05 Corporate Governance

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    Blockchain: Opportunity to Improve Financial Reporting and Corporate Governance
    ( 2018-09-01) Lewtan, Jacob ; McManus, Joseph ; Roohani, Saeed
    This paper explains how Blockchain technology and cryptocurrency could be enhancing the financial reporting process, and therefore improve corporate governance model of transparency and monitoring. The technology and forces behind the adoption of Blockchain are discussed as they relate to accounting, auditing and corporate governance. To demonstrate such applications examples from revenue recognition are used to illustrate how Blockchain can improve financial reporting, and transparency and monitoring aspects of the corporate governance.
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    Investor Relations and Firm Investment Efficiency
    ( 2018-09-01) Mescall, Devan ; Jung, Boochun ; Godsell, David
    ABSTRACT: We examine how the collection and dissemination of market intelligence by investor relations personnel (IRP) affects investment efficiency. We provide evidence that an increased flow of communication from investors to the board of directors, through IRP, is associated with more efficient investment decisions. Proprietary IR survey data illustrate IRP activities. We show that efficient investment decisions are positively associated with (1) the fraction of IRP time spent with existing and new institutional investors, (2) the number of one-on-one meetings between investors and IRP, and (3) IRP-board communication. Predictable associations between the type of IRP-board communication and investment efficiency corroborate our main result. In supplemental tests, we also find that a positive association between efficient investment and (1) IRP compensation and (2) IRP resources. Collectively, our evidence suggests that IRP play an important role as a conduit of market intelligence between investors and directors.
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    Relationships between the Institutional Environment and Corporate Governance Practices: Implications for Emerging and Developed Countries
    ( 2018-08-31) Cieslewicz, Josh ; Daniel, Shirley ; Kim, Jaehyeon
    Changing corporate governance practices requires both formal adoption of best practices as well as changing the supporting institutional environment. We identify which elements of the institutional environment are most closely related to changes in corporate governance practices. We examine the influence of changes in institutional environments on changes in corporate governance practices by examining data from 37 countries. For emerging countries, we find that changes in rule of law are followed by changes in corporate governance practices. When changes in control of corruption are combined with changes in government effectiveness, significant changes in corporate governance practices are also realized. This differs from the pathway to improved corporate governance practices for developed nations. Developed nations require a combination of changes in rule of law and changes in regulatory quality.
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    CEO and CFO Gender and Firm Wide Insider Trading
    ( 2018-08-30) Clacher, Iain ; Osma, Beatriz Garcia ; Scarlat, Elvira ; Shields, Karin
    We investigate insiders’ trading profitability under female executives using a sample of US firms between 1995 and 2016. Our results suggest a significant decrease in firm-wide insider trading profitability following switches from male-to-female CEOs and CFOs. These findings are supported under different empirical specifications, including difference-in-differences on a propensity score matched sample and instrumental variable approach. We also show that male insiders trade more profitably under male top executives than they do after the appointment of a female top executive. These findings suggest that private information flows between male-to-male insider-executive dyads allow for profitable insider trading.
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    Do Directors Have a Use-By Date? Examining the Impact of Board Tenure on Firm Performance
    ( 2018-08-29) Suslava, Kate ; Livnat, Joshua ; Smith, Gavin ; Tarlie, Martin
    Corporate boards serve the dual important functions of monitoring and advising management. We examine whether corporate boards consisting of longer-serving independent directors are better able to fulfill these functions due to firm-specific knowledge accumulation, or whether director performance suffers due to declining effectiveness in monitoring managers and/or overall staleness of board capital (board value to shareholders). Using a broad sample of up to 3,800 firms over a 20-year period, our evidence suggests that board tenure is positively related to forward-looking measures of market value and stock returns, with the relationship reversing after about nine years on average. The detrimental effect of longer average board tenure on market value (after an initial period of positive effects) is stronger for high growth firms, which is consistent with the deterioration of the board members’ ability to perform their advisory functions
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    CEO equity incentive, board gender diversity, and share repurchases
    ( 2018-08-29) Chen, Chan-Jung ; Lu, Chien-Ju
    This study investigates the effect of CEO equity incentive on share repurchase. We further consider the influence of board gender diversity on the relation between CEO equity incentives and share repurchase. Using a sample of the Taiwan Stock Exchange and Taipei Exchange listed companies from 2002 to 2016, we document that, relative to lower equity incentive, CEOs with higher equity incentive are more likely to buy back shares, in particular when their stock prices are perceived as undervalued. Furthermore, we also find that board gender diversity mitigates the relation between CEO equity incentive and share buyback.
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    Restructuring the Capital Market to Protect Small Investors and More
    ( 2018-08-27) Palmon, Dan ; Kleinman, Gary ; Medinets, Ann
    We question the effectiveness of shareholders’ protection from the moral hazard risk that managers might make choices contrary to the shareholders’ best interests. We explore the evolution of the dynamic manager-shareholder relationship and suggest a change that can be made to improve it. Specifically, a significant group of shareholders should not be viewed as “owners” because they lack effective means to protect their interests via the normal tools of ownership, i.e., voting in corporate elections. Therefore, in exchange for their voting rights, they should receive an explicit contract that spells out their specific compensations and protections.