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Pornsit Jiraporn - One of the best experts on this subject based on the ideXlab platform.
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Regulation, Shareholder Rights and corporate governance: an empirical note
SSRN Electronic Journal, 2007Co-Authors: Pornsit Jiraporn, Wallace N. DavidsonAbstract:We investigate the impact of regulation on Shareholder Rights and corporate governance. We gauge the strength of Shareholder Rights by measuring the number of restrictive governance provisions that suppress Shareholder Rights - the more restrictive the governance, the weaker the Shareholder Rights. We find that financial firms have less restrictive corporate governance, suggesting that financial regulations promote Shareholder Rights. On the other hand, regulation does not seem to impact Shareholder Rights in the utility industry.
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Debt Maturity Structure, Shareholder Rights, and Corporate Governance
SSRN Electronic Journal, 2007Co-Authors: Pornsit Jiraporn, Pattanaporn KitsabunnaratAbstract:This study investigates how debt maturity structure is influenced by the strength of Shareholder Rights. The empirical evidence reveals an inverse relation between the strength of Shareholder Rights and debt maturity. We contend that managers of firms with weak Shareholder Rights eschew choosing short-term debt to minimize frequent external monitoring. There is also evidence that regulation is a substitute for debt maturity in controlling agency costs. The effect of managerial entrenchment through classified boards is examined on debt maturity structure but is found to be insignificant. Finally, we demonstrate that weak Shareholder Rights likely bring about, and do not merely reflect, the use of longer-maturity debt.
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Shareholder Rights, Corporate Governance, and Auditor Selection: Evidence from Arthur Andersen
SSRN Electronic Journal, 2007Co-Authors: Pornsit JirapornAbstract:Grounded in agency theory, this study seeks to ascertain whether the severity of agency costs influences auditor selection among the Big Six auditors. Specifically, this article examines the association between the strength of Shareholder Rights and auditor choice. The evidence shows that firms where Shareholder Rights are weak have a tendency to select Arthur Andersen vis-a-vis the other Big Six. To the extent that Arthur Andersen represents lower audit quality, weaker Shareholder Rights are associated with poorer audit quality. This inclination to choose Andersen for firms with weak Shareholder Rights is not present, however, in regulated firms. I argue that this is because regulatory monitoring substitutes for external auditing and, hence, influences the association between Shareholder Rights and auditor choice.
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Dividend Policy, Shareholder Rights, and Corporate Governance
SSRN Electronic Journal, 2006Co-Authors: Pornsit Jiraporn, Yixi NingAbstract:Grounded in agency theory, this study explores agency costs as a determinant of dividend policy. Specifically, we examine how dividends are related to the strength of Shareholder Rights. The evidence reveals an inverse association between dividend payouts and Shareholder Rights, indicating that firms pay higher dividends where Shareholder Rights are more suppressed. This evidence is consistent with the substitution hypothesis (La Porta et al., 2000), which contends that firms with weak Shareholder Rights need to establish a reputation for not exploiting Shareholders. As a result, these firms pay dividends more generously than do firms with strong Shareholder Rights. In other words, dividends substitute for Shareholder Rights. Finally, there is evidence that regulation influences the association between dividends and Shareholder Rights.
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Share repurchases, Shareholder Rights, and corporate governance provisions
The North American Journal of Economics and Finance, 2006Co-Authors: Pornsit JirapornAbstract:Abstract Grounded in agency theory, this study seeks to explore how repurchase activity is influenced by the strength of Shareholder Rights. The empirical evidence shows that firms where Shareholder Rights are weaker tend to repurchase less stock. I argue that this is because managers of firms with weak Shareholder Rights are better able to exploit the weak Shareholder Rights and retain more cash within the firm, potentially to extract private benefits as alleged by the free cash flow hypothesis. Managers of firms with strong Shareholder Rights, on the contrary, are forced to disgorge cash to stockholders in the form of repurchases. In addition, I test the dividend-substitution hypothesis and find no evidence that repurchases substitute for dividends.
Vivek Singh - One of the best experts on this subject based on the ideXlab platform.
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Do Shareholder Rights influence the direct costs of issuing seasoned equity?
Review of Quantitative Finance and Accounting, 2019Co-Authors: Don M. Autore, Tunde Kovacs, Jeffrey Hobbs, Vivek SinghAbstract:We test the hypothesis that underwriters set higher gross spreads and deeper offer price discounts in seasoned equity offers of firms exhibiting weak Shareholder Rights as compensation for increased reputational risk and legal liability. Alternatively, if market participants are fully aware of the risks related to weak Shareholder Rights and efficiently price them, then underwriters arguably do not need to adjust issuance costs for firms with weak governance. Our results indicate that, on average, Shareholder Rights and direct issue costs are unrelated, supporting an efficient pricing view. However, upon closer examination, we find that underwriters charge higher gross spreads when the issuing firm has either an extremely low level of Shareholder Rights or a substantially lower level than expected, which are likely the cases in which the underwriter’s reputational risk is highest.
Martijn Cremers - One of the best experts on this subject based on the ideXlab platform.
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board declassification activism the financial value of the Shareholder Rights project
2017Co-Authors: Martijn Cremers, Simone M SepeAbstract:For three academic years (2011-2014), the Harvard Law School’s Shareholder Rights Project (SRP) operated a clinical program assisting institutional investors on board declassification proposals. This paper analyzes the SRP as a quasi-natural experiment to examine the value implications of classified boards. Consistent with the SRP causing exogenous declassifications, SRP targets that declassified their boards had greater ex-ante value and profitability than non-targeted companies declassifying in the same period. Declassifying SRP targets, and especially targets more engaged in research and innovation, declined in firm value after declassification, which wealth effect is directly attributable to declassification rather than other activism-related channels.
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Thirty Years of Shareholder Rights and Stock Returns
SSRN Electronic Journal, 2012Co-Authors: Martijn Cremers, Allen FerrellAbstract:This paper explores the robustness of the positive association between Shareholder Rights and abnormal stock returns (using the Fama-French-Cahart four factor model) and potential explanations thereof. Utilizing hand-collected Shareholder Rights data for the 1978-1989 period in conjunction with the existing post-1990 RiskMetrics data, we document that: (1) over the 1978-2007, the association is generally robust to a variety of controls and estimating abnormal returns at the portfolio or firm-level; (2) this association co-varies with merger and acquisition (MA (3) while being acquired and making acquisitions are both strongly associated with abnormal stock returns, these effects do not explain the positive association; and (4) once the four factor model is supplemented with the Cremers, Nair & John (2009) takeover factor – which captures risk associated with time-varying investment opportunities and thus relates to the state of the M&A market – the association disappears.
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Thirty Years of Shareholder Rights and Firm Value
SSRN Electronic Journal, 2010Co-Authors: Martijn Cremers, Allen FerrellAbstract:type="main"> This paper introduces a new hand-collected data set that tracks restrictions on Shareholder Rights at approximately 1,000 firms from 1978 to 1989. In conjunction with the 1990 to 2006 IRRC data, we track Shareholder Rights over 30 years. Most governance changes occurred during the 1980s. We find a robustly negative association between restrictions on Shareholder Rights (using G-Index as a proxy) and Tobin's Q. The negative association only appears after judicial approval of antitakeover defenses in the 1985 landmark Delaware Supreme Court decision of Moran v. Household. This decision was an unanticipated exogenous shock that increased the importance of Shareholder Rights.
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Weak Shareholder Rights: A Product Market Rationale
SSRN Electronic Journal, 2006Co-Authors: Martijn Cremers, Vinay B. Nair, Urs PeyerAbstract:In product markets where customers care about firm survival, strong Shareholder power, by affecting the likelihood that the firm will be acquired, can have detrimental implications on firm performance. We use a framework where firms choose their level of Shareholder Rights after comparing the costs of acquisition exposure, i.e, the loss of customers, with the synergistic benefits of an acquisition to generate two testable implications. First, we show that it is optimal to have weak Shareholder Rights in competitive markets. Second, we show that the link between weak Shareholder Rights and competition is stronger when the number of firms in the industry is lower. Using data on Shareholder Rights in the corporate charter, we find that indeed firms have stronger Shareholder Rights in concentrated industries and that this link is stronger in industries with fewer firms. Additionally, the link between concentration and Shareholder Rights is stronger in industries characterized by long-term customer relationships. We also document that weak Shareholder Rights are associated with worse performance only in non-competitive industries. We then discuss the implications of this framework for the design of various governance mechanisms. In conclusion, the paper provides a rationale for why Shareholders themselves might not want strong Shareholder Rights.
D. Willer - One of the best experts on this subject based on the ideXlab platform.
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The Development of Equity Capital Markets in Transition Economies: Privatisation and Shareholder Rights
1999Co-Authors: D. WillerAbstract:The thesis focuses on two issues that have arisen during the development of equity capital markets in transition economies. First, it has typically been observed that the divestiture of state assets in Russia has not been implemented comprehensively. Following an introductory chapter, the second chapter develops a model to explain this observation in an environment where the objective of the state is to maximize revenues from the sale of its shares on the equity capital markets. If the state has private information about the future macroeconomic environment or about potential improvements of the firms' qualities due to improved corporate governance it can signal its private information to investors. This can be achieved by choosing a percentage of the state's shareholdings to be held back from the immediate sales. A second issue which has typically slowed down the development of capital equity markets in transition economies has been the violation of Shareholder Rights. Governments have often not guaranteed such Rights. However, management might have incentives to introduce Shareholder Rights voluntarily. The third chapter develops a simple static framework to think about the issue of Shareholder Rights and tests some of its predictions. The chapter presents evidence from a sample of the 140 largest Russian joint stock companies. Only a minority of firms in this sample do honour Shareholder Rights and the chapter analyzes which firms are more likely to do that. It turns out that large firms are more likely to introduce Shareholder Rights, possibly because the expected value of stealing profits is smaller. Furthermore, there is some evidence that large outside blockholders, as well as the state in its role as Shareholder, are able to press for Shareholder Rights. The fourth chapter develops a dynamic model for the introduction of Shareholder Rights where the firm's ownership is endogenised. The chapter shows that in the short nm, management might be willing to introduce Shareholder Rights in case it has received a sufficiently large portion of the firm's voting shares in the privatization process. In the long term, more firms will introduce such Rights, but only after they have stolen a sufficient part of the firms profits to build up a large equity stake.
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Corporate Governance without State Guaranteed Shareholder Rights
Contributions to Economics, 1999Co-Authors: D. WillerAbstract:In the previous chapter a simple model has been proposed to provide a framework to analyse the behaviour of management with respect to outside Shareholders. The main limitation of that model is that it is embedded in a static setting and does not allow for changes in ownership. However, as reported in chapter 1, Blast and Shleifer (1996) and Blasi et al (1997) find that the ownership of top management is increasing over time. This chapter addresses these dynamic aspects by developing a richer model where management can acquire or sell shares in the firm. The chapter argues that the problem of the lack of Shareholder Rights should be mitigated, but most likely only in the long run. In particular, this chapter analyses a game between managers and investors, where managers have the choice to introduce Shareholder Rights or not. The introduction of Shareholder Rights limits the amount of profits that can be stolen1. Investors are only willing to finance new projects if they anticipate earning the required rate of return. In such a set-up managers realize that they can be better off honouring Shareholder Rights as the amount of new projects they can undertake can be very limited without the guarantee of such Rights. Furthermore, if managers want to sell some of their own shares they are interested in high shareprices and therefore in honouring Shareholder Rights. However, this chapter shows that in the short run, these effects are only strong enough if management already owns a large enough percentage of shares at the outset.
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Shareholder Rights in Russia: An Empirical Investigation
Contributions to Economics, 1999Co-Authors: D. WillerAbstract:This chapter aims to analyse the factors that determine whether firms in a sample of 140 Russian firms choose to introduce Shareholder Rights in order to mitigate the agency problems between managers and Shareholders. In terms of existing literature, this chapter should be seen in the context of La Porta et al (1996) The authors have shown that the legal set-up matters with respect to the ownership arrangement of joint stock companies. Countries with relatively weak legal protection of share ownership tend to have more concentrated ownership structures. Russia presents a textbook case of a country where legal institutions are underdeveloped and where the enforcement of laws cannot be relied upon. It therefore provides an interesting case study.
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Corporate governance and Shareholder Rights in Russia
LSE Research Online Documents on Economics, 1997Co-Authors: D. WillerAbstract:In an environment where Shareholder Rights cannot be enforced, management might choose to honour these Rights out of self interest. This paper presents evidence from a sample of the 140 largest Russian joint stock companies, of which only a minority of firms do honour Shareholder Rights. These firms tend to have higher valuations on the equity market. On the other hand, the introduction of Shareholder Rights reduces the possibilities for management to steal. This paper develops a simple model and gives some empirical evidence on which firms are likely to choose to honour Shareholder Rights. In particular, I find that larger firms are more likely to honour Shareholder Rights, possibly because of the expected of stealing profits is smaller as the likelihood of punishment in the case of detection is higher. Furthermore, there is some evidence that large outside blockholders, as well as the state in its role as Shareholder, are able to press for Shareholder Rights.
Issam Hallak - One of the best experts on this subject based on the ideXlab platform.
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Do Shareholder Rights Affect Syndicate Structure? Evidence from a Natural Experiment
SSRN Electronic Journal, 2012Co-Authors: Sreedhar T. Bharath, Sandeep Dahiya, Issam HallakAbstract:Greater (Lesser) Shareholder Rights are likely associated with higher risk-shifting incentives, which in turn requires more (less) intensive monitoring by the lenders. We hypothesize that as Shareholder Rights are reduced, the need to form more concentrated (i.e. monitoring intensive) syndicates would be reduced as well. We use the passage of second generation antitakeover laws in the United States as an exogenous shock that reduced Shareholder Rights for the firms located in the states that adopted these laws. Using this natural experiment, we find that loan syndicates became signicantly more diffused after the passage of these laws. These natural experiment results are confirmed using a large sample of bank loans made during the 1990-2007 period, where we employ G-Index of Gompers, Ishii, and Metrick (2003) as a measure of Shareholder Rights. Wefind that the lending syndicates for borrowers with low G-Index (i.e. high Shareholder Rights) are signicantly more concentrated. Our results have important implications for understanding the link between corporate governance and the design of loan syndicate structure.
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Shareholder Rights and Syndicate Structure
2010Co-Authors: Sandeep Dahiya, Issam HallakAbstract:We examine the structure of lending syndicates formed to provide credit to the non- financial U.S. firms between 1990 and 2007. We find a significant relationship between the level of Shareholder Rights (as proxied by GIndex) of the borrowing firms and composition of their lending syndicate. Higher Shareholder Rights (i.e. low GIndex) firms are associated with a more concentrated syndicate (both in terms of Her findahl index of share of loans retained by syndicate members as well as the percent of total loans retained by the lead bank). More concentrated syndicates reflect the need for stronger monitoring by the lead lender. We test two alternative explanations as to why high Shareholder right borrowers need more intense monitoring implied by higher lender syndicate. First, we test if the higher syndicate concentration observed for borrower with stronger Shareholder Rights, arises due to potential syndicate members anticipating a greater risk of such borrowers being acquired. The higher take-over likelihood could be interpreted by the lenders as a potentially higher future financial risk. Thus, the more concentrated syndicate structure arises to mitigate this risk. The second potential explanation we test is based on agency theory of debt. For firms with high Shareholder Rights, managers are arguably better aligned with the firm's Shareholders. Lenders to such firms would be especially concerned about risk-shifting behavior where managers may choose projects with excessive risk leading to wealth transfer from the lenders to the Shareholders. We find support for the risk-shifting argument for syndicate structure. We do not find strong evidence that potential lenders take the risk of take-over into account when forming the lending syndicate.
