Industry competition in China: an external governance mechanism or an external incentive

2017 ◽  
Vol 31 (2) ◽  
pp. 123-136
Author(s):  
Tingting Zhang ◽  
Weiqiang Zeng ◽  
Ruohan Zhong ◽  
Yanxi Li
Keyword(s):  
Governance Mechanism ◽  
Industry Competition ◽  
External Governance ◽  
External Incentive

Does the market for corporate control influence executive risk-taking incentives? Evidence from takeover vulnerability

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Viput Ongsakul ◽  
Pattanaporn Chatjuthamard ◽  
Napatsorn Jiraporn ◽  
Pornsit Jiraporn
Keyword(s):  
Risk Taking ◽  
Fixed Effects ◽  
Corporate Control ◽  
Governance Mechanism ◽  
Causal Inferences ◽  
Content Type ◽  
Instrumental Variable Analysis ◽  
Market For Corporate Control ◽  
External Governance ◽  
Takeover Market

Purpose This study aims to investigate the role of the market for corporate control as an external governance mechanism and its effect on executive risk-taking incentives. Managers tend to be risk-averse as they are more exposed to idiosyncratic risk, resulting in sub-optimal risk-taking that does not maximize shareholders’ wealth. The takeover market alleviates this problem, inducing managers to take more risk. Therefore, risk-taking incentives inside the firm are less powerful when the outside takeover market is more active. Design/methodology/approach Exploiting a novel measure of takeover vulnerability recently constructed by Cain et al. (2017), the authors explore how takeover vulnerability influences executive risk-taking incentives. Using a large sample of US firms, the authors use fixed-effects regressions, propensity score matching and instrumental variable analysis. Findings Consistent with this study’s hypothesis, a more active takeover market results in less powerful risk-taking incentives. Specifically, a rise in takeover vulnerability by one standard deviation diminishes executive risk-taking incentives by 22.39%, which is an economically meaningful magnitude. Originality/value To the best of the authors’ knowledge, this study is the first to explore the effect of the takeover market on managerial risk-taking incentives, using a novel measure of takeover susceptibility. The authors’ measure of takeover vulnerability is considerably less susceptible to endogeneity, enabling the authors to draw causal inferences with more confidence.

scholarly journals Co-CEOs and Asymmetric Cost Behavior

2019 ◽  
Vol 11 (4) ◽  
pp. 1046 ◽  
Author(s):  
Jiyeon Lee ◽  
Jin-Ha Park ◽  
Jiwon Hyeon
Keyword(s):  
Corporate Governance ◽  
Foreign Ownership ◽  
Governance Mechanism ◽  
Governance Mechanisms ◽  
Cost Behavior ◽  
Corporate Governance Mechanism ◽  
Asymmetric Cost ◽  
External Governance ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

This study investigates the effect of co-CEO structure on asymmetric cost behavior. A firm’s cost behavior reflects managers’ decision making about resources, which can be influenced by various factors. One of them relates to a manager’s decision to inefficiently reallocate their company’s resources when sales decline in pursuit of their incentives for empire-building and disincentives for downsizing. These inefficient resource allocations may result in asymmetric cost behavior, and ultimately be harmful to a firm’s sustainability. We consider the co-CEO structure as an alternative corporate governance mechanism that prevents managers from making inappropriate decisions. By doing so, we investigate whether the degree of cost stickiness differs between co-CEO and single-CEO structures, and whether the former complements external governance mechanisms, particularly foreign ownership, in mitigating cost stickiness. We analyze data from Korean listed companies for 2000–2013, and find that the cost stickiness is lower in the co-CEO structure than in the single-CEO structure. Thus, the co-CEO structure works as an alternative corporate governance mechanism to control the agency problem by inducing mutual monitoring among co-CEOs. Furthermore, the reduction in cost stickiness is greater for firms with higher foreign ownership, indicating that the co-CEO structure complements external governance mechanisms.

scholarly journals Internal and external governance mechanisms: Evidence from the Nigerian banking industry

2005 ◽  
Vol 2 (3) ◽  
pp. 62-67 ◽  
Author(s):  
Olatundun J. Adelegan
Keyword(s):  
Great Proportion ◽  
Banking Industry ◽  
Audit Committees ◽  
Annual Reports ◽  
Executive Directors ◽  
Governance Mechanism ◽  
External Governance ◽  
The Relationship ◽  
Nigerian Banking

This paper examines the relationship between internal and external governance mechanism employed by Nigerian banking companies. Data for the study was obtained from the annual reports of bank in Nigeria. I find a higher portion of non-executive directors and a greater likelihood of separating the role of company chairman and CEO in banks compared to similar studies of Nigerian quoted companies. The proportion of non-executive directors who are former executives is low. These suggest those banks are more likely to employ non-executives for monitoring. Banks in Nigeria have utilized audit committees since 1991 and the audit committees in Nigerian banks possess a great proportion of non-executive directors.

Corporate governance and investment efficiency in Indonesia: the moderating role of industry competition

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Irenius Dwinanto Bimo ◽  
Engelbertha Evrantine Silalahi ◽  
Ni Luh Gde Lydia Kusumadewi
Keyword(s):  
Corporate Governance ◽  
Generalized Method Of Moments ◽  
Investment Efficiency ◽  
Governance Mechanism ◽  
Content Type ◽  
Industry Competition ◽  
Corporate Governance Mechanisms ◽  
Corporate Governance Mechanism ◽  
The Relationship

Purpose This study aims to analyse the effect of corporate governance on investment efficiency and the moderating impact of industry competition on the relationship between corporate governance and investment efficiency. Design/methodology/approach The research sample includes a total of 36 publicly listed companies assessed by the Indonesian Institute for Corporate Directorship from 2012 to 2018. Testing is performed on full sample and overinvestment and underinvestment subsamples. Additional testing is further carried out using the generalized method of moments to address endogeneity problems and a robustness test is performed to assess the estimated investment efficiency. Findings Corporate governance can increase investment efficiency and the effectiveness of corporate governance is found to drop when the level of industry competition is higher. Practical implications The results of the present study corroborate the suggestion that companies need to implement corporate governance mechanisms. Furthermore, designing a corporate governance mechanism requires the scrutiny of the external environment, including industry competition. Originality/value The present study adds the profitability factor in the calculation of investment efficiency levels. This study also considers external factors that can influence the effectiveness of corporate governance in determining investment efficiency.

Do Auditors Price Breach Risk in Their Audit Fees?

2018 ◽  
Vol 33 (2) ◽  
pp. 177-204 ◽  
Author(s):  
Thomas J. (Tom) Smith ◽  
Julia L. Higgs ◽  
Robert E. Pinsker
Keyword(s):  
Audit Fees ◽  
Audit Committees ◽  
Governance Mechanism ◽  
Audit Risk ◽  
Internal Governance ◽  
Security Breaches ◽  
Management Protocol ◽  
Audit Fee ◽  
External Governance ◽  
Board Level

ABSTRACT Data security breaches have been shown in the literature to negatively affect firm operations. Auditors serve as an important, external governance mechanism with respect to a firm's overall risk management protocol. Consequently, our study examines whether auditors price breach risk into their fees and if a firm's internal governance can mitigate the potential increases in audit fees. Using a sample of breached firms ranging from 2005–2014, we adapt the Houston, Peters, and Pratt (2005) model to explore how auditors view audit risk related to breach risk. We find that breaches are associated with an increase in fees, but the result is driven by external breaches. Our evidence suggests the presence of board-level risk committees and more active audit committees may help mitigate the breach risk audit fee premium. Additional evidence suggests that both past breach disclosures as well as future disclosures are associated with audit fees.

scholarly journals External Governance and Debt Structure

2019 ◽  
Vol 32 (9) ◽  
pp. 3335-3365 ◽  
Author(s):  
Sreedhar T Bharath ◽  
Michael Hertzel
Keyword(s):  
Public Debt ◽  
Positive Impact ◽  
Substitution Effect ◽  
Relative Strength ◽  
Bank Loan ◽  
Governance Mechanism ◽  
Governance Mechanisms ◽  
Debt Structure ◽  
External Governance ◽  
Corroborative Evidence

Abstract This paper examines how external governance pressure affects the type of debt that firms issue. Consistent with a governance mechanism substitution effect, we find that an exogenous increase (decrease) in governance pressure from the product (takeover) market has a significant negative (positive) impact on the use of bank (public debt) financing over public debt (bank loan) issuance. Tests using changes in the strictness of loan covenants provide corroborative evidence. These findings are consistent with the notion that firms endogenously substitute governance mechanisms and that demand for creditor governance depends on the relative strength of alternative external governance mechanisms. Received May 18, 2016; editorial decision November 11, 2017 by Editor David Denis.

Disciplining Role of Short Sellers: Evidence From M&A Activity

2020 ◽  
pp. 014920632091230
Author(s):  
Wei Shi ◽  
Hermann Achidi Ndofor ◽  
Robert E. Hoskisson
Keyword(s):  
Stock Prices ◽  
Negative Influence ◽  
Negative Information ◽  
Short Selling ◽  
Decision Quality ◽  
Governance Mechanism ◽  
Short Sellers ◽  
Top Managers ◽  
External Governance

Prior research has focused on the influence of long investors (e.g., institutional investors) on merger-and-acquisition (M&A) decisions. This study investigates the role of short sellers in shaping managerial acquisitiveness and M&A decision quality. Short sellers impose a downward pressure on stock prices by disseminating negative information to the market. Given that managerial wealth and job security hinge on stock prices, top managers respond to increased short selling by refraining from excessive M&A activities because M&As could provide opportunities for short sellers to spread negative information and dampen stock prices. Furthermore, the negative influence of short sellers on managerial acquisitiveness is enhanced by the market for corporate control as an external governance mechanism and by CEO equity ownership as an internal governance mechanism. When firms with increasing short selling do engage in M&As, they gain higher M&A announcement returns and operating performance. We test our hypotheses using firms in the S&P 1500 from 2002 to 2014 and find support for our arguments.

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