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.
Posts Tagged ‘General governance’
Institutional Shareholder Services Inc. (“ISS”) has released a technical document detailing the factors and scoring methodology of Governance QuickScore 3.0, which ISS plans to launch on November 24, 2014.  Corporate issuers may verify, update or correct the data used to calculate their scores, via ISS’s data verification site, through 8:00 p.m. EST on November 14.
Most existing theories of blockholder governance consider a single firm. However, in reality, many institutional investors hold blocks in multiple firms. In our paper, Governance and Comovement Under Common Ownership, which was recently made publicly available on SSRN, we study the implications of common ownership for corporate governance and asset pricing. In particular, we address two broad questions. First, does holding multiple blocks weaken governance by spreading a blockholder too thinly, as commonly believed? If not, under what conditions can multi-firm ownership improve governance? Second, can common ownership lead to correlation between stocks with independent fundamentals, and if so, in which direction?
Yesterday evening, Institutional Shareholder Services (ISS) announced its third iteration of the Governance QuickScore product, with QuickScore 3.0 scheduled to be launched on November 24, 2014 for the 2015 proxy season. Companies will have from November 3rd until 8pm Eastern time on November 14th to verify the underlying raw data and submit updates and corrections through ISS’s data review and verification site. ISS currently plans to release the new ratings on November 24th for inclusion in proxy research reports issued to institutional shareholders. Ratings should be updated based on companies’ public disclosures during the calendar year.
Severe turmoil in financial markets—whether the Panic of 1826, the Wall Street Crash of 1929, or the Global Financial Crisis of 2008—often raises significant concerns about the effectiveness of pre-existing securities market regulation. In turn, such concerns tend to result in calls for more and stricter government regulation of corporations and financial markets. It is widely considered that the most significant change to U.S. financial regulation in the past 100 years was the Securities Act of 1933 and the subsequent creation of the Securities and Exchange Commission (SEC) to enforce it. Before the SEC creation, federal securities market regulation was essentially absent in the U.S. In our paper, Corporate Governance and the Creation of the SEC, which was recently made publicly available on SSRN, we examine how companies listing in the U.S. responded to this significant increase in the provision of government-sponsored corporate governance. Specifically, did this landmark legislation have any significant effects on board governance (e.g., the independence of boards) and firm valuations?
In The Race to the Bottom Recalculated: Scoring Corporate Law Over Time we undertake a pioneering historically-oriented leximetric analysis of U.S. corporate law to provide insights concerning the evolution of shareholder rights. There have previously been studies seeking to measure the pace of change with U.S. corporate law. Our study, which covers from 1900 to the present, is the first to quantify systematically the level of protection afforded to shareholders.
Agency problems and tunneling are traditional features of corporate governance in Italy. Where ownership is concentrated, dominant shareholders have both the incentives and the means to monitor managers but they may also extract private benefits through self-dealing transactions that favor the related party at the expense of minority shareholders. Pyramids and other control enhancing mechanisms (CEMs) make minorities more vulnerable to abusive self-dealing. The regulatory environment proved to be too lax. The late 1990s reforms failed to specifically address conflicts of interests in listed companies. Further, as a result of the 2003 corporate law reform, directors are allowed to vote even if their interests conflict with those of the firm and parent companies within integrated groups may legitimately force subsidiaries into possibly harmful transactions, provided some procedural and substantial requirements are met. With the exception of corporate governance codes, no specific new rule addressed the fairness of related party transactions (RPTs).
Berkshire Hathaway Vice Chairman Charlie Munger is well known as the partner of CEO Warren Buffett and also for his advocacy of “multi-disciplinary thinking”—the application of fundamental concepts from across various academic disciplines to solve complex real-world problems. One problem that Munger has addressed over the years is the optimal system of corporate governance. How should an organization be structured to encourage ethical behavior among organizational participants and motivate decision-making in the best interest of shareholders? His solution is unconventional by the standards of governance today and somewhat at odds with regulatory guidelines. However, the insights that Munger provides represent a contrast to current “best practices” and suggest the potential for alternative solutions to improve corporate performance and executive behavior. In our paper, Corporate Governance According to Charles T. Munger, which was recently made publicly available on SSRN, we examine this solution in greater detail.
2013 was the strongest year for venture-backed initial public offerings (IPOs) in almost a decade: 82 deals (the most since 2007) generated aggregate proceeds of over $11.2 billion, an average offering amount of $137.2 million. At least one venture-backed company went public each month in 2013, and the pace of IPOs has accelerated in the first three months of 2014.
Much corporate finance research is concerned with causation—does a change in some input cause a change in some output? Does corporate governance affect firm performance? Does capital structure affect firm investments? How do corporate acquisitions affect the value of the acquirer, or the acquirer and target together? Without a causal link, we lack a strong basis for recommending that firms change their behavior or that governments adopt specific reforms. Consider, for example, corporate governance research. Decisionmakers—corporate boards, investors, and regulators—need to know whether governance causes value, before they decide to change the governance of a firm (or all firms in a country) with the goal of increasing firm value or improving other firm or market outcomes. If researchers provide evidence only on association between governance and outcomes, decisionmakers may adopt changes based on flawed data that may lead to adverse consequences for particular firms.