Principal-agent Research Articles

The story of dividend payment and corporate cash flow in Ghana

AbstractThe thorny issue and contradictory conclusions on dividend payments and firm value are not ending any time soon. The existence of a divergence of findings in the literature suggests the need for further empirical studies on this subject matter. Therefore, this study focuses on how a firm's cash flow influences dividend payments in Ghana. Using data from 2015 to 2020, pooled ordinary least squares and random effects estimation, this study provides evidence of dividend payments in Ghana. The results show that dividend payments are influenced by a firm's net cash flow from operations, free cash flow to equity, firm size, and age. The relevant macroeconomic variables for dividend payments are inflation and gross domestic product growth. Another finding is that the more nonfinancial firms take on the characteristics of financial firms, the less dividends they pay. Managers of listed firms in Ghana should grow the size of their firms; however, this should be done in a manner not to expropriate value to managers as predicted in the Jensen agency problem associated with free cash flow.

The downside of blockholder exit threats: Increasing excess cash holdings

AbstractThis study examines the impact of blockholder exit threats on excess cash holdings following China's split‐share structural reform. Previous studies have confirmed the governance role of blockholder exit threats, but their effectiveness is limited to companies with greater private benefits. Using a sample of 2340 firm‐year observations of Chinese listed firms between 2002 and 2009, we find that the exit threat of blockholders increases the level of excess cash holdings. These results suggest that blockholders view exit threats as a means of collaborating with controlling shareholders to boost excess cash holdings and diversify corporate resources for private benefits. The collusion effect is more pronounced in firms with poorer investor protections, lower shareholding concentrations, and more severe agency conflicts. Additionally, in terms of economic consequences, blockholder exit threats decrease buy‐and‐hold abnormal returns and increase the occurrence of corporate scandals. Overall, this study provides empirical evidence of collusion among large shareholders, which harms small shareholders' interests from the perspective of excess cash holdings.

Held in the grip: Political status, governing institutions, and emergency management procedural arrangements in the cases of Florida and Puerto Rico

AbstractTo what extent do institutions governing the relationship of the U.S. Federal government with U.S. states and U.S. territories affect their emergency preparedness and response operations? States retain more legislative autonomy and representation than territories in the U.S. Congress, which is responsible for the emergency management budget. The advocacy capabilities of territories may be limited, and greater budget constraints are expected to affect the capability of territories to implement federal emergency management plans and perform effective response operations. This work focuses on a comparative case study between responses to Hurricane Maria in Puerto Rico and Hurricane Michael in Florida. The multi‐technique qualitative approach combines content analysis and interviews. Findings suggest that neither Florida nor Puerto Rico was prepared to respond to hurricanes of such magnitude, but the procedural arrangements of the Florida emergency management system resulted in a more effective response to Hurricane Michael if compared to Hurricane Maria in Puerto Rico.Related ArticlesLiu, Zezhao, and Zhengwei Zhu. 2021. “China's Pathway to Domestic Emergency Management: Unpacking the Characteristics in System Evolution.” Politics & Policy 49(3): 619–50. https://doi.org/10.1111/polp.12407.Neill, Katharine A., and John C. Morris. 2012. “A Tangled Web of Principals and Agents: Examining the Deepwater Horizon Oil Spill through a Principal–Agent Lens.” Politics & Policy 40(4): 629–56. https://doi.org/10.1111/j.1747‐1346.2012.00371.x.Zang, Xiaowei. 2021. “Environmental Accidents and Environmental Legislation in China: Evidence from Provincial Panel Sata (1997–2014).” Politics & Policy 50(1): 77–92. https://doi.org/10.1111/polp.12446.

ОРГАНІЗАЦІЙНІ УМОВИ КОРПОРАТИВНОГО УПРАВЛІННЯ В АГРАРНОМУ ІНТЕГРОВАНОМУ ПІДПРИЄМСТВІ

The article is devoted to the study of scientific knowledge on the general organizational conditions for corporate governance in an agrarian integrated enterprise. Based on the analysis of scientific knowledge on the conditions and features of corporate governance in integrated agricultural structures, the authors have found that relations arise not between the owners of a corporation, but between the corporation and the owners, and thus relations in the group of owners are absent or minimized. In practice, the key element of contracting is not an attempt to determine the behavior of the CEO in all possible situations, but to develop a structured system of remuneration for managers. The main goal of this operation is to find the optimal combination of different types of remuneration for top managers, which will ensure mutually beneficial interests of both shareholders and managers of the corporation. The author proves that the most effective mechanism of internal control over the activities of a corporation's management personnel is to involve shareholders in protecting their interests through agents (outsiders) who are not employees of the corporation but are vested with certain controlling powers. It is assumed that these agents will not be directly related to the operational management of the corporation, and thus they become the defenders of the interests of the owners. It is found that there is a direct relationship between agency conflicts and corporate governance mechanisms. The result of the study is the identification of positive and negative aspects of capital concentration in a corporation. This leads to the conclusion that with an increase in the manager's shareholding, the level of agency conflicts decreases. The authors propose a detailed model of corporate governance that takes into account the interests of all participants. The conflict of interests between owners and managers of a corporate structure is investigated. The peculiarities of functioning of the external mechanism of control by the financial market in the corporate governance system and their shortcomings are highlighted. The institutional factors influencing the corporate governance system of an integrated agricultural enterprise are demonstrated. Keywords: corporate governance, agricultural enterprise, integrated structure, financial market, control mechanism.

УПРАВЛІННЯ ІНВЕСТИЦІЙНОЮ ПРИВАБЛИВІСТЮ АГРОПРОМИСЛОВИХ УТВОРЕНЬ: ПІДХОДИ ДО ВИВЧЕННЯ ТА АНАЛІЗУ СТРУКТУРНИХ ЕЛЕМЕНТІВ

The article assesses the management of investment attractiveness of agro-industrial entities and approaches to the study and analysis of its structural elements. The authors have made a theoretical generalization and proposed ways to solve the problem of modeling investment decisions in the current economic and political environment. The authors emphasize that a deeper approach will reveal not only the effectiveness of investment strategies, but also the internal mechanisms that facilitate or limit the implementation of these strategies. By combining aspects of decision-making methodology with the analysis of intra-organizational interactions, it is possible to obtain a more complete understanding of the investment process in the context of a particular organization. The paper emphasizes that in the agro-industrial sector of Ukraine, under the influence of the desire for integration, significant changes are taking place, which are expressed in an increase in the scale of production, an increase in the diversity of production areas, the expansion of inter-sectoral relations, accelerated use of scientific achievements, qualitative shifts in technological processes, and increased competition - significantly increasing the requirements for the quality of investment decisions and their relevance. The authors prove that the core of integration of mechanisms and instruments in the investment market is information and organizational technologies, which form the basis of the pyramid of management decisions. The organizational infrastructure of investments is becoming increasingly international and integrated. The more diverse the composition of such an infrastructure, the more fully the investment opportunities of enterprises are realized, the wider the range of investment technologies, and the greater the amount of resources involved. The model for assessing the efficiency of an investment project based on the theory of fuzzy sets developed by the authors is a way to assess the efficiency of investment projects, which is a complement to traditional methods of analysis, but lacks some of the disadvantages inherent in the latter. Keywords: investment decision, agency conflicts, corporate governance mechanisms, agro-industrial formations, model for assessing the efficiency of an investment project.

The ripple effect of environmental shareholder activism and corporate green innovation: Evidence from Chinese listed companies

This study examines the effect of environmental shareholder activism on corporate green innovation and the underlying mechanism. Our results show that environmental shareholder activism mitigates time-based agency conflict between shareholders and managers and alleviates managerial myopia, consequently leading to an increase of corporate green innovation. Specifically, we find that the positive effect of environmental shareholder activism on green innovation is more pronounced when managerial myopia is more severe, shareholders are willing to monitor corporate governance, and managers are able to learn from investors through high-quality direct interactions. Furthermore, in terms of influencing mechanism, we find that environmental shareholder activism can produce a ripple effect, causing more site visits, news media coverages and internet searches, and these attention pressures can further motive managerial engagement in more green innovation. We also find that firms that increase green innovation following environmental shareholder activism achieve a higher valuation, suggesting that investors make favorable response to firms' sustainable development.

The Theories of “Differential Optimums” and “Vertical Integration” and Their Implications for China

Abstract Chayanov, outside of his theoretical analysis of how peasant households are distinctive for being at once a production and a consumption unit, and the multiple implications of that fact, has made two other major theoretical contributions, one making clear that peasant economies observe the logic of “differential optimums” rather than the simple logic of economies of scale, the other having to do with the need for co-operatives for “vertical integration” of small peasant economies, in order to preserve for the peasants more of the value of their products in the BIG MARKET. The former can be readily observed in the “new agriculture revolution” of the Chinese economy in the past few decades; the latter can be readily seen in the striking modernization of the “East Asian” (i.e. Japan, South Korea, and the Taiwan area) economies since 1945. China’s annual “Number One Documents” about agriculture of the past two decades have shown how the country first mistakenly tried to imitate the simple scale-economy logic of the United States, and then shifted since 2018 toward a new emphasis on the peasants as the principal agents of agricultural development and of peasant villages as the basic unit for agricultural co-ops. Those have been the basis for new advances as well as for reinterpretations and modifications of Chayanov’s two major theoretical visions.

Is a tax deductibility of R&D investment always good for a firm? The case of IPO underpricing

We examine the impact of an R&D tax deduction policy on initial public offering (IPO) underpricing. Our findings suggest that IPO firms subject to the tax deduction policy (treatment firms) exhibit higher underpricing than those not subject to the tax deduction policy (control firms). The results are robust to alternative metrics of underpricing. We attribute to the worsening information asymmetry and agency conflicts in the treatment firms relative to the control firms due to an increase cashflows from tax savings. Additional analysis suggests that the effect is more salient for IPO firms with high information asymmetry and severe agency conflicts.

TP53 mitigates cisplatin resistance in non-small cell lung cancer by mediating the effects of resistant cell-derived exosome mir-424-5p

BackgroundCisplatin (DDP) is the principal agent used for chemotherapy in patients with non-small cell lung cancer (NSCLC). Nevertheless, DDP resistance is an essential cause for a worse prognosis of patient. Therefore, this study proposes to discover features of miR-424-5p in DDP resistance of NSCLC. MethodAfter exogenous modulation of miR-424-5p expression, A549 cell activity was measured using CCK-8 and flow cytometry. A549/DDP and A549/DDP-associated subcutaneous tumor model were constructed to investigate the effect of miR-424-5p on DDP resistance in NSCLC in vivo. TargetScan and JASPAR databases predicted the potential molecular mechanism of miR-424-5p. A549-and A549/DDP-derived exosomes were isolated and characterized using a transmission electron microscope and nanoparticle tracking analysis. ResultOverexpression of miR-424-5p facilitated proliferation and DDP resistance in A549 cells, and knockdown of miR-424-5p did the opposite. Knockdown of miR-424-5p enhanced DDP restriction on tumor weight and volume. Moreover, SOCS5 and SOCS56 (SOCS5/6) were downstream targets of miR-424-5p. miR-424-5p down-regulated SOCS5/6 expression to activate JAK2/STAT3 and PI3K/AKT pathways. Notably, tumor protein p53 (TP53) is a transcription factor for the miR-424-5p host gene, as confirmed by the dual-luciferase reporter gene. Cellular and animal experiments indicated that TP53 limited the regulatory function of miR-424-5p on NSCLC growth, DDP resistance, and related molecules. Interestingly, miR-424-5p was markedly enriched in A549/DDP cell-derived exosomes than in A549 cell-derived exosomes, and TP53 down-regulated miR-424-5p expression in A549/DDP cell-derived exosomes. ConclusionDDP-resistant cell-derived exosome miR-424-5p contributes to NSCLC growth and DDP resistance by targeting SOCS5 and SOCS6 to activate JAK2/STAT3 and PI3K/AKT pathways, which are blocked by TP53.

Analysis of the Effects of Agency Costs on Financial Performance of Commercial Banks Listed at the Nairobi Securities Exchange in Mombasa County, Kenya

Agency costs result from a principal-agent relationship's conflicting interests. The relationship develops because the principal may not be able to manage the business since they are technologically illiterate, numerous, and geographically spread; as a result, they hire the agent. In a commercial bank, there are various relationships that show principal agent relationships, with the most prevalent one being the link between the shareholders and the management. Agency fees are paid with the intention of aligning the agents' and principal's ambitions in order to realize the principal's overarching intentions. Therefore, the perseverance of this study was to analyze agency costs and their effects on financial performance. In this study, the agency cost on financial performance of public commercial banks was analyzed. Specific objectives were; to establish how monitoring cost affect the financial performance of quoted commercial banks in Mombasa County, to assess the effect of bonding cost on financial performance of listed commercial banks in Mombasa county, to examine the extent to which residual loss affect the financial performance of commercial banks in Mombasa county and to determine the effects of restructuring cost on financial performance of listed commercial banks in Mombasa County- directed the study. Theories supporting this study were as follows; agency theories, free cash flow and stakeholder’s theory. Descriptive design is a kind of research methodology which establishes the connection between variables. It was used in this study to identify both the broad and the detailed study goals. A census of the 10 listed commercial banks in Mombasa County was conducted as part of the work and purposive sampling was be used. This study used qualitative and quantitative methods. Validity was tested through interview while reliability was tested using Cronbach alpha. The data was analyzed using inferential statistics like regression and correlation and descriptive statistics like mean and standard deviation using the Statistical Package for Social Science (SPSS) Version 22.0. The results were presented using cross tabulation, frequency tables, and charts. Findings indicated that there was a significant impact between; monitoring cost, bonding cost and residual cost and the financial performance. Restructuring cost were determined to have a favourable impact on financial performance. Therefore, the study recommends implementing an efficient internal control system by listed commercial bank management. This will assist in cutting down on the cost of auditing, administrative costs, and wasteful and unneeded spending, Managers should be paid more and attaching monetary or share bonuses or option entitlements to particular firm performance and to adopt a type of restructuring that will align with the relevant strategy and objectives.

CEO compensation complexity: Optimal contracts or agency problems?

AbstractI construct a CEO pay complexity index based on grant‐level compensation data to test whether compensation complexity is consistent with optimal contracts or agency problems. Complexity may represent board efforts to contract optimally or a means by which the CEO camouflages agency issues and rent extraction. I find evidence supporting the agency view by showing how complexity is negatively related to firm value, profitability, and CEO turnover–performance sensitivity. I also examine the relation between complexity and CEO investment behavior and find mixed results. Overall, the findings relate to shareholders' dissatisfaction with the increased complexity of CEO compensation.

ESG, ESG rating divergence and earnings management: Evidence from China

AbstractThe existing studies on the relationship between ESG and earnings management provide mixed evidence and ignore ESG rating divergence. Using a sample of Chinese listed firms from 2009 to 2021, we examine the effect of ESG performance on earnings management under different levels of ESG rating divergence. The results reveal a negative association between ESG performance and earnings management. Meanwhile, among firms with high (low) ESG rating divergence, our results show that the degree of earnings management rises (falls) when the firms engage in ESG practices. Our findings are robust to alternative variable definitions and the Heckman two‐stage selection model. In addition, we exclude alternative explanations and consider the effect of greenwashing. Cross‐sectional analyses show that the moderating effect of ESG rating divergence is significant only among firms with greater CEO power and higher agency costs, suggesting that agency problems are the mechanism by which ESG rating divergence positively moderates the relationship between ESG performance and earnings management. This study advances the existing research on ESG and earnings quality by presenting new empirical evidence and revisits ESG rating divergence through the lens of agency theory, revealing that management could use ESG for opportunistic behavior in the presence of ESG rating divergence. Our study shows that the divergence in ESG ratings can affect the economic consequences of firms' ESG practices, offering insights for future research on ESG and ESG rating divergence and for regulators to improve the regulation of ESG disclosure and rating.

Effects of government digitalization on firm investment efficiency: Evidence from China

In the digital era, digitalization has a significant impact on economic development and firm growth. However, compared to digital economy, there is still a lack of studies exploring the impact of government digitalization on firms' behavior. This study aims to provide new evidence that the digital technology-driven change in the public sector also influences the efficiency of resource allocation at the micro level. This study examines the impact of China's government digitalization reform on firm investment efficiency using the difference-in-differences model and a firm-level sample of China's listed firms for the period 2012–2020. The study finds that government digitalization enhances firm investment efficiency, alleviating both underinvestment and overinvestment. Government digitalization improves firm investment efficiency by reducing the real option value of investment, easing financial constraints, and mitigating agency problems. Additional analysis shows that government digitalization behaves better in NSOEs, unregulated firms, and firms in the regions with higher levels of digital technology infrastructure.

Determinants of Institutional Ownership in the MENA Region

This study explores the main determinants of institutional ownership in the MENA region. Using a large sample of 262 listed companies across MENA countries, this study focuses on company and country characteristics that might explain institutional behavior. We attempt to answer the following questions: First, what are the main categories of institutional investors operating in MENA countries? Secondly, what factors drive institutional ownership? Results reveal a weak presence of institutional investors in the MENA region. Unlike foreign and passive investors, domestic and active institutional investors dominate the companies’ ownership. Such findings raise serious issues about how to attract foreign institutional investors. Results also suggest that value stocks appeal to institutional investors, whatever their origin (foreign or domestic) and kind (active or passive). Institutional investors look for large, profitable, and liquid companies that pay high dividends. They prefer investing in highly indebted companies as they consider debt an efficient mechanism to mitigate agency problems. Corporate governance and information disclosure are also crucial determinants of institutional ownership. However, foreign-domestic and active-passive institutional investors have different investment preferences. Our study would contribute to a better understanding of ownership endogeneity within an emerging context. Results would help professionals, managers, and policymakers to adopt appropriate reforms to offer an appealing business climate and attract a large base of institutional investors, not only foreign and active investors.

Endogenous State Capacity

Canonical studies of the origins of state capacity have focused on macro-historical or structural explanations. I review recent research in historical political economy that showcases the role of politics—agents, their constraints, and their motivations—in the evolution of state capacity. Findings from both developed and developing countries emphasize how elite conflict, principal–agent dilemmas, and ethnic and racial differences have shaped agents’ preferences for capacity. These new studies demonstrate that state capacity can be strategically manipulated by political and economic elites, and that the various dimensions of state capacity—extractive, coercive, legal—do not necessarily move together. Refocusing our attention on the political drivers of state capacity has also shed light on why there are such stark subnational variations in the development of state capacity, particularly within large polities like India, China, and the United States. The findings point to the need for more nuanced conceptualization and measurement of state capacity.

Wrong Kind of Transparency? Mutual Funds’ Higher Reporting Frequency, Window Dressing, and Performance

ABSTRACTThis study examines whether mandatory increase in reporting frequency exacerbates agency problems. Utilizing the setting of the 2004 SEC mandate on increased reporting frequency of mutual fund holdings, we show that increased reporting frequency elevates window dressing (buying winners or selling losers shortly before the end of the reporting period). This effect is driven by low‐skill fund managers’ incentives to generate mixed signals. Funds managed by low‐skill managers experience lower returns, more outflows, and a higher collapse rate when their window dressing is elevated after the 2004 rule change. These results suggest that, although higher reporting frequency on agents’ actions can exacerbate signal manipulations, the related manipulation costs improve sorting among agents in the longer term.

The Moderating Role of Independent Commissioner in Relationship between Tax Aggressiveness and Firm Value

Tax aggressiveness poses agency problems within companies. This is due to the differing interests between investors and management. Independent commissioners play a crucial role in ensuring that the decisions made by management align with investor interests. The research aims to a further investigation of the moderation role of independent commissioners on tax aggressiveness actions undertaken by management from the investors' perspective. The sample consisted of 185 companies in the non-cyclical consumer sector listed on the Indonesia Stock Exchange (BEI) during the years 2018-2022. This research utilizes a quantitative method with a multiple linear regression model approach. The findings of the study indicate that tax aggressiveness has a positive effect on firm value, signaling that tax planning activities by management are still perceived as not overly aggressive and are in line with investor interests. The study's findings also show that independent commissioners are unable to moderate the negative impact of tax aggressiveness on firm value. This indicates that the role of independent commissioners has not yet been able to prevent tax aggressiveness actions that are not aligned with investor interests. This research fills a gap in previous studies that did not consider the role of independent commissioners as supervisors of management in decision-making. The implications of this research are that companies need to enhance the quality of independent commissioners through strengthening the selection process and there is a need for strengthened tax regulations that encourage companies to pay taxes.

The politics of presidential removals

Abstract Much scholarship and legal reasoning assume that the ability to remove and replace political appointees furthers presidential control. However, I argue that the possibility of removal changes the agency problem between the president and her appointees in a subtle but important way that affects the president’s appointment problem. I demonstrate that the president may have incentives to make nonally appointments to encourage reliance on bureaucratic expertise. To show this, I develop a formal model that introduces career concerns for appointees that lead them to distort their use of bureaucratic expertise to appear more expert. The president is uncertain of an appointee’s expertise but infers it from the appointee’s involvement in policymaking. In equilibrium, nonexpert appointees more aligned with the president face greater incentives to determine policy themselves to improve their reputation. By selecting nonally appointees, the president commits to sometimes dismiss even experts which improves her control over policymaking (JEL C72, D73).

Ocular Chemical Burns: Epidemiological Trends in a Colombian Medical Center.

Ocular chemical burns are a significant cause of visual impairment. This study aims to characterize the ocular chemical burns in a southwestern Colombia referral center and identify associated factors with low vision. A retrospective cohort study was carried out based on the review of medical records of patients diagnosed with chemical eye burns who consulted the emergency ophthalmology service between January 2016 and December 2019. Descriptive statistics were performed. Associations with low vision (Best-Corrected Visual Acuity, ≥20/70 in Snellen chart) in the last follow-up appointment were identified using a multivariate logistic regression with odds ratios (OR) and 95% confidence intervals (95% CI). About 219 eyes affected by chemical burns were identified from 174 patients with a mean age of 39 years (SD ± 20), of which 57.5% (n = 100) were men. We ran a multivariate model adjusted by sex, eye wash, type of chemical, and Dua's classification. We found that the odds of low vision for patients without eyewash before the consult were 3 times the odds of those who had it (adjusted OR [aOR] = 3.5, 95% CI = 1.3-9.4) and almost 5 times for those with Dua's classification >1 (aOR = 4.7, 95% CI = 1.7-12.9). The ocular chemical burns reported in this study occurred more in young people of productive age. Acids were the principal causal agent. The association between lack of early management and the severity of the chemical burn with low vision has been highlighted. Ocular burns remain a relevant cause of consultation on the ophthalmology service in Cali, and prevention strategies are required.

Carbon storage units and carbon storage obligations: A review of policy approaches

Policies that incentivize the capture and geological storage of CO2 from large point sources (‘CCS’; and more recently, atmospheric removals), have so far tended to reward the resultant avoided CO2 emissions (or CO2 removals) achieved by operators at the point of capture. The expectation has been that geological CO2 storage sites, as well as the connecting infrastructure, will be developed and operated based upon the funding delivered from the single point of incentive (e.g. under an emissions trading system or a carbon tax, only CO2 capture installation operators are absolved of the obligation to acquire and surrender CO2 emission rights or to pay the tax). Project-based crediting mechanisms (e.g. in the voluntary carbon market) tend to treat the entire chain of operations as a single entity to be supplied with emission reduction or removal credits. Consequently, there has been minimal explicit financial incentive to store CO2. Yet a multiple gigaton-per-year scale capture and storage industry requires complex CO2 networks to evolve, with multiple sources connecting to multiple sinks, with installations owned by different operators with different technical expertise, climate mitigation goals and obligations. This multiplicity of goals and incentives can create agency problems and cross-chain risks, which impact negatively upon investment decisions. In this paper, we review the history, evolution and potential of geological net zero (GNZ) and carbon storage (or takeback) obligation concepts applied to fossil carbon producers and suppliers as a means to address these risks alongside policies aimed at atmospheric net zero (ANZ) and fossil carbon emitters.