CEO Ownership Research Articles

Founder CEOs, personal incentives, and corporate social irresponsibility

AbstractThis study integrates organizational identity (OI) theory and upper echelons theory to explore the impact of CEOs’ founder status on corporate social irresponsibility (CSI). We theorize that compared with other CEOs, a founder CEO is more likely to generate a high degree of OI with the firm, which will drive the founder CEO to actively avoid CSI that may damage the positive image and long‐term development of the firm. Furthermore, we argue that CEO duality and CEO ownership will strengthen the aforementioned relationship by increasing the possibility of founder CEOs generating a high degree of OI. Conversely, CEO underpayment will weaken the relationship between founder status and CSI by decreasing the possibility of founder CEOs generating a high degree of OI. We obtained empirical evidence in support of our arguments from a large Chinese private listed company dataset. Overall, this study’s theory and evidence clearly show that founder status and personal incentives can jointly shape CEOs’ CSI decisions, thereby providing useful insights for corporate shareholders and government agencies to better prevent and govern firms’ CSI.

Has the past really passed? Strategic inertia and capital structure persistence

Capital structure persistence is an important phenomenon in corporate finance, but we still know little about how strategic inertia influences firms' capital structure persistence. Using a sample of Chinese listed firms during 2004–2016, our results show that strategic inertia can facilitate the persistence of capital structure and confirm its information asymmetry channel. We also find that this effect is more pronounced when CEOs are without a financial background and CEOs have low ownership or long tenure, suggesting that the impact of strategic inertia on capital structure persistence depends on the CEO's financial background, tenure, and ownership characteristics. In addition, the effect of strategic inertia on capital structure persistence mainly exists in state‐owned firms rather than privately owned firms.

CEO attributes, investment decisions, and firm performance: New insights from upper echelons theory

The study examines the role of a CEO in enhancing a firm's performance through the mediating effect of investment decisions in the emerging economy of Pakistan. Distinctly, fixed‐effects panel regression method is employed to examine the said nexus of nonfinancial firms listed at the Pakistan Stock Exchange. It is empirically unearthed that CEO attributes, namely, age, tenure, ownership, financial education, and career experience, are positively related to firm performance in general and capital investment decisions in particular. Second, capital investment decisions partially and significantly mediate the nexus between CEO attributes and firm performance with few exceptions that confirm the theoretical implications of upper echelons theory in an emerging economy context.

CEO Incentive Pay and Real Earnings Management: Does Corporate Ownership Structure Matter? Evidence from French Listed Companies

CEO incentive compensation continues to increase, and its efficiency remains a highly debated topic. This study examines the effect of CEO incentive compensation and ownership type on the extent of real earnings management (REM). Through an empirical analysis of panel data of 108 French firms listed on the SBF 120 index, we show that the CEO incentives ratio is positively associated with the extent of REM. Furthermore, we find that CEOs of firms controlled by families or institutional investors engage less in REM when they have greater incentives. By contrast, State ownership does not have any effect on this relationship.

THE INFLUENCE OF BOARD CHARACTERISTICS AND STATE HOLDING ON CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE, EVIDENCE FROM VIETNAMESE LISTED FIRMS

Analysing the nexus between board diversity, CEO power, state holding, and corporate social responsibility disclosure in an emerging country: Vietnam, where some listed firms are held significantly by the State, is the fundamental objective of this study. In order to achieve this goal, we employed regression analysis using panel data. While board diversity consists of board gender diversification and board independence and CEO (executive) power, consisting of executive duality, executive holding (ownership), and deputy CEO, and state ownership are explanatory variables, and CSR disclosure is a dependent variable. The sample contains of 166 Vietnamese listed firms at the Hanoi Stock Exchange (HNX) for 2014−2016. After performing regression analysis, the result revealed that the proportion of female directors, deputy CEO, and state holding had a significant correlation with CSR publication. In contrast, the proportion of independent directors, CEO duality, and CEO ownership was found to be insignificant. Our research adds to the research on firm governance and CSR in several approaches. First, the paper adds to the study on the advancement of research toward corporate social responsibility and firm governance and CEO features impress on it. Second, our research expands CSR literature in developing countries, which has not been treated in detail. Fourth, this research advances and adds literature to some theories, including agency theory and resource-based view theory.

Conceptualizing the Moderating Role of CEO Power and Ownership Concentration in the Relationship between Audit Committee and Firm Performance: Empirical Evidence from Pakistan

Firms in developing economies generally find ways to enhance their reputation and growth in the international market. In this context, an Audit Committee (AC) is composed of multiple skilled members that control and monitor auditing activities and present a transparent image of their firm, which automatically attracts investors and builds investor confidence. Therefore, this study used CEO power and ownership concentration as moderating factors to examine the connection between AC and firm performance. For this purpose, this study used the data of Pakistani manufacturing firms for the period 2008 to 2018 and applied the Ordinary Least Square (OLS) method, the Fixed Effect (FE) model, and the Generalized Method of Moments (GMM). To check the robustness of the results, this study used a Feasible Generalized Least Square (FGLS) model. The findings of this study contended that AC and firm performance have a positive association with each other. Moreover, the findings revealed that CEO power positively influenced firm performance. Furthermore, lower ownership concentration is a valuable approach to maximize a firm’s performance. Importantly, the outcomes concluded that AC and firm performance have a positive connection with the moderating effects of CEO power. Moreover, AC and firm performance also have a positive association with the moderating effect of ownership concentration.

How managerial ownership and the market for corporate control can improve investment timing

Abstract We show how CEO ownership and the market for corporate control interact to influence the investment-timing decisions of empire-building CEOs. The prospect of a future takeover means that CEOs with no ownership stake will over-invest in some types of projects and under-invest in others, but these problems are less severe when CEOs have an ownership stake. The value-maximizing level of CEO ownership depends on a firm’s investment opportunities. Antitakeover laws that weaken a raider’s position in a hostile takeover induce raiders to launch friendly takeovers sooner. The increased takeover threat induces CEOs to delay investing in positive NPV projects, but encourages them to take actions that initiate selling the firm when the takeover gains are high. Optimal ownership-generated incentives and the market for corporate control add more value after antitakeover laws are introduced, especially in situations when potential takeover gains are large.

The Impact of Chief Executive Officer Power on the Agency Costs: Evidence from Libya

Given that the importance of stabilization of the agency theory as a base to organize the relationship between the shareholders "the origin" and the management "the agent" in the business environment nowadays, this study aimed to identify the impact of the chief executive officer "CEO" power on the agency costs in the Libyan private banks. To achieve this goal the study underlying the scarcity of related previous studies has stated its hypotheses. The study sample consists of (6) private banks for (5) years; then the study relied upon the multiple regression technique, which has been used to examine the fourth sub-hypotheses of the main one. As a result, the study became able to state that there is a positive significant relationship between the CEO ownership in the bank shares and the agency costs, while that there is no significant relationship between the duality of CEO role, the duration of CEO in his position, the independency of the board of directors and the agency costs in the Libyan private banks.

The effects of firm aspirational performance on changes in leadership structure

Despite the popularity of CEO duality as a research topic, relatively few empirical studies have explored the antecedents of this leadership structure. Prior research has generally produced null findings concerning the role of firm performance in predicting whether firms decide to separate (or combine) the CEO and board chair roles. We consider CEO ownership to be an important boundary condition that will help explain why the direct effects of these relationships lack significant results. Using a sample of S&P 1500 firms over a ten year span that begins with the 2008 financial crisis—a period in which CEO duality has experienced renewed scrutiny—we find that there is no direct effect between a firm’s performance and the likelihood that the board will separate (or combine) the CEO and board chair roles. However, we find that CEO ownership is a significant moderating factor when observing how poor (good) performance can affect the likelihood of separating (combining) these roles.

How Managerial Ownership and the Market for Corporate Control Can Improve Investment Timing

We show how CEO ownership and the market for corporate control interact to influence the investment-timing decisions of empire-building CEOs. The prospect of a future takeover means that CEOs with no ownership stake will over-invest in some types of projects and under-invest in others, but these problems are less severe when CEOs have an ownership stake. The value-maximizing level of CEO ownership depends on a firm's investment opportunities. Antitakeover laws that weaken a raider's position in a hostile takeover induce raiders to launch friendly takeovers sooner. The increased takeover threat induces CEOs to delay investing in positive NPV projects, but encourages them to take actions that initiate selling the firm when the takeover gains are high. Optimal ownership-generated incentives and the market for corporate control add more value after antitakeover laws are introduced, especially in situations when potential takeover gains are large.

Board’s financial expertise and corporate social responsibility disclosure in China

PurposeThis study aims to investigate the impact of the board’s financial expertise (BFE) on corporate social responsibility (CSR) disclosure in China.Design/methodology/approachUsing a sample of Chinese listed firms from 2009-2016 (making 3272 firm-year observations), this study uses the generalized method of moments (GMM) and panel data estimation techniques.FindingsUsing the resource dependence theory, the findings of this study are twofold. First, the is positively associated with the disclosure level of CSR. Second, this positive impact is more pronounced in firms with female CEO and state ownership. The findings are robust to the potential issues of endogeneity and sensitivity analyses.Practical implicationsPractically, the findings hold value for the senior management of Chinese firms to ensure the presence of financial experts in boards to yield both financial and non-financial outcomes.Social implicationsThis study points out how financial experts on boards influence the societal outcomes via disclosure of CSR. Financial experts encourage participation in social and sustainable practices which creates a positive image of the firm not only in the eyes of society but also for investors.Originality/valueThis study is unique and contributes to the extant literature by examining the impact of a new attribute, i.e. the BFE on the level of CSR disclosure in China.

Precautionary Motive or Private Benefit Motive for Holding Cash: Evidence From CEO Ownership

Precautionary Motive or Private Benefit Motive for Holding Cash: Evidence From CEO Ownership

Reexamining the relationship between CEO ownership and R&D investment by considering the contextual effects

Reexamining the relationship between CEO ownership and R&D investment by considering the contextual effects

Does Increased Visibility to the IRS Cause Public Firms to Go Private? Evidence from FIN 48

This study investigates whether the introduction of a mandatory disclosure requirement (FIN 48), which had the effect of increasing public firms’ visibility to the tax authority, incentivized going-private transactions. Building on analytical work suggesting that disclosures required under FIN 48 act as a signal to the government regarding the uncertainty of the taxpayer’s position (Mills, Robinson, and Sansing 2010), I hypothesize and find evidence of an increased propensity to go private among aggressive tax planning firms following the enactment of the new disclosure rule but prior to its adoption. The effect is concentrated in firms with high CEO ownership, consistent with CEOs of tax aggressive firms viewing the mandated disclosures as damaging to the firm’s prospects and seeking to escape the anticipated effects to their personal wealth. Furthermore, I find that the spike in going-private transactions among tax aggressive firms is driven primarily by private equity-led buyouts. Overall, my findings suggest that mandatory disclosures giving rise to increased visibility to the tax authority may have the unintended consequence of discouraging some firms from operating as public entities.

Tax Planning and Corporate Governance on Firm Value: Board Diversity as Moderating

This research is intended to analyse the influence of tax planning, CEO ownership, female member, board size, board independence, audit committee, and board meeting on firm value and the influence of board education background and board age on the relationship between tax planning and firm value in non-financial companies listed in Indonesia Stock Exchange. The population of this research are all non-financial companies consistently listed in Indonesia Stock Exchange from 2016 to 2018. This research uses 53 samples of non-financial companies selected through purposive sampling method resulting in 159 data to be analysed using moderating regressions analysis. The result of this research showed that audit committee has influence positive and significant on firm value. The board age has influence positive and significant on the relationship between tax planning and firm value. While tax planning, CEO ownership, female member, board size, board independence, board meeting have no significant influence on firm value. The influence of board education background on the relationship between tax planning and firm value has no significant. The increase in the size of audit committee will increase the value of firm, it is because the presence of audit committee that consists of independent members will reduce financial manipulation or fraud in the firms. Board age is strengthen the relationship between tax planning and firm value. Because the older the member of board directors, the more they obey their obligation to pay taxes, so the tax planning activities will be more effective and it will increase the value of the firm. Keywords: Firm Value, Tax Planning, Board Diversity, Corporate Governance

When Do CEOs Engage in CSR Activities? Performance Feedback, CEO Ownership, and CSR

The growing importance of corporate social responsibility (CSR) for firms’ sustainability has been spurring scholarly attempts at identifying the antecedents of CSR activities. This study examines how CEO ownership differentially affects firms’ CSR activities in response to their performance relative to aspirations. Building upon the agency theory and the performance feedback model, we argue that CEOs with greater ownership are relatively more likely to increase their firms’ CSR activities than those with smaller ownership as their firms’ performance further decreases below or increases above their aspiration levels, because they typically have more discretionary power and a greater pool of behavioral alternatives. Our fixed-effects analysis of the panel data from the U.S. crude petroleum and natural gas industry between 1995 and 2016 found that there is a systematic difference in how firms’ CSR activities are adjusted in response to negative performance feedback depending on the levels of CEO ownership, but no significant difference in the face of positive performance feedback. The overall results imply that the CEOs tend to care about CSR only when performance is near their target and not so much when performance is far below or above the target, especially if their stock ownership is low.

CEO power and bank risk in the UAE

The lessons from the 2008 global financial crisis show that excessive risk taking and governance failures contribute to the failure of several banks. As a result, the relationship between corporate governance mechanisms and risk taking has been the subject of many studies. However, extant studies report inconclusive results. Therefore, this study aims to investigate the relationship between CEO power and bank risk in the UAE using data over the period of 2015–2018 and a sample of 19 UAE banks. The study uses a Pearson pairwise correlation to analyze the relationship between CEO power and bank risk. In addition, a two-tailed t-test is used to examine the differences between conventional and Islamic banks in terms of CEO power and risk-taking. The results of the study show that CEO power measured using CEO duality and CEO tenure reduces risk. Furthermore, the paper indicates that larger boards and higher CEO ownership tend to increase risk. The study also reports that conventional banks have higher return variability, larger boards and powerful CEOs than Islamic banks. However, Islamic banks tend to have higher non-performing finances than conventional banks. The study provides important insights on the relationship between CEO power and bank risk and concurs with earlier studies. The findings can be of interest to policy makers and can be used as input data for the development of corporate governance mechanisms. Shareholders can also use the survey results as input when appointing a CEO for their banks.

The relationship between management characteristics and financial statement readability

PurposeThe present study attempts to assess the relationship between management characteristics (managerial entrenchment, CEO narcissism and overconfidence, managers' myopia, real and accrual-based earnings management) and financial statement readability of listed firms on the Tehran Stock Exchange. In other words, this paper seeks to answer the question that “whether management characteristics have a favorable effect on financial statement readability or not.”Design/methodology/approachMultivariate regression model is used to meet the purpose of this study and research hypotheses are also examined using a sample of 1,050 listed observations on the Tehran Stock Exchange during 2012–2017 and by employing multiple regression patterns based on panel data technique and fixed effects model. Moreover, exploratory factor analysis of six variables (tenure, board independence, CEO duality, CEO ownership, board compensation and CEO change) is used for calculating managerial entrenchment and the FGO index is used for measuring readability.FindingsThe obtained results show that there is a negative and significant relationship between managerial entrenchment and accrual-based earnings management and a positive and significant relationship between real earnings management, managers' myopia, managers' narcissism and overconfidence and financial statement readability.Originality/valueSince the present study is the first paper to investigate such a topic in the emerging markets, it provides useful information about intrinsic and acquisitive characteristics of management for accounting information users, analysts and legal institutions that contribute greatly to financial statement readability. Besides, the results of this study aid the development of science and knowledge in this field and fill the existing gap in the literature.

Effect of CEO power and board strength on bank performance in China

Given that a powerful CEO is more likely to overcome problems and control performance in a firm, this study first focuses on exploring whether CEO power positively affects certain measures of bank performance and which sources of CEO power have these positive impacts. Next, this study further analyzes whether the positive impact of CEO power on performance is negatively mediated by board strength. Our sample includes data on the three main types of Chinese banks for 2006 to –2016.Our results show that CEO structural power significantly improves a bank’s overall profitability, risk-taking ability and lending quality, CEO ownership power significantly raises a bank’s lending quality, and CEO expert power significantly increases a bank’s overall and shareholder profitability. As considering the endogeneity, CEO prestige power significantly improves a bank’s overall profitability. Next, we use the proportion of independent directors as our measure of board strength and find that a stronger board reduces the beneficial effects of CEO structural power on a bank’s lending quality, of CEO ownership power on shareholder profitability, and of CEO expert power on lending quality. There are similar harmful mediating effects when we use the proportion of foreign investors and board size as measures of board strength. Our results can help Chinese bank authorities develop policies to appropriately raise bank CEOs’ power and reduce board supervision of CEO power.

The Impact of Change in CEO Ownership on Future Firm Performance

This paper investigates how a change in CEO ownership influences financial performance and market return in the long run. Using an accounting-based framework, we measure financial performance and changes in CEO ownership by using the public firms in the Taiwan Stock Exchange from 1996 to 2018. The findings in CEO ownership are consistent with the convergence-of-interests, entrenchment, and signaling hypotheses in different empirical tests. We find a positive relation between return on assets (ROA) and changes in CEO ownership when the CEO ownership is decreasing. In contrast, ROA is negative significantly associated with CEO ownership when the CEO ownership is increasing. Moreover, we also find that market performance is significantly positively associated with CEO ownership, which is consistent with the signaling hypothesis. Overall, this paper infers that a change in CEO ownership significantly affects future firm performance. Furthermore, investors respond positively to the negative signals released in the stock market. Therefore, the firms have poorer market performance simultaneously.