The Sustainable Investment Research Initiative (SIRI) Library is a searchable database of academic studies. Learn about the impact of sustainability factors on risk and return for long-term investors like CalPERS. Narrow your results by using the search box or filtering by Category.

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2003 Governance
  • The Quality Effect: Does Financial Liberalization Improve the Allocation of Capital?
  • Author: Abeiad, A., N. Oomes, K. Ueda
  • Journal: Journal of Development Economics
  • This paper documents evidence of a "quality effect" of financial libereralization on allocative efficiency, as measured by dispersion in Tobin's Q across firms.The authors predict that financial liberalization, by equalizing access to credit, is associated with reduced variation in expected marginal returns. They find robust evidence that financial liberalization, rather than financial deepening, is associated with improved allocative efficiency.
2008 Governance
  • The Effect of Wage Bargains on the Stock-Market Value of the Firm.
  • Author: Abowd, J
  • Journal: American Economic Review
  • The author estimates the change in value of common stock resulting from an unexpected change in collectively bargained labor cost.Using bargaining unit wage data and NYSE stock returns, the author finds a dollar-for-dollar tradeoff between bargaining labor cost and stock returns. This paper also finds support for the hypothesis that collective bargains maximize the sum of shareholders' and union members, wealth.
1989 Social
  • Unbundling Institutions
  • Author: Acemoglu, D., S.A. Johnson
  • Journal: Journal of Political Economy
  • This paper evaluates the importance of "property rights institutions," which protect citzens against exportation by the government and powerful elites, and "contracting institutions," which enable private contracts between citzens. The authors find that property rights institutions have a first-order effect on long-run economic growth, investment, and financial development. Contracting institutions appear to matter only for the form of financial intermediation.
2005 Governance
  • Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth.
  • Author: Acemoglu, D., S. Johnson, J. Robinson, Y. Thaicharoen
  • Journal: Journal of Monetary Economics
  • Countries that have pursued distortionary macroeconomics policies, including high inflation, large budget deficts and misaligned exchange rates, appear to have suffered more macroeconomic volatillity and also grown more slowly during the postwar period. This paper documents that countries that inherited more "extractive" institutions from theircolonial past were more likely to experience high volatility and economic crisis during the postwar period.
2003 Governance
  • Corporate Governance Externalities.
  • Author: Acharya, V., P. Volpin
  • Journal: Review of Finance
  • The choice of governance ina firm both affects and is affected by choices of competing firms. Firms with weaker governance offer managers more generous incentive compensation. this in turn induces firms with good governance to overpay for their management. Poor governance can be employed by incumbent firms to deter entry by new firms.
2010 Governance
  • Corporate Governance and Value Creation: Evidence from Private Equity.
  • Author: Acharya, V., O. Gottschalg, M. Hahn, C. Kehoe
  • Journal: Review of Financial Studies
  • The authors use deal-level data from transactions initiated by large private equity houses, and find that the abnormal performance of deals is positive on average, after controlling for leverage and sector returns. General partners who are ex-consultants or ex-industrial are associated with outpreforming deals focused on internal value-creation programs, and ex-bankers or ex-accountants with outperforming deals involving significant mergers and acquisitions
2013 Governance
  • The Internal Governance of Firms
  • Author: Acharya, V., S. Myers, R. Rajan
  • Journal: Journal of Finance
  • This paper creates a theoretical model demonstrating that subordinate employees in a firm create an internal governance structure. Internal governance and external governance from financiers complement each other and improve efficiency.
2011 Governance
2010 Governance
  • Women in the Boardroom and Their impact on Governance an Preformance
  • Author: Adams, R. and D. Ferreira
  • Journal: Journal of Financial Economics
  • The authors found that the female board directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. They also find that chief executive officer turnover is more sensitive to stock performance and directors recieve more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses.
2009 Governance
  • A Theory of Friendly Boards
  • Author: Adams, R. and D. Ferreira
  • Journal: Journal of Finance
  • This theoretical model exploits the dual role of Boards of Directors in providing both an advisory and a monitoring function. CEOs may be reluctant to share information with an independent board. Thus, management-friendly boards can be optimal.
2007 Governance
  • From Female Labor Force Particpipation to Boardroom Gender Diversity
  • Author: Adams, R. and T. Kirchmaier
  • Journal: Working Paper
  • The authors examine whether low female labor force participation is the main reason women hold seats on corporate boards using data from 22 countries over the 2001-2010 period. The authors find that labor force participation is significantly related to representation of women on boards when part-time and unemployed workers are excluded. However, cultural norms, the presence of boardroom quotas and codes promoting gender diversity are also correlated with female representation
2013 Social, Governance
  • The Cost of Socially Responsible Investing
  • Author: Adler, T. and M. Kritzman
  • Journal: Journal of Portfolio Management
  • The authors employ a simulation technique known as Monte Carlo simulation to measure the cost of socially responsible investing, and find that it increases with the investor's skill, cross-sectional dispersion of the investing universe, fraction of the universe that is restricted, and number of securities in the portfolio.
2008 Governance
  • The "Wall Street Walk" and Shareholder Activism: Exit as a Form of Voice
  • Author: Admati, A and P. Pfleiderer
  • Journal: Review of Financial Studies
  • This theoretical paper examines whether a larger sherholderr can alleviate conflicts of intrest between managers and shareholders through the credible threat of exit on the basis of private information. This paper presents a model where the threat of exit often reduces agency cost, but additinal private information need not enhance the effectiveness of the mechanism. The results are consistant with empirical findings on the interaction between managers and minority large shareholders and have further empirical implications.
2009 Governance
  • A History of Corporate Governance around the World: Family Buisness Groups to Professional Managers
  • Author: Aganin, A. and P. Volpin
  • Journal: University of Chicago Press
  • In this paper the authors use a unique data set with information on the control of all companies traded on the Milan Stock Exchange (MSE) in the twentieth century to study the evolution of the stock market, the dynamics of the ownership structure of traded firms, the birth of pyramidal groups, and the growth and decline of ownership by families in Italy.
2005 Governance
  • Does Governance Travel Around The world? Evidence from Institiutional Investors
  • Author: Aggarwal, R., I. Erel, M. Ferreira and P. Matos
  • Journal: Journal of Financial Economics
  • The authors find that firm-level governance is positively associated with international institutional investment. Changes in institutional ownership over time positively affect subsequent changes in firm-level governance, but the opposite is not true. Firms with higher institutional ownership are more likely to terminate poorly performing Chief Executive Officers (CEOs) and exhibit improvements in valuation over time.
2011 Governance
  • Differences in Governance Practices between U.S and Foreign Firms: Measurments, Causes, and Consequences.
  • Author: Aggarwal, R., I. Erel, R. Stulz and R. Williamson
  • Journal: Review of Financial Studies
  • Researchers construct a firm-level governance index that reflects minority shareholder protection. Results suggest that lower country-level investor protection and other country characteristics make it suboptimal for foreign firms to invest as much in governance as U.S. firms do. Overall, minority shareholders benefit from governance improvements and do so partly at the expense of controlling shareholders.
2009 Governance
  • The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market
  • Author: Aggarwal, R., P. Saffi and A. Sturgess
  • Journal: AFA 2013 San Diego
  • The authors find that institutional investors restrict or call back their loaned shares prior to the record date in order to excerside their voting right. The authors find higher recall for firms with weaker corporate governance, weaker performance, higher instituional ownership, and when antitakeover or compensation proposals are on the ballot. The influence of proxy advisory firm ISS is also evident in voting outcome. If ISS opposes management then the authors find the higher recall to be associated with less FOR votes for the proposal.
2013 Governance
  • Ensuring Validity in the Measurment of Corporate Social performance: Lessons from Corporate United Way and PAC Campaigns
  • Author: Agle, B and P. Kelly
  • Journal: Journal of Buisness Ethics
  • This paper argues for the necessity of incorporating all three portions of Wood's (1991) theoretical model of corporate social performance (CSP) into its measurement. It begins by describing the two studies of an organiational phenomenon not commonly studied - inernal fund drives to employees. Insights from these studies of corporate PAC and United Way campaigns are then used to illustrate how important it is to incorporate all three portions of Wood's model into the measurement of CSP to prevent drawing faulty conclusions.
2001 Environmental, Social, Governance
  • Institutional Monitoring through Shareholder Litigation
  • Author: Anges Cheng, C., H.He Huang, Y. Li and G. Lobo
  • Journal: Journal of Financial Economics
  • This paper investigates the effectiveness of using securieties class action lawsuits in monitoring defendant firms by institutional lead plantiffs from two aspects: (1) immediate litigation outcomes, including the probability of surviving the motion to dismiss and the settlement amount, and (2) subsequent governance improvement such as changes in board independence. The authors show that securities class actions with institional owners as lead plaintiffs are less likely to be dismissed and have larger monetary settlements than securities cladd actions with individual lead plantiffs. They also find that, after the lawsuit fillings, defendant firms with institutional lead plaintiffs experienced greater improvements in their board independence than defendant firms with individual lead plaintiffs.
2010 Governance
2013 Social
  • Corporate Governance Objectives of Labor Union shareholders: Evidence from Proxy Voting.
  • Author: Agrawal, A.
  • Journal: Review of Financial Studies
  • Labor union pension funds have become increasingly vocal in governance matters. The author examines the proxy votes of AFL-CIO union funds around an exogenous change in union representation. AFL-CIO affilated shareholders become significantly less opposed to directors once the labor organization no longer represents a firm's workers. Other institution investors, including mutual funds and public pension funds, do not exhibit similar voting behavior. Union opposition is also associated with negative valuation effects.
2012 Social
  • Codes of Good Governance Worldwide: What is the Trigger?
  • Author: Aguilera, R. and A. Cuervo-Cazurra
  • Journal: Organization Studies
  • Efficiency needs and legitimation pressure leads firms in 49 countries to adopt good governance 'best practice' codes. In addition, the study finds that countries with strong shareholder protection rights embedded in their legal system tend to develop codes.
2004 Governance
  • Codes of Good Governance
  • Author: Aguilera, R. and A. Cuervo-Cazurra
  • Journal: Corporate Governance
  • This paper provides a review of the rapid spread of literature on codes of good governance. Codes of good governance appear to have generally improved the governance of countries that have adopted them. The author also propse a multi-level framework to discuss three main topics that have emerged within the codes literature: the motivvations behind the diffusion of codes across countries and its implications for convergence of corporate governance practicies; the content of the codes and their "comply or explain" dimension; and the relationship between code compliance and firm performance.
2009 Governance
  • The Cross-National Diversityy od Corporate Governance: Dimensions and Determinants
  • Author: Aguilera, R. and G. Jackson
  • Journal: Academy of Management Review
  • The authors developed a theoretical model to describe and explain variation in corporate governance among advanced capitalist economies, identifying the social relations and institutional arrangements that shape who controls corporations, what intrests corporations serve, and the allocation of rights and responisibilities among corporate stakeholders. This paper's "actor-centered" institutional approach explains firm-level corporate governance practices in terms of institutional factors that shape how actors' intrests are defined ("socially constructed") and represented.
2003 Governance
  • Corporate Governance and Social Responsibility: A Comparative Analysis of the UK and the U.S.
  • Author: Aguilera, R., C. Williams, J. Conly and D. Rupp
  • Journal: Corporate Governance
  • Key differences between the U.K. and the U.S. in the importance ascribed to a company's CSR reflect differences in the corporate governance arrangements in these two countries. The authors draw on a model of instrumental, relational and moral motives to explore why institutional investors are becoming concerned with firms' social and environmental actions.
2006 Governance
  • The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation
  • Author: Ahern, K. and A. Dittmar
  • Journal: Quarterly Journal of Economics
  • In 2003, a new law required that 40 percent of Norwegian firms' directors be women- at the time only 9 percent of directors were women. They find that the constraint imposed by the quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin's Q over the following years, consistent with the idea that firms choose boards to maximize value. The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance.
2012 Social, Governance
  • The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts
  • Author: Ajinkya, B., S. Bhojraj and P. Sengupta
  • Journal: Journal of Accounting Research
  • The authors investigate the relation of the board of directors and institutional ownership with the properties of management earning forecast. They find that firms with more outside directors and greater institutional ownership are more likely to issue a forecast and are inclined to forecast more frequently. In addition, these forecast tend to be more specific, accurate and less optimistically biased.
2005 Governance
  • Labor Contracts as Partial Gift Exchange
  • Author: Akerlof, G.
  • Journal: Quarterly Journal of Economics
  • This paper explains involuntary unemployement in terms of the response of firms to workers' group behavior. In a norm-gift-exchange model of the microeconomics of the labor market, workers put forth efforts in excess of the minimum standard and firms give wages in excess of the current rate. The sizeable nature of the gift component of labor input and wages is endogenously determined.
1982 Social
  • Do Financial Markets Care about SRI? Evidence from Mergers and Acquisitions
  • Author: Aktas, N., E. De Bodt and J. Cousin
  • Journal: Journal of Banking & Finance
  • Acquirer gains in m&A deals relate positively to the target's ability to cope with social and environmental risks and more synergistic deals occur with targets that exhibit better environmental performance. The authors also document that the environmental and social performance of the aquirer increases following the acquisition of a SRI aware target.
2011 Environmental, Social, Governance
  • Agency Conflicts, Investments, and Asset Pricing
  • Author: Albuquerque, R. and N. Wang
  • Journal: Journal of Finance
  • This paper develops an analytically tractable dynamic stochastic general equilibrium model to study asset pricing and welfare implications of imperfect investor protection. Consistent with empirical evidence, the model predicts that countries with weaker investor protection have more incentives to overinvest, lower Tobin's Q, higher return volatility, larger risk premium, and higher interest rate. Calibrating the model to the Korean economy reveals that perfecting investor protection increases the stock market's value by 22 percent, a gain for which outside shareholders are willing to pay 11 percent of their capital stock.
2008 Governance
  • Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence
  • Author: Albuquerque, R., A. Durnev and Y. Koskinen
  • Journal: Working Paper
  • This paper presents an idustry equilibrium model of corporate social responsibility (CSR) and its asst pricing effects. The authors model CSR activities as an investment in higher customer loyalty. This paper test the model predictions empirically and finds evidence consistent with the following: CSR firms exhibit lower systematic risk and expected returns, systematic risk of CSR firms has increased over time, the ratio of CSR profitd to non-CSR profits is countercyclical, and, increased industry CSR adoption lowers systematic risk for non-Adopters.
2013 Environmental, Social, Governance
  • Green Management Matters Regardless
  • Author: Alfred, A and R. Adam
  • Journal: Academy of Management Perspectives
  • Green Management matters for many reasons, but fundamentally it matters because people expect managers to use resources wisely and responsibly; protect the environment; minimize the amounts of air, water, energy, minerals, and other materials found in the final goods people consume; recycle and reuse these goods to the extent possible rather than drawing on nature to replenish them; respect nature's calm, tranquility, and beauty; and eliminate toxins that harm people in the workplace and communities. From a moral or normative perspective the obligation for green management is absolute, and whether it "pays" to be green is only partly relevant.
2009 Environmental
2011 Governance
  • Stakeholder Capitalism, Corporate Governance and Firm Value
  • Author: Allen, F., E. Carletti and R. Marquez
  • Journal: Working Paper
  • This paper analyzes the advantages and disadvanteges of stakeholder-oriented firms that are concerned with employees and suppliers compared to shareholder firms when marginal cost uncertainty is greater (less) than demand uncertainty. The authors identify the circumstances where stakeholder firms are more valuable than shareholder firms, and compare these mixed quilibria with stakeholder firms only.
2009 Governance
  • Active Institutional Shareholders and Cost of Monitoring: Evidence from Executive Compensation
  • Author: Almazan, A., J. Hartzell and L. Starks
  • Journal: Financial Management
  • Although evidence suggest that institutional investors play a role in monitoring management, not all institutions are equally willing or able to serve this function. The authors present a stylized model that examines the effects of institutional monitoring on executive compensation. The model predicts that institutions' influence on managers, pay-for-performance sensitivity and level of compensation is enhanced when institutions have lower implied costs of monitoring, but that these effects are attenuated when the firm-specific cost of monitoring is high.
2005 Governance
  • A Theory of Pyramidal Ownership and Family Buisness Groups
  • Author: Almeida, H and D. Wolfenzon
  • Journal: Journal of Finance
  • This theoretical paper provides a new rationale for pyramidal ownership in family buisness groups. The model is consistant with recent evidence of a small seperation between ownership and control in some pyramids, and can differentiate between pyramids and dual-class shares, even when either method can achieve the same deviation from one share-one vote. Other predictions of the model are consistant with both systematic and anecdotal evidence.
2006 Governance
  • Environmental Policies and Firm Value
  • Author: Al-Najjar, B. and A. Anfimiadou
  • Journal: Business Strategy and the Environment
  • This paper uses three definitions of Eco- Efficiency to demonstrate a strong positive relationship between firm value and Eco-Efficiency. The authors apply Ohlson's (1995) model and adopt a modified version of the methodology of Sinkin et al (2008). The main outcome indicates a strong positive relationship between the market price and the Eco-Efficiency variable. Companies that have ISO 14001 certification and publish a CSR report show greater value than firms that participate in two Eco-Efficiency indices for a minimum of 5 years.
2012 Environmental
2004 Environmental
2011 Governance
  • Does it Pay to Be Green? A Systematic Overview
  • Author: Ambec, S. and P. Lanoie
  • Journal: Academy of Management Perspectives
  • The aim of this paper is to review empirical evidence of improvement in both environmental and economic or financial performance. The authors systematically analyze the mechanism involved in each of the following channels of potential revenue increased or cost reduction owing it to better ennviromental practices: (a) better access to certain markets; (b) differentiating products; (c) selling pollution-control technology; (d) risk management and relations with external stakeholders; (e) cost of material, energy, and services; (f) cost of capital; and (g) cost of labor.
2008 Environmental
  • Socially Responsible Investment Performance in France
  • Author: Amenc, N and V. Le Sourd
  • Journal: EDHEC Risk and Asset Management Reasearch Centre
  • Using the Fama-French three-factor model to compute alpha, the paper did not identify alpha values both positive and statistically significant for SRI funds. For most SRI funds, the paper obtained negative, but not statistically significant alpha, indicating that SEI security selection in itself does not lead to outperformance. The results show that SRI fund performance is accounted for instead by style biases and market cycles.
2008 Environmental, Social, Governance
  • Corporate Governance and Firm Value: International Evidence
  • Author: Ammann, M., D. Oesch and M. Schmid
  • Journal: Journal of Empirical Finance
  • In this paper, the authors investigate the relation between frim-level corporate governance and firm value and find a strong and positive relation between firm-level corporate governance and firm valuation. In addition, they investigate the value of relevance of governance attributes that document the companies' social behavior. Regardless of whether these attributes are considered individually or aggregated to indices, and even when "standard" corporate governance attributes are controlled for, they exhibit a positive and significant effect on firm value.
2011 Governance
  • Corporate Governance and the Environment: Evidence from Clean Innovations
  • Author: Amore, M and M. Bennedsen
  • Journal: Working Paper
  • This paper presents casual evidence on the important of corporate governance for the environmental performance of firms. The authors show that worse governed firms patent fewer clean innovations relative to their total innovation effort. They also find that worse governed firms patent more non-green innovations, suggest that the governance shock affects the composition of innovative activities by including a substitution from green to dirty projects.
2013 Environmental, Governance
  • Founders, Heirs, and Corporate Opacity in the United States
  • Author: Anderson R., A. Duru and D. Reeb
  • Journal: Journal of Financial Economics
  • The authors create an opacity index that ranks the relative transparency of the two thousand largest industrial U.S. firms. Large publicly traded companies with significant founer or heir ownership are significantly less transparent than firms with diffuse shareholders. Founder and heir-controlled firms exhibit a negative relation to performance in all but the most transparent firms.
2009 Governance
  • Board Characteristics, Accounting Report Integrity, and the Cost of Debt
  • Author: Anderson R., S. Mansi and D. Reeb
  • Journal: Journal of Accounting and Economics
  • This paper finds that the cost of debt is inversely related to board independence and board size. The authors also find that fully independent audit committees are associated with significantly lower cost of debt financing. Similarly, yeild spreads are also negatively related to audit committee size and meeting frequency.
2004 Governance
  • Pension Fund Asset Allocation and Liability Discount Rates: Camouflage and Reckless Risk Taking by U.S. Public Plans?
  • Author: Andonov, A., R. Bauer and K. Cremers
  • Journal: Working Paper
  • The authors document that U.S. public funds exploit the opaque incentives provided by their distinct regulatory environment and behave very differently from U.S. corporate funds and both public and non-public pension funds in Canada and Europe. In the past two decades, U.S. public funds uniquely increased their allocation to riskier invvestment strategies in order to maintain high discount rates and present lower liabilities, especially if their proportion of retired memebers increased more.
2013 Governance
  • A Survey of Recent Developments in the Literature of Finance and Growth
  • Author: Ang, J.
  • Journal: Journal of Economic Surveys
  • This paper provides a survey of recent progress in the literature of financial development and economic growth. The survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables.
2008 Governance
  • The Impact of Voluntary Environmental Protection Instruments on Company Environmental Performance
  • Author: Annandale, D., A. Morrison-Saunders and G. Bouma
  • Journal: Business Strategy and the Environment
  • This paper uses a survey of 40 companies operating in Western Australia to determine the extent to which the Implementation of voluntary environmental protection tools such as corporate environmental reporting (CER) and environmental management systems (EMS) has influenced company environmental performance. The influence of these voluntary instruments was not as strong in practice as the existing literature suggest it should be. While EMS are perceived as having a more significant impact on environmental performance than CER, both rank low on the list of 'drivers' that influence environmental performance.
2004 Environmental
  • Research Notes. Strategic Proactivity and Firm Approach to the Natural Environment
  • Author: Aragon-Correa J.
  • Journal: Academy of Management Journal
  • A relationship was found between strategic proactivity and approaches to the natural environment. The firms with the most proactive buisness strategies ("prospectors") employed both traditional corrective and modern preventive approaches to natural environment issues. Firm size had a major impact on the amount of training related to the natural environment in the sample firms and on their corrective approaches but made no difference to their preventive approaches.
1998 Environmental
  • A Contingent Resource-Based View of Proactive Corporate Environmental Strategy
  • Author: Aragon-Correa J. and S. Sharma
  • Journal: Academy of Management Review
  • This paper integrates perspectives from the literature on contingency, dynamic capabilities, and the natural resource-based view of the firm to propose a generic theory of how dimensions of the general competitive environment of a buisness will influence the development of a dynamic, proactive corporate strategy for managing the buisness-natural environment interface. The authors explain how certain characteristics of the general buisness environment-uncertainty, complexity, and munificence- moderate the relationship between the dynamic capability of a proactive environmental strategy and competitive advantage.
2003 Environmental
  • Environmental Strategy and Performance in Small Firms: A Resource-Based Perspective
  • Author: Aragon-Correa J., N. Hurtado-Torres, S. Sharma and V. Garcia-Morales
  • Journal: Journal of Environmental Management
  • Contrary to conventional wisdom in the extant liturature, even small and medium sized enterprises (SMEs) can adopt proactive environmental practices and these practices can lead to superior financial performance via specific capabilities based on the unique strategic characteristics of SMEs. The authors research also contributes to the resource-based view by showing that this perspective is relevant for SMEs' competitive strategies generally.
2008 Environmental
2011 Governance
  • The Effects of Board Independence in Controlled Firms: Evidence from Turkey
  • Author: Ararat, M., H. Orbay and B. Yurtoglu
  • Journal: Working Paper
  • This paper analyzes the relationship between board structure and firm performance. Classifying the board members as independent and affiliated directors, the authors report three main results: (i) Board independence is unrelated to equity issues, (ii) Independant directors are unlikely to curb the extent of related party transactions, and (iii) the presence of independent board members and firm performance are negatively related or uncorrelated.
2010 Governance
  • Too Much Finance
  • Author: Arcand, J., E. Berkes and U. Panizza
  • Journal: International Monetary Fund
  • This paper examines whether there is a threshold above which financial development no longer has a positive effect on economic growth. The results suggest that finance starts having a negative effect on output growth when credit to the private sector reaches 100 percent of GDP.
2012 Governance
  • Investing in Mutual Funds: Does it Pay to be a Sinner or a Saint in Times of Crisis
  • Author: Areal, N., M. Cortez and F. Silva
  • Journal: Working Paper
  • This paper investigates the performance of U.S. socially responsible funds that employ different stock selection criteria: religious, social and 'irresponsible' criteria. The 'irresponsible' fund outperforms in low volatility regimes, but underperforms in high volatility regimes. Furthermore, the risk of the 'irresponsible' fund is higher in low volatility regimes and lower in higher volatility regimes. Socially responsible funds do not adjust risk according to market conditions.
2010 Environmental, Social, Governance
2009 Governance
  • Executive Stock Options, Differential Risk- Taking Incentives, and Firm Value
  • Author: Armstrong, C. and R. Vashishtha
  • Journal: Journal of Financial Economics
  • The authors show that the sensitivity of stock options' payoff to return volatility, or vega, provides risk-averse CEOs with an incentive to increase their fims' risk more by increasing systematic rather than idiosyncratic risk. This effect manifests because any increase in the firms' systematic risk can be hedged by a CEO who can trade the market portfolio. Consistent with this prediction, the authors find that vega gives CEOs incentives to increase their firms' total risk by increasing systematic risk but not idiosyncratic risk.
2012 Governance
  • Academy of Management Journal
  • Author: Arthur, M
  • Journal: Academy of Management Journal
  • This study of 130 announcements in the Wall Street Journal illustrated a significant, positive relationship between work-family human resource initiatives and share price. As hypothesized, the work-family initiative and shareholder return relationship was higher in high-tech industries and, to a lesser extent, in industries with higher proportions of female employees.
2003 Social
  • Working Paper
  • Author: Ashraf, R., N. Jayaraman and H. Ryan, Jr.
  • Journal: Working Paper
  • This paper examines the relation between mutual fund votes on shareholder exective compensation proposals and pension-related buisness ties between the mutual fund and the firm. Mutual funds with buisness ties are less likely to support shareholder proposals. Among mutual funds with buisness ties, support for shareholder proposals varies inversely with the fees that the fund family recieves from the firm.
2009 Governance
  • Corporate Social Responsibility and Environmental Management
  • Author: Aslaksen, I and T. Synnestvedt
  • Journal: Corporate Social Responsibillity and Environmental Management
  • Considering ethical screening as a kind of segmentation of the equity market, it is shown with a theoretical model that screening can create incentives for changes in firms' behavior. The strength of this incentive depends on the relative share of screened portfolios, which in turn partically depends on the financial performance of the screened portfolios. While some theoretical arguments suggest that screening imposes a handicap compared with conventional portfolios, the existing empirical evidence does not indicate that screened portfolios systematically underperform conventional portfolios.
2003 Environmental
  • Review of Financial Studies
  • Author: Aslan, H. and P. Kumar
  • Journal: Review of Financial Studies
  • The authors theoretically and empirically addree the endogeneity of corporate ownership structure and the cost of debt, with a novel emphasis on the role of control concentration in post-default firm restructurng. Control concentration raises agency cost of debt, and dominant shareholders trade off private benefits of control against higher borrowing costs in choosing their ownership stakes. This paper presents new evidence on the firm- and macro-level determinants of corporate control concentration and the cost of debt.
2012 Governance
  • Journal of Financial Economics
  • Author: Atanasov, V., B. Black, C Ciccotello and S. Gyoshev
  • Journal: Journal of Financial Economics
  • This paper examines 2002 Bulgaria securities law changes which limit two forms of equity tunneling - dilutive equity offerings and freezeouts. Following the changes, minority shareholders participate equally in secondary equity offers, where before they suffered severe dilution; freezeout offer price/sales ratios quadruple; and Tobin's q rises sharply for firms at high risk of tunneling, relative to lower risk firms. At the same time, return on assts declines for high-equity-tunneling-risk firms.
2010 Governance
  • Labor and Corporate Governance: International Evidence from Restructuring Decisions
  • Author: Atanassov, J. and E. Kim
  • Journal: Journal of Finance
  • The authors find that strong union laws not only protect workers but also underperforming managers. Weak investor protection combined with strong union laws are conducive to worker-management alliances, wherin poorly performing firms sell assets to prevent large-scale layoffs, garnering worker support to retain management. Asset sales in weak investor protection countries lead to further deteriorating performance, whereas in strong investor protection countries they improve performance and lead to more layoffs. Strong union laws are less effective in preventing layoffs when financial leverage is high.
2009 Governance
  • Mentoring and Diversity
  • Author: Athey, S., C. Avery and P. Zemsky
  • Journal: National Bureau of Economic Research
  • The authors study how diversity evolves at a firm with entry-level and upper-level employees who vary in "ability and type" (gender and ethnicity). Using a theoretical model, they characterize possible steady states, including a "glass ceiling," where the upper level remains less diverse than the entry level, and temporary affirmative-action policies have a long-run impact.
1998 Social
  • Multiple Large Shareholders, Control Contests, and Implied Cost of Equity
  • Author: Attig, N., O. Guedhami and D. Mishra
  • Journal: Journal of Corporate Finance
  • This paper examines whether the presence of multiple large shareholders alleviates firm's agency costs and information asymmetry embedded in ultimate ownership structures. The authors find evidence that the implied cost of equity decreases in the presence of large shareholders beyond the controlling owner. They also find that the voting rights, the relative voting size (vis-á-vis the first largest shareholder) and the number of blockholders reduces firm's cost of equity. The study uncovers that the presence of multiple controlling shareholders with comparable voting power lowers firm's cost of equity.
2008 Governance
  • Corporate Legitimacy and Investment-Cash Flow Sensitivity
  • Author: Attig, N., S. Cleary and A. Ghoul
  • Journal: Journal of Buisness Ethics
  • The authors find that CSR performance leads to a decrease in investment- cash flow sensitivity (ICFS). They further find that ICFS decreases (increases) when CSR strenghts (concerns) increase. They find that the effect of CSR on ICFS is driven by the areas Community, Diversity, and Human Rights.
2013 Governance
  • Corporate Social Responsibility and Credit Ratings
  • Author: Attig, N., S. Ghoul and A. Guedhami
  • Journal: Journal of Buisness Ethics
  • This study provides evidence on the relationship between corporate social responsibility (CSR) and firms' credit ratings. The authors find that credit rating agencies tend to award relatively high ratings to firms with good social performance. They also find that CSR strengths and concerns influence credit ratings, and that the individual components of CSR that relate to primary stakeholder management (i.e., community relations, diversity, employee relations, environmental performance, and product characteristics) matter most in explaining firms' creditworthiness.
2013 Environmental, Social
  • Bid-Ask spread, Asymmetric Information and Ultimate Ownership
  • Author: Attig, N., Y. Gadhoum and H. Lang
  • Journal: International Monetary Fund
  • This paper examines the relationship between stock liquidity and ultimate ownership structure. The results suggest that the presence of family ownership increase the bid-ask spread. In addition, the magnitude of the deviation between ultimate ownership and ultimate control at the presence of families is important in determining the bid-ask spread.
2003 Governance
  • Creditor Rights, Enforcement, and Bank Loans
  • Author: Bae, K-H. and V. Goyal
  • Journal: Journal of Finance
  • This paper examines whether differences in legal protection affect the size, maturity, and intrest rate spread on loans to borrowers in 48 countries. Results show that banks respond to poor enforceability of contracts by reducing loan amounts, shortening loan maturities, and increasing loan spreads.
2009 Governance
2012 Governance
  • Employee Treatment and Firm Leverage: A Test of the Stakeholder Theory of Capital Structure
  • Author: Bae, K-H., J. -K. Kang and J. Wang
  • Journal: Journal of Financial Economics
  • This paper investigates the stakeholder theory of capital structure from the perspective of a firm's relations with its employees. The authors find that the firms that treat their employees fairly maintain low debt ratios. This result is robust to two measures of fair employee treatment- namely, high employee friendly raitings or inclusion in Fortune's "100 Best Companies to Work For."
2011 Social
  • Corporate Governance and Conditional Skewness in the World's Stock Market
  • Author: Bae, K-H., K. Wei and C.-W. Lim
  • Journal: Working Paper
  • This paper investigates why stock returns in emerging markets tend to be more positively skewed than those in developed markets. The authors find that the positive skewness is more profound in stocks from the markets that have poor corporate governance. Analogous results are also obtained from aggregate stock market returns.
2003 Governance
  • Culture, Corporate Governance, and Dividend Policy: International Evidence
  • Author: Bae, S., K. Chang and E. Kang
  • Journal: Joyrnal of Financial Research
  • This paper finds that two Hofstede's cultural dimensions, uncertainty avoidance and long-term orientation, remain significant in the determination of dividend policy even after controlling for governance and firm-specific fators. When uncertainty avoidance is high, only firms in countries with stronger investor protection pay more dividends as investors' desire of having a sure dividend dominates managers' desire of retaining more cash. Similarily, when a society's long-term orientation is strong, firms tend to pay less dividends
2012 Governance
  • Buisness Groups and Tunneling: Evidence from Private Securities Offerings by Korean Chaebols
  • Author: Baek, J.-S., J.-K. Kang and I. Lee
  • Journal: Journal of Finance
  • The authors examine whether equity-linked private securities offerings are used as mechanism for tunneling among firms that belong to a Korean Chaebol. They find that chaebol issuers involved in intragroup deals set the offering prices to benefit their controlling shareholders. They also find that chaebol issuers (member acquirers) realize 8.8 percent (5.8 percent) higher (lower) announcement returns than do other types of issuers (acquirers) if they sell private securities at a premium to other member firms, and if the controlling shareholders recieve positive net gains from equity ownership in issuers and acquirers.
2006 Governance
  • The Road to Recovery
  • Author: Bank, W.
  • Journal: World Bank
  • This paper offers an in depth analysis of East Asia financial crisis and a plan for restoring growth. This report focuses on a three-pronged strategy: reactivating growth, protecting the poor, and mobilizing capital.
1998 Governance
  • Monitoring the Monitor: Evaluating CalPERS' Activism
  • Author: Barber, B.
  • Journal: Journal of Investing
  • This paper reviews the theory and empirical evidence underlying the motivation for institutional activism and finds that CalPERS has pursued shareholder activism (i.e. reforms at focus list companies that would increase shareholder rights) as well as social activism (e.g., the divestment of tobacco stocks). The author estimates the total wealth creation from the former to be $3.1 billion between 1992 and 2005. The author argues that institutional activism should be limited and that it should pursue the intrests of investors.
2007 Governance
  • Corporate Social Responsibility as a Conflict between Shareholders
  • Author: Barnea, A. and A. Rubin
  • Journal: Journal of Buisness Ethics
  • This paper argues that insiders (managers and large blockholders) who are affiliated with the firm may want to over-invest in CSR for their private benefit since it improves their reputation as being good global citizens. The authors find that insiders' ownership and leverage are negatively related to the social rating of firms, while institutional ownership is uncorrelated with it.
2010 Environmental, Social, Governance
  • Green Investors and Corporate Investment
  • Author: Barnea, A., R. Heinkel and A. Kraus
  • Journal: Structural Change and Economic Dynamics
  • This paper presents a theoretical equlibrium model that explores the effect of ethical screening on the investment decision firms that fail the screen ('polluting' firms) and on their decision to reform so as to pass the screen. The authors find that green investors can induce polluting firms to reform and that SRI results in under-investing by polluting firms, which leads to lower total investment in the economy. In intermediate cases when reforming cost are positive but not so high that firms never reform, no fraction of green investors strictly between 0 and 1 generates as much investment as all or none. For 10-12 percent green investors, as estimated to be the fraction of total managed funds which are subject to SRI strategies, increasing the fraction of green investors lowers total investment.
2005 Environmental
  • Stakeholder Influence Capacity and the Variability of Financial Returns to Corporate Social Responsibility
  • Author: Barnett, M
  • Journal: Academy of Management Review
  • This theoretical paper argues that research on the buisness case for corporate social responsibility must account for the path-dependent nature of firm-stakeholder relations, and develops the construct of stakeholder influence capacity to fill this void. This construct helps explain why the effects of corporate social responsibility on corporate financial performance vary across firms and time.
2007 Governance
  • Does it Pay to be Really Good? Addressing the Shape of the Relationship Between Social and Financial Performance
  • Author: Barnett, M. and R. Salomon
  • Journal: Strategic Management Journal
  • The authors bring together contrasting literatures on the relationship between corporate social performance (CSP) and corporate financial performance (CFP) to hypothesize that the CSP-CFP relationship is U-shaped. Their results support this hypothesis. The authors find that firms with low CSP have higher CFP than firms with moderate CSP, but firms with high CSP have the highest CFP.
2012 Environmental, Social, Governance
2006 Environmental, Social
  • The Economics and Politics of Corporate Social Performance
  • Author: Baron, D., M. Agus Harjoto and H. Jo
  • Journal: Business and Politics
  • This paper provides an empirical test of a theory that relates corporate financial performance (CFP), corporate social performance (CSP), and social pressure from government and social activists for improved social performance. CFP is increasing CSP and decreasing in social pressure. CSP is increasing in social pressure. CSP in also increasing in CFP. Social pressure is decreasing in CFP and increasing in CSP. Thus, overall mixed results.
2009 Social
  • Estimation and Market Valuation of Environmental Liabilities Relating to Superfund Sites
  • Author: Barth, M. and M. McNichols
  • Journal: Journal of Accounting Research
  • The authors investigate whether characteristics known at various points in a Federal Superfund site's regulatory history explain cleanup cost estimates. The cleanup cost amalysis indicates that several site characteristics provide explanatory power in explaining cost estimates, including the type of site, the hazard score assigned by the EPA, the identified remediation technology, and the number of cubic yards of contaminated soil. This papers evidence also indicates that market particippants assess an environmental liability in excess of that recognized by the sample firms, averaging 28.6 percent of the market value of equity.
1994 Environmental
  • The Impact of U.S. Firms' Investments in Human Capital on Stock Prices
  • Author: Bassi, L., P. Harrison, J. Ludwig and D. McMurrer
  • Journal: Working Paper
  • The authors hypothesis is that firms that make unusually large investments in employee development subsequently enjoy higher stock prices than comparable firms that make smaller investments in employee development. The premise is that the current accounting treatment and reporting requirememnts cause "high investment" firms to be under-priced in the short run. Consistent with this, they find that firms' stock prices exhibit "super-normal" returns to human capital, measured as formal employee education and training expenditures in the previous year.
2004 Social
  • Board Classification and Managerial Entrenchment: Evidence From the Market for Corporate Control
  • Author: Bates, T., D. Becher and M. Lemmon
  • Journal: Journal of Financial Economics
  • This paper considers the relation between board classification, takeover activity, and transaction outcomes. Target board classification does not change the likelihood that a firm, once targeted, is ultimately acquired. Moreover, shareholders of targets with classified board realize bid returns that are equivalent to those of targets with a single class of directors, but recieve a higher proportion of total bid returns that are equivalent to those of targets with a single class of directors, but recieve higher proportion of total bid surplus. Board classification does reduce the likelihood of receiving a takeover bid, however, the economic effect of bid deterrence on the firm is quite small.
2008 Governance
  • Corporate Environmental Management and Credit Risk
  • Author: Bauer, R. and D. Hann
  • Journal: Working Paper
  • This study analyzes corporate environmental management and its implications for bond investors. The authors provide support for the view that the credit standing of borrowing firms is influenced by legal, reputational, and regulatory risks associated with environmental incidents. The document that (i) environmental concerns are associated with a higher cost of debt financing and lower credit ratings, and (ii) proactive environmental practices are associated with a lower cost of debt.
2010 Environmental
  • Corporate Governance and Cross-Listing: Evidence From European Companies
  • Author: Bauer, R., D. Wojcik and G. Clark
  • Journal: Working Paper
  • This paper documents the relationship between cross-listing and corporate governance of the largest European companies. Companies with a U.S. cross-listing, and particularly those listed on a U.S. stock exchange had higher corporate governance rating than companies without a U.S. cross-listing. The U.S. cross-listed firms had higher ratings not only in terms of disclosure but also in terms of board structure and functioning. In contrast to the importance of cross-listing in the U.S., there is no significant relationship between corporate governance and cross-listing within Europe. Implications are drawn for the debate on bonding and the future of European stock markets.
2004 Governance
  • Employee Relations and Credit Risk
  • Author: Bauer, R., J. Derwall and D. Hann
  • Journal: Working Paper
  • Consistent with the theory that human capital management influences organizational performance and risk, the authors find that employee relations explain the cross-sectional variation in credit risk. They construct an aggregate measure for the quality of employee relations based on the firm's engagement in employment practices and policies, and document that firms withstronger employee relations enjoy a statistically and economically lower cost of debt financing, higher credit ratings, and lower firm-specific risk.
2009 Social
  • International Evidence on Ethical Mutual Fund Performance and Investment Style
  • Author: Bauer, R., K. Koedijk and R. Otten
  • Journal: Journal of Banking & Finance
  • This paper reviews and extends previous research on ethical mutual fund performance. The authors find no significant differnce between the returns of ethical and conventional funds. Results also suggest that ethical mutual funds underwent a catching up phase, before delivering financial returns simialar to those of conventional mutual funds.
2005 Environmental, Social, Governance
  • Empirical Evidence on Corporate Governance in Europe. The Effect on Stock Returns, Firm Value and Performance
  • Author: Bauer, R., N. Guenster and R. Otten
  • Journal: Journal of Asset Management
  • This study builds portfolios consisting of well-governed and poorly governed companies and compares their performance. The results show a positive relationship between these variables and corporate governance. This relationship weakens substantially after adjusting for country differences. The authors find a negative relationship between governance standards and earning based performance ratios.
2004 Governance
  • Corporate Governance and Performance: The REIT Effect
  • Author: Bauer, R., P. Eichholtz and N. Kok
  • Journal: Real Estate Economics
  • The authors document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies and a control sample of firms with high corporate real estate ratios, they find a strong and significantly positive relation between the governance index and several performance variables, indicating that the partial lack of relation between governance and performance in the real estate sector might be explained by REIT effect.
2010 Governance
  • Industry Competition, Ownership Structure and Shareholder Activism
  • Author: Bauer, R., R. Braun and M. Viehs
  • Journal: Working Paper
  • The authors study shareholder activism through proxy proposals in the United States. They investigate the determinants for being targeted and the corresponding voting results. The authors hypothesize that a lack of industry competition in combination with higher managerial entrenchment increases the likelihood of being targeted. The empirical results support this hypothesis.
2010 Governance
  • Ethical Investing in Australia: Is There a Financial Penalty
  • Author: Bauer, R., R. Otten and A. Rad
  • Journal: Pacifics-Basin Financial Journal
  • The authors observe no evidence of significant differnces in risk-adjusted returns between ethical and conventional funds during 1992-2003. This result however is sensitive to the chosen time period. During 1992-1996 domestic ethical funds under-performed their conventional counterparts significantly, whereas during 1996-2003 ethical funds matched the performance of conventional funds more closely.
2006 Environmental, Social, Governance
  • The Law and Economics of Blockholer Disclosure
  • Author: Bebchuk and R. Jackson, L., Jr.
  • Journal: Harvard Buisness Law Review
  • The authors argue that the propsed changes to the SEC's rules in the Williams Act, which regulates the disclosure of large blocks of stock in public companies, should similarly be examined in the larger context of the optimal balance of power between incumbent directors and these blockholders. They discuss the beneficial and documented role that outside blockholders play i corporate governance and the adverse effect that any tightening of the Williams Act's disclosure thresholds can be expected to have on such blockholders.
2011 Governance
  • Executie Pensions
  • Author: Bebchuk and R. Jackson, L., Jr.
  • Journal: Journal of Corporation Law
  • This paper presents evidence that omitting the value of pension benefits significantly undermines the accuracy of existing estimates of executive pay, its ariability, and its sensitvity to performance companies. The authors find that the CEOs' plans had a median actuarial value of $15 million; that the ratio of the executives' pension value to executives' total compensation (including both equity and non-equity pay) during their service as CEO had a median value of 34 percent; and that including pension values increased the median percentage of the executives' total compensation composed of salary-like payments during and after their service as CEO from 15 percent to 39
2005 Governance
  • Why Firms Adopt Antitakeover Arrangements
  • Author: Bebchuk, L.
  • Journal: University of Pennsylvania Law Review
  • This paper identifies explanations for the increasing prevalence of antitakeover provisions in IPO charters. Specifically, the author analyzes explanations based on (1) the role of antitakeover arrangements in encouraging founders to break up their initial control blocks, (2) efficient private benefits of control, (3) agency problems amoung pre-IPO shareholders, (4) agency problems between pre-IPO shareholders and their IPO lawyers, (5) asymmetric information between founders and public investors about the firm's future growth prospects, and (6) bounded attention and imperfect pricing at the IPO stage.
2003 Governance
  • The Case for Increasing Shareholder Power
  • Author: Bebchuk, L.
  • Journal: Harvard Law Review
  • This article reconsiders the basic allocation of power between boards and shareholders in publicly traded companies with dispersed ownership. Professor Bebchuk's analysis and his empirical evidence indicate that shareholders' existing power to replace directors is insufficient to secure the adoption of value-increasing governance arrangements that management disfavors. He puts forward an alternative regime that would allow shareholders to initiate and adopt rules-of-the-game decisions to change the company's charter or state of incorporation.
2003 Governance
  • The Costs of Entrenched Boards
  • Author: Bebchuk, L. and A. Cohen
  • Journal: Journal of Financial Economics
  • This paper investigates empirically how the value of publicly traded firms is affected by arrangements that protect management from removal. The authors find that staggered boards are associated with an economically meaningful reduction in firm value (as measured by Tobin's Q). They also provide suggestive evidence that staggered boards bring about, and not merely reflect, a reduced firm value. This paper shows that the correlation with reduced firm value is stronger for staggered boards that are established in the corporate charter (which shareholders cannot amend) than for staggered boards established in the company's bylaws (which shareholders can amend).
2005 Governance
  • The Elusive Quest for Global Governance Standards
  • Author: Bebchuk, L. and A. Hamdani
  • Journal: University of Pennsylvania Law Review
  • Because of this fundamental difference between companies with and without a controlling shareholder, any governance-rating methodology that applies a single metric to companies or countries worldwide is bound to produce an inaccurate or even distorted picture.
2008 Governance
  • Bundling and Entrenchment
  • Author: Bebchuk, L. and E. Kamar
  • Journal: Harvard Law Review
  • This article provides the first systematic evidence that managements have been using bundling to introduce antitakeover defenses that shareholders would likely reject if they were to vote on them seperately. The authors study a hand-collected dataset of public mergers and find that while shareholders were strongly opposed to staggered boards during this period and generally unwilling to approve charter amendments introducing a staggered board on a stand-alone basis, the deal planners ofeten bundled the mergers studied with a move to staggered-board structure. In mergers in which the combined firm was on of the parties, a part'y odds of being chosen to survive as the combined firm were significantly higher if it had a staggered board and the other party did not.
2009 Governance
  • Pay without Performance: Overview of the Issues
  • Author: Bebchuk, L. and J. Fried
  • Journal: Academy of Management Perspectives
  • In this paper, the authors outline some of the main elements of their critique of contemorary executive compensation and corporate governance arrangements, as well as their proposals and suggested reforms. The authors show that managerial influence can explain many features of the compensation landscape, and explain how this influence has led to opaque and distorted pay arrangements. This paper concludes with a discussion of proposals for making more transparent, improving the design of pay arrangements, and increasing board accountability.
2006 Governance
  • Executive Compensation as an Agency Problem
  • Author: Bebchuk, L. and J. Fried
  • Journal: Journal of Economic Perspectives
  • This paper provides an overview of the main theoretical elements and empirical underpinnings of a "managerial power" approach to executive compensation. Under this approach, the design of executive compensation is viewed not only as an instrument for addressing the agency problem between managers and shareholders but also as apart of the agency problem itself. Boards of publicly traded companies with dispersed ownership, the authors argue, cannot be expected to bargain at arm's length with managers. As a result, managers wield substantial influence over their own pay arrangements, and they have an intrest in reducing the saliency of the amount of their pay and the extent to which that pay is de-coupled from managers' performance.
2003 Governance
  • A Theory of Path Dependence in Corporate Governance and Ownership
  • Author: Bebchuk, L. and M. Roe
  • Journal: Stanford Law Review
  • This theoretical paper develops a theory of path dependence of corporate structure. Two sources of path dependence - structure driven and rule driven - are identified and analyzed. The authors' theory of path dependence sheds light on why the advanced economies, despite pressures to converge, vary in their ownership structures.
1999 Governance
  • The State of Corporate Governance Research
  • Author: Bebchuk, L. and M. Weisbach
  • Journal: Review of Financial Studies
  • This review on the state of corporate government research features seven papers on corporate governance that were presented in a meeting of the NBER's corporate governance project. For each of these areas, the authors discuss the importance of the area and the questions it focuses on, and how the paper in the special issue makes a significant contribution to this area.
2009 Governance
  • What matters in Corporate Governance?
  • Author: Bebchuk, L., A. Cohen and A. Ferrell
  • Journal: Review of Financial Studies
  • The authors put forward an entrenchment index based on staggered boards, limits to shareholder bylaw amendments, poison pills, golden parachutes, and supermajority requirments for mergers and charter amendments. Increases in the index level are monotonically associated with economically significant reductions in firm valuation.
2009 Governance
  • Learning and the Disappearing Association between Governance and Returns
  • Author: Bebchuk, L., A. Cohen and C. Wang
  • Journal: Journal of Financial Economics
  • During the period 1991-1999, stock returns were correlated with the G-Index based on twenty-four governance provisions (Gompers, Ishii and Metrick (2003)) and the E-Index based on the six provisions that matter most (Bebchuk, Cohen, and Ferrell (2009)). This correlation, however, did not persist during the subsequent period 2000-2008. The authors provide evidence that both the identified correlation and its subsequent disappearance were due to market participants' gradually learning to appreciate the difference between firms scoring well and poorly on the governance indices.
2013 Governance
  • Staggered Boards and the Wealth of Shareholders: Evidence from Two Natural Experiments
  • Author: Bebchuk, L., A. Cohen and C. Wang
  • Journal: Working Paper
  • While staggered boards have been documented to be negatively correlated with firm valuation, such association might be due to staggered boards either bringing about lower firm value or merely reflecting the tendency of low-value firms to have staggered boards. In this paper, the authors use two natural experiments to shed light on the causality question. The findings are consistent with the market's viewing staggered boards as bringing about a reduction in firm value. The findings are thus consistent with leading institutional investors' policies in favor of board de-staggering, and with the view that the ongoing process of board de-staggering in public firms can be expected to enhance shareholder value.
2011 Governance
  • Golden Parachutes and the Wealth of Shareholders
  • Author: Bebchuk, L., A. Cohen and C. Wang
  • Journal: Working Paper
  • The authors analyze the relationship that golden parachutes have with expected acquisitions premia and with firm value. They find that golden parachutes are associated with higher expected acquisition premia, and that this association is at least partly due to the effect of golden parachutes on incentives. They also find that firms that adopt a golden parachute experience a reduction in their industry-adjusted Tobin's Q, as well as negative abnormal stock returns both during the inter-volume period of adoption and subsequently.
2010 Governance
  • The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Particants
  • Author: Bebchuk, L., J. CoatesIV and G. Subramanian
  • Journal: Stanford Law Review
  • This reply develops and defends the authors earlier analysis of the powerful antitakeover force of staggered boards. The authors find that having a majority if independent directors does not address the concren that defensive tactics might be abused. They also find "effective" staggered boards do not appear to have a significant beneficial effect on premiums in negotiated transactions.
2002 Governance
  • The CEO Pay Slice
  • Author: Bebchuk, L., K. Cremers and U. Peyer
  • Journal: Journal of Financial Economics
  • The authors investigate the relationship between the CEO Pay Slice (CPS) - the fraction of aggregate compensation of the top-five executive team caputured by the CEO - and the value, performance, and behavior of public forms. The authors find that CPS is correlated with (i) lower (industry-adjusted) accounting profitability, (ii) lower stock returns accompanying acquisitions announced by the firm and higher likelihood of a negative stock return accompanying such announcements, (iii) higher odds of the CEO recieving a lucky otion grant at the lowest price of the month, (iv) lower performance sensitivity of CEO turnover, and (v) lower stock market returns accompanying the filing of proxy statements for periods where CPS increases.
2011 Governance
  • Lucky CEOs and Lucky Directors
  • Author: Bebchuk, L., Y. Grinstein and U. Peyer
  • Journal: Journal of Finance
  • This paper studies the relationship between opportunistic timing of option grants and corporate governance, focusing on at-the-money "lucky" grants awarded at the lowest price of the grant month. The authors find that lucky grants to CEOs and directors are associated with higher CEOcompensation from other sources, and are correlated with a lack of majority of independent directors on the board, no independent compensation committee with an outside blockholder, or a long-serving CEO. For any given firm, the odds of a lucky grant increased when the payoffs from luck were high and when a preceding grant was lucky.
2010 Governance
  • Corporate Social Responsibility and Shareholder's Value: An Event Study Analysis
  • Author: Becchetti, L., R. Ciciretti and I. Hasan
  • Journal: Bank of Finland Research Discussion paper
  • Deletion from an established SR index (Domini index) results in significantly negative abnormal returns. However in a period of 11 to 24 days, the gap between deletion and addition events tends to be bridged. These findings suggest that penalty for exit from SR index might depend more from the reaction of ethically screened funds, than from an expected negative shock on shareholder value.
2009 Environmental, Social, Governance
  • Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund
  • Author: Becht, M., J. Franks, C. Mayer and S. Rossi
  • Journal: Review of Financial Studies
  • This article reports a unique analsis of private engagements by a pension activist fund. In contrast with most previous studies of activism, The authors report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially ouperforms benchmarks and The authors estimate that abnormal returns are largely associated with engagements reather than stock picking.
2009 Governance
  • Legal Institutions and Financial Development
  • Author: Beck, T. and R. Levine
  • Journal: Handbook of New Institutional Economics
  • This paper provides a concise, selective review of research on the role of legal institutions in shaping the operation of financial systems. While a burgeoning literature finds that financial development exerts a first-order impact on economic growth, the law and finance literature seeks to understand the role of legal institutions in explaining international differences in financial systems.
2005 Governance
  • Stock Markets, Banks, and Growth: Does Firm Size Matter?
  • Author: Beck, T. and R. Levine
  • Journal: Journal of Banking & Finance
  • This paper investigates the impact of stock markets and banks on economic growth applying recent GMM techniques developed for dynamic panels. On balance, The authors find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity, ommitted variables or observed country-specific effects.
2004 Governance
  • Law and Finance: Why Does Legal Origin Matter?
  • Author: Beck, T., A. Demigiruc-Kunt and R. Levine
  • Journal: Journal of Comparative Economics
  • A growing body of work suggest that cross-country differences in legal origin help explain differences in financial development. This paper empirically assesses two theories of why legal orgin influences financial development. The authors use historical comparisons and cross-country regressions to assess the role of these two channels.
2003 Governance
  • Financial and Legal Constraints to Growth: Does Firm Size Matter?
  • Author: Beck, T., A. Demigiruc-Kunt and V. Maksimovic
  • Journal: Journal of Finance
  • Financial and institutional development weakens the constraining effects of financial, legal, and corruption obstacles and it is the small firm that benefit the most. There is only a weak relation between firms' perception of the quality of the courts in their country and firm growth. The authors also provide evidence that the corruption of bank officials constrains firm growth.
2005 Governance
  • Finance and the Sources of Growth
  • Author: Beck, T., R. Levine and N. Loayza
  • Journal: Journal of Financial Economics
  • This paper evaluates the empirical relation between the level of financial intermediary development and (i) economic groth, (ii) total factor productivity growth, (iii) physical capital accumulation, and (iv) private savings rates. The authors find that (1) financial intermedediaries exert a large, positive impact on total factor productivity growth, which feed through to overall GDP growth and (2) the long-run links between financial intermediary development and both physical capital growth and private savings rates are tenuous.
2000 Governance
  • The Impact of Strikes on Shareholder Equity
  • Author: Becker, B. and C. Olson
  • Journal: Industrial and Labor Relations Review
  • The authors find that strikes substantially affect shareholder equity. Over a twenty-year period, the average strike involving 1,000 or more workers resulted in a 4.1 percent drop in shareholder equity, representing a decline of $72-87 million in 1980 dollars. Costs varied widely across industries. Capital markets are usually able to anticipate whether an impending contract deadline will result in a strike or settlement.
1986 Social
  • Human Resources Strategies, Complementarities, and Firm Performance
  • Author: Becker, B. and M. Huselid
  • Journal: Working paper
  • Using survey data, the authors find that high performance Human Resource Management (HRM) systems have an economically and statistically positive effect on firm performance. Both an integrated system and a compensation-focused strategy are associated with significantly higher firm performance than is a traditional "personnel" strategy.
1998 Social
  • HR as a Source of Shareholder Value: Research and Recommendations
  • Author: Becker, B., M. Huselid, P. Pickus and M. Spratt
  • Journal: Human Resource Management
  • The authors argue that the traditional practice of HRM does not create value for the organization. They suggest that HRM can have an economically significant effect on firm performance through a shared perspective of the HRM system as a source of strategy implementation and a means to achieve important buisness priorities.
1997 Social
  • Socially Responsible Investing and Portfolio Diversification
  • Author: Bello, Z.
  • Journal: Journal of Financial Research
  • This paper finds that socially responsible funds do not differ significantly from conventional funds in attributes such as characteristics of assets held, and portfolio diversification. Moreover, the effect of diversification on investment performance is not different between the two groups. Both groups underperform the Domini 400 Social Index and S&P 500 during the study period.
2005 Environmental, Social, Governance
  • The Nontradable Share Reform in the Chinese Stock Market: The Role of Fundamentals
  • Author: Belratti, A. and B. Bortolotti
  • Journal: International Research Conference on Corporate Governance in Emerging Markets
  • This paper evaluates the stock price effects of Chinese Financial reforms trying to relate expected returns to changes in fundamentals. The results show that Nontradable shares (NTS) reform was beneficial for the market as a whole, and especially for those companies with lower disclosure standards.
2007 Governance
  • The Credit Crisis around the Globe: Why Did Some Banks Perform Better
  • Author: Belratti, A. and R. Stulz
  • Journal: Journal of Financial Economics
  • This paper evaluates the importance of factors that have been put forth as having contributed to the poor performance of banks during the credit crisis. The evidence is supportive of theories that emphasize the fragility of banks financed with short-term capital market funding. The better-performing banks had less leverage and lower returns imediately before the crisis. Differences in banking regulations across countries are generally uncorrelated with the performance of banks during the crisis, except that large banks from countries with more restrictions on bank activities performed better and decreased loans less.
2012 Governance
2012 Environmental, Social, Governance
2008 Environmental, Social, Governance
  • Do Socially Responsible Fund Managers Really Invest Differently?
  • Author: Benson, K., T. Brailsofrd and J. Humphrey
  • Journal: Journal of Buisness Ethics
  • This paper finds no statistically significant difference between SRI funds and conventional fund returns. However returns of SRI funds are generated through different industry exposures when compared to conventional funds.
2006 Environmental, Social, Governance
  • Enforcement and Good Corporate Governace in Developing Countries and Transition Economies
  • Author: Berglof, E. and S. Claessens
  • Journal: World Bank Research Observer
  • This theoretical paper presents a framework to help explain enforcement, the impact on corporate governance when rules are not enforced, and what can be done to improve corporate governance in weak enforcement environments. The limited empirical evidence suggests that private enforcement tools are often more effective than public tools. Concentrated ownership aligns incentives and encourages monitoring, but it weakens other corporate governance mechanisms and can impose significant costs.
2006 Governance
  • Investor Protection and the Coasian View
  • Author: Bergman, N. and D. Nicolaievsky
  • Journal: Journal of Financial Economics
  • The corporate charters of a sample of Mexican firms show that private firms often significantly enhance the legal protection offered to investors, but public firms rarely do so. The authors construct a model that endogenizes the degree of investor protection that firms provide, using as a springboard the assumption that legal regimes differ in their ability to enforce precisely filtering contracts that provide protection only in those cases where expropriation can occur. Their model generates predictions about the types of contracts that would be employed and the levels of investor protection that would prevail across different legal regimes in both private and public firms.
2007 Governance
  • Human Capital, Bankruptcy, and Capital Structure
  • Author: Berk, J., R. Stanton and J. Zechner
  • Journal: Journal of Finance
  • The authors derive the optimal labor contract for a levered firm in an economy with perfectly competitive capital and labor markets. Employees become entrenched under this contract and so face large human costs of bankruptcy. The firm's optimal capital structure therefore depends on the trade-off between these human costs and the tax benefits of debt. Optimal debt levels consistent with those observed in practice emerge without relying on frictions such as moral hazard or asymmetric information.
2010 Social
  • Does Stakeholder Orientation Matter? The Relationship between Stakeholder Management Models and Firm Financial Performance
  • Author: Berman, S., A. Wicks, S. Kotha and T. Jones
  • Journal: Academy of Management Hournal
  • In this study, the authors contributed to stakeholder theory development by (1) deriving two distinct stakeholder management models from extant research, (2) testing the descriptive accuracy of these models, and (3) including important variables from the strategy literature in the tested models. The results provide support for a strategic stakeholder management model but no support for an intrinsic stakeholder commitment model. Implications of these findings for management practice and future research are discussed.
1999 Social
2009 Environmental
  • Ferreting out Tunneling: An Application to Indian Buisness Groups
  • Author: Bertrand, M., P. Mehta and S. Mullainathan
  • Journal: Quarterly Journal of Economics
  • This paper proposes a general methodology to measure the extent of tunneling activities. The methodology rests on isolating and then testing the distinctive implications of the tunneling hypothesis for the propagation of earning shocks across firms within a group. When applying the methodology to data on Indian buisness groups, the authors find a significant amount of tunneling, much of it occuring via nonoperating components of profit.
2002 Governance
  • Smart Beta Strategies: The Socially Responsible Investment Case
  • Author: Bertrand, P. and V. Lapointe
  • Journal: Working paper
  • In this article the authors propose to extend the streams of research about smart beta strategies and about Socially Responsible Investment (SRI) by studying the impact of using an SRI universe on the properties of smart beta portfolios and by studying the impact of using smart beta strategies on the performance of SRI portfolios.
2013 Environmental, Social, Governance
  • Can labor Regulation Hinder Economic Performance? Evidence from India
  • Author: Besley, T. and R. Burgess
  • Journal: Quarterly Journal of Economics
  • The authors show that Indian states that amended the Industrial Disputes Act in a pro-worker direction experienced lowered output, employment,incestment, and productivity in registered or formal manufacturing. Regulating in a pro-worker direction was also associated with increases in urban poverty. This suggests that attempts to redress the balance of power between capital and labor can end up hurting the poor.
2004 Social
  • Labour Market Regulation and Industrial Performance in India: A Critical Review of the Empirical Evidence
  • Author: Bhattacharjea, A.
  • Journal: Indian Journal of Labour Economics
  • This paper offers a critique of recent empirical studies on the impact of labor regulation on industrial performance in India. It criticizes the widely-used index of state-level labor regulation devised by Besley and Burgess (2004), and the econometric methodology they use to establish that excessively proworker regulation led to poor performance in Indian manufacturing. This paper also reviews other evidence on the actual enforcement of labor laws, labor flexibility, and industrial employment.
2006 Social
  • Are Foreign Banks Bad for Development Even if They Are Efficient? Evidence from the Indian Banking Industry
  • Author: Bhaumik, S. and J. Piesse
  • Journal: Biennial Pacific Rim Conference of the WEAI at Taipei
  • This paper shows that while foreign banks have high credit-deposit ratios, the domestic banks of India experienced much greater improvements in technical efficiency in the context of credit. The most significant improvements in technical efficiency are registered by the domestic de novo banks. There is weak evidence that foreign banks may be bullish only with respect to blue chip borrowers.
2004 Governance
  • How Important is Ownership in a Market with Level Playing Field?: The Indian Banking Sector Revisited
  • Author: Bhaumik, S. and R. Dimova
  • Journal: Journal of Comparative Economics
  • In India, banking sector reforms and dergulation were initiated in 1992, encouraging entry and establishing a level playing field for all banks. Evidence suggests that after the reforms, ownership was no longer a significant determinant of performance. Rather, competition induced public-sector banks to eliminate the performance gap that existed between them and both domestic and foreign private-sector banks.
2004 Governance
  • Effect of Corporate Governance on Bond Ratings and Yields: The Role of Institutional Investors and Outside Directors*
  • Author: Bhojraj, S. and P. Sengupta
  • Journal: Journal of Buisness Ethics
  • This article provides evidence linking corporate governance mechanisms to higher bond ratings and lower bond yields. Governance mechanisms can reduce default risk by mitigating agency costs and monitoring managerial performance and by reducing information asymmetry between the firm and the lenders. The authors find firms that have greater institutional ownership and stronger outside control of the board enjoy lower bond yields and higher ratings on their new bond issues. However, concentrated institutional ownership has an adverse effect on yields and ratings.
2003 Governance
  • Environmental Disclosures, Regulatory Costs, and Changes in Firm Value
  • Author: Blacconiere, W. and D. Patten
  • Journal: Journal of Accounting and Economics
  • This study examines the market reaction of chemical firms to a particular environmental catastrophe, and the evidence indicates that a significant negative intra-industry reaction occurred. However, firms with more extensive environmental disclosures in their financial report prior to the chemical leak experienced a less negative reaction than firms with less extensive disclosures. This result suggests that investors interpreted such disclosures as a positive sign of the firm managing its exposure to future regulatory costs.
1994 Environmental
  • Shareholder Activism and Corporate Governance in the United States
  • Author: Black, B.
  • Journal: New Palgrave Dictionary of Economics and the Law
  • A small number of American institutional investors, mostly public pension plans, spend a trivial amount of mooney on overt activism efforts. They don't conduct proxy fights, and don't try to elect their own candidates to the board of directors. The currently available evidence, taken as a whole, is consistent with the proposition that the institutions achieve the effects on firm performance that one might expect from this level of effort- namely, not much.
1998 Governance
  • Can Corporate Governance Reforms Increase Firm Market Values? Event Study Evidence from India
  • Author: Black, B. and V. Khanna
  • Journal: Journal of Empirical Legal Studies
  • The May 1999 announcement by Indian securities regulators of plans to adopt corporate governance reforms is accompanied by a 4 percent increase in the price of large firms over a two-day event window (the announcement date plus the next trading day), relative to smaller public firms ( not affected by the intial reforms); the difference grows to 7 percent over a five-day event window and 10 percent over a two-week window. Cross-listed firms gained more than other firms, suggesting that local regulation can sometimes complement, rather than substitute for, the benefits of cross-listing.
2007 Governance
  • The Effect of Board Structure on Firm Value: A Multiple Identification Strategies Approach Using Korean Data
  • Author: Black, B and W. Kim
  • Journal: Journal of Financial Economics
  • This paper uses a 1999 Korean law as an exogenous shock to assess how board structure affects firm market value. The law mandates 50 percent outside directors and an audit committee for large public firms, but not smaller firms. The legal shock produces large share price increases for large firms, relative to mid-sized firms; share prices jump in 1999 when the reforms are announced
2012 Governance
  • What Matters and for Which Firms for Corporate Governance in Emerging Markets? Evidence from Brazil (and Other BRIK Countries)
  • Author: Black, B., A. de Carvalho and E. Gorga
  • Journal: Journal of Corporate Finance
  • This paper constructs a corporate governance index, and shows that the index, as well as subindices for ownership structure, board procedure, and minority shareholder rights, predict higher lagged Tobin's q. In contrast to other studies, greater board independence predicts lower Tobin's. Firm characteristics also matter: governance predicts market value for nonmanufacturing (but not manufacturing) firms, small (but not large) firms, and high-growth (but not low-growth) firms. The authors also find that country characteristics strongly influence both which aspects of governance predict firm market value, and at which firms that association is found.
2012 Governance
2000 Governance
  • Does Corporate Governance Predict Firms' Market Values? Evidence from Korea
  • Author: Black, B., H. Jang and W. Kim
  • Journal: Journal of Law, Economics, & Organization
  • This paper reports strong OLS and instrumental variable evidence that an overall corporate governance index is an important and likely casual factor in explaining the market value of Korean public companies. In OLS, a worst-to-best change in KCGI predicts a 0.47 increase in Tobin's Q (about 160% increase in share price). The authors also find that Korean firms with 50 percent outside directors have 0.13 higher Tobin's Q (roughly 40 percent higher share price), after controlling for the rest of KCGI. This effect, too, is likely causal.
2006 Governance
  • Restoring Public Purpose to the Private Corporation
  • Author: Blackwell, R. and T. Kochan
  • Journal: Working paper
  • This paper argues that the era of shareholder maximizing that emerged in the 1980s and has dominated since then has produced a set of perverse economic outcomes that have limited or stopped economic progress for the majority of the workforce and holds back an economic recovery capable of closing the jobs deficit and improving living standards. Building a more sustainable economy will, therefore, require replacing this narrow conception of the purpose of the firm with a broader theory and with policy and institutional reforms that rebalance the power of investors, corporate executives, workers, and their representatives.
2013 Environmental, Social, Governance
  • Unionism and Employment Behaviour
  • Author: Blanchflower, D., N. Milward and A. Oswald
  • Journal: Economic Journal
  • This study provides evidence on the consequences of trade union activity for the level and growth of employment using a microeconomic data set of British workplaces. Trade unions depress the rate of employment growth (or increase the extent of employment decline) by about 3 percent per year.
1991 Social
  • Management Practices, Work-Life Balance, and Productivity: A Review of Some Recent Evidence
  • Author: Bloom, N. and J. Van Reenen
  • Journal: Oxford Review of Economic Policy
  • In an international survey of management practices and work-life balance. When looking within countries, however, the authors reject the pessimistic model of 'trade-off' between WLB and productivity. WLB outcomes are significantly associated with better management, so that well-run firms are both more productive and offer better conditions for their employees.
2006 Social
  • Are Family-Friendly Workplace Practices a Valuable Firm Resource?
  • Author: Bloom, N., T. Kretshmer and J. Van Reenen
  • Journal: Strategic Management Journal
  • The authors study the determinants and consequences of family-friendly workplace practices (FFWP) using a sample of over 450 manufacturing firms in Germany, France, U.K., and U.S. They find a positive correlation between firm productivity and FFWP. This association disappears, however, once they control for a measure of the quality of management practices.
2011 Social
  • FSB Principles for Sound Compensation Practices: Implementation Standards
  • Author: Board, F.
  • Journal: Financial Stability Board
  • This report responds to the call by the G20 Finance Ministers and Governors to submit to the Pittsburgh Summit detailed specific proposals on corporate governance reforms, global standards on pay structure and greater disclosure and transparency, to strengthen adherence to the FSB Principles for Sound Compensation Practices, issued in April 2009.
2009 Governance
  • Alliances and Corporate Governance
  • Author: Bodnaruk, A., M. Massa and A. Simonov
  • Journal: Journal of Financial Economics
  • This paper studies the link between a firm's quality of governance and its alliance activity. The authors consider alliances as a commitment technology that helps a company's Chief Executive Officer overcome agency problems that relate to the inability to ex ante motivate division managers. This paper shows that well-governed firms are more likely to avail themselves of this technology to anticipate es post commitment problems and resolve them. Governance also mitigates agency issues between alliance partners; dominant alliance partners agree to a more equal split of power with junior partners that are better governed.
2013 Governance
  • L-Shares: Rewarding Long-Term Investors
  • Author: Bolton, P. and F. Samama
  • Journal: Working paper
  • The authors argue that a fundamental reason for the short term perspective of corporate executives is the short-term orientation of shareholders and financial markets that drive the performance benchmarks of CEOs. Long-term committed shareholders can provide substantial benefits to the company they invest in and although some shareholders are prepared to take a more long-term view, they are generally not rewarded for their loyalty to the company. The authors believe that because they are a scarce resource and provide benefits to the company and other shareholders that have all the features of a public good, long-term shareholders need to recieve financial incentives.
2013 Governance
  • Corporate Governance and Control
  • Author: Bolton, P., M. Becht and A. Roell
  • Journal: Handbook of the Economics Finance
  • This paper reviews the theoretical and empirical research on the main mechanisms of corporate control, discuss the main legal and regulatory institutions in different countries, and examine the comparative corporate governance literature. A fundamental dilemma of corporate governance emerges from this overview: regulation of large shareholder intervention may provide better protection to small shareholders; but such regulations may increase managerial discretion and scope for abuse.
2003 Governance
  • The Determinants of Corporate Board Size and Composition: An Empirical Analysis
  • Author: Boone, A., L. Casares Field, J. Karpoff and C. Raheja
  • Journal: Journal of Financial Economics
  • The author show that: (i) board size and independence increase as firms grow in size and diversify over time; (ii) board independence is negatively related to the manager's influence and positively related to constraints on such influence; and (iii) board size reflects a trade-off between the firm-specific benefits of monitoring and the cost of such monitoring. The data do not support the view that boards are structured randomly or to facilitate managers' consumption of value-decreasing private benefits.
2007 Governance
  • Stakeholder Relations and Stock Returns: On Errors in Expectations and Learning
  • Author: Borgers, A., J. Derwall, A. Koedijk, and J. ter Horst
  • Journal: Journal of Empirical Finance
  • The authors investigate whether stakeholder information predicted risk-adjusted returns due to errors in investors' expectations and ultimately ceased to do so as attention for such information increased. The stakeholder-relations index (SI) was positively associated with long-term risk-adjusted returns, earning announcement returns, and errors in analysts' earning forecasts over the period 1992-2004.
2013 Governance
  • Postprivatization Corporate Governance: The Role of Ownership Structure and Investor Protection
  • Author: Boubakri, N., J. Cosset and O. Guedhami
  • Journal: Journal of Financial Economics
  • This paper investigates the role of ownership structure and investor protection in postprivatization corporate governace. The authors find that the government relinquishes control over time to the benefit of local institutions, individuals, and foreign investors, and that private ownership tends to concentrate over time. Firm size, growth and industry affiliation, privatization method, as well as the level of institutional development and investor protection, explain the cross-firm differences in ownership concentration. The positive effect of ownership concentration on firm performance matters more in countries with weak investor protection.
2005 Governance
  • A Cross Sectional Analysis of Clean Technology Winners by Country and Industry
  • Author: Boulatoff, C. and C. Boyer
  • Journal: Working paper
  • This paper looks at the performance of clean technology firms over the last five years, utilizing a sample of companies comprised of 508 firms in 34 countries. The authors look at which countries have the highest performance based on stock returns and industry performance relative to the Russell 2000 index. Thus, the paper indicates what industries are performing well today, as well as which industries are promising tomorrow and which countries have a comparative advantage in which areas of clean technology.
2013 Environmental
  • Corporate Social Responsibility and Financial Risk
  • Author: Boutin-Dufresne, F. and P. Savaria
  • Journal: Journal of Investing
  • This paper finds that combining socially responsible stocks into portfolios could reduce diversifiable risk component. SR investing does not impair financial prospects of a portfolio.
2004 Environmental, Social, Governance
  • Corporate Governance Propagation through Overlapping Directors
  • Author: Bouwman, C.
  • Journal: Review of Financial Studies
  • This article proposes, and empirically verifies, that observed governance practices are partly the outcome of network effects among firms with common directors. While firms attempt to select directors whose other directorships are at firms with similar governance practices ("familiarity effect"), this matching of governance practices is imperfect because other factors also affect the director choice. This generates an "influence effect" as directors acquainted with different practices at other firms influence the firm's governance to move toward the practices of those other firms. These network effects cause governance practices to converge.
2011 Governance
  • The Theory of Bank Risk Taking and Competition Revisited
  • Author: Boyd, J. and G. De Nicolo
  • Journal: Journal of Finance
  • This paper reviews the empirical literature with regards to bank chhoosing more risky portfolios in the face of increased competition, and concludes that the evidence is best described as mixed. The authors show that existing theoretical analyses of this topic are fragile, since there exists fundamental risk-incentive mechanisms that operate in exactly the opposite direction, causing banks to become more risky as their markets become more concentrated.
2005 Governance
  • Activist Arbitirage: A Study of Open-Ending Attempts of Closed-End Funds
  • Author: Bradley, M., A. Brav, I. Golstein and W. Jiang
  • Journal: Journal of Financial Economics
  • This paper documents frequent attempts by activist arbitrageurs to open-end discounted closed-end funds, particularly after the 1992 proxy reform which reduced the costs of communication among shareholders. Open-ending attempts have a substantial effect on discounts, reducing them, on average, to half of their original level. The size of the discount is a major determinant of whether a fund gets attacked. Other important factors include the costs of communication among shareholders and the governance structure of the targeted fund.
2010 Governance
  • Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures
  • Author: Brammer, S., C. Brooks and S. Pavelin
  • Journal: Financial Management
  • Firms with higher social performance scores tend to achieve lower returns, while firms with the lowest possible CSP scores of zero outperformed the market. Various aspects of corporate social behavior must be examined separately in order to achieve an accurate picture on their impact of returns.
2006 Environmental, Social
  • The Effect of Ethical Fund Portfolio Inclusion on Executive Compensation
  • Author: Brander, J.
  • Journal: Journal of Buisness Ethics
  • This paper provides evidence that CEO compensation, other executive compensation, and director compensation tend to be lower in Domini Social Index (DSI) firms than in other firms in the S&P 500. The estimated compensation discount for CEOs of DSI firms is approximately 12 percent.
2006 Social, Governance
  • Empty Voting and the Efficiency of Corporate Governance
  • Author: Brav, A. and R. Mathews
  • Journal: Journal of Financial Economics
  • The authors model corporate voting outcomes when an informed trader, such as a hedge fund, can establish separate positions in a firm's shares and votes (empty voting). The authors find that the trader's presence can improve efficiency overall despite the fact that it sometimes ends up selling to a net short position and then voting decrease firm value. An efficiency improvement is likely if other shareholders' votes are not highly correlated with the correct decision or if it is relatively expensive to seperate votes from shares on the record date.
2011 Governance
  • Payout Policy in the 21st Century
  • Author: Brav, A., J. Graham, C. Harvey and R. Michaely
  • Journal: Journal of Financial Economics
  • The authors find that the link between dividends and earnings has weakened. Many managers now favor repurchases because they are viewed as being more flexible than dividends and can be used in an attempt to time the equity market or to increase earnings per share. Executives believe that institutions are indifferent between dividends and repurchases and that payout policies have little impact on their investor clientele. In general, management views provide little support for agency, signaling, and clientele hypotheses of payout policy. Tax considerations play a secondary role.
2005 Governance
  • The Real Effects of Hedge Fund Activism: productivity, Risk, and Product Market Competition
  • Author: Brav, A., W. Jiang and H. Kim
  • Journal: Working paper
  • This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency within two years after activism, and this improvement is concentrated in industries with a high degree of product market competition. By following plants that were sold post-intervention the authors also find that efficient capital redeployment is an important channel via which activists create value.
2011 Governance
  • Hedge Fund Activism: A Review
  • Author: Brav, A., W. Jiang and H. Kim
  • Journal: Foundations and Trends in Finance
  • This article reviews shareholder activism by hedge funds. The authors analyze possible value creation brought about by activist hedge funds, both for shareholders in the target companies and for investors in the hedge funds. The evidence generally supports the view that hedge fund activism creates value for shareholders by effectively influencing the governance, capital structure decisions, and operating performance of target firms.
2009 Governance
  • The Returns to Hedge Fund Activism
  • Author: Brav, A., W. Jiang, F. Partnoy and R. Thomas
  • Journal: Financial Analysts Journal
  • Hedge fund activism is a new form of investment strategy. The authors find that activist hadge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. The abnormal stock return upon announcement of activism is approximately 7 percent, with no reversal during the subsequent year. Target firms experience increases in payout and operating performance and higher CEO turnover after activism. The authors find large positive abnormal return to hedge fund activists, which is higher than the return to other equity-oriented hedge funds.
2008 Governance
  • Hedge Fund Activism, Corporate Governance, and Firm Performance
  • Author: Brav, A., W. Jiang, F. Partnoy and R. Thomas
  • Journal: Journal of Finance
  • This paper finds hat activist hedge funds in the United States propse strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. The abnormal return around the announcement of activism is approximately 7 percent, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. The analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.
2008 Governance
  • Outside Directors and the Adoption of Poison Pills
  • Author: Brickley, J., J. Coles and R. Terry
  • Journal: Journal of Financial Economics
  • This paper finds that the average stock-market reaction to announcements of poison pills is positive when the board has a majority of outside directors and negative when it does not. The probability that a subsequent control contest is associated with an auction is also positively related to the fraction of outsiders on the board. These results are largely driven by directors who are retired executives from other companies.
1994 Governance
  • The Value of Investor Protection: Firm Evidence from Cross-Border Mergers
  • Author: Bris, A. and C. Cabolis
  • Journal: EFA 2005 Moscow Meetings Paper
  • This paper finds that the announcement effect of a cross-border merger for the target firm is higher-relative to a matching, domestic acquisition-the better the shareholder protection and the accounting standards in the country of origin of the acquirer. In addition, this result is only significant when the acquirer comes from a more protective country, which suggests that target firms avoid adopting weaker protection via private contracting.
2004 Governance
  • Investor Protection and Firm Liquidity
  • Author: Brockman, P. and D. Chung
  • Journal: Journal of Finance
  • The purpose of this study is to investigate the relation between investor protection and firm liquidity. This paper's empirical findings verify that firm liquidity is significantly affected by investor protection. Regression and matched-sample results show that Hong Kong-based equities exhibit narrower spreads and thicker depths than their China-based counterparts.
2003 Governance
  • Unionization, Incomplete Contracting, and Capital Investment
  • Author: Bronars, S. and D. Deere
  • Journal: Journal of Buisness
  • This article investigates empirically the hypothesis that unionization alters firm behavior. The empirical evidence is broadly consistent with the notion that unionized firms attempt to limit union appropriation of quasi rents. Higher firm-specific unionization rates are associated with less investment in physical capital, research and development, and advertising; slower employment growth; and a greater reliance on debt finance.
1993 Social
  • Corporate Governance and Firm Valuation
  • Author: Brown, L. and M. Caylor
  • Journal: Journal of Accounting and Public Policy
  • The authors create Gov-Score, a summary governance measure based on 51 firm-specific provisions representing both internal and external governance, and show that a parsimonious index based on seven provisions underlying Gov-Score fully drives the relation between Gov-Score and firm value. The authors find five of these measures to be unrelated to firm valuation. They document that only one of the seven governance provisions important for firm valuation was mandated by either the Sarbanes-Oxley Act of 2002 or the three major U.S. stock exchanges.
2006 Governance
2004 Governance
  • Corporate Governance and Regulation: Can There be Too Much of a Good Thing?
  • Author: Bruno, V. and S. Claessens
  • Journal: World Bank Policy Research Working Paper
  • This paper finds that in any legal regime a few specific governance practices improve performance. Companies with good governance practices operating in stringent legal environments, however, show a valuation discount relative to similar companies operating in flexible legal environments. At the same time, a stronger country-level regime does not reduce the valuation discount of companies with weak governance practices.
2007 Governance
  • Profiting from Regulation: An Event Study of the EU Carbon Market
  • Author: Bushnell, J., H. Chong and E. Mansur
  • Journal: National Bureau of Economic Research
  • This paper investigates how cap-and-trade regulation affects profits. In late April 2006, the EU CO2 allowance price dropped 50 percent, equating to a 28 billion Euro reduction in the value of aggregate annual allowances. Despite reductions in environmental costs, the authors find that stock prices fell for firms in both carbon- and electricity-intensive industries, particularly for firms selling primarily within the EU.
2009 Environmental
  • Do Outside Directors Monitor Managers?: Evidence from Tender Offer Bids
  • Author: Byrd, J. and K. Hickman
  • Journal: Journal of Financial Economics
  • The authors categorize outside directors as either independent of or having affiliation with managers, and find that bidding firms on which independent outside directors hold at least 50 percent of the seats have significantly higher announcement-date abnormal returns than other bidders. However, the relationship between bidding firms' abnormal stock returns and the proportion of board seats held by independent outside directors is nonlinear, suggesting it is possible to have too many independent outside directors. All results are lost if the traditional inside-outside board classification method is used.
1992 Governance
  • The Implied Cost of Equity Capital and Corporate Governance Practices
  • Author: Byun, H., S. Kwak and L. Hwang
  • Journal: Asia-Pacific Journal of Financial Studies
  • This study finds that sound corporate governance practices are negatively related to the implied cost of equity capital estimates. Among several advantages of sound corporate governance practices, shareholder rights protection has the most significant effect on lowering the implied cost of equity capital. Board of directors and disclosure policy are also important in reducing the implied cost of equity capital.
2008 Governance
  • Doing Well by Looking Good: The Casual Impact of Media Coverage of Corporate Social Responsibility on Firm Value
  • Author: Byun, S. and J. Oh
  • Journal: Midwest Finance Association Meeting Paper
  • Does the visibility of corporate social responsibility (CSR) rather than the action itself enhance firm value? Using media coverage of firm's CSR activities as a proxy for the visibility of CSR, the authors find that the higher CSR media coverage is associated with higher firm value and higher excess stock returns. Moreover, the effect of visibility is stronger for firms that actively engage in CSR, highlighting the complementary role between CSR and visibility.
2013 Environmental, Social
  • Incentive Effects of stock and Option Holdings of Target and Acquirer CEOs
  • Author: Cai, J. and A. Vijh
  • Journal: Journal of Finance
  • Acquisitions enable target chief executive officers (CEOs) to remove liquidity restrictions on stock and option holdings and diminish the illiquidity discount. The authors show that CEOs with higher holdings (illiquidity discount) are more likely to make acquisitions (get acquired). Further, target CEOs with a higher illiquidity discount accept a lower premium, offer less resistance, and more often leave after acquisition. Similarly, aquirer CEOs with higher holdings pay a higher premium, expedite the process, and make diversifying acquisitions using stock payment.
2007 Governance
  • Electing Directors
  • Author: Cai, J., J. Garner and R. Walkling
  • Journal: Journal of Finance
  • The authors document that shareholder votes are significantly related to firm performance, governance, director performance, and voting mechanisms. However, most variables, except meeting attendance and ISS recommendations, have little economic impact on shareholder votes- even poorly performing directors and firms typically recieve over 90 percent of votes cast. Nevertheless, fewer votes lead to lower "abnormal" CEO compensation and a higher probability of removing poison pills, classified boards and CEOs.
2009 Governance
  • Finance for Growth: Policy Choices in a Volatile World
  • Author: Caprio, G. and P. Honohan
  • Journal: World Bank Policy Research Report
  • The world bank report provides evidence to show that financial development has a strong independent role in increasing general prosperity. Countries that build a secure institutional environment for financial contracts, making it possible for banking and organized securities markets to prosper, will see these efforts bear fruit in the fight against poverty.
2001 Governance
  • The Influence of Institutions on Corporate Governance Through Private Negotiations: Evidence from TIAA-CREF
  • Author: Carleton, W., J. Nelson and M. Weisbach
  • Journal: Journal of Finance
  • This paper analyzes the process of private negotiations between financial institutions and the companies they attempt to influence. It relies on a private database consisting of the correspondence between TIAA-CREF and 45 firms is contacted about governance issues between 1992 and 1996. This correspondence indicates that TIAA-CREF is able to reach agreemens with targeted companies more than 95 percent of the time. In more than 70 percent of the cases, this agreement is reached without shareholders voting on the proposal. The authors verify independently that at least 87 percent of the targets subsequently took actions to comply with these agreements.
1998 Governance
  • Changes to Ownership and Control of East Asian Corporations between 1996 and 2008: The Primacy of Politics
  • Author: Carney, R. and T. Child
  • Journal: Journal of Financial Economics
  • this paper finds that where the status quo political arrangements persist, preexisting ownership arrangements go unchanged or become more entrenched. Where major political changes occurred, corporate ownership would undergo substantial changes. Also, the state has become increasingly important as an owner of domestic firms as well as foreign firms.
2013 Governance
  • Corporate Governance, Board Diversity, and Economic Growth
  • Author: Carter, D., B. Simkins and W. Simpson
  • Journal: Financial Review
  • This study examines the relationship between board diversity and firm value for Fortune 1000 firms. Board diversity is defined as the percentage of women, African Americans, Asians, and Hispanics on the board of directors. The authors find significant positive relationships between the fraction of women or minorities on the board and the firm value. The authors also find that the proportion of women and minorities on boards increases with firm size and board size, but decreases as the number of insiders increases.
2003 Social, Governance
  • Investor Protection, Optimal Incentives, and Economic Growth
  • Author: Castro, R., G. Clementi and G. MacDonald
  • Journal: Quarterly Journal of Economics
  • The authors introduce investor protection into a standard overlapping generations model of capital accumulation. Better investor protection implies better risk-sharing. Because of entrepreneurs' risk aversion, this results in a larger demand for capital. This is the demand effect. A second effect (the supply effect) follows from general equilibrium restrictions. Better protection (i.e., higher demand) increases the intrest rate and lowers the income entrepreneurs, decreasing current savings and next period's supply of capital.
2004 Governance
  • Corporate Social Responsibility (CSR) in Asia: A Seven-Country Study of CSR Web Site Reporting
  • Author: Chapple, W. and J. Moon
  • Journal: Buisness & Society
  • This article concludes that CSR does vary considerably among Asian countries but that this variation is not explained by development but by factors in the respective national buisness systems. It also concludes that multinational companies are more likely to adopt CSR than those operating solely in their home country but that the profile of their CSR tends to reflect the profile of the country of operation rather than the country of origin.
2005 Governance
  • Connected Lending: Thailand befor the Financial Crisis
  • Author: Charumilind, C., R. Kali and Y. Wiwattanakantang
  • Journal: Journal of Buisness
  • This paper found that firms with connections to banks and politicans had greater access to long-term loans, and appeared to use fewer short-term loans than those without connections.
2006 Governance
  • Do Ownership Structure and Governance Mechanisms Have an Effect on Corporate Fraud in China's Listed Firms?
  • Author: Chen, G., M. Firth, N. Gao and O. Rui
  • Journal: Journal of Corporate Finance
  • The study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. The results show that ownership and board characteristics are important in explaining fraud. The authors find that the proportion of outside directors, the number of board meetings, and the tenure of the chairman are associated with the incidence of fraud.
2006 Governance
  • Do Nonfinacial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized workers
  • Author: Chen, H., M. Kacperczyk and H. Ortiz-Molina
  • Journal: Review of Finance
  • Firms in more unionized industries have statistically and economically significant lower bond yield spreads. The effect is even greater with firms that have weak financial conditions. Higher unionization is associated with lower likelihood that a firm is an acquisition target and unionization reduces bond yield spreads by more when firms takeover barriers are lower.
2012 Social
  • Breadth of Ownership and Stock Returns
  • Author: Chen, J., H. Hong and J. Stein
  • Journal: Journal of Financial Economics
  • The authors develop a stock market model with differences of opinion and short-sales constraints. When breadth is low - i.e., when few investors have long positions - this signals that the short-sales constraint is binding tightly, and that prices are high relative to fundamentals. Thus reductions in breadth should forecast lower returns. The authors find that stocks whose change in breadth in the prior quarter is in the lowest decile of the sample underperform those in the top decile by 6.38 percent in the twelve months after formation. Adjusting for size, book-to-market, and momentum, the figure is 4.95 percent.
2002 Governance
  • Outsourcing Mutual Fund Management: Firm Boundaries, Incentives, and Performance
  • Author: Chen, J., H. Hong, W. Jiang and J. Kubik
  • Journal: Journal of Finance
  • The authors investigate the effects of managerial outsourcing on the performance and incentives of mutual funds. Fund families outsource the management of a large fraction of their funds to advisory firms. These funds underperform those run internally by about 52 basis points per year. After instrumenting for a fund's outsourcing status, the estimated underperformance is three times larger. The authors find that outsourced funds face higher powered incentives; they are more likely to be closed after poor performance and excessive risk-taking.
2013 Governance
1980 Environmental
  • Agency Costs of Free Cash Flow and the Effect of Shareholder Rights on the Implied Cost of Equity Capital
  • Author: Chen, K., Z. Chen and K. Wei
  • Journal: Journal of Financial and Quantitative Analysis
  • This paper examines the effect of shareholder rights on reducing the cost of equity and the impact of agency problems from free cash flow on this effect. The authors find that firms with strong shareholder rights have a significantly lower implied cost of equity after controlling for risk factors, price momentum, analysts' forecast biases, and the industry effects than do firms with weak shareholder rights. They also show that the effect of shareholder rights on reducing the cost of equity is significantly stronger for firms with more severe agency problems from free cash flows.
2009 Governance
  • Directors' Ownership in the U.S. Mutual Fund Industry
  • Author: Chen, Q., I. Goldstein and W. Jiang
  • Journal: Journal of Finance
  • this paper empirically investigates directors' ownership in the mutual fund industry. The results show that, contrary to anecdotal evidence, a significant portion of directors hold shares in the funds they oversee. Ownership is positively and significantly correlated with most variables that are predicted to indicate greater value from directors' monitoring. The authors also show considerable heterogeneity in ownership across fund families, suggesting family-wide policies play an important role.
2008 Governance
  • The Senseitivity of Corporate Cash Holdings to Corporate Governance
  • Author: Chen, Q., X. Chen, K. Schipper, Y. Xu and J. Xue
  • Journal: Review of Financial Studies
  • This paper shows that the average cash holdings of Chinese-listed firms decreased significantly after the split share structure reform in China, which specified a process that allowed previously nontradable shares held by controlling shareholders to be freely tradable on the exchanges. The reduction in cash holdings is greater for firms with weaker governance and firms facing more financial constraints prior to the reform. Additional analyses show that the reform affects firms' cash management policies, investment decisions, dividend payout policies, and financing choices differently in private firms than in state-owned enterprises.
2012 Governance
  • Do Managers Do Good with Other Peoples' Money?
  • Author: Cheng, I., H. Hong and K. Shue
  • Journal: Working paper
  • The authors test the hypothesis that corporate social responsibility is due to managerial agency problems using two identification strategies. They use the 2003 Dividend Tax Cut, which increased the after-tax effective firm ownership for managers. Consistent with the agency view, they find that the tax cut led to a decline in corporate goodness. Second, the authors provide evidence in which shareholder-initiated governance proposals which narrowly passed experienced significantly slower growth in corporate goodness relative to firms in which the proposals narrowly failed.
2013 Governance
  • The Contractual Nature of the Firm
  • Author: Cheung, S.
  • Journal: Journal of Law and Economics
  • This theoretical paper interets R.H Coase's paper "The Nature of the Firm." The auhtor examines contracts in general and the piece-rate contract in particular. The author also evaluates the influence of Coase's paper in future economic literature.
1983 Governance
1970 Governance
  • CEO Compensation and Board Structure
  • Author: Chhaochharia, V. and Y. Grinstein
  • Journal: Journal of Finance
  • In response to corporate scandals in 2001 and 2002, major U.S. stock exchanges issued new board requirements to enhance board oversight. The authors find a significant decrease in CEO compensation for firms that were more affected by these requirements, compared with firms that were less affected, taking into account unobservable firm effects, time-varying industry effects, size, and performance. The decrease in compensation is particularly pronounced in the subset of affected firms with no outside blockholder on the board and in affected firms with low concentration of institutional investors.
2009 Governance
  • Corporate Governance and Firm Value: The Impact of the 2002 Governance Rules
  • Author: Chhaochharia, V. and Y. Grinstein
  • Journal: Journal of Finance
  • The 2001 to 2002 corporate scandals led to the Sarbanes-Oxley Act and to various amendments to the U.S. stock exchanges' regulations. The authors find that the announcement of these rules has a significant effect on firm value. Firms that are less compliant with the provisions of the rules earn positive abnormal returns compared to firms that are more compliant. They also find that large firms that are less compliant earn positive abnormal returns but small firms that are less compliant earn negative abnormal returns, suggesting that some provisions are detrimental to small firms.
2007 Governance
  • The Changing Structure of U.S. Corporate Boards: 1997-2003
  • Author: Chhaochharia, V. and Y. Grinstein
  • Journal: Corporate Governance
  • The authors find significant changes in board independence, committee independence, board size, interlocking directorships, director occupation and multiple directorships. They find weaker trends in the financial stake of independent directors and in separating CEOs from the chairman position. In 2003 many independent directors have small holdings in the firms they direct and CEOs chair around two-thirds of the boards in the sample.
2007 Governance
  • The Relationship between Corporate Governance and Firm Productivity: Evidence from Taiwan's Manufacturing Firms
  • Author: Chiang, M. and J. Lin
  • Journal: Corporate Governance
  • This study analyzes the relationship between ownership structure and board of director composition and their influences on the total factor productivity (TFP) of Taiwan's firms. The empirical results show that the curvilinear specification is better to capture the relationship between inside ownership and firm productivity. Meanwhile, the ownership structure in a firm indeed affects differences in TFP between conglomerate firms and non-conglomerate firms, high-tech firms and non-high-tech firms, and family-owned firms and non-family-owned firms.
2007 Governance
  • The Value of Outside Directors: Evidence from Corporate Governance Reform in Korea
  • Author: Choi, J., S. Park and S. Yoo
  • Journal: Journal of Financial and Quantitative Analysis
  • This paper examines the valuation impacts of outside independent directors in Korea, where a regulation requiring outside directors was instituted after the Asian financial crisis. In contrast to studies of U.S. firms, the effects of independent directors on firm performance are strongly positive. Foreigners also have positive impacts. The effects of indigenous institutions such as chaebol or family control are insignificant or negative.
2007 Governance
  • Effects "Best Practices" of Environmental Management on Cost Advantage: The Role of Complementary Assets
  • Author: Christmann, P.
  • Journal: Academy of Management Journal
  • Drawing on the resource-based view of the firm, this study analyzes whether complementary assets are required in order to gain cost advantage from implementing environmental management best practices. Results indicate that the best practices of environmental management generally do not lead to cost advantage for all firms. Firms need to possess complementary assets in order to create cost advantage from the implementation of such practices. In particular, the capabilities for process innovation and implementation are complementary assets that moderate the relationship between best practices and cost advantage.
2000 Environmental
  • Is Cross-Listing a Commitment Mechanism? Evidence from Cross-Listings around the World
  • Author: Chung, J., S. Korea, H. Cho and W. Kim
  • Journal: Third International Conference on Corporate Governance in Emerging Markets
  • This paper finds that firms are more likely to choose cross-listing destinations that are less strict on regulating self-dealing or exhibit higher block premiums relative to the origin country, and this tendaency is more pronounced after Sarbanes-Oxley in 2002. The authors also find that firm characteristics that are positively correlated with likelihood of a U.S. cross-listing, such as high tech or high Tobin's q, are also positively correlated with likelihood cross-listings in Germany or Switzerland both of which exhibit low investor protection.
2011 Governance
2010 Governance
  • Corporate Governance and Development
  • Author: Claessens, S.
  • Journal: World Bank Research Observer
  • The literature shows that good corporate governance generally pays- for firms, for markets, and for countries. Given the benefits of good corporate governance, firms and countries should voluntarily reform more. Resistance by entrenched owners and managers at the firm level and political economy factors at the level of markets and countries partly explain why they do not.
2001 Governance
  • Finance and Inequality: Channels and Evidence
  • Author: Claessens, S. and E. Perotti
  • Journal: Working paper
  • This theoretical paper provides a framework to interpret the recent literature on financial development and inequality. Inequality affects the distribution of political influence, so financial regulation often is easily captured by established intrests in unequal countries. Capture reforms deepen rather than broaden access, as small elites obtain most of the benefits while risks are socialized.
2007 Governance
  • Corporate Governance in Asia: A Survey
  • Author: Claessens, S. and J. Fan
  • Journal: International Review of Finance
  • This paper reviews the literature on corporate governance issues in Asia to develop region-specific and general lessons. The literature confirms the limited protection of minority rights in Asia, allowing controlling shareholders to expropriate minority shareholders. The Asian financial crisis further showed that conventional and alternative corporate governance mechanisms can have limited effectiveness in systems whith weak institutions and poor property rights.
2002 Governance
  • Banks and Labor as Stakeholders: Impact on Economic Performance
  • Author: Claessens, S. and K. Ueda
  • Journal: International Monetary Fund
  • This paper finds that financial deregulation impacts overall state growth positively but stronger employment protection affects it ambiguously. At the state-industry level, greater employment protection hinders the growth of low-skill industries but promotes the growth of knowledge-intensive industries. The authors find that this effect stems from stronger relative bargaining powers of workers, in addition to the effects of higher absolute employment protection.
2009 Governance
  • Financial Development, Property Rights, and Growth
  • Author: Claessens, S. and L. Laeven
  • Journal: Working paper
  • This paper analyzes how property rights affect the allocation of firms' available resources among different types of assets. The authors find that improved asset allocation due to better property rights has an effect on growth in sectoral value added equal to improved access to financing arising from greater financial development.
2002 Governance
  • Political Connections and Preferntial Access to Finance: The Role of Campaign Contributions
  • Author: Claessens, S., E. Feijen and L. Laeven
  • Journal: Journal of Financial Economics
  • This paper shows that Brazilian firms that provided contributions to (elected) federal deputies experienced higher stock returns around the 1998 and 2002 elections. Using a firm fixed effects framework to mitigate the risk that unobserved firm characteristics distort the results, the authors find that contributing firms substantially increased their bank leverage relative to a control group after each election, indicating that access to bank finance is an important channel through which political connections operate.
2008 Governance
  • Financial Frictions, Investment, and Institutions
  • Author: Claessens, S., K. Ueda and Y. Yafeh
  • Journal: IMF Working papers
  • This paper empirically investigates the effects of institutions on financial frictions. The authors find that improved corporate governance (e.g., less informational problems) and enhanced contractual enforcement reduce financial frictions, while stronger creditor rights (e.g., lower collateral constraints) are less important.
2010 Governance
  • The Seperation of Ownership and Control in East Asian Corporations
  • Author: Claessens, S., S. Djankov and L. Lang
  • Journal: Journal of Financial Economics
  • This paper examines the seperation of ownership and control in nine East Asian countries. In all countries, voting rights frequently exceed cash flow rights via pyramid structures and cross-holdings. The seperation of ownership and control is most pronounced among family-controlled firms and small firms. Significant corporate wealth in East Asia is concentrated among a few families.
2000 Governance
  • Disentangling the Incentive and Entrenchment Effects of Large Shareholdings
  • Author: Claessens, S., S. Djankov, J. Fan and L. Lang
  • Journal: Journal of Finance
  • This article disentangles the incentive and entrenchment effects of large ownership. The authors find the firm value increases with the cash-flow ownership of the largest shareholder, consistent with a positive incentive effect. But firm value falls when the control rights of the largest shareholder exceed its cash-flow ownership, consistent with an entrenchment effect.
2002 Governance
  • Corporate Governance and Environmental Risk management: A Quantitative Analysis of "New Paradigm" Firms
  • Author: Clark, G. and J. Salo
  • Journal: Pensions at Work: Social Responsible Investment of Union-Based Pension Funds, edited by J. Quwarter, I. Carmichael and S. Ryan
  • The authors' results suggest that "new paradigm" firms- those with high relative amounts of intangibles as a part of overall firm value- tend to manage corporate governance and environmental risks more aggressively than their "classical model" peers. In addition, it is found that a firm's industry is more important than iits home nation in predicting the level of intangible assets for firm value and growth of investment in intangibles over time.
2008 Environmental
  • Environmental management and Firm Performance: A Case Study
  • Author: Claver, E., M. Lopez, J. Molina and J. Tari
  • Journal: Journal of Environmental Management
  • A case study of the COATO farming coorperative showed that its environmental management, focused on prevention logic, has a positive net effect on its environmental performance. Also a positive correlation exists between the pioneering proactive strategy and firm performance.
2007 Environmental
  • Corporate Social Responsibility and Financial Performance
  • Author: Cochran, P. and R. Wood
  • Journal: Academy of Management Review
  • The relationship between corporate social responsibility and financial performance is reexamined usin a new methodology, improved technique, and industry-specific control groups. Average age of corporate assets is found to be highly correlated with social reponsibility ranking. After controlling for this factor, there is still some correlation between corporate social responsibility and financial performance.
1984 Environmental, Social, Governance
  • Do Norms Matter? A Cross-Country Evaluation
  • Author: Coffee, Jr., J.
  • Journal: University of Pennsylvania Law Review
  • This article examines the effects of nonlegal enforceable social norms in regards to corporate governance on firm market value. The author finds that when law is weak and social norms about shareholders' rights are underdeveloped, then credible signals about the corporations intentions become critical.
2001 Governance
  • Future as History: The Prospects for Global Convergence in Corporate Governance and Its Implications
  • Author: Coffee, Jr., J.
  • Journal: Northwestern University Law Review
  • The author examines three hypotheses which attempt to explain corporate structure and shareholder behavior: political constraints, liquidity preferences, and fear of minority exploitation. This article suggest that, within the U.S. context, the critical protections for the dispersed shareholder are principally found in the federal securities laws, particularly those provisions regulating corporate control transactions.
1998 Governance
  • Hiring Cheerleaders: Board Appointments of "Independent" Directors
  • Author: Cohen, L., A. Frazzini and C. Malloy
  • Journal: Management Science
  • By reviewing cases of sell-side analysts who are subsequently appointed to the boards of companies they previously covered, the authors provide evidence that firms appoint independent directors who are overly sympathetic to management, while still technically independent according to regulatory definitions.
2012 Governance
  • The Small World of Investing: Board Connections and Mutual Fund Returns
  • Author: Cohen, L., A. Frazzini and C. Malloy
  • Journal: Journal of Political Economy
  • This paper uses social networks to identify information transfer in security markets. The authors find that portfolio managers place larger bets on connected firms and perform significantly better on these holdings relative to their nonconnected holdings. A replicating portfolio of connected stocks outperform nonconnected stocks by up to 7.8 percent per year.
2008 Governance
  • Environmental and Financial Performance: Are They Related?
  • Author: Cohen, M., S. Fenn and J. Naimon
  • Journal: Investor Responsibility Research Center, Environmental Information Service
  • This study reports on a new dataset (Investor Responsibility Research Center) detailing the environmental performance of the Standard and Poor's 500 companies. The authors construct two industry-balanced portfolios and compare both accounting and market returns of the "high polluter" to the "low polluter" portfolio. Overall, they find either no "penalty" for investing in the "green" portfolio, or a positive return from green investing. This paper also examines the stock market reaction to new information on the environmental performance of individual firms, and provides a preliminary analysis of causality.
1995 Environmental
  • Optimal Corporate Governance in the Presence of an Activist Investor
  • Author: Cohn, J. and U. Rajan
  • Journal: Review of Financial Studies
  • The authors provide a model of governance in which a board arbitrates between an activist investor and a manager facing reputational concerns. The optimal level of internal board governance depends on both the severity of the agency conflict and the strength of external governance. Internal board governance creates a certification effect, so greater intervention by the board can lead to worse managerial behavior. Internal and external governance are substitutes when external governance is weak (the board commits to an interventionist policy to induce participation from the activist) and complements with external governance is strong (the board relies to a greater extent on the activist's information).
2013 Governance
  • Structural Models and Endogeneity in Corporate Finance: The Link between Managerial Ownership and Corporate Performance
  • Author: Coles, J., M. Lemmon and J. Felix Meschke
  • Journal: Journal of Financial Economics
  • This paper presents a parsimonious, structural model that isolates primary economic determinants of the level and dispersion of managerial ownership, firms scale, and performance and the empirical associations among them. In particular, variation across firms and through time of estimated productivity parameters for physical asstes and managerial input and corresponding variation in optimal compensation contract and firm size combine to deliver the well-known hump-shaped relation between Tobin's Q and managerial ownership.
2012 Governance
  • The Financial Performance of the FTSE4Good Indices
  • Author: Collison, D., G. Cobb, D. Power and L. Stevenson
  • Journal: Corporate Social Responsibillity and Environmental Management
  • This paper examines the financial performance of the FTSE$Good indices; the indices include companies from different geographical areas on the basis of pre-determined social responsibility criteria: currently environmental sustainability, relationships with stakeholders, attitudes to human rights, supply chain labor standards and the countering of bribery. The results indicate that these indices outperformed their relevant benchmarks. However, most of this outperformance was due to the risk differences between the FTSE4Good indices and their benchmarks.
2008 Environmental, Social, Governance
  • Global Standards and Ethical stock Indexes: The Case of the Dow Jones Sustainability Stoxx Index
  • Author: Consolandi, C., A. Jaiswal-Dale, E. Poggiani and A. Vercelli
  • Journal: Journal of Buisness Ethics
  • The aim of this article is twofold. First, the authors analyze the performance of the Dow Jones Sustainability Stoxx (DJSSI) compared to that of the Surrogate Complementary Index (SCI). Second, they perform an event study on the same data set to analyze whether the stock market evaluation reacts to the inclusion (deletion) in the DJSSI. In both cases, the results suggest that the evaluation of the CSR performance of a firm is a significant criterion for asset allocation activities.
2009 Environmental, Social, Governance
  • The Directors' and Officers' Insurance Premium: An Outside Assessment of the Quality of Corporate Governance
  • Author: Core, J.
  • Journal: Journal of Law, Economics, & Organization
  • This article examines the director & officer (D&O) premium as a measure of ex ante litigation risk. The author dinds a significant association between D&O premiums and variables that proxy for the quality of firms' governance structures. This article provides confirmatory evidence that the D&O premium reflects the quality of the firm's corporate governance by showing measures of weak governance implied by the D&O premium are positively related to excess CEO compensation.
2000 Governance
  • Performance Consequences of Mandatory Increases in Executive Stock Ownership
  • Author: Core, J. and D. Larcker
  • Journal: Journal of Financial Economics
  • The authors examine a sample of firms that adopt target ownership "plans, under which managers are required to own a minimum amount of stock. The authors find that the prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership increases significantly in the two years following plan adoption. The authors also observe that excess accounting returns and stock returns are higher after the plan is adopted.
2002 Governance
  • Corporate Governance, Chief Executive Officer Compensation, and Firm Performance
  • Author: Core, J., R. Holthausen and D. Larker
  • Journal: Journal of Financial Economics
  • The study finds that measures of board and ownership structure explain a significant amount of cross-sectional variation in CEO compensation. After controlling for standard economic determinants of pay. The signs of the coefficients on the board and ownership structure variables suggest that CEOs earn greater compensation when governance structures are less effective. They also find that the predicted component of compensation arising from these characteristics of board and ownership structure has a statistically significant negative relation with subsequent firm operating and stock return performance.
1999 Governance
  • The Power of the Pen and Executive Compensation
  • Author: Core, J., W. Guay and D. Larker
  • Journal: Journal of Financial Economics
  • The authors examine the press' role in monitoring and influencing executive compensation practice. Negative press coverage is more strongly related to excess annual pay than to raw annual pay, suggesting a sophisticated approach by the media in selecting CEOs to cover. However, negative coverage is also greater for CEOs with more option exercises, suggesting the press engages in some degree of "sensationalism." The authors find little evidence that firms respond to negative press coverage by decreasing excess CEO compensation or increasing CEO turnover.
2008 Governance
  • Price versus Non-Price Performance Measures in Optimal CEO Compensation Contracts
  • Author: Core, J., W. Guay and R. Verrecchia
  • Journal: Accounting Review
  • The authors empirically examine standard agency predictions about how performance measures are optimally weighted to provide CEO incentives. They document that the relative weight on price and non-price performance measures in CEO cash pay is decreasing function of the relative variances. They document that very little of CEOs total incentives comes from cash pay. They also document that variation in the relative weight on price and non-price performance measures in CEO toal compensation is an increasing function of the relative variances.
2003 Governance
2006 Governance
  • Monitoring Managers: Does It Matter?
  • Author: Cornelli, F., Z. Kominek and A. Ljungqvist
  • Journal: Journal of Finance
  • The authors study how well-incentivized boards monitor CEOs and whether monitoring improves performance. They find that gathering information helps boards learn about CEO ability. This paper shows that governance reforms increase the effectiveness of board monitoring and establish a casual link between forced CEO turnover and performance improvements.
2013 Governance
  • The Financial Crisis, Internal Corporate Governance, and the Performance of Publicly-Traded U.S. and European Funds
  • Author: Cornett, M., J. McNutt and H. Tehranian
  • Journal: Working paper
  • This paper examines internal corporate governance mechanisms and the performance of publicly-traded U.S. banks before and during the financial crisis. The authors find that the largest banks see the largest losses and experience the largest changes in corporate governance. Lastly, the authors find stronger relations between corporate governance variable changes and 2008 stock market returns for large banks than for small banks.
2010 Governance
  • Socially Responsible Investing in the Global Market: The performance of U.S. and European Funds
  • Author: Cortez, M., F. Silva and N. Areal
  • Journal: International Journal of Finance & Economics
  • This paper investigates the style and performance of U.S. and European global socially responsible funds. Most European global socially responsible funds do not show significant performance differences in relation to both conventional and socially responsible benchmarks. U.S. funds and Austrian funds show evidence of underperformance. With respect to investment style, the authors find evidence that socially responsible funds are strongly exposed to small cap and growth stocks.
2011 Environmental, Social, Governance
  • The Performance of European Socially Responsible Funds
  • Author: Cortez, M., F. Silva and N. Areal
  • Journal: Journal of Buisness Ethics
  • This paper investigates performance of a sample of socially responsible mutual funds from seven European countries investing globally and/or in the European market. The results show that European socially responsible funds present, in general, neutral performance, either in relation to conventional or socially responsible benchmarks. The results also show that socially responsible funds are more exposed to conventional than to socially responsible indices.
2009 Environmental, Social, Governance
  • Do Independent Directors Enhance Target Shareholder Wealth During Tender Offers?
  • Author: Cotter, J., A. Shivdasani and M. Zenner
  • Journal: Journal of Financial Economics
  • The authors examine the role of the target firm's independent outside directors during takeover attempts by tender offer. They find that when the targets board is independent, the initial tender offer premium, the big premium revision, and the target shareholder gains over the entire tender offer period are higher, and that the presence of a poison pill and takeover resistance lead to greater premiums and shareholder gains.
1997 Governance
  • Home Bias, Foreign Mutual Fund Holdings, and the Voluntary Adoption of International Accounting Standards
  • Author: Covrig, V., M. Defond and M. Hung
  • Journal: Journal of Accounting Research
  • This paper finds that average foreign mutual fund ownership is significantly higher among International Accounting Standards (IAS) adopters. The authors also find that IAS adopter in poorer information environments annd with lower visibility have higher levels of foreign investment, consistent with firms using IAS adoption to provide more information and/or information in a more familiar form to foreign investors.
2006 Governance
  • An Empirical Examination of Institutional Investor Preferences for Corporate Social Performance
  • Author: Cox, P., S. Brammer and A. Millington
  • Journal: Journal of Buisness Ethics
  • The study finds that long-term institutional investment is positively related to corporate social performance (CSP). Pattern of institutional investment is related to the form of CSP. Long-term investment has a stronger relationship with employee social performance than with community social performance.
2004 Environmental, Social
  • Managing Cultural Diversity: Implications for Organizational Competitiveness
  • Author: Cox, T. and S. Blake
  • Journal: Executive
  • This article reviews arguments and research data on how managing diversity can create a competitive advantage. The authors address cost, attraction of human resources, marketing success, creativity and innovation, problem-solving quality, and organizational flexibility as six dimensions of buisness performance directly impacted by the management of cultural diversity.
1991 Social
1991 Social
  • Thirty years of Shareholder Rights and Firm Valuation
  • Author: Cremers, K. and A. Ferrell
  • Journal: Working paper
  • This paper finds a robustly negative association between restrictions on shareholder rights (using the G-Index as a proxy) and Tobin's Q. The negative association between fewer shareholder rights and firm value only appears after the judicial approval of the poison pill and antitakeover defenses more generally in the landmark Delaware Supreme Court decision of Moran v. Household in 1985. This decision was an unanticipated, exogenous shock to shareholder rights, suggesting a casual impact of shareholder rights on firm valuation.
2011 Governance
  • Institutional Investors and Proxy Voting: The Impact of the 2003 Mutual Fund Voting Disclosure Regulation
  • Author: Cremers, K. and R. Romano
  • Journal: American Law and Economics Review
  • This paper examines the impact on shareholder voting of the mutual fund voting disclosure regulation adopted by the SEC in 2003. The authors focus on how voting outcomes relate to institutional ownership and the voting behavior of mutual funds. While voting support for management has decreased over time, the authors find no evidence that mutual funds' support for management declined after the rule change, as expected by advocates of disclosure. In the context of management-sponsored proposals on executive incentive compensation plans, mutual funds appear to have increased their support for management after the rule change.
2011 Governance
  • Governance mechanisms and Equity Prices
  • Author: Cremers, K. and V. Nair
  • Journal: Journal of Finance
  • This paper investigates how the market for corporate control (external governance) and shareholder activism (internal governance) interact. A portfolio that buys firms with the highest level of takeover vulnerability and shorts firms with the lowest level of takeover vulnerability generates an annualized abnormal return of 10 percent to 15 percent only when public pension fund (blockholder) ownership is high as well. A simialar portfolio created to capture the importance of internal governance generates annualized abnormal returns of 8 percent, though only in the presence of "high" vulnerability to takeovers.
2005 Governance
  • Does the Market for CEO Talent Explain Controversial CEO Pay Practices?
  • Author: Cremers, K. and Y. Grinstein
  • Journal: 3rd Annual Conference on Empirical Legal Studies
  • Benchmarking, pay for luck, and the large compensation packages given to CEOs in recent years are three major controversial compensation practices. The authors examine the extent to which variation in the market for CEO talent explains these practices. The authors find that CEO compensation is benchmarked against other firms only in industries where CEO talent is not firm-specific, and pay for luck is more prevalent when CEO talent is more firm-specific. They also find that CEO compensation Levels do not depend on whether CEO talent is firm-specific, which seems inconsistent with the competition argument.
2011 Governance
  • Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry
  • Author: Cremers, K., J.Driessen, P. Maenhout and D. Weinbaum
  • Journal: Journal of Financial and Quantitative Analysis
  • This paper uses a unique database on ownership stakes of equity mutual fund directors to analyze whether the directors' incentive structure is related to fund performance. Ownership of both independent and nonindependent directors plays a economically and statistically significant role. Funds in which directors have low ownership, or "skin in the game," significantly underprform.
2009 Governance
  • Governance Mechanisms and Bond Prices
  • Author: Cremers, K., V. Nair and C. Wei
  • Journal: Review of Financial Studies
  • The authors investigate the effects of shareholder governance mechanisms on bondholders and document two new findings. In the presence of shareholder control, the difference in bond yields due to differences in takeover vulnerability can be as high as 66 basis points. Second, event risk convenants reduce the credit risk associated with strong shareholder governance.
2007 Governance
  • Takeover Defenses and Competition: The Role of Stakeholders
  • Author: Cremers, K., V. Nair and U. Peyer
  • Journal: Journal of Empirical Legal Studies
  • This article studies between takeover defenses and competition. The authors find that firms in more competitive industries have more takeover defenses. This suggests that product market competition can be a subsitute for the market for corporate control, with more information availale in competitive markets making monitoring less costly.
2008 Governance
  • Stock Duration and Misvaluation
  • Author: Cremers, M., A. Pareek and Z. Sautner
  • Journal: Working paper
  • The authors study whether the presence of short-term investors is related to a speculative component in stock prices using a new measure of holding duration. The authors document that the presence of short-term investors is strongly related to temporary price distortions, consistent with a speculative component in stock prices as modeled in Bolton, Scheinkman, and Xiong (2006). As short-term investors move into (out of) stocks, their prices tend to go up (down) relative to fundamentals.
2013 Governance
  • Large Shareholders and Corporate Policies
  • Author: Cronqvist, H. and R. Fahlenbrach
  • Journal: Review of Financial Studies
  • The authors analyze the effects of heterogeneity across large shareholders. The authors find statistically significant and economically important blockholder fixed effects in investment, financial, and executive compensation policies. They also find blockholder fixed effects in firm performance measures, and differences in corporate policies are systematically related to differences in firm performance.
2009 Governance
  • Environmental Economics: A Survey
  • Author: Cropper, M. and W. Oates
  • Journal: Journal of Economic Literature
  • This paper reviews the literature on the theory of environmental regulation with a focus on theoretical results regarding the choice among the key policy instruments for the control of externalities: effluent fees, subsidies, and marketable emission permits. Policy applications are discussed as well.
1992 Environmental
  • Corporate Governance and Ownership Structure in Emerging Markets: Evidence from Latin America
  • Author: Cueto, D.
  • Journal: Working paper
  • In a context of low protection for minority shareholders and large ownership concentration, the paper finds that market participants impose a discount on the value of firms in which voting rights of dominant shareholders exceed the cash-flow rights. The evidence suggests that the stock market discount is lower when other corporations and family groups assume monitoring roles similar to that of creditors. Collusion between blockholders and dominant shareholders for the purpose of extracting private benefits of control, to the detriment of investors, is not evident.
2011 Governance
  • Corporate Social Responsibility: Domestic and International private Equity Institutional Investment
  • Author: Cumming, D. and S. Johan
  • Journal: Working paper
  • This paper shows that socially responsible investment is more common among institutional investors with a greater international investment focus in Europe and the United States relative to domestic Dutch investment and investment in Asia. Socially responsible investment is also more common among larger institutional investors and those expecting relatively greater returns from such investments, and less common among fund-of-fund investments.
2006 Environmental, Social
  • The Vote is Cast: The Effect of Corporate Governance on Shareholder Value
  • Author: Cuñat, V., M. Gine and M. Guadalupe
  • Journal: Journal of Finance
  • The authors find that passing an internal corporate governance proposal leads to significant positive abnormal returns. Adopting one governance proposal increases shareholder value by 2.8 percent. The market reaction is larger in firms with more antitakeover provisions, higher institutional ownership, and stronger investor activism for proposals sponsored by institutions. In addition, they find that acquisitions and capital expenditures decline and long-term performance improves.
2012 Governance
  • Ownership, Control, Valuation and Performance of Brazilian Corporations
  • Author: da Silva, A. and R. Leal
  • Journal: Corporate Ownership and Control
  • This paper analyzes the ownership and control structure of Brazilian companies and the effect of cash flow and voting rights on firm valuation and performance. The authors find evidence that non-voting shares and indirect control structures are largely used to concentrate control with reduced overall investment in the company. Moreover, firm valuation and performance are relatively higher for firms with controlling shareholders when compared to firms without controlling shareholders.
2006 Governance
  • Endogeneity of Brazilian Corporate Governance Quality Determinants
  • Author: da Silva, A., R. Leal, A. Carvalhal-da-Silva and L. Barros
  • Journal: Corporate Governance
  • This paper investigates the determinants and the evolution of voluntarily adopted firm-level corporate governance preactices in Brazil. The authors find that firm-level corporate governance practices are steadily improving but there is much room for improvement. Heterogeneity has increased. Voluntarily adhering to new stricter listing requirements is associated positively with improvements in firm-level corporate governance practices. reducing or not using non-voting shares improves corporate governance practices.
2010 Governance
  • Rating the Ratings: How Good Are Commercial Governance Ratings?
  • Author: Daines, R., I. Gow and D. Larcker
  • Journal: Journal of Financial Economics
  • The authors examine whether commercially available corporate governance rankings provide useful information for shareholders. The results suggest that they do not. Commercial ratings do not predict governance-related outcomes with the precision or strength necessary to support the bold claims made by most of these firms. The authors find little or no relation between the governance ratings provided by RiskMetrics with either their voting recommendations or the actual votes by shareholders on proxy proposals.
2010 Governance
2006 Environmental, Social, Governance
  • Do Pills Poison Operating Performance?
  • Author: Danielson, M. and J. Karpoff
  • Journal: Journal of Corporate Finance
  • Contrary to arguments that poison pills degrade firm performance, the authors find that operating performance modestly improves during the 5-year period after pill adoption. Performance improvements are present in a wide range of firms, and are independent of adoption year and whether the firm is R&D intensive. Although recent arguments suggest that the protection offered by pills is strongest when combined with a staggered board, the performance changes also are unrelated to board structure.
2006 Governance
  • Socially Responsible Investing and Asset Allocation
  • Author: D'Antonio, L., T. Johnsen and R. Hutton
  • Journal: Journal of Investing
  • This paper compares returns on a SR portfolio percentage of debt and equity to traditional investment vehicle returns using several methods of asset allocation. The authors find that the SR portfolio outperformed the combined S&P 500/LB index across all methods.
2000 Environmental, Social, Governance
  • Pollution and Capital Markets in Developing Countries
  • Author: Dasgupta, S., B. Laplante and N. Mamingi
  • Journal: Journal of Environmental Economics and Management
  • This paper shows that capital markets in Argentina, Chile. Mexico, and the Philippines do not react to announcements of environmental events, such as those of superior environmental performance or citizens' complaints. A policy implication is that environmental regulators in developing countries may explicitly harness those market forces by introducing structured programs of information release pertaining to firms' environmental performance: public disclosure mechanisms in developing countries may be a useful model to consider given limited government enforcement resources.
2001 Environmental
  • Agents without Principles? The Spread of the Poison Pill through the Intercorporate Network
  • Author: Davis, G.
  • Journal: Administrative Science Quarterly
  • This study compares the agency theory of the firm with interorganizational theory in examining the factors associated with the adoption of the poison pill-a takeover defenseissued by a firm's board of directors that can dramatically increase the cost that a hostile buyer would like to have to pay to acquire the firm. The authors' results support a social structural perspective on the market for corporate control in which the interlock network provides a social context favoring continued managerial dominance.
1991 Governance
  • Business Ties and Proxy Voting by Mutual Funds
  • Author: Davis, G. and E. Kim
  • Journal: Journal of Financial Economics
  • The magnitude of mutual funds' buisness ties with their portfolio firms is documented and is linked to funds' proxy votes at specific firms and to overall voting practices. Aggregate votes at the fund family level indicate a positive relation between buisness ties and the propensity to vote with management. Votes at specific firms, however, reveal that funds are no more likely to vote with management of client firms than non-clients.
2007 Governance
  • Can a Stock Exchange Improve Corporate Behavior? Evidence from Firms' Migration to Premium Listings in Brazil
  • Author: de Carvalho, A. and G. Pennacchi
  • Journal: Journal of Corporate Finance
  • This paper examines the effects of a commitment to improved corporate disclosure and governance by firms' voluntary migration to Brazil's premium listings which require more stringent shareholder protections. The authors' analysis finds that a firm's migration brings positive abnormal returns to its shareholders, particularly when its shares did not have a prior cross-listing on a U.S. exchange and also when the firm chooses a premium listing with the highest standards.
2012 Governance
2005 Governance
  • Corporate Governance Quality: Trends and Real Effects
  • Author: De Nicolo, G., L. Laeven and K. Ueda
  • Journal: Journal of Financial Intermediation
  • This paper's investigation on corporate governance across emerging and developed economies yields three main findings. First, corporate governance quality in most countries has improved overall, although in varying degrees and with a few notable exceptions. Second, the data exhibit cross-country convergence in corporate governance quality with countries that score poorly initially catching up with countries with high governance scores. Third, the impact of improvements in corporate governance quality on traditional measures of real economic activity- GDP growth, productivity growth, and the ratio of investment to GDP- is positive, significant and quantitatively relevant, and the growth effect is particularly pronounced for industries that are most dependent on external finance.
2008 Governance
  • Finance and Inequality: Theory and Evidence
  • Author: Demirguc-Kunt, A. and R. Levine
  • Journal: Annual Review of Financial Economics
  • In this paper, the authors critically review the literature on finance and inequality, highlighting substantive gaps in the literature. While subject to ample qualifications, the bulk of empirical research suggests that improvements in financial contracts, markets, and intermediaries expand economic opportunities and reduce inequality. Yet, there is a shortage of theoretical and empirical research on the potentially enormous impact of formal financial sector policies, such as bank regulations and securities law, on persistent inequality.
2009 Governance
  • International Corporate Governance
  • Author: Denis, D. and J. McConnell
  • Journal: Journal of Financial and Quantitative Analysis
  • This paper surveys two generations of research on corporate governance systems around the world, concentrating on countries other than the U.S. The first generation of international corporate governance research is patterned after the U.S. research that precedes it. The second generation of international corporate governance research considers the possible impact of differing legal systems on the structure and effectiveness of corporate governance and compares sytems across countries.
2003 Governance
  • Socially Responsible Fixed-Income Funds
  • Author: Derwall, J. and K. Koedijk
  • Journal: Journal of Buisness Finance & Accounting
  • This paper found that average SRI bond funds performed similar to conventional funds while the average SRI balanced fund outperformed its conventional peer by more than1.3 percent per year.
2009 Environmental, Social
  • Corporate Governance and the Cost of Equity Capital: Evidence from GMI's Governance Rating
  • Author: Derwall, J. and P. Verwijmeren
  • Journal: European Centre for Corporate Engagement Research Note
  • This research not describes how the corporate governance attributes of publicly listed companies are received by financial markets. The authors first document that firms with better overall corporate governance enjoy a lower cost of equity capital. Second, they find that better governance is associated with lower systematic risk, as measured by a firm's beta. Third, they relate corporate governance to idiosyncratic (i.e., firm-specific) risk.
2007 Governance
  • The Eco-Efficiency Premium Puzzle
  • Author: Derwall, J., N. Guenster, R. Bauer and K. Koedijk
  • Journal: Financial Analysts Journal
  • This study focused on the concept of "eco-efficiency" which can be thought of as the economic value a company creates relative to the waste it generates. The study constructed and evaluated two equity portfolios that differed in eco-efficiency. The high-ranked portfolio provided substantially higher average returns than its lower ranked counterpart.
2005 Environmental
2009 Environmental, Social, Governance
  • Socially Responsible Investment: Is It Profitable?
  • Author: Dhrymes, P.
  • Journal: Colloquium on Socially Responsible Investing
  • The authors formulate an "analysis of variance" model to analyze the effect of social responsibility on returns. They find that social responsibility classification is not a significant determinant of a firm's rate of return.
1998 Environmental, Social, Governance
  • Are Red or Blue Companies More Likely to Go Green? Politics and Corporate Social responsibility
  • Author: Di Giuli, A. and L. Kostovetsky
  • Journal: 29th International Conference of the French Finance Association
  • The authors find that firms score higher on CSR when they have Democratic rather than Republican founders, CEOs, and directors, and when they are headquartered in Democratic, rather than Republican-leaning states. This paper estimates that CSR cost Democratic-leaning firms approximately $20 million more in annual SG&A expenses than Republican-leaning firms ($80 million more within the sample of S&P500 firms), representing about 10 percent of net income.
2013 Environmental, Social
  • Institutional Investment in the EU ETS
  • Author: Diaz-Rainey, I., A. Finegan and A. Ibikunle
  • Journal: Working paper
  • This review paper explores the role of institutional investment in the EU Emissions Trading Scheme. Legislation incorporating a fiduciary obligation for institutional investors to take into account the social costs of investment as well as private returns would begin to address the climate investment gap.
2013 Environmental
  • Executive Compensation and the Role for Corporate Governance Regulation
  • Author: Dicks, D.
  • Journal: Review of Financial Studies
  • This theoretical article establishes a role for corporate governance regulation. An externality operating through executive compensation motivates regulation. Governace lowers agency costs, allowing firms to grant less incentive pay. When a firm increases governance and lowers incentive pay, other firms can also lower executive compensation. When regulation is enforced, large firms increase value, small firms decrease in value, and all firms lower incentive pay.
2012 Governance
  • Does Social Screening Affect Portfolio Performance?
  • Author: Diltz, J.
  • Journal: Journal of Investing
  • The authors find that SRI screening has little or no effect on portfolio returns. Environmental and charitable giving screens result in enhanced portfolio performance, while a family benefits screen results in negative performance.
1995 Environmental, Social, Governance
  • The Private Cost of Socially Responsible Investing
  • Author: Diltz, J.
  • Journal: Applied Financial Economics
  • The authors examine twenty-eight common stock portfolios to determine whether ethical screening has an impact on portfolio performance. To the extent that any impacts are observed, the market appears to reward good environmental performance, charitable giving, and an absence of nuclear and defense work, and it appears to penalize firms that provide family-related benefits such as parental leave, job sharing, and dependent care assistance.
1995 Environmental, Social, Governance
  • Active Ownership
  • Author: Dimson, E., O. Karakas and X. Li
  • Journal: Working paper
  • This study analyzes the impact of environmental, social, and governance engagements between asset managers and companies. On average, successful CSR engagements give rise to a positive one-year abnormal return of 4.4 percent, whereas there is no market reaction to unsuccessful CSR engagements. Positive abnormal returns are most pronounced for engagements on the themes of corporate governance and climate change.
2013 Environmental, Social, Governance
  • Mutual Fund Performance and Governance Structure: The Role of Portfolio Managers and Boards of Directors
  • Author: Ding, B and R. Wermers
  • Journal: EFA 2005 Moscow
  • The authors show that experienced large-fund portfolio managers outperform their size, book-to-market, and momentum benchmarks, but htat experienced small-fund portfolio managers underperform their benchmarks- indicating the presence of managerial entrenchment in the mutual fund industry. The authors' evidence indicates that independent boards impact pre-expense performance much more significantly than their prior-documented impact on fund fees. They also find a role for internal governance: inside directors and large management company complexes appear to better monitor performance due to "hidden actions," as well as terminating underperforming inexperienced managers.
2013 Governance
  • Sticks or Carrots? Optimal CEO Compensation When Managers Are Loss Averse
  • Author: Dittmann, I., E. Maug and O. Spalt
  • Journal: Journal of Finance
  • This paper analyzes optimal executive compensation contracts when managers are loss averse. The authors derive and Calibrate the general shape of the optimal contract that is increasing and convex for medium and high outcomes and that drops discontinuously to the lowest possible payout for low outcomes. They also identify the critical features of the loss-aversion model that render optimal contracts convex.
2010 Governance
  • Valuing Corporate Environmental Performance: Innovest's Evaluation of the Electric Utilities Industry
  • Author: Dixon, F. and M. Whittaker
  • Journal: Corporate Environmental Strategy
  • Deregulation of the U.S. electric power industry has few noticeable implications for environmental performance and risk. Add to that increasing regulatory pressure and public awareness, and environmental strategy emerges as a pivotal factor underlying success- or failure- in the industry. In this article, the authors show how forward-thinking companies are turning environmental threats into buisness opportunities, with shareholders pocketing the returns.
1999 Environmental
  • Debt Enforcement around the World
  • Author: Djankov, S., O. Hart, C. McLiesh and A. Shleifer
  • Journal: Journal of Political Economy
  • This paper asks insolvency practitioners from 88 countries to describe how debt enforcement will proceed against an identical hotel about to default on its debt. The authors use the data on time, cost, and the likely disposition of the assets (preservation as a going concern vs piecemeal sale) to construct a measure of the efficiency of debt enforcement in each country. This measure is strongly correlated with per capita income and legal origin and predicts debt market development.
2008 Governance
  • The Law and Economics of Self-Dealing
  • Author: Djankov, S., R. La Porta, F. Lopez-de-Silanes and A. Shleifer
  • Journal: Journal of Financial Economics
  • The authors present a new measure of legal pprotection of minority shareholders against expropriation by corporate insiders: the anti-self-dealing index. Assembled with the help of Lex Mundi law firms, the index is calculated for 72 countries based on legal rules prevailing in 2003, and focuses on private enforcement mechanisms, such as disclosure, approval, and litigation, that govern a speciific self-dealing transaction. This theoretically grounded index predicts a variety of stock market outcomes, and generally works better than the previously introduced index of anti-director rights.
2008 Governance
  • The Regulation of Labor
  • Author: Djankov, S., R. La Porta, F. Lopez-de-Silanes, A. Shleifer and J. Botero
  • Journal: National Bureau of Economic Research
  • The authors investigate the regulation of labor markets through employment laws, collective bargaining laws, and social security laws in 85 countries. They find that richer countries regulate labor less than poorer countries do, although they have more generous social security systems. Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment.
2003 Social
2010 Environmental, Social, Governance
  • Why Do Foreign Firms Leave U.S. Equity Markets?
  • Author: Doidge, C., G. Karolyi and R. Stulz
  • Journal: Journal of Finance
  • Foreign firms terminate their Securities and Exchange Commission registration in the aftermath of the Sarbanes-oxley Act (SOX) because they no longer require outside funds to finance growth opportunities. This paper finds that foreign firms with more agency problems have worse stock-price reactions to the adoption of Rule 12h-6 in 2007, which made deregistration easier, than those firms more adversely affected by the compliance costs of SOX. Stock-price reactions to deregistration announcements are negative, but less so under Rule 12h-6, and more so for firms that raise fewer funds externally.
2010 Governance
  • How Has New York Become Less Competitive Than London in Global Markets? Evaluating Foreign Listing Choices over Time
  • Author: Doidge, C., G. Karolyi and R. Stulz
  • Journal: Journal of Financial Economics
  • This paper studies the determinants and consequences of cross-listing on the New York and London stock exchanges from 1990 to 2005. The authors find that cross-listings have been falling on U.S. exchanges as well as on the Main Market in London. They show that after controlling for firm characteristics there is no deficit in cross-listing counts on U.S. exchanges related to SOX. This paper also finds that there is a significant premium for U.S. exchange listings every year, that the premium has not fallen significantly in recent years, and that it persists when allowing for time-invariant unobsevable firm characteristics.
2009 Governance
  • Why Do Countries Matter So Much for Corporate Governance?
  • Author: Doidge, C., G. Karolyi and R. Stulz
  • Journal: Journal of Financial Economics
  • This paper develops and test a model of how country characteristics, such as legal protections for minority investors and the level of economic and financial development, influence firms' costs and benefits in implementing measures to improve their own governance and transparency. The authors find that country characteristics explain much more of the variance in governance ratings (ranging from 39 percent to 73 percent) than observable firm characteristics (ranging from 4 percent to 22 percent). Further, they show that firm characteristics explain almost none of the variation in governance ratings in less-developed countries and that access to global capital markets sharpens firms' incentives for better governance.
2007 Governance
  • Why Are Foreign Firms Listed in the U.S. Worth More?
  • Author: Doidge, C., G. Karolyi and R. Stulz
  • Journal: Journal of Financial Economics
  • This paper shows that at the end of 1997, foreign companies with shares cross-listed in the U.s. had Tobin's q ratios that were 16.5 percent higher than the q ratios of non-cross-listed firms from the same country. The valuation difference is statistically significant and reaches 37 percent for those companies that list on major U.S. exchanges, even after controlling for a number of firm and country characteristics. The authors show that growth opportunities are more highly valued for firms that choose to cross-list in the U.S., particularly those from countries with poorer investor rights.
2004 Governance
  • Foreign and Domestic Ownership, Buisness Groups, and Firm Performance: Evidence from a Large Emerging Market
  • Author: Douma, S., R. George and R. Kabir
  • Journal: Strategic Management Journal
  • This theoretical paper shows that the previously documented positive effect of foreign ownership on firm performance is substantially attributable to foreign corporations that have, on average, larger shareholding, higher commitment, and longer-term involvement. The authors document the positive influence of corporations vis-á-vis financial institutions with respect to domestic shareholdings as well. They also find an interesting dichotomy in the impact of these shareholders depending on the business group affiliation of firms.
2006 Governance
  • Do Corporate Global Environmental Standards Create or Destroy Market Value?
  • Author: Dowell, G., S. Hart and B. Yeung
  • Journal: Management Science
  • This paper finds that firms adopting a single stringent global environmental standard have much higher market values, as measured by Tobin's q, than firms defaulting to less stringent, or poorly enforced host country standards. Results also suggest that externalities are incorporated to a significant extent in firm valuation.
2000 Environmental
  • Sovereign Bonds and Socially Responsible Investment
  • Author: Drut, B.
  • Journal: Journal of Business Ethics
  • This paper shows that for a global rating of socially responsible performances, it is possible to build portfolios with an increased average rating without significantly harming the risk/return relationship. This result differs when considering sub-ratings related to the environment, social concerns, and public governance.
2010 Environmental, Social, Governance
  • When Are Outside Directors Effective?
  • Author: Duchin, R., J. Matsusaka and O. Ozbas
  • Journal: Journal of Financial Economics
  • This paper uses recent regulations that have required some companies to increase the number of outside directors on their boards to generate estimates of the effect of board independence on performance that are largely free from endogeneity problems. The main finding is that the effectiveness of outside directors depends on the cost of acquiring information about the firm: when the cost of acquiring information is low, performance increases when outsiders are added to the board, and when the cost of information is high, performance worsens when outsiders are added to the board.
2010 Governance
  • To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation
  • Author: Durnev, A. and E. Kim
  • Journal: Journal of Finance
  • This paper investigates a simple model which identifies three firm attributes related to that variation: investment opportunities, external financing, and ownership structure. Using firm-level governance and transparency data they find that all three firm attributes are related to the quality of governance and disclosure practices, and firms with higher governance and transparency rankings are valued higher in stock markets. All relations are stronger in less investor-friendly countries, demonstrating that firms adapt to poor legal environments to establish efficient governance practices.
2005 Governance
  • Stealing from Thieves: Expropriation Risk, firm Governance, and Performance
  • Author: Durnev, A. and L. Fauver
  • Journal: 2nd Annual Conference on Empirical Legal Studies
  • The authors examine firm governance choices and firm valuation in the presence of expropriation risk. The authors show that firms in industries that are subject to greater risks of expropriation practice worse governance, disclose less information, and manage earnings more. Furthermore, a one-standard deviation increase in expropriation risk lowers firm value by approximately 4 percent directly and by 3 percent through the deterioration in firm governance.
2013 Governance
  • Political Partisanship and Corporate Performance
  • Author: Durnev, A., J. Garfinkel and A. Molchanov
  • Journal: Working paper
  • The authors present evidence that the political orientation of the government (left vs. right) affects corporate performance. They select four policy dimensions traditionally viewed as 'leftist': stringent labor and environmental laws, higher taxes and intrest rates. The authors document that industries that are more sensitive to such policies underperform when left parties are in power.
2013 Environmental, Social
  • How Pervasive is Corporate Fraud?
  • Author: Dyck, I., A. Morse and A. Zingales
  • Journal: 2nd Annual Conference on Empirical Legal Studies
  • The authors estimate what percentage of firms engage in fraud and the economic cost of fraud. They estimate that on average corporate fraud costs investors 22 percent of enterprise value in fraud-committing firms and 3 percent of enterprise value across all firms.
2013 Governance
  • The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance
  • Author: Eccles, R., I. Ioannou and G. Serafeim
  • Journal: National Bureau of Economic Research
  • The authors investigate the effect of a corporate culture of sustainability on multiple facets of corprate behavior and performance outcomes. The authors find that the boards of directors of High Sustainability companies are more likely to be responsible for sustainability and top executive incentives are more likely to be a function of sustainability metrics. They also provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance.
2012 Environmental
  • Agency Problems in Public Firms: Evidence from Corporate Jets in Leveraged Buyouts
  • Author: Edgerton, J.
  • Journal: Financial Review
  • This paper uses novel data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average 40 percent smaller fleets than observably similar public firms. Similar fleet reductions are observed within firms that undergo leveraged buyouts.
2012 Governance
  • Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices
  • Author: Edmans, A.
  • Journal: Asia Pacific Journal of Management
  • This paper analyzes the relationship between employee satisfaction and long-run stock returns. A value-weighted portfolio of the "100 Best Companies to Work for in America" earned annual four-factor alpha of 3.5 percent from 1984 to 2009, and exhibited significantly more positive earnings surprises and announcement returns. The implication is that employee satisfaction is positively correlated with shareholder returns.
2011 Social
  • Governance through Trading and Intervention: A Theory of Multiple Blockholders
  • Author: Edmans, A. and G. Manso
  • Journal: Review of Financial Studies
  • This article shows that, while a multiple small blockholder structure generates free-rider problems that hinder intervention, the same coordination difficulties strengthen a second governance mechanism: disciplining the manager through trading. Since multiple blockholders cannot coordinate to limit their orders and maximize combined trading profits, they trade competitively, impounding more information into prices.
2011 Governance
  • A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium
  • Author: Edmans, A., X. Gabaix and A. Landier
  • Journal: Review of Financial Studies
  • This theoretical paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium, by embedding a moral hazard problem into a talent assignment model. First, both the CEO's low fractional ownership (the Jensen-Murphy incentives measure) and its negative relationship with firm size can be quantitatively reconciled with optimal contracting, and thus need not reflect rent extraction. Second, the dollar change in wealth for a percentage change in firm value, divided by annual pay, is independent of firm size, and therefore a desirable empirical measure of incentives. Third, incentive pay is effective at solving agency problems with mutliplcative impacts on firm value, such a strategy choice.
2009 Governance
  • Dynamic CEO Compensation
  • Author: Edmans, A., X. Gabaix, T. Sadzik and Y. Sannikov
  • Journal: Journal of Finance
  • This theoretical paper studies optimal compensation in a dynamic framework where the CEO consumes in multiple periods, can undo the contract by privately saving, and can temporarily inflate earnings. The contracts can be implemented by escrowing the CEO's pay into a "Dynamic Incentive Account" that comprises cash and the firm's equity. The account feature state-dependent rebalancing to ensure its equity proportion is always sufficient to induce effort, and time-dependent vesting to deter short-termism.
2012 Governance
  • Doing Well by Doing Good? Green Office Buildings
  • Author: Eichholtz, P., N. Kok and J. Quigley
  • Journal: American Economic Review
  • This study analyzes economic value of "green buildings" derived from market transactions. It also finds that buildings with a "green rating" command rental rates that are roughly three percent higher per square foot than otherwise identical buildings. Selling prices of green buildings are higher by about 16 percent. Beyond the direct effects of energy savings, further evidence suggests that the intangible effects of the label itself also play a role in determining the value of grren buildings in the marketplace.
2013 Environmental
  • External Govenance and Debt Agency Costs of Family Firms
  • Author: Ellul, A., G. Levant and U. Lel
  • Journal: Federal Reserve Discussion Paper
  • The authors investigate the impact of family blockholders on the firm's debt agency costs under different investor protection environments. They find that family firms originating from high investor protection environments benefit from lower debt costs compared to non-family firms. The authors find no impact from non-family blockholdings.
2007 Governance
  • Determinants of Cross-Border Mergers and Acquisitions
  • Author: Erel, I., R. Liao and M. Weisbach
  • Journal: Journal of Finance
  • This paper finds that geography, the quality of accounting disclosure, and bilateral trade increase the likelihood of mergers between two countries. Valuation appears to play a role in motivating mergers: firms in countries whose stock market has increased in value, whose currency has recently appreciated, and that have a relatively high market-to-book value tend to be purchasers, while firms from weaker-performing economies tend to be targets.
2012 Governance
  • Reputation Penalties for Poor Monitoring of Executive Pay: Evidence from Option Backdating
  • Author: Ertimur, Y., F. Ferri and D. Maber
  • Journal: Journal of Financial Economics
  • The authors study whether outside directors are held accountable for poor monitoring of executive compensation by examining the reputation penalties to directors of firms invloved in the option backdating (BD) scandal of 2006-2007. At firms involved in BD, significant penalties accrued to compensation committe members (particularly those who served during the BD period) both in terms of votes withheld when up for election and in terms of turnover, especially in more severe cases of BD.
2012 Governance
  • Shareholder Activism and CEO Pay
  • Author: Ertimur, Y., F. Ferri and V. Muslu
  • Journal: Review of Financial Studies
  • Shareholders favor proposals related to the executive pay-setting process (e.g., subject severance pay to shareholder approval) over proposals that micromanage pay level or structure. Activists target firms with high CEO pay (whether excessive or not), voting support is higher only at firms with excess CEO pay. Firms with excess CEO pay targeted by vote-no campaigns experience a significant reduction in CEO pay ($7.3 million).
2011 Governance
  • Competition and Corporate Governance in Transition
  • Author: Estrin, S.
  • Journal: Journal of Economic Perspectives
  • This paper explores the elements of institutional development critical to the enhancement of company performance in transition economies. These elements include the initial conditions; the forms of privatization; the institutional and legal framework, especially the corporate governance structure; the relationship between the private sector and the state; and the competitiveness of product markets, including the impact of international trade.
2002 Governance
  • The Relationship between Environmental Social Governance Factors and Stock Returns
  • Author: Evans, J. and D. Peiris
  • Journal: Working paper
  • This study provides evidence of a significant positive relationshi[ between particular ESG rating criteria and both return on assets and market to book value measures, supporting the stakeholder theory that Corporate Social Performance (CSP) is positive for Corporate Financial Performance (CFP). Analysis also shows that employment conditions are a more relevant influence than other stakeholder criteria and a company's involvement in more general non-stakeholder related social issues contributes negatively to both operating performance and stock return.
2010 Environmental, Social, Governance
  • Politically Connected Firms
  • Author: Faccio, M.
  • Journal: American Economic Review
  • This paper finds that connections are particularly common in countries with higher levels of corruption, countries imposing restrictions on foreign investments by their residents, and countries with more transparent systems. The authors also find that differnt relationships between buisness people and politicians have different value. Stock prices increase significantly when a buisnessperson enters politics.
2006 Governance
  • The Ultimate Ownership of Western European Corporations
  • Author: Faccio, M. and L. Lang
  • Journal: Journal of Financial Economics
  • The authors find that widely held firms are more important in the U.K. and Ireland, family controlled firms in continental Europe. Financial and large firms are more likely widely held, while non-financial and small firms are more likely family controlled. Dual class shares and pyramids enhance the control of the largest shareholders, but overall there are significant discrepancies between ownership and control in only a few countries.
2002 Governance
  • Political Connections and Corporate Bailouts
  • Author: Faccio, M., R. Masulis and J. McConnell
  • Journal: Journal of Finance
  • This paper finds that politically connected firms are significantly more likely to be bailed out than similar nonconnected firms. Additionally, politically connected firms are disproportionately more likely to be bailed out when the International Monetary Fund or the World Bank provides financial assistance to the firm's home government. Further, among bailed-out firms, those that are politically connected exhibit significantly worse financial performance than their nonconnected peers at the time of and following the bailout.
2007 Governance
  • Bank CEO Incentives and the Credit Crisis
  • Author: Fahlenbrach, R. and R. Stulz
  • Journal: Journal of Financial Economics
  • The authors investigate whether bank performance during the recent credit crisis is related to chief executive officer (CEO) incentives before the crisis. They find some evidence that banks with CEOs whose incentives were better aligned with the interests of shareholders performed worse and no evidence that they performed better. Banks with higher option compensation and a larger fraction of compensation in cash bonuses for their CEOs did not perform worse during the crisis.
2011 Governance
  • Why Do Firm Appoin CEOs as Outside Directors?
  • Author: Fahlenbrach, R., A. Low and R. Stulz
  • Journal: Journal of Financial Economics
  • Companies actively seek to appoint outside CEOs to their boards. Consistent with the authors' matching theory of outside CEO board appointments, the authors show that such appointments have a certification benefit for the appointing firm. The first outside CEO director appointment has a higher stock-price reaction than the appointment of another outside director. Except for a decrease in operating performance following the appointment of an interlocked director, CEO directors do not affect the appointing firm's operating performance, decision-making, and CEO compensation.
2010 Governance
  • Classified Boards, Firm Value, and managerial Entrenchment
  • Author: Faleye, O.
  • Journal: Journal of Financial Economics
  • This paper shows that classified boards destroy value by entrenching management and reducing director effectiveness. The author shows that classified boards are associated with a significant reduction in firm value and that this holds even among complex firms, although such firms are often regarded as most likely to benefit from staggered board elections. results indicate that classified boards significantly insulate management from market discipline.
2007 Governance
  • Labor-Friendly Corporate Practices: Is What Is Good for Employees Good for Shareholders?
  • Author: Faleye, O. and E. Trahan
  • Journal: Journal of Buisness Ethics
  • Labor-friendly firms also outperform otherwise similar firms, both in terms of long-run stock market returns and operating results. This paper's analysis of excess executive compensation suggests that top management derives no pecuniary benefits from labor-friendly practices. The authors interpret their results as consistent with a genuine concern for employees translating into higher productivity and profitability, which in turn facilitate value creation.
2011 Social
  • Thye Cost of Intense Board Monitoring
  • Author: Faleye, O., R. Hoitash and U. Hoitash
  • Journal: Journal of Financial Economics
  • The authors study the effects of the intensity of board monitoring on directors' effectiveness in performing their monitoring and advising duties. They find that monitoring quality improves when a majority of independent directors serve on at least two of the three principal monitoring committees. These firms exhibit greater sensitivity of CEO turnover to firm performance, lower excess executive compensation, and reduced earnings management. The improvement in monitoring quality comes at the significant cost of weaker strategic advising and greater managerial myopia.
2011 Governance
  • When Labor Has a Voice in Corporate Governance
  • Author: Faleye, O., V. Mehrotra and R. Morck
  • Journal: Journal of Financial and Quantitative Analysis
  • The authors find that relative to other firms, labor-controlled publicly traded firms deviate more from value maximization, invest less in long-term assets, take fewer risks, grow more slowly, create fewer new jobs, and exhibit lower labor and total factor productivity. The authors propose that labor uses its corporate governance voice to maximize the combined value of its contractual and residual claims, and that this often pushes corporate policies away from, rather than toward, shareholder value maximization.
2006 Governance
  • Job Security Regulations and the Dynamic Demand for Industrial Labor in India and Zimbabwe
  • Author: Fallon P. and R. Lucas
  • Journal: Journal of Development Economics
  • This paper derives dynamic labor demand equations from a CES cost minimization model for 64 manufacturing industries. Following enactment of job security labor laws in India and Zimbabwe, the data reveal a substantial reduction in demand for workers but no slowing in adjustment of number of employees.
1993 Social
  • Disagreement, Tastes, and Asset Prices
  • Author: Fama, E. and K. French
  • Journal: Journal of Financial Economics
  • Standard asset pricing models assume that: (i) there is complete agrrement among investors about probability distributions of future payoffs on assets; and (ii) investors choose asset holdings based solely on anticipated payoffs; that is, investment assets are not also consumption goods. Both assumptions are unrealistic. The authors provide a simple framework for studying how disagreement and taste for assets as consumption goods can afect asset prices.
2007 Environmental, Social, Governance
  • Do External Auditor Peform a Corporate Governance Role in Emerging Markets? Evidence from East Asia
  • Author: Fan, J. and T. Wong
  • Journal: Journal of Accounting Research
  • This paper examines whether external independent auditors are employed as monitors or as bonding mechanisms, or both, to alleviate agency problems in emerging markets. This paper finds that firms with agency problems embedded in the ownership structures are more likely to employ Big 5 auditors. This relation is evident among firms that raise equity capital frequently. Consistently firms hiring Big 5 auditors recieve smaller share price discounts associated with the agency conflicts. The authors find that Big 5 auditors take into consideration their clients' agency problems when making audit fee and audit report decisions.
2005 Governance
  • Performance of Ethical Mutual Funds in Spain: Sacrifice or Premium?
  • Author: Fernandez-Izquierdo, A. and J. Matallin-Saez
  • Journal: Journal of Buisness Ethics
  • The main objective of this article is to compare the financial performance of ethical investment funds to that of other funds in the Spanish retail market. Using style analysis to compare financial performance, the authors found that their financial performance is in all cases superior or similar to that achieved by the rest of the funds. In comparing ethical and non-ethical fund subsamples by homogeneous groups, no significant differences between these two types of funds have been found.
2008 Environmental, Social
  • Shareholder Empowerment and Bank Bailouts
  • Author: Ferreira, D., D. Kershaw and A. Kirchmaier
  • Journal: Working paper
  • The authors propose a mangement insulation index based on banks' charter and by-law provisions and on the provisions of the applicable state corporate law that make it difficult for shareholders to oust a firm's management. The authors show that management insulation is a good predictor of bank bailouts: banks in which managers are fully insulated from shareholders are roughly 19 to 26 percentage points less likely to be bailed out.
2013 Governance
  • Corporate Governance, Idiosyncratic Risk, and Information Flow
  • Author: Ferreira, M. and P. Laux
  • Journal: Journal of Finance
  • the authors study the relationship of corporate governance policy and idiosyncratic risk. Firms with fewer antitakeover provisions display higher levels of idiosyncratic risk, trading activity, private information flow, and information about future earnings in stock prices. Trading intrest by institutions, especially those active in merger arbitrage, strengthens the relationship of governance to idiosyncratic risk.
2007 Governance
  • Shareholders at the gate? Institutional Investors and Cross-Border Mergers and Acquisitions
  • Author: Ferreira, M., M. Massa and P. Matos
  • Journal: Review of Financial Studies
  • The authors study the role of institutional investors in cross-border mergers and acquisitions (M&As). They find that foreign institutional ownership is positively associated with the intensity of cross-border M&A activity worldwide. Foreign institutional ownership increases the probability that a merger deal is cross-border, successful, and the bidder takes full control of the target firm. This relation is stronger in countries with weaker legal institutions and in less developed markets.
2010 Governance
  • Shareholder Votes and Proxy Advisors: Evidence from Say on Pay
  • Author: Ferri, F.
  • Journal: 7th Annual Conference on Empirical Legal Studies
  • The author investigate the economic role of proxy advisors (PA in the context of mandatory "say on pay" votes, a novel and complex item requiring significant firm specific analysis. More than half of the firms respond to the adverse shareholder vote triggered by a negative recommendation by engaging with investors and making changes to their compensation plan. however, they find no market reaction to the announcement of such changes, even when material enough to result in a favorable recommendation and vote the following year.
2013 Governance
  • Takeover Defenses of IPO Firms
  • Author: Field, L. and J. Karpoff
  • Journal: Journal of Finance
  • The presence of a takeover defense is negatively related to subsequent acquisition likelihood, yet has no impact on take-over premium for firms that are acquired. These results suggest that managers shift the cost of takeover protection onto nonmanagerial shareholders. Thus, agency problems are important even for firms at the IPO stage.
2002 Governance
2003 Governance
  • Corporate Governance and Performance in Publicly Listed, Family-Controlled Firms: Evidence from Taiwan
  • Author: Filatotchev, I., Y. Lien and J. Piesse
  • Journal: Asia Pacific Journal of Management
  • This paper analyzes the effects of ownership structure and board characteristics on performance in large, publicly traded firms that are controlled by founding families. After taking account of possible endogeneity problems, the authors do not find that family control is associated with performance measured in terms of accounting ratios, sales per issued capital, earnings per share and market-to-book value. Howver, share ownership by institutional investors, and foreign financial institutions in particular, is associated with better performance.
2005 Governance
  • Fortune's Best 100 Companies to Work for in America: Do They Work for Shareholders?
  • Author: Filbeck, G and D. Preece
  • Journal: Journal of Buisiness Finance & Accounting
  • this paper concludes that the stock market does value corporate concern for workers, as measured by inclusion in the Fortune 100 Best Companies to Work For list. The authors find statistically significant results on the announcement day and a run-up in the two weeks prior to the announcement, although the trend appears to partially reverse itself in the weeks following the event date.
2003 Social
  • The Relationship between the Environmental and Financial Performance of Public Utilities
  • Author: Filbeck, G and R. Gorman
  • Journal: Environmental and Resource Economics
  • the authors do not find a positive relationship between holding period returns and an industry-adjusted measure of environmental performance nor do they find that regulatory climate and a compliance based measure of environmental performance, there is evidence of a negative relationship between financial return and a more pro-active measure of environmental performance.
2004 Environmental
  • Voluntary Corporate Environmental Initiatives and Shareholder Wealth
  • Author: Fisher-Vanden, K. and K. Thorburn
  • Journal: Journal of Environmental Economics and Management
  • Companies announcing membership in Climate Leaders, a program related to climate change, experience significantly negative abnormal stock returns. The price decline is smaller in carbon-intensive industries, where regulatory actions are more likely, and for high book-to-market firms. Corporate commitments to reduce greenhouse gas emissions appear to conflict with shareholder value maximization.
2011 Environmental
  • Estimating the Value of Political Connections
  • Author: Fisman, R.
  • Journal: American Economic Review
  • The author uses a string of rumors about former Indonesian President Suharto's health to infer value of political connections to Indonesian firms. The author finds that a large percentage of a politically well-connected firm's value may be derived from political connections.
2001 Governance
  • Lean and Green: The Move to Environmentally Conscious Manufacturing
  • Author: Florida, R.
  • Journal: California Management Journal
  • The authors hypothesized that the adoption of environmentally conscious manufacturing is positively related to the adoption of advanced manufacturing systems more generally, and the results of this papers survey provide considerable support for this view. The authors findings suggest that the efforts of firms to improve manufacturing processes and increase productivity create substantial opportunities for environmental improvement.
1996 Environmental
  • A Note on Social Responsibility and Stock valuation
  • Author: Fogler, H. and F. Nutt
  • Journal: Academy of Management Journal
  • This paper studies the investor valuations of nine paper companies after substantial publicity was released about their pollution tendencies. Cross-section valuation models were prepared for the for the four quarters beginning just prior to the publicity. This event study finds little or no effect on firms' stock value after being cited as a polluter.
1975 Environmental
  • The History of Corporate Ownership and Control in Germany
  • Author: Fohlin, C.
  • Journal: A History of Corporate Governance Around the Worls: Family Business Groups to Professional Manager, edited by R. Morck
  • This theoretical paper reviews historical and contemporary views of German corporate governance, examining both the overall evolution of ownership structures and the development of relationship banking practices. The author finds that bank involvement in corporate ownership appears to have arisen largely out of active bank involvement with securities issues, particularly of listed firms.
2005 Governance
  • The Evolution of Corporate Ownership after IPO: The Impact of Investor Protection
  • Author: Foley, C. and R. Greenwood
  • Journal: Review of Financial Studies
  • Recent research documents that ownership concentration is higher in countries with weak investor protection. However, the authors show this pattern does not hold for newly public firms, which tend to have concentrated ownership regardless of the level of investor protection. The study shows that firms in countries with strong investor protection are more likely to experience decreases in ownership concentration after listing, that these decreases appear in response to growth opportunities, and that they are associated with new share issuance.
2010 Governance
  • The Disiplinary Effects of Proxy Contests
  • Author: Fos, V.
  • Journal: Working paper
  • Using a hand-collected data set of all proxy contests during 1994-2008, this paper studies the effect of potential proxy contests on corporate policies and performance. When the liklihood of a proxy contest increases, companies experience increases in leverage, dividends, and CEO turnover. In addition, companies decrease R&D, capital expenditures, and executive compensation.
2013 Governance
  • Emissions Trading, Electricity Restructuring, and Investment in Pollution Abatement
  • Author: Fowlie, M.
  • Journal: American Economic Review
  • This paper analyzes an emissions trading program that was introduced to reduce smog-causing pollution from large stationary sources. The author finds that deregulated plants in restructured electricity markets were less likely to adopt more capital intensive environmental compliance options as compared to regulated or publicly owned plants. Second, as a consequence of heterogeneity in electricity market regulations, a larger share of permitted pollution is being emitted in states where air quality problems tend to be more severe.
2010 Environmental
  • External Networking and Internal Firm Governance
  • Author: Fracassi, C. and G. Tate
  • Journal: Journal of Finance
  • The authors find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. They find that CEO-director ties reduce firm value, particularly in the absence of other governance mechanisms to substitute for board oversight. Moreover, firms with more CEO-director ties engage in more value-destroying acquisitions.
2010 Governance
  • Classified Boards and Firm Value
  • Author: Frakes, M.
  • Journal: Delaware Journal of Corporate Law
  • Classified boards constitute one of the most potent takeover defenses for U.S. firms today. This article approaches the relationship between corporate governance and firm value while taking various measurees to account for unobserved sources of heterogeneity across firms. Using the instrumental variables model developed by Hausman and Taylor, the author finds evidence of a negative and statistically significant association between classified board status and firm value.
2007 Governance
  • The Effect of State Antitakeover Laws on the Firm's Bondholders
  • Author: Francis, B., I. Hasan, K. John and M. Waisman
  • Journal: Journal of Financial Economics
  • The authors examine how state antitakeover laws affect bondholders and the cost of debt, and report four findinds. First, bonds issued by firms incorporated in takeover-friendly states have significantly higher at-issue yield spreads than bonds issued by firms in states with restrictive antitakeover laws. Second, firms in takeover friendly states have significantly higher leverage than their counterparts in restrictive law states. Third, bond issues are associated with negative average stock price reactions among firms in takeover-friendly states, but positive stock price reactions among firms in restrictive law states. Fourth, existing bond values increase, on average, upon the introduction of Buisness Combination antitakeover law.
2010 Governance
  • Ownership: Evolution and Regulation
  • Author: Franks, J., C. Mayer and S. Rossi
  • Journal: Review of Financial Studies
  • This paper is the first study of long-run evolution of investor protection and corporate ownership in the U.K. over the 20th century. The authors assess its influence on ownership by comparing cross-sections of firms at different times in the century and the evolution of firms incorporating at different stages of the century. Investor protection had little impact on dispersion of ownership: even in the absence of investor protection, there was a high rate of dispersion of ownership, primarily associated with mergers.
2009 Governance
  • Pollution Disclosures, Pollution Performance and Economic Performance
  • Author: Freedman, M. and B. Jaggi
  • Journal: Omega
  • This study examines the association between pollution disclosures and pollution performance and between pollution disclosures and economic performance for firms in highly polluting industries. Results confirm earlier findings that there is no association between pollution disclosures and pollution performance. As far as the association between economic performance and pollution disclosures is concerned, the results show that the subgroup of large firms with poor economic performance provides the most detailed pollution information. For smaller firms there is no association between economic performance and pollution disclosures.
1982 Environmental
  • Labour Market Institutions and Economic Performance
  • Author: Freeman, R. and S. Nickell
  • Journal: Economic Policy
  • This paper explores whether labor market institutions in OECD countries could have caused the observed disparity in economic performance since 1970. It is argued that cross-country differences in output growth were much smaller than differences in employment growth. For given output growth, there is a clear negative relationship between employment growth and real wage growth across countries. Countries with very high or very low wage dispersion across industries have better employment performance.
1988 Social
  • The Value of Excess Cash and Corporate Governance: Evidence from U.S. Cross-Listings
  • Author: FrEsard, L. and C. Salva
  • Journal: Journal of Financial Economics
  • The authors examine whether and how a U.S. cross-listing mitigates the risk that insiders will turn their firm's cash holdings into private benefits. They find strong evidence that the value investors attach to excess cash reserves is substantially larger for foreign firms listed on U.S. exchanges and over-the-counter than for their domestic peer. Further, they show that this excess-cash premium stems not only from the strength of U.S. legal rules and disclosure requirements, but also from the greater informal monitoring pressure that accompanies a U.S. listing.
2010 Governance
  • Propping and Tunneling
  • Author: Friedman, E., S Johnson and T. mitton
  • Journal: Journal of Comparative Economics
  • In countries with weak legal systems, there is a great deal of tunneling by the entrepreneurs who control publicly traded firms. However, under some conditions entrepreneurs prop up their firms, i.e., they use their private funds to benefit minority shareholders. The authors suggest that issuing debt can credibly commit an entrepreneur to propping, even though creditors can never take possession of any underlying collateral. This helps to explain why emerging markets with weak institutions sometimes grow rapidly and why they are also subject to frequent economic and financial crises.
2003 Governance
  • Executive Compensation: A New View from a Long-Term Perspective, 1936-2005
  • Author: Frydman, C. and R. Saks
  • Journal: Review of Financial Studies
  • The authors analyze the long-run trends in executive compensation using a new dataset of top officers of large firms. The median real value of compensation was remarkably flat from the late 1940s to the 1970s, revealing a weak relationship between pay and aggregate firm growth. This historical perspective also suggests that compensation arrangements have often helped to align managerial incentives with those of shareholders because executive wealth was sensitive to firm performance for most of the sample.
2010 Governance
  • Corporate Equality and Equity Prices: Doing Well While Doing Good?
  • Author: Fu, S. and L. Shan
  • Journal: Working paper
  • This paper tests the impact on firm value of corporate equality, which quantifies how companies treat their gay, lesbian, bisexual, and transgender employees, consumers, and investors. Firms with a higher degree of corporate equality have higher stock returns, higher market valuation, larger sales, higher profit margins, higher employees productivity, and attract more employees.
2009 Social
2003 Social
  • Why Has CEO Pay Increased So Much?
  • Author: Gabaix, X. and A. Landier
  • Journal: Quarterly Journal of Economics
  • This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO's pay depends on both the size of his firm and the aggregate firm size. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable corporate finance. The authors find a very small dispersion in CEO talent, which nonetheless justifies large pay differences.
2008 Governance
  • The Stocks at Stake: Return and Risk in Socially Responsible Investment
  • Author: Galema, R., A. Plantinga and B. Scholtens
  • Journal: Journal of Banking & Finance
  • This paper finds that SRI results in lower book-to-market ratios and as a result, the alphas do not capture SRI effects. The researchers find that SRI (in particular portfolios that score positive on diversity, environment and product) have a significant impact on stock returns.
2008 Environmental, Social, Governance
  • The Cost of Socially Responsible Portfolios: Testing for Mean-Variance Spanning
  • Author: Galema, R., B. Scholtens and A. Plantinga
  • Journal: Working paper
  • Investors are no worse off by excluding assets from their portfolio that are not socially responsible in case they face a short sales restriction. However, in case short sales are allowed for, investors are worse off in terms of foregone risk reduction opportunities for most dimensions of social responsibility.
2009 Environmental, Social, Governance
  • The Costs of Shareholder Activism: Evidence from a Sequential Decision Model
  • Author: Gantchev, N.
  • Journal: Journal of Financial Economics
  • This paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism. The author finds that the estimated monitoring costs reduce activist returns on their activist holdings than on their non-activist investments.
2013 Governance
  • Investing in Socially Responsible Mutual Funds
  • Author: Geczy, C., R. Stambaugh and D. Levin
  • Journal: Working paper
  • The authors find that the cost of SR investing depends crucially on the investor's views about asset pricing models and stock-picking skill by fund managers. To an investor who believes strongly in the CAPM and rules out managerial skill, i.e. a market-index investor, the cost of the SRI constraint is typically just a few basis point per month, measured in certainly-equivalent loss. To an investor who still disallows skill but instead believes to some degree in pricing models that associate higher returns with exposures to size, value, and momentum factors, the SRI constraint is much costlier.
2005 Environmental, Social, Governance
  • East Asian Finance: The Road to Robust Markets
  • Author: Ghosh, S.
  • Journal: World Bank Publications
  • This volume seeks to contribute to the important discussion on the agenda for financial sector development that is now underway among policymakers and market participants in East Asia. Developments since the financial crisis of 1997, as well as some of the lessons of the crisis itself, have prompted policymakers in East Asia to take a strategic look at the role that the financial sector needs to play in the region's ambitious agenda for growth and development.
2006 Governance
  • Pension Reform, Ownership Structure, and Corporate Governance: Evidence from a Natural Experiment
  • Author: Giannetti, M. and L. Laeven
  • Journal: Review of Financial Studies
  • The authors show that the effects of institutional investment on firm performance depend on the industry structure of pension funds. Firm valuation improves if public pension funds and large independent private pension funds increase their shareholdings. Additionally, controlling shareholders appear reluctant to relinquish control and the control premium increases if public pension funds acquire shares.
2009 Governance
  • Organization and Information: Firms' Governance Choices in Rational-Expectations Equilibrium
  • Author: Gibbons, R., R. Holden and M. Powell
  • Journal: Quarterly Journal of Economics
  • The authors analyze a rational-expectations model of price formation in an intermediate-good market under uncertainty. There is a continuum of firms, each consisting of a party who can reduce production cost and a party who can discover information about demand. Both parties can make specific investments at private cost, and there is a machine that either party can control. As in incomplete-contracting models, different governance structures (i.e., different allocations of control of the machine) create different incentives for the parties' investments.
2012 Governance
  • Measuring the Social, Environmental and Ethical Performance of Pension Funds
  • Author: Gifford, J.
  • Journal: Journal of Australian Political Economy
  • While there has been important progress in the reporting and rating of social, environmental and ethical (SEE) impacts of companies themselves, there has been little focus on pension funds and the responsibility they bear for the impacts of their investments. This article discusses the reporting and rating of the SEE performance of pension funds and their agents and proposes a number of ways to adress the problems associated with the current reporting frameworks.
2004 Environmental
  • The Performance of Socially Responsible Mutual Funds: The Role of Fees and Management Companies
  • Author: Gil-Bazo, J., P. Ruiz-verdu and A. Santos
  • Journal: Journal of Business Ethics
  • This paper shows that U.S. SRI funds had beter before- and after- fee performance than conventional funds with similar characteristics. The differences, however, are driven exclusively by SRI funds run by management companies specialized in SRI. While these funds significantly ouperform simialr conventional funds, funds run by companies not specialized in SRI underperform their matched conventional funds.
2010 Environmental, Social, Governance
  • The Evolution of Shareholder Activism in the United States
  • Author: Gillan, S. and L. Starks
  • Journal: Journal of Applied Corporate Finance
  • This is a review of the evolution of shareholder activism since the establishment of the SEC in the 1930s. This paper emphasizes three main subjects: the kinds of companies that are targeted by activists; the motives of institutional investors for activism; the effectiveness of activists in bringing about economically significant change at targeted companies.
2007 Governance
  • Corporate Governance, Corporate Ownership, and the Role of Institutional Investors: A Global Perspective
  • Author: Gillan, S. and L. Starks
  • Journal: Journal of Applied Finance
  • The authors examine the relation between corporate governance and ownership structure, focusing on the role of institutional investors. In many countries, institutional investors have become dominant players in the financial markets. The authors examine cross-country differences in ownership structures and the implications of these differences for institutional investor involvement in corporate governance. Although there may be some convergence in governance practices across countries over time, the endogenous nature of the interrelation among governance factors suggests that variation in governance structures will persist.
2003 Governance
  • Corporate Governance Proposals and Shareholder Activism: The Role of Institutional Investors
  • Author: Gillan, S. and L. Starks
  • Journal: Journal of Financial Economics
  • The authors study shareholder proposals across a period of substantial activity and find systematic differences both across sponsor identity and across time. This paper documents that sponsor identity, issue type, prior performance and time period are important influences on the voting outcome. The nature of the stock market reaction, while typically small, varies according to the issue and the sponsor identity.
2000 Governance
  • Globalizing Corporate Governance: Convergence of Form or Function
  • Author: Gilson, R.
  • Journal: American Journal of Comparative Law
  • In this article the author examines the interplay of functional adaptivity on the one hand, and institutional persistence or path dependency on the other, that will influence whether such corporate governance convergence will be formal or functional. The author finds that due to the diversity of circumstances there can be no general prediction of the mode that convergence of national corporate governance institutions may take.
2001 Governance
  • Controlling Controlling Shareholders
  • Author: Gilson, R. and J. Gordon
  • Journal: University of Pennsylvania Law Review
  • In this article, the authors examine the doctrinal limits on the private benefits of control from a particular orientation. The authors show that a controlling shareholder may extract private benefits of control in one of three ways: by taking a disproportionate amount of the corporation's ongoing earnings, by freezing out the minority, or by selling control. The authors' hypothesis is that the limits on these three methods of extraction must be determined simultaneously, or at least consistently, because they are in substantial respects substitutes.
2003 Governance
  • Corporate Governance, Product Market Competition, and Equity Prices
  • Author: Giroud, X. and H. Mueller
  • Journal: Journal of Finance
  • This paper examines whether firms in noncompetitive industries benefit more from good governance than do firms in competitive industries. The authors find that weak governance firms have lower equity returns, worse operating performance, and lower firm value, but only in noncompetitive industries. When exploring the causes of the inefficiency, the authors find that weak governance firms have lower labor productivity and higher input costs, and make more value-destroying acquisitions, but, again, only in noncompetitive industries.
2011 Governance
  • Does Corporate Governance Matter in Competitive Industries?
  • Author: Giroud, X. and H. Mueller
  • Journal: ECGI-Finance Working paper
  • This paper finds that while firms in non-competitive industries experience a significant drop in performance after the passage of a BC law, which weakens corporate governance, firms in competitive industries experience virtually no effect. The authors find that capital expenditures are unaffected by the passage of the BC laws, input costs, wages, and overhead costs all increase, and only so in non-competitive industries. The authors also conduct event studies around the dates of the first newspaper reports about the BC laws. They find that while firms in non-competitive industries experience a significant stock price decline, firms in competitive industries experience a small and insignificant price impact.
2007 Governance
  • The Relationship between Corporate Philanthropy and Shareholder Wealth: A Risk Management Perspective
  • Author: Godfrey, P.
  • Journal: Academy of Management Review
  • This paper presents a theoretical model of a simple argument: good deeds earn chits. The author proposes three core assertions of the theory: (1) corporate philanthropy can generate positive moral capital among communities and stakeholders, (2) moral capital can provide shareholders with insurance-like protection for a firm's relationship-based intangible assets, and (3) this protection contributes to shareholder wealth.
2005 Social
  • Overconfidence, CEO Selection, and Corporate Governance
  • Author: Goel, A. and A. Thakor
  • Journal: Journal of Finance
  • This theoretical paper develops a model that shows that an overconfident manager, who sometimes makes value-destroying investments, has a higher likelihood than a rational manager of being deliberately promoted to CEO under value-maximizing corporate governance. Moreover, a risk-averse CEO's overconfidence enhances firm value up to a point, but the effect is nonmonotonic and differs from that of lower risk aversion.
2008 Governance
  • Investing in Fortune's 100 Best Companies to Work for in America
  • Author: Goenner, C.
  • Journal: Journal of Economics
  • The authors investigate whether investment strategies that invest in the Fortune magazine "100 Best Companies to Work for in America" are able to outperform the market due to superior employer-employee relations. Portfolios consisting of firms on the list offer higher risk-adjusted returns than the S&P 500.
2008 Social
  • Asset Prices and Corporate Behavior with Socially Responsible Investors
  • Author: Gollier, C. and S. Pouget
  • Journal: Working paper
  • Being relatively more invested in pro-social firms, socially responsible investors have a lower risk-adjusted performance. Socially responsible investors can also engage in activism. A large activist investor can generate positive abnormal returns by investing in non-responsible companies and turning them into responsible. In some circumstances, a long-term horizon and a pro-social orientation raise the purely financial profit of the large investor.
2013 Environmental, Social
  • Extreme Governance: An Analysis of Dual-Class Firms in the United States
  • Author: Gompers, P., J. Ishii and A. Metrick
  • Journal: Review of Financial Studies
  • This paper constructs a comprehensive list of dual-class firms in the United States and uses this list to analyze the relationship between insider ownership and firm value. The authors find strong evidence that firm value is increasing in insiders' cash-flow rights and decreasing in insider voting rights.
2010 Governance
  • Corporate Governance and Equity Prices
  • Author: Gompers, P., J. Ishii and A. Metrick
  • Journal: Quarterly Journal of Economics
  • Corporate governance is strongly correlated with stock returns during the 1990s. An investment strategy that purchased shares in the lowest-G firms ("Democracy" firms with strong shareholder rights), and sold shares in the highest-G firms ("Dictatorship" firms with weak shareholder rights), earned abnormal returns of 8.5 percent per year. The results for both stock returns and firm value are economically large and are robust to many controls and other firm characteristics.
2003 Governance
  • Environmental Proactivity and Business Performance: An Empirical Analysis
  • Author: Gonzalez-Benito, J and O. Gnzalez-Benito
  • Journal: Omega
  • This paper analyzes the relationship between environmental proactivity and business performance at 186 industrial companies in Spain using a questionnaire. Results are mixed. There is partial support for the idea that environmental management can bring about competitive opportunities for companies, but there is also evidence that some environmental practices produce negative effects. Therefore, the question of whether environmental proactivity improves business performance must be disaggregated into more specific and concrete relationships.
2005 Environmental
  • The Environmental Fiduciary
  • Author: Goodman, S., J. kron and T. Little
  • Journal: Rose Foundation for Communities & the Environment
  • In this report, the authors show that fiduciaries who manage funds for institutional investors such as pension funds, foundations, and charitable trusts should incorporate environmental factors into their portfolio management policies. They show how a corporation's ability to profit from environmental innovations and prepare for future environmental risks and exposures can have a significant impact on corporate earnings potential, cash flow and growth opportunities. Consequently, the authors argue that fiduciaries for institutional investors should institute financially sound policies to encourage strong corporate environmental performance in the corporations held in their portfolios.
2002 Environmental
  • Executive Compensation and Corporate Governance in Financial Firms: The Case for Convertible Equity-Based Pay
  • Author: Gordon, J.
  • Journal: Working paper
  • This paper proposes a new compensation mechanism for senior managers, convertible equity-based pay. Upon certain external triggers, such as a downgrade into a high risk category by regulators or a deterioration in a key financial ratio, such stock-based compensation should convert into subordinated debt, at a valuation discount. This will give managers an incentive to curb excessive risk-taking and in particular to steer the firm away from financial distress.
2010 Governance
  • An International Relations Perspective on the Convergence of Corporate Governance: German Shareholder Capitalism and the European Union, 1990-2000
  • Author: Gordon, J.
  • Journal: Working paper
  • This article tries to move the corporate governance convergence debate towards an international relations perspective. This move has two implications. First, the pace of convergence in corporate governance is understood to depend crucially on a country's, or, perhaps more importantly, on a group of countries' commitment to a project of transnational economic and political integration. Second, this transnational project may be best advanced by the spread of diffusely-held public firms on the Anglo-American model, because such ownership structures facilitate the contestability of corporate control, which, crucially, helps curb economic nationalism.
2003 Governance
  • Just Say Never? Poison Pills, Deadhand Pills, and Shareholder Adopted Bylaws: An Essay for Warren Buffett
  • Author: Gordon, J.
  • Journal: Working paper
  • Despite increasing institutional investor activism, the realistic possibility of a hostile acquisition is a necessary ingredient to an optimal corporate governance regime for large public corporations in a stock-market centered capital system. This article argues in doctrinal terms that "just say no" is not the rule in Delaware and that, at a minimum, in the case of a firm with a staggered board the retention of a poison pill beyond the insurgent's initial electoral success is no longer reasonable.
1999 Governance
  • Pathways to Corporate Convergence? Two Steps on the Road to Shareholder Capitalism in Germany
  • Author: Gordon, J.
  • Journal: Columbia Journal of European Law
  • This paper evaluates two particular events for the impact on German corporate governance: the privatization of Deutsche Telekom and the cross-border merger between Daimler Benz and Chrysler Corp. This paper identifies several elements, including: the change in the shareholder body through a dilution of traditional German holders and the addition of U.S. institutional investors, the pioneering of a template for subsequent cross- border mergers involving German firms, the flexibility of German corporate law to shareholder initiatives, and the likely rippling impact of governance changes at DaimlerChrysler on other major German corporations.
1999 Governance
  • Takeover Defense Tactics: A Comment on Two Models
  • Author: Gordon, J. and L. Kornhauser
  • Journal: Yale Law Journal
  • The authors' analysis of the cases presented by Bradley and Rosenzweig and Macey and McChesney in favor of target stock buybacks makes them skeptical of the claim that such transactions will increase shareholder wealth. On the other hand, the deficiencies may conceivably lie in the models presented, rather than in the transactions themselves.
1986 Governance
  • Information, Ownership Structure, and Shareholder Voting: Evidence from Shareholder-Sponsored Corporate Governance Proposals
  • Author: Gordon, L. and J. Pound
  • Journal: Journal of Finance
  • This paper examines how information and ownership structure affect voting outcomes on shareholder-sponsored proposals to change corporate governance structure. The authors find that the outcomes of votes vary systematically with the governance and performance records of target firms, the identity of proposal sponsors, and the type of proposal. They also find that outcomes vary significantly as a function of ownership by insiders, institutions, outside blockholders, ESOPs, and outside directors who are blockholders.
2012 Governance
  • Class Struggle inside the Firm: A Study of German Codetermination
  • Author: Gorton, G. and F. Schmid
  • Journal: Working paper
  • Under the German corporate governance system of "codetermination," employees are legally allocated some control rights over corporate assets, in the form of board seats. This paper empirically investigates the implications of equal board representation compared with one-third employee representation and find a 26 percent stock market discount on firms with equal representation.
2002 Governance
  • Corporate Social Performance and Idiosyncratic Risk: A Variance Decomposition Analysis
  • Author: Goss, A.
  • Journal: Working paper
  • This paper investigates the relationship between corporate social responsibility and idiosyncratic risk, and finds that higher concerns are related to higher volatility of unexpected earnings and discount rates. Higher CSR strengths are associated with lower idiosyncratic variance. Partitioning the sample into positive and negative earnings shocks, the author finds that CSR strengths decrease the variance of negative returns, but increase the variance of positive returns, consistent with the notion that investments in social responsibility provide insurance against negative earnings shocks.
2013 Environmental, Social, Governance
  • Corporate Social Responsibility and Financial Distress
  • Author: Goss, A.
  • Journal: Meeting of the Administrative Sciences Association of Canada
  • This paper uses both multivariate regressions, simultaneous nonlinear equations and a discrete time hazard model and finds that the level of CSR in a firm is a significant determinant of financial distress. The relationship is robust to the endogeneity of CSR investments and free cash flow and suggests that there is informational value in extra financial metrics.
2009 Environmental, Social, Governance
  • The Impact of Corporate Social Responsibility on the Cost of Bank Loans
  • Author: Goss, A. and G. Roberts
  • Journal: Journal of Banking & Finance
  • This paper finds that banks with the worst social responsiility pay up to 20 basis points more for private debt financing than the most responsible firms. However, the authors find that for the the majority of firms, the impact of CSR is not economically important. The modest premiums associated with CSR suggest that banks do not regard corporate social responsibility as significantly value enhancing or risk reducing.
2011 Social
  • The Impact of Pollution on Worker Productivity
  • Author: Graff Zivin, j. and M. Neidell
  • Journal: American Economic Review
  • In this paper, the authors use a unique panel dataset on the productivity of agricultural workers to analyze the impact of ozone pollution on productivity. They find that ozone levels well below federal air quality standards have a significant impact on productivity: a 10 parts per billion (ppb) decrease in ozone concentrations increases worker productivity by 5.5 percent.
2012 Environmental, Social
  • Corporate Governance, Debt, and Investment Policy During the Great Depression
  • Author: Graham, J., S. Hazarika and K. Narasimhan
  • Journal: Management Science
  • The authors document a relation between board characteristics and firm performance that varies in economically sensible ways: Complex firms (that would benefit more from board advice) exhibit a positive relation between board size and firm value; simple firms exhibit a negative relation.
2011 Governance
  • Effects of Race on Organizational Experience, Job Performance Evaluations, and Career Outcomes
  • Author: Greenhaus, J., S. Parasuraman and W. Wormley
  • Journal: Academy of Management Journal
  • Using questionaire data, the authors showed that, compared to white managers, blacks felt less accepted in their organizations, perceived themselves as having less discretion on their jobs, received lower ratings from their supervisors on their job performance and promotability, were more likely to have reached career plateaus, and experienced lower levels of career satisfaction.
1990 Social
  • Investor Activism and Takeovers
  • Author: Greenwood, R. and M. Schor
  • Journal: Journal of Financial Economics
  • Recent work documents large positive abnormal returns when a hedge fund announces activist intentions regarding a publicly listed firm. The authors show that these returns are largely explained by the ability of activists to force target firms into a takeover. Announcement returns and long-term abnormal returns are high for targets that are ultimately acquired, but not detectably different from zero for firms that remain independent. Firms targeted by activists are more likely than control firms to get acquired.
2009 Governance
  • Do Markets Value Corporate Social Responsibility?
  • Author: Gregory, A., J. Whittaker and X. Yan
  • Journal: Working paper
  • This paper shows that indicators of corporate social responsibility are valued by markets. Consistent with other evidence on implied cost of capital and CSR, the authors show that there are significant differences in factor loadings between high and low CSR stocks. Also they find that CSR effects are manifested at least in part by an increased persistence in abnormal earnings.
2011 Environmental, Social, Governance
  • Cap-and-Trade Emission Allowances and U.S. Companies' Balance Sheets
  • Author: Griffin, P.
  • Journal: Sustainability Accounting and Management Policy Research
  • This study examines the impact of the "free" climate change allowances under the proposed American Clean Energy and Security Act of 2009 on the balance sheets and income statements of companies in the S&P 500, estimated by the Congressional Budget Office to be as high as $700 billion over 2010-2019. The authors analysis suggests that U.S. companies' balance sheet and profit ratios will show a modest but variable impact. Some treatments, however, will allow companies to move the liability "off balance sheet," so that the financial impact of emission allowances could be unclear to many investors; this can raise the cost of capital and hurt share prices.
2013 Environmental
  • Going Green: Market Reaction to CSR Newswire Releases
  • Author: Griffin, P. and Y. Sun
  • Journal: Journal of Accounting and Public Policy
  • Using voluntary disclosures made through the CSR newswire service, this paper finds that managers' disclosure decisions involving greenhouse gas emissions produce positive returns to shareholders. This response varies negatively with company size and public information availability. For small companies in a limited public information environment, mean-adjusted share price increases significantly by 2.32 percent over days -2 to 2 around the CSR newswire release date.
2013 Environmental
  • Strange Bedfellows? Voluntary CSR Disclosure and Politics
  • Author: Griffin, P. and Y. Sun
  • Journal: Accounting & Finance
  • This paper shows a reliable association between the CSR disclosure intensity of a company and its political interests, which the authors proxy by the contributions of company individuals to political action committees and statewide voting in presidential elections. The authors also show that a portfolio strategy of investing based on company size, CSR disclosure intensity, and company individuals' political contributions produces a significant positive mean excess stock return of 4.5 percent over three months following CSR disclosure.
2013 Environmental, Social, Governance
  • The Relevance to Investors of Greenhouse Gas Emission Disclosures
  • Author: Griffin, P., D. Lont and Y. Sun
  • Journal: UC Davis Graduate School of Management Research Paper
  • Using companies that disclose GHG emissions voluntarily through the Carbon Disclosure Project (CDP), the authors show that investors act as if they use GHG emission information to assess company value. Furthermore, an event study shows a significant stock market response when companies disclose climate change information in a 8-K filing. The results suggest that for every ton of GHG emitted by the median company in the sample at an assumed cost of $20 per ton, the stock market recognizes about 35-50 percent of that amount as an off-balance sheet liability.
2011 Environmental
  • Corporate Governance and Audit Fees: Evidence of Countervailing Relations
  • Author: Griffin, P., D. Lont and Y. Sun
  • Journal: Journal of Contemporary Accounting & Economics
  • This study derives and tests an economic framework that explains the relation between corporate governance and the fees paid by companies for auditing. The evidence shows that auditing and governance are co-determined by two countervailing relations, namely, a fee-increasing relation because auditing services provide one means to attain better governance, and a fee-decreasing relation because auditors incorporate the benefits of better governance in pricing their services.
2008 Governance
  • CEO Compensation and Incentives: Evidence from M&A Bonuses
  • Author: Grinstein, Y. and P. Hribar
  • Journal: Journal of Financial Economics
  • This paper investigates CEO compensation for completing M&A deals. The authors find that CEOs who have more power to influence board decisions receive significantly larger bonuses. They also find a positive relation between bonus compensation and measures of effort, but not between bonus compensation and deal performance.
2004 Governance
  • Competition and Ownership Structure: Substitutes or Complements
  • Author: Grosfeld, I. and T. Tressel
  • Journal: Economics of Transition
  • The authors analyze the impact of product market competition and ownership structure on firm performance. Their results show that product market competition has a positive and significant impact on performance. Concerning the effect of ownership concentration, they find a U-shaped relationship with performance.
2002 Governance
  • Blind Investment
  • Author: Grossman, R.
  • Journal: HR Magazine
  • This note discusses the value of a firm' human capital and the lack of attention from corporate financial analysts. Five quantitative measures of a firm's human capital are presented, as well as some explanations for analysts' narrow focus.
2005 Social
  • The Economic Value of Corporate Eco-Efficiency
  • Author: Guenster, N., R. Bauer, J. Derwall and K. Koedijk
  • Journal: European Financial Management
  • Using a new database of eco-efficiency scores, the authors analyze the relation between eco-efficiency and financial performance from 1997 to 2004. They report that eco-efficiency relates positively to operating performance and firm market value. Although environmental leaders initially did not sell at a premium relative to laggards, the valuation differential increased significantly over time.
2011 Environmental
  • Is There a Cost to Being Socially Responsible in Investing?
  • Author: Guerard, J.
  • Journal: Journal of Forecasting
  • The authors find that SRI screening and unscreened portfolios do not differ significantly. Most other literature suggests that SRI may produce higher portfolio returns, but not significantly higher.
1997 Environmental, Social, Governance
  • Corporate Governance and Globalization: Is there Convergence across Countries?
  • Author: Guillen, M.
  • Journal: Advances in International Comparative Management
  • In this theoretical paper, the author argues against the conventional wisdom of cross-national corporate governance convergence. The author reviews three lines of criticism against the conventional wisdom. This paper presents longitudinal evidence drawn from both advanced and newly industrialized countries showing little convergence over the last twenty years.
1999 Governance
  • Do Stock Markets Penalize Environment-Unfriendly Behavior? Evidence from India
  • Author: Gupta, S. and B. Goldar
  • Journal: Ecological Economics
  • This paper conducts an event study to examine the impact of environmental rating of large pulp and paper, auto, and chlor alkali firms on their stock prices. The authors find that the market generally penalizes environmentally unfriendly behavior in that announcement of weak environmental performance by firms leads to negative abnormal returns of up to 30 percent. A positive correlation is found between abnormal returns to a firm's stock and the level of its environmental performance.
2005 Environmental
  • CEO Compensation and Board Structure Revisited
  • Author: Guthrie, K., J. Sokolowsky and K. Wan
  • Journal: Journal of Finance
  • Chhaochharia and Grinstein estimate that CEO pay decreases 17 percent more in firms that were not compliant with the recent NYSE/Nasdaq board independence requirement than in firms that were compliant. The authors document that 74 percent of this magnitude is attributable to two outliers of 865 sample firms. In addition, they find that the compensation committee independence requirement increases CEO total pay, particularly in the presence of effective shareholder monitoring.
2012 Governance
  • Corporate Governance and Firm Valuation in Colombia
  • Author: Gutierrez, L. and C. Pombo
  • Journal: Working paper
  • This paper studies the separation of ownership and control, finding that voting rights are greater than cash flow rights because of indirect ownership across firms. This paper also examines the association of various ownership and control measures and separation ratios with a firm's value and performance for the sample of companies. Large blockholders were found to exert a positive influence upon a firm's valuation and performance, which validates the positive monitoring approach of large shareholders, but this relationship is not monotonic.
2007 Governance
  • The Political Economy of Finance
  • Author: Haber, S. and E. Perotti
  • Journal: Working paper
  • This survey reviews the recent literature on the political economy of financial development. The authors' goal is to highlight the impact of political institutions on financial structure, broadly defined to include not just the size of capital markets and banking systems but also the accessibility of finance, which is to say its distribution across firms and individuals.
2008 Governance
  • Sustainable Value Creation among Companies in the Manufacturing Sector
  • Author: Hahn, T., F. Figge and R. Barkemeyer
  • Journal: International Journal of Environmental Technology and Management
  • In this paper, the authors present empirical results of a study on the creation of Sustainable Value among European manufacturing companies. Some companies already meet or even exceed the target level with their use of environmental resources. Other companies fall short of measuring up to the targeted eco-efficiency, in some cases by factors of 30 and more.
2007 Environmental
  • Can Capital Markets Respond to Environmental Policy of Firms? Evidence from Greece
  • Author: Halkos, G. and A. Sepetis
  • Journal: Ecological Economics
  • The authors find that improved environmental management system and environmental performance result in a reduction in a firm's beta. Specifically, this paper's empirical estimates show evidence of volatility clustering, short- and long-run persistence of shocks to the returns of the market and asymmetry in the leverage effect between negative and positive shocks to returns. Finally, the macroeconomic factors proposed and included in the analysis have no statistical significant influence on the beta estimates in almost all cases.
2007 Environmental
  • Why Do Some Countries Produce So Much More Output Per Worker Than Others?
  • Author: Hall, R. and C. Jone
  • Journal: National Bureau of Economic Research
  • This paper explores the variability in output per worker across countries, which can be only partially explained by differences in physical capital and educational attainment, on an accounting basis. The authors document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which they call social infrastructure.
1999 Social
  • Institutional Investors as Minority Shareholders
  • Author: Hamdani, A. and Y. Yafeh.
  • Journal: Review of Finance
  • The study finds that: (1) Institutional investors rarely vote against insider-sponsored proposals even when the law grants them special voting power; (2) Institutional investors are more likely to vote against compensation-related proposals than against other related party transactions even when minority shareholders lack the power to influence outcomes; and (3) Institutional investors with potential ownership and business-related conflicts of interest are less likely to vote against insider-sponsored proposals than stand-alone institutional investors, both when minority shareholders have power and when they do not.
2013 Governance
  • Pollution as News: Media and Stock-Market Reactions to the Toxics Release Inventory Data
  • Author: Hamilton, J.
  • Journal: Journal of Environmental Economics and Management
  • This study finds that investors considered the pollution data released by the EPA in the June 1989 Toxics Release Inventory (TRI) to be "news." Stockholders in the firms reporting TRI pollution figures experienced negative and statistically significant abnormal returns upon the first release of information. These abnormal returns translated into an average loss of $4.1 million in stock value for TRI firms on the day the pollution figures were released.
1995 Environmental
  • Doing Well While Doing Good? The Investment Performance of Socially Responsible Mutual Funds
  • Author: Hamilton, S., H. Jo and M. Statman
  • Journal: Financial Analysts Journal
  • "Socially responsible" investors favor certain companies over others according to criteria such as production of weapons or use of alternative energy sources. The authors finds that SRI screening funds do not earn statistically significant excess returns and that the performance of such mutual funds is not statistically different from the performance of conventional mutual funds.
1993 Environmental, Social
  • Decoupling CEO Wealth and Firm Performance: The Case of Acquiring CEOs
  • Author: Harford, J. and K. Li
  • Journal: Journal of Finance
  • This paper explores how compensation policies following mergers affect a CEO's incentives to pursue a merger. The authors find that even in mergers where bidding shareholders are worse off, bidding CEOs are better off three quarters of the time. Following a merger, a CEO's pay and overall wealth become insensitive to negative stock performance, but a CEO's wealth rises in step with positive stock performance.
2007 Governance
2013 Governance
  • Control of Corporate Decisions: Shareholders vs. Management
  • Author: Harris, M. and A. Raviv
  • Journal: Review of Financial Studies
  • This theoretical article addresses the issue of whether shareholders would be better off with enhanced control over corporate decisions. The authors show that claims that shareholder control would reduce value because shareholders lack sufficient information to make important decisions or because they have a non-value-maximizing agenda are flawed.
2010 Governance
  • A Theory of Board Control and Size
  • Author: Harris, M. and A. Raviv
  • Journal: Review of Financial Studies
  • This theoretical article presents a model of optimal control of corporate boards of directors. The authors determine when one would expect inside versus outside directors to control the board, when the controlling party will delegate decision-making to the other party, the extent of communication between the parties, and the number of outside directors. They show that shareholders can sometimes be better off with an insider-controlled board.
2008 Governance
  • Beyond Greening
  • Author: Hart, S.
  • Journal: Environmental Management: Readings and Cases, edited by M. Russo
  • This note on environmental firm strategy argues that few executives realize that environmental opportunities can actually become a major source of revenue growth. The authors encourage companies to consider three stages of environmental strategy and develop a vision of sustainability.
2008 Environmental
  • A Natural-Resource-Based View of the Firm
  • Author: Hart, S.
  • Journal: Academy of Management Review
  • This paper introduces a theory of competitive advantage based upon the firm's relationship to the natural environment. The author explains the natural-resource-based view focusing on the connection between the environmental challenge and firm resources operationalized through three interconnected strategic capabilities: pollution prevention, product stewardship, and sustainable development. Propositions are then developed that connect these strategies to key resource requirements and sustained competitive advantage.
1995 Environmental
  • Does It Pay to Be Green? An Empirical Examination of the Relationship between Emission Reduction and Firm Performance
  • Author: Hart, S. and G. Ahuja
  • Journal: Business Strategy and the Environment
  • The relationship between emissions reduction and firm performance is examined empirically for a sample of S&P 500 firms using data drawn from the Investor Responsibility Research Center's Corporate Environmental Profile and Compustat. The results indicate that efforts to prevent pollution and reduce emissions drop to the 'bottom line' within one to two years of initiation and that those firms with the highest emission levels stand to gain the most. In particular, projects designed to reduce emissions through pollution prevention increase firm value. Operating performance (ROS, ROA) is significantly benefited in the following year, and in two years financial performance (ROE) is affected.
1996 Environmental
  • Creating Sustainable Value
  • Author: Hart, S. and M. Milstein
  • Journal: Executive
  • The authors develop a sustainable-value framework for companies to link the challenges of global sustainability to the creation of shareholder value. Specifically, they show how the global challenges associated with sustainable development, viewed through the appropriate set of business lenses, can help to identify strategies and practices that contribute to a more sustainable world while simultaneously driving shareholder value; this they define as the creation of sustainable value by the firm.
2003 Environmental
  • Institutional Investors and Executive Compensation
  • Author: Hartzell, J. and L. Starks
  • Journal: Journal of Finance
  • The authors find that institutional ownership concentration is positively related to the pay-for-performance sensitivity of executive compensation and negatively related to the level of compensation, even after controlling for firm size, industry, investment opportunities, and performance. The study finds that clientele effects exist among institutions for firms with certain compensation structures, suggesting that institutions also influence compensation structures through their preferences.
2003 Governance
  • Internal Corporate Governance, CEO Turnover, and Earnings Management
  • Author: Hazarika, S., J. Karpoff and R. Nahata
  • Journal: Journal of Financial Economics
  • The likelihood and speed of forced CEO turnover — but not voluntary turnover — are positively related to a firm's earnings management. These patterns persist in tests that consider the effects of earnings restatements, regulatory enforcement actions, and the possible endogeneity of CEO turnover and earnings management. The relation between earnings management and forced turnover occurs both in firms with good and bad performance, and when the accruals work to inflate or deflate reported earnings.
2012 Governance
  • Optimal Executive Compensation When Firm Size Follows Geometric Brownian Motion
  • Author: He, Z.
  • Journal: Review of Financial Studies
  • This theoretical paper studies a continuous-time agency model in which the agent controls the drift of the geometric Brownian motion firm size. The changing firm size generates partial incentives, analogous to awarding the agent equity shares according to her continuation payoff. The model presented in the paper generates a leverage effect on the equity returns, and implies that the agency problem is more severe for smaller firms.
2009 Governance
2005 Environmental, Social, Governance
2000 Social
  • The Effect of Green Investment on Corporate Behavior
  • Author: Heinkel, R., A. Kraus and J. Zechner
  • Journal: Journal of Financial and Quantitative Analysis
  • Investor SRI screening can lead to firms reforming (i.e a polluting firm cleaning up its activities). Study finds that more than 20 percent of the fraction of the firms funds must be controlled by green investors to induce any polluting firms to reform.
2001 Environmental
  • Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?
  • Author: Hellmann, T., K. Murdock and J. Stiglitz
  • Journal: American Economic Review
  • This theoretical paper examines moral hazard in banking. In a dynamic model of moral hazard, competition can undermine prudent bank behavior. Capital requirements reduce gambling incentives by putting bank equity at risk. However, they also have a perverse effect of harming banks' franchise values, thus encouraging gambling. Pareto-efficient outcomes can be achieved by adding deposit-rate controls as a regulatory instrument, since they facilitate prudent investment by increasing franchise values.
2000 Governance
  • Are 'Ethical' or 'Socially Responsible' Investments Socially Responsible?
  • Author: Hellsten, S. and C. Mallin
  • Journal: Journal of Business Ethics
  • This article examines corporate social responsibility from a philosophical, moral and practical point of view. The authors focus on the moral dilemma of how capitalism has changed its shape in today's world, and the growth of ethical investment funds in the U.K. today. The authors discuss whether ethical investments succeed in reducing the conflict between profit-making and social responsibility or whether they use commercial rhetoric and market mechanism to merely sell consumers their own perceived values back.
2006 Environmental, Social
  • Information Disclosure and Corporate Governance
  • Author: Hermalin, B. and M. Weisbach
  • Journal: Journal of Finance
  • This theoretical paper shows that larger firms will adopt stricter disclosure rules than smaller firms and firms with better disclosure will employ more able management. The authors show that mandated increases in disclosure could, in part, explain recent increases in both CEO compensation and CEO turnover rates.
2012 Governance
  • Shareholder Value, Stakeholder Management, and Social Issues: What's the Bottom Line?
  • Author: Hillman, A. and G. Keim
  • Journal: Strategic Management Journal
  • This paper builds a theoretical rationale to support the claim that the creation of shareholder value from corporate social responsibility may depend on the nature or scope of the socially responsible strategy/activity. The authors' theoretical development draws upon existing literature in social performance and stakeholder management as well as the resource-based view of the firm. This paper finds evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value.
2001 Environmental, Social
  • Understanding the Determinants of Managerial Ownership and the Link between Ownership and Performance
  • Author: Himmelberg, C., R. Hubbard and D. Palia
  • Journal: Journal of Financial Economics
  • This paper extends the cross-sectional results of Demsetz and Lehn (1985) (Journal of Political Economy, 93, 1155-1177) and uses panel data to show that managerial ownership is explained by key variables in the contracting environment in ways consistent with the predictions of principal-agent models. A large fraction of the cross-sectional variation in managerial ownership is explained by observed firm heterogeneity. After controlling both for observed firm characteristics and firm fixed effects, the authors cannot conclude (econometrically) that changes in managerial ownership affect firm performance.
1999 Governance
  • Investor Protection, Ownership, and the Cost of Capital
  • Author: Himmelberg, C., R. Hubbard and I. Love
  • Journal: World Bank Policy Research Working Paper
  • The authors investigate the cost of capital in a model with an agency conflict between inside managers and outside shareholders. Inside ownership reflects the classic tradeoff between incentives and risk diversification, and the severity of agency costs depends on a parameter representing investor protection. In equilibrium, the marginal cost of capital is a weighted average of terms reflecting both idiosyncratic and systematic risk, and weaker investor protection increases the weight on idiosyncratic risk.
2004 Governance
  • What Do Unions Do for Economic Performance?
  • Author: Hirsch, B.
  • Journal: Journal of Labor Research
  • This paper reviews the literature on labor unions, productivity, and profitability, since the publication of "What Do Unions Do?" (Freeman & Medoff 1984). The author finds that union productivity effects vary substantially across workplaces, and that the average union productivity effect is near zero. Unions tend to be associated with lower profitability, by capturing firm quasi-rents arising from long-term capital and firm-specific advantages. Lower profits lead to reduced investment and, subsequently, lower employment and productivity growth.
2004 Social
  • Equilibrium Price Dynamics of Emission Permits
  • Author: Hitzemann, S. and M. Uhrig-Homburg
  • Journal: Working paper
  • This paper presents a stochastic equilibrium model for emission permit prices accounting for all main regulatory rules of today's emission trading systems. The authors argue that emission permits exhibit characteristics of investment assets within the single trading periods of an emission trading system, but across different periods the very same timing option embedded in the spot asset comes into effect from storable commodities. The model makes predictions about equilibrium spot and futures price dynamics, volatility smile characteristics, and allows analyzing their dependency on important design elements and abatement measures.
2013 Environmental
  • How Much of the Diversification Discount Can Be Explained by Poor Corporate Governance?
  • Author: Hoechle, D., M. Schmid, I. Walter and D. Yermack
  • Journal: Journal of Financial Economics
  • This paper investigates whether the diversification discount occurs partly as an artifact of poor corporate governance. The authors find that the discount narrows by 16 percent to 21 percent when governance variables are added as regression controls. They also find that the diversification discount persists even with these controls for endogeneity.
2012 Governance
  • Portfolio Diversification and Environmental, Social or Governance Criteria: Must Responsible Investments Really Be Poorly Diversified?
  • Author: Hoepner, A.
  • Journal: Working paper
  • This paper develops a simple theoretical model based on the three main drivers of portfolio diversification (1) number of stocks, (2) correlation of stocks, (3) average specific risk of stocks) and recent robust evidence on the significantly negative relationship between a firm's ESG rating and its specific risk. The theory argues that while the inclusion of ESG criteria into investment processes likely worsens portfolio diversification via the first and second driver, it similarly likely improves portfolio diversification through a reduction of the average stock's specific risk.
2010 Environmental, Social, Governance
  • A Categorisation of the Responsible Investment Literature
  • Author: Hoepner, A.
  • Journal: Working paper
  • This document provides a subjective categorization of the responsibe investment literature in eight main bodies of literature and twenty-three sub-literature bodies. It is based on a literature scan of twelve relevant bibliographies.
2008 Environmental, Social, Governance
  • Research on 'Responsible Investment': An Influential Literature Analysis Comprising a Rating, Characterisation, Categorisation and Investigation
  • Author: Hoepner, A. and D. McMillan
  • Journal: Working paper
  • This paper develops Influential Literature Analysis (ILA) as a four step approach, which improves upon existing methods to synthesize research areas. Applying ILA to responsible investment, the authors find responsible investment to be under-theorized and financially successful responsible investing to likely require a specific responsible investment skill. The ILA suggests to many responsible funds the need for training and advice to realize their financial potential and to researchers a multitude of routes for future influential research.
2009 Environmental, Social, Governance
  • The Dark Enemy of Responsible Mutual Funds: Does the Vice Fund Offer More Financial Virtue?
  • Author: Hoepner, A. and S. Zeume
  • Journal: Working paper
  • The authors pursue an in depth analysis of the financial attractiveness of responsible funds' opposite, the Vice Fund, which penalizes, instead of rewards, corporate environmental, social, or governance (ESG) performance. This paper finds the Vice Fund's abnormal return to be statistically indistinguishable from zero. Worse, the Vice Fund managers possess significantly value destructing directional trading and crisis management skills. The authors findings are robust to common (time varying) control factors and alternative benchmarks.
2009 Environmental, Social, Governance
2011 Environmental
  • Corporate Social Responsibility across Industries: When Can Who Do Well by Doing Good?
  • Author: Hoepner, A., P. Yu and J. Ferguson
  • Journal: Working paper
  • Theoretically, the paper argues that CSR's impacts on corporate financial performance (CFP) are moderated by five factors: CSR form, firm characteristics, time, national framework and industrial characteristics. Empirically, the authors analyze CSR's value across ten industry sectors from a corporate and investor aspect, respectively. They find that CSR has substantial value for corporations in the health care, industrials, and consumer discretionary sectors but not elsewhere. They find significantly abnormal excess returns of more than 6 percent and 8.5 percent respectively, in the former two industries.
2010 Environmental, Social, Governance
  • Myth of Diffuse Ownership in the United States
  • Author: Holderness, C.
  • Journal: Review of Financial Studies
  • This article offers evidence on the ownership concentration at a representative sample of U.S. public firms. Ninety-six percent of these firms have blockholders; these blockholders in aggregate own an average 39 percent of the common stock.
2009 Governance
  • The State of U.S. Corporate Governance: What's Right and What's Wrong?
  • Author: Holmstrom, B. and S. Kaplan
  • Journal: Journal of Applied Corporate Finance
  • The U.S. stock market has continued to outperform other broad indices since the Enron, WorldCom, Tyco and other scandals broke. The authors interpretation of the evidence is that while parts of the U.S. corporate governance system failed under the exceptional strain of the 1990s, the overall system, which includes oversight by the public and the government, reacted quickly to address the problems.
2003 Governance
  • Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s
  • Author: Holmstrom, B. and S. Kaplan
  • Journal: Journal of Economic Perspectives
  • This theoretical paper describes and considers explanations for changes in corporate governance and merger activity in the United States since 1980. Corporate governance in the 1980s was dominated by intense merger activity distinguished by the prevalence of leveraged buyouts (LBOs) and hostility. After a brief decline in the early 1990s, substantial merger activity resumed in the second half of the decade, while LBOs and hostility did not. Instead, internal corporate governance mechanisms appear to have played a larger role in the 1990s.
2001 Governance
  • Red and blue investing: Values and finance
  • Author: Hong, H. and L. Kostovetsky
  • Journal: Journal of Financial Economics
  • The authors find that mutual fund managers who make campaign donations to Democrats hold less of their portfolios (relative to non-donors or Republican donors) in companies that are deemed socially irresponsible (e.g., tobacco, guns, or defense firms or companies with bad employee relations or diversity records). Although explicit socially responsible investing (SRI) funds are more likely to be managed by Democratic managers, this result holds for non-SRI funds and after controlling for other fund and manager characteristics.
2012 Environmental, Social
  • The Price of Sin: The Effects of Social Norms on Markets
  • Author: Hong, H. and M. Kacperczyk
  • Journal: Journal of Financial Economics
  • The authors find a significant price effect on the order of 15-20 percent from large institutional investors shunning 'sin stocks'. 'Sin Stocks' are defined as publicly traded companies involved in producing alcohol, tobacco, and gaming.
2009 Environmental, Social
  • Financial Constraints on Corporate Goodness
  • Author: Hong, H., J. Kubik and J. Scheinkman
  • Journal: Working paper
  • This theoretical paper models the firm's optimal choice of capital and goodness subject to financial constraints. Managers and shareholders derive benefits over profits and social responsibility. Goodness is costly and its marginal benefit is finite; as a result, less-constrained firms spend more on goodness. The authors show empirical evidence that less-constrained firms do indeed have higher social responsibility scores. The empirical analysis addresses identification issues that have plagued the corporate social responsibility literature, establishing the causality of this relationship using a natural experiment.
2011 Environmental, Social, Governance
  • Groups of Diverse Problem Solvers Can Outperform Groups of High-Ability Problem Solvers
  • Author: Hong, L. and S. Page
  • Journal: Proceedings of the National Academy of Sciences of the United States of America
  • The authors provide a theoretical framework for modeling the trade-off between diversity and ability. They find that when selecting a problem-solving team from a diverse population of intelligent agents, a team of randomly selected agents outperforms a team comprised of the best-performing agents. As the initial pool of problem solvers grows, the best-performing agents become more homogeneous and their relatively greater ability is more than offset by their lack of problem-solving diversity.
2004 Social
  • The Effect of Mandatory CSR Disclosure on Information Asymmetry: Evidence from a Quasi-Natural Experiment in China
  • Author: Hung, M., J. Shi and A. Wang
  • Journal: Working paper
  • This paper examines the effect of mandatory CSR disclosure on market information asymmetry in China, where the authors estimate information asymmetry using high-frequency trade and quote data. They find that contrary to the criticism that mandatory CSR disclosure lacks credibility and relevance in emerging markets, mandatory CSR reporting firms experience a decrease in information asymmetry subsequent to the mandate. They also find that this relation is more pronounced for firms with greater political/social risk and firms with less analyst coverage.
2013 Governance
  • Internal Monitoring Mechanisms and CEO Turnover: A Long-Term Perspective
  • Author: Huson, M., R. Parrino and L. Starks
  • Journal: Journal of Finance
  • The authors report evidence on chief executive officer (CEO) turnover during the 1971 to 1994 period. The frequencies of forced CEO turnover and outside succession both increased over time. However, the relation between the likelihood of forced CEO turnover and firm performance did not change significantly from the beginning to the end of the period, despite substantial changes in internal governance mechanisms.
2001 Governance
  • Work Ethic, Employment Contracts, and Firm Value
  • Author: Ian Carlin, B. and S. Gervais
  • Journal: Journal of Finance
  • This paper analyzes how managerial work ethic impacts a firm's employment contracts, riskiness, growth potential, and organizational structure. Stable, bureaucratic firms with low growth potential are more likely to gain value from managerial diligence. The model yields several novel empirical predictions that cannot be generated by a standard agency framework.
2009 Social
2013 Environmental
2010 Environmental, Social, Governance
  • Private Equity and Executive Compensation
  • Author: Jackson, Jr., R.
  • Journal: UCLA Law Review
  • This article presents the first study of how CEO pay in companies owned by private equity firms differs from CEO pay in public companies. The study finds that directors appointed by private equity firms tie CEO pay much more closely to performance by preventing CEOs from selling, or "unloading," their holdings of the company's stock. The authors' findings suggest that public company boards should also limit unloading to strengthen the CEO pay-performance link.
2008 Governance
  • An Empirical Investigation of Environmental Performance and the Market Value of the Firm
  • Author: Jacobs, B., V. Singhal and R. Subramanian
  • Journal: Journal of Operations Management
  • This study finds no overall market reaction to firm announcement of Corporate Environmental Initiatives (CEIs) or Environmental Awards and Certifications (EACs). However, the authors do find a market reaction for sub-categories including voluntary emission reductions and ISO 14001 certification.
2010 Environmental
  • Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?
  • Author: Jaffe, A., S. Peterson, P. Portney and R. Stavins
  • Journal: Journal of Economic Literature
  • This paper assembles and assesses the evidence on hypothetical linkages between environmental regulation and competitiveness, specifically the effects of environmental regulation on manufacturing firms. The authors find little evidence to support the hypothesis that environmental regulations have had a large adverse effect on competitiveness.
1995 Environmental
  • Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure
  • Author: Jensen, M. and W. Meckling
  • Journal: Journal of Financial Economics
  • This paper integrates elements from the theory of agency, the theory of property rights, and the theory of finance to develop a theory of the ownership structure of the firm. The authors define the concept of agency costs, show its relationship to the 'separation and control' issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optimality of their existence.
1976 Governance
  • Tunneling through Intercorporate Loans: The China Experience
  • Author: Jiang, G., C. Lee and H. Yue
  • Journal: Journal of Financial Economics
  • This study investigates a particularly brazen form of corporate abuse, in which controlling shareholders use intercorporate loans to siphon billions of RMB from hundreds of Chinese listed companies during the 1996-2006 period. This paper sheds light on the severity of the minority shareholder expropriation problem in China, as well as the relative efficacy of various legal and extra-legal governance mechanisms in that country.
2010 Governance
  • Stakeholder Welfare and Firm Value
  • Author: Jiao, Y.
  • Journal: Journal of Banking & Finance
  • Using KLD data, the authors construct a stakeholder welfare score measuring the extent to which firms meet the expectation of their non-shareholder stakeholders, and find it to be associated with positive valuation effects. This is driven by firms' performance on employee relations and environmental issues.
2010 Environmental, Social
  • Social Preference, Product Market Competition, and Firm Value
  • Author: Jiao, Y. and G. Shi
  • Journal: Working paper
  • The authors construct a unique score on firms' efforts to cater to the social preference of customers and find it to be positively related to firm value (measured by industry-adjusted Tobin's Q) in competitive industries, whereas no such value effects exist in noncompetitive industries. The authors also find that enhanced SP scores lead to improvements in operating and competition performance in competitive industries. Also, enhanced SP scores are associated with declining financial distress risk in presence of competition pressures.
2013 Governance
  • Socially Responsible Investment in Japanese Pensions
  • Author: Jin, H., O. Mitchell and J. Piggott
  • Journal: Pacific-Basin Finance Journal
  • SRI screening performance is largely dependent upon benchmark selection. Historical SRI in Japan offers no support for the position that Japanese pension participants would benefit from being required to invest in SRI firms. The authors conclude that SRI funds can be included as an option, albeit with some cost.
2006 Environmental
  • Capital Structure, Shareholder Rights, and Corporate Governance
  • Author: Jiraporn, P. and K. Gleason
  • Journal: Journal of Financial Research
  • The authors show how capital structure is influenced by the strength of shareholder rights. Their empirical evidence shows an inverse relation between leverage and share- holder rights, suggesting that firms adopt higher debt ratios where shareholder rights are more restricted. This is consistent with agency theory, which predicts that leverage helps alleviate agency problems. This negative relation, however, is not found in regulated firms (i.e., utilities).
2007 Governance
  • Corporate Governance and Firm Profitability: Evidence from Korea before the Economic Crisis
  • Author: Joh, S.
  • Journal: Journal of Financial Economics
  • This study examines how ownership structure and conflicts of interest among shareholders under a poor corporate governance system affected firm performance before the crisis. This paper finds that firms with low ownership concentration show low firm profitability, controlling for firm and industry characteristics. Controlling shareholders expropriated firm resources even when their ownership concentration was small. Firms with a high disparity between control rights and ownership rights showed low profitability.
2003 Governance
  • Corporate Governance and Risk-Taking
  • Author: John, K., L. Litov and B. Yeung
  • Journal: Journal of Finance
  • Better investor protection could lead corporations to undertake riskier but value-enhancing investments. In better investor protection environments, stakeholders, like creditors, labor groups, and the government, are less effective in reducing corporate risk-taking for their self-interest. The authors find that corporate risk-taking and firm growth rates are positively related to the quality of investor protection.
2008 Governance
  • Corporate Governance in the Asian Financial Crisis
  • Author: Johnson, S., P. Boone, A. Breach and E. Friedman
  • Journal: Journal of Financial Economics
  • This paper examines the Asian Crisis of 1997-98. The authors find that measures of corporate governance, particularly the effectiveness of protection for minority shareholders, explain the extent of exchange rate depreciation and stock market decline better than do standard macroeconomic measures.
2000 Governance
  • The Investment Performance of Socially Responsible Investment Funds in Australia
  • Author: Jones, S., S. van der Laan, G. Frost and J. Loftus
  • Journal: Journal of Business Ethics
  • This paper investigates the returns performance of ethical funds in Australia using a multi-factor CAPM model [Fama, E.F., and K. R. French (1996)]. This paper finds that ethical funds significantly underperform the market in Australia. Risk-adjusted returns (using Jensen's alpha) indicate that average annual underperformance is around 1.52 percent in the 2000-2005 period for the sample and .88 percent over the whole sample period.
2008 Environmental, Social
  • Environmental Reporting of Global Corporations: A Content Analysis Based on Website Disclosures
  • Author: Jose, A. and S. Lee
  • Journal: Journal of Business Ethics
  • This paper investigates the environmental management policies and practices of the 200 largest corporations in the world by analyzing the content of corporate environmental disclosures with respect to seven areas. The authors find that an increased number of corporations are disclosing information about their environmental performance in response to stakeholder demands of environmental responsibility and accountability. In addition, 27 percent of the world's largest companies justify environmental programs based on competitive advantage reasons whereas 21 percent cite compliance reasons.
2007 Environmental
  • Firm Performance, Corporate Governance, and Top Executive Turnover in Japan
  • Author: K. Kang, J. and A. Shivdasani
  • Journal: Journal of Financial Economics
  • The authors examine the role of corporate governance mechanisms during top executive turnover in Japanese corporations. The likelihood of nonrouting turnover is significantly related to industry-adjusted return on assets, excess stock returns, and negative operating income, but is not related to industry performance. The sensitivity of nonrouting turnover to earning performance is higher for firms with ties to a main bank than for firms without such ties.
1995 Governance
  • Concentrating on Governance
  • Author: Kadyrzhanova, D. and M. Rhodes-Kropf
  • Journal: Journal of Finance
  • This paper develops a novel trade-off view of corporate governance. The authors identify the economic determinants of the resulting trade-offs for shareholder value. Consistent with the theory, the empirical analysis shows that provisions that allow managers to delay takeovers have significant bargaining effects and a positive relation with shareholder value in concentrated industries.
2011 Governance
  • Best Practices or Best Guesses? Assessing the Efficacy of Corporate Affirmative Action and Diversity Policies
  • Author: Kalev, A., F. Dobbin and E. Kelly
  • Journal: American Sociological Review
  • Employers have experimented with three broad approaches to promoting diversity. Some programs are designed to establish organizational responsibility for diversity, others to moderate managerial bias through training and feedback, and still others to reduce the social isolation of women and minority workers. Efforts to establish responsibility for diversity lead to the broadest increases in managerial diversity.
2006 Social
2012 Governance
  • Top Executives, Turnover, and Firm Performance in Germany
  • Author: Kaplan, S.
  • Journal: Journal of Law, Economics, & Organization
  • This paper examines executive turnover- both for management and supervisory boards- and its relation to firm performance in the largest companies in Germany in the 1980s. The management board turns over slowly- at a rate of 10 percent per year- implying that top executives in Germany have longer tenures than their counterparts in the U.S. and Japan. Turnover of the management board increases significantly with stock performance and particularly poor (i.e. negative) earnings, but is unrelated to sales growth and earnings growth.
1994 Governance
  • Environmental Management: Testing the Win-Win Model
  • Author: Karagozoglu, N. and M. Lindell
  • Journal: Journal of Environmental Planning and Management
  • The authors examined the role of several variables at the core of the win-win model, such as the regulatory setting, environmental strategy and environmental innovativeness. They find positive competitive and financial impact of progressive environmental strategies contingent upon the presence of favorable external and internal conditions. From a pure profitability standpoint, it is important to seek a balance between the environmental measures and market expectations. Comprehensive superiority in relative environmental performance will not necessarily lead to environmental competitive advantage.
2000 Environmental
  • Why Do Companies List Shares Abroad? A Survey of the Evidence and Its Managerial Implications
  • Author: Karolyi, G.
  • Journal: Financial Markets, Institutions & Instruments
  • This paper surveys the academic literature on the economic implications of the corporate decision to list shares on an overseas stock exchange. This paper offers evidence that share prices react favorably to cross-border listings in the first month after listing, post-listing trading volume increases, domestic market risk is significantly reduced, and that stringent disclosure requirements are the most important impediment to cross-border listings.
1998 Governance
  • A Quarter Century of Shareholder Activism: A Survey of Empirical Findings
  • Author: Karpoff, J. and V. McWilliams
  • Journal: Working paper
  • *This paper is preliminary and incomplete.* In this paper the authors survey the empirical research on shareholder activism and conclude that, despite much disagreement, several patterns appear in the data. Regarding the type of activism, most evidence indicates that shareholder proposals can prompt changes in target firms' governance structures, but they have little impact on share values and earnings. Private negotiation with the target firm's managers, which frequently occurs in concert with shareholder proposals, is more likely to prompt significant changes in governance, value, and performance.
2013 Governance
  • The Reputational Penalties for Environmental Violations: Empirical Evidence
  • Author: Karpoff, J., J. Lott and E. Wehrly
  • Journal: Journal of Law and Economics
  • This paper examines the sizes of the fines, damage awards, remediation costs, and market value losses imposed on companies that violate environmental regulations. The market value loss is related to the size of the legal penalty. Thus, environmental violations are disciplined largely through legal and regulatory penalties, not through reputational penalties.
2005 Environmental
  • Corporate Governance and Shareholder Initiatives: Empirical Evidence
  • Author: Karpoff, J., P. Malatesta and R. Walkling
  • Journal: Journal of Financial Economics
  • The authors find that firms attracting shareholder-initiated proxy proposals on corporate governance issues have poor prior performance, as measured by the market-to-book ratio, operating return, and sales growth. There is little evidence that operating returns improve after proposals. The proposals also have negligible effects on company share values and top management turnover. Even proposals that receive a majority of shareholder votes typically do not engender share price increases or discernible changes in firm policies.
1996 Governance
  • Do Firms Do Well by Doing Good When They Do It Right?
  • Author: Kecskes, A., S. Mansi and A. Nguyen
  • Journal: Working paper
  • The effect of corporate investment in stakeholder capital on shareholder value is a matter of great debate. The authors argue that long-term investors are natural monitors that can ensure that managers choose stakeholder capital investment to maximize shareholder value. They find that firms with longer investor horizons invest more in stakeholder capital, and such firms have higher stock valuations, which are not a result of higher cash flow but rather of lower cash flow risk.
2013 Environmental, Social
  • The Effect of Socially Responsible Investing on Portfolio Performance
  • Author: Kempf, A. and P. Osthoff
  • Journal: European Financial Management
  • The study implements a simple trading strategy based on socially responsible ratings from the KLD Research & Analytics: Buy stocks with high socially responsible ratings and sell stocks with low socially responsible ratings. The authors find that this strategy leads to high abnormal returns of up to 8.7 percent per year.
2007 Environmental, Social
  • Business Groups in Emerging Markets: Paragons or Parasites?
  • Author: Khanna, T. and Y. Yafeh
  • Journal: Working paper
  • The authors survey literature on business groups. They begin with stylized facts about groups around the world, and proceed to a critical review of the existing literature, which has focused almost entirely on groups as diversified entities and on conflicts between controlling and minority shareholders.
2005 Governance
  • Competition Boosts Corporate Governance
  • Author: Khemani, R. and C. Leechor
  • Journal: World Bank
  • The author argues that without effective competition, it is not possible to build a culture of good corporate governance. Incumbent firms under restricted competition generally lack the incentives to use financial and operational resources efficiently. Sound competition policy helps firms focus on efficiency, reduces price distortions, lowers risk of misguided investments, promotes greater accountability and transparency in business decisions and promotes better corporate governance.
2001 Governance
  • Employee Capitalism or Corporate Socialism? Broad-Based Employee Stock Ownership
  • Author: Kim, E. and P. Ouimet
  • Journal: U.S. Census Bureau Center for Economic Studies
  • This paper finds that the effect share ownership plans (ESOPs) on employee compensation and shareholder value depends upon the size of the ESOP. Small ESOPs, defined as those controlling less than 5 percent of outstanding shares, benefit both workers and shareholders, implying positive productivity gains. However, the effects of large ESOPs on worker compensation and shareholder value are more or less neutral, suggesting little productivity gains.
2009 Governance
  • Independence in Executive Suites and Board Independence
  • Author: Kim, E. and Y. Lu
  • Journal: Working paper
  • This paper investigate how governance in executive suites is impacted by outside governance mechanisms. The authors use the independent board requirement as an exogenous shock reducing CEO influence in the boardroom. CEOs of the treated firms may attempt to recoup the loss of influence by building a team of "less independent" executives. Data show that CEOs affected by the shock fill executive suites with more of their own appointees with pre-existing network ties.
2013 Governance
  • CEO Ownership, External Governance, and Risk-Taking
  • Author: Kim, E. and Y. Lu
  • Journal: Journal of Financial Economics
  • This paper shows the relation between CEO ownership and firm valuation hinges critically on the strength of external governance (EG). The relation is hump-shaped when EG is weak, but is insignificant when EG is strong. The authors find CEO ownership similarly exhibits a hump-shaped relation with R&D when EG is weak, but no relation when EG is strong.
2011 Governance
  • The Impact of Women Top Managers and Directors on Corporate Environmental Performance
  • Author: Kimball, A., D. Palmer and A. Marquis
  • Journal: Working paper
  • This paper contributes to theory on the impact of leader attributes on corporate behavior by exploring the relationship between gender composition in corporate leadership and environmental performance. The authors find that firms that incorporate women in their top management team and board of directors exhibit superior environmental performance, with the impact being greater for the board. Furthermore, the addition of women to a firm's top management only impacts its environmental performance if the firm also has women on its board of directors.
2013 Environmental, Social, Governance
  • Are Aliens Green? Assessing Foreign Establishments' Environmental Conduct in the United States
  • Author: King, A. and J. Shaver
  • Journal: Strategic Management Journal
  • The authors investigate how the conflicting forces specific to foreign-owned establishments shape their environmental conduct. Using data from the Environmental Protection Agency, the authors find that foreign-owned establishments generate more waste, yet also manage more waste, than U.S.-owned establishments. The authors also find evidence that both domestic and foreign-owned firms generate more waste if they operate multiple facilities across multiple jurisdictions in the United States.
2001 Environmental
2001 Environmental
  • Exploring the Locus of Profitable Pollution Reduction
  • Author: King, A. and M. Lenox
  • Journal: Management Science
  • The authors propose that managers underestimate the full value of some means of pollution reduction and so under-exploit these means. They use statistical methods to test the direction and significance of the relationship between the various means of pollution reduction and profitability. The authors find strong evidence that waste prevention leads to financial gain, but find no evidence that firms profit from reducing pollution by other means, such as onsite waste treatment. The evidence shows that the benefits of waste prevention alone are responsible for the observed association between lower emissions and profitability.
2002 Environmental
  • Industry Self-Regulation without Sanctions: The Chemical Industry's Responsible Care Program
  • Author: King, A. and M. Lenox
  • Journal: Academy of Management Journal
  • In a study of the Chemical Manufacturers Association's Responsible Care Program, the authors investigate the predictions of two contradictory perspectives on industry self-regulation. Their findings highlight the potential for opportunism to overcome the isomorphic pressures of even powerful self-regulatory institutions and suggest that effective industry self-regulation regarding environmental impact is difficult to maintain without explicit sanctions.
2000 Environmental
  • Corporate Governance Lessons from the Financial Crisis
  • Author: Kirkpatrick, G.
  • Journal: Financial Market Trends
  • The report analyzes the impact of corporate governance failures and weaknesses on the financial crisis, including risk management systems and executive salaries. It concludes that the financial crisis can be attributed to failures and weaknesses in corporate governance arrangements which did not serve their purpose to safeguard against excessive risk taking in a number of financial services companies.
2009 Governance
  • The Innovation Bottom Line
  • Author: Kiron, D., N. Kruschwitz, K. Haanaes, M. Reeves and A. Goh
  • Journal: MIT Sloan Management Review
  • This study presents the results of a corporate survey on sustainability, and it profiles companies that are changing their business models and finding success. The study finds that companies in developing countries change their business models as a result of sustainability at a far higher rate than those based in North America.
2013 Environmental
  • Corporate Governance, Investor Protection and Performance in Emerging Markets
  • Author: Klapper, L. and I. Love
  • Journal: Journal of Corporate Finance
  • The authors explore the determinants of firm-level governance and find that governance is correlated with the extent of the asymmetric information and contracting imperfections that firms face. This paper also finds that better corporate governance is highly correlated with better operating performance and market valuation. The study provides evidence that firm-level corporate governance provisions matter more in countries with weak legal environments.
2004 Governance
  • The Impact of Environmental Management on Firm Performance
  • Author: Klassen, R. and C. McLaughlin
  • Journal: Management Science
  • This paper presents a general theoretical model linking environmental management within the firm to financial performance, as measured by the stock market. The authors find significant positive returns for strong environmental management as indicated by environmental performance awards, and significant negative returns for weak environmental management as indicated by environmental crises. First-time award announcements were associated with greater increases in market valuation, although smaller increases were observed for firms in environmentally dirty industries, possibly indicative of market skepticism.
1996 Environmental
  • The Impact of Hedge Fund Activism on the Target Firm's Existing Bondholders
  • Author: Klein, A. and E. Zur
  • Journal: Review of Financial Studies
  • In contrast to previous studies documenting positive abnormal returns to target shareholders, the authors find that hedge fund activism significantly reduces bondholders' wealth. The average excess bond return is -3.9 percent around the initial 13D filing, and is an additional -4.5 percent over the remaining year. Excess bond returns are related inversely to subsequent changes in cash and assets (loss of collateral effects) and directly to changes in total debt.
2011 Governance
  • Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors
  • Author: Klein, A. and E. Zur
  • Journal: Journal of Finance
  • The authors examine recent confrontational activism campaigns by hedge funds and other private investors. The main parallels between the groups are a significantly positive market reaction for the target firm around the initial Schedule 13D filing date, significantly positive returns over the subsequent year, and the activist's high success rate in achieving its original objective. Two major differences are that hedge funds target more profitable firms than other activists, and hedge funds address cash flow agency costs whereas other private investors change the target's investment strategies.
209 Governance
  • The Human Capital Dimensions of Sustainable Investment
  • Author: Kochan, T., E. Appelbaum, C. Leana and J. Gittell
  • Journal: Working paper
  • This paper identifies a number of questions that need to be answered if the growing interest in building investment portfolios of firms that follow socially and environmentally sustainable practices is to be successful in transforming the financial institutions and analysts from a liability to an asset in expanding the number of sustainable firms in the economy. Evidence from three decades of research on "high performance workplace practices" is reviewed that identifies what is required for firms to align human capital and financial strategies.
2013 Social
  • Capital Markets and Corporate Environmental Performance Research in the United States
  • Author: Koehler, D.
  • Journal: Managing the Business Case for Sustainability by S. Schaltegger and Wagner, M.
  • A review of empirical studies of environmental and financial performance from 1993-2001 indicates that U.S. capital markets pay attention to environmental news, but that it is a short-term reaction and will not necessarily affect long-term returns. Econometric concerns and model misspecification consistently undermine the quality of findings.
2006 Environmental
  • The Effect of Air Pollution Related Human Health Risks on Firm Financial Performance
  • Author: Koehler, D., B. Stone, D. Bennett, G. Norris and J. Spengler
  • Journal: Working paper
  • The authors assess whether there is an association between public health impacts and financial returns, using estimates of toxic chemical cancer risk and particulate matter, 1998 air emissions are associated with premature mortality per $1 million value-added. Fifteen stock portfolios are constructed at varying levels of environmental performance to assess differences in portfolio returns for stocks traded on U.S. exchanges from 1998-2002. The authors find that the level of air pollution-related public health risk has a statistically significant negative association with stock returns.
2004 Environmental
  • The Diffusion of Energy Efficiency in Building
  • Author: Kok, N., M. McGraw and J. Quigley
  • Journal: American Economic Review
  • In this paper, the authors analyze the spread of energy efficient technology in the built environment. Using a detailed panel of 48 metropolitan statistical areas (MSAs) observed annually during a 15-year period, the authors trace the diffusion of buildings certified for energy efficiency and sustainability across U.S. metropolitan areas.
2011 Environmental
  • Does the Market Value Environmental Performance?
  • Author: Konar, S. and R. Cohen
  • Journal: Review of Economics and Statistics
  • The authors study the relationship between the market value of firms in the S&P 500 and objective measures of their environmental performance. They find that bad environmental performance is negatively correlated with the intangible asset value of firms. The average "intangible liability" for firms in the sample is $380 million- approximately 9 percent of the replacement value of tangible assets. The authors conclude that legally emitted toxic chemicals have a significant effect on the intangible asset value of publicly traded companies. A 10 percent reduction in emissions of toxic chemicals results in a $34 million increase in market value.
2001 Environmental
  • Employee Ownership, Employee Attitudes, and Firm Performance
  • Author: Kruse, D. and J. Blasi
  • Journal: Handbook of Resource Management
  • This paper reviews and provides some meta-analyses on the accumulated evidence concerning the prevalence, causes, and effects of employee ownership. Attitudinal and behavioral studies tend to find higher employee commitment among employee-owners but mixed results on satisfaction, motivation, and other measures. Few studies individually find clear links between employee ownership and firm performance, meta-analyses favor an overall positive association with performance for ESOPs and for several cooperative features.
1995 Governance
  • Business Networks, Corporate Governance, and Contracting in the Mutual Fund Industry
  • Author: Kuhnen, C.
  • Journal: Journal of Finance
  • The author analyzes two effects in the mutual fund industry and finds that fund directors and advisory firms that manage the funds hire each other preferentially based on the intensity of their past interactions. The study does not find evidence that stronger board-advisor ties correspond to better or worse outcomes for fund shareholders.
2009 Governance
  • Tunneling, Propping, and Expropriation: Evidence from Connected Party Transactions in Hong Kong
  • Author: L. Cheung, Y., P. Rau and A. Stouraitis
  • Journal: Journal of Financial Economics
  • The authors examine a sample of connected transactions between Hong Kong listed companies and their controlling shareholders. They find that on average, firms announcing connected transactions earn significant negative excess returns, that are also significantly lower than firms announcing similar arm's length transactions. The authors find limited evidence that firms undertaking connected transactions trade at discounted valuations prior to the expropriation, suggesting that investors cannot predict expropriation and revalue firms only when expropriation does occur.
2006 Governance
  • Related Lending
  • Author: La Porta, R., F. Lopez-de-Silanes and G. Zamarripa
  • Journal: Quarterly Journal of Economics
  • The authors examine lending of banks to firms controlled by the bank's owners. The study finds that related loans are 33 percent more likely to default and, when they do, have lower recovery rates (30 percent less) than unrelated ones. The evidence supports the view that rather than enhance information sharing, related lending is a manifestation of looting.
2003 Governance
  • Investor Protection and Corporate Valuation
  • Author: La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. Vishny
  • Journal: Journal of Finance
  • The authors present a model of the effects of legal protection of minority shareholders and of cash-flow ownership by a controlling shareholder on the valuation of firms. Consistent with the model, the authors find evidence of higher valuation of firms in countries with better protection of minority shareholders and in firms with higher cash-flow ownership by the controlling shareholder.
2002 Governance
  • Investor Protection and Corporate Governance
  • Author: La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. Vishny
  • Journal: Journal of Financial Economics
  • Recent research has documented large differences among countries in ownership concentration of publicly traded firms, in the breadth and depth of capital markets, in dividend policies, and in the access of firms to external finance. The authors argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems.
2000 Governance
  • Legal Determinants of External Finance
  • Author: La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. Vishny
  • Journal: Journal of Finance
  • The authors show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.
1997 Governance
  • Does Judicial Efficiency Lower the Cost of Credit?
  • Author: Laeven, L. and G. Majnoni
  • Journal: Journal of Banking & Finance
  • This paper investigates the effect of judicial efficiency on banks' lending spreads for a large cross-section of countries. The authors find that, after controlling for a number of other country characteristics, judicial efficiency, in addition to inflation, is the main driver of interest rate spreads across countries.
2005 Governance
  • Bank Governance, Regulation and Risk Taking
  • Author: Laeven, L. and R. Levine
  • Journal: Journal of Financial Economics
  • This paper focuses on conflicts between bank managers and owners over risk, and documents that bank risk-taking varies positively with the comparative power of shareholders within the corporate governance structure of each bank. The authors show that the relation between bank risk and capital regulations, deposit insurance policies, and restrictions on bank activities depends critically on each bank's ownership structure, such that the actual sign of the marginal effect of regulation on risk varies with ownership concentration.
2009 Governance
  • Complex Ownership Structures and Corporate Valuations
  • Author: Laeven, L. and R. Levine
  • Journal: Review of Financial Studies
  • The bulk of corporate governance theory examines the agency problems that arise from two extreme ownership structures: a number of small shareholders or one large, controlling owner combined with small shareholders. The relationship between corporate valuations and the distribution of cash-flow rights across multiple large owners is consistent with the predictions of recent theoretical models.
2008 Governance
  • The Cross-Country Incidence of the Global Crisis
  • Author: Lane, P. and G. Milesi-Ferretti
  • Journal: IMF Economic Review
  • The authors examine whether the cross-country incidence and severity of the 2008-2009 global recession is systematically related to pre-crisis macroeconomic and financial factors. They find that the pre-crisis level of development, increases in the ratio of private credit to GDP, current account deficits, and openness to trade are helpful in understanding the intensity of the crisis. International risk sharing did little to shield domestic demand from the country-specific component of output declines, while those countries with large pre-crisis current account deficits saw domestic demand fall by much more than domestic output during the crisis.
2010 Governance
  • The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004
  • Author: Lane, P. and G. Milesi-Ferretti
  • Journal: Journal of International Economics
  • The authors document for emerging markets, an increasing importance of equity financing and an improvement in their external position, as well as a differing pace of financial integration between advanced and developing economies. They also show the existence of a global discrepancy between estimated foreign assets and liabilities and identify the asset categories that account for this discrepancy.
2007 Governance
  • Can Capital Markets Create Incentives for Pollution Control?
  • Author: Lanoie, P., B. Laplante and M. Roy
  • Journal: Ecological Economics
  • In this paper, the authors analyze the role that capital markets may play to create pollution control incentives. Evidence drawn from American and Canadian studies indicates that capital markets react to the release of information, and that large polluters are affected more significantly by such release than smaller polluters. This result appears to be a function of the regulator's willingness to undertake strong enforcement actions as well as the possibility for capital markets to rank and compare firms with respect to their environmental performance.
1998 Environmental
  • The Market Reaction to Corporate Governance Regulation
  • Author: Larcker, D., G. Ormazabal and D. Taylor
  • Journal: Journal of Financial Economics
  • This paper investigates the market reaction to recent legislative and regulatory actions pertaining to corporate governance. The authors find that the abnormal returns to recent events relating to corporate governance regulations are, on average, decreasing in CEO pay, decreasing in the number of large blockholders, decreasing in the ease by which small institutional investors can access the proxy process, and decreasing in the presence of a staggered board.
2011 Governance
  • A Win-Win Paradigm for Quality of Work Life and Business Performance
  • Author: Lau, R. and B. May
  • Journal: Human Resource Development Quarterly
  • This study develops and tests hypotheses to examine empirically how the perceived image of a company's quality of work life will affect its market and financial performances (sales growth, asset growth, return on equity, and return on assets). Empirical results suggest that companies with high quality of work life can also enjoy exceptional growth and profitability.
1998 Social
  • Market-Value-Maximizing Ownership Structure When Investor Protection Is Weak
  • Author: Lauterbach, B. and E. Tolkowsky
  • Journal: Working paper
  • This paper finds that in a country with lax corporate governance rules, Tobin's Q is maximized when controlholders' vote reaches 67 percent. This evidence is strong when ownership structure is treated as exogenous and weak when it is considered endogenous.
2005 Governance
2011 Environmental, Social, Governance
  • Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective
  • Author: Lee, D. and R. Faff
  • Journal: Financial Review
  • Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) the authors find that (1) leading sustainability firms do not underperform the market portfolio, and (2) their lagging counterparts outperform the market portfolio and the leading portfolio. The authors find that leading (lagging) corporate social performance (CSP) firms exhibit significantly lower (higher) idiosyncratic risk and that idiosyncratic risk might be priced by the broader global equity market.
2009 Environmental, Social, Governance
  • Socially Responsible Investment Fund Performance: The Impact of Screening Intensity
  • Author: Lee, D., J. Humphrey, K. Benson and J. Ahn
  • Journal: Accounting & Finance
  • The study investigates the proposition that the number of screens employed has a linear or curvilinear relation with return. Screening intensity has no effect on unadjusted (raw) returns or idiosyncratic risk. However, the authors find a significant reduction in alpha of 70 basis points per screen using the Carhart performance model. Increased screening results in lower systematic risk - in line with managers choosing lower beta stocks to minimize overall risk.
2010 Environmental, Social, Governance
  • Ownership Structure and Corporate Governance in Latin America
  • Author: Lefort, F.
  • Journal: Revista Abante
  • This paper provides an overview of corporate governance practices in Latin American countries, surveying the available empirical literature, reviewing the reports on the subject prepared by multinational organizations, and providing new data for ownership and control structures of companies in different Latin American economies. New empirical evidence indicates that Latin American markets penalize excessive separation between control and cash flow rights held by controlling shareholders. In addition, legislation, regulations and the judiciary power in the region are less effective in promoting and enforcing good practices than in more developed markets.
2005 Governance
2007 Governance
  • Currency Hedging and Corporate Governance: A Cross-Country Analysis
  • Author: Lel, U.
  • Journal: Journal of Corporate Finance
  • This paper examines the impact of the strength of governance on firms' use of currency derivatives. The authors find that strongly governed firms tend to use derivatives to hedge currency exposure and overcome costly external financing. On the other hand, weakly governed firms appear to use derivatives mostly for managerial reasons.
2011 Governance
  • Shareholder Protection: A Leximetric Approach
  • Author: Lele, P. and M. Siems
  • Journal: Journal of Corporate Law Studies
  • The authors build a new shareholder protection index for five countries and measure the development of the laws for over three decades. The study finds that shareholder protection has been improving in the last three decades; that the protection of minority against majority shareholders is considerably stronger in "blockholder countries" as compared to the non-blockholder countries and that convergence in shareholder protection is taking place since 1993 and is increasing since 2001. Also, the examination of the legal differences between the five countries does not confirm the distinction between common law and civil law countries.
2006 Governance
  • Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis
  • Author: Lemmon, M. and K. Lins
  • Journal: Journal of Finance
  • This paper studies the effect of ownership structure on firm value during the East Asian financial crisis that began in July 1997. This paper finds that Tobin's Q ratios of those firms in which minority shareholders are potentially most subject to expropriation decline twelve percent more than Q ratios in other firms during the crisis period. A similar result holds for stock returns- firms in which minority shareholders are most likely to experience expropriation underperform other firms by about nine percent per year during the crisis period. Further, during the pre-crisis period the authors find no evidence that firms with a separation between cash flow rights and control rights exhibit performance changes different from firms with no such separation.
2003 Governance
  • Why Do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC Deregistrations
  • Author: Leuz, C., A. Triantis and T. Yue Wang
  • Journal: Journal of Accounting and Economics
  • This paper examines a comprehensive sample of 'going dark' deregistrations where companies cease SEC reporting, but continue to trade publicly. The authors find that firms experience large negative abnormal returns when going dark. Many firms go dark due to poor future prospects, distress and increased compliance costs after SOX. This paper also finds evidence suggesting that controlling insiders take their firms dark to protect private control benefits and decrease outside scrutiny, particularly when governance and investor protection are weak.
2008 Governance
  • Earnings Management and Investor Protection: An International Comparison
  • Author: Leuz, C., D. Nanda and P. Wysocki
  • Journal: Journal of Financial Economics
  • This paper examines systematic differences in earnings management across 31 countries. The authors propose that insiders, in an attempt to protect their private control benefits, use earnings management to conceal firm performance from outsiders. Thus, earnings management is expected to decrease under investor protection because strong protection limits insiders' ability to acquire private control benefits, which reduces their incentives to mask firm performance.
2003 Governance
  • Do Foreigners Invest Less in Poorly Governed Firms?
  • Author: Leuz, C., K. Lins and F. Warnock
  • Journal: Review of Financial Studies
  • This paper finds that foreigners invest less in firms that reside in countries with poor outsider protection and disclosure and have ownership structures that are conducive to governance problems. This effect is particularly pronounced when earnings are opaque, indicating that information asymmetry and monitoring costs faced by foreign investors likely drive the results.
2010 Governance
  • Is Doing Good Good for You? Yes, Charitable Contributions Enhance Revenue Growth
  • Author: Lev, B.
  • Journal: Working paper
  • Using a large sample of charitable contributions made by public companies from 1989 through 2000, and a statistical methodology that distinguishes causation from association, the authors document that charitable contributions enhance the future revenue growth of the donors. In industries that are highly sensitive to consumer perception, corporate giving is associated with subsequent sales growth.
2006 Social
  • Sharpening the Intangibles Edge
  • Author: Lev, B.
  • Journal: Harvard Business Review
  • The author argues that companies need to generate better information about their investments in intangible assets (a skilled workforce, patents, software, customer relationships, brands, etc.) and the benefits that flow from them- and then disclose at least some of that information to the capital markets. Doing so will both improve managerial decisions and give investors a sharper picture of the company and its performance, which will lead to more accurate valuations and lower the cost of capital.
2004 Social
  • The Valuation of Organization Capital
  • Author: Lev, B. and S. Radhakrishnan
  • Journal: Measuring Capital in the New Economy
  • This paper develops a measure of a firm's organization capital (unique systems and processes employed in the investment, production, and sales activities of the enterprise, along with the incentives and compensation systems governing its human resources) and estimate it for a large sample of publicly traded companies. The authors show that organization capital helps explain of differences in market values of firms, and document that financial analysts fail to fully comprehend the value of firms' organization capital.
2005 Social
  • Diversity, Discrimination, and Performance
  • Author: Levine, D.
  • Journal: Working paper
  • Employee diversity may affect business performance both as a result of customer discrimination and as a result of how members of a group work with each other in teams. The authors test for both channels and find little payoff from matching employee demographics to those of potential customers except when the customers do not speak English. Diversity of race or gender within the workplace does not predict sales or sales growth, although age diversity predicts low sales.
2004 Social
2011 Governance
  • Finance and Growth: Theory and Evidence
  • Author: Levine, R.
  • Journal: Handbook of Economic Growth
  • This paper reviews, appraises, and critiques theoretical and empirical research on the connections between the operation of the financial system and economic growth. While subject to ample qualifications and countervailing views, the preponderance of evidence suggests that both financial intermediaries and markets matter for growth and that reverse causality alone is not driving this relationship. Furthermore, theory and evidence imply that better developed financial systems ease external financing constraints facing firms, which illuminates one mechanism through which financial development influences economic growth.
2005 Governance
  • Financial Development and Economic Growth: Views and Agenda
  • Author: Levine, R.
  • Journal: Journal of Economic Literature
  • This theoretical paper argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive, first-order relationship between financial development and economic growth. The authors also provide evidence that the level of financial development is a good predictor of future rates of economic growth, capital accumulation, and technological change.
1997 Governance
  • Nonbinding Voting for Shareholder Proposals
  • Author: Levit, D. and N. Malenko
  • Journal: Journal of Finance
  • This theoretical paper shows that, unlike binding voting, nonbinding voting generally fails to convey shareholder views when manager and shareholder interests are not aligned. Surprisingly, the presence of an activist investor who can discipline the manager may enhance the advisory role of nonbinding voting only if conflicts of interest between shareholders and the activist are substantial.
2011 Governance
  • Islamic Corporate Governance
  • Author: Lewis, M.
  • Journal: Review of Islamic Economics
  • In many conventional conceptions of corporate governance the constituents are confined either to the links between those supplying capital and finance to the firm and its management or, more narrowly still, to the relationship between shareholders and management. By contrast, Islamic corporate governance necessarily has a wide commission, with obligations extending to suppliers, customers, competitors and employees, embracing the spiritual as well as the temporal needs of the Islamic community. Nevertheless, while the mandate is clear, and the ethical underpinnings unequivocal, there are some important challenges in implementing this vision.
2005 Governance
  • Corporate Governance When Founders Are Directors
  • Author: Li, F. and S. Srinivasan
  • Journal: Journal of Financial Economics
  • The authors find that founder-director firms offer a different mix of incentives to their CEOs than other firms. Pay-for-performance sensitivity for nonfounder CEOs in founder-director firms is higher and the level of pay is lower than that of other CEOs. CEO turnover sensitivity to firm performance is also significantly higher in founder-director firms compared with nonfounder firms. Stock returns around M&A announcements and board attendance are also higher in founder-director firms compared with nonfounder firms.
2011 Governance
  • Diversity and Performance
  • Author: Li, F. and V. Nagar
  • Journal: Management Science
  • This paper measures the performance of U.S. firms initiating same sex domestic partnership benefit (SSDPB) policies. Holding these firms in a calendar portfolio upon their SSDPB initiation earns a four-factor annualized excess return (alpha) of approximately 10 percent. SSDPB adopters also show significant improvement in operating performance relative to nonadopters.
2008 Social
  • Product Market Competition and Corporate Governance in China: Complementary or Substitute
  • Author: Li, W. and J. Niu
  • Journal: IFSAM VIIIth World Congress
  • The authors find that moderate concentrated ownership and product market competition on productivity are complementary, as are relatively disperse ownership and competition. They also notice the substitute impact between board governance and competition. Finally, the paper finds CEO duality is a substitute for competition.
2006 Governance
  • Cross-Listing and Corporate Governance: Bonding or Avoiding
  • Author: Licht, A.
  • Journal: Chicago Journal of International Law
  • This paper questions the bonding hypothesis on cross-listing- namely, the idea that firms may list on a foreign stock market with a view to renting that market's superior corporate governance system. A critical review of the extant empirical evidence reveals that an opposite, "avoiding hypothesis" more aptly describes firms' cross-listing behavior with regard to corporate governance issues. If anything, more stringent regimes deter issuers, and there is evidence that insiders behave opportunistically with regard to the cross-listing decision.
2003 Governance
  • Managerial Opportunism and Foreign Listing: Some Direct Evidence
  • Author: Licht, A.
  • Journal: University of Pennsylvania Journal of International Economic Law
  • This paper considers the corporate governance aspects of a regulatory program aimed at luring Israeli issuers currently listed only on U.S. markets into a dual-list on the Tel Aviv Stock Exchange. The program provides a rare opportunity to analyze the role of managerial opportunism in foreign listing transactions. The staunch resistance from the business and financial sectors to any additional disclosure under Israeli regulation is consistent with managerial reluctance to become subject to a more exacting corporate governance framework.
2001 Governance
  • Ownership Structure and Financial Constraints: Evidence from a Structural Estimation
  • Author: Lin, C., Y. Ma and Y. Xuan
  • Journal: Journal of Financial Economics
  • The authors find that the shadow value of external funds is significantly higher for companies with a wider insider control-ownership divergence, suggesting that companies whose corporate insiders have larger excess control rights are more financially constrained. The effect of insider excess control rights on external finance constraints is more pronounced for firms with higher degrees of informational opacity and for firms with financial misreporting, and is moderated by institutional ownership.
2011 Governance
  • Corporate Ownership Structure and Bank Loan Syndicate Structure
  • Author: Lin, C., Y. Ma, P. Malatesta and Y. Xuan
  • Journal: Journal of Financial Economics
  • The authors show that the divergence between the control rights and cash-flow rights of a borrowing firm's largest ultimate owner has a significant impact on the concentration and composition of the firm's loan syndicate. When the control-ownership divergence is large, lead arrangers form syndicates with structures that facilitate enhanced due diligence and monitoring efforts.
2012 Governance
  • Ownership Structure and the Cost of Corporate Borrowing
  • Author: Lin, C., Y. Ma, P. Malatesta and Y. Xuan
  • Journal: Journal of Financial Economics
  • This article identifies an important channel through which excess control rights affect firm value. The authors find that the cost of debt financing is significantly higher for companies with a wider divergence between the largest ultimate owner's control rights and cash-flow rights and investigate factors that affect this relation.
2011 Governance
  • Effectiveness of Outside Directors as a Corporate Governance Mechanism: Theories and Evidence
  • Author: Lin, L.
  • Journal: Northwestern University Law Review
  • This article contributes to the ongoing debate over the role of outside directors in two ways. First, after reviewing the law's current treatment of outside directors, the authors survey the theoretical research and empirical studies in the management science and financial economics literatures measuring the effectiveness of outside directors, in order to make those studies readily accessible to the legal community.
1995 Governance
  • Standardization and Discretion: Does the Environmental Standard ISO 14001 Lead to Performance Benefits?
  • Author: Link, S. and E. Naveh
  • Journal: IEEE Transactions on Engineering Management
  • Making ISO 14001 requirements part of an organization's daily practices leads to better organizational environmental performance, both directly and through a positive impact on employee discretion. Analysis of survey and financial data did not reveal any support for the hypothesis that achieving improvement in environmental performance as result of ISO 14001 implementation leads to better business performance; on the other hand, business performance was not harmed.
2006 Environmental
  • Equity Ownership and Firm Value in Emerging Markets
  • Author: Lins, K.
  • Journal: Journal of Financial and Quantitative Analysis
  • This paper investigates whether management stock ownership and large non-management blockholder share ownership are related to firm value. This paper finds that firm values are lower when a management group's control rights exceed its cash flow rights. The authors also find that large non-management control rights blockholdings are positively related to firm value. Both of these effects are significantly more pronounced in countries with low shareholder protection.
2003 Governance
  • A Modest Proposal for Improved Corporate Governance
  • Author: Lipton, M. and J. Lorsch
  • Journal: Business Lawyer
  • This paper outlines the limits on firm board effectiveness, and then proposes changes to reduce the board's role as an effective monitor in a fashion that does not blur the distinction between the executives who manage the company and the directors who monitor its performance.
1992 Governance
2007 Governance
2010 Governance
  • Vice vs. Virtue Investing around the World
  • Author: Lobe, S. and C. Walkshäusl
  • Journal: Working paper
  • This paper empirically tests the extent to which a portfolio of socially not responsible firms screened out of a market portfolio will trade at a discount. The authors find no compelling evidence in the data that ethical and unethical screens lead to a significant difference in their financial performance.
2011 Environmental, Social
  • The Whole Relationship between Environmental Variables and Firm Performance: Competitive Advantage and Firm Resources as Mediator Variables
  • Author: Lopez-Gamero, M., J. Molina-Azorin and E. Claver-CortEs
  • Journal: Journal of Environmental Management
  • This paper finds support that early investment timing and intensity in environmental issues impact the adoption of proactive environmental management, which in turn helps to improve environmental performance. The authors use questionnaire data to show that a firm's resources and competitive advantage act as mediator variables for a positive relationship between environmental protection and financial performance. The effect of environmental protection on firm performance is not direct and can vary depending on the sector considered.
2009 Environmental
  • Character, Conformity, or the Bottom Line? How and Why Downsizing Affected Corporate Reputation
  • Author: Love, E. and M. Kraatz
  • Journal: Academy of Management Journal
  • This paper examines the reputational consequences of corporate downsizing. Downsizing exerted a strong, negative effect on reputation, consistent with the character explanation. However, significant moderation of this negative effect by factors such as stock market reaction and downsizing's overall prevalence, indicates the need for a multi-theoretical approach to reputational change.
2009 Social
  • Socially Responsible Investment in the Spanish Financial Market
  • Author: Lozano, J., L. Albareda and M. Balaguer
  • Journal: Journal of Business Ethics
  • This paper presents an analysis of the impact of SRI mutual funds managed by Spanish fund managers comparing the evolution of managed assets and number of investors. The analysis shows that Spanish investors have had limited sensitivity to social issues and knowledge of SRI, as well as a lack of development of SRI investment strategies.
2006 Environmental, Social
  • Environmental Performance and Profits
  • Author: Lundgren, T. and P. Marklund
  • Journal: Working paper
  • The study investigates how firm-level environmental performance (EP) affects firm-level economic performance measured as profit efficiency (PE) in a stochastic profit frontier setting. The results show that EP induced by environmental policy is not a determinant of PE, while voluntary or non-policy induced EP seem to have a significant (+) effect on firm PE in most sectors.
2012 Environmental
  • Corporate Social Responsibility, Customer Satisfaction, and Market Value
  • Author: Luo, X. and C. Bhattacharya
  • Journal: Journal of Marketing
  • This study develops and tests a conceptual framework that predicts that customer satisfaction partially mediates the relationship between CSR and firm market value. The authors find empirical support for this framework.
2006 Environmental, Social
  • Signaling through Corporate Accountability Reporting
  • Author: Lys, T., J. Naughton and C. Wang
  • Journal: Working paper
  • The authors find that CSR expenditures are not charity nor do they improve future financial performance. Rather, firms undertake CSR expenditures in the current period when they anticipate stronger future financial performance.
2013 Environmental, Social
  • Enjoying the Quiet Life? Corporate Governance and Managerial Preferences
  • Author: M. Bertrand and S. Mullainathan
  • Journal: Journal of Political Economy
  • This paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences. The authors find that when managers are insulated from takeovers, worker wages (especially those of white-collar workers) rise. The destruction of old plants falls, but the creation of new plants also falls. Finally, overall productivity and profitability decline in response to these laws.
2003 Governance
2007 Environmental, Social
  • Investor Reaction to a Corporate Social Accounting
  • Author: Mahapatra, S.
  • Journal: Journal of Business Finance & Accounting
  • This study is an empirical investigation of the long-term market response to corporate social responsibility accounting. Investors view pollution control expenditures, legal or voluntary, as a drain on resources which could have been invested profitably, and do not 'reward' the companies for socially responsible behavior. Thus, an average investor is not an 'ethical investor' and industries and investors left to themselves do not have any incentive to spend for pollution control.
1984 Environmental
  • The Corporate Social Performance and Corporate Financial Performance Debate: Twenty-Five Years of Incomparable Research
  • Author: Mahon, J. and J. Griffin
  • Journal: Business & Society
  • This study uses four sources of corporate social responsibility ratings and five common accounting measures to demonstrate that the link between corporate social responsibility and corporate financial performance is predetermined by the choice of measures. Surprisingly, Fortune and KLD environmental indices very closely track one another, whereas TRI and corporate philanthropy differentiate between high and low social performers and do not correlate to the firm's financial performance.
1997 Environmental
2007 Environmental, Social
  • Poison Pill Securities: Stockholder Wealth, Profitability, and Ownership Structure
  • Author: Malatesta, P. and R. Walkling
  • Journal: Journal of Financial Economics
  • This paper tests hypotheses about the wealth effects of poison pill securities and the characteristics of firms that adopt them. The results indicate that poison pill defenses reduce stockholder wealth by a statistically significant amount. The authors also find that firms that adopt poison pill defenses are significantly less profitable than the average firm in their industry during the year prior to adoption.
1988 Governance
  • Effects of Board Composition and Stock Ownership on the Adoption of Poison Pills
  • Author: Mallette, P. and K. Fowler
  • Journal: Academy of Management Journal
  • This research examined the relationships between board composition and stock ownership and the passage of "poison pill" takeover defense provisions by U.S. industrial manufacturing firms. The impact of board leadership on poison pill decisions depends on the proportion of independent directors on a board. Results also suggest that equity holdings significantly enter into decisions to adopt poison pills. Companies are more likely to pass such provisions the lower the equity holdings of inside directors and the higher the equity holdings of institutional investors.
1992 Governance
  • Do Socially Responsible Investment Indexes Outperform Conventional Indexes?
  • Author: Managi, S., T. Okimoto and A. Matsuda
  • Journal: Applied Financial Economics
  • In this study, using Socially Responsible Investment (SRI) indicies and conventional stock indicies from the U.S., the U.K. and Japan, first and second moments of firm performance distributions are estimated based on the Markov Switching (MS) model. The authors find two distinct regimes (bear and bull) in the SRI markets as well as the stock markets for all three countries. These regimes occur with the same timing in both types of market. No statistical difference in means and volatilities generated from the SRI indicies and conventional indicies in either region was found.
2012 Environmental, Social, Governance
2011 Social
  • The United Shareholders Association Shareholder 1000 and Firm Performance
  • Author: Manry, D. and D. Stangeland
  • Journal: Journal of Corporate Finance
  • This paper examines two measures, reported by the United Shareholders Association (U.S.), of the alignment between managers' and shareholders' interests: a shareholder rights score and a management compensation rating. The authors find evidence that the U.S. shareholder rights and management compensation scores are significantly and positively associated with measures of operating performance and investment spending. Further tests indicate that U.S. management compensation scores proxy for aspects of corporate behavior that have significant valuation implications not reflected in financial statements.
2003 Governance
  • Misery Loves Companies: Rethinking Social Initiatives by Business
  • Author: Margolis, J. and J. Walsh
  • Journal: Administrative Science Quarterly
  • This paper examines the consequences for organizational research and theory in the 30-year quest for an empirical relationship between a corporation's social initiatives and its financial performance, as well as the development of stakeholder theory. The authors propose an alternative approach, embracing the tension between economic and broader social objectives as a starting point for systematic organizational inquiry.
2003 Environmental, Social, Governance
2011 Environmental, Social, Governance
  • Managers' Green Investment and Related Disclosure Decisions
  • Author: Martin, P. and D. Moser
  • Journal: AAA 2012 Management Accounting Section
  • In the simulation experiment, managers who are shareholders in their company make green investments even when this reduces shareholder value. Moreover, managers voluntarily disclose to potential investors that they have made such green investments and tend to focus their disclosures on the societal benefits of their investment rather than on the cost to the company. Finally, the cost of the green investment to the managers and other current shareholders is lower when the managers disclose their green investment because potential investors' standardized bids for the company are higher when managers disclose their green investments than when they do not.
2011 Environmental
  • Independent Director Incentives: Where Do Talented Directors Spend Their Limited Time and Energy?
  • Author: Masulis, R. and S. Mobbs
  • Journal: Working paper
  • This paper studies reputation incentives in the director labor market and find that directors with multiple directorships distribute their effort unequally according to the directorship's relative prestige. When directors experience an exogenous increase in a directorship's relative ranking, their board attendance rate increases and subsequent firm performance improves. Also, directors are less willing to relinquish their relatively more prestigious directorships, even when firm performance declines.
2013 Governance
  • Are All inside Directors the Same? Evidence from the External Directorship Market
  • Author: Masulis, R. and S. Mobbs
  • Journal: Journal of Finance
  • Agency theory and optimal contracting theory posit opposing roles and shareholder wealth effects for corporate inside directors. The authors evaluate these theories using the market for outside directorships to differentiate among inside directors. Firms with inside directors holding outside directorships have better operating performance and market-to-book ratios, especially when monitoring is more difficult. Announcements of outside board appointments improve shareholder wealth, while departure announcements reduce it.
2011 Governance
  • Agency Problems at Dual-Class Companies
  • Author: Masulis, R., C. Wang and F. Xie
  • Journal: Journal of Finance
  • The authors examine how divergence between insider voting and cash flow rights affects managerial extraction of private benefits of control. They find that as this divergence widens, corporate cash holdings are worth less to outside shareholders, CEOs receive higher compensation, managers make shareholder value-destroying acquisitions more often, and capital expenditures contribute less to shareholder value.
2009 Governance
  • Corporate Governance and Acquirer Returns
  • Author: Masulis, R., C. Wang and F. Xie
  • Journal: Journal of Finance
  • The authors examine whether corporate governance mechanisms, especially the market for corporate control, affect the profitability of firm acquisitions. This paper finds that acquirers with more anti-takeover provisions experience significantly lower abnormal stock returns in the announcement period. The authors also find that acquirers operating in more competitive industries or separating the positions of CEO and chairman of the board experience higher abnormal announcement returns.
2007 Governance
  • Carbon Emissions and Firm Value
  • Author: Matsumura, E., R. Prakash and S. Vera-Munoz
  • Journal: Working paper
  • This paper studies the relationship between carbon emissions and both firm value and the cost of capital components of firm value: cost of equity capital and cost of debt. The authors find a negative association between carbon emission levels and firm value, contingent upon firms voluntarily disclosing their carbon emissions in the first place.
2011 Environmental
  • Green Schemes: Corporate Environmental Strategies and Their Implementation
  • Author: Maxwell, J., S. Rothenberg, F. Briscoe and A. Marcus
  • Journal: California Management Review
  • This note qualitatively examines the environmental strategies and implementation schemes of three companies in different industries: Volvo, Polaroid, and Procter & Gamble. The challenges of implementation and success factors are discussed.
2002 Environmental
  • Behind the Scenes: The Corporate Governance Preferences of Institutional Investors
  • Author: McCahery, J., L. Starks and Z. Sautner
  • Journal: AFA 2011 Denver Meetings Paper
  • The authors find that corporate governance is important to institutional investor investment decisions and the majority are willing to engage in shareholder activism. When examining institutional investors' portfolio holdings, the authors find that their investment decisions appear to be related to their revealed preferences.
2010 Governance
  • Corporate Social-Responsibility and Firm Financial Performance
  • Author: McGuire, J., A. Sundgren and T. Schneeweis
  • Journal: Academy of Management Journal
  • This paper analyzes the relationships between perceptions of firms' corporate social responsibility and measures of their financial performance. Results show that a firm's prior performance, assessed by both stock-market returns and accounting-based measures, is more closely related to corporate social responsibility than is subsequent performance. Results also show that measures of risk are more closely associated with social responsibility than previous studies have suggested.
1988 Environmental
  • Corporate Social Responsibility: A Theory of the Firm Perspective
  • Author: McWilliams, A. and D. Siegel
  • Journal: Academy of Management Review
  • This theoretical paper outlines a supply and demand model of corporate social responsibility (CSR). Based on this framework, the authors hypothesize that a firm's level of CSR will depend on its size, level of diversification, research and development, advertising, government sales, consumer income, labor market conditions, and stage in the industry life cycle. From these hypotheses, the paper concludes that there is an "ideal" level of CSR, which managers can determine via cost-benefit analysis, and that there is a neutral relationship between CSR and financial performance.
2001 Environmental, Social
1999 Environmental, Social, Governance
  • Managerial Share Ownership and the Stock Price Effects of Antitakeover Amendment Proposals
  • Author: McWilliams, V.
  • Journal: Journal of Finance
  • Studies that test for an average stock price effect due to antitakeover amendments present different results, disagreeing with respect to both the significance and the direction of the effect. This study determines whether effects can be identified when managerial share ownership and amendment type are considered. Results suggest a negative relation between managerial share ownership and the stock price reaction to all but fair price amendment proposals.
1990 Governance
  • Board Monitoring and Antitakeover Amendments
  • Author: McWilliams, V. and N. Sen
  • Journal: Journal of Financial and Quantitative Analysis
  • This study examines the joint influence of board composition, leadership structure, and board ownership structure on the market's reaction to corporate antitakeover amendment proposals. The stock price reaction to antitakeover amendments is more negative when the board is dominated by inside and affiliated outside board members. Further, for firms in which the CEO also chairs the board, the reaction becomes increasingly negative as inside and affiliated outside board members increase their ownership stake in the firm and proportional representation on the board.
1997 Governance
  • Executive Compensation Structure, Ownership, and Firm Performance
  • Author: Mehran, H.
  • Journal: Journal of Financial Economics
  • An examination of the executive compensation structure provides evidence supporting advocates of incentive compensation, and also suggests that the form rather than the level of compensation is what motivates managers to increase firm value. Firm performance is positively related to the percentage of equity held by managers and to the percentage of their compensation that is equity-based. Finally, firms in which a higher percentage of the shares are held by insiders or outside blockholders use less equity-based compensation.
1995 Governance
  • Assessing the Impact of Environmental Management Systems on Corporate and Environmental Performance
  • Author: Melnyk, S., R. Sroufe and R. Calantone
  • Journal: Journal of Operations Management
  • Drawing on data provided by a survey of North American managers and their attitudes toward EMS and ISO 14001, this study assesses the relative effects of having a formal but uncertified EMS compared to having a formal, certified system. The results strongly demonstrate that firms in possession of a formal EMS perceive impacts well beyond pollution abatement and see a critical positive impact on many dimensions of operations performance that further increases with EMS certification.
2003 Environmental
  • Labor and the Market Value of the Firm
  • Author: Merz, M. and E. Yashiv
  • Journal: American Economic Review
  • In this paper the authors investigate links between the financial market and the labor market. Toward this end, they build on the production-based model for firms' market value proposed by John H. Cochrane (1991, 1996) and insert labor and capital adjustment costs as crucial ingredients. The authors quantify the link between financial markets and labor markets by structurally estimating the model using aggregate time-series data for the U.S. corporate sector.
2003 Social
  • Effect of Announcements of Withdrawal from South Africa on Stockholder Wealth
  • Author: Meznar, M., D. Nigh and C. Kwok
  • Journal: Academy of Management Journal
  • The authors analyzed investor reaction to corporate announcements of withdrawal from South Africa during apartheid for socially responsible reasons. The announcements were associated with a significant drop in the value of the withdrawing firms' stock, particularly for firms withdrawing earlier in the debate surrounding the issue of withdrawal.
1994 Social
  • Pay for Performance? CEO Compensation and Acquirer Returns in BHCs
  • Author: Minnick, K., H. Unal and L. Yang
  • Journal: Review of Financial Studies
  • The authors find that higher pay-for-performance sensitivity (PPS) leads to value-enhancing acquisitions. Banks whose CEOs have higher PPS have significantly better abnormal stock returns around the time of the acquisition announcements. On average, acquirers in the high-PPS group outperform their counterparts in the low-PPS group by 1.4 percent in a three-day window around the announcement. Higher PPS helps reduce the incentives for making value-destroying acquisitions, while at the same time promotes value-enhancing acquisitions.
2011 Governance
  • A Cross-Firm Analysis of the Impact of Corporate Governance on the East Asian Financial Crisis
  • Author: Mitton, T.
  • Journal: Journal of Financial Economics
  • This paper suggests that firm-level differences in variables related to corporate governance had a strong impact on firm performance during the East Asian financial crisis of 1997 to 1998. Significantly better stock price performance is associated with firms that had indicators of higher disclosure quality (ADRs and auditors from Big Six accounting firms), with firms that had higher outside ownership concentration, and with firms that were focused rather than diversified. The results suggest that individual firms have some power to preclude expropriation of minority shareholders if legal protection is inadequate.
2002 Governance
  • Business Groups and the Big Push: Meiji Japan's Mass Privatization and Subsequent Growth
  • Author: Morck, R. and M. Nakamura
  • Journal: Enterprise and Society
  • The authors argue that Japan's zaibatsu, or pyramidal business groups, provide coordinated rapid growth of diverse complementary industries after the Meiji government failed at the task. They propose that pyramidal business groups are private sector mechanisms for coordinating and financing 'big push' growth, and that unique historical circumstances aided their success in prewar Japan. Specifically, Japan uniquely marginalized its feudal elite; withdrew its hand with a propitious mass privatization that rallied the private sector; marginalized an otherwise entrenched first generation of wealthy industrialists; and remained open to foreign trade and capital.
2007 Governance
  • The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?
  • Author: Morck, R., B. Yeung and W. Yu
  • Journal: Journal of Financial Economics
  • Stock prices move together more in poor economies than in rich economies. This finding is not due to market size and is only partially explained by higher correlation with fundamentals in low-income economies. However, measures of property rights do explain this difference. Among developed economy stock markets, higher firm-specific returns variation is associated with stronger public investor property rights
2000 Governance
  • Corporate Governance, Economic Entrenchment and Growth
  • Author: Morck, R., D. Wolfenzon and B. Yeung
  • Journal: Journal of Economic Literature
  • Outside the U.S. and the U.K., pyramidal control structures, cross shareholding and super voting rights are common. At the firm level, these ownership structures vest dominant control rights with families who often have little real capital invested in creating agency and entrenchment problems simultaneously. At the economy level, extensive control of corporate assets by a few families distorts capital allocation and reduces the rate of innovation. Third, the paper conceives of a relationship between the distribution of corporate control and institutional development that generates and preserves economic entrenchment as one equilibrium; but not the only one.
2005 Governance
  • Corporate Governance and Capital Structure Dynamics
  • Author: Morellec, E., B. Nikolov and N. Schurhoff
  • Journal: Journal of Finance
  • The authors develop a dynamic tradeoff model to examine the importance of manager-shareholder conflicts in capital structure choice. Using data on leverage choices and the model's predictions for different statistical moments of leverage, the authors find that agency costs of 1.5 percent of equity value on average are sufficient to resolve the low-leverage puzzle and to explain the dynamics of leverage ratios.
2012 Governance
  • Diversity in the Workplace
  • Author: Morgan, J. and F. Vardy
  • Journal: American Economic Review
  • This paper studies diversity in the workplace when employers engage in optimal sequential search and minority workers have noisier ability signals, thus creating a tension between job security and diversity. Distortions can occur even when majority and minority populations have identical skill levels. The authors show that lower firing costs and making bankruptcy laws more liberal would improve workplace diversity.
Social
  • Active Investors and Performance in Private Equity Funds
  • Author: Morse, A.
  • Journal: Working paper
  • The author investigates whether large, active limited partners exert influence over the portfolio decisions made by private equity (PE) fund managers to the detriment, or benefit, of smaller investors in the pool. PE funds with there deal linkages perform 2.3 percentage points worse in IRR, robust to bench mark and placebo tests. On the Flip side, the author documents that 2.2 percent of portfolio companies are bought by acquirers linked to the active investor. These exit linkages bring a positive excess IRR of 5.8 percentage points.
2013 Governance
  • Environmental Accounting for Pollution in the United States Economy
  • Author: Muller, N., R. Mendelsohn and W. Nordhaus
  • Journal: American Economic Review
  • This study presents a framework to include environmental externalities into a system of national accounts. This paper estimates the air pollution damages for each industry in the United States. Solid waste combustion, sewage treatment, stone quarrying, marinas, and oil and coal-fired power plants have air pollution damages larger than their value added.
2011 Environmental
  • Finance for All? Policies and Pitfalls in Expanding Access
  • Author: Mundial, B.
  • Journal: World Bank Policy Research Report
  • This report is a broad-ranging review of research work focusing on access to finance. The report presents indicators to measure financial access, analyzes its determinants, and evaluates the impact of access on growth, equity, and poverty reduction, drawing on research that uses data both at the firm and household level.
2008 Governance
  • Social Investing: Pension Plans Should Just Say 'No'
  • Author: Munnell, A. and A. Sunden
  • Journal: Pension Fund Politics
  • This discussion paper argues that current social investing initiatives are generally not effective and, even if they were, public plans should not engage in any form of social investing, and while private plans have more leeway, they should not be sacrificing returns for social considerations.
2005 Environmental, Social, Governance
  • Hazardous Waste Lawsuits, Stockholder Returns, and Deterrence
  • Author: Muoghalu, M., H. Robison and J. Glascock
  • Journal: Southern Economic Journal
  • This paper measures the impact of hazardous waste mismanagement lawsuits on stockholder returns, a first step in the empirical examination of the deterrent effect of hazardous waste laws. Stockholders suffer on average a statistically significant 1.2 percent loss in market value at the filing of an environmental lawsuit, with no significant abnormal returns at the disposition of the suit. The pattern of returns indicates that lawsuits impose lump-sum penalties on firms when information about the suit becomes publicly available.
1990 Environmental
  • Energy and Pollution Effects on Productivity: A Putty-Clay Approach
  • Author: Myers, J. and L. Nakamura
  • Journal: New Developments in Productivity Measurement
  • In this paper the authors present the first stage of a project designed to measure the impact of environmental manufacturing constraints on individual industries and the derived effect on productivity. The model is dynamic and is designed to represent the succession of changes that will occur over time as an industry reacts to higher energy costs and increased penalties for pollution.
1980 Environmental
  • Social Capital, Intellectual Capital, and the Organizational Advantage
  • Author: Nahapiet, J. and S. Ghoshal
  • Journal: Academy of Management Review
  • This paper develops the arguments that organization social capital facilitates the creation of new intellectual capital. The authors present a model that incorporates this overall argument in the form of a series of hypothesized relationships between different dimensions of social capital and the main mechanisms and processes necessary for the creation of intellectual capital.
1998 Social
  • Relationship between Environmental Performance and Financial Performance: An Empirical Analysis of Japanese Corporations
  • Author: Nakao, Y., A. Amano, K. Matsumura, K. Genba and M. Nakano
  • Journal: Business Strategy and the Environment
  • The hypotheses that a firm's environmental performance has a positive impact on its financial performance and vice versa are statistically supported by Japanese data. However, this tendency for two-way positive interaction appears to be only a relatively recent phenomenon. It is not limited to the top-scoring firms in terms of both financial and environmental performance, but is more general. In Japan, the authors infer that information-based environmental policy measures are effective to encourage the ongoing transition toward a more sustainable market economy.
2007 Environmental
  • Timing and Intensity Effects of Environmental Investments
  • Author: Nehrt, C.
  • Journal: Strategic Management Journal
  • This paper examines the investment timing and intensity conditions under which advantages exist for first movers in environmental investments in recent pollution-reducing manufacturing technologies. The authors measure the impact of investment timing and intensity on growth in profits. Results indicate a positive relationship between timing of investments and profit growth. There is also evidence that more intense investment patterns, lacking sufficient absorption time, may lead to lower profit growth.
1996 Environmental
  • Corporate Governance Patterns in OECD Economies: Is Convergence Underway?
  • Author: Nestor, S. and J. Thompson
  • Journal: Corporate Governance in Asia: A Comparative Perspective
  • Convergence is taking place for reasons related to the globalization of financial and product markets, an increasing proximity of legal and institutional norms and a more open circulation of and attitude towards foreign ideas. Ownership and control arrangements are still a part of a society's core characteristics and will remain to a considerable degree idiosyncratic.
2001 Governance
  • Does Home Bias Affect Firm Value? Evidence from Holdings of Mutual Funds Worldwide
  • Author: Ng, L., K. Chan and V. Covrig
  • Journal: Journal of International Economics
  • This study finds strong evidence that home bias affects firm valuation at both country and firm levels. Results show that, at the country level, domestic investors increasing weights in countries that they have over-weighted produces a negative impact on market valuation, while foreign investors increasing weights in countries that they have underweighted leads to enhanced market valuation. At the firm level, firm value increases as domestic and foreign investors weight local firms toward the firms' global market capitalization weights, but decreases as their weights deviate from global weights.
2009 Governance
2012 Governance
  • A Study of the Provision of Environmental Information in Financial Analysts' Research Reports
  • Author: Nilsson, H., G. Cunningham and L. Hassel
  • Journal: Sustainable Development
  • This study extends prior research by examining the inclusion of environmental information by financial analysts in their research reports on companies in the chemical and in the oil and gas industries. Results show that only 35 percent of financial analysts' reports have environmental information. Those reports that do have such information have more environmental information for North American companies than for European companies and analysts tend to report more information for companies in their regions. The chemical industry receives more attention, especially for downside information.
2008 Environmental
  • Creditor Control Rights, Corporate Governance, and Firm Value
  • Author: Nini, G., D. Smith and A. Sufi
  • Journal: Review of Financial Studies
  • The authors document that, in any given year, between 10 percent and 20 percent of firms report to the SEC being in violation of a financial covenant in a credit agreement. This paper shows that violations are followed immediately by a decline in acquisitions and capital expenditures, a sharp reduction in leverage and shareholder payouts, and an increase in CEO turnover. The authors also show that firm operating and stock price performance improve post-violation.
2012 Governance
  • Tunnel-Proofing the Executive Suite: Transparency, Temptation, and the Design of Executive Compensation
  • Author: Noe, T.
  • Journal: Review of Financial Studies
  • This theoretical paper considers optimal compensation for a CEO who is entrusted with administering corporate assets honestly. Optimal compensation designs maximize integrity at minimum cost. These designs are very "low powered," i.e., while specifying a lower bound for performance and increasing pay with performance, they increase compensation at a rapidly decreasing rate. Thus, integrity considerations engender optimal compensation packages that closely resemble the very pervasive 80/120 bonus plans, exactly the sort of compensation that Jensen (2003) argues should compromise integrity.
2009 Governance
  • Optimal Corporate Governance and Compensation in a Dynamic World
  • Author: Noe, T. and M. Rebello
  • Journal: Review of Financial Studies
  • The authors model long-run firm performance, management compensation, and corporate governance in a dynamic, nonstationary world. Board passivity is positively correlated with both the value of management compensation and the firm's good fortune. Managerial opportunism tends to follow sudden reversals of good fortune. Moreover, managerial private benefits, by increasing managers' stake in the long-run viability of the firm, may actually ameliorate agency conflicts.
2012 Governance
  • Forced Board Changes: Evidence from Norway
  • Author: Nygaard, K.
  • Journal: Working paper
  • The recently introduced gender quota on Norwegian corporate boards dramatically increased the share of female directors. The author finds that investors that anticipate the new directors to be more effective in firms with less information asymmetry between insiders of the firm and outsiders. Firms with low information asymmetry experience positive and significant cumulative abnormal returns (CAR) at the introduction of the quota, whereas firms with high information asymmetry show negative but insignificant CAR.
2011 Social, Governance
  • EU Emission Allowances and the stock Market: Evidence from the Electricity Industry
  • Author: Oberndorfer, U.
  • Journal: Ecological Economics
  • This study conducts an econometric analysis on stock market effects of the EU Emission Trading Scheme (EU ETS). Results show that EU Emission Allowance (EUA) price changes and stock returns of the most important European electricity corporations are positively related. This effect does not work asymmetrically; stock markets do not seem to react differently to EUA appreciations in comparison to depreciations. The carbon market effect is shown to be both time- and country-specific.
2009 Environmental
  • Portfolio Performance and Environmental Risk
  • Author: Olsson, R.
  • Journal: Working paper
  • This paper examines the performance of U.S. stock portfolios constructed and rebalanced to have different environmental (EV) risk. Portfolios with high EV risk generate higher raw returns than low EV risk portfolios, but when risk and other factors are controlled for using the three Fama-French factors and a momentum factor, the risk-adjusted returns of both high and low EV risk portfolios are not statistically different from zero. The evidence thus indicates that a portfolio of stocks with low EV risk, intended to be more responsible, neither underperform or outperform on a risk-adjusted basis.
2007 Environmental
  • Does Coordinated Institutional Activism Work? An Analysis of the Activities of the Council of Institutional Investors
  • Author: Opler, T. and J. Sokobin
  • Journal: Working paper
  • The Council of Institutional Investors has issued a focus list of poorly performing firms for each of the last five years to its members who have the discretion to pursue activism programs. This study documents the performance of 96 firms which appeared on the Council's focus lists in 1991, 1992 and 1993 relative to several control groups. Firms on Council focus lists experience poor share price performance in the year before being included on a focus list. In the year after being listed, these firms experienced an average share price increase of 11.6 percent above the S&P 500.
1996 Governance
  • Corporate Social and Financial Performance: A Meta-Analysis
  • Author: Orlitzky, M., F. Schmidt and S. Rynes
  • Journal: Organization Studies
  • The meta-analysis suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association. CSP appears to be more highly correlated with accounting-based measures of CFP than with market-based indicators, and CSP reputation indices are more highly correlated with CFP than are other indicators of CSP.
2003 Environmental, Social, Governance
  • The Political Economy of Corporate Governance
  • Author: Pagano, M. and P. Volpin
  • Journal: American Economic Review
  • This paper analyzes the political determinants of investor and employment protection. The proportionality of a country's electoral voting system is significantly and negatively correlated with shareholder protection in a panel of 45 countries, and positively correlated with employment protection in a panel of 21 OECD countries. Other political variables also affect regulatory outcomes, especially for the labor market.
2005 Governance
  • Globalization and Similarities in Corporate Governance: A Cross-Country Analysis
  • Author: Palepu, K., T. Khanna and J. Kogan
  • Journal: Review of Economics and Statistics
  • The authors find robust evidence of de jure similarity in governance across nations. Interestingly, this is not driven by convergence to U.S. standards. Rather, pairs of economically interdependent countries- especially if the countries are both economically developed- appear to adopt common corporate governance standards, even after accounting for the effects of common legal origin. In contrast to the de jure results, the authors find virtually no evidence of de facto similarity in corporate governance in a battery of estimations at the country, industry and firm levels.
2006 Governance
  • Gender Quotas and Female Leadership: A Review
  • Author: Pande, R. and D. Ford
  • Journal: World Development Report on Gender
  • This paper reviews the evidence on the equity and efficiency impacts of gender quotas for political positions and corporate board membership. The Indian evidence demonstrates that quotas increase female leadership and influence policy outcomes. In addition, rather than create a backlash against women, quotas can reduce gender discrimination in the long-term. The board quota evidence is more mixed. While female entry on boards is correlated with changing management practices, this change appears to adversely influence short-run profits.
2011 Social
  • Investment, Idiosyncratic Risk, and Ownership
  • Author: Panousi, V. and D. Papanikolaou
  • Journal: Journal of Finance
  • The authors empirically document that, when idiosyncratic risk rises, firm investment falls, and more so when managers own a larger fraction of the firm. This negative effect of managerial risk aversion on investment is mitigated if executives are compensated with options rather than with shares or if institutional investors form a large part of the shareholder base.
2012 Governance
  • Insider Ownership and Firm Value: Evidence from Indian Corporate Sector
  • Author: Pant, M. and and M. Pattanayak
  • Journal: Economic and Political Weekly
  • The study investigates the relationship between insider's equity holding and firm value. This paper provides evidence that the relationship between insider shareholding and firm value is not linear in nature and documents a significant non-monotonic relationship between the two. Tobin's Q first increases, then declines and finally rises as ownership by insiders rises. It also confirms that foreign promoter/collaborator shareholding has a significant positive impact on firm value.
2007 Governance
  • Corporate Governance, Regulatory Changes, and Corporate Restructuring in Korea, 1993-2004
  • Author: Park, C. and S. Kim
  • Journal: Journal of World Business
  • The authors argue that the effectiveness of governance factors on firms' activities is bound to the institutional context created by government regulations. Results show that institutional ownership and regulatory changes in corporate governance had significantly influenced Korean firms' restructuring. Regulatory changes have positively moderated the relationship between business group affiliation and restructuring, and between institutional ownership and restructuring.
2008 Governance
  • Voting with Their Feet: Institutional Ownership Changes around Forced CEO Turnover
  • Author: Parrino, R., R. Sias and L. Starks
  • Journal: Journal of Financial Economics
  • This paper investigates whether institutional investors "vote with their feet" when dissatisfied with a firm's management by examining changes in equity ownership around forced CEO turnover. The authors find that aggregate institutional ownership and the number of institutional investors decline in the year prior to forced CEO turnover. Measures of institutional ownership changes are negatively related to the likelihoods of forced CEO turnover and that an executive from outside the firm is appointed CEO.
2003 Governance
  • Corporate Social Responsibility, the Role of Stakeholders and Sustainable Development: A Case Study of Pakistan
  • Author: Paryani, M.
  • Journal: Working paper
  • The country Pakistan is chosen as a case study on the topic "Corporate Social Responsibility (CSR), the Role of Stakeholders and Sustainable Development" because of the unique nature, social & environmental challenges facing by the corporate sector of Pakistan. This study aims to provide understanding of CSR and the status of existence, implementation and utilization of CSR in the corporate sector of Pakistan along with the details of long term financial success associated with CSR. This paper also focuses on the environmental and social externalities affecting the socio-economic and financial success and point out the difficulties for best implementation of CSR activities in Pakistan. What should be the objective of the corporate sector was also discussed before giving suggestions and conclusion.
2011 Environmental, Social, Governance
  • Corporate Social Responsibility and Economic Performance
  • Author: Paul, C. and D. Siegel
  • Journal: Journal of Productivity Analysis
  • This paper describes some perspectives on corporate social responsibility (CSR) in order to provide a context for considering the strategic motivations and implications of CSR. Based on this framework, which is based on characterizing optimal firm decision making and underlies most existing work on CSR, the authors propose an agenda for further theoretical and empirical research on CSR.
2006 Governance
1996 Environmental, Social
  • Board monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals?
  • Author: Peasnell, K., P. Pope and S. Young
  • Journal: Journal of Business Finance & Accounting
  • This paper examines whether the incidence of earnings management by U.K. firms depends on board monitoring. Results indicate that the likelihood of managers making income-increasing abnormal accruals to avoid reporting losses and earnings reductions is negatively related to the proportion of outsiders on the board. In contrast, the authors find little evidence that outside directors influence income-decreasing abnormal accruals when pre-managed earnings are high.
2005 Governance
  • Outside Directors and Firm Performance During Institutional Transitions
  • Author: Peng, M.
  • Journal: Strategic Management Journal
  • The authors find that outside directors do make a difference in firm performance, if such performance is measured by sales growth, and that they have little impact on financial performance such as return on equity (ROE). The results also document a bandwagon effect behind the diffusion of the practice of appointing outsiders to corporate boards. This article not only highlights the need to incorporate multiple theories beyond agency theory in corporate governance research, but also generates policy implications in light of the recent trend toward having more outside directors on corporate boards in emerging economies.
2004 Governance
  • Institutional Activism through Litigation: An Empirical Analysis of Public Pension Fund Participation in Securities Class Actions
  • Author: Perino, M.
  • Journal: Journal of Empirical Legal Studies
  • In the Private Securities Litigation Reform Act of 1995, Congress created the lead plaintiff provision in the hope that institutions would closely monitor class counsel and thereby curb the agency costs that typically plague securities class actions. This paper analyzes whether there is any correlation between the participation of one kind of institutional investor, public pension funds, and settlement outcomes, attorney effort, or attorneys' fee requests or awards. This paper finds that cases with public pension lead plaintiffs have larger settlements, recover a greater percentage of the stakes at issue in the case, have greater attorney effort, and have lower fee requests and awards than cases with other types of lead plaintiffs.
2012 Governance
  • An Exploration of Ethical Investment in the UK
  • Author: Perks, R., D. Rawlinson and L. Ingram
  • Journal: British Accounting Review
  • This paper examines ethical investment in the U.K. with particular reference to ethical unit trusts, institutional investors (universities for example), and environmental issues. It focuses on the obstacles that limit the potential for ethical investors to influence the environmental practices of corporations, and argues that ethical investing has not been shown to be at least as financially beneficial as other investments.
1992 Environmental, Social
  • Financiers vs. Engineers: Should the Financial Sector Be Taxed or Subsidized?
  • Author: Philippon, T.
  • Journal: American Economic Journal: Macroeconomics
  • This theoretical paper studies the allocation of human capital in an economy with production externalities, financial constraints and career choices. The author finds that when investment and education subsidies are chosen optimally, the financial sector should be taxed in exactly the same way as the non-financial sector.
2010 Social
  • Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross-Country Analysis
  • Author: Pinkowitz, L., R. Stulz and R. Williamson
  • Journal: Journal of Finance
  • Agency theories predict that the value of corporate cash holdings is less in countries with poor investor protection because of the greater ability of controlling shareholders to extract private benefits from cash holdings in such countries. Using various specifications of the valuation regressions of Fama and French (1998), the authors find that the relation between cash holdings and firm value is much weaker in countries with poor investor protection than in other countries.
2006 Governance
  • Exposure to Socially Responsible Investing of Mutual Funds in the Euronext Stock Markets
  • Author: Plantinga, A., B. Scholtens and N. Brunia
  • Journal: journal of Performance Measurement
  • This paper finds that sustainable investing does not result in a return distribution that significantly differs from a more conventional or regular investment strategy. Also European funds have a strong 'home bias' to investing in European SRI indices rather than American SRI indicies.
2002 Environmental, Social, Governance
  • Toward a New Conception of the Environment-Competitiveness Relationship
  • Author: Porter, M. and C. Van der Linde
  • Journal: Journal of Economic Perspectives
  • Economists as a group are resistant to the notion that even well-designed environmental regulations might lead to improved competitiveness, but this resistance is based on an incorrect, static model. The authors of this discussion paper argue that the orientation of business should shift from pollution control to resource productivity. No lasting success can come from policies that promise that environmentalism will triumph over industry, nor from policies that promise that industry will triumph over environmentalism. Instead, success must involve innovation-based solutions that promote both environmentalism and industrial competitiveness.
1995 Environmental
  • Green and Competitive: Ending the Stalemate
  • Author: Porter, M. and C. Van der Linde
  • Journal: Harvard Business Review
  • In this essay, the authors argue in favor of innovation-friendly regulation regarding the natural environment. Outside pressure, through the right kind of regulation, can motivate companies to innovate, and innovating in order to meet regulatory requirements can lead to better resource productivity. The authors call for a paradigm shift from fighting regulation to competing on resource productivity.
1995 Environmental
  • Proxy Voting and the SEC: Investor Protection versus Market Efficiency
  • Author: Pound, J.
  • Journal: Journal of Financial Economics
  • This paper analyzes the SEC's proxy regulations and assesses their effects on corporate governance. The authors present evidence that since 1956, when the SEC imposed extensive disclosure requirements, the rules have significantly increased the costs of communication and coordinated action among shareholders. They have thus deterred shareholder initiatives and inhibited the development of a private market for information about voting issues.
1991 Governance
  • The Impact of Governance Reform on Performance and Transparency
  • Author: Price, R., F. Roman and B. Rountree
  • Journal: Journal of Financial Economics
  • This study examines the influence of Mexico's efforts to improve corporate governance on firm performance and transparency. The authors document a significant increase in compliance over 2000-2004 indicating Mexican companies view non-compliance as costly. However, they find no association between the governance index and firm performance, nor is there a relation with transparency. Instead, the authors find firms with greater compliance resort to the more costly mechanism of making dividend payments (higher propensity to pay and greater yield) to reduce agency conflicts.
2011 Governance
  • How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans
  • Author: Qian, J. and P. Strahan
  • Journal: Journal of Finance
  • Legal and institutional differences shape the ownership and terms of bank loans across the world. This paper shows that under strong creditor protection, loans have more concentrated ownership, longer maturities, and lower interest rates. In addition, the impact of creditor rights on loans depends on borrower characteristics such as the size and tangibility of assets.
2007 Governance
  • Do Shareholder Rights Matter? Evidence from a Quasi-Natural Experiment
  • Author: Qian, J. and S. Zhao
  • Journal: Working paper
  • Using a non-uniform governance mandate on cumulative voting in China as a plausibly exogenous shock, the authors examine the effects of strengthening shareholder rights on tunneling. Overall, this paper suggests that in emerging markets characterized by entrenched controlling shareholders and weak institutions, laws and regulations aimed at improving a specific aspect of governance are not likely to be effective.
2011 Governance
2001 Environmental, Social, Governance
  • Governance of Financial Supervisors and Its Effects: A Stocktaking Exercise
  • Author: Quintyn, M. and K. Kyprou
  • Journal: IMF Institute
  • This review paper takes stock of the regulatory governance debate. The authors first discuss the main premise of the paper, that regulatory governance plays a pivotal role in instilling financial sector governance, which in turn is a key source of corporate governance in the nonfinancial sector (the governance nexus). This paper then identifies the main pillars for regulatory governance-independence, accountability, transparency, and integrity.
2007 Governance
  • The Great Reversals: The Politics of Financial Development in the Twentieth Century
  • Author: Rajan, R. and L. Zingales
  • Journal: Journal of Financial Economics
  • This theoretical paper analyzes the development of financial sectors over time. The authors propose an "interest group" theory of financial development where incumbents oppose financial development because it breeds competition. The theory predicts that incumbents' opposition will be weaker when an economy allows both cross-border trade and capital flows.
2003 Governance
  • Financial Dependence and Growth
  • Author: Rajan, R. and L. Zingales
  • Journal: American Economic Review
  • This paper examines whether financial development reduces the costs of external finance to firms. The study finds that industrial sectors that are relatively more in need of external finance develop disproportionately faster in countries with more-developed financial markets. The authors also show that this result is unlikely to be driven by omitted variables, outliers, or reverse causality.
1998 Governance
  • Environmental Product Differentiation
  • Author: Reinhardt, F.
  • Journal: Environmental Management: Readings and Cases, edited by M. Russo
  • This article describes three requirements for successful environmental product differentiation: 1) firms must discover or create a willingness in consumers to pay for public goods; 2) they must overcome barriers to the dissemination of credible information about the environmental attributes of their products; and 3) they must defend themselves against imitation.
2008 Environmental
2008 Environmental, Social, Governance
  • The Economic Performance of European Stock Corporations: Does Sustainability Matter?
  • Author: Rennings, K., M. Schroder and A. Ziegler
  • Journal: Greener Management International
  • This paper econometrically examines the effect of environmental and social performance on the average monthly stock return of European stock corporations for the period from 1996 to 2001. Higher environmental sector performance has a significantly positive influence on a firm's shareholder value. In contrast, a higher social sector performance has a negative influence on the average monthly stock returns. The variables of the corporate environmental or social activities relative to the industry average have no significant effect on the shareholder value.
2003 Environmental
  • Coming Clean: Corporate Disclosure of Financially Significant Environmental Risks
  • Author: Repetto, R. and D. Austin
  • Journal: World Resources Institute
  • This report provides additional evidence that many publicly listed companies do not adequately disclose their financially material environmental exposures in compliance with Securities and Exchange Commission (SEC) rules. Disclosure of environmental risks is limited, despite evidence that information disclosure regarding a company's environmental exposures is considered relevant by investors and can affect the valuation of the company and its financial risks.
2000 Environmental
  • Pure Profit: The Financial implications of Environmental Performance
  • Author: Repetto, R. and D. Austin
  • Journal: World Resources Institute
  • This paper develops a methodology for integrating environmental issues into financial analysis, and demonstrates the approach by applying it empirically to companies in the U.S. pulp and paper industry. The results show that companies within this industry face environmental risks that are of material significance and that vary widely in magnitude from firm to firm. These risks are not evident in companies' financial statements nor are they likely to be incorporated in current market valuations.
2000 Environmental
  • Environmental Exposures in the U.S. Electric utility Industry
  • Author: Repetto, R. and J. Henderson
  • Journal: Utilities Policy
  • Quantitative analysis of 47 U.S. electric utilities' environmental exposures to impending air quality and climate policies shows potentially material and highly differentiated financial impacts. For many companies, the minimized compliance costs of a four-pollutant cap-and-trade regulatory regime would not necessarily exceed those of a three-pollutant regime that omitted controls on carbon dioxide emissions. Fragmented regulatory requirements would have the highest compliance costs.
2003 Environmental
  • Racial Diversity, Business Strategy, and Firm Performance: A Resource-Based View
  • Author: Richard, O.
  • Journal: Academy of Management Journal
  • In this study the author examined the relationships among cultural (racial) diversity, business strategy, and firm performance in the banking industry. Racial diversity interacted with business strategy in determining firm performance measured in three different ways, as productivity, return on equity, and market performance. The results demonstrate that cultural diversity does in fact add value and, within the proper context, contributes to firm competitive advantage.
2000 Social
  • The Impact of Racial diversity on Intermediate and Long-Term Performance: The Moderating role of Environmental Context
  • Author: Richard, O., B. Murthi and K. Ismail
  • Journal: Strategic management journal
  • The authors conduct a firm-level, 6-year longitudinal analysis on the impact that racial diversity in human resources has on financial performance. When considering short-term performance outcomes, the authors find evidence of a U-shaped relationship between racial diversity and productivity. For longer-term profitability, the authors find support for more of a positive linear relationship between diversity and performance (i.e., Tobin's q) than a nonlinear one.
2007 Social
  • Socially responsible Investments: Return Expectations or Social Preferences?
  • Author: riedl, A. and P. Smeets
  • Journal: Working paper
  • The authors show that social preferences rather than return expectations or risk perceptions are the main drivers of investments in socially responsible (SRI) mutual funds. Most investors who hold SRI funds expect to earn lower financial returns on these funds than on other funds. Social preferences are only associated with investments in SRI funds without tax benefits, but are unrelated to investments in SRI funds with tax incentives.
2013 Governance
  • Does One Size Fit All?: A reexamination of the Finance and Growth relationship
  • Author: Rioja, F. and N. Valev
  • Journal: Journal of Development Economics
  • The authors examine the relationship of a country's financial development on economic growth, and find support that there exist three distinct regions of financial development. In the low region (countries with very low levels of financial development), additional improvements in financial markets have an uncertain effect on growth. In the intermediate region, financial development has a large, positive effect on growth. Finally, in the high region, additional financial improvements have a positive, but smaller effect on growth.
2004 Governance
2003 Environmental, Social, Governance
  • Tunneling and Propping: A Justification for Pyramidal Ownership
  • Author: Riyanto, Y. and L. Toolsema
  • Journal: Journal of Banking & Finance
  • This paper links existence of the pyramidal ownership structure to tunneling and propping. The authors show that tunneling alone cannot justify the pyramidal structure unless outside investors are myopic, since rational outside investors anticipate tunneling and adjust their willingness-to-pay for the firm's shares accordingly. With propping, however, they may be willing to be expropriated in exchange for implicit insurance against bankruptcy.
2008 Governance
  • Corporate Social responsibility in a Corporate Governance Framework
  • Author: Riyanto, Y. and L. Toolsema
  • Journal: Working paper
  • This paper offers a theoretical model analyzing how CSR and the threat of stakeholder activism influence the effort of managers and shareholders, and describes how CSR may arise endogenously in this context. By engaging in CSR the shareholder can commit to less monitoring, increase the manager's effort, and raise profits.
2007 Governance
  • do Private Equity Fund Managers Earn Their Fees? Compensation, Ownership, and Cash Flow Performance
  • Author: Robinson, D. and B. Sensoy
  • Journal: AFA 2012 Chicago
  • This paper studies the relation between compensation practices, incentives, and performance in private equity using new data that connects ownership structures, management contracts, and quarterly cash flows. The authors find no evidence that higher compensation or lower managerial ownership are associated with worse net-of-fee performance, in stark contrast to other asset management settings. Instead, compensation is largely unrelated to net-of-fee cash flow performance. In addition, the behavior of distributions around contractual triggers for fees and carried interest is consistent with an underlying agency conflict between investors and general partners.
2013 Governance
  • Public and Private Enforcement of Securities Laws: Resource-Based Evidence
  • Author: Roe, M. and H. Jackson
  • Journal: Working paper
  • This paper shows that private enforcement of investor protection via disclosure is associated with financial market development, whereas private liability rules are not. Public enforcement fails to correlate with financial development. When securities regulators' resources are used as a proxy for regulatory intensity of the securities regulator, financial depth regularly, significantly, and robustly correlates with stronger public enforcement.
2009 Governance
  • Outside directors, Board Independence, and Shareholder Wealth
  • Author: Rosenstein, S. and J. Wyatt
  • Journal: Journal of Financial Economics
  • Management plays a dominant role in selecting outside directors, inviting skepticism about outsiders' ability to make independent judgments on firm performance. The authors' examination of wealth effects surrounding outside director appointments find significantly positive share-price reactions. They find no clear evidence that outside directors of any particular occupation are more or less valuable than others.
1990 Governance
  • Cross-Country Determinants of Mergers and Acquisitions
  • Author: Rossi, S. and P. Volpin
  • Journal: Journal of Financial Economics
  • The study finds that the volume of M&A activity is significantly larger in countries with better accounting standards and stronger shareholder protection. The probability of an all-cash bid in an acquisition decreases with the level of shareholder protection in the acquirer country. In cross-border deals targets are typically from countries with poorer investor protection than acquirers, suggesting that cross-border transactions play a governance role by improving the degree of investor protection within target firms.
2004 Governance
2001 Social
  • A Resource-Based Perspective on Corporate Environmental Performance and Profitability
  • Author: Russo, M. and P. Fouts
  • Journal: Academy of Management Journal
  • Drawing on the resource-based view of the firm, the authors posit that environmental performance and economic performance are positively linked and that industry growth moderates the relationship, with the returns to environmental performance higher in high-growth industries. The authors tested these hypotheses using independently developed environmental ratings. Results indicate that "it pays to be green" and that this relationship strengthens with industry growth.
1997 Environmental
  • The Effect of Poison Pill Securities on Shareholder Wealth
  • Author: Ryngaert, M.
  • Journal: Journal of Financial Economics
  • This paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth. The authors find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines. Also, the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers.
1988 Governance
  • Novo Mercado and Its Followers: Case Studies in Corporate Governance Reform
  • Author: Santana, M., M. Ararat, P. Alexandru, B. Yurtoglu and M. da Cunha
  • Journal: International Finance Corporation
  • The basic premise guiding the creation in December 2000 of the Novo Mercado (a special segment of the Sao Paulo Stock Exchange [BOVESPA] available to companies that commit to adopting high standards of corporate governance) was that a reduction in investor perceptions of risk would have a positive effect on share values and liquidity. Studies now show that an index of Novo Mercado companies outperformed the BOVESPA index. Partly as a result, foreign investors have bought up 74 percent of shares in new listings.
2008 Governance
  • Environmental Shareholder Value: Economic Success with Corporate Environmental Management
  • Author: Schaltegger, S. and F. Figge
  • Journal: Eco-management and Auditing
  • This paper discusses the links between environmental management and shareholder value. The authors suggest how corporate environmental management should be designed to increase the shareholder value. They argue against the claim that "more corporate environmental protection increases the economic success and the value of the company." Only a pollution prevention strategy that takes into account the effects on the drivers of shareholder value can secure economic success and improved eco-efficiency.
2000 Environmental
  • The Link between 'Green' and Economic Success: Environmental Management as the Crucial Trigger between Environmental and Economic Performance
  • Author: Schaltegger, S. and T. Synnestvedt
  • Journal: journal of Environmental management
  • This article presents a theoretical framework to explain the coexistence of conflicting views as to whether improving a firm's environmental performance increases or decreases profitability. It is argued that not only the firm's level of environmental performance, but also the kind of environmental management employed to achieve that level, influences the economic outcome. Research and business practice should focus less on general correlations and more on causal relationships of eco-efficiency, i.e. the effect of different environmental management approaches on economic performance.
2002 Environmental
  • Managing Human Capital risk
  • Author: Schmalz, M.
  • Journal: Working paper
  • This paper provides a model and empirical support for the idea that labor adjustment costs and firm-specificity of employees' human capital can motivate a conservative financial strategy. When firing, hiring, or training is costly, firms have an incentive to retain employees even in bad times. To be able to do so amid financial constraints risk, firms that face higher labor adjustment costs accumulate more equity-financed cash, if they can. A regression discontinuity design shows that unionization, a proxy for labor adjustment costs, indeed causes higher cash-to-asset ratios and lower leverage in financially unconstrained firms.
2013 Social
  • The Performance of Socially Responsible Investments: Investment Funds and Indices
  • Author: Schroder, M.
  • Journal: Financial Markets and Portfolio Management
  • This paper reviews the portfolio performance literature and argues that SRI portfolios exhibit performance that is comparable to conventional funds. The authors' own analysis shows that most German, Swiss and U.S. SRI investment funds do not significantly underperform their benchmarks.
2004 Environmental, Social
  • Is There a Difference? The Performance Characteristics of SRI Equity Indices
  • Author: Schroder, M.
  • Journal: Journal of Business Finance & Accounting
  • The study finds that SRI screens for equities do not lead to a significant performance difference. The authors also finds that SRI indicies exhibit the same performance as the conventional benchmarks and that differences in the risk-return characteristics primarily stem from risk differentials.
2007 Environmental, Social, Governance
2011 Environmental, Governance
  • Industry risk Moderates the Relation between Environmental and Financial Performance
  • Author: Semenova, N. and L. Hassel
  • Journal: Sustainable investment and Corporate Governance Working Papers
  • This study extends previous research on the relation between different measures of environmental and financial performance by introducing moderating effects of inherent environmental industry risk. This paper makes a distinction between the reputational benefits of environmental preparedness and the operational gains of environmental performance when studying the effects on market value. A significant direct effect of environmental preparedness on the market value of the companies is present, while the relation between environmental performance and market value is stronger in low risk industries than in high risk industries.
2008 Environmental
  • The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness
  • Author: Servaes, H. and A. Tamayo
  • Journal: Management Science
  • This paper shows that CSR and firm value are positively related for firms with high customer awareness, as proxied by advertising expenditures, and either negative or insignificant for firms with low customer awareness. For firms with low customer awareness, the relation is either negative or insignificant. In addition, the authors find that the effect of awareness on the value-CSR relation is reversed for firms with a poor prior reputation as corporate citizens.
2012 Environmental, Social
  • Market Response to Environmental Information produced Outside the Firm
  • Author: Shane, P. and B. Spicer
  • Journal: Accounting Review
  • This study investigates whether security price movements are associated with the release of externally produced information about companies' performances in the pollution-control area-information which has attributes of consistency and comparability not typically found in voluntarily reported, socially-oriented data. Companies that had low pollution-control performance rankings in eight reports released by the Council on Economic Priorities (CEP) were found to have significantly more negative returns than companies with high rankings.
1983 Environmental
  • Environmental Risk Management and the Cost of Capital
  • Author: Sharfman, M. and C. Fernando
  • Journal: Strategic Management Journal
  • This paper's findings provide an alternative perspective on the environmental-economic performance relationship, which has been dominated by the view that improvements in economic performance stem from better resource utilization. Firms also benefit from improved environmental risk management through a reduction in their cost of equity capital, a shift from equity to debt financing, and higher tax benefits associated with the ability to add debt.
2008 Environmental
  • Investor Protection and Equity Markets
  • Author: Shleifer, A. and D. Wolfenzon
  • Journal: Journal of Financial Economics
  • The authors present a simple model of an entrepreneur going public in an environment with poor legal protection of outside shareholders. The model incorporates elements of Becker's (J. Political Econ. 106 (1968) 172) "crime and punishment" framework into a corporate finance environment of Jensen and Meckling (J. Financial Econ. 3 (1976) 305). The model is consistent with a number of empirical regularities concerning the relation between investor protection and corporate finance.
2002 Governance
  • A Survey of Corporate Governance
  • Author: Shleifer, A. and R. Vishny
  • Journal: Journal of Finance
  • In a survey of Corporate Governance literature, the authors find that successful corporate governance systems, such as those of the United States, Germany and Japan, combine significant legal protection of at least some investors with an important role for large investors. This combination separates them from governance systems in most other countries, which provide extremely limited legal protection of investors, and are stuck with family and insider-dominated firms receiving little external financing. At the same time, the authors do not believe that the available evidence informs which one of the successful governance systems is the best.
2012 Governance
  • Women in Management and Firm Financial Performance: An Exploratory Study
  • Author: Shrader, C., V. Blackburn and P. Iles
  • Journal: Journal of managerial issues
  • Large firms with high percentages of women managers also have high ROA, ROI, ROE and ROS. Firms with a higher percentage of women in 'top' management positions do not have a disproportionately higher financial performance.
1997 Social
  • The Role of Corporations in Achieving Ecological Sustainability
  • Author: Shrivastava, P.
  • Journal: Academy of Management Review
  • This article offers a theoretical framework for how companies can contribute to ecological sustainability. It articulates corporate ecological sustainability through the concepts of (a) total quality environmental management, (b) ecologically sustainable competitive strategies, (c) technology transfer through technology-for nature-swaps, and (d) reducing the impact of populations on ecosystems. It also examines the implications that these concepts have for organizational research.
1995 Environmental
  • An Empirical Analysis of the Strategic Use of Corporate Social Responsibility
  • Author: Siegel, D. and D. Vitaliano
  • Journal: Journal of Economics & Management Strategy
  • This paper shows that observed patterns of corporate investment in CSR are consistent with the strategic use of CSR. Firms selling durable experience goods (e.g automobiles, software) or credence services (e.g financial services) are respectively 15 percent and 23 percent more likely to be socially responsible than are firms selling search goods (e.g. clothing), experience services (e.g. air travel), or nondurable experience goods (e.g. health and beauty products).
2007 Social
  • Is There a Better Commitment Mechanism Than Cross-Listings for Emerging-Economy Firms? Evidence from Mexico
  • Author: Siegel, J.
  • Journal: Journal of International Business Studies
  • Weak legal institutions at the country level hinder firms in emerging economies from accessing finance and technology affordably. To attract outside resources firms may list the emerging economy firm's shares on a U.S. exchange. This paper uses a quasi-natural experiment from Mexico to examine the conditions under which forming a strategic alliance with a foreign multinational firm is actually a superior mechanism for ensuring good corporate governance.
2009 Governance
  • Can Foreign Firms Bond Themselves Effectively by Renting U.S. Securities Laws?
  • Author: Siegel, J.
  • Journal: Journal of Financial Economics
  • The study tests the functional convergence hypothesis, which states that foreign firms can leapfrog their countries' weak legal institutions by listing equities in New York and agreeing to follow U.S. securities law. Evidence shows that the SEC and minority shareholders have not effectively enforced the law against cross-listed foreign firms. Detailed evidence from Mexico further shows that while some insiders exploited this weak legal enforcement with impunity, others that issued a cross-listing and passed through an economic downturn with a clean reputation went on to receive privileged long-term access to outside finance. As compared with legal bonding, reputational bonding better explains the success of cross-listings.
2005 Governance
  • A Reexamination of Tunneling and Business Groups: New Data and New Methods
  • Author: Siegel, J. and P. Choudhury
  • Journal: Review of Financial Studies
  • One of the most rigorous methodologies in the corporate governance literature uses firms' reactions to industry shocks to characterize the quality of governance. This methodology can produce the wrong answer unless one considers the ways firms compete. Using the example of Indian firms, the authors show that an influential finding is reversed when these differences are considered.
2012 Governance
  • Egalitarianism and International Investment
  • Author: Siegel, J., A. Licht and S. Schwartz
  • Journal: Journal of Financial Economics
  • This study identifies how country differences on a key cultural dimension- egalitarianism- influence the direction of different types of international investment flows. Controlling for a large set of competing explanations, the study finds a robust influence of egalitarianism distance on cross-national investment flows of bond and equity issuances, syndicated loans, and mergers and acquisitions.
2011 Governance
  • Do the Best Companies to Work for Provide Better Customer Satisfaction?
  • Author: Simon, D. and J. DeVaro
  • Journal: Managerial and Decision Economics
  • Strong evidence suggests that firms on Fortune's '100 Best Companies to Work For' earn higher customer satisfaction ratings than firms not on the list. The result is stronger for firms in the service sector than for those in the manufacturing sector. The increase in customer satisfaction resulting from 'Best Company' status yields about a 1.6 percent increase in ROA.
2006 Social
  • Eco-Efficiency and Firm Value
  • Author: Sinkin, C., C. Wright and R. Burnett
  • Journal: Journal of Accounting and Public Policy
  • This study empirically examines the proposition that implementation of eco-efficient business strategies is associated with higher firm value. The authors posit that, firms which adopt eco-efficient business strategies and, as a consequence, achieve reduced costs and increased profits should be more highly valued by the market than similar firms that do not adopt eco-efficient business strategies. The empirical testing supports this proposition.
2008 Environmental
  • Corporate Governance and the Cost of Equity Capital
  • Author: Skaife, H., D. Collins and R. LaFond
  • Journal: Working paper
  • The study finds that firms reporting larger abnormal accruals and less transparent earnings have a higher cost of equity. The authors find that concentrated ownership in the form of the percentage of shares held by institutions and the number of five-percent blockholders are positively related to the cost of equity. In addition, the authors find a negative relation between the cost of equity and the independence of the board, the percentage of the board that owns stock, and managerial power, as proxied by the shareholder rights score.
2004 Governance
  • The Potential of Impact Investing: The Institutional Investor Context
  • Author: Slegten, N.
  • Journal: Working paper
  • This study considers the potential of a new phenomenon in the financial world, Impact Investing. The author finds that even though the challenges to industry growth are substantial and the risks are perceived as high, over the next five to ten years the institutional investors intend to allocate a median of 1 - 4 percent of their investment portfolio to impact investments. The impact investments in the portfolio exhibit low volatility while generating moderate returns.
2013 Governance
  • Shareholder Activism by Institutional Investors: Evidence from CalPERS
  • Author: Smith, M.
  • Journal: Journal of Finance
  • Firm size and level of institutional holdings are found to be positively related to the probability of being targeted, and 72 percent of firms targeted after 1988 adopt proposed changes or make changes resulting in a settlement with CalPERS. Shareholder wealth increases for firms that adopt or settle and decreases for firms that resist. No statistically significant change in operating performance is found.
2012 Governance
  • Do Women in Top Management Affect Firm Performance? A Panel Study of 2,500 Danish Firms
  • Author: Smith, N., V. Smith and M. Verner
  • Journal: International Journal of Productivity and Performance management
  • The proportion of women in top management jobs tends to have positive effects on firm performance, even after controlling for numerous observed characteristics of the firm and for the direction of causality. The results show that the positive effects of women in top management depend on the qualifications of female top managers.
2006 Social, Governance
  • Corporate Governance, Family Ownership, and Firm Valuations in Emerging Markets: Evidence from Hong kong Panel Data
  • Author: Song, F. and A. Lei
  • Journal: Working paper
  • This paper constructs a corporate governance (CG) index to represent Hong Kong corporate governance standards and rank listed companies. The index examines 12 variables among four governance mechanisms: board structure, executive compensation, ownership structure, and accounting standards. Results indicate that these areas significantly impact firm value and firms with better CG rating have higher firm value.
2008 Governance
  • Information Control, Career Concerns, and Corporate Governance
  • Author: Song, F. and A. Thakor
  • Journal: Journal of Finance
  • The authors examine corporate governance effectiveness when the CEO generates project ideas and the board of directors screens these ideas for approval. The board's career concerns cause it to distort its investment recommendation procyclically, whereas the CEO's career concerns cause her to sometimes reduce the precision of the board's information.
2006 Governance
  • The "Antidirector Rights Index" Revisited
  • Author: Spamann, H.
  • Journal: Review of Financial Studies
  • The "antidirector rights index" has been used as a measure of shareholder protection in over a hundred articles since it was introduced by La Porta et al. ("Law and Finance." 1998). A thorough reexamination of the legal data, however, leads to corrections for thirty-three of the forty-six countries analyzed. The correlation between corrected and original values is only 0.53. Consequently, the corrected index fails to support the widely influential claim that shareholder protection is higher in common than in civil law countries.
2010 Governance
  • The Maturing of socially Responsible Investment: A Review of the Developing Link with Corporate Social Responsibility
  • Author: Sparkes, R. and C. Cowton
  • Journal: Journal of Business Ethics
  • This paper reviews the literature on socially responsible investment (SRI) over recent years and highlights the prospects for an increasingly strong connection with the practice of corporate social responsibility. As the movement matures into a mainstream investment philosophy adopted by a growing proportion of large investment institutions, it is leading to a new form of SRI shareholder pressure.
2004 Environmental, Governance
  • corporate Governance Ratings and Corporate Performance: An Analysis of Governance Metrics International (GMI) Ratings of U.S. Firms, 2003 to 2008
  • Author: Spellman, G. and R. Watson
  • Journal: Working paper
  • The regression analysis results indicate that the GMI ratings are statistically related to both past shareholder returns and accounting returns. A positive statistically significant relationship between the GMI ratings and future shareholder returns (both raw returns and the sector-size-relative returns) was also found. In addition, the portfolio simulation results which allocated firms on the basis of high, medium and low GMI scores indicated that both the high and medium GMI portfolios significantly outperformed the low GMI scoring portfolio over the 5 years covered by the analysis.
2009 Governance
  • Investors, Corporate Social Performance and Information Disclosure: An Empirical Study
  • Author: Spicer, B.
  • Journal: Accounting Review
  • This paper tests the validity of the common belief that a moderate to strong association exists between the investment value of a company's common shares and its social performance. This was achieved by testing for associations between a number of economic and financial indicators of investment value (profitability, size, total and systematic risk, price/earnings ratio) and corporate performance on one key social issue (pollution control) in a sample of companies drawn from a pollution prone industry. Some statistically significant associations were found to exist although there was a reduction in the level of these associations over time.
1978 Environmental
  • Corporate Environmental Disclosures about the Effects of Climate Change
  • Author: Stanny, E. and K. Ely
  • Journal: Corporate Social Responsibility and Environmental Management
  • Through the Carbon Disclosure Project, 315 institutional investors asked the largest public firms to respond to a questionnaire about climate change. The authors explore whether firms' disclosures directed specifically to institutional investors are related to factors that explain voluntary disclosures to investors in general, such as level of scrutiny. They find that size, previous disclosures and foreign sales are related to firms' disclosure choices.
2008 Environmental
  • Cross-Border mergers and Differences in Corporate Governance
  • Author: Starks, L. and K. Wei
  • Journal: European Finance Association Meeting Proceeding
  • This paper examines whether corporate governance differences affect firm valuation in cross-border mergers. The authors find that takeover premiums (estimated alternatively as the abnormal returns to target firm shareholders and as the difference between offer price and preceding target firm stock price) are decreasing in the quality of the foreign bidding firm's home country governance for deals completed with stock. Correspondingly, they find that the acquiring firm stockholders' abnormal returns are increasing in the quality of the home country corporate governance.
2004 Governance
  • socially responsible Indexes
  • Author: Statman, M.
  • Journal: Journal of Portfolio Management
  • The study examines four socially responsible indicies in comparison to the S&P 500. The authors cannot reject the hypothesis that returns of socially responsible companies are equal to those of conventional companies.
2006 Environmental, Social, Governance
  • Socially Responsible Mutual Funds
  • Author: Statman, M.
  • Journal: Financial Analysts Journal
  • This paper reports that the Domini Social Index, an index of socially responsible stocks, did as well as the S&P 500 Index over the sample period. Socially responsible mutual funds did worse than the S&P 500 and the DSI but no worse than conventional mutual funds.
2000 Environmental, Social
  • The Wages of Social Responsibility
  • Author: Statman, M. and D. Glushkov
  • Journal: Financial Analysts Journal
  • The study finds that investors that tilt their portfolios toward stocks of companies with high scores on social responsibility receive a higher return relative to conventional investors. However investors that screen stocks associated with tobacco, alcohol, gambling, firearms, military, and nuclear operations receive and lower return relative to conventional investors.
2009 Environmental, Social, Governance
  • Evaluating the Performance of socially Responsible Investment Funds: A Holding Data Analysis
  • Author: Stenstrom, C. and J. Thorell
  • Journal: masters thesis, Stockholm School of Economics, Stockholm
  • This paper investigates the performance of regular mutual funds compared to Socially Responsible Investment (SRI) mutual funds. Results from the study indicate that an exclusion of companies according to norm-based screening can improve a fund's performance. However, when looking specifically at the fund management of SRI funds, the results point towards inferior performance compared to regular funds.
2010 Environmental, Social, Governance
  • Securities laws, Disclosure, and National Capital Markets in the Age of Financial Globalization
  • Author: Stulz, R.
  • Journal: Journal of Accounting Research
  • Securities laws remain an important determinant of whether and where securities are issued, how they are valued, who owns them, and where they trade. This paper shows that mandatory disclosure through securities laws can decrease agency costs between corporate insiders and minority shareholders, but only provided the investors can act on the information disclosed and the laws cannot be weakened ex post too much through lobbying by corporate insiders.
2009 Governance
  • The Limits of Financial Globalization
  • Author: Stulz, R.
  • Journal: journal of Finance
  • Country attributes are critical to financial decision-making because of "twin agency problems" that arise because rulers of sovereign states and corporate insiders pursue their own interests at the expense of outside investors. When these twin agency problems are significant, diffuse ownership is inefficient and corporate insiders must co-invest with other investors, retaining substantial equity.
2005 Governance
  • Globalization of Equity markets and the Cost of Capital
  • Author: Stulz, R.
  • Journal: Journal of Applied Corporate Finance
  • In this theoretical paper, the author argues that the cost of equity capital decreases because of globalization for two important reasons. First, the expected return that investors require to invest in equity to compensate them for the risk they bear generally falls. Second, the agency costs which make it harder and more expensive for firms to raise funds become less important. The existing empirical evidence is consistent with the theoretical prediction that globalization decreases the cost of capital, but the documented effects are lower than theory expected.
1995 Governance
  • Culture, Openness, and Finance
  • Author: Stulz, R. and R. Williamson
  • Journal: journal of Financial Economics
  • This paper shows that a country's principal religion predicts the cross-sectional variation in creditor rights better than a country's natural openness to international trade, its language, its income per capita, or the origin of its legal system. Catholic countries protect the rights of creditors less well than Protestant countries. A country's natural openness to international trade mitigates the influence of religion on creditor rights.
2003 Governance
  • The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott
  • Author: Teoh, S., I. Welch and C. Wazzan
  • Journal: Journal of Business
  • The authors study the boycott of South Africa's apartheid regime. They find that corporate involvement with South Africa was so small that the announcement of legislative/shareholder pressure or voluntary corporate divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested.
1999 Governance
  • Socially Responsible Investments: Methodology, Risk Exposure and Performance
  • Author: Ter Horst, J., C. Zhang and l. Renneboog
  • Journal: ECGI-Finance Working paper
  • This paper surveys the literature on socially responsible investments (SRI). The risk-adjusted returns of SRI funds in the U.S. and U.K. are not significantly different from those of conventional funds, whereas SRI funds in Continental Europe and Asia-Pacific strongly underperform benchmark portfolios. The volatility of money-flows is lower in SRI funds than of conventional funds, and SRI investors' decisions to invest in an SRI fund are less affected by management fees than the decisions by conventional fund investors.
2007 Environmental, Social, Governance
  • The Price of Ethics: Evidence from Socially Responsible Mutual Funds
  • Author: Ter Horst, J., C. Zhang and l. Renneboog
  • Journal: ECGI-Finance Working paper
  • The study finds that SRI funds in many European and Asia-Pacific countries strongly underperform domestic benchmark portfolios by about 5 percent per annum, although U.K. and U.S. SRI funds do not significantly underperform their benchmarks. SRI funds do not suffer a cost of reduced selectivity nor do SRI funds managers time the market. The screening activities of SRI funds have a significant impact on funds' risk-adjusted returns and loadings on risk factors: corporate governance and social screens generate better risk-adjusted returns whereas other screens (e.g. environmental ones) yield significantly lower returns.
2007 Environmental, Social, Governance
  • Corporate Environmental Policy and Abnormal Stock Price Returns: An Empirical Investigation
  • Author: Thomas, A.
  • Journal: Business Strategy and the Environment
  • This paper examines the correlation between the excess stock market returns and the adoption of an environmental protocol by companies. The underlying hypothesis tested is whether evidence of the adoption of environmental policy, prosecution by an environmental agency or the routinized training of staff in environmental protocols, which proxies for the willingness of managers to invest for the long term, is associated with superior economic returns to shareholders. The author finds that both the adoption of an environmental policy and prosecution for breach of environment standards have significant explanatory power in an analysis of excess returns.
2001 Environmental
  • Resource Use and Waste Management in Vietnam Hotel Industry
  • Author: Trung, D. and S. Kumar
  • Journal: Journal of Cleaner Production
  • This paper reports the results of a study conducted to assess the resource use and management in the hotel industry in Vietnam. The energy and water use, as well as the waste generated in the various hotel categories have been estimated and compared with those in other countries. The current practices in the hotels to address these issues are highlighted, and benchmarks for efficient use of resources in Vietnamese hotels are presented.
2005 Environmental
  • Corporate Social Responsibility and Financial Performance
  • Author: Tsoutsoura, M.
  • Journal: Working paper
  • The study explores and tests the sign of the relationship between corporate social responsibility and financial performance. The author finds a statistically significant positive relationship between corporate social responsibility and firm performance.
2004 Environmental, Social, Governance
  • Corporate Social Performance and Organizational Attractiveness to Prospective Employees
  • Author: Turban, D. and D. Greening
  • Journal: Academy of Management Journal
  • Drawing on propositions from social identity theory and signaling theory, the authors hypothesize about CSP. Results indicate that independent ratings of CSP are related to firms' reputations and attractiveness as employers, suggesting that a firm's CSP may provide a competitive advantage in attracting applicants.
1997 Social
  • Banks as Coordinators of Economic Growth
  • Author: Ueda, K.
  • Journal: IMF Institute
  • This theoretical paper formulates a canonical growth model with externalities as a game among consumers, firms, and banks. Each bank forms a firm group endogenously and internalizes externalities directly within a firm group and indirectly across firm groups. This unique equilibrium requires a condition that separates competition for sources and uses of funds. Banks are shown to competitively internalize production externalities and facilitate economic growth.
2006 Governance
1985 Environmental, Social, Governance
  • Labor Flexibility and Firm Performance
  • Author: Valverde, M., O. Tregaskis and C. Brewster
  • Journal: International Advances in Economic Research
  • Although there is a strong argument that labor flexibility can lead to greater financial success through the reduction in labor costs and the ability to use labor resources more efficiently, only one measure of flexible HR practices led to increased firm performance, namely the use of temporary workers.
2000 Social
  • Employee Well-Being, Firm Leverage, and Bankruptcy Risk
  • Author: Verwijmeren, P. and J. Derwall
  • Journal: Journal of Banking & Finance
  • Employees of liquidating firms are likely to lose income and non-pecuniary benefits of working for the firm, which makes bankruptcy costly for employees. This paper examines whether firms take these costs into account when deciding on the optimal amount of leverage. The authors find that firms with leading track records in employee well-being significantly reduce the probability of bankruptcy by operating with lower debt ratios, and they have better credit ratings.
2010 Social
  • How Are U.S. Family Firms Controlled?
  • Author: Villalonga, B. and R. Amit
  • Journal: Review of Financial Studies
  • In large U.S. corporations, founding families are the only blockholders whose control rights on average exceed their cash-flow rights. The primary sources of the wedge (a pyramid) are dual-class stock, disproportionate board representation, and voting agreements. This papers findings suggest that the potential agency conflict between large shareholders and public shareholders in the United States is as relevant as elsewhere in the world.
2009 Governance
  • Governance with Poor Investor Protection: Evidence from Top Executive Turnover in Italy
  • Author: Volpin, P.
  • Journal: Journal of Financial Economics
  • This paper studies the determinants of executive turnover and firm valuation as a function of ownership and control structure in Italy, a country that features low legal protection for investors, firms with controlling shareholders, and pyramidal groups. The results suggest that there is poor governance, as measured by a low sensitivity of turnover to performance and a low Q ratio, when (i) the controlling shareholders are also top executives, (ii) the control is fully in the hands of one shareholder and is not shared by a set of core shareholders, and (iii) the controlling shareholders own less than 50 percent of the firm's cash-flow rights.
2002 Governance
  • Principle Guided Investing: The Use of Negative Screens and Its Implications for Green Investors
  • Author: Von Arx, U.
  • Journal: WIF Institute of Economic Research Working Paper
  • This paper examines how green investors can induce firms to invest in cleaner production technology by using exclusionary investment screens. SRI is more likely to be successful when abatement costs are low and if principle guided investors are numerous and have homogenous investment principles. The transformation process becomes more probable when shares of clean firms are viewed as a separate asset class by all investors. Green investors have to accept lower returns from shares of clean firms, even in the case of positive externalities.
2005 Environmental
  • The Corporate Social Performance - Financial Performance Link
  • Author: Waddock, S. and S. Graves
  • Journal: Strategic Management Journal
  • Using a greatly improved source of data on corporate social performance (KLD), this paper reports the results of a rigorous study of the empirical linkages between financial and social performance. Corporate social performance (CSP) is found to be positively associated with prior financial performance, supporting the theory that slack resource availability and CSP are positively related. CSP is also found to be positively associated with future financial performance, supporting the theory that good management and CSP are positively related.
1997 Environmental
2005 Environmental
  • Does the Market Value Corporate Environmental Responsibility? An Empirical Examination
  • Author: Wahba, H.
  • Journal: Corporate Social Responsibility and Environmental Management
  • The aim of this research was to present empirical evidence regarding the influence of engaging in environmental responsibility on corporate market value in Egypt. The market compensates those firms that care for their environment, as environmental responsibility exerted a positive and significant coefficient on the firm market value measured by Tobin's q ratio. This aligns with stakeholder theory and resource-based theory arguments, and provides supporting evidence that it pays to be environmentally responsive.
2008 Environmental
  • The Public Fiduciary: Emerging Themes in Canadian Fiduciary Law for Pension Trustees
  • Author: Waitzer, E.
  • Journal: Working paper
  • This paper reviews the efforts of the Supreme Court of Canada to develop a broader conceptual framework for fiduciary duties and consider steps that might be taken to address and mitigate liability in respect of these duties in the context of pension fund administration. The authors conclude by considering the trajectory of the law and how it appears to be positioning fiduciaries with public responsibilities and, in doing so, could alter legal and governance precepts.
2013 Governance
2010 Environmental, Social
  • Corporate Governance Transfer and Synergistic Gains from Mergers and Acquisitions
  • Author: Wang, C. and F. Xie
  • Journal: Review of Financial Studies
  • The authors present evidence on the benefits of changes in control from mergers and acquisitions. They find that the stronger the acquirer's shareholder rights relative to the target's, the higher the synergy created by an acquisition. They also find that the synergy effect of corporate governance is shared by target shareholders and acquiring shareholders, in that both target returns and acquirer returns increase with the shareholder-rights difference between the acquirer and the target.
2009 Governance
  • Ownership Structure and Environmental Disclosure: Taiwan Evidence
  • Author: Wang, J., H. Hsiung and W. Ku
  • Journal: International Research Journal of Finance and Economics
  • This study investigates the correlation between the disclosure of environmental information and ownership structures. The higher the degree of discrepancy between the voting rights of controlling shareholders and the ratio of cash flow rights in an environmentally sensitive industry, the lower the level of corporate disclosure of environmental information. Companies in sensitive industries tend toward detailed disclosure of environmental information. Regarding firms in non-sensitive industries, the three corporate governance mechanisms considered have no significant impact on corporate disclosure of environmental information.
2012 Environmental
  • Impact of Environmental Management System Implementation on Financial Performance: A Comparison of Two Corporate Strategies
  • Author: Watson, K., B. Klingenberg, T. Polito and T. Geurts
  • Journal: Management of Environmental Quality
  • This paper proposes a framework, adapted from the cost of quality literature, that allows managers to quantify environmental decisions to determine the impact of EMS on a corporation's profit/loss statement. Statistical analysis of EMS versus non-EMS adopters finds that EMS adopters do not experience superior financial performance. It can therefore be concluded that on one hand, the expected competitive advantage of EMS strategies is not yet fully exploited. On the other hand, it also indicates that the perceived cost of EMS implementation does not negatively affect financial performance.
2004 Environmental
  • Measuring the Impact of Socially Responsible Investing
  • Author: Weber, O.
  • Journal: Working paper
  • This article presents an overview of current measurement practices from the financial world and assesses whether they are effective in capturing the real social, ecological and financial impact of SRI. The authors conclude that measuring the impact of SRI should comprise both intended and unintended positive and negative impact. It should include all stakeholders and the total investment portfolio.
2013 Environmental, Social
  • The Financial Performance of SRI Funds between 2002 and 2009
  • Author: Weber, O., M. Mansfeld and E. Schirrmann
  • Journal: Working paper
  • This paper finds that the sample SRI fund portfolio reached a significantly higher return than MSCI World Index. Furthermore with respect to the financial performance of SRI funds, the beta-weight of the financial rating of the funds was positive while the beta-weight of the sustainability rating was negative.
2010 Environmental, Social
  • Outside Directors and CEO Turnover
  • Author: Weisbach, M.
  • Journal: Journal of Financial Economics
  • This paper examines the relation between the monitoring of CEOs by inside and outside directors and CEO resignations. CEO resignations are predicted using stock returns and earnings changes as measures of prior performance. There is a stronger association between prior performance and the probability of a resignation for companies with outsider-dominated boards than for companies with insider-dominated boards.
1988 Governance
  • Corporate Finance and Corporate Governance
  • Author: Williamson, O.
  • Journal: Journal of Finance
  • A combined treatment of corporate finance and corporate governance is herein proposed. Debt and equity are treated not mainly as alternative financial instruments, but rather as alternative governance structures. The author argues that whether a project should be financed by debt or by equity depends principally on the characteristics of the assets.
1988 Governance
  • Endogeneity and the Dynamics of Internal Corporate Governance
  • Author: Wintoki, M., J. Linck and J. Netter
  • Journal: Journal of Financial Economics
  • The authors use a well-developed dynamic panel generalized method of moments (GMM) estimator to alleviate endogeneity concerns in two aspects of corporate governance research: the effect of board structure on firm performance and the determinants of board structure. The authors re-examine the relation between board structure and performance using the GMM estimator, and find no causal relation between board structure and current firm performance.
2012 Governance
  • Controlling Shareholders and Corporate Value: Evidence from Thailand
  • Author: Wiwattanakantang, Y.
  • Journal: Pacific-Basin Finance Journal
  • The study finds that the presence of controlling shareholders is associated with higher performance in a firm, when measured by accounting measures such as the ROA and the sales-asset ratio. The controlling shareholders' involvement in the management, however, has a negative effect on the performance. The negative effect is more pronounced when the controlling shareholder-and-manager's ownership is at 25-50 percent.
2001 Governance
  • Research Notes. Layoff Announcements and Stockholder Wealth
  • Author: Worrell, D., W. Davidson and V. Sharma
  • Journal: Academy of Management Journal
  • This paper tested the reaction of the securities market to 194 layoff announcements prior to the Worker Adjustment and Retraining Notification Act. Investors reacted more negatively when financial reasons were cited, probably more attributable to the fact that layoffs signaled lower returns ahead than to disagreements about employee management.
1991 Social
  • Competitiveness through Management of Diversity: Effects on Stock Price Valuation
  • Author: Wright, P., S. Ferris, J. Hiller and M. Kroll
  • Journal: Academy of Management Journal
  • Announcement of both Department of Labor awards for exemplary affirmative action programs and damage awards from the settlement of discrimination lawsuits show an effect on firms' stock returns. High-quality affirmative action programs contribute to sustaining a competitive advantage and are valued in the market place.
1995 Social
  • Financial Markets and the Allocation of Capital
  • Author: Wurgler, J.
  • Journal: Journal of Financial Economics
  • This study finds that, across 65 countries, the efficiency of capital allocation is negatively correlated with the extent of state ownership in the economy, positively correlated with the amount of firm-specific information in domestic stock returns, and positively correlated with the legal protection of minority investors. In particular, strong minority investor rights appear to curb overinvestment in declining industries.
2000 Governance
  • Family Control and Corporate Governance: Evidence from Taiwan
  • Author: Yeh, Y., T. Lee and T. Woidtke
  • Journal: International Review of Finance
  • The study finds that family control is even more prevalent than previously suggested and that a non-linear relationship exists between family control and relative firm performance. Family-controlled firms that have low levels of control have lower relative performance than both family-controlled firms with high levels of control and widely held firms. This paper also finds that a positive valuation effect exists when controlling families hold less than 50 percent of a firms board seats.
2001 Governance
  • Convergence of Corporate Governance: Critical Review and Future Directions
  • Author: Yoshikawa, T. and A. Rasheed
  • Journal: Corporate Governance
  • In this theoretical paper, the researchers examine the question of convergence of corporate governance across countries. They find that despite the vigorous intellectual position of the proponents of convergence, there is only limited evidence to indicate that such convergence is actually occurring. Even when there is ostensible convergence, much of it is convergence in form rather than substance, and governance convergence is not a context-free phenomenon.
2009 Governance
  • Family Control and Ownership Monitoring in Family-Controlled Firms in Japan
  • Author: Yoshikawa, T. and A. Rasheed
  • Journal: Journal of Management Studies
  • The researchers examined the relationships between family controlled firms, dividend payouts, and profitability in Japan. The study finds that family control was positively related to dividend payouts. Furthermore, they found that while foreign ownership interacted with family control to reduce dividend payouts and increase profitability, bank ownership did not have such an effect.
2009 Governance
  • The Choice of Corporate Liquidity and Corporate Governance
  • Author: Yun, H.
  • Journal: Review of Financial Studies
  • The authors study how corporate governance influences firms' choices between cash and lines of credit. Stakeholders may disagree about firms' liquidity choices because they differ in the allocation of ex-post control rights for the firms' liquidity reserves. Using state-level changes in takeover protection as exogenous shocks to corporate governance, the authors find that firms increase cash relative to lines of credit when the threat of takeover weakens.
2009 Governance
  • Corporate Governance and Implications for Minority Shareholders in Turkey
  • Author: Yurtoglu, B.
  • Journal: Journal of Corporate Ownership & Control
  • While holding companies and non-financial firms are the most frequent owners at the direct level, families ultimately own more than 80 percent of all publicly listed firms in Turkey. The authors find that using pyramids and dual class shares to separate control rights from cash flow rights results in significantly lower market to book ratios, suggesting large agency costs due to the conflict of interests between controlling families and minority shareholders.
2003 Governance
  • Ownership, Control and Performance of Turkish Listed Firms
  • Author: Yurtoglu, B.
  • Journal: Empirica
  • Business ownership is highly concentrated in Turkey, with families being the dominant shareholders. Changes in large shareholdings do not suggest the existence of an active market for share stakes. The authors show that concentrated ownership and pyramidal structures have a negative effect on firm performance as reflected in lower return on assets, market to book ratios, and dividend payments.
2000 Governance
2013 Social, Governance
  • The Effect of Environmental and Social Performance on the Shareholder Value of European Stock Corporations
  • Author: Ziegler, A., K. Rennings and M. Schroder
  • Journal: Centre for European Economic Research
  • This paper considers the effect of sustainability performance of European stock corporations on their average monthly stock return from 1996 to 2001. The sustainability performance measure is evaluated by the environmental and social risks of a corporation compared to other corporations in the same industry. The most important result of the econometric analysis is that an increasing environmental sector performance has a significantly positive influence on the shareholder value. In contrast, an increasing social sector performance has a negative influence on the average monthly stock returns.
2002 Environmental
  • Corporate Responses to Climate Change and Financial Performance: The Impact of Climate Policy
  • Author: Ziegler, A., T. Busch and V. Hoffmann
  • Journal: Working paper
  • This papers' portfolio analysis shows a negative relationship between corporate activities to address climate change and stock performance. However the authors find that a trading strategy that bought stocks of corporations with a higher level of responses to climate change and sold stocks of corporations with a lower level, led to negative abnormal returns in regions and periods with less ambitious climate policy, but to positive abnormal returns in regions and periods with stringent climate policy.
2009 Environmental
  • In Search of New Foundations
  • Author: Zingales, L.
  • Journal: Journal of Finance
  • In this theoretical paper, the author argues that corporate finance theory, empirical research, practical applications, and policy recommendations are deeply rooted in an underlying theory of the firm that ineffectively handles newly emerging types of firms. This paper outlines vital characteristics of a new theory and how such a theory could change corporate finance, both theoretically and empirically.
2002 Governance
  • Board Gender Diversity and corporate Response to Sustainability Initiatives: Evidence from the Carbon Disclosure Project
  • Author: Ben-Amar, Walid, Millicent Chang, and Philip McIlkenny
  • Journal: Journal of Business Ethics
  • This paper investigates the effect of female representation on the board of directors on corporate response to stakeholders' demands for increased public reporting about climate change-related risks. We rely on the Carbon Disclosure Project as a sustainability initiative supported by institutional investors. Greenhouse gas emissions measurement and its disclosure to investors can be thought of as a first step toward addressing climate change issues and reducing the firm's carbon footprint. Based on a sample of publicly listed Canadian firms over the period 2008-2014, we find that the likelihood of voluntary climate change disclosure increases with women percentage on boards. We also find evidence that supports critical mass theory with regard to board gender diversity. These findings reinforce initiatives being undertaken around the world to promote gender diversity in corporate governance while demonstrating board effectiveness in stakeholder management.
2016 Environmental, Social, Governance
  • Sustainable Development and Financial Markets: Old Paths and New Avenues
  • Author: Busch, Timo, Rob Bauer, and Marc Orlitzky
  • Journal: Business & Society
  • This article explores the role of financial markets for sustainable development. More specifically, the authors ask to what extent financial markets foster and facilitate more sustainable business practices. The authors highlight that their current role is rather modest and conclude that, on the old paths, a paradoxical situation exists. On one hand, financial market participants increasingly integrate environmental, social, and governance (ESG) criteria into their investment decisions, whereas on the other hand, in terms of organizational reality, there seems to be no real shift toward more sustainable business practices. The authors identify two main challenges within the field of sustainable investments that are relevant for entering new avenues that may help overcome this situation. First, a reorientation toward a long-term paradigm for sustainable investments is important. Second, ESG data must become more trustworthy. From a theoretical point of view, the authors finally highlight the potential market consequences when ESG investment criteria are used.
2016 Environmental
  • Climate Value at Risk' of Global Financial Assets
  • Author: Dietz, Simon, Alex Bowen, Charlie dixon, and Philip Gradwell
  • Journal: Nature Climate Change | Letters
  • Investors and financial regulators are increasingly aware of climate-change risks. So far, most of the attention has fallen on whether controls on carbon emissions will strand the assets of fossil-fuel companies. However, it is no less important to ask, what might be the impact of climate change itself on asset values? Here we show how a leading integrated assessment model can be used to estimate the impact of twenty-first-century climate change on the present market value of global financial assets. We find that the expected 'climate value at risk' (climate VaR) of global financial assets today is 1.8 percent along a business-as-usual emissions path. Taking a representative estimate of global financial assets, this amounts to US$2.5 trillion. However, much of the risk is in the tail. For example, the 99th percentile climate VaR is 16.9 percent, or US$24.2 trillion. These estimates would constitute a substantial write-down in the fundamental value of financial assets. Cutting emissions to limit warming to no more than 2 °C reduces the climate VaR by an expected 0.6 percentage points, and the 99th percentile reduction is 7.7 percentage points. Including mitigation costs, the present value of global financial assets is an expected 0.2 percent higher when warming is limited to no more than 2 °C, compared with business as usual. The 99th percentile is 9.1 percent higher. Limiting warming to no more than 2 °C makes financial sense to risk-neutral investors — and even more so to the risk averse.
2016 Environmental
  • Does Long-Term Orientation Create Value? Evidence from a Regression Discontinuity
  • Author: Flammer, Caroline, and Pratima (Tima) Bansal
  • Journal: Working paper
  • In this paper, we theorize and empirically investigate how long-term orientation impacts firm value. To study this relationship, we exploit exogenous changes in executives' long-term incentives. Specifically, we examine shareholder proposals on long-term executive compensation that pass or fail by a small margin of votes. The passage of such "close call" proposals is akin to a random assignment of long-term incentives and hence provides a clean causal estimate. We find that the adoption of such proposals leads to i) an increase in firm value and operating performance — suggesting that long-term orientation is beneficial to companies — and ii) an increase in firms' investments in long-term strategies such as innovation and stakeholder relationships. Finally, we find that financially constrained companies are less likely to benefit from long-term orientation.
2016 Environmental, Social, Governance
  • The Effect of Target Difficulty on Target Completion: The Case of Reducing Carbon Emissions
  • Author: Ioannou, Ioannis, Shelly Xin Li, and George Serafeim
  • Journal: The Accounting Review
  • Targets are an integral component of management control systems and play a significant role in achieving desirable performance outcomes. We focus on a key environmental performance objective-reduction of carbon emissions-as a setting in which to examine how target difficulty affects the degree of target completion in long-term nonfinancial performance. We use a novel dataset compiled by the Carbon Disclosure Project (CDP) and find that firms setting more difficult targets complete a higher percentage of such targets. We also find that this effect is negatively moderated by the provision of monetary incentives. We corroborate this evidence by showing that target difficulty is more effective for carbon reduction projects requiring more novel knowledge and in high-pollution industries. We discuss limitations and suggest avenues for future research.
2016 Environmental
  • Gender and Environmental Sustainability: A Longitudinal Analysis
  • Author: Kassinis, George, Alexia Panayioutou, Andreeas Dimou, and Georgia Katsifaraki
  • Journal: Corporate Social Responsibility and Environmental Management
  • In this paper, we investigate the relationship between gender and environmental sustainability. Based on a sample of 296 firms, drawn from the population of US publicly traded firms over a five-year period, we empirically test whether firms that have (1) more gender diverse boards of directors and (2) more policies and practices that enable or reinforce gender diversity throughout the organization, adopted more environmentally responsible policies and practices. We find that both 'demographic' and 'structural' gender diversity are significant predictors of a firm's environmental sustainability initiatives. Our findings show gender diversity is a sustainability issue as well.
2016 Environmental, Social, Governance
  • Corporate Sustainability: First Evidence on Materiality
  • Author: Khan, Mozaffar, George Serafeim, and Aaron Yoon
  • Journal: The Accounting Review
  • Using newly-available materiality classifications of sustainability topics, we develop a novel dataset by hand-mapping sustainability investments classified as material for each industry into firm-specific sustainability ratings. This allows us to present new evidence on the value implications of sustainability investments. Using both calendar-time portfolio stock return regressions and firm-level panel regressions we find that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues. In contrast, firms with good ratings on immaterial sustainability issues do not significantly outperform firms with poor ratings on the same issues. These results are confirmed when we analyze future changes in accounting performance. The results have implications for asset managers who have committed to the integration of sustainability factors in their capital allocation decisions.
2016 Governance
  • Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility During the Financial Crisis
  • Author: Lins, Karl V., Henri servaes, and Ane Tamayo
  • Journal: European Corporate Governance Institute (ECGI) - Finance Working Paper No. 446/2015
  • We study the extent to which a firm's social capital, as measured by the intensity of a firm's corporate social responsibility (CSR) activities, affects firm performance during the 2008-2009 financial crisis. We find that high-CSR firms have crisis-period stock returns that are four to seven percentage points higher than low-CSR firms, all else equal. In contrast, we find no difference in returns between high- and low-CSR firms either before or after the crisis. During the crisis, high-CSR firms also experience higher profitability, sales growth, and sales per employee relative to low-CSR firms, and they are able to raise more debt. This evidence is consistent with the view that the trust between the firm and its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.
2016 Social
  • Environmental Shareholder Activism: Considering Status and Reputation in Firm Responsiveness
  • Author: Perrault, Elise, and Cynthia Clark
  • Journal: Organization & Environment
  • Status and reputation have recently gained traction as theoretical mechanisms that, as important parts of decision processes, influence and explain firm behavior. In this study, we examine how environmentally concerned shareholder activists vary in their status and reputation, and how these differences affect firm responsiveness to their concerns. In a sample of 420 resolutions concerning the natural environment in the period 2004 to 2008, our results indicate that firms respond positively to shareholder activists' high status (a desirable characteristic) and also to their reputation to threaten the firm (an unfavorable characteristic). As such, our study advances a promising explanation to firm responsiveness on environmental issues, rooted in their interpretation of how activists' status and reputation affect their firm.
2016 Environmental
  • Gender and Board Activeness: The Role of a Critical Mass
  • Author: Schwartz-Ziv, Miriam
  • Journal: Journal of Financial and Quantitative Analysis
  • This study analyzes detailed minutes of board meetings of business companies in which the Israeli government holds a substantial equity interest. Boards with at least three directors of each gender are found to be at least 79 percent more active at board meetings than those without such representation. This phenomenon is driven by women directors in particular; they are more active when a critical mass of at least three women is in attendance. Gender-balanced boards are also more likely to replace underperforming CEOs and are particularly active during periods when CEOs are being replaced.
2016 Social
  • The Importance of Shareholder Activism: The Case of Say-on-Pay
  • Author: Stathopoulos, konstantinos, and Georgios Voulgaris
  • Journal: Corporate Governance: An International Review
  • This study focuses on the role of Say-on-Pay as a mechanism that aims to promote the efficiency of corporate governance by providing an additional channel for the expression of shareholder "voice." Initially introduced in the UK, Say-on-Pay has subsequently been adopted in a large number of countries and it has recently received significant attention from regulators, media, and the general public. The purpose of this study is to review prior literature related to Say-on-Pay and its impact on firm value and corporate decision making. Research Findings/Insights: Our study highlights the interdisciplinary nature of research on Say-on-Pay. We also shed light on conceptual gaps and empirical discrepancies in prior studies, indicating that many questions linked to Say-on-Pay and its importance for the executive pay-setting process remain largely unanswered. Theoretical/Academic Implications: At a theoretical level, we highlight potential areas for development of the existing theoretical framework for Say-on-Pay, which is at present rather limited and primarily influenced by agency theory. At an empirical level, we propose a substantial number of avenues for fruitful future research on this topic. Practitioner/Policy Implications: In the light of recent proposals for extending the role of Say-on-Pay within the corporate governance framework, our findings are particularly relevant to regulators. More thought is needed about changing its nature from advisory to binding, as the degree of its effectiveness and the dynamics of the voting process are still unclear. Our study could also be informative for the media and the general public, especially given the increasing attention afforded to Say-on-Pay.
2016 Governance
  • How to Restore Equitable and Sustainable Economic Growth in the United States
  • Author: Stiglitz, Joseph
  • Journal: American Economic Review: Papers & Proceedings
  • While we celebrate the beginning of the end of the era of zero interest rates, the US economy can hardly be called healthy. GDP is some 15 percent below what it would have been had the growth rates that prevailed between 1980 and 1998 continued. The percentage of the working-age population employed has increased only slightly since the "recovery" began, and is still lower than it was in the early 1980s, when women were entering the workforce en masse. Median real (household) income is less than 1 percent higher than it was in 1989. Real wages at the bottom are lower than 60 years ago. More than a fifth of African American youth are unemployed. All of this, eight years after the beginning of the last recession.
2016 Environmental, Social
  • Does the Presence of Independent and Female Directors Impact Firm Performance? A Multi-Country Study of Board Diversity
  • Author: Terjesen, Siri, Eduardo Barbosa Couto, and Paulo Morais Francisco
  • Journal: Journal of Management & Governance
  • This study empirically analyzes whether gender diversity enhances boards of directors' independence and efficiency. Using data from 3,876 public firms in 47 countries and controlling for a wide set of corporate governance mechanisms, we find that firms with more female directors have higher firm performance by market (Tobin's Q) and accounting (return on assets) measures. The results also suggest that external independent directors do not contribute to firm performance unless the board is gender diversified. These results hold with respect to different estimation models and robustness tests. Overall, our findings provide evidence that the female directors enhance boards of directors' effectiveness. Finally, we find that firms that are concerned with board independence, and that firms in more complex environments are more likely to have gender-balanced boards.
2016 Social
  • The Effect of Alternative Accounting measurement Bases on Investors' Assessments of Managers' Stewardship
  • Author: Anderson, spencer B., Jason L. Brown, Leslie Hodder, and Patrick E. Hopkins
  • Journal: Accounting, Organizations and Society
  • We conduct a laboratory experiment to examine investors' assessments of managers' stewardship. We provide evidence that investors tend to attribute external (i.e., non-manager-related) causes of firm performance to managers' performance. We predict and find that fair value information enables investors to overcome this tendency and make better stewardship decisions than investors with amortized cost information. We also find that investors presented with amortized-cost-based financial statements perform better to the extent they access fair-value-based footnote information, while investors presented with fair-value-based financial statements perform worse to the extent they access amortized-cost-based footnote information. Collectively, our results suggest that investors' stewardship decisions are improved because fair value information more transparently provides the information required to properly consider the opportunity costs associated with managers' actions and disentangle endogenous actions by managers from exogenous market forces that are outside of managers' control.
2015 Governance
  • Restraining Overconfident CEOs through Improved Governance: Evidence from the Sarbanes-Oxley Act
  • Author: Banerjee, Suman, Mark Humphery-Jenner, and Vikram Nanda
  • Journal: Review of Financial Studies
  • The literature posits that some CEO overconfidence benefits shareholders, though high levels may not. We argue that adequate controls and independent viewpoints provided by an independent board mitigates the costs of CEO overconfidence. We use the concurrent passage of the Sarbanes-Oxley Act and changes to the NYSE/NASDAQ listing rules (collectively, SOX) as natural experiments, to examine whether board independence improves decision making by overconfident CEOs. The results are strongly supportive: after SOX, overconfident CEOs reduce investment and risk exposure, increase dividends, improve postacquisition performance, and have better operating performance and market value. Importantly, these changes are absent for overconfident-CEO firms that were compliant prior to SOX.
2015 Governance
  • Do Markets Erode Social Responsibility
  • Author: Bartling, Björn, Roberto A. Weber, and Lan Yao
  • Journal: Quarterly Journal of Economics
  • This article studies socially responsible behavior in markets. We develop a laboratory product market in which low-cost production creates a negative externality for third parties, but where alternative production with higher costs mitigates the externality. Our first study, conducted in Switzerland, reveals a persistent preference among many consumers and firms for avoiding negative social impact in the market, reflected both in the composition of product types and in a price premium for socially responsible products. Socially responsible behavior is generally robust to varying market characteristics, such as increased seller competition and limited consumer information, and it responds to prices in a manner consistent with a model in which positive social impact is a utility-enhancing feature of a consumer product. In a second study, we investigate whether market social responsibility varies across societies by comparing market behavior in Switzerland and China. While subjects in Switzerland and China do not differ in their degree of social concern in nonmarket contexts, we find that low-cost production that creates negative externalities is significantly more prevalent in markets in China. Across both studies, consumers in markets exhibit less social concern than subjects in a comparable individual choice context.
2015 Environmental, Social, Governance
  • The Long-Term Effects of Hedge Fund Activism
  • Author: Bebchuk, Lucian A., Alon Brav, and Wei Jiang
  • Journal: Working paper
  • We test the empirical validity of a claim that has been playing a central role in debates on corporate governance — the claim that interventions by activist hedge funds have a detrimental effect on the long-term interests of companies and their shareholders. We subject this claim to a comprehensive empirical investigation, examining a long five-year window following activist interventions, and we find that the claim is not supported by the data. We find no evidence that activist interventions, including the investment-limiting and adversarial interventions that are most resisted and criticized, are followed by short-term gains in performance that come at the expense of long-term performance. We also find no evidence that the initial positive stock-price spike accompanying activist interventions tends to be followed by negative abnormal returns in the long term; to the contrary, the evidence is consistent with the initial spike reflecting correctly the intervention's long-term consequences. Similarly, we find no evidence for pump-and-dump patterns in which the exit of an activist is followed by abnormal long-term negative returns. Our findings have significant implications for ongoing policy debates. Policymakers and institutional investors should not accept the validity of the assertions that activist interventions are costly to firms and their shareholders in the long term; such claims do not provide a valid basis for limiting the rights, powers, and involvement of shareholders.
2015 Governance
  • The Returns to Hedge Fund Activism
  • Author: Becht, Marco, Julian Franks, Jeremy Grant, and Hannes F. Wagner
  • Journal: Working paper
  • This paper provides evidence that returns to hedge fund activism are driven by engagement outcomes. We use a sample of 1,740 activist engagements from 23 countries to estimate performance of activism across North America, Europe and Asia. Striking differences emerge across countries in outcomes of the engagements. It is these differences that explain the variation in performance of activism. Although there is evidence that activists put companies into play, frequently those takeovers are preceded by significant and profitable governance changes. While the U.S. model of activism has been copied by foreign activists, non-U.S. activists outperform U.S. activists in their domestic markets.
2015 Governance
  • Recent Advances in Research on Hedge Fund Activism: Value Creation and Identification
  • Author: Brav, Alon, Wei Jiang, and Hyunseob Kim
  • Journal: Annual Review of Financial Economics
  • Hedge fund activism emerged as a major force of corporate governance in the 2000s. By the mid-2000s, there were between 150 and 200 activist hedge funds in action each year, advocating for changes in 200-300 publicly listed companies in the United States. In this article, we review the evolution and major characteristics of hedge fund activism, as well as the short- and long-term impacts of the performance and governance of targeted companies. Though most of the analyses here are based on a comprehensive sample of over 2,000 activism events in the United States from 1994 to 2011, hand-collected by the authors from regulatory filings and news searches, this article covers all major studies on the topic, including those on markets outside of the United States.
2015 Governance
  • The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes
  • Author: Brav, Alon, Wei Jiang, and Hyunseob Kim
  • Journal: Review of Financial Studies
  • This paper studies the long-term effect of hedge fund activism on firm productivity using plant-level information from the U.S. Census Bureau. A typical target firm improves production efficiency in the 3 years after intervention, with stronger improvements in business strategy-oriented interventions. Plants sold after intervention improve productivity significantly under new ownership, suggesting that capital redeployment is an important channel for value creation. Employees of target firms experience stagnation in work hours and wages despite an increase in labor productivity. Additional tests refute alternative explanations attributing the improvement to mean reversion, management's voluntary reforms, industry consolidation shocks, or activists' stock-picking abilities.
2015 Governance
  • Global Non-Linear Effect of Temperature on Economic Production
  • Author: Burke, Marshall, Solomon M. Hsiang, and Edward Miguel
  • Journal: Nature | Letters
  • Growing evidence demonstrates that climatic conditions can have a profound impact on the functioning of modern human societies, but effects on economic activity appear inconsistent. Fundamental productive elements of modern economies, such as workers and crops, exhibit highly non-linear responses to local temperature even in wealthy countries. In contrast, aggregate macroeconomic productivity of entire wealthy countries is reported not to respond to temperature, while poor countries respond only linearly. Resolving this conflict between micro and macro observations is critical to understanding the role of wealth in coupled human-natural systems and to anticipating the global impact of climate change. Here we unify these seemingly contradictory results by accounting for non-linearity at the macro scale. We show that overall economic productivity is non-linear in temperature for all countries, with productivity peaking at an annual average temperature of 13 °C and declining strongly at higher temperatures. The relationship is globally generalizable, unchanged since 1960, and apparent for agricultural and non-agricultural activity in both rich and poor countries. These results provide the first evidence that economic activity in all regions is coupled to the global climate and establish a new empirical foundation for modelling economic loss in response to climate change, with important implications. If future adaptation mimics past adaptation, unmitigated warming is expected to reshape the global economy by reducing average global incomes roughly 23 percent by 2100 and widening global income inequality, relative to scenarios without climate change. In contrast to prior estimates, expected global losses are approximately linear in global mean temperature, with median losses many times larger than leading models indicate.
2015 Environmental
  • The Valuation Relevance of Greenhouse Gas Emissions under the European Union Carbon Emissions Trading Scheme
  • Author: Clarkson, Peter M, Yue Li, Matt Pinnuck, and Gordon D. Richardson
  • Journal: European Accounting Review
  • This study examines the valuation relevance of greenhouse gas emissions under the European Union Carbon Emissions Trading Scheme. We posit that carbon emissions affect firm valuation only to the extent that a firm's emissions exceed its carbon allowances under a cap-and-trade system and the extent of its inability to pass on carbon-related compliance costs to consumers and end-users. We measure a firm's ability to pass on the future costs by its market power and its carbon performance relative to its industry peers. The results show that firms' carbon allowances are not associated with firm valuation but the allocation shortfalls are negatively associated. We also find that the negative association between firm values and carbon emission shortfalls is mitigated for firms with better carbon performance relative to their industry peers and for firms in less competitive industry sectors. These findings, which suggest that the valuation impact of carbon emissions is unlikely to be homogenous across firms or industrial sectors, have important implications for future research design and for the disclosure and recognition of a firm's greenhouse gas liabilities.
2015 Environmental
  • Hedge Fund Activism and Long-Term Firm Value
  • Author: Cremers, Martijn, Erasmo Giambona, Simone M. Sepe, and Ye Wang
  • Journal: Working paper
  • This paper investigates the association of hedge fund activism and long-term firm value. We show that the positive long-term association documented in prior studies is likely affected by selection bias, as activist hedge funds tend to target poorly performing firms. Second, once we incorporate such selection bias using a matched sample approach, we find that firms targeted by activist hedge funds improve less in value after activist hedge fund campaigns than ex-ante similarly poorly performing control firms that are not subject to hedge fund activism. This suggests that hedge fund activism decreases, rather than increases, a firm's long-term value, relative to non-targeted control firms that have similar characteristics as the targeted firms. To explain our results, we explore whether the ability of activist hedge funds to substantially influence a firm's investment policy may exacerbate a firm's limited commitment problem toward long-term value creation and stable stakeholder relationships. Consistent with this hypothesis, we find that the reduction in value after hedge fund campaigns is more pronounced for firms where the limited commitment problem is more severe, namely firms that are more engaged in innovation and where stakeholder relationships are more important for long-term value creation.
2015 Governance
  • Gender Diversity and Securities Fraud
  • Author: Cumming, Douglas, T. Y. Leung, and Oliver Rui
  • Journal: Academy of Management Journal
  • We formulate theory on the effect of board of director gender diversity on the broad spectrum of securities fraud, and generate three key insights. First, based on ethicality, risk aversion, and diversity, we hypothesize that gender diversity on boards can operate as a significant moderator for the frequency of fraud. Second, we advance that the stock market response to fraud from a more gender-diverse board is significantly less pronounced. Third, we posit that women are more effective in male-dominated industries in reducing both the frequency and severity of fraud. Results of our novel empirical tests, based on data from a large sample of Chinese firms that committed securities fraud, are largely consistent with each of these hypotheses.
2015 Social
  • Executives' "Off-the-Job" Behavior, Corporate Culture, and Financial Reporting Risk
  • Author: Davidson, Robert, Aiyesha Dey, and Abbie Smith
  • Journal: Journal of Financial Economics
  • We study the effects on M&A outcomes of CEO network centrality, which measures the extent and strength of a CEO's personal connections. High network centrality can allow CEOs to efficiently gather and control private information, facilitating value-creating acquisition decisions. We show, however, that M&A deals initiated by high-centrality CEOs, in addition to being more frequent, carry greater value losses to both the acquirer and the combined entity than deals initiated by low-centrality CEOs. We also document that high-centrality CEOs are capable of avoiding the discipline of the markets for corporate control and the executive labor market, and that the mitigating effect of internal governance on CEO actions is limited. Our evidence suggests that corporate decisions can be influenced by a CEO's position in the social hierarchy, with high-centrality CEOs using their power and influence to increase entrenchment and reap private benefits.
2015 Social, Governance
  • The Benefits of Socially Responsible Investing: An Active Manager's Perspective
  • Author: De, Indrani, and Michelle R. Clayman
  • Journal: Journal of Investing
  • There has been a lot of research on the predictive power of environmental, social, and governance (ESG) ratings, the relationship between ESG ratings and subsequent stock performance, and whether using ESG data in stock analysis and portfolio management was value-additive or valuedetracting. In this article, the authors examine the relationship between the ESG ratings of a company and its stock returns, volatility, and risk-adjusted returns in the post-2008 financial crisis era. They explore the negative relationship between ESG and volatility in greater depth, given the well-documented low-volatility anomaly (outperformance of low-volatility stocks). Both (high) ESG rating and (low) volatility positively impact stock returns, but the ESG effect is independent of the low-volatility effect, and ESG is a positive contributor in its own right. Given the controversy surrounding the effect of ESG-based investment restrictions, the authors test the effect of restricting the investible universe by deleting the lower tail of ESG companies on portfolio performance. Asset managers can thus actively use the association between corporate ESG ratings and stock return, volatility, and risk-adjusted return to enhance their stock-picking and portfolio-construction abilities.
2015 Environmental, Social, Governance
  • Do Institutional Investors Drive Corporate Social Responsibility? International Evidence
  • Author: Dyck, I. J. Alexander, Karl V. Lins, Lukas Roth, and Hannes F. Wagner
  • Journal: Rotman School of Management Working Paper No. 2708589
  • We examine whether institutional investors affect a firm's commitment to corporate social responsibility (CSR) for a large sample of firms from 41 countries over the period 2004 through 2013. We focus on environmental and social aspects of CSR, while controlling for firms' governance levels. We find that institutional ownership is positively associated with firm-level environmental and social commitments. Further, the "color" of money matters. Domestic institutional investors and non-U.S. foreign investors account for these positive associations, while U.S. institutional investors' holdings are not related to environmental and social scores. Similarly, higher scores are associated with long-term investors such as pension funds but not with hedge funds. Evidence from a quasi-natural experiment shows that institutional ownership causes improvements in environmental scores. Overall, our results suggest that institutional investors, in aggregate, use their ownership stakes to promote good CSR practices around the world.
2015 Environmental, Social
  • Environmental Performance and the Cost of Capital: Evidence from Commercial Mortgages and REIT Bonds
  • Author: Eichholtz, Piet, Rogier Holtermans, Nils Kok, and Erkan Yönder
  • Journal: Working paper
  • There is an ongoing debate about the impact of environmental performance on a firm's cost of capital, but most academic studies are hindered by methodological challenges. The real estate sector, which is at the nexus of many environmental and energy issues, offers a laboratory to address the relationship in a direct manner. Using a sample of U.S. REITs, we investigate the spreads on commercial mortgages collateralized by real assets, some of which are environmentally certified. We also study spreads on corporate debt, both at issuance and while trading in the secondary market. The results show that environmentally certified buildings command significantly lower spreads as compared to conventional, but otherwise comparable buildings. The spread difference varies between 35 and 36 basis points, depending on the specification. At the corporate level, we document that REITs with a higher fraction of environmentally certified buildings are able to issue bonds at lower spreads, after controlling for a broad set of REIT and bond characteristics. A difference-in-difference analysis of bond spreads in the secondary market corroborates this finding. The results in this paper provide some evidence that the financial market capitalizes the environmental performance of collateral into the pricing of financial products.
2015 Environmental
  • Corporate Environmental Responsibility and the Cost of Capital: International Evidence
  • Author: El Ghoul, sadok, Omrane Guedhami, Hakkon Kim, and Kwangwoo Park
  • Journal: Working paper
  • We examine how corporate environmental responsibility (CER) affects the cost of equity capital for manufacturing firms in 30 countries. Using several approaches to estimate firms' ex ante equity financing costs, we find in regressions that control for firm-level characteristics as well as industry, year, and country effects that the cost of equity capital is lower when firms have higher CER. This finding is robust to addressing endogeneity through instrumental variables, to using alternative specifications and proxies for the cost of equity capital, to accounting for noise in analyst forecasts, and to employing alternative samples. We conclude that investment in CER reduces firms' equity financing costs worldwide.
2015 Environmental, Social, Governance
  • CEO Network Centrality and Merger Performance
  • Author: El-Khatib, Rwan, Kathy Fogel, and Tomas Jandik
  • Journal: Journal of Financial Economics
  • We study the effects on M&A outcomes of CEO network centrality, which measures the extent and strength of a CEO's personal connections. High network centrality can allow CEOs to efficiently gather and control private information, facilitating value-creating acquisition decisions. We show, however, that M&A deals initiated by high-centrality CEOs, in addition to being more frequent, carry greater value losses to both the acquirer and the combined entity than deals initiated by low-centrality CEOs. We also document that high-centrality CEOs are capable of avoiding the discipline of the markets for corporate control and the executive labor market, and that the mitigating effect of internal governance on CEO actions is limited. Our evidence suggests that corporate decisions can be influenced by a CEO's position in the social hierarchy, with high-centrality CEOs using their power and influence to increase entrenchment and reap private benefits.
2015 Social, Governance
  • Workforce Diversity and Shareholder Value: A Multi-Level Perspective
  • Author: Ellis, Kimberly M., and Phyllis Y. Keys
  • Journal: Review of Quantitative Finance and Accounting
  • Our study examines the effects of the racial diversity of a firm's workforce on shareholder value. We show that the disclosure of racial diversity in firms yields significant, positive abnormal returns. We further test the effects of several indicators of both lower-level and upper-level workforce diversity in explaining variations in abnormal returns. Our results indicate that two measures of lower-level diversity, workforce heterogeneity and percent of minority new hires, and one measure of upper-level diversity, percent of minorities among the firm's top paid executives, are significantly related to shareholder value. Also, research expenditures, is an important driver of shareholder value in diverse firms. Moreover, workforce heterogeneity is more essential to creating shareholder value in service firms where there is more direct interaction with end-user customers. Thus, consistent with arguments related to the resource-based view and the innovation hypothesis, our study provides empirical support that firms benefit from developing a racially diverse workforce at multiple levels within the organization.
2015 Social
  • Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach
  • Author: Flammer, Caroline
  • Journal: Management Science
  • This study examines the effect of shareholder proposals related to corporate social responsibility (CSR) on financial performance. Specifically, I focus on CSR proposals that pass or fail by a small margin of votes. The passage of such "close call" proposals is akin to a random assignment of CSR to companies and hence provides a quasi-experiment to study the effect of CSR on performance. I find that the adoption of close call CSR proposals leads to positive announcement returns and superior accounting performance, implying that these proposals are value enhancing. When I examine the channels through which companies benefit from CSR, I find that labor productivity and sales growth increase after the vote. Finally, I document that close call CSR proposals differ from non-close proposals along several dimensions. Accordingly, although my results imply that adopting close call CSR proposals is beneficial to companies, they do not necessarily imply that CSR proposals are beneficial in general.
2015 Environmental, Social, Governance
  • ESG and Financial Performance: Aggregated Evidence from more than 2000 Empirical Studies
  • Author: Friede, Gunnar, timo Busch, and Alexander Bassen
  • Journal: Journal of Sustainable Finance & Investment
  • The search for a relation between environmental, social, and governance (ESG) criteria and corporate financial performance (CFP) can be traced back to the beginning of the 1970s. Scholars and investors have published more than 2000 empirical studies and several review studies on this relation since then. The largest previous review study analyzes just a fraction of existing primary studies, making findings difficult to generalize. Thus, knowledge on the financial effects of ESG criteria remains fragmented. To overcome this shortcoming, this study extracts all provided primary and secondary data of previous academic review studies. Through doing this, the study combines the findings of about 2200 individual studies. Hence, this study is by far the most exhaustive overview of academic research on this topic and allows for generalizable statements. The results show that the business case for ESG investing is empirically very well founded. Roughly 90 percent of studies find a nonnegative ESG-CFP relation. More importantly, the large majority of studies reports positive findings. We highlight that the positive ESG impact on CFP appears stable over time. Promising results are obtained when differentiating for portfolio and nonportfolio studies, regions, and young asset classes for ESG investing such as emerging markets, corporate bonds, and green real estate.
2015 Environmental, Social, Governance
  • Governance under the Gun: Spillover Effects of Hedge Fund Activism
  • Author: Gantchev, Nickolay, Oleg Gredil, and Chotibhak jotikasthira
  • Journal: Working paper
  • Hedge fund activism is an important monitoring mechanism associated with substantial improvements in the governance and performance of targets. In this paper, we investigate whether the managers of peer firms view activism in their industry as a threat, and undertake real policy changes to mitigate that threat. We find that they do — industry peers with fundamentals similar to those of previous targets reduce agency costs and improve operating performance along the same dimensions as the targets. These effects are distinct from those of product market competition or time-varying industry conditions, and are anticipated by the market as evidenced by increased valuations. Finally, we show that these policy and valuation improvements lower the peers' ex-post probability of being targeted, suggesting that this "do-it-yourself" activism is indeed effective. Taken together, our results imply that shareholder activism, as an external governance device, reaches beyond the target firms.
2015 Governance
  • Climate Change and Long-Run Discount Rates: Evidence from Real Estate
  • Author: Giglio, Stefano, Matteo Maggiori, Johannes stroebel, and Andreas Weber
  • Journal: Working paper
  • The optimal investment to mitigate climate change crucially depends on the discount rate used to evaluate the investment's uncertain future benefits. The appropriate discount rate is a function of the horizon over which these benefits accrue and the riskiness of the investment. In this paper, we estimate the term structure of discount rates for an important risky asset class, real estate, up to the very long horizons relevant for investments in climate change abatement. We show that this term structure is steeply downward-sloping, reaching 2.6 percent at horizons beyond 100 years. We explore the implications of these new data within both a general asset pricing framework that decomposes risks and returns by horizon and a structural model calibrated to match a variety of asset classes. Our analysis demonstrates that applying average rates of return that are observed for traded assets to investments in climate change abatement is misleading. We also show that the discount rates for investments in climate change abatement that reduce aggregate risk, as in disaster-risk models, are bounded above by our estimated term structure for risky housing, and should be below 2.6 percent for long-run benefits. This upper bound rules out many discount rates suggested in the literature and used by policymakers. Our framework also distinguishes between the various mechanisms the environmental literature has proposed for generating downward-sloping discount rates.
2015 Environmental
  • Science and the Stock Market: Investors' Recognition of Unburnable Carbon
  • Author: Griffin, Paul A., Amy Myers Jaffe, David H. Lont, and Rosa Dominguez-Faus
  • Journal: Energy Economics
  • This paper documents the stock market's reaction to a 2009 paper in the Nature journal of science, which concluded that only a fraction of the world's existing oil, gas, and coal reserves could be emitted if global warming by 2050 were not to exceed 2 °C above pre-industrial levels. This Nature article is now one of the most cited environmental science studies in recent years. Our analysis indicates that this publication prompted an average stock price drop of 1.5 percent to 2percent for our sample of the 63 largest U.S. oil and gas firms. Later, in 2012-2013, the press "discovered" this article, writing hundreds of stories on the grim consequences of unburnable carbon for fossil fuel companies. We show only a small negative reaction to these later stories, mostly in the two weeks following their publication. This limited market response contrasts with the predictions of some analysts and commentators of a substantial decline in the shareholder value of fossil fuel companies from a carbon bubble. Our paper discusses possible reasons for this discrepancy.
2015 Environmental
  • Board Structure and Monitoring: New Evidence from CEO Turnovers
  • Author: Guo, Lixiong, and Ronald W. Masulis
  • Journal: Review of Financial Studies
  • We use the 2003 NYSE and NASDAQ listing rules for board and committee independence as a quasinatural experiment to examine the causal relations between board structure and CEO monitoring. Noncompliant firms forced to raise board independence or adopt a fully independent nominating committee significantly increased their forced CEO turnover sensitivity to performance relative to compliant firms. Nominating committee independence is important even when firms had an independent board, and the effect is stronger when the CEO is on the committee. We conclude that greater board independence and full independence of nominating committees lead to more rigorous CEO monitoring and discipline.
2015 Governance
  • Board Diversity and its Long-Term Effect on Firm Financial and Non-Financial Performance
  • Author: Gupta, Parveen P., Kevin C. K. Lam, Heibatollah Sami, and Haiyan Zhou
  • Journal: Working paper
  • The legislators and regulatory bodies across the globe are mandating public disclosure on diversity or initiating to impose quotas on board structure to enhance gender and ethnic diversity. In this research study, we attempt to fill the void in the literature by investigating the impact of gender and board diversity on long-term firm financial performance and nonfinancial performance which is not addressed in prior studies. Using observations from 2003-2012, we find that a more gender and ethnically diverse board may enhance a firm's performance on social, environmental and governance dimensions but increasing board diversity does not necessarily result in better financial performance for the firm. Our findings are consistent with the arguments presented in the literature that boards with higher gender and ethnic diversity will be more sensitive to stakeholders other than just shareholders, hence enhancing a firm's non-financial performance. These findings suggest that improvement in non-financial performance dimensions may bring benefits to the society, in general, and to the firm in longer term.
2015 Social
  • Legal vs. Normative CSR: Differential Impact on Analyst Dispersion, Stock Return Volatility, Cost of Capital, and Firm Value
  • Author: Harjoto, Maretno A., and Hoje Jo
  • Journal: Journal of Business Ethics
  • This study examines how the sell-side analysts interpret firms' corporate social responsibility (CSR) activities. Specifically, we examine the differential impact of overall, legal, and normative CSR on the analysts' earnings forecast dispersion, stock return volatility, cost of equity capital, and firm value. Employing a sample of U.S. public firms during 1993-2009, we find that overall CSR intensities reduce analyst dispersion of earnings forecast, volatility of stock return and cost of capital (COC), and increase firm value. However, its impact is reduced for firms with better accounting and disclosure quality. When we disaggregate CSR into legal and normative CSR, we find that legal (normative) CSR decreases (increases) analysts' dispersion, stock return volatility, and COC, while legal (normative) CSR increases (decreases) firm value. The sell-side analysts tend to have less (greater) information asymmetry regarding the net benefits of pursuing CSR that is (not) required by laws. We find, however, that the benefit of having normative CSR realized in 1 year lag such that analyst dispersion, stock return volatility, COC decrease, respectively, and firm value increases. Furthermore, we find that the benefit of normative CSR is offset for firms with higher accounting and disclosure quality.
2015 Environmental, Social, Governance
  • The BP Oil Spill: Shareholder Wealth Effects and Environmental Disclosures
  • Author: Heflin, Frank, and Dana Wallace
  • Journal: Working paper
  • We use the BP, PLC oil spill to provide new evidence regarding the consequences of and motivations for environmental disclosures. We find that among oil and gas firms drilling in U.S. waters, those with greater environmental disclosure suffered smaller negative shareholder wealth effects following the spill. This suggests that shareholders believed firms with more environmental disclosures were better prepared to address future environmental regulations and less likely to experience similar environmental incidents. We also document an increase in environmental disclosure, specifically disclosures of disaster readiness plans, in the year following the spill. Next, we find that firms with poorer past environmental performance were more likely to increase disclosures about disaster readiness plans. Finally, we provide some evidence, albeit descriptive, that the increased disclosure by the poor pre-spill environmental performers is not entirely window dressing, as their post-spill environmental performance improved.
2015 Environmental
  • Political Values, Culture, and Corporate Litigation
  • Author: Hutton, Irena, Danling Jiang, and Alok Kumar
  • Journal: Management Science
  • Using one of the largest samples of litigation data available to date, we examine whether the political culture of a firm determines its propensity for corporate misconduct. We measure political culture using the political contributions of top managers, firm political action committees, and local residents. We show that firms with a Republican culture are more likely to be the subject of civil rights, labor, and environmental litigation than are Democratic firms, consistent with the Democratic ideology that emphasizes equal rights, labor rights, and environmental protection. However, firms with a Democratic culture are more likely to be the subject of litigation related to securities fraud and intellectual property rights violations than are Republican firms, whose party ideology stresses self-reliance, property rights, market discipline, and limited government regulation. Upon litigation filing, both types of firms experience similar announcement reaction, which suggests that the observed relationship between political culture and corporate misconduct is unlikely to reflect differences in expected litigation costs.
2015 Environmental, Social, Governance
  • Corporate Environmental Responsibility and Firm Performance in the Financial Services Sector
  • Author: Jo, Hoje, Hakkon Kim, and Kwangwoo Park
  • Journal: Journal of Business Ethics
  • In this study, we examine whether corporate environmental responsibility (CER) plays a role in enhancing operating performance in the financial services sector. Because achieving success with CER investing is often a long-term process, we maintain that by effectively investing in CER, executives can decrease their firms' environmental costs, thereby enhancing operating performance. By employing a unique environmental dataset covering 29 countries, we find that the reducing of environmental costs takes at least 1 or 2 years before enhancing return on assets. We also find that reducing environmental costs has a more immediate and substantial effect on the performance of financial services firms in well-developed financial markets than in less-developed financial markets. These results are economically and statistically significant and robust even after alleviating endogeneity and using an additional performance measure. We interpret our empirical results as supporting the social impact and reputation-building hypothesis. Our findings also suggest that policy makers dealing with corporate sustainability management should pursue an environment-centered industry policy not only at the manufacturing sector but also at the financial services sector, as firms in both sectors with lower environmental costs perform better.
2015 Environmental, Governance
  • Employee Rights and Acquisitions
  • Author: John, Kose, Anzhela Knyazeva, and Diana Knyazeva
  • Journal: Journal of Financial Economics
  • This paper examines the outcomes and characteristics of corporate acquisitions from the perspective of stakeholder-shareholder agency conflicts. Using state variation in labor protections, we find that acquirers with strong labor rights experience lower announcement returns. Combined acquirer and target announcement returns are also lower in the presence of strong labor rights. Our findings remain statistically and economically significant after we control for a range of deal, firm, industry and state characteristics and explore various channels for the labor rights effect. Overall, the evidence indicates that employee-shareholder conflicts of interest reduce shareholder gains from acquisitions.
2015 Social
  • Collective labor Rights and Income Inequality
  • Author: Kerrissey, Jasmine
  • Journal: American Sociological Review
  • This article examines the relationship between income inequality and collective labor rights, conceptualized as workers' legal and practical ability to engage in collective activity. Although worker organization is central to explaining income inequality in industrialized democracies, worldwide comparative studies have neglected the role of class-based actors. I argue that the repression of labor rights reduces the capacity of worker organizations to effectively challenge income inequality through market and political processes in capitalist societies. Labor rights, however, are unlikely to have uniform effects across regions. This study uses unbalanced panel data for 100 developed and less developed countries from 1985 through 2002. Random- and fixed-effects models find that strong labor rights are tightly linked to lower inequality across a large range of countries, including in the Global South. Interactions between regions and labor rights suggest that the broader context in which class-based actors are embedded shapes worker organizations' ability to reduce inequality. During the period of this study, labor rights were particularly important for mitigating inequality in the West but less so in Eastern Europe.
2015 Social
  • Climate Change and Firm Valuation: Evidence from a Quasi-Natural Experiment
  • Author: Krüger, Philipp
  • Journal: Working paper
  • In this paper, I estimate the effect of mandatory greenhouse gas (GHG) emissions disclosure on corporate value. Using the introduction of mandatory GHG emissions reporting for firms listed on the Main Market of the London Stock Exchange as a source of exogenous variation, I find that firms most heavily affected by the regulation experience significantly positive valuation effects. Increases in value are strongest for large firms and for firms from carbon intensive industries (e.g., oil and gas). Valuation increases are driven by capital market effects such as higher liquidity and lower bid — ask spreads for the most affected firms.
2015 Environmental
  • Corporate Goodness and Shareholder Wealth
  • Author: Krüger, Philipp
  • Journal: Journal of Financial Economics
  • Using a unique data set, I study how stock markets react to positive and negative events concerned with a firm's corporate social responsibility (CSR). I show that investors respond strongly negatively to negative events and weakly negatively to positive events. I then show that investors do value "offsetting CSR," that is positive CSR news concerning firms with a history of poor stakeholder relations. In contrast, investors respond negatively to positive CSR news which is more likely to result from agency problems. Finally, I provide evidence that CSR news with stronger legal and economic information content generates a more pronounced investor reaction.
2015 Environmental, Social, Governance
  • Gender Diversity, Board Independence, Environmental Committee and Greenhouse Gas Disclosure
  • Author: Liao, Lin, Le Luo, and Qingliang Tang
  • Journal: British Accounting Review
  • This paper examines the impact of corporate board's characteristics on the voluntary disclosure of greenhouse gas (GHG) emissions in the form of a Carbon Disclosure Project report. Using both univariate and regression models with a sample of the 329 largest companies in the United Kingdom, we find a significant positive association between gender diversity (measured as the percentage of female directors on the board) and the propensity to disclose GHG information as well as the extensiveness of that disclosure. In addition, a board with more independent directors or environmental committee show a higher tendency to be ecologic transparent. However, if the committee is not sufficiently large, independent or active, its effect seems insignificant. The results are consistent with stakeholder theory, suggesting that a diversified and independent board and the existence of a board-level environmental committee may balance a firm's financial and non-financial goals with limited resources and moderate the possible conflicting expectations of stakeholders who have disparate interests. The findings should be useful for top managers and regulators who are interested in improving corporate governance practices and climate-change strategies.
2015 Environmental, Social, Governance
  • Agency Problems of Corporate Philanthropy
  • Author: Masulis, Ronald W., and Syed Walid Reza
  • Journal: Review of Financial Studies
  • Evaluating agency theory and optimal contracting theory views of corporate philanthropy, we find that as corporate giving increases, shareholders reduce their valuation of firm cash holdings. Dividend increases following the 2003 Tax Reform Act are associated with reduced corporate giving. Using a natural experiment, we find that corporate giving is positively (negatively) associated with CEO charity preferences (CEO shareholdings and corporate governance quality). Evidence from CEO-affiliated charity donations, market reactions to insider-affiliated donations, its relation to CEO compensation, and firm contributions to director-affiliated charities indicates that corporate donations advance CEO interests and suggests misuses of corporate resources that reduce firm value.
2015 Social
  • Carbon Emissions and Stock Returns: Evidence from the EU Emissions Trading Scheme
  • Author: Oestreich, A. Marcel, and Ilias Tsiakas
  • Journal: Working paper
  • This paper provides an empirical investigation of the effect of the European Union's Emissions Trading Scheme on German stock returns. We find that, during the first few years of the scheme, firms that received free carbon emission allowances on average significantly outperformed firms that did not. This suggests the presence of a large and statistically significant "carbon premium," which is mainly explained by the higher cash flows due to the free allocation of carbon emission allowances. A carbon risk factor can also explain part of the cross-sectional variation of stock returns as firms with high carbon emissions have higher exposure to carbon risk and exhibit higher expected returns.
2015 Environmental
  • Carbon and Inequality: From Kyoto to Paris
  • Author: Piketty, Thomas, and Lucas Chancel
  • Journal: Report: Paris School of Economics
  • This study present evolutions in the global distribution of CO2e emissions (CO2 and other Green House Gases) between world individuals rom 1998 and 2013 and examines different strategies to finance a global climate adaptation fund based on efforts shared among high world emitters rather than high-income countries. To this end, we combine data on historical trends in per capita country-level CO2e emissions, consumption-based CO2e emissions data, within-country income inequality and a simple income-CO2e elasticity model. We show that global CO2e emissions inequalities between individuals decreased from Kyoto to Paris, due to the rise of top and mid income groups in developing countries and the relative stagnation of incomes and emissions of the majority of the population in industrialized economies. Income and CO2e emissions inequalities however increased within countries over the period.
2015 Environmental
  • Women on Boards and Firm Financial Performance: A Meta-Analysis
  • Author: Post, Corinne, and Kris Byron
  • Journal: Academy of Management Journal
  • Despite a large body of literature examining the relationship between women on boards and firm financial performance, the evidence is mixed. To reconcile the conflicting results, we statistically combine the results from 140 studies and examine whether these results vary by firms' legal/regulatory and socio-cultural contexts. We find that female board representation is positively related to accounting returns and that this relationship is more positive in countries with stronger shareholder protections — perhaps because shareholder protections motivate boards to use the different knowledge, experience, and values that each member brings. We also find that, although the relationship between female board representation and market performance is near zero the relationship is positive in countries with greater gender parity (and negative in countries with low gender parity) — perhaps because societal gender differences in human capital may influence investors' evaluations of the future earning potential of firms that have more female directors. Lastly, we find that female board representation is positively related to boards' two primary responsibilities: monitoring and strategy involvement. For both firm financial performance and board activities, we find mean effect sizes comparable to those found in meta-analyses of other aspects of board composition. We discuss the theoretical and practical implications of our findings.
2015 Social
  • Gaining Access by Doing Good: The Effect of Sociopolitical Reputation on Firm Participation in Public Policy Making
  • Author: Werner, Timothy
  • Journal: Management Science
  • This paper examines the role of firms' sociopolitical reputations, as proxied by their perceived engagement in socially responsible practices, in public policy makers' decisions to grant access in the policy-making process. I argue that policy makers' dependencies, motivations, and decision-making processes lead them to evaluate firms by using sociopolitical reputation as a differentiating heuristic. I hypothesize that firms that construct stronger sociopolitical reputations will be granted greater access and that firms' existing political activity and policy makers' partisanship will moderate this relationship. I test these hypotheses using an 11-year panel on congressional testimony, reputation, and political and financial characteristics for the S&P 500 and find support for all three. These findings support the existence of a sociopolitical dimension to firms' reputations that affects how public policy makers evaluate firms, demonstrating that corporate social responsibility pays political benefits.
2015 Environmental, Social
  • ESG and Corporate Financial Performance: Mapping the Global landscape
  • Author: Deutsche Asset & Wealth management
  • Journal: Report: Deutsche Asset & Wealth Management
  • In a new extensive study, Deutsche Asset & Wealth Management and the University of Hamburg investigate, whether integrating ESG into the invest- ment process has had a positive effect on corporate financial performance (CFP), whether the effect was stable over time, how a link between ESG and CFP differs across regions and asset classes and whether any specific sub-category of E, S or G had a dominant influence on CFP. In this white paper we highlight the main conclusions.
2015 Environmental, Social, Governance
  • Environmental Externalities and Cost of Capital
  • Author: Chava, Sudheer
  • Journal: Management Science
  • I analyze the impact of a firm's environmental profile on its cost of equity and debt capital. Using implied cost of capital derived from analysts' earnings estimates, I find that investors demand significantly higher expected returns on stocks excluded by environmental screens (such as hazardous chemical, substantial emissions, and climate change concerns) compared to firms without such environmental concerns. Lenders also charge a significantly higher interest rate on the bank loans issued to firms with these environmental concerns. I provide evidence that the environmental profile of a firm is not simply proxying for an omitted component of its default risk. Further, firms with these environmental concerns have lower institutional ownership and fewer banks participate in their loan syndicate than firms without such environmental concerns. These results suggest that exclusionary socially responsible investing and environmentally sensitive lending can have a material impact on the cost of equity and debt capital of affected firms.
2014 Environmental
  • Co-opted Boards
  • Author: Coles, Jeffrey L., Naveen D. Daniel, and Lalitha Naveen
  • Journal: Review of Financial Studies
  • We develop two measures of board composition to investigate whether directors appointed by the CEO have allegiance to the CEO and decrease their monitoring. Co-option is the fraction of the board comprised of directors appointed after the CEO assumed office. As Co-option increases, board monitoring decreases: turnover-performance sensitivity diminishes, pay increases (without commensurate increase in pay-performance sensitivity), and investment increases. Non-Co-opted Independence — the fraction of directors who are independent and were appointed before the CEO — has more explanatory power for monitoring effectiveness than the conventional measure of board independence. Our results suggest that not all independent directors are effective monitors.
2014 Governance
  • Women and Top Leadership Positions: Towards an Institutional Analysis
  • Author: Cook, Alison, and Christy Glass
  • Journal: Gender, Work & Organizations
  • Women remain under-represented in top leadership positions in work organizations, a reality that reflects a variety of barriers that create a glass ceiling effect. However, some women do attain top leadership positions, leading scholars to probe under what conditions women are promoted despite seemingly intractable and well-documented barriers. Previous scholarship tends to posit individual-level explanations, suggesting either that women who attain top leadership positions are exceptional or that potential women leaders lack key qualities, such as assertiveness. Much less scholarship has explored institutional-level mechanisms that may increase women's ascension to top positions. This analysis seeks to fill this gap by testing three institutional-level theories that may shape women's access to and tenure in top positions: the glass cliff, decision-maker diversity, and the saviour effect. To test these theories we rely on a dataset that includes all CEO transitions in Fortune 500 companies over a 20-year period. Contrary to the predictions of the glass cliff, we find that diversity among decision makers — not firm performance — significantly increases women's likelihood of being promoted to top leadership positions. We also find, contrary to the predictions of the saviour effect, that diversity among decision makers increases women leaders' tenure as CEOs regardless of firm performance. By identifying contextual factors that increase women's mobility, the paper makes an important contribution to the processes that shape and reproduce gender inequality in work organizations.
2014 Social
  • The Impact of Corporate Sustainability on Organizational Processes and Performance
  • Author: Eccles, Robert G., Ioannis Ioannou, and George Serafeim
  • Journal: Management Science
  • We investigate the effect of corporate sustainability on organizational processes and performance. Using a matched sample of 180 U.S. companies, we find that corporations that voluntarily adopted sustainability policies by 1993 — termed as high sustainability companies — exhibit by 2009 distinct organizational processes compared to a matched sample of companies that adopted almost none of these policies — termed as low sustainability companies. The boards of directors of high sustainability companies are more likely to be formally responsible for sustainability, and top executive compensation incentives are more likely to be a function of sustainability metrics. High sustainability companies are more likely to have established processes for stakeholder engagement, to be more long-term oriented, and to exhibit higher measurement and disclosure of nonfinancial information. Finally, high sustainability companies significantly outperform their counterparts over the long term, both in terms of stock market and accounting performance.
2014 Governance
  • The Unintended Effect of Corporate Social Responsibility Performance on Investors' Estimates of Fundamental Value
  • Author: Elliot, W. Brooke, Kevin E. Jackson, Mark E. Peecher, and Brian J. White
  • Journal: The Accounting Review
  • We provide theory and experimental evidence consistent with an unintended, causal relation between Corporate Social Responsibility (CSR) performance and investors' estimates of fundamental value that can be attenuated by investors' explicit assessment of CSR performance. Consistent with "affect-as-information" theory from psychology, we find that investors who are exposed to, but do not explicitly assess, CSR performance derive higher fundamental value estimates in response to positive CSR performance, and lower fundamental value estimates in response to negative CSR performance. Explicit assessment of CSR performance, however, significantly diminishes this effect, indicating that the effect among investors who do not explicitly assess CSR performance is unintended; i.e., they unintentionally use their affective reactions to CSR performance in estimating fundamental value. Supplemental findings shed light on consequences of these fundamental value estimates: investors who do not explicitly assess CSR performance rely on their unintentionally influenced estimates of fundamental value to increase the price they are willing to pay to invest in the stock of a firm with positive CSR performance. Overall, our theory and findings contribute to the CSR and affect literatures in accounting by revealing the contingent nature of how and to what extent CSR performance influences investors' beliefs about firm value and the bids these investors are likely to make in equity markets.
2014 Governance
  • Shareholder Activism: A Multidisciplinary Review
  • Author: Goranova, Maria, and Lori Verstegen Ryan
  • Journal: Journal of Management
  • Shareholder activism has become a dynamic institutional force, and its associated, rapidly increasing body of scholarly literature affects numerous disciplines within the organization science academy. In addition to equivocal results concerning the impact of shareholder activism on corporate outcomes, the separation of prior research into financial and social activism has left unanswered questions critical for both the scholarly discourse on shareholder activism and the normative debate on shareholder empowerment. The heterogeneity of factors in shareholder activism, such as the firm, activist, and environmental characteristics that promote or inhibit activism, along with the breadth of activism's issues, methods, and processes, provide a plethora of theoretical and methodological opportunities and challenges for activism researchers. Our multidisciplinary review incorporates the financial and social activism streams and explores shareholder activism heterogeneity and controversy, seeking to provide an impetus for more cohesive conceptual and empirical work in the field.
2014 Governance
  • Political Environment and Voluntary Disclosure: Evidence from the Carbon Disclosure Project
  • Author: Hoover, Scott, and Stephan Fafatas
  • Journal: Working paper
  • This study investigates whether the political leaning of the state where a given firm is headquartered is related to that firm's decision to voluntarily disclose information about the firm's carbon emissions. Our study includes a sample of U.S. firms (the S&P 500) surveyed by the Carbon Disclosure Project (CDP) in an effort to compile data on corporate efforts to reduce carbon emissions. We find that a state's political leaning is strongly related to the disclosure decision, with firms headquartered in more Democratic (Republican) states being more (less) likely to disclose carbon emissions information to the CDP. Furthermore, firms in more Democratic (Republican) states are more (less) likely to permit public disclosure of their survey responses and tend to receive higher (lower) disclosure scores from the CDP. These results hold after controlling for variables such as size, leverage, industry, stock price volatility and the number of geographic segments operated by the firm. Our results are consistent with the hypothesis that political power and public political sentiment have a significant impact on the firm's willingness to voluntarily disclose information about carbon emissions.
2014 Environmental
  • From the Editors: Climate Change and Management
  • Author: Howard-Grenville, Jennifer, Simon J. Buckle, Brian J. Hoskins, and Gerard George
  • Journal: Academy of Management Journal
  • This editorial is part of a series written by editors and co-authored with a senior executive, thought leader, or scholar from a different field. Climate change is one of the greatest challenges we confront in the 21st century. On current trends, by the end of the cnetury the warming effect of our greenhouse gas emissions will have taken us far away from pre-industrial climatic conditions. In other words, just over 200 years of human and industrial activity will have wrought fundamental change to our climate system. The rise of organizations and industrialized production has set us on this path, yet organizations are equally critical to mitigating and adapting to climate change. Understanding the science and policy of climate change, and the ways in which the associated issues are shaped by and shape the subjects of our attention, is therefore of great importance to management scholars.
2014 Environmental
  • Broad-Based Employee Stock Ownership: Motives and Outcomes
  • Author: Kim, E. Han, and Paige Ouimet
  • Journal: Journal of Finance
  • Firms initiating broad-based employee share ownership plans often claim employee stock ownership plans (ESOPs) increase productivity by improving employee incentives. Do they? Small ESOPs comprising less than 5 percent of shares, granted by firms with moderate employee size, increase the economic pie, benefiting both employees and shareholders. The effects are weaker when there are too many employees to mitigate free-riding. Although some large ESOPs increase productivity and employee compensation, the average impacts are small because they are often implemented for nonincentive purposes such as conserving cash by substituting wages with employee shares or forming a worker-management alliance to thwart takeover bids.
2014 Governance
  • Birds of a Feather: Value Implications of Political Alignment between Top Management and Directors
  • Author: Lee, Jongsub, Kwang J. Lee, and Nandu J. Nagarajan
  • Journal: Journal of Financial Economics
  • For 2,695 US corporations from 1996 to 2009, we find that alignment in political orientation between the chief executive officer (CEO) and independent directors is associated with lower firm valuations, lower operating profitability, and increased internal agency conflicts such as a reduced likelihood of dismissing poorly performing CEOs, a lower CEO pay-performance sensitivity, and a greater likelihood of accounting fraud. Importantly, we show that our results are driven neither by the effects associated with various measures of similarity and diversity within the board nor the effects of local director labor market and political conditions on board structure. We provide evidence that our measure of individual political orientation reflects the person's political beliefs rather than opportunistic attempts to seek political favor. Overall, our results suggest that diversity in political beliefs among corporate board members is valuable.
2014 Governance
  • Substitutes or Complements? A Configurational Examination of Corporate Governance Mechanisms
  • Author: Misangyi, Vilmos F., and Abhijith G. Acharya
  • Journal: Academy of Management Journal
  • We conduct an exploratory qualitative comparative case analysis of the S&P 1500 firms with the aim of elaborating theory on how corporate governance mechanisms work together effectively. To do so, we integrate extant theory and research to specify the bundle of mechanisms that operate to mitigate the agency problem among publicly traded corporations and review what previous research has said about how these mechanisms combine. We then use the fuzzy-set approach to qualitative comparitive analysis (QCA) to explore the combinations of governance mechanisms that exist among the S&P 1500 firms that achieve high (and not-high) profitability. Our findings suggest that high profits result when CEO incentive alignment and monitoring mechanisms work together as complements rather than as substitutes. Furthermore, they show that high profits are obtained when both internal and external monitoring mechanisms are present. At the same time, however, monitoring mechanisms evidently combine in complex ways such that there may be simultaneity of substitution and complementarity among and across the various monitoring and control mechanisms. Our findings clearly suggest that the effectiveness of board independence and CEO non-duality — governance mechanisms widely believed to singularly resolve the agency problem — depends on how each combine with the other mechanisms in the governance bundle.
2014 Governance
  • Climate impacts on Economic Growth As Drivers of Uncertainty in the Social Cost of Carbon
  • Author: Moyer, Elisabeth J., Mark D. Woolley, Michael Glotter, and David A. Weisbach
  • Journal: Journal of Legal Studies
  • One of the central ways that the costs of global warming are incorporated into U.S. law is in cost-benefit analysis of federal regulations. In 2010, to standardize analyses, an Interagency Working Group (IAWG) established a central estimate of the social cost of carbon (SCC) of $21/tCO2 drawn from three commonly-used models of climate change and the global economy. These models produced a relatively narrow distribution of SCC values, consistent with previous studies. We use one of the IAWG models, DICE, to explore which assumptions produce this apparent robustness. SCC values are constrained by a shared feature of model behavior: though climate damages become large as a fraction of economic output, they do not significantly alter economic trajectories. This persistent growth is inconsistent with the widely held belief that climate change may have strongly detrimental effects to human society. The discrepancy suggests that the models may not capture the full range of possible consequences of climate change. We examine one possibility untested by any previous study, that climate change may directly affect productivity, and find that even a modest impact of this type increases SCC estimates by many orders of magnitude. Our results imply that the SCC is far more uncertain than shown in previous modeling exercises and highly sensitive to assumptions. Understanding the societal impact of climate change requires understanding not only the magnitude of losses at any given time but also how those losses may affect future economic growth.
2014 Environmental
  • Females and Precarious Board Positions: Further Evidence of the Glass Cliff
  • Author: Mulcahy, Mark, and Carol Linehan
  • Journal: British Journal of Management
  • The 'glass cliff' posits that when women achieve high profile roles, these are at firms in precarious positions. Previous research analysed appointments (male/female), estimated the precariousness of firms involved and drew inferences about the glass cliff. This study is different as it directly tests the relationship between a precarious situation and changes in board gender diversity. The sample is companies listed on the UK stock exchange reporting an initial loss in the years 2004-2006. A matched control sample is used in a difference-in-differences analysis to avoid inadvertently attributing improvements arising from societal/regulatory changes in gender diversity to the loss event. Findings suggest that when the loss is 'big' there is a difference in the increase in gender diversity versus both the control and the 'small' loss subsamples, i.e. compelling evidence of the glass cliff. In the context of ongoing political and social debates about women on boards our work (i) identifies continuing structural barriers for women ascending to board level in that women are more likely to be over-represented on boards of companies that are more precarious and (ii) sounds a note of caution about celebrating increased gender diversity on boards without considering the precariousness of the company involved.
2014 Social
  • Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches
  • Author: Nordhaus, William D.
  • Journal: Journal of the Association of Environmental and Resource Economists
  • The social cost of carbon (SCC) is an important concept for understanding and implementing climate change policies. This term represents the economic cost caused by an additional ton of carbon dioxide emissions (or more succinctly carbon) or its equivalent. The present study describes the development of the concept, provides examples of its use in current US regulator policies, examines its analytical background, and estimates the SCC using an updated integrated assessment model, the DICE-2013R model. The study estimates that the SCC is $18.6 per ton of CO2 in 2005 US dollars and international prices for the current period (2015). For the central case, the real SCC grows at 3 percent per year over the period to 2050. The major open issues concerning the SCC continue to be the appropriate discount rate, the potential for catastrophic damages, the impact of incomplete harmonization of abatement policies, and the effects of distortionary taxes.
2014 Environmental
  • Diversity on Corporate Boards: How Much Difference Does Difference Make
  • Author: Rhode, Deborah, and Amanda K. Packel
  • Journal: Delaware Journal of Corporate Law
  • In recent years, increasing attention has focused on the influence of gender and racial diversity on boards of directors. Sixteen countries now require quotas to increase women's representation on boards, and many more have voluntary quotas in corporate governance codes. In the United States, support for diversity has grown in principle, but progress has lagged in practice, and controversy has centered on whether and why diversity matters. The stakes in this debate are substantial. Corporate boards affect the lives of millions of employees and consumers, and the policies and practices of the global marketplace. As recent scandals demonstrate, failures in board governance can carry an enormous cost; Enron is a notorious example. Who gains access to these boards is therefore an issue of broad social importance. This article argues that increasing diversity should be a social priority, but not for the reasons often assumed. Part II begins the discussion by reviewing the underrepresentation of women and minorities on corporate boards. Part III provides a comprehensive review of the research on board diversity, financial performance, and good governance and concludes that the "business case for diversity" is less compelling than other reasons rooted in social justice, equal opportunity, and corporate reputation. Part IV turns to the barriers to achieving greater diversity, and Part V explores strategies that could address them.
2014 Social
  • Explaining Pay Disparities between Top Executives and Nonexecutive Employees: A Relative Bargaining Power Approach
  • Author: Shin, Taekjin
  • Journal: Social Forces
  • The widening pay gap between corporate executives and rank-and-file workers has attracted much attention in the United States, but the sources of the pay gap have not been systematically examined. In this paper, I use a relative bargaining power approach to explore the sources of pay disparity between executives and nonexecutive employees in the United States. I argue that the bargaining power of labor affects executive compensation, nonexecutive compensation, and the executive-worker pay gap and that this effect is moderated by the characteristics of the chief executive officers (CEOs) who implement organizational policies. An analysis of 185 US firms provides evidence that labor's bargaining power reduces the pay gap between executives and nonexecutive employees. This effect is mainly through the unions' impact on executive compensation. The results also suggest that labor's effect of narrowing the gap becomes weaker when the CEO has a finance background or when the CEO was recruited from outside the company rather than being promoted from within. These findings shed new light on our understanding of the linkage between firm-level dynamics and the rise in income inequality.
2014 Social
  • Debtholder Responses to Shareholder Activism: Evidence from Hedge Fund Interventions
  • Author: Sunder, Jayanthi, Shyam V. Sunder, and Wan Wongsunwai
  • Journal: Review of Financial Studies
  • We investigate the effect of shareholder activism on debtholders by examining a sample of bank loans for firms targeted by activist hedge funds. We compare loan spreads before and after intervention and show the effects of heterogeneous shareholder actions. Spreads increase when shareholder activism relies on the market for corporate control or financial restructuring. In contrast, spreads decrease when activists address managerial entrenchment. Furthermore, the effects are more pronounced when pre- existing governance mechanisms are weak. Our findings suggest that shareholder activism does not necessarily exacerbate bondholder-shareholder conflicts of interest and highlight the role of activism in aligning investors.
2014 Governance
  • Fat Tails and the Social Cost of Carbon
  • Author: Weitzman, Martin L.
  • Journal: American Economic Review
  • At high enough greenhouse gas concentrations, climate change might conceivably cause catastrophic damages with small but non-negligible probabilities. If the bad tail of climate damages is sufficiently fat, and if the coefficient of relative risk aversion is greater than one, the catastrophe-reducing insurance aspect of mitigation investments could in theory have a strong influence on raising the social cost of carbon. In this paper I exposit the influence of fat tails on climate change economics in a simple stark formulation focused on the social cost of carbon. I then attempt to place the basic underlying issues within a balanced perspective.
2014 Environmental, Social
  • Does Income Inequality Harm the Environment? Empirical Evidence from the United States
  • Author: Baek, Jungho, and Guankerwon Gweisah
  • Journal: Energy Policy
  • This study revisits the growth-inequality-environment nexus in the context of country-specific time series data. The short- and long-run effects of income inequality, economic growth and energy consumption on CO2 emissions in the U.S. are examined using the autoregressive distributed lag (ARDL) approach. We find that more equitable distribution of income in the U.S. results in better environmental quality in the short- and long-run. It is also found that, in both the short- and long-run, economic growth has a beneficial effect on environmental quality, whereas energy consumption has a detrimental effect on the environment.
2013 Social
  • Cost of Capital and Earnings Transparency
  • Author: Barth, Mary E., Yaniv Konchitchki, and Wayne R. Landsman
  • Journal: Journal of Accounting and Economics
  • We provide evidence that firms with more transparent earnings enjoy a lower cost of capital. We base our earnings transparency measure on the extent to which earnings and change in earnings covary contemporaneously with returns. We find a significant negative relation between our transparency measure and subsequent excess and portfolio mean returns, and expected cost of capital, even after controlling for previously documented determinants of cost of capital.
2013 Governance
  • Do Gay-Friendly Corporate Policies Enhance Firm Performance?
  • Author: Blazovich, Janell L., Kirsten A. Cook, Janet M. Huston, and William R. Strawser
  • Journal: Working paper
  • Prior research provides evidence that gay-friendly corporate policies (e.g., inclusion in antidiscrimination provisions, extension of benefits to same-sex domestic partners, etc.) improve employee recruitment and retention, make gay employees feel more welcome and accepted in the workplace, and enhance consumer perception. In addition, investors view the adoption of such policies positively. In this study, we examine the firm-performance mechanisms underlying this favorable stock-market reaction. Specifically, we find that (1) the presence of gay-friendly policies is associated with higher firm value and productivity, (2) firms implementing (discontinuing) these policies experience increases (decreases) in firm value, productivity, and profitability, and (3) the firm-value and profitability benefits associated with gay-friendly policies are larger for companies with demand for highly skilled labor. These results are robust to various methods of addressing endogeneity.
2013 Social
  • Does Corporate Board Diversity Affect Corporate Payout Policy?
  • Author: Byoun, Soku, Kiyoung Chang, and Young sang Kim
  • Journal: Working paper
  • This paper investigates whether board diversity has a significant impact on corporate payout decisions. Previous studies exclusively focus on examining the relation between a measure of firm performance and board diversity. The major advantage of our study is to investigate the direct impact of board diversity on a major corporate decision — i.e., dividend payout policy. We find that firms with diverse boards are more likely to pay dividends and tend to pay larger dividends than those with non-diverse boards. After controlling for various firm characteristics and exploring alternative explanations for the positive association between board diversity and dividend payout policy, our results suggest that board diversity has a significant impact on dividend payout policy. The impact of board diversity on dividend payout policy is particularly conspicuous for firms with potentially greater agency problems of free cash flow, suggesting that diverse board helps mitigate the free cash flow problem. Our findings are consistent with the argument that board diversity enhances the monitoring function of directors for the benefit of shareholders. We also show that significantly larger portion of firms pay dividends after they added a diverse director to their boards and that firms pay significantly higher dividends after adding a diverse director for the first time. However, the change in dividend payout ratio is not significant when firms add another diverse director to their already diverse boards. Also, the benefits of board diversity are not materialized when directors share the same gender or ethnic tie with the CEO. Our findings have an important implication for policies aiming to increase the number of diverse directors in corporate boardrooms. What makes the significant difference is not the sheer number of diverse directors in the board but the diversity they bring to the board.
2013 Social
  • Political Ideologies of CEOs: The Influence of Executives' Values on Corporate Social Responsibility
  • Author: Chin, M. K., Donald C. Hambrick, and Linda K. Treviño
  • Journal: Administrative Science Quarterly
  • This article examines the influence on organizational outcomes of CEOs' political ideology, specifically political conservatism vs. liberalism. We propose that CEOs' political ideologies will influence their firms' corporate social responsibility (CSR) practices, hypothesizing that (1) liberal CEOs will emphasize CSR more than will conservative CEOs; (2) the association between a CEO's political ideology and CSR will be amplified by a CEO's relative power; and (3) liberal CEOs will emphasize CSR even when recent financial performance is low, whereas conservative CEOs will pursue CSR initiatives only as performance allows. We test our ideas with a sample of 249 CEOs, measuring their ideologies by coding their political donations over the ten years prior to their becoming CEOs. Results indicate that the political ideologies of CEOs are manifested in their firms' CSR profiles. Compared with conservative CEOs, liberal CEOs exhibit greater advances in CSR; the influence of CEOs' political liberalism on CSR is amplified when they have more power; and liberal CEOs' CSR initiatives are less contingent on recent performance than are those of conservative CEOs. In a corroborative exploration, we find that CEOs' political ideologies are significantly related to their corporate political action committee (PAC) allocations, indicating that this largely unexplored executive attribute might be more widely consequential.
2013 Governance
  • How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment
  • Author: Cohen, Alma, and Charles C. Y. Wang
  • Journal: Journal of Financial Economics
  • The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings — separated by several weeks and going in opposite directions — that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by presenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.
2013 Governance
  • Corporate Social Responsibility and Stakeholder Value Maximization: Evidence from Mergers
  • Author: Deng, Xin, Jun-Koo kang, and Buen Sin Low
  • Journal: Journal of Financial Economics
  • Using a large sample of mergers in the US, we examine whether corporate social responsibility (CSR) creates value for acquiring firms' shareholders. We find that compared with low CSR acquirers, high CSR acquirers realize higher merger announcement returns, higher announcement returns on the value-weighted portfolio of the acquirer and the target, and larger increases in post-merger long-term operating performance. They also realize positive long-term stock returns, suggesting that the market does not fully value the benefits of CSR immediately. In addition, we find that mergers by high CSR acquirers take less time to complete and are less likely to fail than mergers by low CSR acquirers. These results suggest that acquirers' social performance is an important determinant of merger performance and the probability of its completion, and they support the stakeholder value maximization view of stakeholder theory.
2013 Environmental, Social, Governance
  • A Tale of Two Stories: Sustainability and the Quarterly Earnings Call
  • Author: Eccles, Robert G., and George Serafeim
  • Journal: Journal of Applied Corporate Finance
  • One of the challenges companies claim to face in making sustainability a core part of their strategy and operations is that the market does not care about sustainability, either in general or because the time frames in which it matters are too long. The response of investors who say they care about sustainability — and their numbers are large and growing — is that companies do a poor job in providing them with the information they need to take sustainability into account in their investment decisions. Whatever the merits of each view, the fact remains that an effective conversation about sustainability requires the participation of both sides of the market. There are two main mechanisms for companies to communicate to the market as a way of starting this conversation: mandated reporting and quarterly conference calls. In this paper, the authors argue that neither companies nor investors can be seen as taking sustainability seriously unless it is integrated into the quarterly earnings call. Until that happens, the core business and sustainability are two separate worlds, each of which has its own narrator telling a different story to a different audience. The authors illustrate their argument using the case of SAP, the German software company. SAP was the first company to host an "ESG Investor Briefing," a conference call for analysts and investors held on July 30, 2013 in which the company discussed both its sustainability performance and its contribution to the firm's financial performance. The narrative of this call was very similar to the narrative of the company's first "integrated report," which was issued in 2012 and presented the company's sustainability initiatives in the context of its operating and financial performance. Nevertheless, the content and main focus of the "ESG Briefing" were very different from that of most quarterly earnings conferences, and so were the audiences. Whereas the quarterly call was attended mainly by sell side analysts — and the words "sustainability" or "sustainable" failed to receive a single mention — the ESG briefing was delivered to an investor audience made up almost entirely of the "buy side."
2013 Environmental, Social, Governance
  • Are U.S. CEOs Paid More? New International Evidence
  • Author: Fernandes, Nuno, Miguel A. Ferreira, Pedro matos, and Kevin J. Murphy
  • Journal: Review of Financial Studies
  • This paper challenges the widely accepted stylized fact that chief executive officers (CEOs) in the United States are paid significantly more than their foreign counterparts. Using CEO pay data across fourteen countries with mandated pay disclosures, we show that the U.S. pay premium is economically modest and primarily reflects the performance-based pay demanded by institutional shareholders and independent boards. Indeed, we find no significant difference in either level of CEO pay or the use of equity-based pay between U.S. and non-U.S. firms exposed to international and U.S. capital, product, and labor markets. We also show that U.S. and non-U.S. CEO pay has largely converged in the 2000s.
2013 Governance
  • Corporate Social Responsibility and Shareholder Reaction: The Environmental Awareness of Investors
  • Author: Flammer, Caroline
  • Journal: Academy of Management Journal
  • This study examines whether shareholders are sensitive to corporations' environmental footprint. Specifically, I conduct an event study around the announcement of corporate news related to environment for all US publicly traded companies from 1980 to 2009. In keeping with the view that environmental corporate social responsibility (CSR) generates new and competitive resources for firms, I find that companies reported to behave responsibly toward the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant decrease. Extending this view of "environment-as-a-resource," I posit that the value of environmental CSR depends on external and internal moderators. First, I argue that external pressure to behave responsibly towards the environment — which has increased dramatically over recent decades — exacerbates the punishment for eco-harmful behavior and reduces the reward for eco-friendly initiatives. This argument is supported by the data: over time, the negative stock market reaction to eco-harmful behavior has increased, while the positive reaction to eco-friendly initiatives has decreased. Second, I argue that environmental CSR is a resource with decreasing marginal returns and insurance-like features. In keeping with this view, I find that the positive (negative) stock market reaction to eco-friendly (-harmful) events is smaller for companies with higher levels of environmental CSR.
2013 Environmental
  • Sustainable investing: Establishing Long-Term Value and Performance
  • Author: Fulton, Mark, Bruce m. Kahn, and Camilla Sharples
  • Journal: Working paper
  • The evidence is compelling: Sustainable Investing can be a clear win for investors and for companies. However, many SRI fund managers, who have tended to use exclusionary screens, have historically struggled to capture this. We believe that ESG analysis should be built into the investment processes of every serious investor, and into the corporate strategy of every company that cares about shareholder value. ESG best-in-class focused funds should be able to capture superior risk-adjusted returns if well executed. This is the key finding of our report in which we looked at more than 100 academic studies of sustainable investing around the world, and then closely examined and categorized 56 research papers, as well as 2 literature reviews and 4 meta studies — we believe this is one of the most comprehensive reviews of the literature ever undertaken. Frequently, Sustainable Investing is stated to yield "mixed results." However, by breaking down our analysis into different categories (SRI, CSR, and ESG) we have identified exactly where in the sprawling, diverse universe of so-called Sustainable Investment, value has been found. By applying what we believe to be a unique methodology, we show that "Corporate Social Responsibility" (CSR) and most importantly, "Environmental, Social and Governance" (ESG) factors are correlated with superior risk-adjusted returns at a securities level. In conducting this analysis, it became evident that CSR has essentially evolved into ESG. At the same time, we are able to show that studies of fund performance — hich have been classified "Socially Responsible Investing" (SRI) in the academic literature and have tended to rely on exclusionary screens — show SRI adds little upside, although it does not underperform either. Exclusion, in many senses, is essentially a values-based or ethical consideration for investors. We were surprised by the clarity of the results we uncovered: 100 percent of the academic studies agree that companies with high ratings for CSR and ESG factors have a lower cost of capital in terms of debt (loans and bonds) and equity. In effect, the market recognizes that these companies are lower risk than other companies and rewards them accordingly. This finding alone should put the issue of Sustainability squarely into the office of the Chief Financial Officer, if not the board, of every company. 89 percent of the studies we examined show that companies with high ratings for ESG factors exhibit market-based outperformance, while 85 percent of the studies show these types of company's exhibit accounting-based outperformance. Here again, the market is showing correlation between financial performance of companies and what it perceives as advantageous ESG strategies, at least over the medium (3-5 years) to long term (5-10 years). The single most important of these factors, and the most looked at by academics to date, is Governance (G), with 20 studies focusing in on this component of ESG (relative to 10 studies focusing on E and 8 studies on S). In other words, any company that thinks it does not need to bother with improving its systems of corporate governance is, in effect, thumbing its nose at the market and hurting its own performance all at the same time. In the hierarchy of factors that count with investors and the markets in general, Environment is the next most important, followed closely by Social factors. Most importantly, when we turn to fund returns, it is notable that these are all clustered into the SRI category. Here, 88 percent of studies of actual SRI fund returns show neutral or mixed results. Looking at the compositions of the fund universes included in the academic studies we see a lot of exclusionary screens being used. However, that is not to say that SRI funds have generally underperformed. In other words, we have found that SRI fund managers have struggled to capture outperformance in the broad SRI category but they have, at least, not lost money in the attempt.
2013 Environmental, Social, Governance
  • Local Overweighting and Underperformance: Evidence from Limited Partner Private Equity Investments
  • Author: Hochberg, Yael V., and Joshua D. Rauh
  • Journal: Review of Financial Studies
  • Institutional investors exhibit substantial home-state bias in private equity. This effect is particularly pronounced for public pension funds, where overweighting amounts to 9.8 percent of aggregate private-equity investments and 16.5 percent for the average limited partner. Public pension funds' in-state investments achieve performance that is lower by two to four percentage points than both their own similar out-of- state investments and similar investments in their state by out-of-state investors. Overweighting in home- state investments by public pension funds is greater in venture capital and real estate than in buyout funds. States with political climates characterized by more self-dealing invest a larger share of their portfolio in local investments, although a given local investment performs only as poorly in these states as in other states. Relative to the performance of the rest of the private equity universe, overweighting and underperformance in local investments reduce public pension fund resources by $1.2 billion per year.
2013 Governance
  • The Supply of Corporate Directors and Board Independence
  • Author: Knyazeva, Anzhela, Diana Knyazeva, and Ronald W. Masulis
  • Journal: Review of Financial Studies
  • Empirical evidence on the relations between board independence and board decisions and firm performance is generally confounded by serious endogeneity issues. We circumvent these endogeneity problems by demonstrating the strong impact of the local director labor market on board composition. Specifically, we show that proximity to larger pools of local director talent leads to more independent boards for all but the largest quartile of S&P 1500. Using local director pools as an instrument for board independence, we document that board independence has a positive effect on firm value, operating performance, fraction of CEO incentive-based pay, and CEO turnover.
2013 Governance
  • Can Strong Boards and Trading Their Own Firm's Stock Help CEOs Make Better Decisions? Evidence from Acquisitions by Overconfident CEOs
  • Author: Kolasinski, Adam C., and Xu Li
  • Journal: Journal of Financial and Quantitative Analysis
  • Little evidence exists on whether boards help managers make better decisions. We provide evidence that strong and independent boards help overconfident chief executive officers (CEOs) avoid honest mistakes when they seek to acquire other companies. In addition, we find that once-overconfident CEOs make better acquisition decisions after they experience personal stock trading losses, providing evidence that a manager's recent personal experience, and not just educational and early career experience, influences firm investment policy. Finally, we develop and validate a new CEO overconfidence measure that is easily constructed from machine-readable insider trading data, unlike previously used measures.
2013 Governance
  • Boardroom Centrality and Firm Performance
  • Author: Larcker, David F., Eric C. So, and Charles C. Y. Wang
  • Journal: Journal of Accounting and Economics
  • Firms with central boards of directors earn superior risk-adjusted stock returns. A long (short) position in the most (least) central firms earns average annual returns of 4.68 percent. Firms with central boards also experience higher future return-on-assets growth and more positive analyst forecast errors. Return prediction, return-on-assets growth, and analyst errors are concentrated among high growth opportunity firms or firms confronting adverse circumstances, consistent with boardroom connections mattering most for firms standing to benefit most from information and resources exchanged through boardroom networks. Overall, our results suggest that director networks provide economic benefits that are not immediately reflected in stock prices.
2013 Governance
  • Financialization and U.S. Income Inequality, 1970-2008
  • Author: Lin, Ken-Hou, and Donald Tomaskovic-Devey
  • Journal: American Journal of Sociology
  • Focusing on U.S. nonfinance industries, we examine the connection between financialization and rising income inequality. We argue that the increasing reliance on earnings realized through financial channels decoupled the generation of surplus from production, strengthening owners' and elite workers' negotiating power relative to other workers. The result was an incremental exclusion of the general workforce from revenue-generating and compensation-setting processes. Using time-series cross-section data at the industry level, we find that increasing dependence on financial income, in the long run, is associated with reducing labor's share of income, increasing top executives' share of compensation, and increasing earnings dispersion among workers. Net of conventional explanations such as deunionization, globalization, technological change, and capital investment, the effects of financialization on all three dimensions of income inequality are substantial. Our counterfactual analysis suggests that financialization could account for more than half of the decline in labor's share of income, 9.6 percent of the growth in officers' share of compensation, and 10.2 percent of the growth in earnings dispersion between 1970 and 2008.
2013 Social
  • Executive Networks and Firm Policies: Evidence from the Random Assignment of MBA Peers
  • Author: Shue, Kelly
  • Journal: Review of Financial Studies
  • Using the historical random assignment of MBA students to sections at Harvard Business School (HBS), I explore how executive peer networks can affect managerial decision making. Within an HBS class, firm outcomes are significantly more similar among graduates from the same section than among graduates from different sections, with the strongest effects in executive compensation and acquisitions strategy. I demonstrate the role of ongoing social interactions by showing that peer effects are more than twice as strong in the year following staggered alumni reunions. Supplementary tests suggest that peer influence can operate in ways that do not contribute to firm productivity.
2013 Governance
  • Stakeholder Pressure on MNEs and the Transfer of Socially Irresponsible Practices to Subsidiaries
  • Author: Surroca, Jordi, Josep A. Tribo, and Shaker A. Zahra
  • Journal: Academy of Management Journal
  • In this study, we explain how multinational enterprises (MNEs) respond to pressure to conform to their stakeholders' expectations for greater attention to corporate social responsibility (CSR). We invoke institutional theory to propose that mounting stakeholder pressure in an MNE's home country leads to the transfer of socially irresponsible practices from its headquarters to its overseas subsidiaries. This transfer is more pronounced when a subsidiary is apparently unconnected to an MNE, yet is controlled by an MNE's headquarters through the appointment of the subsidiary's board members; the institutional environment of the MNE's home country enforces compliance; and the degree of institutional enforcement, vigilance, and sanctions for noncompliance in the subsidiary's host country is low. Our hypotheses are empirically supported using panel data on 269 subsidiaries in 27 countries belonging to 110 MNEs from 22 countries. Results are robust to alternative measures, explanations, and sample.
2013 Governance
  • Tail-Hedge Discounting and the Social Cost of Carbon
  • Author: Weitzman, Martin L.
  • Journal: Journal of Economic Literature
  • The choice of an overall discount rate for climate change investments depends critically on how different components of investment payoffs are discounted at differing rates reflecting their underlying risk characteristics. Such underlying rates can vary enormously, from ≈1 percent for idiosyncratic diversifiable risk to ≈7 percent for systematic nondiversifiable risk. Which risk-adjusted rate is chosen can have a huge impact on cost-benefit analysis. In this expository paper, I attempt to set forth in accessible language with a simple linear model what I think are some of the basic issues involved in discounting climate risks. The paper introduces a new concept that may be relevant for climate-change discounting: the degree to which an investment hedges against the bad tail of catastrophic damages by insuring positive expected payoffs even under the worst circumstances. The prototype application is calculating the social cost of carbon.
2013 Environmental
  • Climate Risks and Carbon Prices: Revising the Social Cost of Carbon
  • Author: Ackerman, Frank, and Elizabeth Stanton
  • Journal: Economics
  • The social cost of carbon — or marginal damage caused by an additional ton of carbon dioxide emissions — has been estimated by a U.S. government working group at $21/tCO2 in 2010. That calculation, however, omits many of the biggest risks associated with climate change, and downplays the impact of current emissions on future generations. Our reanalysis explores the effects of uncertainty about climate sensitivity, the shape of the damage function, and the discount rate. We show that the social cost of carbon is uncertain across a broad range, and could be much higher than $21/tCO2. In our case combining high climate sensitivity, high damages, and a low discount rate, the social cost of carbon could be almost $900/tCO2 in 2010, rising to $1,500/tCO2 in 2050. The most ambitious scenarios for eliminating carbon dioxide emissions as rapidly as technologically feasible (reaching zero or negative net global emissions by the end of this century) require spending up to $150 to $500 per ton of reductions of carbon dioxide emissions by 2050. Using a reasonable set of alternative assumptions, therefore, the damages from a ton of carbon dioxide emissions in 2050 could exceed the cost of reducing emissions at the maximum technically feasible rate. Once this is the case, the exact value of the social cost of carbon loses importance: the clear policy prescription is to reduce emissions as rapidly as possible, and cost-effectiveness analysis offers better insights for climate policy than cost-benefit analysis.
2012 Environmental
  • The Effect of Hedge Fund Activism on Corporate Tax Avoidance
  • Author: Cheng, C. S. Agnes, Henry He Huang, Yinghua Li, and Jason
  • Journal: The Accounting Review
  • This paper examines the impact of hedge fund activism on corporate tax avoidance. We find that relative to matched control firms, businesses targeted by hedge fund activists exhibit lower tax avoidance levels prior to hedge fund intervention, but experience increases in tax avoidance after the intervention. Moreover, findings suggest that the increase in tax avoidance is greater when activists have a successful track record of implementing tax changes and possess tax interest or knowledge as indicated by their Securities and Exchange Commission (SEC) 13D filings. We also find that these greater tax savings do not appear to result from an increased use of high-risk and potentially illegal tax strategies, such as sheltering. Taken together, the results suggest that shareholder monitoring of firms, in the form of hedge fund activism, improves tax efficiency.
2012 Governance
  • Pricing the Planet's Future: The Economics of Discounting in an Uncertain World
  • Author: Gollier, Christian
  • Journal: Book
  • Our path of economic development has generated a growing list of environmental problems including the disposal of nuclear waste, exhaustion of natural resources, loss of biodiversity, climate change, and polluted land, air, and water. All these environmental problems raise the crucial challenge of determining what we should and should not do for future generations. It is also central to other policy debates, including, for example, the appropriate level of public debt, investment in public infrastructure, investment in education, and the level of funding for pension benefits and for research and development. Today, the judge, the citizen, the politician, and the entrepreneur are concerned with the sustainability of our development. The objective of Pricing the Planet's Future is to provide a simple framework to organize the debate on what we should do for the future. A key element of analysis by economists is the discount rate — the minimum rate of return required from an investment project to make it desirable to implement. Christian Gollier outlines the basic theory of the discount rate and the various arguments that favor using a smaller discount rate for more distant cash flows.
2012 Environmental
  • Inequality and Growth: Evidence from Panel Cointegration
  • Author: Herzer, Dierk, and Sebastian Vollmer
  • Journal: Journal of Economic Inequality
  • This paper uses heterogeneous panel cointegration techniques to estimate the long-run effect of income inequality on per-capita income for 46 countries over the period 1970–1995. We find that inequality has a negative long-run effect on income, both for the sample as a whole and for important sub-groups within the sample (developed countries, developing countries, democracies, and non-democracies). The effect is economically important, with a magnitude about half as high as the magnitude of an increase in the investment share.
2012 Social
  • Social movements, Risk Perceptions, and Economic Outcomes: The Effect of Primary and Secondary Stakeholder Activism on Firms' Perceived Environmental Risk and Financial Performance
  • Author: Vasi, Ion Bogdan, and Brayden G. King
  • Journal: American Sociological Review
  • Although risk assessments are critical inputs to economic and organizational decision-making, we lack a good understanding of the social and political causes of shifts in risk perceptions and the consequences of those changes. This article uses social movement theory to explain the effect of environmental activism on corporations' perceived environmental risk and actual financial performance. We define environmental risk as audiences' perceptions that a firm's practices or policies will lead to greater potential for an environmental failure or crisis that would expose it to financial decline. Using data on environmental activism targeting U.S. firms between 2004 and 2008, we examine variation in the effectiveness of secondary and primary stakeholder activism in shaping perceptions about environmental risk. Our empirical analysis demonstrates that primary stakeholder activism against a firm affects its perceived environmental risk, which subsequently has a negative effect on the firm's financial performance.
2012 Governance
  • Corporate Governance and Hedge Fund Activism
  • Author: Boyson, Nicole M., and Robert Mooradian
  • Journal: Review of Derivatives Research
  • Recently, the mainstream media have paid considerable attention to hedge funds behaving as agents of corporate change. We study this phenomenon using a unique dataset of hedge fund activism for the period 1994–2005, and find evidence that hedge fund activists improve both short-term stock performance and long-term operating performance of their targets. The most dramatic changes in performance accrue to targets where activists seek corporate governance changes and reductions in excess cash. Additionally, hedge funds themselves benefit from activism: the risk-adjusted annual performance of hedge funds seeking changes in corporate governance is about 7–11 percent higher than for non-activist hedge funds and hedge funds pursuing less aggressive activism. These results imply that hedge funds can facilitate long-lasting changes in corporate governance, cash flows, and operating performance that benefit target firm shareholders and hedge fund investors alike.
2011 Governance
  • Shareholders' Say on Pay: Does it Create Value?
  • Author: Cai, Jie, and Ralph A. Walkling
  • Journal: Journal of Financial and Quantitative Analysis
  • Congress and activists recently proposed giving shareholders a say (vote) on executive pay. We find that when the House passed the Say-on-Pay Bill, the market reaction was significantly positive for firms with high abnormal chief executive officer (CEO) compensation, with low pay-for-performance sensitivity, and responsive to shareholder pressure. However, activist-sponsored say-on-pay proposals target large firms, not those with excessive CEO pay, poor governance, or poor performance. The market reacts negatively to labor-sponsored proposal announcements and positively when these proposals are defeated. Our findings suggest that say-on-pay creates value for companies with inefficient compensation but can destroy value for others.
2011 Governance
  • Does it Really pay to be Green? Determinants and Consequences of Proactive Environmental Strategies
  • Author: Clarkson, Peter m., Yue Li, Gordon D. Richardson, and Florin P. Vasvari
  • Journal: Journal of Accounting and Public Policy
  • This study examines what factors affect firms' decisions to adopt a proactive environmental strategy and whether pursuing proactive environmental strategies leads to improved financial performance. Using longitudinal data from 1990 to 2003 for the four most polluting industries in the US (Pulp & Paper, Chemical, Oil & Gas, and Metals & Mining), this research empirically models the causal relations between firms' environmental performance and their financial resources and management capability. Our results show that positive (negative) changes in firms' financial resources in the prior periods are followed by significant improvements (declines) in firm's relative environmental performance in the subsequent periods. In addition, we also find that significant improvements (declines) in environmental performance in the prior periods can lead to improvements (declines) in financial performance in the subsequent periods after controlling for the impact of Granger causality. Finally, 3SLS analysis suggests that the positive association between environmental performance and financial performance is robust. Overall, our results are consistent with predictions of the resource-based view of the firm and indicate that although becoming "green" is associated with improvement in firm performance, such a strategy cannot be easily mimicked by all firms.
2011 Environmental
  • Unions, Norms, and the Rise in U.S. Wage Inequality
  • Author: Western, Bruce, and Jake Rosenfeld
  • Journal: American Sociological Review
  • From 1973 to 2007, private sector union membership in the United States declined from 34 to 8 percent for men and from 16 to 6 percent for women. During this period, inequality in hourly wages increased by over 40 percent. We report a decomposition, relating rising inequality to the union wage distribution's shrinking weight. We argue that unions helped institutionalize norms of equity, reducing the dispersion of nonunion wages in highly unionized regions and industries. Accounting for unions' effect on union and nonunion wages suggests that the decline of organized labor explains a fifth to a third of the growth in inequality — an effect comparable to the growing stratification of wages by education.
2011 Social
  • The Impact of Environmental Performance on Firm Performance: Static and Dynamic Panel Data Evidence
  • Author: Elsayed, Khaled, and David Paton
  • Journal: Economics of Corporate Social Responsibility
  • There is a long-standing debate on the impact of environmental performance on firm performance. Although previous studies have reported mixed results, many of these papers suffer from model misspecification and/or limited data. A conspicuous gap in the literature is the inability of authors to control for firm heterogeneity and dynamic effects. In this paper, we conduct static and dynamic panel data analysis of the impact of environmental performance on financial performance. Our evidence implies that environmental performance has a neutral impact on firm performance. This finding is consistent with theoretical work suggesting that firms invest in environmental initiatives until the point where the marginal cost of such investments equals the marginal benefit.
2005 Environmental
  • Corporate philanthropy, Employees and Misconduct
  • Author: Bereskin, Fred, Terry Campbell, and Simi Kedia
  • Journal: Working paper
  • This paper examines whether sustained philanthropic activities of firms are likely to engender a prosocial ethic and culture that affects misconduct. Philanthropic activities are a manifestation of a culture in which firm reputation is important and is likely to discourage wrongdoing that tarnishes reputation. Further, corporate charitable programs might help attract and retain employees, directors and executives with prosocial ethics who are less likely to tolerate misconduct. Consistent with this notion, we find that employees at philanthropic firms are significantly more likely to whistle blow upon discovery of misconduct. Moreover, directors at giving firms are more likely to fire a CEO after misconduct is revealed. Finally, our paper finds that the decision to engage in philanthropic activities and the amount of giving are negatively associated with subsequent corporate misconduct. The results persist after the Sarbanes-Oxley Act, are robust to differing approaches for defining misconduct and culture, and are robust to our controls for potential endogeneity. Our findings highlight the many channels through which corporate culture mitigates misconduct.
2016 Governance
  • Simultaneous Board and CEO Diversity: Does it Increase Firm Value?
  • Author: Borghesi, Richard, Kiyoung Chang, and Jamshid Mehran
  • Journal: Applied Economics Letters
  • There remain open questions regarding whether board of director ethnic and gender diversity increases or decreases firm value. Additionally, prior research has yet to examine the value effects of a diverse board in the presence of a gender/ethnic minority CEO. Using the KLD social ratings database, we examine 13,000 firm-years and provide robust evidence that board diversity increases firm value. However, we also show that any value added via board diversity is nullified when a diverse board operates in the presence of a female and/or minority CEO. Results suggest that a significant portion of the value in board diversity may come from gender/ethnic differences between the board members and the CEO. One implication of our study is that when hiring a CEO or electing directors relative gender/ethnic make-up is important.
2016 Social
  • Investing With Brain or Heart? A Field Experiment on Responsible Investment
  • Author: Døskeland, Trond, and Lars Jacob Tynes Pedersen
  • Journal: Management Science
  • Socially responsible investment is increasingly prevalent in financial markets and is characterized by the integration of financial and nonfinancial objectives. This paper investigates the influence of wealth concerns and moral concerns on individual investors' decisions to invest responsibly. We conduct a unique natural field experiment of investors in an online banking context, wherein we frame responsible investment with regard to either wealth or morality and study investors' subsequent behavior. We find that wealth framing is more effective than moral framing for both information search and investment behavior. Our study contributes to the literature by providing real-life insight into how prosocial decision making in financial markets can be promoted.
2016 Environmental, Social, Governance
  • Does Wage Rigidity make Firms Riskier? Evidence from Long-Horizon Return Predictability
  • Author: Favilukis, Jack, and Xiaoji Lin
  • Journal: Journal of Monetary Economics
  • The relationship between sticky wages and risk has important asset pricing implications. Like operating leverage, sticky wages are a source of risk for the firm. Firms, industries, regions, or times with especially high or rigid wages are especially risky. If wages are sticky, then wage growth should negatively forecast future stock returns because falling wages are associated with even bigger falls in output, and increases in operating leverage. Indeed, this is the case in aggregate, industry, and U.S. state level data. Furthermore, this relation is stronger in industries and U.S. states with higher wage rigidity.
2016 Social
  • The Risk of Knowledge Spillovers and Corporate Social Responsibility: Evidence from the Inevitable Disclosure Doctrine
  • Author: Flammer, Caroline, and Aleksandra Kacperczyk
  • Journal: Working paper
  • In this study, we theorize and empirically examine whether companies' social responsible practices can help retain employees with valuable skills and knowledge, and thereby mitigate the threat of knowledge spillovers. To obtain exogenous variation in the threat of knowledge spillovers, we exploit a natural experiment provided by the rejection of the inevitable disclosure doctrine (IDD) by several U.S. states between 1991 and 2013. Since the doctrine prevents employees with valuable know-how from working for a competitor in the immediate future, the doctrine's rejection facilitates knowledge appropriation by rivals. Using a difference-in-differences methodology, we find that companies react to the increased threat of knowledge spillovers by increasing their CSR-related activities. We further provide evidence that the increase in CSR is stronger for companies that are located closer to innovation hubs as well as companies operating in industries that are i) more R&D intensive, ii) more competitive, and iii) have more attractive investment opportunities. Overall, these results are consistent with the notion that CSR serves as a strategic tool to retain knowledge workers and mitigate the risk of knowledge spillovers.
2016 Environmental, Social, Governance
  • Gender Diversity and Firm Performance: Evidence from Dutch and Danish Boardrooms
  • Author: Marinova, Joana, Janneke Plantenga, and Chantal Remery
  • Journal: International Journal of Human Resource Management
  • Drawing on the business case for gender diversity, this article examines whether board gender diversity has a positive effect on firm performance, based on evidence from the Netherlands and Denmark. We use empirical data on 186 listed firms observed in 2007. Almost 40 percent have at least one woman in the boardroom. Within boards, the average share of women is only 5.4 percent. To investigate the impact of board gender diversity, two-stage least-squares estimation is applied, using Tobin's Q as a measure of performance. Our findings indicate that on the basis of this data-set, there is no relation between board diversity and firm performance.
2016 Social
  • Beyond the Business Case: The Need for Both Utility and Justice Rationales for Increasing the Share of Women on Boards
  • Author: Seierstad, Catherine
  • Journal: Corporate Governance: An International Review
  • In the context of the recent introduction of gender representation regulations (quotas) for boards in public limited companies (PLCs) in Norway, this article explores how gender quotas designed to increase the share of women in senior positions are rationalized and/or justified by those who benefit, and asks: what arguments do the beneficiaries of quotas tend to use when discussing their usefulness? Research Findings/Insights: Drawing on qualitative interview data from 19 female non-executive board members, the article illustrates how women draw on utility, mainly the "business case," and individual justice arguments both in support of quotas and to justify their use in helping women attain board positions. Further, it highlights how issues of merit and of gender are entangled with these arguments in often contradictory ways. In so doing, the article challenges and complicates some of the key critiques of gender quotas often found in the public and academic debates. Theoretical/Academic Implications: This article advances theory around the intersection of justice and utility arguments in relation to the use of quotas to increase diversity on boards. Moreover, this article provides empirical support by demonstrating how "the first wave" of women affected by quotas are legitimizing their role on boards in a context in which their role is in question. In addition, this article advances the literature regarding women on boards by demonstrating the need for a discourse about political strategies, such as quotas on boards, that goes beyond the narrow understanding of the business case that has until now dominated public, political, and academic debates. In particular, this article argues for the need to build on both utility and justice logic when making a case for increasing the share of women on boards. Practical Implications: With the current focus on how to increase diversity and the share of women on boards, this study highlights the importance of regulation as well as the importance of reframing the debate using utility and justice lines of arguments rationalized by merit arguments.
2016 Social
  • Hard Marriage With Heavy Burdens: Labor Unions As Takeover Deterrents
  • Author: Tian, Xuan, and Wenyu Wang
  • Journal: Working paper
  • We examine the effect of unionization on a firm's takeover exposure and merger gains. To establish causality, we use a regression discontinuity design that relies on "locally" exogenous variation generated by union elections that pass or fail by a small margin of votes. Barely passing a union election leads to a significant reduction in a firm's probability of receiving a takeover bid. A barely unionized target also enjoys a lower announcement return, receives a lower offer premium, and experiences longer bid duration. The negative effect of unions on targets' takeover exposure and merger gains is more pronounced when the union elections are held in states without right-to-work legislation, in states with more union-friendly successor statutes, when the mergers are horizontal, and when the unions are large. Bidders of unionized targets have more experience in making merger deals, possess higher bargaining power, and face less union threat by themselves. Our paper provides new insights into the real effects of unionization in terms of the market for corporate control.
2016 Social
  • A Theory of Income Smoothing When Insiders Know More Than Outsiders
  • Author: Acharya, Viral V., and Bart M. Lambrecht
  • Journal: Review of Financial Studies
  • We develop a theory of income and payout smoothing by firms when insiders know more about income than outside shareholders, but property rights ensure that outsiders can enforce a fair payout. Insiders set payout to meet outsiders' expectations and underproduce to manage future expectations downward. The observed income and payout process are smooth and adjust partially and over time in response to economic shocks. The smaller the inside ownership, the more severe underproduction is, resulting in an "outside equity Laffer curve."
2015 Governance
  • CEO Tenure and Earnings Management
  • Author: Ali, Ashiq, and Weining Zhang
  • Journal: Journal of Accounting and Economics
  • This study examines changes in CEOs' incentive to manage their firms' reported earnings during their tenure. Earnings overstatement is greater in the early years than in the later years of CEOs' service, and this relation is less pronounced for firms with greater external and internal monitoring. These results suggest that new CEOs try to favorably influence the market's perception of their ability in their early years of service, when the market is more uncertain. Also, consistent with the horizon problem, earnings overstatement is greater in the CEOs' final year, but this result obtains only after controlling for earnings overstatement in their early years of service.
2015 Governance
  • The Economic Consequences of Financial Restatements: Evidence from the Market for Corporate Control
  • Author: Amel-Zadeh, Amir, and Yuan Zhang
  • Journal: The Accounting Review
  • This paper investigates whether and how financial restatements affect the market for corporate control. We show that firms that recently filed financial restatements are significantly less likely to become takeover targets than a propensity score matched sample of non-restating firms. For those restating firms that do receive takeover bids, the bids are more likely to be withdrawn or take longer to complete than those made to non-restating firms. Finally, there is some evidence that deal value multiples are significantly lower for restating targets than for non-restating targets. Our analyses suggest that the information risk associated with restating firms is the main driver of these results. Overall, this study finds that financial restatements have profound consequences for the allocation of economic resources in the market for corporate control.
2015 Governance
  • How Board Diversity Affects Firm Performance in Emerging Markets: Evidence on Channels in Controlled Firms
  • Author: Ararat, Melsa, Mine Aksu, and Ayse Tansel Cetin
  • Journal: Corporate Governance: An International Review
  • We investigate the indirect effect of a board's demographic diversity on firm performance via board monitoring in a context where boards are relatively homogeneous with respect to structural diversity, using data from Turkey. We contextualize our investigation by exploring the influence of ownership configurations on the effect of diversity. Research Findings/Insights: We find a positive and non-linear relationship between demographic diversity and performance, mediated by the board's monitoring efforts. The effect of monitoring is found to be contingent upon (moderated by) the controlling shareholders' propensity to expropriate, measured by the deviation of control rights from cash flow rights, i.e. the wedge. We report that demographic diversity enhances firm performance by mitigating the negative effect of the wedge on board monitoring. Theoretical/Academic Implications: Our results provide empirical support for the importance of contextual factors in the relationship between diversity and performance. Our framework and the compound diversity and board-monitoring indices we construct may prove useful to researchers. Practitioner/Policy Implications: Regulators can use our findings in formulating recommendations or regulations related to desirable characteristics of boards. Our results are also instructive for investors and proxy advisors and indicate that the mere existence of monitoring vehicles may be insufficient to prevent expropriation by dominant shareholders, but diverse boards may mitigate the propensity to expropriate. Board members and shareholders should also benefit from the findings in creating boards that are more diligent monitors.
2015 Social
  • The Local Roots of Corporate Social Responsibility
  • Author: Attig, Najah, and Paul Brockton
  • Journal: Journal of Business Ethics
  • We provide new evidence that the prosocial attitudes of local residents play a significant role in determining a firm's corporate social responsibility (CSR) engagement. We show that firms are more likely to engage in CSR initiatives when they are headquartered in areas with large senior citizen populations and where a large fraction of the population makes charitable donations. In contrast, we find that firms are less likely to engage in CSR initiatives when they are headquartered in areas with large religiously affiliated groups. After establishing the local demographic roots of CSR demand, we then examine the relationship between the firm's CSR activities and its market valuation. Our results suggest that CSR initiatives create value when they are properly aligned with local residents' prosocial attitudes. Overall, our study stresses the role of local residents' CSR preferences in mediating the relationship between CSR and market valuations.
2015 Environmental, Social, Governance
  • Managerial Practices and Corporate Social Responsibility
  • Author: Attig, Najah, and Sean Cleary.
  • Journal: Journal of Business Ethics
  • A unique dataset is exploited to provide insight into the impact of management quality practices (MQPs) on corporate social responsibility (CSR) for a sample of US manufacturing firms. Our results suggest that MQPs are positively and significantly related to a firm's CSR rating. This confirms that intangible assets affect corporate outcomes. We also show that superior MQPs matter more in explaining the CSR dimensions that are related directly to the firm's primary stakeholders.
2015 Environmental, Social, Governance
  • Collective Organizational Engagement: Linking Motivational Antecedents, Strategic Implementation, and Firm Performance
  • Author: Barrick, Murray R., Gary R. Thurgood, Troy A. Smith, and Stephen H. Courtright
  • Journal: Academy of Management Journal
  • We present a comprehensive theory of collective organizational engagement, integrating engagement theory with the resource management model. We propose that engagement can be considered an organization-level construct influenced by motivationally focused organizational practices that represent firm-level resources. Specifically, we evaluate three distinct organizational practices as resources — motivating work design, human resource management practices, and CEO transformational leadership — that can facilitate perceptions that members of the organization are as a whole physically, cognitively, and emotionally invested at work. Our theory is grounded in the notion that, when used jointly, these organizational resources maximize each of the three underlying psychological conditions necessary for full engagement; namely, psychological meaningfulness, safety, and availability. The resource management model also underscores the value of top management team members implementing and monitoring progress on the firm's strategy as a means to enhance the effects of organizational resources on collective organizational engagement. We empirically test this theory in a sample of 83 firms, and provide evidence that collective organizational engagement mediates the relationship between the three organizational resources and firm performance. Furthermore, we find that strategic implementation positively moderates the relationship between the three organizational resources and collective organizational engagement. Implications for theory, research, and practice are discussed.
2015 Governance
  • Human and Financial Capital for Microenterprise Development: Evidence from a Field and Lab Experiment
  • Author: Berge, Lars Ivar Oppedal, Kjetil Bjorvatn, and Bertil Tungodden
  • Journal: Management Science
  • Microenterprises constitute an important source of employment, and developing such enterprises is a key policy concern in most countries. But what is the most efficient tool for microenterprise development? We study this question in a developing country context (Tanzania), where microenterprises are the source of employment for more than half of the labor force, and we report from a field experiment that jointly investigated the importance of a human capital intervention (business training) and a financial capital intervention (business grant). Using data from three survey rounds, a lab experiment, and administrative records of the microfinance institution, we present evidence on business performance, management practices, happiness, business knowledge, and noncognitive abilities. Our study demonstrates strong effects of the combination of the two interventions on male entrepreneurs, while the effects on female entrepreneurs are much more muted. The results suggest that long-term finance is an important constraint for microfinance entrepreneurs, but that business training is essential to transform financial capital into productive investments. Our study also points to the need for more comprehensive measures to promote the businesses of female entrepreneurs.
2015 Governance
  • Strategic Silence, Insider Selling, and Litigation Risk
  • Author: Billings, Mary Brooke, and Matthew C. Cedergren
  • Journal: Journal of Accounting and Economics
  • Prior work finds that managers beneficially time their purchases, but not sales, prior to forecasts. Focusing on if (as opposed to when) a forecast is given, we link insider selling to silence in advance of earnings disappointments. This raises the question of whether the absence of incriminating trading drives reductions in litigation risk potentially attributed to warnings. We find that the absence of a warning combined with the presence of selling exacerbates the consequences associated with the individual behaviors. Yet, selling prior to a warning typically does not offset all of the warning's benefit. In so doing, we supply the first robust evidence of a litigation benefit associated with warning.
2015 Governance
  • The Effect of Institutional Ownership on Firm Transparency and Information Production
  • Author: Boone, Audra L., and Joshua T. White
  • Journal: Journal of Financial Economics
  • We examine the effects of institutional ownership on firms' information and trading environments using the annual Russell 1000/2000 index reconstitution. Characteristics of firms near the index cutoffs are similar, except that firms in the top of the Russell 2000 have discontinuously higher proportional institutional ownership than firms in the bottom of the Russell 1000 primarily due to indexing and benchmarking strategies. We find that higher institutional ownership is associated with greater management disclosure, analyst following, and liquidity, resulting in lower information asymmetry. Overall, indexing institutions' predilection for lower information asymmetries facilitates information production, which enhances monitoring and decreases trading costs.
2015 Governance
  • The Impact of Advice on Women's and Men's Selection into Competition
  • Author: Brandts, Jordi, Valeska Groenert, and Christina Rott
  • Journal: Management Science
  • We conduct a laboratory experiment to study how advice by a more experienced and better-informed person affects an individual's entry into a real-effort tournament and the gender gap. Our experiment is motivated by the concerns raised by approaching the gender gap through affirmative action policies. Overall, advice improves the entry decision of subjects, in that forgone earnings due to wrong entry decisions go significantly down. The improvements are mainly driven by increased entry of strong-performing women, who also become more confident, and reduced entry of weak-performing men. We find that the overall gender gap persists even though it disappears among low and strong performers. The persistence is due to an emerging gender gap among intermediate performers driven by women (men) following more the advice to stay out of (enter) the tournament in this performance group.
2015 Social
  • The Risk Preferences of US Executives
  • Author: Brenner, Steffen
  • Journal: Management Science
  • In this paper, I elicit risk attitudes of U.S. executives by calibrating a subjective option valuation model for option exercising data (1996 to 2008), yielding approximately 65,000 values of relative risk aversion (RRA) for almost 7,000 executives. The observed behavior is generally consistent with moderate risk aversion and a median (mean) RRA close to one (three). Values are validated for chief executive officers (CEOs) by testing theory-based predictions on the influence of individual characteristics on risk preferences such as gender, marital status, religiosity, and intelligence. Senior managers such as CEOs, presidents, and chairpersons of the boards of directors are significantly less risk averse than non-senior executives. RRA heterogeneity is strongly correlated with sector membership and firm-level variables such as size, performance, and capital structure. Alternative factors influencing option exercises are tested for their influence on RRA values.
2015 Governance
  • The Consequences of Hiring Lower-Wage Workers in an Incomplete-Contract Environment
  • Author: Brown, Jason L., Patrick R. Martin, Donald V. Moser, and Roberto A. Weber
  • Journal: The Accounting Review
  • Firms frequently attempt to increase profits by replacing some existing workers with new lower-wage workers. However, this strategy may be ineffective in an incomplete-contract environment because the new workers may provide lower effort in response to their lower wages, and hiring new lower-wage workers may damage the remaining original workers' reciprocal relationship with the firm. We conduct an experiment to examine this issue and find that when new lower-wage workers become available, firms hire them to replace original higher-wage workers and pay the new workers lower wages. However, these lower wages do not improve firm profit because the decision to hire new lower-wage workers causes both the new and remaining workers to provide lower effort. Moreover, hiring lower-wage workers reduces new workers' payoffs and, thus, decreases social welfare. These unintended consequences suggest that firms should consider both the wage savings and the potential costs when deciding whether to replace some workers with new lower-wage workers. We discuss the implications of our findings for contract design, hiring practices, and managerial accountants.
2015 Social
  • Company Reputation and the Cost of Equity Capital
  • Author: Cao, Ying, James N. Myers, Linda A. Myers, and Thomas C. Omer
  • Journal: Review of Accounting Studies
  • We investigate whether companies with better reputations enjoy a lower cost of equity financing. Using a sample of 9,276 large US companies from 1987 to 2011 and the reputation rankings from Fortune's "America's Most Admired Companies" list, we find strong evidence that companies with higher reputation scores enjoy a lower cost of equity capital even after controlling for other factors that determine the cost of equity. In addition, we find that the effect of reputation on the cost of equity increases with the degree of information asymmetry, consistent with the reputation rankings providing information about company quality. We also find that changes in reputation are associated with subsequent changes in the company's investor base, consistent with reputation rankings affecting investor recognition and improving risk sharing. We contribute to the cost of capital literature by identifying a unique determinant of the cost of equity and to the reputation literature by demonstrating an important benefit that derives from creating and maintaining a high reputation.
2015 Governance
  • A Flying Start? Maternity Leave Benefits and Long-Run Outcomes of Children
  • Author: Carneiro, Pedro, Katrine V. Løken, and Kjell G. Salvanes
  • Journal: Journal of Political Economy
  • We study a change in maternity leave entitlements in Norway. Mothers giving birth before July 1, 1977, were eligible for 12 weeks of unpaid leave, while those giving birth after that date were entitled to 4 months of paid leave and 12 months of unpaid leave. The increased time spent with the child led to a 2 percentage point decline in high school dropout rates and a 5 percent increase in wages at age 30. These effects were larger for the children of mothers who, in the absence of the reform, would have taken very low levels of unpaid leave.
2015 Social
  • Substitution between Real and Accruals-Based Earnings Management after Voluntary Adoption of Compensation Clawback Provisions
  • Author: Chan, Lilian H., Kevin C. W. Chen, Yai Yuan Chen, and Yangxin Yu
  • Journal: The Accounting Review
  • To deter financial misstatements, many companies have recently adopted compensation recovery policies — commonly known as "clawbacks" — that authorize the board to recoup compensation paid to executives based on misstated financial reports. Clawbacks have been shown to reduce financial misstatements and increase investors' confidence on earnings information. We show that the benefits come with an unintended consequence of certain firms substituting for accruals management with real transactions management (e.g., reduce research and development [R&D] expenditures), especially firms with strong incentives to achieve short-term earnings targets, such as firms with high growth or high transient institutional ownership. As such, the total amount of earnings management does not decrease subsequent to clawback adoption. We further show that although real transactions management temporarily boosts those clawback adopters' short-term profitability and stock performance, this trend reverses after three years. In summary, clawbacks may have unexpected effects for a subset of firms whose managers are under greater pressure to meet earnings goals.
2015 Governance
  • The Effects of Forecast Type and Performance-Based Incentives on the Quality of Management Forecasts
  • Author: Chen, Clara Xiaoling, Kristina M. Rennekamp, and Flora H. Zhou
  • Journal: Accounting, Organizations and Society
  • Understanding forecasts is important because of their pervasiveness in business decisions such as budgeting, production, and financial reporting. In this study we use an abstract experiment to examine how the preparation of disaggregated forecasts interacts with performance-based incentives to influence the accuracy and optimism of forecasts. We manipulate two factors between subjects at two levels each: forecast type (disaggregated or aggregated) and performance-based incentives (present or absent). Consistent with our predictions, we find that (1) preparing disaggregated forecasts leads to greater improvements in forecast accuracy (compared to preparing aggregated forecasts) in the absence of performance-based incentives than in the presence of performance-based incentives, and (2) preparing disaggregated forecasts leads to greater increases in forecast optimism (compared to preparing aggregated forecasts) in the presence of performance-based incentives than in the absence of performance-based incentives. Our study contributes to our understanding of unintentional biases in the forecasting process. Our results have important practical implications for designers of management control systems who elicit internal forecasts from managers. Finally, our results also have important practical implications for those who either prepare or use external management forecasts.
2015 Governance
  • The Value and Credit Relevance of Multiemployer Pension Plan Obligations
  • Author: Chen, Ting, Xiumin Martin, Christina A. Mashruwala, and Shamin D. Mashruwala
  • Journal: The Accounting Review
  • We investigate whether multiemployer defined-benefit pension plan (MEPP) underfunding is priced by shareholders and creditors. Prior to the FASB's new MEPP standard (effective December 2011), when the disclosures on such plans were sparse, we find evidence (some evidence) that our estimate of a firm's share of MEPP underfunding is credit (value) relevant. We also find some evidence that a proxy for the funded status of a firm's MEPPs is incrementally value relevant over and above the firm's cash contributions, but no evidence that it is credit relevant. Furthermore, an estimate of MEPP underfunding that incorporates the additional disclosures required under the new MEPP standard is value and credit relevant, both individually and incrementally, over and above our old estimate. Overall, our findings suggest that shareholders and creditors view MEPP underfunding as a debt-like obligation and that the additional MEPP disclosures under the new standard are useful to market participants.
2015 Governance
  • Executive Equity Risk-Taking Incentives and Audit Pricing
  • Author: Chen, Yangyang, Ferdinand A. Gul, Madhu Veeraraghavan, and Leon Zolotoy
  • Journal: The Accounting Review
  • Using a large sample of U.S. firms spanning the period 2000-2010, we document a strong positive association between the sensitivity of CEO compensation portfolio to stock return volatility (vega) and audit fees. We also show that the positive association between vega and audit fees is weaker in the post-Sarbanes-Oxley Act (SOX) period. In supplementary tests, we show that the relation between vega and audit fees is stronger for firms with older CEOs and in firms where the CEO is also chairman of the board. Collectively, our results suggest that audit firms incorporate executive risk-taking incentives in the fees they charge for their services.
2015 Governance
  • Incentivizing Impact Investing
  • Author: Chowdhry, Bhagwan, Shaun William Davies, and Brian Waters
  • Journal: Working paper
  • Impact investing is gaining popularity. However, it is not well understood which financial securities provide managerial incentives to pursue social projects efficiently. We derive optimal securities when social projects are funded jointly between agents that value social good and traditional for-profit investors that do not. If the impact investment is a public works opportunity, the security features a pay-for-success structure, rationalizing the use of Social Impact Bonds in practice. If the opportunity is in the private sector, the security features a pay-forfailure structure. We coin this security design a Social Impact Guarantee (SIG).
2015 Environmental, Social, Governance
  • Fair Wages and Effort Provision: Combining Evidence from a Choice Experiment and a Field Experiment
  • Author: Cohn, Alain, Ernst Fehr, and Lorenz Goette
  • Journal: Management Science
  • The presence of workers who reciprocate higher wages with greater effort can have important consequences for firms and labor markets. Knowledge about the extent and determinants of reciprocal effort choices is, however, incomplete. We investigate the role of fairness perceptions and social preferences in a field experiment in which workers were hired for a one-time job. We show that workers who perceive being underpaid at the base wage increase their performance if the hourly wage increases, whereas those who feel adequately paid or overpaid at the base wage do not change their performance. Moreover, we find that only the workers who display reciprocity in a choice experiment show reciprocal effort responses in the field. The workers who lack reciprocity in the choice experiment do not respond to the wage increase, even if they feel underpaid at the base wage. Our findings suggest that fairness perceptions and social preferences are key in workers' performance response to wage increases. In our study, the wage increase affects effort mainly through the removal of perceived unfairness, i.e., the elimination of negative reciprocity toward the firm, rather than positive reciprocity. These results are the first direct evidence of the fair-wage effort hypothesis in the field and also help interpret previous contradictory findings in the literature.
2015 Governance
  • Newsflash: Al Gore Invents SRI! (Not)
  • Author: Cummings, Jim
  • Journal: The Resilient Investor Blog
  • This month's big feature on Al Gore's investment firm is pretty heavy on hyperbole, starting with the title: The Planet-Saving, Capitalism-Subverting, Surprisingly Lucrative Investment Secrets of Al Gore. Fallows' intent with the article is mostly to get "sustainable capitalism" onto the wider public radar, and we're all for that. Still, most of what is presented here as groundbreaking is, to our quarter-century-in-SRI eyes, old news.
2015 Environmental
  • Environmental Health Risks and Housing Values: Evidence from 1,600 Toxic Plant Openings and Closings
  • Author: Currie, Janet, Lucas Davis, Michael Greenstone, and Reed Walker
  • Journal: American Economic Review
  • Regulatory oversight of toxic emissions from industrial plants and understanding about these emissions' impacts are in their infancy. Applying a research design based on the openings and closings of 1,600 industrial plants to rich data on housing markets and infant health, we find that: toxic air emissions affect air quality only within 1 mile of the plant; plant openings lead to 11 percent declines in housing values within 0.5 mile or a loss of about $4.25 million for these households; and a plant's operation is associated with a roughly 3 percent increase in the probability of low birthweight within 1 mile.
2015 Environmental
  • The Governance Effect of the Media's News Dissemination Role: Evidence from Insider Trading
  • Author: Dai, Lili, Jerry T. Parwada, and Bohui Zhang
  • Journal: Journal of Accounting Research
  • We investigate whether the media plays a role in corporate governance by disseminating news. Using a comprehensive data set of corporate and insider news coverage for the 2001-2012 period, we show that the media reduces insiders' future trading profits by disseminating news on prior insiders' trades available from regulatory filings. We find support for three economic mechanisms underlying the disciplining effect of news dissemination: the reduction of information asymmetry, concerns regarding litigation risk, and the impact on insiders' personal wealth and reputation. Our findings provide new insights into the real effect of news dissemination.
2015 Governance
  • The Wall Street Walk when Blockholders Compete for Flows
  • Author: Dasgupta, Amil, and Giorgia Piacentino
  • Journal: Journal of Finance
  • Effective monitoring by equity blockholders is important for good corporate governance. A prominent theoretical literature argues that the threat of block sale ("exit") can be an effective governance mechanism. Many blockholders are money managers. We show that, when money managers compete for investor capital, the threat of exit loses credibility, weakening its governance role. Money managers with more skin in the game will govern more successfully using exit. Allowing funds to engage in activist measures ("voice") does not alter our qualitative results. Our results link widely prevalent incentives in the ever-expanding money management industry to the nature of corporate governance.
2015 Governance
  • The Effect of Cross-Listing on the Environmental, Social, and Governance Performance of Firms
  • Author: Del Bosco, Barbara, and Nicola misani
  • Journal: Academy of Management Proceedings
  • In this paper we study the relationship between cross-listing and the ESG (environment, social, and governance) performance of firms. We propose that cross-listing is associated with higher ESG ratings, because cross-listed firms have to respond to a higher number of stakeholders with heterogeneous expectations and they need to improve their ESG performance to overcome the liability of foreignness. We test our hypotheses on the firms included in the S&P Global 1200 index, observed over the 2008-2012 period, using information taken from the Asset4 dataset. We find that cross-listed firms have actually higher ESG performance than non-cross-listed firms, after controlling for firm, industry, and country heterogeneity. Our findings support the view that CSR help firms in their internationalization efforts. The effect is moderated by the investor protection regime in the listing country: higher protection is associated with better corporate governance and with lower environmental and social performance. This suggests that a focus on shareholder value can limit managerial discretion to adopt a long- term stakeholder view. We also find that single stock exchanges can have specific effects on the cross-listed firms, even when the investor protection regime is similar, indicating that informal pressures complement enforceable regulation in shaping firm ESG performance.
2015 Environmental, Social, Governance
  • Under Pressure: The Causal Effect of Financial Analyst Coverage on Long-Term Capital Investment
  • Author: DesJardine, Mark
  • Journal: Academy of Management Proceedings
  • This study examines whether coverage from financial analysts causes corporate short-termism by affecting the horizons of firms' capital investments. Financial analysts evaluate the performance of firms in order to develop and distribute opinions about a firm's stock. I hypothesize and empirically illustrate that greater analyst coverage leads to more pressure on firms to perform in the short-term, which biases firms away from making longer-term investments. To establish causality, I use a difference-in-differences technique that exploits a series of quasi-natural experiments provided by 52 brokerage closures and brokerage mergers that occurred between 1994 and 2008. I find that firms that lose a covering analyst from a brokerage disappearance extend their attention further into the distant future and invest more in longer-term capital, compared to similar firms that do not lose an analyst.
2015 Environmental, Social, Governance
  • CEO Opportunism? Option Grants and Stock Trades Around Stock Splits
  • Author: Devos, Erik, William B. Elliott, and Richard S. Warr
  • Journal: Journal of Accounting and Economics
  • Decades of research confirm that, on average, stock split announcements generate positive abnormal returns. In our sample, 80 percent of CEO stock option grants are timed to occur on or before the split announcement date. With the average market-adjusted announcement return of 3.1 percent, awarding the grant before the split announcement results in an average gain per CEO-grant of $451,748. We find additional evidence consistent with timing of CEO stock trading around the split announcement. In the case of CEO stock sales, about two-thirds occur after the split announcement, resulting in an average gain of $345,613.
2015 Governance
  • Ownership Structure, Voting, and Risk
  • Author: Dhillon, Amrita, and Silvia Rossetto
  • Journal: Review of Financial Studies
  • We analyze the determinants of a firm's ownership structure when decisions over risk are taken by majority vote of risk-averse shareholders. We show that when a fraction of small, diversified shareholders abstains from voting, mid-sized blockholders may emerge to mitigate the conflict of interests between one large shareholder, who prefers less risky investments, and these small, non-voting shareholders. The paper offers a novel explanation for the puzzling observation that many firms have multiple blockholders. The paper develops numerous empirical implications, for example on the link between ownership structure and risk choices and on the relative size of blocks.
2015 Governance
  • How Disclosure Features of Corporate Social Responsibility Reports Interact With Investor Numeracy to Influence Investor Judgments
  • Author: Elliott, W. Brooke, Stephanie M. Grant, and Kristina M. Rennekamp
  • Journal: Working paper
  • Firms' Corporate Social Responsibility (CSR) reports typically frame their strategies in terms of either community or global efforts (i.e., "strategy frame"). Further, the style used to depict CSR performance in reports often highlights either pictures or words (i.e., "presentation style"). These two prominent disclosure features of CSR reports promote a natural fit or misfit in the focus (relatively low-level or high-level) investors adopt when thinking about the firm and its CSR efforts. Further, these disclosure features likely have different effects on investors depending on their numeracy or, in other words, the way that they naturally process numerical information. In this study we predict and find that a fit between the strategy frame and the presentation style of a firm's CSR report causes less numerate investors to be more willing to invest than when a fit is not present. Specifically, we find that a fit leads less numerate investors to experience subjective feelings of processing fluency and, in turn, positive affect that serves as a cue that the positive CSR performance information can be relied upon, which positively influences willingness to invest. Our results have implications for both CSR reports as well as other types of firm disclosures that increasingly vary along similar disclosure characteristics. Our results also contribute to both the growing literature on presentation effects in accounting, as well as the broader business literature on CSR reporting.
2015 Environmental, Social, Governance