Corporate Governance and Managerial Compensation Horizon under Common Ownership

2021 ◽  
Author(s):  
Tian Tang
Keyword(s):  
Corporate Governance ◽  
Managerial Compensation ◽  
Common Ownership

scholarly journals Policy Implications of the Common Ownership Debate

2021 ◽  
Vol 66 (1) ◽  
pp. 140-149
Author(s):  
Eric A. Posner
Keyword(s):  
Corporate Governance ◽  
Market Structure ◽  
Capital Market ◽  
Policy Implications ◽  
Antitrust Enforcement ◽  
Policy Responses ◽  
Common Ownership ◽  
The Common

Empirical findings that common ownership is associated with anticompetitive outcomes including higher prices raise questions about possible policy responses. This comment evaluates the major proposals, including antitrust enforcement against common owners, regulation of corporate governance, regulation of compensation of management of portfolio firms, regulation of capital market structure, and greater antitrust enforcement against portfolio firms.

scholarly journals Corporate Fraud, Governance, and Auditing

2012 ◽  
Vol 1 (1) ◽  
pp. 109-133 ◽  
Author(s):  
Marco Pagano ◽  
Giovanni Immordino
Keyword(s):  
Corporate Governance ◽  
Audit Quality ◽  
Managerial Compensation ◽  
Private Benefits ◽  
Firm Level ◽  
Corporate Fraud ◽  
Internal Governance ◽  
Empire Building ◽  
Country Level ◽  
Internal Governance Mechanisms

We analyze corporate fraud in a setting in which managers have superior information but are biased against liquidation because of their private benefits from empire building. This may induce them to misreport information and even bribe auditors when liquidation would be value-increasing. To curb fraud, shareholders optimally design corporate governance by jointly choosing audit quality and managerial compensation. We analyze how country-level rules affect these firm-level choices. Our analysis underscores that different country-level governance provisions have different effects on firm-level governance: Some act as substitutes of internal governance mechanisms, whereas others enhance their effectiveness and therefore complement them. (JEL G28, K22, M42)

scholarly journals A Skeptical View of Financialized Corporate Governance

2017 ◽  
Vol 31 (3) ◽  
pp. 131-150 ◽  
Author(s):  
Anat R. Admati
Keyword(s):  
Corporate Governance ◽  
Stock Prices ◽  
Boards Of Directors ◽  
Managerial Compensation ◽  
Return On Equity ◽  
Rating Agencies ◽  
Effective Governance ◽  
Corporate Scandals ◽  
Private And Public ◽  
History Of

Managerial compensation typically relies on financial yardsticks, such as profits, stock prices, and return on equity, to achieve alignment between the interests of managers and shareholders. But financialized governance may not actually work well for most shareholders, and even when it does, significant tradeoffs and inefficiencies can arise from the conflict between maximizing financialized measures and society's broader interests. Effective governance requires that those in control are accountable for actions they take. However, those who control and benefit most from corporations' success are often able to avoid accountability. The history of corporate governance includes a parade of scandals and crises that have caused significant harm. After each, most key individuals tend to minimize their own culpability. Common claims from executives, boards of directors, auditors, rating agencies, politicians, and regulators include “we just didn't know,” “we couldn't have predicted,” or “it was just a few bad apples.” Economists, as well, may react to corporate scandals and crises with their own version of “we just didn't know,” as their models had ruled out certain possibilities. Effective governance of institutions in the private and public sectors should make it much more difficult for individuals in these institutions to get away with claiming that harm was out of their control when in reality they had encouraged or enabled harmful misconduct, and ought to have taken action to prevent it.

The preventive effect of hedge fund activism: investment, CEO compensation and payout policies

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Caroline Heqing Zhu
Keyword(s):  
Corporate Governance ◽  
Mutual Fund ◽  
Ceo Compensation ◽  
Hedge Fund ◽  
Managerial Compensation ◽  
Standard Deviation Increase ◽  
Corporate Policy ◽  
Investment Policies ◽  
Content Type ◽  
Hedge Fund Activism

PurposeThe purpose of this paper is to examine the effectiveness of hedge fund activism (HFA) in preventing corporate policy deviations.Design/methodology/approachThis paper identifies HFA interventions through a hand-collected sample of Schedule 13D filings between 1994 and 2016, and uses mechanical mutual fund fire sales as the instrument variable (IV) for the likelihood of such interventions. Armed with the instrument, this paper estimates firm's distribution, managerial compensation and investment policies in response to a change in the perceived likelihood of HFA interventions.FindingsAn increase in the HFA intervention likelihood leads to increases in shareholder distribution, decreases in CEO pay and investments and increases in operating performance. Compared to the sample average, a one standard deviation increase in the intervention likelihood leads to a 9.29% increase in the firm's payout ratio, a 7.42% decrease in CEO compensation, a 2.67% decrease in capital expenditures and a 4.96% decrease in R&D expenses. These changes are consistent with the threat of intervention curbing managerial empire-building behaviors and improving firm operation. The relationships are causal, significant and robust to a variety of alternative specifications and sample divisions.Originality/valueResults of this paper suggest that as a mechanism for corporate governance, the threat of HFA is effective in preventing corporate policy deviations. They also demonstrate a stronger and broader impact of HFA on corporate policy than previously documented. By showing that HFA is an effective and viable mechanism for corporate governance, this study allows policymakers to make more informed decisions to whether increase hedge fund regulations or not.

Institutional Investor Voting Behaviour

2021 ◽  
pp. 227-262
Author(s):  
Luca Enriques ◽  
Alessandro Romano
Keyword(s):  
Corporate Governance ◽  
Institutional Investors ◽  
Institutional Investor ◽  
Geographical Proximity ◽  
Voting Behaviour ◽  
Current Policy ◽  
Policy Issues ◽  
Common Ownership ◽  
Asset Managers ◽  
Shed Light

This chapter shows how network theory can improve our understanding of institutional investors’ voting behaviour and, more generally, their role in corporate governance. The standard idea is that institutional investors compete against each other on relative performance and hence might not cast informed votes, due to rational apathy and rational reticence. In other words, institutional investors have incentives to free-ride instead of ‘cooperating’ and casting informed votes. We show that connections of various kinds among institutional investors, whether from formal networks, geographical proximity, or common ownership, and among institutional investors and other agents, such as proxy advisors, contribute to shaping institutional investors’ incentives to vote ‘actively’. They also create intricate competition dynamics: competition takes place not only among institutional investors (and their asset managers) but also at the level of their employees and among ‘cliques’ of institutional investors. Employees, who strive for better jobs, are motivated to obtain more information on portfolio companies than may be strictly justified from their employer institution’s perspective, and to circulate it within their network. Cliques of institutional investors compete against each other. Because there are good reasons to believe that cliques of cooperators outperform cliques of non-cooperators, the network-level competition might increase the incentives of institutional investors to collect information. These dynamics can enhance institutional investors’ engagement in portfolio companies and also shed light on some current policy issues such as the antitrust effects of common ownership and mandatory disclosures of institutional investors’ voting.

Common Ownership and the Corporate Governance Channel for Employer Power in Labor Markets

2021 ◽  
Vol 66 (1) ◽  
pp. 123-139
Author(s):  
Marshall Steinbaum
Keyword(s):  
Corporate Governance ◽  
Labor Market ◽  
Labor Markets ◽  
Market Power ◽  
Profit Maximization ◽  
Balance Of Power ◽  
Consumer Welfare ◽  
Firm Level ◽  
Common Ownership

This article combines two relatively new subjects of antitrust scholarly interest: labor market power and corporate governance. In so doing, it speaks to a number of recent debates that have grown up both inside the scholarly antitrust literature and adjacent to it. First, this article interprets the shift in the balance of power within corporations favoring shareholders at the expense of workers, both in economic-theoretical and historical terms. Second, it lays out the role of shareholders and the common ownership channel as a vector for anticompetitive conduct arising between firms, not just within firms, thanks to profit maximization at the portfolio level rather than the firm level. Third, it evaluates the claim that employer market power has increased, relative to other current explanations for labor market trends. Fourth, it ties rising employer power in labor markets to the increasing significance of common ownership. And finally, it contends that antitrust is a suitable policy remedy to the dual problems of anticompetitive common ownership and increased employer power, provided it abandons the consumer welfare standard and instead elevates worker welfare to an equivalent juridical status.

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