample of mutual fund families for 2002, we find that neither the probability of a fund scandal nor overall fund performance is related to either chair or board independence. Overall, our results question the usefulness of these recently proposed SEC changes in mutual fund governance.

Legal rights of investors are recognized as an essential component of corporate governance. We assess the efficacy of these rights by examining board changes surrounding the filings of shareholder derivative lawsuits. We find that the incidence of derivative lawsuits is higher for firms with a greater likelihood of agency conflicts. We also find that derivative lawsuits are associated with significant improvements in the boards of directors. In particular, the proportion of outside representation on the board of directors increases. There is also some evidence that other board characteristics change favorably. These findings suggest that shareholder derivative lawsuits are not frivolous as is often claimed, but rather that they can serve as an effective corporate governance mechanism.

In this study, we examine the relationship between political connections of private firms and the initial public offering process. Using registration statement information, we create a unique database of politically connected IPO firms. We find that political connections are substitutes to high-quality underwriters and big four auditors. Politically connected firms manage earnings more highly upward than non-connected firms prior to the public offering. Politically connected firms also exhibit less underpricing than non-connected firms. Finally, politically connected IPO firms have superior post-IPO returns relative to non-connected IPO firms.

This study examines how the appointment of former politicians and regulators to boards of directors or management teams influences corporate acquisition activity and performance. We find that bidders with political connections are more likely to acquire targets and avoid regulatory delay or denial. The merger premium paid increases with political connectedness. The announcement period returns show that investors recognize that bids by politically connected acquirers are more likely to create firm value. Connected bidders make more bids and bid on larger targets. Connected acquirers also enjoy superior post-merger financial and operating performance.

This study examines aggregate patterns of dividends and earnings for the two largest equity markets outside of the U.S. over 1990–2001. Although aggregate U.K. and Japanese dividends exhibit modest increases, neither the magnitude nor the trend is comparable to the U.S. experience. Further, we note important differences in the level of aggregate dividends between keiretsu, independent and hybrid firms. This suggests the importance of corporate organizational form in understanding Japanese dividend behavior over time. We find evidence of dividend concentration in the U.K., but not in Japan. Fewer firms are paying more dividends, but not everywhere. We find evidence of earnings concentration in the U.K., but such consolidation in Japan is limited to independent firms. Our analysis offers mixed results for the relation between a firm's earnings and its ability to pay dividends. Few U.K. firms with negative earnings pay dividends while 73% of comparable Japanese firms do. The U.K. economy rather than the Japanese, increasingly resembles a two-tier system with a small set of very high earners providing a disproportional percentage of aggregate dividends. Finally, our evidence suggests that the general stability of Japanese and U.K. payout practices is inconsistent with a reduced propensity to pay dividends.

We test whether a bias exists in analyst recommendations for firms that file for bankruptcy during 1995–2001. We fail to find overoptimism in analyst recommendations, including those of affiliated analysts. Our multivariate analysis of the market reaction to changes in analyst recommendations indicates that prior affiliation exerts no impact on either returns or trading volume. We find that the market does not view recommendation upgrades by affiliated analysts as biased since there is no price reversal following these recommendation changes. Overall, our results suggest that recently passed legislation to reduce analysts' conflicts of interest might be an overreaction.

We examine whether the decline in the number of dividend payers is purely a U.S. phenomenon or is part of a global trend. Focusing on the United Kingdom, a capital market comparable in maturity and sophistication to that of the United States, we find that the number of U.K. firms paying dividends declines from 75.9% to 54.5%. After controlling for firm size and profitability, we find a declining propensity to pay dividends over the 1998–2002 subperiod. We conclude that a shift in catering incentives appears most likely explain these recent changes in U.K. payout policies.

Using a sample of US firms engaged in joint venture activity primarily in the 1990s, we test the hypothesis that joint venture activity is motivated by a desire for efficient risk sharing. We find that approximately ninety-six percent of our sample experiences a risk change in response to joint venture activity. A significant proportion of these experience a reduction in beta. No market price response is evident in conjunction with this reduction. In addition, the average parent firm experiences a significant increase in firm risk, which we attribute to taking on the risky joint venture. This increase in risk is particularly pronounced for firms engaged in international joint ventures and is accompanied by a positive market response. Investment stake, pre-venture firm profitability, size and private risk increasing characteristics appear to influence the wealth character of the joint venture. We interpret that there may be a positive market premium for international diversification effects and/or for the flexibility that the real option joint venture opportunity provides.

A sample of cash-only acquisitions of Nasdaq targets during 1973–1999 is examined. It is found that the mean (median) percentage premia declines from 74% (65%) during the 1970s to 47% (42%) in the 1990s. Consistent with recent research on the value reduction associated with diversification, it is observed that acquirers generally will not pay higher prices to acquire firms operating in different industries. It is found that over-invested firms pursue acquisitions more aggressively by paying higher premia while under-invested firms pay less, on average. Finally, the evidence suggests that agency rather than synergistic or hubris effects influence the level of merger premia.

The changing nature of initial public offering (IPO) underpricing is examined using a sample of 513 IPOs launched in the UK from 1993 to 2001. It is found that the mean UK underpricing is initially less than that in the USA, reverses itself in the mid-1990s, returns to a lower level during the bubble period, but exceeds US underpricing for the last years of the sample. A growing amount of money left-on-the-table by UK underwriters is also observed. The analysis of IPO characteristics shows the simultaneous presence of changing composition and incentive realignment effects in the UK IPO market. These effects are most evident during the technology/internet equity bubble, which spans the last two subperiods of this study. It is concluded that although the market frenzy of the technology/internet bubble was present in the UK IPO market, its influence appears more limited than that documented for the US.

In this paper, we use intra-day data for all stocks listed on the ISSM and provide new and direct evidence consistent with the tax-loss selling hypothesis. We find that (a) there is abnormal selling pressure prior to the year-end for stocks that have experienced large capital losses in the current and prior years (b) investors delay realizing capital gain by postponing the sale of capital gain stocks until after the new year (c) there is a significant decrease in the average trade size for stocks with large capital losses before the year-end and for stocks with capital gains in the new year, which suggests that individuals, rather than institutional investors, are the major sellers around the year-end (d) the tax-loss selling hypothesis, and not firm size or share price, is the fundamental explanation for abnormal January returns. Further, small or low share priced firms with capital gains do not experience abnormal returns in January. However, conditional on capital losses, small or low share priced firms magnify the turn-of-the-year effect (e) On average, the increase in selling activity adversely affects market liquidity by increasing bid-ask spreads and reducing depths. (f) The tax-loss selling pressure not only causes the price to be at the bid at the year-end, it also temporarily depresses the equilibrium price indicating the short run demand curve is not perfectly elastic (g) the year-end buying activity suggests that large investors buy capital loss stocks prior to the year-end to take advantage of the temporarily depressed price and capital gain stocks after the new year to reinvest the proceeds of the tax-loss selling.

We examine the valuation impact of corporate diversification strategies through an analysis of a set of international joint ventures which contain both focus-decreasing and focus-increasing investments. Consistent with previous findings reported for US firms, we find that focus-increasing joint ventures create value for shareholders. However, we do not find that corporate diversification uniformly reduces shareholder value, either at the announcement of the project or in the long-run. Diversifying joint ventures negatively impact shareholder wealth only when the investing firms have poor growth opportunities and a weak cashflow position. After controlling for the q and cashflow effects, we find no significant difference in the market reaction to focus-increasing and -decreasing joint ventures. Such a result implies that the impact of diversification on shareholder wealth is not absolute, but rather is conditional upon the financial resources and growth opportunities available to the firm.

Using a vector autoregressive (VAR) approach, the dynamic interactions and causal relationships among volatility, open interest, trading volume and arbitrage opportunities in the S&P 500 index futures market is examined. It is found that increased volatility lowers pricing error. This implies that as market volatility increases, investors sell off their equity and futures positions with relatively larger drops in futures prices. Pricing error plays a critical role in linking implied volatility and the level of open interest. Open interest rises for a few days in response to a pricing error shock, but pricing error declines over the next day after an initial rise in response to an innovation in open interest. This suggests that the level of open interest is a good proxy for examining the capital flows into and out of the nearest S&P 500 index futures contract.

Using a comprehensive set of cross-listings, we extend the bonding hypothesis by developing what we term as the relative bonding hypothesis. We hypothesize that firms seek the advantages of stronger investor protections by listing in countries whose governance is relatively better than its own. This means that firms can achieve bonding without listing in the U.S and that the governance advantages of bonding are not only for ADRs. We find that firms are more likely to choose a cross-listing destination if the host country has better governance than the home country, except those firms from countries whose managers enjoy greater private benefits of control. We also find that there is valuation premium even when cross-listing occurs outside of the U.S. The premia are even stronger if the host country has better governance than that of the home country. We conclude that although bonding might explain the existence of ADRs, relative bonding helps to explain the extensive cross-listing which occurs outside of the U.S.

This study uses cross-border mergers as a test of the ability of foreign directors to provide effective strategic advising. We find that firms with foreign directors on their boards are more likely to engage in cross-border mergers, pursue a higher number of cross-border mergers, and invest more in those mergers. We further determine that firms with foreign directors are more likely to undertake nondiversifying mergers, enjoy friendly mergers, and acquire privately held targets. Moreover, we find that firms with foreign directors have higher announcement period returns and pay less for their cross-border targets.

Volume 17 of Advances in Financial Economics, entitled "Corporate Governance in the US and Global Settings" will provide further insights into corporate governance in the US & global economic and financial environment by publishing international, within-country and cross-country comparative studies. The volume will be edited by the series editors, Kose John, New York University, Anil Makhija, Ohio State University, and Stephen P. Ferris, University of Missouri.

Through a comparison of serial and once bankrupt firms over the period 1970–1996, those factors that lead to a successful reorganization are examined. It is found that serial bankrupt firms generally fail to restructure their top management around the time of their initial reorganization while over 70% of the sample of once bankrupt firms replace their senior executives. Serial bankrupt firms increase their level of fixed payments, are less able to lower their debt coupon rate and issue more equity than their once-bankrupt matches. It is further found that firm growth, performance, liquidity and size are associated with a greater likelihood of a successful reorganization. Firm risk as measured by financial leverage increases the probability of a subsequent bankruptcy. These results are useful to both bankruptcy courts and corporate managers seeking to discriminate between feasible and unrealistic reorganization plans following bankruptcy.

Contrary to the concerns of the Council of Institutional Investors and other shareholder activists, it is reported that the incidence of multiple board memberships appointments by corporate directors is low, with only 4% of the sample holding three or more seats. It is found that directors in regulated industries hold fewer board memberships than those in unregulated businesses. Firm size, board size, firm performance and corporate growth opportunities positively influence the number of directorships held by individual directors. It is further discovered that increased equity ownership of the firm by the board is associated with fewer external appointments by the board members. It is concluded that proposals to limit the number of directorships held by an individual may be ill-advised.

Existing literature documents a positive stock market reaction to the announcement of long-term performance plans as well as subsequently higher growth rates in earnings per share and return on equity (ROE). These findings are consistent with the notion that such performance plans provide an incentive to managers to reduce the magnitude of agency conflict present within the modern corporation. Using a paired sample design, this paper addresses the specific sources of superior post-adoption ROE performance. We fail to observe any evidence of improvement in total sales, total asset turnover or the management of long-term debt. We find that the post-adoption increase in ROE growth is primarily attributable to improved profit margins, which in turn is a result of a lower Cost Of Goods Sold (COGS) and reduced inventory related costs. Specifically, we observe lower inventory size and a greater inventory turnover in the post-adoption period. We further report a reduction in short-term debt usage, which is consistent with lower inventory related costs. We also find that the number of employees declines in the post adoption period, which is consistent with a lower COGS. We find no evidence, however, that managers significantly reduce depreciation, advertising or R&D expenses. Moreover, it does not appear that managers attempt to manipulate reported earnings by increasing accruals. The obvious implication of this study is that through the adoption of long term performance plans, shareholders can mitigate the agency problem by inducing management to reduce wasteful expenditures on excessively large workforces and inventories. These results suggest that a prominent manifestation of agency conflict within the firm is lack of managerial oversight over the size of the corporate workforce and inventories.

This study reports the results from a survey of 1,000 finance faculty members within schools of business across the U.S. concerning their knowledge of ethical transgressions as well as their attitudes towards ethics training in the curriculum. Ethical breaches appear most frequently with the unauthorized duplication of licensed software and the misuse of university resources for private consulting activity. Yet knowledge of ethical misconduct is highly segmented, with significant differences in reporting frequency between groups based upon citizenship, academic rank and school size. Contrary to the implications of Hawley (1991), we find there is a widely held belief by finance educators that business ethics has a legitimate role in business curriculums and should be included in finance course work. Further, our respondents strongly reject the notions that ethical practices are inconsistent with the principle of shareholder wealth maximization or that finance is more susceptible to ethical transgressions than other functional areas of business. We conclude that finance faculty are able to serve as legitimate ethical mentors for students and by implication may positively influence future corporate ethical behavior.

We find, like [Lang, L.H.P., Stulz, R.M., 1992. Contagion and competitive intra-industry effects of bankruptcy announcements: An empirical analysis, Journal of Financial Economics, 32(1), 45–60], that large firm bankruptcies generate a dominant contagion effect. A value-weighted portfolio of competitors' stocks experiences a significant loss of 0.56% in the three days centered around the Chapter 11 announcement. This represents an average loss of $3.32 for all the competitors combined for every dollar lost by the bankrupt firm. In addition, we find that small firm bankruptcies also generate a dominant contagion effect among smaller sized competitors; an equally-weighted portfolio of all competitors has a significant 0.12% drop. In a new approach to separate the contagion and competitive effects, we compare the stock price reactions of competitors who themselves subsequently file for bankruptcy in the next three years (candidates for contagion effect) with those who do not do so (candidates for competitive effect). As expected, candidates for contagion effect experience a significant, negative three-day stock price reaction of −4.68%. However, contrary to expectations, candidates for competitive effect also have a significant, negative return (−0.49%), suggesting that the competitive effect is weak at best since it is dominated by the contagion effect even in this sample. Other procedures to identify candidates for competitive effect generally yield similar findings. Finally, we analyze competitors' stock price reactions based on selected characteristics (e.g., industry concentration, and leverage), with similar results as before. One explanation for the failure to detect a competitive effect is that the impact may already have been incorporated in stock prices prior to the filing for Chapter 11. Consistent with this explanation, we find significant positive stock price reactions by competitor stocks for the hundred days prior to the bankruptcy announcement.

This article surveys the influence of research journals on finance doctoral education. Influence is measured by citations from syllabi of finance seminars. A sample of 101 distinct syllabi submitted by 33 finance doctoral programs yields a list of 1,031 articles cited by at least two schools. These 1,031 articles generate 3,273 citations referencing 17 finance, economics, and accounting journals, where multiple citations from a single school are counted as a single citation. The most notable findings are the wide variety of seminar content across finance doctoral programs and the dominance of five finance journals in providing this diverse content. FINANCIAL RESEARCH PUBLISHED IN academic journals has been examined from a number of perspectives in an attempt to assess its importance to a variety of issues. Armstrong and Sperry (1994) and Borokhovich, Bricker, Brunarski, and Simkins (1995) describe the relationship between published research and business school prestige as measured by published rankings of business schools. Heck, Cooley, and Hubbard (1981, 1986) and Heck and Cooley (1988) analyze the distribution of published research to generate rankings of the most prolific and influential researchers in finance. Zivney and Bertin (1992) examine the career research productivity of finance doctorates and describe a life cycle of research productivity. Still other bibliometric studies, such as Klemkosky and Tuttle (1977a, 1977b), Niemi (1987), and Chung and Cox (1990), use the publication of research articles as a method to identify institutional sources of research creativity in finance. Yet an important issue regarding published finance research remains unexamined. This issue concerns the relative influence of academic research journals on the design of finance doctoral education. This omission is surprising given the large contribution of published academic research to the content of finance doctoral seminars. Although abundant anecdotal evidence exists regarding the relative prominence and citation frequency of journal articles in finance seminars, empirical studies comparable to those cited above are absent. In this study, we attempt to fill this gap by reporting the results from a survey examination of syllabi used in finance doctoral seminars.

The use of shareholder rights represent an important mechanism for the acquisition of new equity capital in the Japanese financial market place. Yet a theoretical understanding of how a firm selects between a rights or a public offering remains elusive. Examining those Japanese firms issuing new equity over the period, 1975–1991, we find evidence consistent with the claim of Eckbo and Masulis (1992) that incorporation of antidilution clauses in convertible issues may influence the choice of method for new equity acquisition. The price rebound in the post-offering period which is critical to the transaction cost hypothesis of Hansen (1988), however, is only inconsistently detected for our sample of Japanese firms. Likewise, we observe a minimal agency footprint on the equity acquisition process, with only the impact of managerial equity ownership consistent with Smith (1977). We do find, however, that higher-quality Japanese firms attempt to avoid the adverse valuation effects associated with the issuing of new equity by employing underwriters to reduce potential information asymmetries. This result implies that the use of rights offering in Japan may be more popular among lower-quality firms or issues with only minimal potential for appreciation.

The relationships between risk and performance were tested employing within and between analyses at the level of strategic groups in three different industries. As hypothesized, systematic risk did not exhibit a consistent relationship with performance. By contrast, all of the total correlations, the between-group correlations, and the within-group correlations of total risk with performance were in the hypothesized negative direction. These findings suggest that when risk-averse managers reduce total risk, the firm's carnings performance is enhanced. The hypothesized differences between strategic groups in total risk were evident primarily in the computer and pharmaceutical industries. Performance also differed across strategic groups in these two industries, as well as among airlines. Contrary to expectations, systematic risk also differed across strategic groups in all three industries. These ANOVA results indicate that differences in strategic profiles between strategic groups engender differences in total risk, systematic risk, and performance .

This study examines the effect of the adoption of an automated trading system for equity trading on the Vancouver Stock Exchange (VSE). We find that the VSE's automation of its order processing has a positive influence on its trading activity, with market liquidity increasing in the post-automation period. We find, however, no evidence to support the contention that automation of securities trading destabilizes the market by increasing its volatility. Our empirical results confirm the existence of a weak weekend effect as well as a significant January effect. We also find that the serial correlation structure of returns is essentially stationary compared across the pre-and post-automation periods. We conclude that automation of the VSE has increased the transparency of the market and consequently will enhance the level of investor participation and confidence in it.

Among the various stakeholders of a firm, senior managers are the most likely targets for private and public political pressures. Other stakeholder groups are less visible and may be perceived as less influential in corporate strategy formulation and implementation. In some situations, consequently, senior executives may adopt corporate strategies in response to political pressures even if these strategies may be costly to shareholders. In this study, a special case is examined: the effect of divestment of South African business units on firm value. Using data from 1984 through 1990, we examine the impact that announcements of divestments have upon the stock return behavior of publicly traded firms. Our results indicate that significant and negative excess returns accrue to shares of companies announcing divestments of South African operations. These results are supportive of the premise that noneconomic pressures may influence managerial strategies rather than value-enhancement goals. © 1997 by John Wiley & Sons, Ltd.

Purpose To determine what role overconfidence plays in the forced removal of CEOs internationally. Design/Methodology The study makes use of the Fortune Global 500 list. Findings We find that overconfident CEOs face significantly greater hazards of forced turnovers than their non-overconfident peers. Regardless of important differences in culture, law, and corporate governance across countries, overconfidence has a separate and distinct effect on CEO turnover. Overconfident CEOs appear to be at greater risk of dismissal regardless of where in the world they are located. We also discover that overconfident CEOs are disproportionately succeeded by other overconfident CEOs, regardless of whether they are forcibly removed or voluntarily leave office. Finally, we determine that the dismissal of overconfident CEOs is associated with improved market performance, but only limited enhancement in accounting returns. Originality/Value This study is unique with its examination of overconfidence among global CEOs rather than being limited to U.S. chief executives. It also provides insight into how overconfidence is related to national cultures, legal systems and corporate governance mechanisms.

The nature of a firm's risk-taking behavior can significantly affect corporate performance. In an agency context, we examined the influence of equity ownership structure upon corporate risk taking....

Investors in many parts of the world are considering opportunities in transitional economies, but such investments typically require analyses that are different from those performed in mature, market-based economies. This article evaluates the application of traditional firm valuation procedures to state-owned enterprises in the former Soviet bloc countries. The valuation problems faced by the foreign joint venture partner extend beyond those posed by an absence of capital market prices and a lack of useful managerial data in the socialist-styled financial statements. A more fundamental problem arises from the deteriorated condition of the assets of most of these firms. Years of underinvestment and neglect have eroded the worth of assets so that firm value is driven by future growth opportunities rather than currently profitable assets. Based on extensive interviews with participants and using both socialist and western-compatible financial statements, we illustrate the difficulties in obtaining valuation estimates through the example of a Czech metals manufacturer. Given the importance of growth opportunities, we recommend that valuation be undertaken with active participation of insiders, instead of a mechanical task done by outside consultants alone.

In this study we examine the issue of memory in common stock returns through an analysis of short- and long-term dependencies in various equity return series. We conclude that there is no compelling evidence that would support a finding of systematic dependencies in the behavior of equity returns.

Jensen and Meckling (1976) suggest that security analysis monitoring serves to reduce the magnitude of agency costs present within the modern corporation. Moyer et al. (1989) provide evidence consistent with this hypothesis for a sample of publicly-traded American firms. In this study we examine the ability of Japanese corporate groupings or keiretsu to serve as an alternate mechanism for the control of agency conflicts. We find for independent firms in Japan that analyst following is directly related to the potential for agency conflict. We do not observe such a relationship, however, for keiretsu firms. Moreover, unlike independent firms, analyst following for keiretsu corporations is not related to the informational demands of investors. Overall, our evidence indicates that the practices of reciprocal equity ownership and the reliance on a common financier among keiretsu member firms mitigate the agency conflicts present within firms and produce more effective ways to channel information between members.

In a study of 1,131 stock splits spanning the period 1983–1989 we observe an increase in the number of trades as well as a reduction in the mean trade size following the split. Combined with earlier reported findings of an increase in the number of shareholders postsplit, we conclude that the number of liquidity traders increases after a split. We confirm the previously observed increase in the bid-ask spread following a split, and upon decomposition of the spread find an increase in its adverse selection component in the postsplit period. This is consistent with the finding by Brennan and Hughes (1991) of an increase in the number of analysts following a stock after a split. Further, observing a decrease in market depth following a split we determine that Kyle-type models incorporating diverse private information for informed traders most correctly describe the nature of security trading. Since this decrease in postsplit market depth is not related to the trading volume or the split factor, we reject price correction explanations for stock splits.

The payment of dividends by firms remains a quandary for finance scholars because of tax implications for value and the near substitutability of repurchases. A review of the literature on international dividend policy does not suggest an answer to this paradox, but it does provide evidence that supports several important conclusions. First, the evidence fails to support a dominant explanation for why firms pay dividends. Rather, the existing empirical work suggests that there are elements of numerous theories present in the global payment of dividends. Second, the literature shows that what are often presented as stylized facts about dividends are really U.S. results and fail to hold for other countries. Finally, the literature reveals the importance of factors beyond the economic and financial on the design of corporate dividend policies. Increasingly, the empirical evidence shows that cultural, legal, and behavioral factors exert important influences on managerial decisions about dividends.

The debate over convergence in international corporate governance continues to rage, yet the nature of any convergence is far from homogeneous. Convergence can be formal, functional, or even contractual. Further, the degree to which convergence occurs can be comprehensive or more limited, resulting in a hybrid system of governance. Although many researchers claim the superiority of the common law system of governance for maximizing firm value, others challenge the desirability of convergence, noting that such harmonization reduces the ability to respond to national needs, lessens governance diversity, and ignores a more pressing need for the international regulation of global firms.

Purpose – The question of whether the corporate governance practices of firms in diverse countries are converging to those of U.S. firms, and the extent of convergence or divergence, is examined. Design/methodology/approach – Company level governance measures of board structure and organization, firm audit attributes, antitakeover defenses, and compensation design attributes of international firms are compared with those of U.S. firms. Findings – We find that the evidence for convergence is more mixed than previously believed, with firms in some nations converging, others essentially static, and a number diverging from U.S. practices. We further determine that country factors such as measures of national economic freedom, increased shareholder rights, and impartial judiciaries help to explain convergence. Greater participation by banks in the national economy is associated with greater divergence from U.S. governance standards. Firm characteristics which are suggestive of a future need for external equity encourage convergence while those which capture the use of leverage or the ability to service additional debt are correlated with greater divergence. Research limitations/implications – This study suggests that inquiry into whether convergence is occurring might be the wrong question to ask. Rather, our findings suggest that the research focus should be shifted toward an inquiry of what specific areas of governance are converging and in what countries or regions. Originality/value – This study helps to describe what constitutes effective corporate governance design for firms worldwide. It provides managers with insights on how governance mechanisms can be tailored to reflect local practices and laws.