Proportion Of Insiders Research Articles

Is Small and Independent Board a Better Board? An Example of High-Tech Firms

This paper examines board structure and the effect of board size and composition on firm value for firms in high technology industries for the period 1995-2008. I find that high-tech firms, generally characterized by asymmetric information and growth opportunities, have board sizes 2.9% smaller and a proportion of insiders 1.7% higher than non high-tech firms. Using Tobin’s Q as a measure of firm value, I document that Tobin’s Q is increasing in board size for high-tech firms. This result is consistent with the argument that transaction costs, such as political pressure from regulators and institutional investors, as well as listing requirements set by the SEC and major stock exchanges, may impede board upsizing for high-tech firms. My findings indicate that a uniform “one size fits all” reform of corporate boards may impair board effectiveness in some types of firms.

The effects of liquidity trading on insider trade timing when an underlying option is present

PurposeThe purpose of this paper is to examine whether the underlying option impacts an insider’s propensity to purchase and sell before corporate announcements, the proportion of insiders’ trading after announcements relative to before announcements, and the insider’s profitability around corporate announcements.Design/methodology/approachThe authors test whether the timing information and option have impacted on the tendency of insider trade, the percentage of all shares traded by insiders in the post-announcement to pre-announcement periods and the average cumulative abnormal stock returns during the pre-announcement period.FindingsInsiders’ propensity to trade before announcements is higher for stocks without options listed than for stocks with traded options. This result is stronger for unscheduled announcements than for scheduled ones. The proportion of insiders’ trade volume after announcements relative to before announcements in stocks that have not options listed is higher than those in stocks with traded options. The positive relationship between the insiders’ signed volume and the informational content of corporate announcements is stronger in stocks without traded options than in stocks with options listed. Insider trades prior to unscheduled announcement are more profitable than those before scheduled ones.Research limitations/implicationsThe paper examines whether there is a difference between the effects of optioned stock and non-optioned stock. Roll et al. (2010) use the relative trading volume of options to stock ratio (O/S) to proxy for informed options trading activity. Future research could explore the impact of O/S. Moreover, the authors examine how insiders with private information use such information to trade in their own firms. Mehta et al. (2017) argue that insiders also use private information to facilitate trading (shadow trading) in linked firms, such as supply chain partners or competitors. Therefore, future research could consider the impact of shadow trading.Social implicationsSince the insider’s propensity to buy before announcements in stocks without options listed is larger than in stocks with traded options and the relationship is stronger for unscheduled announcements than for scheduled ones, the efforts of regulators should focus on monitoring insider trading in stocks without options listed prior to unscheduled announcements.Originality/valueFirst, Lei and Wang (2014) find that the increasing pattern of insider’s propensity to trade before unscheduled announcements is larger than that before scheduled announcements. The authors document the underlying option has impacted the insider’s propensity to purchase and sell, and the relationship is stronger for unscheduled announcements than for scheduled ones. Second, related studies show insider’s trading activity has shifted from periods before corporate announcements to periods after corporate announcements to decrease litigation risk. This paper find the underlying option has influenced the proportion of insiders’ trading after announcements relative to before announcements when the illegal insider trade-related penalties increase.

Heterogeneous Beliefs on the Proportion of Insiders

Heterogeneous Beliefs on the Proportion of Insiders

Antecedents and Consequences of Board IT Governance: Institutional and Strategic Choice Perspectives

In spite of the potential benefits of board IT governance and the costs of ineffective oversight, there has been little field-based research in this area and an inadequate application of theory. Drawing upon strategic choice and institutional theories, we propose a theoretical model that seeks to explain the antecedents of board IT governance and its consequences. Survey responses from 188 corporate directors across Canada indicate that both board attributes and organizational factors influence board involvement in IT governance. The results suggest that proportion of insiders, board size, IT competency, organizational age, and role of IT influence the board’s level of involvement in IT governance. The responses also indicate that board IT governance has a positive impact on the contribution of IT to organizational performance. Overall, the results support the integration of strategic choice and institutional theories to explain the antecedents to board IT governance and its consequences, as together they provide a more holistic framework with which to view board IT governance.

Is Small and Independent Board a Better Board? An Example of High-Tech Industries

This paper examines board structure and the effect of board size and composition on firm value for firms in high technology industries for the period 1995-2008. I find that high-tech firms, generally characterized by asymmetric information and growth opportunities, have board sizes 2.9% smaller and a proportion of insiders 1.7% higher than non-high tech firms. Using Tobin’s Q as a measure of firm value, I document that Tobin’s Q is increasing in board size for high-tech firms. This result is consistent with the argument that transaction costs, such as political pressure from regulators and institutional investors, as well as listing requirements set by the SEC and major stock exchanges, may impede board upsizing for high-tech firms. My findings indicate that a uniform “one size fits all” reform of corporate boards may impair board effectiveness in some types of firms.

CEO Power, Equity Incentives, and Bank Risk Taking

This study examines whether bank risk is a factor influenced by chief executive officer (CEO) power and equity incentives and the interaction between these factors during 2005 through 2009 which marks the unraveling of the financial crisis. CEO power is measured with an index comprised of five underlying variables – CEO duality, a staggered board of directors, the proportion of insiders that sit on the board, the proportion of affiliated board members, and whether the CEO is the founder. We find that firm specific risk is decreasing with CEO power and equity incentives in the form of CEO equity compensation (stock options and restricted stock) and future firm wealth (the value of both exercisable and unexercisable stock options). These findings suggest that when a CEO has more power, they can influence the board’s decision-making to their benefit in reducing risk. Further, when their personal wealth is more tied to firm value, they are less likely to take on high risk projects as these projects could detriment their levels of personal wealth. We also find that CEOs with more power take on higher levels of firm risk when they have greater levels of future firm wealth in the form of unexercisable options. This suggests that powerful CEOs are more likely to take on risk when their personal wealth is tied to long-term firm value as opposed to short-term firm value.

Corporate Governance and Efficiency: Evidence From U.S. Property–Liability Insurance Industry

AbstractThis study examines the relation between corporate governance and the efficiency of the U.S. property–liability insurance industry during the period from 2000 to 2007. We find a significant relation between efficiency and corporate governance (board size, proportion of independent directors on the audit committee, proportion of financial experts on the audit committee, director tenure, proportion of block shareholding, average number of directorships, proportion of insiders on the board, and auditor dependence). We also find property–liability insurers have complied with the Sarbanes‐Oxley Act (SOX) to a large extent. Although SOX achieved the goal of greater auditor independence and might have prevented Enron‐like scandals, it had some unexpected effects. For example, insurers became less efficient when they had more independent auditors because the insurers were unable to recoup the benefits of auditor independence.

The Composition of Semi-Two-Tier Corporate Boards and Firm Performance

After the emergence of the Cadbury Report in 1992, several countries in the EU, including Denmark, issued their own guidelines of corporate governance. However, whether such recommendations benefit shareholders is a controversial question. This article presents an empirical analysis of financial performance and the composition of semi-two-tier boards using a unique sample of Danish listed firms. It is shown that board size, proportion of insiders and positions held by board members in other firms do not significantly impact performance. Only the average age of the board has a significantly negative impact on performance. Thus, it is argued that board structure only plays crucial role when a firm is in financial trouble or faces a major threat – not under normal circumstances.

Wealth and the effects of founder management among IPO‐stage new ventures

AbstractIPO underpricing is inherently related to both wealth retention and wealth creation. This paper reviews the relationship between IPO underpricing and wealth, then presents the results of an empirical study of the impact of CEO founder status (i.e., is the CEO also the founder?) on IPO underpricing. Results based on data collected from 368 IPO‐stage new ventures suggest that founder management has a positive impact on IPO underpricing, and that the founder management–underpricing relationship is moderated by (a) the IPO market share of the investment banker employed and (b) the proportion of insiders on the IPO firm's board of directors. Copyright © 2001 John Wiley & Sons, Ltd.

Agency costs and corporate control devices in the Turkish manufacturing industry

Documents evidence on the interdependence between the mechanisms used to control the agency costs in Turkish manufacturing firms where the external control devices are restricted and most of the firms have concentrated ownership. The ownership concentration, board size and composition, managerial shareholdings, institutional shareholdings, and family shareholdings are the selected devices. Evidence reveals that the proportion of insiders on the board is positively related to the percentage of family shareholdings and negatively related to the percentage of foreign institutional shareholdings and ownership concentration. Board size shows a significant negative relation with all the control mechanisms except the debt ratio. The finding that the managerially controlled firms have lower debt ratio than the institutionally controlled firms and the family controlled firms supports the entrenchment hypothesis. The capital market seems to complement the institutional shareholdings, family shareholdings, and ownership concentration in monitoring the CEOs.

Social Networks and Chronic Mental Illness: A Test of Four Perspectives

Although many studies describe the social networks of people with chronic mental illness, we know little about the effects of these networks on well-being. This research tests four perspectives on social relations and quality of life, all of which hold that dimensions of networks shape life satisfaction by affecting self-esteem. However, these perspectives disagree about which particular dimension is consequential: relationships with Insiders vs. Outsiders, the extent of supportive relationships, or the number of negative ties. We test these perspectives using longitudinal data on 137 individuals with chronic mental illness. Results show that the proportion of Insiders or Outsiders makes little difference for quality of life. However, increases in the number of supportive relationships improves life quality. Moreover, negative interactions have a strong detrimental effect on life satisfaction. Further analyses show that supportive and negative relationships affect life quality, respectively, by increasing or decreasing individuals' self-esteem.

Antecedents and Effects of Outside Director’s Awareness of CEO Decision Style

There have been increasing calls for greater outside directors to be more aware and informed about the firm S decisions and decision-making process. If outsiders are more informed, it is presumed that they will work more closely with the CEO, and as a result, positively influence firm performance. This research examined individual outside directors’ awareness of one prominent aspect of the CEO’S activity, namely the CEO’S strategic decision style. We found that the outside director3 awareness of the CEOS decision style was positively related to financial profitability and negatively related to financial risk after controlling for industry, organizational size, profit orientation, board leadership, and proportion of insiders. In addition, we found that the CEOS tenure was negatively related to outsider awareness, but this relationship was stronger in non-profit organizations and situations where the CEO did not chair the board. Implications of the findings for future research and application are discussed.

Antecedents and effects of outside director's awareness of CEO decision style

There have been increasing calls for greater outside directors to be more aware and informed about the firm's decisions and decision-making process. If outsiders are more informed, it is presumed that they will work more closely with the CEO, and as a result, positively influence firm performance. This research examined individual outside directors' awareness of one prominent aspect of the CEO's activity, namely the CEO's strategic decision style. We found that the outside director's awareness of the CEO's decision style was positively related to financial profitability and negatively related to financial risk after controlling for industry, organizational size, profit orientation, board leadership, and proportion of insiders. In addition, we found that the CEO's tenure was negatively related to outsider awareness, but this relationship was stronger in non-profit organizations and situations where the CEO did not chair the board. Implications of the findings for future research and application are discussed.