In our paper, Capital Allocation and Delegation of Decision-Making Authority within Firms, forthcoming in the Journal of Financial Economics, we use a unique data set that contains information on more than 1,000 Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) around the world to investigate the degree to which executives delegate financial decisions and the circumstances that drive variation in delegation. Our results can be grouped into four themes.
Archive for the ‘International Corporate Governance & Regulation’ Category
The ISDA 2014 Resolution Stay Protocol, published on November 12, 2014, by the International Swaps and Derivatives Association, Inc. (ISDA),  represents a significant shift in the terms of the over-the-counter derivatives market. It will require adhering parties to relinquish termination rights that have long been part of bankruptcy “safe harbors” for derivatives contracts under bankruptcy and insolvency regimes in many jurisdictions. While buy-side market participants are not required to adhere to the Protocol at this time, future regulations will likely have the effect of compelling market participants to agree to its terms. This change will impact institutional investors, hedge funds, mutual funds, sovereign wealth funds, and other buy-side market participants who enter into over-the-counter derivatives transactions with financial institutions.
Among the key features of the Protocol are the following:
On October 31, 2014, the Basel Committee on Banking Supervision (the “Basel Committee”) released the final Net Stable Funding Ratio (the “NSFR”) framework, which requires banking organizations to maintain stable funding (in the form of various types of liabilities and capital) for their assets and certain off-balance sheet activities. The NSFR finalizes a proposal first published by the Basel Committee in December of 2010 and later revised in January of 2014. Particularly given the historical trend as between the Basel Committee and U.S. banking agency implementation and in line with its Halloween release, it has left many wondering: Is it a trick or a treat?
Scores of governments around the world have chosen to introduce international standards as domestic law, even though they were not legally obliged to do so. The drafters of these standards are not sovereigns or international organizations, but transnational regulatory networks: informal meetings of experts from various countries, some with government affiliations, and others without. Networks have puzzled scholars for years. Fascinated by the institutional novelty of the network phenomenon, some theorists praised their speed, informality, and lack of hierarchy. Others were not so enthralled. They were concerned about the influence of interest groups or the weight of big countries. This debate has examined both the inputs to the network phenomenon—preferences—and the outputs—global coordination—but has not discussed the mechanism: how do we get from preferences to standards? How do these networks come together, what is their strategy for their success? My new study, Three Pathways to Global Standards: Private, Regulator, and Ministry Networks, seeks to open up the black box of network standard setting and analyze these mechanisms. It proposes a new theoretical framework that distinguishes among private, regulator, and ministry networks, and presents empirical evidence that illustrates why these three network types appeal to different countries for different reasons.
There is a vast and growing literature using multi-country studies to examine the effects of corporate governance on firm value. In our paper, Methods for Multicountry Studies of Corporate Governance: Evidence from the BRIKT Countries, forthcoming in the Journal of Econometrics and recently made publicly available on SSRN, we explore the empirical challenges in multicountry studies of the effect of firm-level corporate governance on firm market value, focusing on emerging markets, and propose methods to respond to those challenges. Our study has implications for multicountry studies in other spheres as well.
The Basel Committee on Banking Supervision (BCBS) last month proposed revisions to its operational risk capital framework. The proposal sets out a new standardized approach (SA) to replace both the basic indicator approach (BIA) and the standardized approach (TSA) for calculating operational risk capital. In our view, four key points are worth highlighting with respect to the proposal and its possible implications:
…continue reading: Operational Risk Capital: Nowhere to Hide
Creeping acquisitions—surreptitious grabs of a public company’s control without the prior launch of a formal tender offer—had long been considered a thing from the past in corporate America: poison pills kept this acquisition technique at bay. After Sotheby’s, Allergan and similar “wolf pack”-styled hedge fund activists’ campaigns, some fear creeping acquisitions might be back.
Other than in the U.S., becoming targets of a creeping acquisition has never ceased to be a real possibility for European companies with a dispersed ownership structure: without pills or analogue structural defenses available (or, at least, in place), they run the risk of being taken over through such an acquisition technique. Indeed, acquirers have made significant attempts to that effect over the last decade or so—sometimes successfully (Schaeffler’s takeover of Continental, Lactalis’ acquisitions of Parmalat), sometimes not (LVMH’s failed attack on Gucci, Nasdaq’s attempt at the London Stock Exchange Group). In our paper Creeping Acquisitions in Europe: Enabling Companies to Be Better Safe than Sorry, we analyze the level and type of protections European companies can find in the law (whether EU or national) and via private ordering (which of course is constrained by the law itself).
Due to regulatory changes, share repurchases have become increasingly common around the world in the last 15 years. As such, in our paper, Buybacks Around the World, which was recently made publicly available on SSRN, we first examine whether the findings based on U.S. data hold up in an international setting, and whether examining non-U.S. data can change the way we think about buybacks. Second, we examine whether the original concerns about managers using buybacks to prop up the share price were somewhat warranted in countries outside the U.S.
If the institutions of a country (e.g., property rights and contracting institutions) jeopardize the quality of its financial market, can the market by itself put in force corrective mechanisms that counterbalance and offset such negative impact? This question is at the core of modern financial economics because it essentially asks whether the market plays a more fundamental role than institutions in shaping modern financial activities, or the other way around. While the role of institutions has many facets and is subtle in nature, in our paper, Mutual Funds and Information Diffusion: The Role of Country-Level Governance, forthcoming in the November issue of the Review of Financial Studies, we focus on one unique element of the market—the global mutual fund industry—to provide some new insights.
One of the world largest fiduciary asset managers, APG recently issued remuneration guidelines that will be applied to its portfolio of European listed companies. APG believes that the innovation in the new guidelines is twofold. First in that they are based on its practical experience of company engagements and therefore reflect an integrated investment and governance outlook. More specifically, the guidelines place a clear emphasis on value creation. By issuing the guidelines APG is aiming to make its ongoing discussions with companies around pay more effective, thus freeing up time for it to focus on other important corporate governance areas such as board structure, succession and nominations.