The Financial Review, Vol. 38, No. 1
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M. Andrew Fields and Phyllis Y. Keys
Corporate Governance, Board Diversity, and Firm Value
David A. Carter,
Betty J. Simkins, and W. Gary Simpson
An Empirical Examination of Sponsor Influence over the
Board of Directors
Raj
Varma
The Effect of Managerial Incentives to Bear Risk on
Corporate Capital Structure and R&D Investment
Jouahn
Nam, Richard E. Ottoo, and John H. Thornton Jr.
Why Do IPO Firms Conduct Primary Seasoned Equity
Offerings?
Maretno
Harjoto and John Garen
Why Some Firms Use Collar Offers In Mergers
Kathleen P. Fuller
Ownership of Cross-Listed Equities: An Investigation of
Turnover, Diversification, and Risk
Sie
Ting Lau and Thomas H. Mcinish
Intra-day Behavior of Treasury Sector Index Option
Implied Volatilities around Macroeconomic Announcements
Andrea J. Heuson and Tie Su
The Emergence of
Corporate Governance from Wall St. to Main St.: Outside Directors,
Board Diversity, Earnings Management, and Managerial
Incentives to Bear Risk
M. Andrew Fields and Phyllis Y. Keys
Recent corporate
events have brought a heightened public awareness to
corporate governance issues. Much work has been
accomplished to date, but it is clear that much more
remains to be done. This paper provides a review of
empirical research in four relevant areas of corporate
governance. Specifically, the paper provides an overview
of (a) the role that outside directors play in
monitoring managers, (b) the emerging literature on the
impact of board diversity, (c) the existence of and
incentives for corporate executives to manage firm
earnings, and (d) managerial incentives to bear risk.
Keywords: corporate governance; outside
directors; diversity; earnings management; managerial
incentives
JEL Classifications:
Corporate Governance, Board Diversity, and Firm Value
David A. Carter,
Betty J. Simkins, and W. Gary Simpson
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. This
research is important because it presents the first
empirical evidence examining whether board diversity is
associated with improved financial value. After
controlling for size, industry, and other corporate
governance measures, we find significant positive
relationships between the fraction of women or
minorities on the board and firm value. We 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.
Keywords: corporate governance; diversity;
board of directors; financial value
JEL Classifications:
An Empirical Examination of Sponsor Influence over the
Board of Directors
Raj
Varma
Investment funds
have a unique organization structure in which a fund's
board of directors frequently contracts the management
of the fund with the fund's sponsor but has a fiduciary
duty to act in the interest of the fund’s shareholders
with regard to decisions such as the shareholder fees
charged by the sponsor to manage the fund. For a large
sample of closed-end funds, my findings indicate that
sponsors exert considerable influence over the board of
directors through a variety of mechanisms such as the
installation of a sponsor-affiliated board leader,
director compensation from service on multiple boards
for the sponsor, and control of the director selection
process. Furthermore, my examination of closed-end
premiums indicates is that the market perceives that the
absence of sponsor involvement in the director selection
process is a credible signal that new directors are not
“hand-picked” by the sponsor and that this attribute is
positively priced by the market.
Keywords: closed-end fund; contracting;
governance
JEL Classifications:
The Effect of Managerial Incentives to Bear Risk on
Corporate Capital Structure and R&D Investment
Jouahn
Nam, Richard E. Ottoo, and John H. Thornton Jr.
In this study we use
estimates of the sensitivities of managers’ portfolios
to stock return volatility and stock price to directly
test the relationship between managerial incentives to
bear risk and two important corporate decisions. We find
that as the sensitivity of managers’ stock option
portfolios to stock return volatility increases firms
tend to choose higher debt ratios and make higher levels
of R&D investment. These results are even stronger in a
sub sample of firms with relatively low outside
monitoring. For these firms managerial incentives to
bear risk play a particularly pivotal role in
determining leverage and R&D investment.
Keywords: managerial incentives; stock
options; financing policy; R&D investment; managerial
risk aversion
JEL Classifications:
Why Do IPO Firms Conduct Primary Seasoned Equity
Offerings?
Maretno
Harjoto and John Garen
This study examines
the reason behind the IPO firm’s decision to conduct a
primary seasoned equity offering (SEO). First, we
develop a two-period model of blockholder incentives
starting from the IPO stage. The model suggests that the
blockholder has an incentive to conduct a SEO after the
IPO when the firm is experiencing growth that was not
anticipated at the IPO stage. Using a sample of IPO
firms during 1992 to 1997, we find that IPO firms with
higher unanticipated positive growth are more likely to
conduct a SEO during four years after their IPOs. We
find that the firm’s unanticipated shock and growth
positively affect the relative size of the firm's
seasoned equity offering. We also find that the firm’s
risk measure reduces the probability of conducting a SEO
and reduces the relative size of a SEO.
Keywords: corporate governance; seasoned
equity offering; unanticipated shock
JEL Classifications:
Why Some Firms
Use Collar Offers In Mergers
Kathleen P. Fuller
Collar offers are
merger offers using all stock as the method-of-payment
that specify a range within which the bidder's price can
fluctuate. In this paper the wealth effects associated
with collar offers are determined, and cross-sectional
regressions are employed to determine if this offer type
is a significant determinant of abnormal returns.
Results indicate that collar offers are associated with
significantly positive abnormal returns for the target
firm, even greater than those of firms receiving cash
offers, but significantly negative returns for the
bidder. These results raise an interesting question: why
do some bidders make collar offers? Since the immediate
wealth gains are strictly for the target and bidders
making collar offers have returns insignificantly
different than those making fixed stock offers, bidders
must be utilizing collar offers for non-wealth related
reasons. Using existing theories regarding the
method-of-payment choice, various hypotheses for why
firms may make collar offers are presented and tested
using a multinomial logit analysis. The choice of collar
offers seems to be significantly tied to the relative
size of the merger, uncertainty regarding the bidder’s
value, and the target’s and bidder’s pre-merger insider
ownership percentages.
Keywords: corporate governance; seasoned
equity offering; unanticipated shock
JEL Classifications:
Ownership of Cross-Listed Equities: An Investigation of
Turnover, Diversification, and Risk
Sie
Ting Lau and Thomas H. Mcinish
Using data for a
sample of Malaysian stocks that are traded in both
Malaysia and Singapore, we show that the turnover rate
(trading volume relative to shares held) is
significantly higher in the foreign market than in the
domestic market. We also find that ownership of
cross-listed shares by foreign investors is not
motivated by diversification benefits. Instead, we find
that the proportion of a firm’s shares held in Singapore
is directly related to the firm’s level of systematic
risk.
Keywords: cross listing; turnover;
diversification
JEL Classifications:
Intra-day Behavior of Treasury Sector Index Option Implied Volatilities around
Macroeconomic Announcements
Andrea J. Heuson and Tie Su
If option implied
volatility is an unbiased, efficient forecast of future
return volatility in the underlying asset, then we
should be able to predict its path around macroeconomic
announcements from responses in cash markets.
Regressions show that volatilities rise the afternoon
before announcements that move cash markets, and that
post-announcement volatilities return to normal as
rapidly as cash prices do. Although implied volatilities
are predictable, the Treasury options market is
efficient since informed traders do not earn arbitrage
profits once we account for trading costs.
Keywords: implied volatility;
macroeconomic announcements; market efficiency
JEL Classifications:
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