Brussels Stock Exchange Research Articles

Voluntary Audit Committee Formation and Practices among Belgian Listed Companies

In this paper we investigate some factors that are associated with voluntary audit committee formation in a non‐Anglo‐Saxon environment (and where audit committee formation is voluntary, even for listed companies). For those companies that voluntarily instaled an audit committee we also present evidence on their working practices. We use data from Belgian listed companies for that purpose. Consistent with previous Anglo‐Saxon research, we find that voluntary audit committee formation is positively correlated with the proportion of independent directors on the board of directors and external audit‐firm size. Contrary to prior studies, we do not find that agency costs and board size are associated with voluntary audit committee formation. As to working practices, we find that a substantial amount of Belgian‐listed companies do not comply with the recommendations of the Brussels Stock Exchange regarding audit committees, as about 50% of these companies has no audit committee. Those companies that do have an audit committee perform quite well according to the Belgian recommendations, but not according to recently formulated (tougher) US requirements, as they typically do not include a financial expert nor disclose the audit committee charter.

Ownership, managerial control and the governance of companies listed on the Brussels stock exchange

Abstract This paper examines how corporate control is exerted in companies listed on the Brussels Stock Exchange. There are several alternative corporate governance mechanisms which may play a role in disciplining poorly performing management: blockholders (holding companies, industrial companies, families and institutions), the market for partial control, debt policy, and board composition. Even if there is redundancy of substitute forms of discipline, some mechanisms may dominate. We find that top managerial turnover is strongly related to poor performance measured by stock returns, accounting earnings in relation to industry peers and dividend cuts and omissions. Tobit models reveal that there is little relation between ownership and managerial replacement, although industrial companies resort to disciplinary actions when performance is poor. When industrial companies increase their share stake or acquire a new stake in a poorly performing company, there is evidence of an increase in executive board turnover, which suggests a partial market for control. There is little relation between changes in ownership concentration held by institutions and holding companies, and disciplining. Still, high leverage and decreasing solvency and liquidity variables are also followed by increased disciplining, as are a high proportion of non-executive directors and the separation of the functions of CEO and chairman.

Insider control by large investor groups and managerial disciplining in listed Belgian companies

Defines corporate governance, describes the special characteristics of Belgian companies and presents a study of the disciplining of bad management in 165 companies listed on the Brussels stock exchange 1989‐1996. Finds that poor share price performance is generally linked to a higher turnover of directors except in holding companies and that several measures of poor accounting performance are linked to higher director and CEO turnover, although there is more resistance to this in large companies and less in those with a higher proportion of non‐executive directors or total/foreign ownership. Shows that negative after‐tax earnings lead owners with strong monitoring abilities (e.g. holding companies) to increase their stake while others (e.g. families and institutional shareholders) reduce it; and that CEO replacement is followed by increased dividends. Summarizes the findings, noting the differences between the finance sector and others.

Shareholding Cascades: The Separation of Ownership and Control in Belgium

This paper analyses the control of Belgian listed companies. The analysis reveals that control of listed companies in Belgium is highly concentrated. Business groups, holding companies, and voting pacts, play an important role in bringing about this concentration. The main characteristics of the Belgian corporate ownership and equity market can be summarised as follows: (i) few - merely 140 - Belgian companies are listed on the Brussels stock exchange, (ii) there is a high degree of ownership concentration with an average largest direct shareholding of 45%, (iii) holding companies and families, and to a lesser extent industrial companies, are the main investor categories whose share stakes are concentrated into powerful control blocks through business group structures and voting pacts, (iv) control is levered by pyramidal and complex ownership structures and (v) there is a market for share stakes.

Corporate groups, liquidity, and overinvestment by Belgian firms quoted on the Brussels stock exchange

For a sample of large Belgian non-financial firms quoted on the Brussels stock exchange, it is found that investment of firms borrowing on an internal capital market is not determined by internal cash flow, while cash flow has a significant effect on investment for the other firms in the sample. Further analysis indicates that the cash flow effect is caused by overinvestment, not by financing constraints. No evidence is found that firms borrowing on an internal capital market in turn transfer surpluses of funds to other group members by investing in financial fixed assets. © 1998 John Wiley & Sons, Ltd.

Corporate groups, liquidity, and overinvestment by Belgian firms quoted on the Brussels stock exchange

Corporate groups, liquidity, and overinvestment by Belgian firms quoted on the Brussels stock exchange

Estimation of risk on the Brussels Stock Exchange: Methodological issues and empirical results

The primary focus of this paper is to assess models of beta estimates and to appraise their relative ability to forecast the beta parameter in a thin market, the Belgian market. The evidence, using Belgian data, is contrasted with previously reported results using American, U.K. and French data. The adjustment procedures designed by Vasicek (1973), Scholes and Williams (1977) and Dimson (1979) were tested. The results suggest that these adjustment procedures are misspecified and provide biased results. The results also suggest that the simple OLS technique may be the best method to obtain estimates of the systematic risk when dealing with a thin market such as the Brussels Stock Exchange.

Shareholding Concentration and Pyramidal Ownership Structures in Belgium: Stylized Facts

This paper provides an overview of the main characteristics of the ownership structures of the Belgian companies quoted on the Brussels stock Exchange. Prior to the changes in corporate law regarding ownership disclosure in 1989 little was know about ownership and control. We show that the Belgian equity market has some similarities with equity markets of its Continental European neighbors : relatively few Belgian companies are listed and there is a high degree of ownership concentration. In addition, control is levered via pyramidal and complex ownership structures. Ultimate owners in such control chains are not only families and industrial companies but predominantly widely held holding companies that with relatively small cash flow rights, exercise substantial control rights.

Ownership, Managerial Control and the Governance of Companies Listed on the Brussels Stock Exchange

This paper addresses the question of how corporate control is exerted in poorly performing listed companies in Belgium. We examine the efficiency of new regulations proposed in Belgium and the neighboring countries by studying whether the board's composition and structure is instrumental for adequate monitoring proxied by enforced management turnover. We find that in poorly performing companies with a high non- executive board representation, management is more frequently disciplined. The fact that the level of total concentrated cumulative ownership is positively related to board turnover when performance is poor supports the hypothesis that major shareholders will monitor the company if the free rider costs of control are low. Monitoring activity is related to the type of owner. The institutional shareholders are not actively involved with disciplining management whereas board turnover is positively correlated to the presence of substantial share stakes held by industrial companies, families and holding companies. We also examine the extent to which sales of stakes and changes in concentration of ownership are associated with poor performance. This market for share stakes might be an important complement to the 100% changes in ownership (the external market for corporate control). We identified high quality monitors as those shareholders who increase their ownership when performance is poor. Such shareholding increases are followed by management restructuring in order to allow management to improve performance.

Semi-annual earnings announcements and market reaction: some recent findings for a small capital market

This paper tries, first, to document the returns response of stocks to unexpected semi-annual earnings after the announcement of these earnings in a small capital market, i.e. the Brussels Stock Exchange (hereafter BSE), and second, to assess the explanations and empirical problems found in the literature concerning the post-earnings announcement drift. The motivation for this research is the introduction of new Belgian legislation initiating the reporting of the semi-annual results of the firms listed on the BSE (Royal Decree of 18 September 1990). We also attempt to avoid potential empirical problems of earlier Belgian studies and use some techniques more comparable with those of recent American studies. The results show that systematic post-earnings announcement drift is found neither for the market mode, nor for the size-adjusted returns model. The results also suggest that the market model is not a descriptively valid pricing model for the BSE or that its parameters are misspecified. When we distingu...

Dividend Signalling Equilibria: Quantitative Evidence From The Brussels Stock Exchange

AbstractThe objective of this research is to document the market reaction to dividend changes on the Brussels Stock Exchange and to relate it to information releases by the firms. The results show important differences between Belgian investors' behavior and U.S. investors' behavior. On the Brussels Stock Exchange, when companies use dividends as the usual way to remunerate stockholders, the market reaction to unexpected dividend changes is weak and statistically insignificant. The market reaction to dividend initiations is also quite insignificant. However, when companies both release information regarding their activities (commercial, financial, or social information) and initiate dividends, the market reaction is comparable to what has been documented in previous U.S. studies.

The intervalling effect bias in beta: A note

Based on a comprehensive sample of domestic securities traded on the Brussels Stock Exchange, this paper points out the intervalling effect in the estimated betas and examines the speed of convergence of these. The results reveal that the estimated betas seem to converge to their asymptotic values and that their value depends on what day the differencing interval starts. It also appears that the magnitude of the intervalling effect is inversely related to the market value of the firms.

Market Index Specification and Estimation of Risk on the Brussels Stock Exchange

This paper demonstrates that the level of autocorrelation in the market index returns of the Brussels Stock Exchange depends on the number of securities which make up the index as well as their price adjustment delay. It also shows that the value of the systematic risk depends on both the choice of an index and the length of the differencing interval used to calculate the returns. Furthermore it highlights the fact that autocorrelation coefficients and systematic risk coefficients also exhibit seasonal fluctuations.

New evidence on beta stationarity and forecast for belgian common stocks

Based on a comprehensive sample of 170 securities traded continuously on the Brussels Stock Exchange from December 1966 to December 1983 this paper presents evidence which indicates that the stationarity of beta-coefficients is not as strong as reported in previous studies which were based on smaller samples. It is shown, however, that beta forecast can be generally improved using an adjustment method and that the improvement is highest for portfolios of increasing size.

Organization Form, Residual Claimants, and Corporate Control

EUGENE FAMA and Michael Jensen's treatment of the "Separation of Ownership and Control" is both insightful and informative. It deepens our understanding of corporate control, and the analysis of residual claimants usefully extends the economics of internal organization to include partnerships, mutuals, nonprofits, and the like. The basic argument is this: specialized governance structures arise in response to the efficiency needs of each type of organization. This is an important argument and one with which I broadly concur. They couple this, however, with a strong suggestion that these structures have reached a high degree of refinement-on which account there is not now, if indeed there ever has been, an organization control problem with which scholars and others are legitimately concerned. On this point I have grave doubts. My discussion of the paper addresses three issues: What is the relation, if any, of the hierarchical organization of the firm to economic performance? What relation, if any, does residual claimant status have to the composition and character of the board of directors? And is there now or has there ever been a corporate control problem? I deal with each of these issues in order.

The pricing of risky assets on the Belgian stock market

This paper presents the first empirical examination of the relationship between the average return and the risk of a comprehensive sample of 200 securities which traded continuously from 1966 to 1980 on the Brussels Stock Exchange, a relatively thin equity market. Based on our empirical findings, we cannot reject the hypothesis that the pricing of common stocks on the Brussels Stock Exchange conforms to the Capital Asset Pricing Model.

Stock market behaviour of merging firms: The Belgian experience

This paper shows that mergers are especially beneficial to shareholders of acquired firms. Those are generally companies experiencing abnormally low rates of return, on the Brussels Stock Exchange, before announcement of the merger. The opposite is true of acquiring companies. Statistically significant increases in volumes of transactions accompany acquisitions.