05 Corporate Governance (CG)
Permanent URI for this collection
Chair: Shirley Daniel
Professor, Shidler College of Business, University of Hawai’i-Mānoa, United States
1 - 6 of 6
ItemClimate in the 21st Century: A Macroeconomic Model of Fair Global Warming Benefits Distribution to Grant Climate Justice Around the World and Over Time( 2017-09-01)Climate justice accounts for the most challenging global governance goal. In the current post-COP21 Paris agreement climate change mitigation and adaptation efforts, the financialization of the ambitious goals has leveraged into a blatant demand. In the weighting of the burden of global warming, the benefits of a warming earth have been neglected since recently. Following the introduction of the gains from climate change (Puaschunder, 2017), this article proposes a model to distribute the benefits of a warming earth in a fair way based on which countries are losing and which countries are winning from a warming earth until 2100. A macroeconomic cost-benefit analysis thereby aids to find the optimum solution on how to distribute climate change benefits and burden within society. When unidimensionally focusing on estimated GDP growth given a warmer temperature, over all calculated models assuming linear, prospect or hyperbolic gains and losses, the world will be gaining more than losing until 2100. Based on the WL index of 188 countries of the world, less countries (n=78) will gain more from global warming until 2100 than more countries (n=111) will lose from a warming earth. Based on the overall WLTT index factored by GDP per inhabitant, global warming benefits are demanded to be redistributed in a fair way to offset climate change loser countries for climate change mitigation and adaptation efforts and to instigate a transition into renewable energy. Adding onto contemporary climate fund raising strategies ranging from emissions trading schemes (ETS) and carbon tax policies as well as financing climate justice through bonds as viable mitigation and adaptation strategies, climate justice is introduced to comprise of fairness within a country but also among different nation states in a unique and unprecedented tax-and-bonds climate change gains and losses distribution. Thereby, climate change winning countries should be using taxation to raise revenues to offset the losses incurred by climate change. Climate change losers could raise revenues by issuing bonds that have to be paid back by taxing future generations. Regarding taxation, within the winning countries, foremost the gaining GDP sectors should be taxed. Climate justice within a country should also pay tribute to the fact that low- and high-income households share the same burden proportional to their dispensable income, for instance enabled through a progressive carbon taxation. Those who caused climate change could be regulated to bear a higher cost through carbon tax in combination with retroactive billing through inheritance tax. Deriving respective policy recommendations for the wider climate change community in the discussion of the results is aimed at ensuring to share the burden but also the benefits of climate change within society in an economically efficient, legally equitable and practically feasible way.
ItemMoral Licensing and Disclosure( 2017-08-31)Market participants continue to demand greater transparency from boards of directors, yet little is known about the effect of increased transparency on board member decisions. We provide initial evidence that increased transparency via disclosure can license board members to make biased decisions that they may otherwise not make in the absence of disclosure. We find no evidence that increasing the level of disclosure (disclosure to the auditor versus disclosure to the auditor and public) had an impact beyond a base level of disclosure. An important implication of these findings, relevant to current projects at both the PCAOB and the SEC, is that increased transparency via disclosure of board member decisions may result in the unintended consequence of greater bias in financial reporting. The knowledge gained form this study may help to improve regulations surrounding targeted transparency disclosures in financial reporting.
ItemCosts and Benefits of Audit Committee Interlocking( 2017-08-30)The focus of this paper is the relationship between audit committee interlocking and audit fees, likelihood of a late filing of the form 10-k, and internal control effectiveness. We contribute to the corporate governance literature by showing that interlocked audit committee members are capable of positively influencing the corporate governance environment across the firms they serve, however that comes with a cost. Specifically, we show that interlocking of audit committee members has a significantly negative association with internal control weaknesses as well as late filing of 10-k reports. We also show that these favorable outcomes, come with an added cost of higher audit fees. We believe these results show that interlocked audit committee members transfer their company enhancing knowledge and expertise across the firms they serve, thus the improved internal controls and efficiency in meeting their filing deadlines, while demanding better quality audits from their external auditors, which explains the higher audit fees. Prior research shows that audit committee interlocking as associated with poor financial reporting, as indicated in Sharma and Iselin (2012), and Tanyi and Smith (2015). Our results, contrary to prior research, show that interlocked board members are associated with the transfer of favorable outcomes across the companies they serve.
ItemDoes Board Gender Diversity Affect Audit Fees? The Role of Female Directors’ Attributes( 2017-08-30)In this study, we apply the system GMM estimation approach on the propensity score matched sample of 394 French firms over the period 2002-2010 to examine the relation between board gender diversity and audit fees. In addition to this, we explain the channel through which female directors affect audit fees by considering the role of their specific (statutory and demographic) attributes. Initially, we find that gender diverse boards pay higher audit fees. However, the consideration of specific (i.e., statutory and demographic) attributes in analysis changes the nature of the association between female directors and audit fees from positive to negative. This suggest that the simple presence of female directors is a necessary but not sufficient condition, because for improving the effectiveness of internal control system or enhancing the integrity of financial reporting process individuals must have particular competencies and skills. With regard to how female directors affect audit fees, we find that female directors with business expertise and prior experience reduce the need for assurance provided by external auditors which results in less audit fee. However, female chairs and audit committee members demand incremental audit effort from external auditors to ensure audit quality which translates in higher audit fee.
ItemDoes It Pay to "Be Like Mike"? Aspirational Peer Firms and Relative Performance Evaluation( 2017-08-18)We examine the manner and extent to which firms evaluate performance relative to aspirational peer firms. Guided by the predictions of an agency model, we find that CEO compensation increases in the correlation between own and aspirational peer firm performances. In addition, we define and test conditions where aggregate peer performance, which has been the primary focus of prior relative performance evaluation studies of competitive peers, is expected to have an association with CEO compensation. These conditions are supported by our empirical results. Finally, we document that our results are more pronounced when the firm-peer relationship is one-way and the peer firm is in a different industry and therefore is more aspirational.
ItemGovernance through Shame and Aspiration: Index Creation and Corporate Behavior in Japan( 2017-07-29)We study how a stock index can affect corporate behavior by functioning as a source of prestige. After decades of low corporate profitability, the JPX-Nikkei400 index was introduced in Japan in 2014. Each year the index selected 400 large and liquid firms deemed to be best-performing in terms of profitability; membership is considered highly prestigious. We document that index-inclusion incentives have led firms to increase return on equity proportionally by 41%, via higher margins, efficiency, or shareholder payouts, depending on where they had slack, but not by changing investments or accruals. These incentives are driven by the prestige associated with the index, rather than capital-market benefits. Back-of-the-envelope estimates suggest that the index-inclusion incentives accounted for 16% of the average increase in aggregate annual earnings over our sample period and 20% of the growth in aggregate market capitalization. These findings shed light on a novel mechanism by which longstanding corporate behaviors can be transformed.