Shareholder Power Research Articles

Financialization, dividends, and accumulation of capital

The article proposes a stock-flow consistent macroeconomic modeling of a financialized growth regime. The different effects of financialization are studied in open economies with interest rates, share prices, credit, capital accumulation, and income distribution. The structural characteristics of the financialized growth regime, such as financial accumulation, shareholder power, and international competition, remain heavy brakes on investment and employment. Using the model, we measure the consequences of dividend reduction. In a financialized growth regime, a reduction in dividends would allow a return to full employment throughout the eurozone. However, this policy would have to be accompanied by a reduction in firms’ financial accumulation and by a fiscal stimulus policy. In order to achieve a satisfactory social situation, a major institutional change appears essential.

Minority Shareholders: Useful Idiots, Free Riders or the Achilles Heel of the Corporate Idea?

The shareholder is the basis of the corporate idea and framework. Corporate governance protects the rights of shareholders. But not all shareholders have the same power, control or ability to exert their responsibilities and rights. The plethora of legal, regulatory and statutory frameworks and initiatives that are in place to establish a balance of power and control within and beyond the formal organizational pyramid, do not take into account the power and the complexity of relations, alliances and strategies among shareholders, shareholders and managers or shareholders and other stakeholders. Furthermore, main corporate governance theories more or less ignore minority shareholders. They are considered as free riders, useful idiots or just supplemental capital to achieve the goals of the more organized or more powerful shareholders or managers. Their position and bargaining depend on ownership concentration and legal protection. Ownership domination and control are the borderlines of the corporate governance problems especially in Continental Europe corporate governance system. In Continental Europe corporate governance system, the issues or problems that are reported for the Anglo-Saxon system are different: asymmetry of information vs asymmetry of power and control, moral hazard vs moral control, adverse selection vs family loyalty, differences in motives (alignment of interests vs control entrenchment). The paper will address these differences and will argue that best practices as an easy way to uphold pretenses and the “comply or explain” in these circumstances leads to non-compliance and no explanations. Finally, the paper will try to answer the question: Who wants to be a minority shareholder in a corporation that doesn’t respect the rights of the individual shareholder or it is dominated completely? The consequences of the fallout or failure of corporate governance in Continental Europe system countries will be shown using the Folli Follie case in Greece. As a conclusion the paper argues that a new framework of corporate governance is needed for countries where ownership concentration is high and legal protection of minority shareholders is poor.

What Is Economic Liberty?

Economic liberty is best understood in opposition to economic domination. This article develops a radical republican conception of such domination. In particular, I argue that radical republicanism provides a more satisfactory account of individual economic freedom than the market-friendly liberties of working, transacting, holding, and using championed by Nickel and Tomasi. So too, it avoids the pitfalls of other conceptions of economic liberty which emphasize real freedom, alternatives to immiserating work, or unalienated labor. The resulting theory holds that economic domination occurs when someone’s access to civic capabilities is contingent on the arbitrary economic power of others. Socialist institutions—suitably configured—can deliver on this individual economic freedom, allowing the dominating power of proprietors, shareholders, landlords, and managers to be kept in check, and providing an unconditional minimum that allows individual citizens to be less beholden to others in meeting many of their most fundamental civic needs. Thus, I conclude that socialism can be championed as a politics of individual economic liberty.

Corporate governance and the impact to the R&D lab

PurposeThe purpose of this paper is to determine whether the strength of corporate governance influences the firm’s ability to retain their key knowledge workers or inventors.Design/methodology/approachThis paper links agency and innovation theory to develop the hypotheses. Agency theory predicts that the interests of employees are counter to those of firm owners. The authors predict that as shareholder power grows as corporate governance strengthens, inventors who are highly productive, and those who pursue risky but valuable exploratory innovation will leave the firm. Given prior scholarship in innovation theory establishing the critical contributions that new knowledge creation and exploratory innovation make to firms’ competitive advantage, the authors consider whether stronger firm-level corporate governance leads to the erosion of the firm’s competitive advantage. The hypotheses are empirically tested using generalized least squares estimation on a data set that combines data on firms, their patents and the governance provisions these firms adopt.FindingsUsing a 10-year sample of publicly traded US firms, the authors find that stronger corporate governance erodes the very foundation of a firm’s innovation capabilities. Stronger corporate governance reduces management job security, which makes managers more risk-averse. This heightened “managerial myopia” results in increased departures of highly valuable inventors employed by the firm. The authors show that these departing inventors are more productive inventors than those who remain and engage in more exploratory R&D than the remaining inventors at the firm.Originality/valueThe findings raise questions on the appropriateness of the adoption of governance provisions strengthening shareholder rights in firms pursuing innovation.

The Power of Stakeholders in the Management Compliance with Environmental Responsibility Issues in Indonesia

The objectives of this research were to find which the dominant stakeholders that pushed management to comply with the environmental responsibility and to examine the effect of environmental performance on financial performance. This research adopted Ullman’s three-dimensional framework to explain the stakeholders’ power. Stakeholders’ power was proxied by the power of shareholders, government, and customers. Then, PROPER rating measured the environmental performance. All Indonesian listed companies in all industrial sectors incorporating in the PROPER program were selected as the research sample. It resulted in 462 observations in the period of 2002-2017. PROPER was a company performance assessment program in environmental management. The Indonesian government initiated it through the Ministry of Environment and Forestry. This research also included various control variables (firm size, firm age, level of competitiveness, and leverage). Ordinary Least Square (OLS) was used to analyze data. The results show that the government’s power and customer’s power consistently influences the managers to comply with environmental issues. Meanwhile, the powers of the shareholder do not influence it. In the case of financial performance, the result supports the prior researchers that the higher rates of environmental performance are, the higher the powers of shareholders and customers will significantly be improved.

Corporate Governance Factors, Capital Regulation and Bank Risk Taking in Zimbabwe

The study is motivated by the importance of corporate governance indicators in influencing bank risk taking and performance. It seeks to establish the relationship between shareholder power, board characteristics and executive director power as indicators of bank corporate governance and risk taking by banks in Zimbabwe. Using bank level data for the country over the period 2010 to 2017 and accounting for the effects of bank capital regulation, the study finds that more executive director power reduces bank risk taking; while strong boards raise risk taking. On the effect of shareholder power, the study finds that individual bank ownerships increase bank risk taking; with risk increasing as bank statutory capital requirements increase. The bank risk taking effect of government bank ownership is inconclusive; while an increase in statutory bank capital requirements reduces risk taking in banks that are owned by the private institutions. The study results suggest that the effects of changes in bank corporate governance and or banking sector regulations has different bank risk taking outcomes that depend on the interactions between the various governance indicators and the sector regulatory environment.

Mandatory Voting, Large Shareholder Power, and Wolf Packs

Quelles sont les conséquences de l’exercice systématique du vote par certains actionnaires (par exemple les investisseurs institutionnels), alors que d’autres, les partisans, votent de manière stratégique ? Nous montrons que l’exercice systématique du vote a deux effets opposés sur les résultats de l’assemblée générale en fonction de la structure de l’actionnariat : un renforcement du pouvoir du groupe dominant de votants systématiques, mais également une incitation à voter pour s’opposer à ce même groupe pour les partisans. Nous appliquons nos résultats à différentes structures de propriété. Nous soulignons notamment l’importance, pour le conseil d’administration, d’avoir le soutien du plus gros partisan, nous examinons le rôle des « proxy advisors », ainsi que les conditions d’une opposition réussie à l’actionnaire dominant par un ou plusieurs actionnaires (« wolf pack »).

The myth of the shareholder revolution and the financialization of the firm

This article re-examines the shareholder value revolution of the 1980s to challenge the dominant conception of the financialization of the firm. This transformation is widely interpreted as a re-alignment of corporate management in response to growing shareholder power and neoliberal managerial norms associated notably with agency theory. By contrast, we demonstrate how the financialization of the firm has its roots in the innovations made in 1960s America by a small group of outsider firms, the conglomerates, that challenged the corporate establishment. As we show, these firms pioneered financial techniques that profoundly transformed the nature of corporate strategy and launched a process of financialization as firms began to exploit the leverage financial markets could provide in various corporate contests. Taking stock of this historical lineage leads us to re-interpret the shareholder revolution of the 1980s. We demonstrate how the key features of this era: the orientation of firms towards capital market, the increase in shareholder activism, and the rise of agency theory, should be read as unintended outcomes of the success of financialized management and its destabilizing effects on corporate governance.

Corporate Purpose and Firm Ownership

Analyzing data from approximately two million employees in a sample of more than 1,000 established public and private US companies, we find that corporate purpose is lower among employees of public companies. This result is driven by weaker beliefs held by employees in the salaried middle ranks and hourly workers, and not by senior executives. Among public companies, purpose is progressively lower in companies with more concentrated shareholders, suggesting that shareholder power is associated with a lower sense of purpose among employees. A substantial portion of these patterns can be explained by differences in CEO backgrounds and CEO-employee pay gap. Public firms, particularly those with strong shareholders, choose outsider CEOs at a higher rate and pay them more relative to their employees. Altogether, this study finds that the strength of corporate purpose varies substantially across companies, and is related to the identity of the firm owners, and the choices they make.

Principal–Principal Relationships With Powerful Shareholders: A Cross-Country Study

Principal–Principal Relationships With Powerful Shareholders: A Cross-Country Study

EU Regulatory Measures Following the Crises: What Impact on Corporate Governance of Financial Institutions?

Purpose: This study investigates the relevance of certain EU regulatory measures introduced in response to the financial and sovereign debt crises for corporate governance and their possible impact on the modalities of company operation, notably in terms of risk assessment and management. Design/Methodology/Approach: The contribution is based on a review of literature and an analysis of EU legislative and soft law measures agreed in 2008 onwards pertinent to corporate governance, notably of financial institutions due to their systemic relevance. The applied research methodology includes a combination of theoretical and analytical methods. Findings: It is submitted that there is an observable trend of extending the power of shareholders and of regulation in the public interest at the cost of the management power. Moreover, certain aspects of corporate governance seem to steadily evolve from code-based 'soft law' norms to mandatory rules. Practical Implications: EU regulatory-corrective measures constitute ‘grosso-modo’ a desirable progress towards a more transnational approach. However, there can be no single blueprint for reforms given the differences between national systems of corporate governance, including their scope, contents, and means of implementation. Hence, the potentials of an incentive-oriented approach should be better exploited in both national and EU level regulatory activities. Originality/Value: The study offers an updated account of the most recent EU legislative activity in the area up to the end of the 8th term of the European Parliament. It may be used for corporate governance practitioners allowing for informed adapting to the new regulatory framework and trends in the foreseeable future.

Cross-National Institutional Pressures, Governance Structures and Inclusive Practice Adoption

We develop and test a theoretical model to explain organizational adoption of new practices in response to institutional pressures, by variation in national corporate governance structures. Studies have examined the impact of institutional context and national corporate governance structures on the adoption and diffusion of new organizational practices, however have largely overlooked how national corporate governance structures filter institutional pressure before entering the organization. Our approach recognizes that diffusion of practices within countries may be shaped by differences in institutional context and corporate governance structures. Based on this, we argue that political pressures and societal logics enter an organization depending on the relative power of shareholders and employees vis à vis the organization. We test our theory by analyzing the role of national corporate governance structure on the efficacy of favorable political pressures and societal logic on the adoption of inclusive practices in 18 countries from 2002- 2014.We find that political pressures and societal logics increase the adoption of inclusive practices, especially when corporate governance structures posit shareholders in powerful positions to organizations. We find evidence that national corporate governance structures filter institutional pressures entering the organization and could both strengthen and weaken institutional pressures efficacy in provoking organizational change.

Corporate Law and the Myth of Efficient Market Control

In recent times, there has been an unprecedented shift in power from managers to shareholders, a shift that realizes the long-held theoretical aspiration of market control of the corporation. This Article subjects the market control paradigm to comprehensive economic examination and finds it wanting. The market control paradigm relies on a narrow economic model that focuses on one problem only, management agency costs. With the rise of shareholder power, we need a wider lens that also takes in market prices, investor incentives, and information asymmetries. General equilibrium theory (GE) provides that lens. Several lessons follow from reference to this higher-order economic theory. First, the presumption that markets can efficiently coordinate the economy is shown to be unfounded, unless one relies on heroic assumptions. Second, GE shows that shareholders suffer from misaligned incentives, undercutting any normative program grounded in shareholder empowerment. The third lesson is negative, as there are no economically-founded instructions for addressing the trade-offs between agency costs reduction and market inefficiency implied by the new shareholder corporation. Policy implications also follow. Given the lack of a clear normative template, only private ordering can be counted on to address each corporation’s specific tradeoffs between agency costs and market inefficiency. This conclusion leads to an endorsement of Delaware’s equitable adjudication system, the flexibility of which is well-suited to policing the bargaining process between managers and empowered shareholders.

Shareholder bargaining power and the emergence of empty creditors

Credit default swaps (CDSs) can create empty creditors who potentially force borrowers into inefficient bankruptcy but also reduce shareholders’ incentives to default strategically. We show theoretically and empirically that the presence and the effects of empty creditors on firm outcomes depend on the distribution of bargaining power among claimholders. If creditors would face powerful shareholders in debt renegotiation, firms are more likely to face the empty creditor problem. The empirical evidence confirms that more CDS insurance is written on firms with strong shareholders and that CDSs increase the bankruptcy risk of these same firms. The ensuing effect on firm value is negative.

Do Cash Holdings Differ in Europe and Asia Pacific?

This paper identifies the determinants that contribute towards the variation in financial assets that make up a firm’s total cash reserves, specifically in two important regions of the world i.e. Asia Pacific and Europe. The findings of the research reveal that firms in the region of Asia Pacific have slightly higher cash holdings, as compared to firms in Europe. Moreover, the study also identifies that the elevated cash holdings in Asia Pacific are not a result of the agency problem, as is generally viewed, rather, the shareholder power hypothesis is a more appropriate measure to elucidate this elevation in the level of cash holdings in the region. When shedding light on to the firm specific cash holding determinants, the findings of the research reveal that leverage, dividend payment, profitability, growth and net working capital, cash flows and financial strength, influence cash reserves in both the regions, exactly in the same manner. This shows the application of transaction, and precautionary motives in both the regions. The study further identifies that size, and investments have a varying effect in both the regions that are taken into consideration. Again, this difference may be attributed to Shareholders’ Power Hypothesis, specifically for Asia Pacific and the Agency View, specifically for Europe. Shareholders’ Right Index influences cash reserves in Asia Pacific in a positive manner, while in Europe, the same index shows a negative influence. The development in the financial markets has a negative negatively influence on cash holdings in Asia Pacific, and a positive one in Europe.

Power and environmental reporting-practice in business networks

Purpose The purpose of this paper is twofold: first, the use of power in a business network context is investigated, in relation to companies’ environmental reporting and practice choices. Second, the environmental reporting-practice portrayal gap is examined, focussing on inter-organisational environmental practices (such as green supply chain management). Design/methodology/approach A network case study was undertaken in the Western Australian agrifood sector, with the two large, dominant supermarkets as focal actors. Data were drawn from 34 in-depth interviews from 2011 to 2013 and a document review including 15 years of supermarket reports. Findings The study showed the exercise of government power bases and its effect on supermarket and other supply chain actors’ reporting and practice choices. The data suggest a differential use of power by supermarkets with suppliers, depending on supplier type and environmental practice characteristics. The study revealed surprisingly transparent reporting of the lack of whole-of-supply-chain approach by the supermarkets and admission of shareholder power over reporting and practice choices. In addition, other reporting-practice portrayal gaps relating to inter-organisational environmental practices were found. Originality/value The study provides a unique network level analysis of how power relations interact and influence companies’ choices of environmental reporting and practice, thereby contributing to prior power and environmental reporting literature. Contributions are made to extant literature dealing with the reporting-practice portrayal gap by focussing on inter-organisational environmental reporting and practice.

Shareholder Activism in Korea: The Cases of PSPD and NPS

This paper aims to review and analyze shareholder activism in Korea over the past two decades by focusing on the activities of the People’s Solidarity for Participatory Democracy (PSPD) and the National Pension Service (NPS). PSPD, a non-governmental organization founded in 1994 under the strong influence of the democratization movement and the “public interest law” movement, played a crucial role in the shareholder activism. Its activism invoked various minority shareholders’ rights that had remained dormant for decades, and increased the transparency of the corporate decision making process in large Korean companies. However, because of its sociopolitical motive, it targeted large and famous companies which were ironically had relatively better corporate governance. The brilliant but short tale of PSPD left questions regarding the sustainability and efficiency of shareholder activism when it is sociopolitically motivated. After 2010, NPS, which owns about 8% of the total market capital of Korean stock market, is becoming more inclined towards shareholder activism. Through a few episodes, this paper shows that the NPS may have an incentive for shareholder activism, but only in a very limited manner. More serious concerns are raised about the independence of the NPS, which is vulnerable to demands from the government and politicians. The NPS must find inspiration in PSPD’s enthusiasm in pursuing their goals and their creativity in taking legal actions, but the NPS also needs to be careful not to allow political motives to influence its exercise of shareholder power.

Credit Risk Under Common Ownership: The Benefit and Threat of Powerful Shareholders

Existing studies show that common institutional ownership of multiple industry firms improves governance over management, because such common owners possess industry-wide information advantage and governance expertise. This paper studies whether creditors perceive common owners as allied monitors or potential powerful expropriators. I find that creditors impose less restrictive covenants on loans to firms with higher common ownership. A quasi-natural experiment using financial institution mergers suggests that the relationship is likely to be causal. This effect of common ownership is mainly pronounced in firms with more financial risk, weaker shareholder governance, and lower creditor bargaining power. Overall, these findings indicate that creditors benefit from better governance by common owners, and therefore exert less monitoring effort in firms with higher common ownership.

Les Big Data A L’emergence Des Data-Driven- Business-Models: Une Synthese De La Litterature

This paper focuses on presenting a first step in a more in-depth literature review. In the border frame of the ‘systemic’ approach (Donnadieu & Karsky, 2002), the study focused on the exploration of ‘Big Data’ value. It follows the process of the formation of the tax decision (Bensouda, 2009) using some properties of the new network apprehension paradigm (Penard, 2014). This is in line with many approaches of identification of the taxable substance of possession and the transmission of ‘value’ (Jemmar, 2010). Also, it is captured exclusively by the ‘shareholder power’ (Vatteville, 2008), using ‘Data-Driven-Business-Models’ (Hartmann et al., 2014). This business model, however, inspired their "Digital Laborer" (Fisher & Fuchs, 2015) based on an activity whose ‘positive externalities’ (Collin & Colin, 2013) go in the form of a "Cognitive Capital" (Boutang, 2007). "Big Data" is indeed the focus of the growing attention in the literature of different disciplines. In addition, it is at the heart of controversies concerning the apprehension by various "stakeholders" who are central to the development of this concept. Based on preliminary research work, this study is aimed at understanding the different dimensions of this Value in the Moroccan context. It also aims to shed light on why its various ‘stakeholders’ are apprehensive regarding this ‘common good’, which escapes real tax measures that can mitigate the ‘negative externalities’ of this new statistical power (Rouvroy & Berns, 2010).

Can Strong Corporate Governance Selectively Mitigate the Negative Influence of “Special Interest” Shareholder Activists? Evidence from the Labor Market for Directors

Union and public pension funds, the most prolific institutional activists employing low-cost targeting methods, are often accused of pursuing private benefits. Extant literature finds that unions representing workers, as stakeholders, are not aligned with shareholders. Limiting shareholder power may mitigate “special interest” activism but can also exacerbate managerial agency problems. In two different settings, majority approved and withdrawn shareholder proposals, we examine and find supportive evidence that the director labor market as a corporate governance mechanism can selectively mitigate the negative influence that conflicted stakeholder-shareholder union funds have over firms without stifling all influence of low-cost activists.