Browsing by Subject "Corporate Governance"
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Item Acquiring firm long-term performance and governance characteristics(Texas A&M University, 2004-09-30) Breazeale, Jonathan PaulI examine the market reaction to merger announcements and the long-term post-merger stock price performance of newly merged firms. For a sample of 484 acquiring firms completing mergers between 1993 and 2000, the average value-weighted abnormal announcement date return (market-adjusted) is a statistically significant -1.02%. On average, this reaction is more negative for firms with "good governance." Specifically, a governance index comprised of three governance variables is significantly negative in a multivariate regression of announcement date abnormal returns. Comp is the percentage of CEO salary consisting of equity incentives (including stock options and restricted stock grants), InsideOwn is the percentage of the firm owned by officers and directors, and InstOwn is the percentage of the firm owned by large outside block shareholders. Value-weighted calendar-time portfolios consisting of the full sample of acquirers exhibit significant abnormal returns of 9.12%, 33.84% and 55.8% for the 12, 36 and 60 months following the merger, respectively. This overperformance is limited to the value-weighted portfolios. There is calendar-time evidence of abnormal performance for some subsamples on a risk adjusted basis. However, when compared to a control group, abnormal performance is limited to large glamour acquirers on a 12-month horizon, large cash acquirers on a 36 and 60-month horizon, and small focusing acquirers on a 60-month horizon. Multivariate analysis of long-run returns reveals that use of equity and corporate diversification are associated with lower post-merger performance. With regard to governance and long-run stock returns, there is also evidence that suggests higher levels of incentive compensation for CEOs is associated with more successful merger transactions for long-term investors.Item Board independence and corporate governance: evidence from director resignations(Texas A&M University, 2005-08-29) Gupta, ManuAs evident from recent changes in NYSE and Nasdaq listing requirements, board independence is considered an important constituent of firms?? corporate governance structures. However, the empirical evidence regarding the impact of board structure on firm performance is mixed. Since firms employ a variety of governance mechanism to control agency problems, the significance of board independence may depend upon the strengths of other governance mechanisms. I study the importance of board independence from the viewpoint of an investor by examining the market reaction to board member resignation announcements. I then examine this market reaction in the context of each firm??s existing governance structure and business environment. I find that investors react more negatively when an outside director resigns from the board than when an inside or gray director resigns. More importantly, I find that investor reaction to outside director resignation is less negative when insider or non-affiliated blockholder stock ownership is high. This evidence suggests that board independence and insider ownership and non-affiliated blockholder ownership may serve as substitutes. Furthermore, the evidence indicates that firms may require higher board oversight when a large part of managerial compensation is based on stock incentives. This finding suggests that overly high levels of stock-based managerial compensation may exacerbate agency problems. Taken together, these results have important implications for choosing an effective set of governance mechanisms that may work independently or in combination with each other to mitigate the agency cost of equity.Item Institutional Investors, Managerial Incentives, and Firms' Risk Profiles(2013-04-11) Celil, Hursit SIn this dissertation, I study the influence of monitoring by institutional investors on corporate behavior within the context of CEO compensation-based incentives. I find that institutional investors provide an executive with higher levels of compensation sensitivity with respect to a firm?s equity price (Delta). In contrast to prior literature, however, once I control the dynamic nature of the data, institutional investors do not affect compensation sensitivity with respect to a firm?s equity risk (Vega). Instead, I find that institutional investors appear to influence the risk profile of firm through the firm?s investment, financing and diversification policy choices even after I control for the CEO?s compensation structure. The results suggest that compensation-related incentives to increase risk (i.e. vega) and monitoring by institutional investors are substitutes of each other in that both can offset the managerial incentives to reduce risk that stem from greater levels of compensation delta. These results are robust to potential endogeneity problems that may arise due to the dynamic nature of panel data.