scholarly journals Corporate governance and financial contracting: bondholder takeover defenses in poison puts

2009 ◽  
Vol 7 (2) ◽  
pp. 9-20
Author(s):  
Ai-Fen Cheng ◽  
Tao-Hsien Dolly King
Keyword(s):  
Corporate Governance ◽  
Agency Theory ◽  
Market Performance ◽  
High Growth ◽  
Equity Market ◽  
Free Cash Flow ◽  
Governance Mechanisms ◽  
Takeover Defenses ◽  
Growth Firms ◽  
Asset Sale

Bondholder governance through the use of bond covenants and the interactions between shareholder and bondholder governance mechanisms has been recently highlighted in the corporate governance literature. In this paper, we study bondholder governance mechanisms through takeover-related bond covenants (i.e., poison puts), confirm with agency theory on the characteristics of firms that are more likely to use these covenants, and emphasize the importance of bondholder governance in the overall structure of corporate governance. We find that poison puts are often bundled with asset sale, payout, and financing restrictions, which is consistent with agency theory. We also find that high growth firms, large, profitable, low-leverage firms are more likely to use poison puts. In addition, our results on free cash flow, insider and institutional ownership provide support for agency explanation. Lastly, we find that poor bond market performance and good equity market performance are likely to motivate the incidence of poison put bond issuance. Volatility of interest rate and volatility of bond index returns motivate more issues of poison put debt. Finally, greater market term and default premiums promote the use of poison puts.

scholarly journals Corporate Governance and Dividend Policy in the Presence of Controlling Shareholders

2020 ◽  
Vol 13 (8) ◽  
pp. 162
Author(s):  
Ricardo Rodrigues ◽  
J. Augusto Felício ◽  
Pedro Verga Matos
Keyword(s):  
Corporate Governance ◽  
Data Analysis ◽  
Panel Data ◽  
Agency Theory ◽  
Dividend Policy ◽  
Panel Data Analysis ◽  
Free Cash Flow ◽  
Governance Mechanisms ◽  
Controlling Shareholders ◽  
Listed Firms

Based on agency theory, we focused on the influence of corporate governance in the dividend policy of large listed firms with headquarters in continental Europe countries. Previous research focused on the influence of corporate governance on the performance and risk of listed firms, but the influence of corporate governance on the dividend policy has rarely been addressed despite the importance of dividends for shareholders and the implications on the free cash-flow, whose application may be a source of conflicts between managers and shareholders. In this paper, we study the influence of a set of governance mechanisms on the dividend policy over 12 years (2002 to 2013). The results, based on a panel data analysis, support the importance of governance mechanisms toward the protection of shareholders’ interests, and reveal that the decisions on whether to pay dividends and how much to pay are grounded on different antecedents.

scholarly journals Is corporate governance of private equity targets more effective for risk mitigation?

2021 ◽  
Author(s):  
Vladimiro Marini ◽  
Massimo Caratelli ◽  
Gian Paolo Stella ◽  
Ilaria Barbaraci
Keyword(s):  
Corporate Governance ◽  
Agency Theory ◽  
Financial Distress ◽  
Private Equity ◽  
Risk Mitigation ◽  
Governance Mechanisms ◽  
Active Monitoring ◽  
Industry Expert ◽  
Corporate Governance Mechanisms

AbstractPrivate equity is a source of finance and a governance device characterised by active monitoring through sponsors that intervene in targets’ corporate governance. As sponsors are skilled and motivated acquirors, we investigated whether corporate governance mechanisms mitigate leveraged targets’ risk of financial distress differently compared to non-acquired companies through the lenses of agency theory and resource-based theories. We found that targets and non-acquired companies are not significantly different in terms of corporate governance features, but sponsors are skilled enough to choose corporate governance members to mitigate risk more, especially when boards are smaller, have busier industry expert directors, and mandate execution to more managers. These results can be useful to targets, targets’ investors and lenders, and policymakers.

scholarly journals Dividend policy and corporate governance in Saudi stock market: Outcome model or substitute model?

2015 ◽  
Vol 12 (2) ◽  
pp. 74-91 ◽  
Author(s):  
Amina Hamdouni
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Dividend Policy ◽  
Good Governance ◽  
Free Cash Flow ◽  
Ownership Concentration ◽  
Board Structure ◽  
Governance Mechanisms ◽  
Corporate Governance Mechanisms ◽  
Debt Policy

Theories suggest that corporate governance mechanisms affect corporate dividend policies. This study extends and tests the implications of two extant static agency models making opposite predictions. The outcome model predicts an increase in dividends when the corporate governance mechanisms improve, because shareholders are better able to force managers to disgorge cash. In contrast, the substitute model suggests that an improvement in the corporate governance mechanisms reduces the role of dividends in controlling agency costs, leading to a decrease in dividends. This paper investigates the dividend policy for firms listed on Saudi Arabia Stock Exchange. This is a case study of Saudi Stock Market, where the determinants of dividend policy have received little attention. This study use a panel dataset of non-financial firms listed on Saudi Arabia Stock Exchange between the years of 2007 and 2010. Based on a panel of 366 firm year observations of 99 Saudi firms, we provide evidence in outcome model or substitute model with ownership structure, board structure and debt policy. Three Tobit models are specified: In the first, we construct a governance index based on eight criteria: seven criteria which capture various aspects of a firm’s structure, policies and practices that constitute good governance and a criterion that examines the company’s compliance with Shariah law in all its activities. Therefore, we estimate the effect of corporate governance on dividend policy in the first model. In the second, we investigate how dividends interact with corporate governance mechanisms in a panel of data. We explore the relation between dividends and ownership structure (ownership concentration and managerial ownership), board structure (board size, Board independence and Chairman-CEO duality) and debt policy. In the final, another test of the substitute and the outcome models is built on the Jensen (1986) free cash flow theory, which states that dividend policy can extract surplus cash from management control by reducing free cash flow. In this third model, we examine how corporate governance improvements affect the dividends’ sensitivity to free cash flows by focusing on the coefficients on the interactive variables of the ownership structure, board structure, debt policy and the free cash flow. For the three models, we divide sample in two subsamples and we compare the results obtained by using criteria of company’s compliance with Shariah law. For the effects of corporate governance (measured by corporate governance score) on dividend levels, we find that dividend policy is a substitute model for good governance for all Saudi Arabia firms. When we select only Shariah compliant firms, results indicate also that dividend policy is a substitute model for good governance but results are insignificant. When we select only Non-Shariah compliant firms, results indicate the same conclusion. We find that governance is associated with fewer dividends, supporting the substitute model and indicating the influence of good governance by forcing less cash to be returned to investors. For the effects of corporate governance mechanisms on dividend levels, we find that the only variable affect the dividend levels for Non-Shariah compliant firms is the separation in the functions of chairman and of CEO supporting the substitute model. For Shariah compliant firms, dividend policy is an outcome for the separation in the functions of chairman and of CEO, and ownership concentration. Governance through the separation in the functions of chairman and of CEO and ownership concentration influences firms by forcing more cash to be returned to investors. For the effects of the corporate governance improvements on dividends’ sensitivity to free cash flow, our results support the substitute hypothesis for Shariah compliant firms regardless the board independence, board meeting, managerial ownership and debt. Improvements in these corporate governance mechanisms reduce firms’ need to force out the free cash flow through dividends. For Non-Shariah compliant firms, our results support the outcome model for managerial ownership and ownership concentration

scholarly journals The effects of corporate governance mechanisms and investment opportunity set on firm performance

2008 ◽  
Vol 5 (4) ◽  
pp. 135-148
Author(s):  
Ruey-Dang Chang ◽  
Yeun-Wen Chang ◽  
Ching-Ping Chang ◽  
Fiona Hu
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Audit Quality ◽  
Negative Relationship ◽  
High Growth ◽  
Moderating Effect ◽  
Investment Opportunity ◽  
Governance Mechanisms ◽  
Corporate Governance Mechanisms ◽  
Investment Opportunity Set

This study uses investment opportunity set (IOS) as an environmental factor, and investigates its moderating effect on the relationships between corporate governance mechanisms (including internal and external corporate governance mechanisms) and firm performance. The empirical results using regression analysis show: (1) The IOS does not have a moderating effect on audit quality and firm performance. (2) The negative relationship between institutional investor ownership and firm performance is stronger for firms with higher investment opportunities. (3) When CEO is the chairman of the board, high growth firms can lead to better firm performance. (4) The relationship between the IOS and pledged shares ratio of directors and supervisors has positive influence on firm performance

Cash holdings and corporate governance: theory and contrary evidence from hotel firms

2018 ◽  
Vol 30 (10) ◽  
pp. 3117-3134 ◽  
Author(s):  
Tarik Dogru ◽  
Ercan Sirakaya-Turk
Keyword(s):  
Corporate Governance ◽  
Cash Holdings ◽  
Agency Problems ◽  
High Growth ◽  
Cash Flows ◽  
Governance Mechanisms ◽  
Growth Opportunities ◽  
Content Type ◽  
Corporate Governance Mechanisms

Purpose The purpose of this study is to examine the extent to which the quality of corporate governance mechanisms and growth opportunities affect agency problems in hotel firms. Design/methodology/approach The effects of cash flows on investments and cash holdings were analyzed using three-stage least square analysis to determine the extent to which agency problems are due to the quality of corporate governance in hotel firms. Findings The findings showed that the effects of cash flows on investments and cash holdings were greater in well-governed hotel firms than in poorly governed hotel firms. These effects were also greater in low-growth hotel firms than in high-growth hotel firms. However, the results from a concurrent examination of the quality of corporate governance and growth opportunities showed that poorly governed hotel firms with low-growth opportunities are exposed to agency problems. Research limitations/implications These results suggest that neither corporate governance mechanisms nor growth opportunities alone indicate agency problems. Theoretical implications are discussed within the realms of free cash flow theory and growth hypothesis. Practical implications High-growth hotel firms should retain all of their cash and cash flows to undertake value-increasing projects when they become available. Shareholders’ wealth is more likely to be maximized in high-growth firms regardless of the quality of corporate governance. Originality/value Although various aspects of corporate governance have been investigated in hospitality literature, previous studies did not examine the concurrent effects of corporate governance and growth opportunities on agency problems.

scholarly journals Corporate governance in high-growth firms

2015 ◽  
Vol 12 (2) ◽  
pp. 308-317
Author(s):  
Gro Ladegard ◽  
Casper Claudi Rasmussen
Keyword(s):  
Corporate Governance ◽  
High Growth ◽  
Governance Structures ◽  
Governance Systems ◽  
Different Types ◽  
Growth Firms ◽  
Core Characteristics ◽  
Special Case ◽  
Advisory Role

The purpose of this paper is to explore the governance structures in high-growth firms – “Gazelles”. We analyse and compare 865 high-growth firms and 396 SMEs in Norway. The data reveals that high-growth firms differ from average SMEs on several core characteristics. They are smaller and younger, and have more owners and larger boards than the average SME. The analysis shows that high-growth firms are a special case where owners and managers appear to have shared interests, and the strategic and advisory role of the board are thus more important than the monitoring role. This knowledge is useful both for understanding high-growth firms as a particular context, and for how corporate governance systems may have different functions in different types of firms

Institutional Investor Preferences for Corporate Governance Mechanisms

2013 ◽  
Vol 26 (2) ◽  
pp. 123-149 ◽  
Author(s):  
Brian J. Bushee ◽  
Mary Ellen Carter ◽  
Joseph Gerakos
Keyword(s):  
Corporate Governance ◽  
Institutional Ownership ◽  
Institutional Investor ◽  
Shareholder Rights ◽  
Revealed Preferences ◽  
Governance Mechanisms ◽  
Corporate Governance Mechanisms ◽  
Growth Firms ◽  
High Level ◽  
Jel Classifications

ABSTRACT We examine institutional investors' preferences for corporate governance mechanisms. We find little evidence of an association between total institutional ownership and governance mechanisms. However, using revealed preferences, we identify a small group of “governance-sensitive” institutions that exhibit persistent associations between their ownership levels and firms' governance mechanisms. We also find that firms with a high level of ownership by institutions sensitive to shareholder rights have significant future improvements in shareholder rights, consistent with shareholder activism. Further, we find that factors describing the characteristics of institutions' portfolios are correlated with governance preferences. Large institutions, those holding a large number of portfolio stocks, and those with preferences for growth firms are more likely to be sensitive to corporate governance mechanisms, suggesting those mechanisms may be a means for decreasing monitoring costs and may be more essential for firms with a high level of growth opportunities. Finally, our results suggest that common proxies for governance sensitivity by investors (e.g., legal type, blockholding) do not cleanly measure governance preferences. JEL Classifications: G11; G20; G34.

Corporate governance and environmental disclosure through integrated reporting

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nicola Raimo ◽  
Elbano de Nuccio ◽  
Filippo Vitolla
Keyword(s):  
Corporate Governance ◽  
Agency Theory ◽  
Environmental Information ◽  
Governance Mechanisms ◽  
Integrated Reporting ◽  
Environmental Disclosure ◽  
Content Type ◽  
Academic Literature ◽  
Corporate Governance Mechanisms ◽  
The Impact

Purpose In recent years, integrated reporting has emerged as a tool to provide environmental information in an interconnected way. However, in the academic literature, the amount of environmental information contained in integrated reports has never been analysed. This study, through the stakeholder-agency theory, aims to fill this important gap by examining the impact of the corporate governance mechanisms on the level of environmental information disseminated by the firms through integrated reports. Design/methodology/approach A manual content analysis based on an environmental disclosure index consisting of 30 items was performed to measure the amount of environmental information. In addition, a regression analysis was performed on a sample of 129 international firms to examine the impact of the corporate governance mechanisms on the level of environmental information disseminated through integrated reports. Findings The results show a positive effect of the board size, board gender diversity and corporate social responsibility committee existence on the level of environmental disclosure. Furthermore, they show a non-significant impact of board independence. Originality/value This study enriches the literature in several ways. First, it extends the field of application of the stakeholder-agency theory. Second, this study extends the analysis of environmental disclosure to another document – the integrated report – still unexplored by academic literature. Finally, it shed light on the determinants of environmental disclosure.

scholarly journals Free Cash Flow And Earnings Management: The Moderating Role Of Governance And Ownership

2015 ◽  
Vol 32 (1) ◽  
pp. 255 ◽  
Author(s):  
Mehdi Nekhili ◽  
Ines Fakhfakh Ben Amar ◽  
Tawhid Chtioui ◽  
Faten Lakhal
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Cash Flow ◽  
Audit Committee ◽  
Management Practices ◽  
Audit Quality ◽  
Free Cash Flow ◽  
Governance Mechanisms ◽  
Corporate Governance Mechanisms

<p class="Default">The purpose of this paper is to analyze the moderating effect of corporate governance and ownership features in lessening earnings management practices in a free cash flow (FCF) situation. A simultaneous equations model is developed to address endogeneity of the FCF variable. Based on a sample of French companies belonging to the SBF 120 index from 2001 to 2010, the results highlight the opportunistic behavior of managers in presence of free cash flows. Particularly, managers engage in earnings management practices that increase reported earnings. Our results also show that corporate governance mechanisms such as audit committee independence and external audit quality, in addition to institutional investors and managerial ownership reduce the extent of earnings management. Corporate governance mechanisms are substitutive in their monitoring role of managers’ behavior to reduce earnings management in presence of a free cash flow problem. </p>

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