...INTRODUCTION CEO duality happens when the same person occupies both the CEO and chairing the board in a corporation. On the other hand, if different individuals serve in these two pivotal positions, the firm can be said to adopt a separate leadership structure. The fundamental question surrounding CEO duality leadership is whether the chairperson‘s position should be filled by the CEO or by a different person (Daily & Dalton, 1997). The all round concern has been whether one person‘s positioning at the corporate pivotal positions of CEO and board chairperson weakens corporate governance effectiveness, leading to managerial opportunism and resulting in reduced firm performance (Brickley, Coles, & Jarrell, 1997; Finkelstein & D‘Aveni, 1994). From the agency theory perspective, having one individual in charge of both management implementation and control is not consistent with the concept of checks and balances. However, from an organization theory perspective, CEO duality may enhance organizational efficiency in corporate leadership. Most theoretical arguments against the practice of CEO duality leadership have centered on the issue of power concentration on dual CEO (Brockmann, Hoffman, Dawley, & Fornaciari, 2004; Daily & Dalton, 1997). Duality has been described as a concentration of power on the dual CEO, enabling dual CEOs to dominate the board, reducing board effectiveness in monitoring and controlling the management’s performance. CEO duality leadership...
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...International Business Research Vol. 3, No. 3; July 2010 Ownership Structure and Cash Flows As Determinants of Corporate Dividend Policy in Pakistan Talat Afza (Corresponding Author) Faculty of Business Administration, COMSATS Institute of Information Technology Jinnah Building Defence Road, Off Raiwind Road, Lahore, Pakistan E-mail: talatafza@ciitlahore.edu.pk Hammad Hassan Mirza COMSATS Institute of Information Technology, Park Road, Chak Shahzad, Islamabad, Pakistan E-mail: al_hammd@hotmail.com Abstracts Dividend Policy is among the widely addressed topics in modern financial literature. The inconclusiveness of the theories on importance of dividend in determining firm’s value has made it one of the most debatable topics for the researchers (see for example, Ramcharan, 2001; Frankfurter et. al 2002; Al-Malkawi, 2007). The present study investigates the impact of firm specific characteristics on corporate dividend behavior in emerging economy of Pakistan. Three years data (2005-2007) of 100 companies listed at Karachi Stock Exchange (KSE) has been analyzed using Ordinary Least Square (OLS) regression. The results show that managerial and individual ownership, cash flow sensitivity, size and leverage are negatively whereas, operating cash-flow and profitability are positively related to cash dividend. Managerial ownership, individual ownership, operating cash flow and size are the most significant determinants of dividend behavior whereas, leverage and cash flow sensitivity do not...
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...CORPORATE GOVERNANCE: A SURVEY OF THE LITERATURE November, 2003 Jorge Farinha* Keywords: agency theory, corporate governance, ownership structure JEL Classification: G300 *CETE-Centro de Estudos de Economia Industrial, do Trabalho e da Empresa, Faculdade de Economia, Universidade do Porto, Portugal. Correspondence to: Jorge Farinha, Faculdade de Economia da Universidade do Porto, Rua Roberto Frias, 4200 Porto, Portugal. Tel. (351)-22-5571100, Fax (351)-22-5505050. E-mail: jfarinha@fep.up.pt. CORPORATE GOVERNANCE: A SURVEY OF THE LITERATURE ABSTRACT This paper reviews the theoretical and empirical literature on the nature and consequences of the corporate governance problem, providing some guidance on the major points of consensus and dissent among researchers on this issue. Also analysed is the effectiveness of a set of external and internal disciplining mechanisms in providing a solution for the corporate governance problem. Apart from this, particular emphases are given to the special conflicts arising from the relationship between managers and shareholders in companies with large ownership diffusion, the issue of managerial entrenchment and the link between firm value and corporate governance. Keywords: agency theory, corporate governance, ownership structure JEL Classification: G300 1 1 Introduction Recent financial scandals associated to accounting and other frauds allegedly blamed to top company managers (e.g. Enron, Worldcom, Adelphia) have...
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...Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure Michael C. Jensen Harvard Business School MJensen@hbs.edu And William H. Meckling University of Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith...
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...Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure Michael C. Jensen Harvard Business School MJensen@hbs.edu And William H. Meckling University of Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith...
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...Literature Review: 4 Agency Theory: 5 STAKEHOLDER THEORY 7 Stewardship theory: 10 Motivation: 10 Identification: 10 Policies: 10 Consequences: 11 Theory- Resource Dependence: 11 Principles: 12 Benefits of Corporate Governance: 13 Definition of 'Agency Problem': 14 Investopedia explains 'Agency Problem': 14 Agency Relationship and Agency Costs: 14 Conclusion: 23 Agency Problems Are Mitigated by Good Systems of Corporate Governance 23 Legal and Regulatory Requirements: 23 Compensation Plans: 24 Board of Directors: 24 Monitoring: 25 Takeovers: 25 Shareholder Pressure: 25 OECD Definition of Corporate Governance: "OECD defines corporate governance as follows: “Procedures and processes according to which an organisation is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organisation – such as the board, managers, shareholders and other stakeholders – and lays down the rules and procedures for decision-making." Financial Times Definition of Corporate Governance: "How a company is managed in terms of the institutional systems and protocols meant to ensure accountability and sound ethics. The concept encompasses a variety of issues, including the disclosure of information to shareholders and board members, the remuneration of senior executives, potential conflicts of interest among managers and directors, supervisory structures, etc." Cadbury Report...
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...Ownership and Disclosure A Review of Literature By BADRU Bazeet and Mousa Sharaf Adin Hezam Abstract This is a review of various literatures on ownership and disclosure which has been carried out by various researchers in different countries. So far majorities of the researchers shows that the extent of corporate disclosure is negatively associated with a higher management of ownership structure and the extent of corporate voluntary disclosures is positively related with a higher institutional ownership structure. But findings also show that the negative relationship is weaker if the firm has a higher proportion of independent non- executive directors. Introduction Ownership Structure is a mechanism that aligns the interest of Shareholders and Managers. Corporate governace is the capstone of the activities that can reduce agency costs. Corporate mangers disclosure policies are influenced by firm’s ownership and governance on the level of various types of information disclosure. This is a summary of literature review on ownership structure and corporate disclosure. Studies have shown that ownership structure can be state, legal, managerial and block holder depending on the countries and cultural environment. Blockholder ownership is the percentage of shares held by substancial shareholders( that is shareholdings of 5% or more). Jensen and Meckling (1976) argue that substancial shareholders are expected to have both greater power and incentives to monitor management, as...
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...Virksomhedens valg af kapitalstruktur HA-Almen Copenhagen Business School Seminar 2014 Vejleder: Mikael Qvist Finansiering Studerende: Danny Jin CPR nr.: 061293-3081 | Studerende: Troels Johansson CPR nr.: 310392-2045 | Indholdsfortegnelse 1. Introduktion 3 1.1 Problemformulering 3 1.2 Afgrænsning 4 2. Skat 4 2.1 Kapitalstruktur uden skat 4 2.2 Kapitalstruktur med selskabsskat 5 2.3 Kapitalstruktur med både selskabsskat og investorskat 6 2.3.1 Beskatning af danske privatinvestorer 8 2.3.2 Beskatning af investorer underlagt pensionsbeskatning 9 2.3.3 Beskatning af udenlandske investorer 10 2.4 Sammenfatning 10 3. Konkursomkostninger 11 3.1 Direkte konkursomkostninger 12 3.2 Indirekte konkursomkostninger 12 3.3 Sammenfatning 12 4. Agentomkostninger 13 4.1 Sammenfatning 16 5. Den Statiske Trade-off Teori 16 5.1 Risikoskift 17 5.2 Underinvesteringsproblemet 18 5.3 Malkning af virksomheden 18 5.4 Overinvestering 19 5.5 Sammenfatning 19 6. Pecking Order Teorien 20 6.1 Pecking-order teorien overfor den statiske trade-off teori: 22 6.2 Sammenfatning 24 7. Konklusion 25 8. Referencer 27 9. Bibliografi 29 Bilag 1: Notationsoversigt 31 Bilag 2: Efter-skat indkomst til indskydere af fremmed- og egenkapital 32 1. Introduktion Kapitalstrukturteori er en af de vigtigste og mest omtalte emner inden for finansiering. Modigliani og Millers artikel...
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...Organizational Theory Taxonomy Organizational Theory Taxonomy Title and Theorist Name | General Description | Example of Theory | Other Attributes | Agency Theory, Jensen & Meckling, 1972-1976 | The agency theory applies classical economic thinking to problems of organizational control and design (Tosi, 2009). Agency theory offers a useful way of understanding the complex authority relationship between top management and the board of directors. An agency relationship is when one personal “the principal” delegates decision-making authority or control to another “the agent” (Jones, 2010). | In 2005, Time Warner came under attack because top management had made many acquisitions such as AOL that did not led to increased innovation, efficiency, and higher profits which creates an agency problem that the agency theory addresses (Jones, 2010). | Agency theory views a firm as a legal entity that serves as a nexus for a complex set of formal and informal contracts among different individuals. A typical firm consists of the shareholders or the boards of directors are principals, and top managers or CEOs are agents (Jones, 2010). Agency theory dictates that principals will try to bridge the informational asymmetries by installing information systems for monitoring (Shapiro, 2005). | Contingency Theory, Burns & Stalker, 1961 | The contingency theory shows how some organizational designs will adapt to the environment, depending on the nature of the environment. The contingency...
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...Abstract. Great strides have been made in the theory of bank technology in terms of explaining banks’ comparative advantage in producing informationally intensive assets and financial services and in diversifying or offsetting a variety of risks. Great strides have also been made in explaining sub-par managerial performance in terms of agency theory and in applying these theories to analyze the particular environment of banking. In recent years, the empirical modeling of bank technology and the measurement of bank performance have begun to incorporate these theoretical developments and yield interesting insights that reflect the unique nature and role of banking in modern economies. This chapter gives an overview of two general empirical approaches to measuring bank performance and discusses some of the applications of these approaches found in the literature. Keywords: Bank, efficiency, risk, cost, profit, agency costs, X-inefficiency Correspondence to: Mester at Research Department, Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106-1574; phone: 215-574-3807; fax: 215-574-4303; email: Loretta.Mester@phil.frb.org. Hughes at Department of Economics, Rutgers University, New Brunswick, NJ 08901-1248; phone: 732- 932-7517; fax: 732-932-7416; email: jphughes@rci.rutgers.edu. The views expressed here are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Philadelphia or of the...
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...Wilfrid Laurier University Scholars Commons @ Laurier Theses and Dissertations (Comprehensive) 2010 Three Essays in Corporate Governance Vishaal Rabindranauth Anand Baulkaran Wilfrid Laurier University Follow this and additional works at: http://scholars.wlu.ca/etd Part of the Management Sciences and Quantitative Methods Commons Recommended Citation Baulkaran, Vishaal Rabindranauth Anand, "Three Essays in Corporate Governance" (2010). Theses and Dissertations (Comprehensive). Paper 1121. This Dissertation is brought to you for free and open access by Scholars Commons @ Laurier. It has been accepted for inclusion in Theses and Dissertations (Comprehensive) by an authorized administrator of Scholars Commons @ Laurier. For more information, please contact scholarscommons@wlu.ca. 1*1 Library and Archives Canada Bibliotheque et Archives Canada Published Heritage Branch Direction du Patrimoine de I'edition 395 Wellington Street Ottawa ON K1A 0N4 Canada 395, rue Wellington Ottawa ON K1A 0N4 Canada Your file Votre reference ISBN: 978-0-494-75409-2 Our file Notre reference ISBN: 978-0-494-75409-2 NOTICE: AVIS: The author has granted a nonexclusive license allowing Library and Archives Canada to reproduce, publish, archive, preserve, conserve, communicate to the public by telecommunication or on the Internet, loan, distribute and sell theses worldwide, for commercial or noncommercial purposes, in microform, paper...
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...A STUDY OF EFFECT OF CORPORATE GOVERNANCE PRACTICES AND BOARD COMPOSITION ON DIVIDEND PAYOUT POLICIES ON NIFTY 50 COMPANIES (2000-2012) | RESEARCH PROPOSAL, BUSINESS RESEARCH METHODS | | 2/27/2013 2/27/2013 Abstract Purpose: The purpose of this study is to examine the relationship between Corporate Governance practices and corporate dividend policy in India. Design/methodology/approach: Data regarding ownership structure, dividend policies and board composition would be collected for 40 non-financial companies listed on National Stock Exchange in India. The period of investigation has been taken from 2000-2012. Regression models would be run to define the relationship and for estimation purpose. Potential Findings: Based on the some heuristics and back of mind observations it can be seen that board size and composition, extent of ownership of promoters, the amount of free float in the market, firm size and investment opportunities are positively and significantly associated with dividend policies and dividend payout decisions. On the contrary, there are some instances which show a negative relationship between profitability and dividend payouts indicating the need of reinvesting funds. A significant number of independent directors in the board also have an impact on the payout policies, albeit not a significant one. A number of positive NPV investment opportunities also bear a negative relationship with dividend payout as more money is retained to invest...
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...Abstract This paper studies the effect of managerial ownership on performance and the determinants of managerial ownership for small and medium-sized private companies. We use a panel of around 1300 firms in the German business-related service sector for the years 1997-2000. Managerial ownership up to around 80 per cent has a positive impact on firm performance (incentive effect); for higher shares the effect becomes negative (entrenchment effect). Moreover, risk-aversion of managers and signalling of f rm quality leads to a non- linear i relationship between managerial ownership and the risk exposure of a firm. The determinants of performance and ownership are estimated simultaneously. JEL Classification: G32; C23 Keywords: corporate governance, managerial ownership, firm performance, small and medium-sized enterprises. This paper was produced as part of the Centre’s Labour Markets Programme Acknowledgements We thank Bernd Fitzenberger, Steve Nickell and Marcia Schafgans for helpful discussions and Irene Bertschek, Dirk Czarnitzki, Ulrich Kaiser and Joachim Winter for useful comments. All remaining errors are our own. Elisabeth Mueller is a member of the Centre for Economic Performance, London School of Economics. Contact: E.Mueller@lse.ac.uk. Alexandra Spitz is a member of the Centre for European Economic Research (ZEW), Research Group Information and Communication Technologies, PO Box 103443, 68034 Mannheim, Germany. Contact: spitz@zew.de Published by Centre for Economic...
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...The 2 research papers under study are 1. The effect of CEO ownership and shareholder rights on cost of equity share capital. 2. What motivates seasoned equity offerings? Evidence from the use of issue proceeds. COST OF EQUITY CAPITAL AND ITS EFFECTS TO THE MANAGEMENT Introduction This paper investigates the cost of equity capital and its effects to the management which intends to hinder shareholders right. The purpose of which is to investigate whether managerial ownership affects the associations between the shareholders rights and the cost of equity capital. There are two variables in the article which can be clearly identified. The variables are; 1) The shareholders rights and 2) The cost of the equity capital. 1) THE SHAREHOLDERS Shareholders should have the right to discipline the managers, who are the employees of the organization, in the case of the mismanagement or the improper use of the funds. The shareholders have right to demand for the success of the organization through competing aggressively in order to gain profitability. The shareholders have right to elect and remove the management from the office and also to access or evaluate the books of accounts of the organization. 2) COST OF EQUITY CAPITAL Rate of return of equity Current market price and the nominal value of equity capital CONCEPTUAL FRAMEWORK THE AGENCY PROBLEMS: THE MANAGEMENT VERSUS SHAREHOLDERS Whenever ownership is derived from control a conflict of interest arises. Management...
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...CORPORATE GOVERNANCE: DIMENSIONS AND DETERMINANTS RUTH V. AGUILERA University of Illinois at Urbana-Champaign GREGORY JACKSON Research Institute of Economy, Trade and Industry We develop a theoretical model to describe and explain variation in corporate governance among advanced capitalist economies, identifying the social relations and institutional arrangements that shape who controls corporations, what interests corporations serve, and the allocation of rights and responsibilities among corporate stakeholders. Our “actor-centered” institutional approach explains firm-level corporate governance practices in terms of institutional factors that shape how actors’ interests are defined (“socially constructed”) and represented. Our model has strong implications for studying issues of international convergence. Corporate governance concerns “the structure of rights and responsibilities among the parties with a stake in the firm” (Aoki, 2000: 11). Yet the diversity of practices around the world nearly defies a common definition. Internationalization has sparked policy debates over the transportability of best practices and has fueled academic studies on the prospects of international convergence (Guillen, 2000; Rubach & Sebora, ´ 1998; Thomas & Waring, 1999). What the salient national differences in corporate governance are and how they should best be conceptualized remain hotly debated (Gedajlovic & Shapiro, 1998; O’Sullivan, 2000; Pedersen & Thomsen, 1997; Prowse, 1995; Shleifer & Vishny...
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