Evidence from 1992 to 2019 on the dynamics of managerial authority and CEO remuneration during company crises

We investigate the dynamics of two governance constructs, management influence over the board of directors and CEO remuneration, in enterprises in crisis from 1992 to 2019. Data reveal a strong trend of improving governance over time, which confounds the conclusion concerning the impact of distress on governance. Using a bias-corrected matching estimator to control for secular trends, we find that distressed businesses cut management board appointments and CEO compensation, deepen managerial incentive alignment, and increase CEO turnover. The performance-related component of CEO remuneration accounts for the majority of changes in CEO compensation in troubled businesses, which is consistent with the "shareholder value" perspective on CEO compensation.

The Efficiency Costs of Dividend Taxation with Managerial Firms*

The paper provides a positive and efficiency analysis of dividend taxation in a corporate agency model with a costly managerial effort. Unlike existing (agency) models, this model is consistent with empirical work in corporate finance and able to predict empirically observed investment responses to dividend taxation. In addition, we show that investment changes are not sufficient to infer, first, the efficiency cost of dividend taxation and, second, the financing regime underlying firms’ investments. We provide a testable implication that allows to empirically uncover the source of investment finance by comparing investment responses to dividend taxes and managerial incentive pay.

South-South migration: a study on refugees working in small and medium Brazilian enterprises

This article aims to analyze the integration of refugees from the global South in the workplace of small and medium enterprises in the city of São Paulo, based on interpersonal relationships between Brazilian employers, refugee workers, and Brazilian workers. The literature focuses on South-South migration, refugees in Brazil, and their stereotypes in the workplace. The research was qualitative, using a case study. Semi-structured individual interviews and non-participant observation were conducted with 28 respondents: 7 refugee workers (2 Haitians, 2 Angolans, 1 Congolese, 1 Nigerian, and 1 Beninese); 7 Brazilian employers (4 owners and 3 managers in the services, commerce, and industry sectors); and 14 Brazilian co-workers. Results show managerial incentive to different forms of communication seeking to break the language barrier as well as explicit racism. The employers only began to worry about the integration of refugees when they had problems with Brazilians, such as disrespect for Halal food of Muslim refugees and the perception that refugees transmit diseases. Brazilian workers and employers stereotype refugees from African countries (including Haiti) as a homogeneous group of “black Africans,” reflecting a total lack of knowledge about their geographical and cultural diversity. This lack of knowledge strongly influences interpersonal relationships and makes it difficult for refugees to integrate into the workplace. This article contributes to the reflection on South-South migration, since the literature usually explores South-North and North-North migration.

Pengaruh Sustainability Reporting, Profitabilitas, Struktur Modal Dan Insentif Manajer Terhadap Nilai Perusahaan

Indonesia's growing economy require every company to improve company performance for achievement of company goals. In addition, the company is also expected to increase the firm’s value for shareholder prosperity. Firm’s value is very important because it shows the performance of the company that can affect investor perceptions of the company. The issue of companies listed on the Indonesia Stock Exchange shows that most firm’s values ​​have declined from 2017 to 2018 while good company values ​​are seen from stable and rising share prices. This study aims to test empirically the influence of sustainability reporting, profitability, capital structure and managerial incentive to firm’s value on the companies listed in Indonesia Stock Exchange during periode 2017-2018. This study used purposive sampling method for the selection of sampel. The population of this research is 613 companies with total sample of 39 companies. Data analysis technique in this research is multiple regression analysis with SPSS version 23.0. The research result show that sustainability reporting has no effect to to the firm’s value, profitability has effect to the firm’s value, capital structure has no effect to the firm’s value and managerial incentive has no effect to the firm’s value. The results of this study are expected to be a motivation for company management to increase firm’s value because it will have an impact on investor interest in investing in companies in Indonesia. Keywords: Sustainability Reporting, Profitability, Capital Structure, Managerial Incentive, Firm’s Value

Investment Choice with Managerial Incentive Schemes

In this paper, we show that firms might get an additional strategic benefit from using marginal-cost-reducing investments in conjunction with strategic delegation. While both these instruments allow firms to “aggressively” participate in product market competition, we show that they act as substitutes or complements depending on whether they are chosen simultaneously or sequentially. Given that the use of such instruments is inseparably linked with a Prisoner’s Dilemma kind of situation, our analysis shows a way to mitigate at least to some extent such effects, through their simultaneous use. We find that the unique Nash equilibrium of the game with commitment comprises both players choosing the instruments simultaneously. In case the instruments are chosen without commitment, an asymmetric equilibrium is shown to exist in addition to the simultaneous protocol, yielding unequal payoffs.

The Exploratory Mindset and Corporate Innovation

We propose that chief executive officer (CEO) exploratory mindset (inherent desire to search for novel ideas and long-term orientation) promotes innovation. Firms with CEOs with PhD degrees (PhD CEOs) produce more exploratory patents with greater novelty, generality, and originality. PhD CEOs engage less in managing earnings and stock prices, invest more in research and development (R&D) and alliances, generate higher long-term value of patents, and experience more positive market reactions to R&D alliances. Their firms achieve superior long-run operating performance. They tend to be hired by research-intensive firms with poor financial performance. Evidence from managerial incentive shocks and turnovers suggests that these effects do not derive solely from CEO–firm matching.

Asymmetric Reporting Timeliness and Informational Feedback

We examine the effects of asymmetric timeliness in reporting good versus bad news on price informativeness when prices provide useful information to assist firms’ investment decisions. We find that a reporting system featuring more timely disclosure of bad news than of good news encourages speculators to trade on their private information. Consequently, it generates a higher expected investment level and firm value. Our analysis generates predictions consistent with empirical findings and provides a justification for the more timely reporting of bad news in the absence of managerial incentive problems. This paper was accepted by Brian Bushee, accounting.

Should Investors Care About Mutual Fund Governance Quality?: Evidence From Morningstar Stewardship Ratings

This article uses Morningstar Governance Ratings (MGRs) to analyze mutual fund expenses and create an indirect proxy for mutual fund performance. The results differ across ratings type and fund structure. In general, multiple share class (MS) funds do not have lower expenses, which is surprising since MS funds were created explicitly to have lower expenses. Additionally, MGRs impact expenses differently for each fund structure type: a higher board quality rating is only correlated with lower expense ratios for MS funds, while higher managerial incentive ratings are correlated with higher expenses for Non-MS funds and lower expenses for MS funds. When considering that a main impetus for creating MS funds is to lower investor expenses, it is of interest that only funds with higher stewardship ratings seemingly have lower expenses.

The Equilibrium Relationships between Performance-Based Pay, Performance, and the Commission and Detection of Fraudulent Misreporting

ABSTRACT We develop an agency model in which managerial information manipulation creates pooling and entails ex post costs internal and/or external to the firm. We examine the implications of the strategic interactions between shareholders (who set internal governance and managerial incentive compensation), the manager (who exerts effort and reports on its outcome), and an external regulatory authority or RA (who investigates for fraud and levies penalties ex post). When the RA cannot pre-commit to an ex post investigation strategy, a fraudulent equilibrium obtains if the firm's internal governance costs are sufficiently high. Consistent with (so far fairly scant) post-SOX empirical evidence, but the opposite of the implications of signal-jamming models and equilibria with pre-commitment, the model implies an increase in minimum internal governance standards or ex post fraud penalties (as with SOX) results in decreased equilibrium pay-for-performance sensitivity and firm performance.