Shareholders Of Firms Research Articles

How Does Judges’ Personal Exposure to Financial Fraud Affect White‐Collar Sentencing?

ABSTRACTWe study whether federal judges’ personal exposure to financial fraud affects their professional behavior, in the form of sentencing outcomes in white‐collar cases. Following the methodology outlined in our registered report, we construct a novel measure of financial fraud exposure based on judges’ direct shareholdings in firms that commit financial fraud. Using this measure, we exploit the random assignment of cases to judges to examine whether judges exposed to fraud in one firm are (1) less likely to rule in favor of defendants in white‐collar cases involving other firms and (2) less likely to grant favorable pretrial motions to defendants. We find minimal evidence in support of either (1) or (2), concluding that for all but the most serious frauds, judges are unlikely to let their personal victimhood experience affect their professional sentencing behavior with respect to related cases. Our study broadens our understanding of the spillover effects of financial fraud enforcement and contributes to the literature on how judges’ personal experiences can shape judicial decision‐making.

Product market competition, debt rollover risk and financial default risk: evidence from Indian corporates

PurposeThe study investigates the impact of the interaction effect of product market competition and rollover risk on the default risk of the firms.Design/methodology/approachThe study used the sample of unbalanced panel data from Indian corporates without any survivability bias over the period from 2009 to 2020 consisting of 30,396 firm-year observations of 6,718 firms spread across 143 industry groups. The panel data regression tests the interaction effect in the context of the asset substitution problem, predation threat theory, competitive shock, and competitive risk.FindingsThe empirical results highlighted the dominance of the predatory effect of competition over the disciplinary advantage of short-term debts. The competitive shock to the industry results in a higher credit spread for refinancing short-term debt and significantly increases rollover risk for firms. Smaller firms have higher default risk from rollover losses than larger firms in the face of competition due to asset-substitution problems and strong rivalry. For firms with weaker fundamentals, the interaction effect of rollover risk and competition exacerbates the flight-to-quality problem, resulting in a systemic event.Practical implicationsThe investors can benefit by factoring ex-ante the interdependence of competition, debt market illiquidity, and default premia while calculating the credit risk. The shareholders of competitive firms can reduce the moral hazard of refinancing the rollover losses and defaulting at a higher fundamental default threshold, by reducing sub-optimal utilization of funds by managers and agency costs.Originality/valueAs per the best of author knowledge, the present study is the first to study the moderating effect of product market competition in exacerbating default risk through the rollover channel.

Is Blockholder Diversity Detrimental?

We find that, overall, blockholder diversity, i.e., the firm shareholder base including several different types of blocks, is detrimental to firm performance. We show that lagged disclosure, on exogenous predetermined dates, that reveals an increase in block diversity is followed by a negative market reaction. Firms held by heterogeneous blockholders consistently perform worse than firms held by homogeneous blockholders. Block diversity is particularly detrimental when uncertainty is high. Disagreement among shareholders (e.g., as reflected in the frequency of lawsuits being filed) increases when the blockholder base is diverse. We make our blockholder data set public for the benefit of other researchers. This paper was accepted by Victoria Ivashina, finance. Funding: This work was supported by the Israel Science Foundation [Grant 264/20], the Faculty of Business and Economics, University of Melbourne [Grant ECR00009FNL], and the Accounting and Finance Association of Australia and New Zealand [Grant 2020-033]. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2023.00528 .

Multiple Large Shareholders, Identity, and Corporate Tax Avoidance

AbstractIn recent years, the variation in firms' tax-avoidance behavior has attracted a lot of attention, both theoretically and empirically. This study investigates the governance role of multiple large shareholders in firms' tax-avoidance behavior, using a sample of Chinese state-controlled listed firms over the period 2004–2016. We find that the ownership stake of a firm's largest shareholder is negatively associated with tax avoidance among state-controlled firms. Second, other large non-state shareholders negatively affect tax avoidance of state-controlled firms. The former effect is particularly strong when the local government is the controlling shareholder. Finally, differences in institutional quality influence the largest shareholder's tendency to engage in tax avoidance in state-controlled firms. For state-controlled firms, a better institutional environment elicits more tax avoidance and thus curtails minority-investor expropriation.

Gender Difference on Internal Equity: Evidence From the Hospitality Industry in Ghana

It is a hypothetical position that employees in the hospitality industry in Ghana experience salary disparities based on the gender of the employee. Pay disparities exist because of unconscious biases in areas such as hiring, promotions, performance reviews, and salary decisions. In ensuring equal pay for equal work to fulfill the International Labor Organization (ILO) convention, this study investigated the internal equity pay of the employees in Ghana's hospitality industry based on equal work. This quantitative association study adopted a self-constructed research instrument to measure internal equity pay and randomly selected 350 respondents in the hospitality industry in Ghana to answer the research questionnaires. The respondents were made up of 160(46%) males and 190(54%) females. In looking for the significant difference of gender as related to internal equity pay of the employees in Ghana with a T'Test analysis, the study revealed that, indeed, there was a significant difference in the salary payment of the employees in Ghana. The males were paid more than the females for equal work. Therefore, the study rejected the null hypothesis that there is no significant difference in internal equity pay based on the gender of the employees in the hospitality industry in Ghana. To ensure equal pay for equal work, the management and shareholders of hospitality firms in Ghana are recommended to seek knowledge of the legal requirement of this principle in the Ghana Labor Law and also become compliant with the ILO convention. Furthermore, a conscious effort must be made to ensure equal pay for equal jobs.

On stakeholder theory and corporate investment under financial frictions

AbstractThe view that corporations have a wider focus than just maximising shareholder value has received considerable attention from practitioners, managers, and academics alike. We investigate the Q theory of corporate investment with financial frictions when management maximises stakeholder value instead of shareholder value. Different objective functions are investigated. We characterise the optimal investment and financial policy of the firm. The results show that stakeholder firms invest more than shareholder firms, that is, over invest, and an increase of stakeholder shares increases investment, except when equity issuing firms face severe informational asymmetries or severe cost of external equity. We also discuss different approaches to model investment of stakeholder firms and their implications for empirical analysis.

A Market Value Analysis of Buyer–Supplier Relationship Building Awards

The purpose of this article is to study the signaling potential of “supplier awards” in creating shareholder value for the award-giving and the award-receiving firm. We use event study methodology with supplier awards as events that signal mutually beneficial buyer–supplier relationship (BSR) efforts to estimate the firm value generated from these efforts. Supplier awards, apart from being a supplier development (SD) activity in themselves, are also a signal of a mutually beneficial relationship between a buyer and a supplier. This article performs a deep study by investigating the impact of traits, such as award exclusivity and award satiation, on the efficacy of supplier awards as a signaling mechanism. We find that shareholders of firms that give awards (buyers) and those of firms that receive awards (suppliers) react positively to such events, thereby establishing the signaling potential of supplier awards that signal the mutually beneficial BSR and SD efforts. We find that a more exclusive award has a higher positive impact on the buyer's shareholders. We also find that there is a higher impact on the supplier's market value when that supplier receives awards less frequently. This article pioneers a study of interorganizational awards that considers traits, such as exclusivity and award satiation, that are not frequently studied in extant research.

Animal spirits, hubris, narcissism: Behavioural determinants of merger and acquisition outcomes

This paper draws upon the animal spirit, hubris, and narcissism theories to conduct an empirical study investigating the behavioural determinants influencing mergers and acquisitions (M&A). While M&A transactions have shown a trend of value destruction for acquiring firm shareholders, they have simultaneously demonstrated value enhancement for shareholders of the acquired firms. The repercussions of this value erosion extend beyond shareholders, impacting pension funds, employees, customers, suppliers, government tax revenues, and banks within the economy. Utilising a long-event window methodology, the research examines cumulative abnormal returns (CARs) for acquirers’ shareholders over a three-year post-completion period, focusing on Australian acquisitions from 1990 to 2006. The findings highlight animal spirit, hubris, and narcissism as significant behavioural determinants shaping M&A outcomes, thereby contributing to the ongoing discourse on hubris and hubris syndrome in M&A, with a suggestion that narcissism may be more prevalent than hubris. Additionally, the study identifies the joint tenure period of the Chairman and Chief Executive Officer (CEO) in the acquiring firm as a statistically significant factor contributing to acquiring firm shareholder value in M&A activities. Notably, a significantly negative correlation between CEO remuneration change and M&A outcomes is found. The paper recommends enhanced transparency for remuneration and nominations committees to address corporate governance issues raised by the study.

How do strategic alliance formations create shareholder value? An application of the event study methodology in the B2B context

By announcing the formation of business-to-business (B2B) relationships, such as strategic alliances, firms send signals to market observers who form expectations about these firms' future performance, ultimately affecting their shareholder value. The use of an event study methodology enables scholars to gauge the extent of the shareholder value these relationships can create. The role of the present study is twofold. First, we aim to systematically investigate the relationship between strategic alliance formations and firm shareholder value, identifying conditions under which strategic alliances create or even destroy value, including factors related to the firms and alliances as well as their interactions. Our second objective is to explain how B2B marketing researchers can apply the event study methodology in the context of strategic alliances. We provide a detailed explanation of how scholars can apply an event study methodology to strategic alliances, and B2B relationships more broadly, taking into account the research area-specific considerations, such as the appropriate modeling approach, variable coding, and event and estimation windows.

Corporate Governance & Rights and Privileges of Minority Shareholders of Family-Owned Firms: Evidence from the Emerging Economy

Corporate Governance & Rights and Privileges of Minority Shareholders of Family-Owned Firms: Evidence from the Emerging Economy

Grey Directors and Earnings Management of Selected Quoted Non- Financial Firms in Nigeria

This study examined the effect of grey directors on earnings management of selected non- financial firms in Nigeria. Earnings management was used as dependent variable while grey director’s presence, grey director’s size, grey director’s gender diversity and grey director’s stock holding were used as independent variables. A sample of 44 selected non-financial firms were used for the period of ten years spanning 2012 to 2021. The study employed ex-post facto and cross-sectional research design. The secondary sources of data were collected from annual reports of the selected non-financial firms and four (4) specific objectives and hypotheses were subjected to some preliminary data tests like descriptive statistics, Pearson correlation analysis and Variance Inflation factor (VIF) were analyzed using panel regression analysis after taking cognizance of hausman effect tests. Using a sample of 440 firm-year observations, the result revealed that grey director’s presence and grey directors gender diversity have a negative and significant effect on earnings management of selected quoted non-financial firms in Nigeria which was statistically significant at 5% level of significance respectively while grey directors stock holding has negative but insignificant effect on earnings management of quoted non- financial firms in Nigeria. Based on the findings above, the study recommends among others, that shareholders of non-financial firms in Nigeria should ensure that there is presence of grey directors in their team of management to help curtail the opportunistic behavior of managers and contend earnings management practices. Again, having more women as grey directors in top management should be the priority of every non-financial firms in order to reduce earnings management practices of the firms.

Childhood exposure to family firm and transgenerational orientation: Moderated mediation of affective commitment

ABSTRACT Based on organizational commitment theory, we explain how childhood exposure to the family firm (CEFF) impacts shareholders’ affective commitment (AC) to the firm in later life. After we demonstrate how this AC mediates the relationship between shareholders’ transgenerational orientation (TGO) and CEFF, we investigate the two factors moderating this mediation relationship: shareholders’ non-manager status and material expectations from the firm. By utilizing a unique sample of 217 family firm shareholders from 174 family firms and a conditional process modeling analysis, we demonstrate that the AC mediates the relationship between CEFF and TGO. Accounting for differing manifestations of AC, this mediation effect only exists for non-managing shareholders and becomes weaker as non-managing shareholders’ material expectations increase.

Non-controlling shareholders' governance participation and corporate misconduct: Evidence from voting in general meetings

This study explores the governance role of non-controlling shareholders (NCSs) in Chinese firms by examining the impact of their general meeting participation on corporate misconduct. We find that higher NCS voting shares lead to less corporate misconduct, and the impact is more pronounced for firms with worse internal control or audit quality and less analyst or media coverage. The two-stage regression results based on the instrumental variable approach suggest that the impact is casual. Channel tests show that NCSs' general meeting participation reduces misconduct by mitigating controlling shareholders' tunneling and improving firms' information environment. Finally, we document that the negative impact of NCSs' governance participation on corporate misconduct increases firm value by reducing the firm's future stock price crash risk.

Fintech and corporate governance: at times of financial crisis

The objective of this research is to probe the moderating role of Big Four auditors (a representative of corporate governance) on the market performance of firms during the pandemic period, with specific focus on Fintech and non-Fintech firms. Design/Methodology: Employing data from 48 Fintech and 140 non-Fintech firms spanning 2010 to 2021, the study utilizes ordinary least squares, quantile regression, and dynamic Generalised Moments Method (GMM) regression to assess the implications of engaging with a Big Four auditor on firms' market performance during the pandemic. The study reveals that Fintech firms, compared to their non-Fintech counterparts, displayed a significantly poorer market performance by 110.4% during the pandemic. Additionally, Fintech firms audited by a Big Four auditor experienced a decline in market performance by 101.9%, indicating a potential negative impact of Big Four auditors' engagement for Fintech firms in crisis periods. The outcomes of this research underscore the importance of corporate governance during financial crises, and its influence on shareholder perception, especially in the context of Fintech firms. As such, it provides meaningful insights for governments, policymakers, and various practitioners including firm shareholders and start-up entrepreneurs. This study introduces a novel examination of the moderating effect of Big Four auditors on firms' market performance during a pandemic, especially in the context of Fintech firms. By shedding light on the relationship between corporate governance and market performance during crises, it fills a significant gap in the existing literature.

The role of family businesses and active family members in environmental performance

There is a growing concern about environmental issues, particularly carbon emissions, in many countries. Indonesia, with its huge population, also suffers from excessive carbon emissions. This study aims to investigate the effect of family businesses on environmental performance, specifically carbon emission disclosure. This study also explores the role of the family supervisory board and management on the quality of carbon emission disclosure. The study employed 62 non-financial family-listed firms in 2017–2019 (186 observations). The analysis found a positive and significant relationship between family enterprises and the disclosure of carbon emissions, implying that family firms expose more information about their carbon emissions. It also revealed a significant positive association between the family supervisory board and carbon emission performance, suggesting that having family members on the supervisory board aligns with policies for reducing and maintaining accountability for carbon emissions. In summary, the findings suggest that family enterprises prefer to exercise their indirect control by holding a position on the supervisory board and owning a substantial percentage of the company’s stock corresponding to their socio-emotional wealth agenda. Additionally, there is a non-linear association between family firms and the disclosure of carbon emissions. Carbon emission performance decreases as family share ownership rises to 53.1% but increases when family equity exceeds this cut-off point. Finally, family shareholders in non-polluted firms report higher quality of carbon emission disclosure.

On the Social Desirability of Centralized Wage Setting when Firms are Run by Biased Managers

Abstract This paper compares the welfare outcomes obtained under alternative unionization regimes (decentralized vs. centralized wage setting) in a duopoly market in which shareholders delegate strategic decisions to biased (overconfident or underconfident) managers. In such a framework, the common tenet that consumer surplus and overall welfare are always higher under decentralized wage setting is completely overturned. Indeed, in the presence of centralized unionization (industry-wide union), firm shareholders always prefer to hire more aggressive or less conservative managers and, as a result, output (consumer surplus) and overall welfare are larger than in a decentralized wage setting structure.

Gender diversity and firm performances suffering from financial distress: evidence from Indonesia

PurposeThis paper aims to demonstrate gender diversity in the structure of corporate governance and test the effect of diversity on the firm performance suffering from financial distress.Design/methodology/approachThe paper is quantitative using a sample of 467 public firms in Indonesia. Data were analyzed into statistics descriptive and the hypothesis was tested using the test of logistic regression.FindingsThe preliminary results of the paper demonstrate the number of firms employing women and men in the structure of corporate governance of 13% on the commissioner board, 7% on the director board and 5% on the audit committee. Based on the test of effect, this paper further found that firms employing women and men (gender diversity) in the structure of the board of commissioners, tend to suffer from financial distress lower than firms only employing men (non-gender diversity).Research limitations/implicationsThis paper is not an effort to make the proportion of voices of women equal to men, however the representation of women at least exists in the structure of corporate governance as part of workforce diversity and inclusivity. In addition, this paper is considered not to use panel data with the purpose of avoiding repetitive data because of the use of a nominal scale in the logistic regression model.Practical implicationsThe finding of the paper is addressed to deliver insights into the current conversation on the issue of women's day with the theme of Each for Equal and to firms in positioning women in the structure of boardrooms.Originality/valueThis paper extends the limited scholarly work on the nexus between gender diversity and financial performance. The framework of social identity theory and the tenet of corporate governance are elaborated to disclose the finding that firm shareholders tend to benefit from gender diversity in the structure of the commissioner board.

The Use of Optimistic Tone by Ethical Firms' Leaders

This study analyzes the annual letter to shareholders of firms that have been recognized for their ethical practices to reveal a verbal tone that can characterize their leaders. This study identifies 63 Chairs/CEOs, representing 63 firms that had been listed among the world’s most ethical companies for three consecutive years (or more). Using DICTION software, their letters were analyzed for five general tones (certainty, activity, optimism, realism and commonality). The comparisons between the whole-sample tone and DICTION's 'normal range' of tones shows consistently that their letters to shareholders exhibit a strong tone of optimism, compared to their peers from Fortune 500 companies, social activists, religious leaders and political campaigners.

Undisclosed material inflation risk

We identify many major U.S. corporations that are highly exposed to inflation risk. Yet, although the SEC legally requires disclosing possible risk factors, more than 61% of the inflation-exposed corporations do not disclose inflation risk. However, after being sued in a securities class action lawsuit, while all firms increase the length of their reported risk factor texts, only inflation-exposed firms are more likely to begin disclosing inflation risk. Simulations using calibrated parameters from our models reveal that 2%–6% inflation shocks over the subsequent three years result in market cap damages of $0.9 to $2.8 trillion for shareholders of inflation-exposed firms that never disclosed this risk. The inadequate inflation risk disclosure holds after allowing risk to be time varying, controlling for firm/industry characteristics, and/or exploiting a quasi-natural experiment that identifies causal effects and controls for possible unobservable factors. The evidence is consistent with corporate managers paying inadequate attention to inflation risk. Our framework enables identification and evaluation of stock price drop damages, especially for firms with inadequate risk disclosures, possibly improving disclosure practices, inflation expectations, and monetary policy transmission.

Corporate Capital Structure Practices and Shareholder’s Wealth of Shariah Compliant Firms of Pakistan

Main objective of the research is to investigate the impact of corporate capital structure practice on the shareholders wealth of sharia-compliant companies that are quoted in the Pakistan Stock Exchange. For the purpose of determining the impact, the company’s shareholders wealth has been used as the dependent variable, represented by return on assets. The capital structure is used as the independent variable, and its proxies are the debt-to-equity ratio for long-term financing and the current asset to current liability ratio for short-term financing, respectively. Size, tangibility and growth were taken as control variables and determined by the sales-to-assets ratio, fixed asset to total asset ratio, and percentage change in sales respectively. Panel data of 22 shariah complaint firms according to screening criteria established by Al Meezan investment limited for the period of June 30,2008 to June 30, 2020, has been taken from listed firms in Pakistan stock exchange. All descriptive analysis, diagnostics tests and regression were applied for comprehensive data analysis. This study reveals that, for sharia-compliant businesses, sales growth is more important than tangibility or size when it comes to firm shareholders wealth. Due to the type of research that has been conducted, firms which are not shariah compliant, excluded from the panel and focus has only been given on the shariah compliant firms specifically listed in Pakistan stock exchange. The findings of this study may be applicable only shariah compliant firms as per criteria established by Pakistani shariah board. This study is explicitly completed about the capital constructure of shariah consistent firms since shariah agreeable firms are confined by interest bearing debt up to a specific cutoff, so it is consuming contemporary corporate finance issue to investigate explicitly the effect of corporate capital structure of shariah agreeable companies’ shareholders wealth in Pakistani capital market.