Best Interests Of Shareholders Research Articles

The impact of corporate social responsibility on the performance of mergers and acquisitions: European evidence

Corporate social responsibility (CSR) and its impact on corporate value has been widely debated. Two opposing views have emerged: stakeholder value maximization and shareholder expense. In this study, we explore these perspectives within the realm of mergers and acquisitions (M&A), one of the most important and far-reaching corporate decisions. Specifically, we examine whether the CSR of the acquiring company impacts M&A performance by analyzing a European sample of 1549 M&A deals announced between 2005 and 2019. Our findings indicate that CSR has a negative effect on stock performance around the M&A announcement, which aligns with the shareholder expense view. We argue that in Europe, where corporate social responsibility (CSR) is already elevated as a result of EU policies and regulations, additional CSR investments may not align with the best interests of shareholders. This serves as an illustration of a Too-Much-Of-A-Good-Thing Effect. However, we also see that CSR has no significant effect on operating performance, which may indicate a financial bias of capital market participants or suggests that investors weigh their own cost-benefit considerations when assessing acquirers' CSR performance.

Board independence, CEO tenure, and private firm performance in Nairobi, Kenya

Governing board members includes a mix of non-executive and executive members who seek the best interests of shareholders. Non-executive board members relay on independence to execute their responsibilities and enables better firms’ performance. The independent board members are vetted in by shareholders to reduce agency problems. The study aims to establish how Chief executive officer tenure influence independent board members on decision making to enhance firm performance. Agency theory and stewardship theory were utilized in the study. The explanatory research design was used 371 private firms were the sample size. Data was collected using structured questionnaires. Hierarchical multiple regression models were used to test for direct effect and moderation effect. According to the findings, board member independence is critical for monitoring the CEO and reducing principal-agent conflict, hence enhancing business performance. The independence of board members is critical for organizations to remain inventive and competitive in order to improve firm performance.

Proxy favors: Confidential proxy voting with institutional dual holders

AbstractResearch Question/IssueFor firms with institutional dual holders, is proxy voting affected by whether the vote is confidential? Does confidential voting affect firms' cost of debt?Research Findings/InsightsConsistent with social exchange theory and reciprocity norms, we find that, in the absence of confidential voting, firms with institutional dual holders gain more favorable votes for proposals and, in particular, for management‐sponsored compensation proposals. Further, these firms pay a higher cost of borrowing. This reciprocity relation does not exist if the firm has confidential voting in place.Theoretical/Academic ImplicationsThe results are consistent with reciprocity norms creating a psychological obligation to repay valuable favors between firm managers and institutional dual holders when proxy votes are not confidential.Practitioner/Policy ImplicationsThe findings support the popular position that confidential voting is in the best interests of shareholders and rigorous external corporate governance.

CORPORATE MANAGEMENT OF ELECTRICITY COMPANIES: PROBLEMS AND PERSPECTIVES

The utilities are distinguished by significant material and financial power, exceptional market power, the realization of large revenues, employing several thousands of workers, whose results represent a significant part of the GDP. The utilities are of great economic forces, they represent an economic synthesis between management, labor and capital, giving an identity to the company in a given socio-economic environment. The particularities of a corporate-type company come from different missions that give it an identity, but also from the pluralism of interests of different stakeholders – interested parties. The basic requirement for a modern corporation is to create wealth for the key interest groups, i.e. stakeholders, in the way that suppliers of financial inputs ensure returns on their investment. Therefore, good management of the utilities is of crucial importance for realizing their positive contribution to economic efficiency and competitiveness.Corporate management is the process of managing, directing and supervising the operations of an utility, in order to create value for shareholders, assess investment risk and the expected rate of return on investments, as well as supervise capital investments, and at the same time protect the interests of other stakeholders. Corporate management is a monitoring mechanism for evaluating corporate responsibility and reliability through: boards of directors, supervisory board, audit committees, management and auditors. Corporate management would not be necessary if management acted in the best interest of shareholders and if corporate guardians: boards of directors, legal advisors and certified public accountants, efficiently performed their entrusted tasks and professional responsibilities. Therefore, the corporate management structure promotes the trust of the company by increasing the transparency of the financial reporting process, based on the corporate management standards adopted by the Organization for economic cooperation and development (OECD).

Consequences of earnings management triggered by delisting regulation: Evidence in China

This paper investigates the consequences of earnings management triggered by earnings-based delisting regulations in China. Our main finding is that there is a positive relationship between earnings management to avoid delisting by firms subject to delisting regulations and the subsequent performance, measured by operating performance and recurrence of losses. The results are robust to the various performance measures, including gross margin, assets turnover, and probability of bankruptcy, indicating that performance improvement is supported by fundamentals. Although previous literature documents that firms subject to delisting opportunistically manage their earnings to circumvent regulations, the implementation of earnings management in the context of delisting regulations is in the best interest of shareholders. We confirm this argument by showing positive market consequences of earnings management induced by delisting regulations.

The role of corporate governance towards insider trading profitability

PurposeAn effective corporate governance system helps to smoothly run business operations and manage financial matters. To ensure that management behavior is ethical, and their decisions are in the best interest of shareholders, corporate governance plays a vital role. This study aims to examine the impact of corporate governance on the insider trading profitability of listed banks in Pakistan, Bangladesh and India.Design/methodology/approachThe authors take data from the financial statements of 70 listed banks and stock exchanges of the respective countries. The period of the data for our study is from 2010 to 2020. The authors use board independence, the board size, institutional ownership and managerial ownership as measures of corporate governance characteristics. While inside trading profitability is measured with abnormal returns. The authors apply the fixed effect panel regression for hypothesis testing and the two-step dynamic panel system-generalized method of moments (GMM) regression technique for checking the robustness of the findings.FindingsThe authors found that corporate governance has a significant impact on insider trading profitability in Pakistan, Bangladesh and India. Board independence and institutional ownership are negatively related while board size and managerial ownership are positively associated with insider trading profitability.Originality/valueTo the best of our knowledge, this study is the first one to explore the role of corporate governance in limiting insider trading on South Asian banks. It recommends that corporations should follow the code of corporate governance for the protection of shareholders' and other investors' profits.

PENGARUH TAHAP DAUR HIDUP PERUSAHAAN, KEBIJAKAN DEVIDEN, DAN KEBIJAKAN HUTANG TERHADAP WEALTH ADDED INDEX

One of the company's goals is to measure the company's performance. The separation of ownership from management in the company creates agency problems. Managers who run companies and usually do not own shareholdings should not act in the best interests of shareholders because they are maximizing their own wealth. This study is to test whether there is an effect of agency costs (spread of ownership and managerial ownership), stages of the company's life cycle, and dividend policy on the wealth added index. The population in this study are companies listed on the SWA100 index. The observation sample was selected using purposive sampling method. The analysis technique used is multiple regression analysis, the significance level used is 5%. The steps taken in this study went through several stages, namely: identifying problems, planning actions, and implementing actions.

The Properties of Interlocking Directorates in the Philippines: An Exploratory Analysis

Governance has become an increasingly important factor in the investment decisions of firms and investors. Thus, it is important to determine the quality and composition of corporate boards, which are vital overseers who act in the best interests of shareholders to improve and strengthen them. While interlocking directorates are not a recent occurrence in the Philippines, updated literature on the structure of the country’s board interlock network is sparse. Thus, this study provides a baseline snapshot by analyzing all 251 publicly-listed companies on the Philippine Stock Exchange at the director and board levels. More so, the study utilizes social network analysis tools to describe the properties of interlocking directorates and visually maps out the social network that underpins these relationships. It reveals that the board network is extensive, with almost 90% of firms connected, thanks to a handful of key directors who have high degrees of connectivity.

CEO option incentives and corporate share repurchases

In this paper, we study the effects of CEOs option incentives on firms' payout and investment policies. On the company's payout side, we find strong evidence that high CEO option sensitivity to stock prices causes more share buybacks and fewer cash dividends. Furthermore, the impact of option incentives on share repurchases is more pronounced when the stock is undervalued. On the investment side, we find that higher exercisable option-delta CEOs direct fewer resources to R&D investments and employment. We use instrument variables two-stage least square regressions and simultaneous system equations regressions to address remaining endogeneity concerns and establish causality. Further analyses reveal that firms in the top exercisable option-delta quintile experience deterioration in performance following buybacks, suggesting that CEOs' repurchasing decisions are significantly influenced by stock price concerns and that they may not act in the best interest of shareholders in the long-term.

The Role of Family Ownership in the Relationship between Board Characteristics and Corporate Social Environmental Reporting: Evidence from Malaysia

ABSTRACT The objective of this paper is to investigate the role of family ownership in the relationship between board of directors (BOD) characteristics and the reporting of corporate social and environmental practices (CSER). BOD is one of the corporate governance mechanism put in place to ensure that the company is managed to the best interest of shareholders. However, previous findings on the relationship between BOD characteristics and CSER are inconclusive. The effectiveness corporate governance mechanisms including BOD characteristics is claimed to be influenced by cultural and societal norms. Hence, this study adds to the understanding of the role of BOD in reporting practices of companies in Malaysia. In addition, given the mixed findings on the relationship of BOD and CSER, this study also investigates the role of family ownership. This paper suggests that the relationship between BOD and CSER is weaker in family-owned companies because the owner tends to safeguard the information, hence lower disclosure is evidenced. Malaysia is unique in the sense than around 70% of companies are owned by families and this provide a good setting for the study. Cross-sectional sample of 136 public listed companies are selected using systematic stratified random sampling methods. BOD characteristics to be investigated are female on Board (FB), board independence (BI), board size (BS) and CSR committee (CC). The CSER is assessed by content analysis, and PLS-SEM is used for data analysis. The results indicate that all of the BOD characteristics tested in this study except for board size, have significant positive relationship with CSER. However, the moderating role of family ownership is not supported. Keywords: Family ownership; board characteristics; corporate social and environmental reporting; corporate governance; Malaysia; disclosure

Corporate governance challenges and opportunities in mitigating corporate fraud in Malaysia

PurposeThis study aims to examine the relationship between corporate governance and the likelihood of corporate fraud in Malaysia.Design/methodology/approachThe sample of fraudulent companies in this study is the public listed companies that were charged with furnishing false statements to the Securities Commission of Malaysia and Bursa Malaysia Securities Berhad and was listed in the Malaysian Securities Commission Enforcement Release from the year 2000 to 2016. The non-fraudulent companies, which are the control companies in this study, were selected from public listed companies listed in Bursa Malaysia, based on their similarity to the fraudulent companies in terms of time, size and industry type. The panel probit regression analysis was used to examine the relationship between corporate governance characteristics and the occurrence of corporate fraud.FindingsThe findings of this study suggest that board size and executive directors’ compensation are the corporate governance characteristics that can effectively combat corporate fraud incidences in Malaysia. The corporate governance features, namely the board of directors’ independence, frequency of board meetings, CEO duality, CEO’s age, and share ownership owned by directors and CEO, do not significantly influence corporate fraud incidences in Malaysia.Originality/valueAlthough previous studies provide inconsistent findings on the association between board size and corporate fraud incidences, this study contributes to the existing literature by providing empirical evidence that smaller board sizes provide more effective monitoring functions to minimize corporate fraud incidences in the Malaysian context. The empirical evidence also supports the agency theory proposition where managers with high compensation will act in the best interest of shareholders and less likely to focus on their interests, thus deterring them from committing fraudulent acts.

Earnings Management to Avoid Debt Covenant Violations and Future Performance

In this study, we examine the trade-offs between earnings management (both accruals and real) and covenant violations by examining how they are associated with future accounting and stock market performance. We analyze a matched-pair sample of covenant violation firms with non-violation firms that have a similar risk of a covenant violation. We have three main findings. First, our evidence indicates that covenant violations are costly events for shareholders as lenders appear to use their control rights in ways that increase the likelihood of loan repayment but impose costs for shareholders. Second, there is limited evidence indicating covenant-related accrual-earnings management activities impose significant costs on shareholders, but we find shareholders are worse off following unsuccessful real earnings management. Third, our evidence indicates that, on average, shareholders at high violation risk firms are better off when their firms successfully engage in accruals earnings management to avoid a violation compared to shareholders at firms that violate a covenant but do not manage earnings. Thus, covenant-related earnings management may be in the best interests of shareholders and is not necessarily evidence of shareholder-manager agency conflicts.

Earnings Management to Avoid Debt Covenant Violations and Future Performance

In this study, we examine the trade-offs between earnings management (both accruals and real) and covenant violations by examining how they are associated with future accounting and stock market performance. We analyze a matched-pair sample of covenant violation firms with non-violation firms that have a similar risk of a covenant violation. We have three main findings. First, our evidence indicates that covenant violations are costly events for shareholders as lenders appear to use their control rights in ways that increase the likelihood of loan repayment but impose costs for shareholders. Second, there is limited evidence indicating covenant-related accrual-earnings management activities impose significant costs on shareholders, but we find shareholders are worse off following unsuccessful real earnings management. Third, our evidence indicates that, on average, shareholders at high violation risk firms are better off when their firms successfully engage in accruals earnings management to avoid a violation compared to shareholders at firms that violate a covenant but do not manage earnings. Thus, covenant-related earnings management may be in the best interests of shareholders and is not necessarily evidence of shareholder-manager agency conflicts.

Earning Management and the Effect Characteristics of Audit Committee, Independent Commissioners: Evidence from Indonesia

This study aimed to investigate the effect of the independent commissioner and of the characteristics of the audit committee (measured by auditor size, independence, expertise, and activities) on the efficient or opportunistic earnings management. In terms of those companies listed on Indonesia Stock Exchange. The sample consists of 186 observations of those manufacturing companies in Indonesia Stock Exchange during the 2013-2018. Using panel regression fixed effect method, independent commissioners are found to have a significant effect on reducing earnings management. Based on The Positive Accounting Theory, the efficient perspective will occur when the compensation contract and internal control system, including monitoring done by the board of commissioners, limit the common view opportunistic manager and motivate the manager to choose the right accounting policy. The effective monitoring conducted by an independent commissioner can reduce agency costs because management prioritizes the best interests of shareholders by maximizing company resources. Furthermore, it was found that audit committee size can reduce earning management. It is due to the wide range of skills possessed by audit committee members to exercise oversight over management. Audit committees with accounting and financial expertise can reduce earnings management. This part of finding indicates that audit committee may tend to uphold conservative as accounting mechanism. Accounting conservatism has an important role to play in restricting opportunistic management behavior.

Earning Management and the Effect Characteristics of Audit Committee, Independent Commissioners: Evidence From Indonesia

This study examines whether companies listed Indonesia Stock Exchange conduct efficient or opportunistic earning management and to investigate the effect the Independent Commissioner and the Characteristics of the Audit Committee (measured by Auditor Size, Independence, Expertise, and Activities) on it. The sample consists of 186 observations of manufacturing companies in Indonesia Stock Exchange during the 2013-2018. Using Panel Regression Fixed Effect method, we find evidence that Independent Commissioners has a significant effect on reducing Earnings Management. The Positive Accounting Theory-the efficient perspective occurs when the compensation contract and internal control system, including monitoring by the board of commissioners, will limit the common view opportunistic manager and motivate the manager to choose the right accounting policy. The effective monitoring conducted by an independent commissioner can reduce agency costs because management prioritizes the best interest of shareholders by maximizing company resources. Furthermore, it was found that Audit Committee Size can reduce earning management. It is due to the wide range of skills of audit committee members in exercising oversight on management. Audit Committees with accounting and financial expertise can reduce earnings management. This finding indicates that the Audit Committee may tend to uphold conservative as accounting mechanism. Accounting conservatism has an important role in restricting opportunistic management behavior.

How Does Directors’ Remuneration and Board Structure Impact on Firm Performance in Malaysia Telecommunication Industry?

Remuneration is broadly used as an incentive that affects decisions made and strategies planned by directors which cause great impact on firm performance. This study aims to investigate the relationship among directors’ remuneration, board size, and firm performance of Malaysian listed companies under Telecommunication Industry. The firm’s performance is measured by return on assets (ROA). This study consists of 25 observations with a sample of five Malaysian listed companies for the period of 2013 to 2017. The regression results show directors’ remuneration and board size have negative relationship with firm performance. This suggests that high remuneration does not able to motivate and retain directors in order to perform their duty and work harder for the best interest of shareholders. The result also shows that larger boards unable to ensure effectiveness in monitoring management and thus, did not associated with better performance. For future research, it is recommended that this study be expanded using more samples from other industries and other measurement of firm performances such as growth and ratings.

A Nontechnical Guide on Optimal Incentives for Islamic Insurance Operators

The takaful industry is searching for an optimal model for Islamic insurance operation, which has turned out to be a challenging task. This paper translates the abstract scientific knowledge accumulated in the optimal contracting literature into a simple, nontechnical, analytical framework to analyze alternative business models which could be used by regulators to align the best interest of shareholders and policyholders in the takaful industry. This paper shows that the wakalah–surplus-sharing hybrid serves as the optimal structure for takaful operation; in the presence of Akerlof’s (1982) gift-exchange, the wakalah fee reduces the adverse selection problem; and the wakalah fee could be used to protect infant takaful operators.

Directors’ Remuneration and Firm’s Performance: A Study on Malaysian Listed Firm under Consumer Product Industry

Remuneration is broadly used as an incentive that affects decisions made and strategies planned by directors which cause great impact on firm performance and profitability. This study aims to investigate the directors’ remuneration of the consumer products sector focusing particularly on Malaysian listed companies under Consumer Product Industry. These firm’s performances are measured by return on assets (ROA) and return on equities (ROE). This study consists a sample of 40 Malaysian listed companies for the period of 2012 to 2014. After controlling for board size, CEO duality, firm size, firm age, and leverage; the regression results show director remuneration has positive relationship with firm performance (measured by ROA and ROE). This suggests that high remuneration is able to motivate and retain directors in order to perform their duty and work harder for the best interest of shareholders. The result also shows all variables affect firm performance differently. For future research, we recommend that this study be expanded using more samples from other industries and other measurement of firm performances such as growth and ratings.

Does Corporate Governance Matter More for High Financial Slack Firms?

The effect of corporate governance may depend on a firm’s financial slack. On one hand, financial slack may be spent by managers for their private benefits; a high level is likely associated with severe agency conflicts. Thus corporate governance matters more for high financial slack firms (i.e., the wasteful spending hypothesis). On the other hand, financial slack provides insurance against future uncertainties; a low level may signal deviations from the best interests of shareholders. Then corporate governance is more effective for low financial slack firms (i.e., the precautionary needs hypothesis). We differentiate the two hypotheses using the passage of antitakeover laws to identify exogenous variation in governance. Consistent with the wasteful spending hypothesis, the laws’ passage has a larger negative impact on the operating and stock market performance of high financial slack firms. Further analysis shows that these firms do not invest more but become less efficient at cost management after the laws’ passage. This paper was accepted by Wei Jiang, finance.

Bankers on the Board and CEO Incentives

ABSTRACTThe Sarbanes‐Oxley Act demanded the presence of more financial experts on corporate boards to improve governance. Directors from lending banks require particular attention because of the conflicts of interest between shareholders and debtholders despite their financial expertise. In this paper, we examine whether commercial banker directors work in the best interests of shareholders in providing incentives to the CEO. We find that the CEO's compensation VEGA is lower if an affiliated banker director is on the board. Further, we find that commercial banker directors increase debt‐like compensation (Sundaram and Yermack, 2007) and make it less sensitive to risk.