CAPITAL,LABOR, AND THE FIRM: A STUDY OF GERMAN CODETERMINATION

Under the German corporate governance system of codetermination, employees are legally allocated control rights over corporate assets through seats on the supervisory board—that is, the board of nonexecutive directors. The supervisory board oversees the management board—the board of executive directors—approves or rejects its decisions, and appoints its members and sets their salaries. We empirically investigate the implications of this sort of labor participation in corporate decision making. We find that companies with equal representation of employees and shareholders on the supervisory board trade at a 31% stock market discount as compared with companies where employee representatives fill only one‐third of the supervisory board seats. We show that under equal representation, management board compensation provides incentives that are not conducive to furthering shareholders' interests, possibly because labor maximizes a different objective function than shareholders. We document that, under equal representation, companies have longer payrolls than their one‐third representation peers have. Finally, we provide evidence that shareholders respond to the allocation of control rights to labor by linking supervisory board compensation to firm performance and by leveraging up the firm. (JEL: G32, G34)     

Evaluation of corporate governance systems by credit rating agencies

In periods of high market volatility, and in order to minimize their risks, some investors prefer to invest their funds in well-governed companies. This paper aims to describe the methodology used by rating agencies to assess corporate governance systems (CGS) and to compare agencies’ practices. More and more the shareholders and creditors incorporate mechanisms related to CGS in the assessment of risks. Using a sample of five rating agencies, we distill 51 governance criteria to two governance factors using principal components analysis. The first factor represents the “shareholders rights and board of directors”. The second one is related to “remuneration policy and convergence of interests for shareholders and managers”. We identify three different business models for the corporate governance rating process.     

Effect of the board of directors and the audit committee on firm performance: a panel data analysis

This research examines the relationship between independent directors, the audit committee (AC), and firm performance, taking into account the impact of the chief executive officer’s powers and block shareholders. We use the maximum likelihood estimator, based on agency theory assumptions and cylindered panel data, to examine three models of firm performance. The results show that the independence of the board is reflected clearly by increased economic and equity performance of the firm. However, an AC that is fully independent or meets frequently is associated with lower firm performance. Unlike pension funds, institutional shareholders can be considered an effective control mechanism in the context of France. Our results development includes advanced explanations for market liquidity and shareholders’ portfolios. The study period ends before the European regulation on ACs came into effect in 2008. This allows for an appreciation of soft law in French corporate governance. It also lets us compare the data with the way firms operate their boards one decade later. The evidence provides useful guidelines on the supremacy of soft law in corporate governance and suggests that the composition and functioning of the board of directors should be moderated based on the firms’ context. The specificity of the cylindered panel data helps to better examine the impact of the board and AC’s independence and functioning in French corporate governance structure.     

Female board appointments and firm valuation: short and long-term effects

The presence of women on boards of directors has become a high profile issue in recent years. Several studies, based largely on data from countries with Anglo-Saxon corporate governance systems, have investigated the influence of female board appointments on firm performance. This study focuses on the impact of female directors in Spain, where debate about this topic has been intense for two reasons: the recommendation in 2006 by Spain’s Unified Good Governance Code of positive discrimination in favour of female board appointments and the passing in 2007 of a Gender Equality Act by the Spanish parliament. Our paper analyses the short and long term effect of the appointment of female directors prior to these events. We use an event study to analyze the short term stock market reaction to the appointment of female directors and a multiple regression approach, using the system GMM estimation procedure, to assess the long term influence on firm value of female boardroom appointments. We find that the stock market reacts positively in the short term to the announcement of female board appointments, suggesting that investors on average believe that female directors add value. This belief appears to be confirmed by our regression results which show that female board appointments are positively associated with firm value over a sustained period. These results suggest that the legislative changes in Spain make economic sense as well as advancing the cause of women in Spanish boardrooms.     

Corporate social responsibility in the board room – when do directors pay attention?

When do board directors pay attention to corporate social responsibility (CSR) issues? Board directors have traditionally focused on maximizing shareholder profit and viewed corporate governance narrowly as a way to meet this goal. They have paid little or no attention to CSR issues because they see CSR as a contrast to profit maximization. We argue in this article that companies can no longer ignore CSR. We propose that three conditions must be met in order for boards to pay attention toCSR. First, the board must have a mindset that considers CSR as contributing value to the firm. Second, the board must have relevant competences that enable members to understand CSR issues. Third, compensation of top-level management should reflect CSR performance. The first two conditions are directly linked to human resource development because, in order to embrace the specific challenges that CSR possesses, board members must develop an understanding of the CSR field and related challenges and opportunities for the company.     

Board attributes and foreign shareholdings in Malaysian listed firms

This study examines the association between foreign shareholdings and several characteristics of board of directors in the context of a developing capital market. Using data of 777 listed firms on Bursa Malaysia for the financial year 2008, the study predicts that foreign shareholdings are positively related to board independence, multiple directorships, and financial literacy of the board of directors. The study finds a strong positive relationship between multiple directorships and foreign shareholdings. Contrary to our expectation, the association between board financial literacy and foreign shareholdings is negative and significant. With regard to the link between board independence and foreign shareholdings, we find weak evidence to support our prediction that there is positive relationship between board independence and foreign shareholdings. The multivariate results also show strong positive relationships between foreign shareholdings and number of foreign directors on boards, and between foreign shareholdings and audit quality. The study also documents a significant negative association between foreign shareholdings and firm size, and between foreign shareholdings and book-to-market ratio. The findings of the study supports the view that multiple directorships is an important asset to firms in emerging markets partly due to limited pool of potential talents and experts which in turn could signal reputational capital and quality of directors. Since there is a mandated presence of finance and accounting qualified director on the audit committee, foreign shareholders can somewhat rely on the oversight of audit committee instead of depending entirely on the board of directors for the quality of financial statements and financial reporting oversight. Finally, the presence of foreign directors on a board of directors may signal a firm’s commitment to adopt good corporate governance practices. It is also possible that foreign investors can influence corporate governance through their participation on the board of directors.     

外资参股、董事会特征与商业银行经营绩效——基于中国121家商业银行的实证分析

董事会是公司治理的核心,本文首次从外资股东参与董事会治理的视角,在运用固定效应模型和手工收集面板数据的基础上,使用分组比较研究方法,实证检验了2007-2016年121家商业银行外资参股、董事会特征与经营绩效的关系,结果发现引入外资参股的商业银行中：（1）董事会规模、非执行董事占比、董事会会议频率、专业委员会数目均与经营绩效之间存在显著正相关关系;（2）董事会中外资董事占比的增加,董事会规模、董事会会议频率、专业委员会数目与经营绩效之间的正相关关系均会显著减弱,然而非执行董事占比与经营绩效之间的正相关关系则会显著增强。据此,本文建议商业银行引入外资参股后：（1）应鼓励外资参与董事会治理,适当扩大董事会规模;向外资股东提供适量的非执行董事席位;适度增加董事会会议频率;积极完善专业委员会体系。（2）控制董事会中外资董事占比的不合理增加,确保外资董事与独立董事之间的实质性独立。     

Corporate governance convergence in Germany through shareholder activism: Impact of the Deutsche Boerse bid for London Stock Exchange

This case study examines the shareholder revolt initiated by a small activist shareholder, which eventually thwarted a takeover bid by Deutsche Boerse for the London Stock Exchange and forced the resignation of two of its highest profile board members. Primarily the case marks the emergence of the Anglo-American style shareholder rights movement in a country that offers only limited power to the shareholders of corporations. In the process it illustrates the mechanisms by which functional convergence of corporate governance regimes can occur long before the legal framework catches up. In Germany, the corporate governance regime requires stakeholder interests to be maximised rather than the sole interests of shareholders. This paper chronicles the shareholder actions that forced the takeover bid to be abandoned and seeks to provide an understanding of the motivations behind the activists’ campaign and the process by which they were able to overcome difficult odds and win their campaign. In this respect, it provides a useful insight into the processes used by relatively small investors to exercise their rights to thwart a takeover offer and topple some powerful corporate executives. Furthermore, the case illustrates how a single issue such as the strategic logic or the value creation potential of a takeover bid can rapidly spiral to become a wider campaign over deeply rooted governance concerns at targeted companies. Event study analysis reveals the stock market reaction to the activists’ intervention. Thirdly, the case sheds light on the importance of communication between management and shareholders especially when corporate decisions of great strategic import, such as a takeover, are being implemented. The globalisation of stock markets is empowering shareholders to assert their rights and their activism is driving corporate governance regimes towards greater convergence and recognition of the primacy of shareholder interests. Overall, the case raises a number of important issues regarding the corporate governance regime in Germany, the challenges posed by overseas investors, and the international convergence of corporate governance regimes. The case further suggests an additional mechanism by which international governance systems can converge functionally towards a common theme even if the form of national regimes remains largely unaltered. Our results are consistent with the institutional theory perspective of coercive isomorphism in adopting the shareholder value paradigm by Deutsche Boerse.     

Shareholders and managers: Who care more about corporate diversity and employee benefits?

We test two competing theories that explain a firm’s engagement in corporate diversity and employee benefits: socially responsible investment theory and management overinvestment theory. We find that publicly-traded companies with strong shareholder rights are more likely to promote women and/or minorities to the positions of CEO and board of directors in their organizations, conduct business with women- and/or minority-owned operations, and provide better family benefits to their employees than firms with strong management power. These findings indicate that the companies with strong shareholder rights engage more actively in internal aspects of CSR activities, which supports the socially responsible investment theory rather than the management overinvestment theory. Shareholders (i.e. institutional investors) tend to integrate their social goals (i.e. internal CSR issues) and financial goals into their investments. In response to these changes, managers should engage in the internal aspects of corporate social issues more aggressively as the agents of shareholders.     

Evaluating the Evaluators: Should Investors Trust Corporate Governance Metrics Ratings?

Companies are under increasing pressure to have their corporate governance rated by an independent corporate governance metrics firm, such as Institutional Shareholder Services (ISS) or Governance Metrics International (GMI). These rating firms claim to be able to determine how effective and responsive a company’s board is. Institutional investors have begun using these board governance ratings when deciding which firms to include in their stock portfolios. This paper considers whether investors, many of whom claim to be socially responsible, should be relying upon board governance metrics. We find that these metrics are not good indicators of either the quality of a firm’s earnings or of its ethics.     

机构投资者持股与上市公司违规行为的实证研究

本文采用部分可观测的Bivariate Probit估计方法,对2001年至2009年中国1729家上市公司进行回归检验,发现机构投资者持股比例降低了公司违规行为倾向,同时增加了公司违规行为被稽查的可能性。该结论在控制了机构投资者变量内生性的因素后仍旧稳健。进一步研究表明,相比公司经营违规,机构投资者对信息披露违规倾向的影响更强。另外,相比证券机构投资者,养老保险基金、社保基金、企业年金持股的公司中违规公司比例更低。除此以外,机构投资者对公司违规的抑制与检举作用并不受其它公司治理变量的影响。本文的研究表明中国机构投资者在预防与打击上市公司违规行为方面发挥了重要的作用,并且也为上市公司与监管部门提供了治理和防范企业违规的线索。     

机构投资者持股与关联方占用的实证研究

近年来,一系列财务危机和舞弊事件的出现,使公司治理成为全球范围内倍受关注的研究课题。随着对这一问题研究的逐渐深入,机构投资者持股等更为广义的公司治理机制开始成为实务界和学术界共同关注的焦点。本文检验了机构投资者持股能否有效降低我国上市公司资金被关联方占用的程度。结果表明,前十大股东中存在机构投资者的上市公司被关联方占用的资金显著少于其它公司,同时机构投资者持股比例的增加与上市公司被关联方占用资金的程度呈显著负相关。以上发现意味着目前我国机构投资者已经参与到公司治理中,对公司的经营运作起到一定的监督作用。     

The Cadbury Committee recommendations on corporate governance – a review of compliance and performance impacts

In December 1992, the Cadbury Committee published their Code of Best Practice. The recommendations, which largely reflected perceived best practice at the time, included separating the roles of CEO and chairman, having a minimum of three non-executive directors on the board and the formulation of audit committees. The Code also advocated that a more active role be taken by institutional investors in the promotion of good practice in corporate governance. This paper discusses how agency problems may be (partially) resolved by corporate governance, reviews the evidence on compliance with the Cadbury Code and examines the relationship between board structure and firm performance, looking for evidence that the Code has enhanced board performance. While there is no empirical evidence of an association between board structure and firm value, there is some evidence that compliance with the Cadbury recommendations enhances board oversight with respect to the manipulation of accounting numbers and the discipline of the top executive.     

Comparing corporate governance practices and exit decisions between US and Japanese firms

This study examines how widespread the similarities between US and Japanese corporate governance practices have become. Results suggest that, in spite of convergence in many areas of business practices, Japanese board structures and governance practices still differ greatly from those in the United States—particularly in Securities and Exchange Commission-mandated reforms such as independent audit and compensation committees. Our results suggest that corporate governance differences between Japanese and US firms may be driven, in part, by differences in directors’ recognition of investors’ performance expectations. In particular, results indicate that the exit barriers related to employment influence decision-making for Japanese directors more strongly than they affect US directors’ decisions. Board independence—particularly with respect to audit and compensation committee membership—reduces the height of perceived exit barriers. Results suggest that, in spite of convergence in many areas of business practices, Japanese board structures and governance practices still differ greatly from those in the United States although it does not conclude that the transition is necessarily desirable.     

Beyond the “silo view” of strategic management and corporate governance: evidence from Fiat,Telecom Italia and Unicredit

While corporate governance and strategic management have for a long time suffered from artificial separation and, therefore, generally been tackled in a secluded manner, their combined organizational impact makes them stringently related to one another in the firms’ evolution. In this paper, we argue that, transcending the “silo view” of corporate governance and strategic management, time has come to acknowledge that, depending on circumstances and time periods, within a firm is possible to detect the relative dominance of corporate governance over strategic management, rather than the leadership of strategic management over corporate governance. Drawing on a contingency approach, we dissect the relationships (and the mechanisms that control it) between the strategic function (i.e., which defines the firms’ strategy and supervisions its implementation) and the governance function (i.e., the congruence assessment between the firm strategy selected and the interests of the ownership and of other relevant stakeholders represented in the board of directors and the effectiveness appraisal of the entrepreneurial action). Then, by performing a thorough retrospective qualitative analysis of three relevant case-histories of Italian firms (Fiat, Telecom Italia and Unicredit) operating in three different industries (automobile, banking and telecommunications), we surmise that, either in corporate governance (board) oriented or in strategic management (CEO) oriented companies, the ‘real’ problems arise when the quality of corporate governance or strategic management is poor. Interestingly, we eventually suggest to adopt a value-based approach to the relationship between corporate governance and strategy that may fruitfully complement the contingency perspective taken at the onset of the work.     

Breaking the boardroom gender barrier: the human capital of female corporate directors

Although there is a paucity of female corporate directors in Canada, women are slowly managing to break the gender barrier of all-male boards of directors. Using resource dependency theory a model is developed that identifies the human capital characteristics that contribute to a woman being appointed to an all-male board. The model is tested on a sample of 193 Canadian firms that appointed women to their boards of directors between 1996 and 2004. The results show that women who are appointed to all-male boards have specialized knowledge skills; either they have firm-specific knowledge as insiders, or they are support specialists with a specific financial or legal expertise.     

Dual-class shares,external financing needs,and firm performance

Whereas the agency theory predicts that dual-class shares decrease firm performance, the stewardship theory predicts that dual-class shares increase firm performance. The cumulative findings on the performance consequences of dual-class shares have been weak and/or inconclusive. Because endogeneity is a constant challenge in empirical corporate governance studies, this study uses a unique law change in Switzerland as a source of exogenous variation in the fraction of firms with dual-class shares. Controlling for firm fixed effects and time-varying confounders, we find that dual-class shares neither harm nor benefit firm performance on average. However, dual-class shares increase firm performance if the firm requires external finance and dual-class shares decrease firm performance if the firm does not require external finance. External financing needs mitigate the agency costs between controlling and minority shareholders and create a context in which dual-class shares facilitate firm-specific investments instead of private perquisites. The study’s results have both managerial and policy implications.     

The role and effect of controlling shareholders in corporate governance

This paper examines two potentially contradictory effects of the presence of controlling shareholders. Controlling shareholders have been shown to be beneficial, as they generally have a long-term interest in the firm and are willing and able to monitor the actions of senior managers closely and decrease agency costs between shareholders and management (agency costs of Type I). However, they are also in a position to expropriate the firm’s assets, especially when they are actively involved in management (agency costs of Type II). More specifically, this article reviews how regulatory and legislative bodies have tried to curb the consumption of private benefits by controlling shareholders while preserving the beneficial aspects of their long-term interest and their monitoring role, the effect controlling shareholders on the application and effectiveness of corporate governance best practices as well as on the executive and board member remuneration.     

Institutional investors: the vote as a tool of governance

Institutional investors are increasingly expected to engage with their investee companies to try to help ensure that the investee companies have an appropriate corporate governance structure and that they operate according to corporate governance best practice. There are a number of ‘tools of governance’ which institutional investors might utilise including constructive dialogue and voting. In this paper, the growth of institutional investors is discussed together with the development of the vote as one of the most powerful means that institutional investors have at their disposal. The cases of two of the UK’s largest and most active institutional investors are discussed to show how the vote is used in practice. The resolutions which tend to be the most contentious are those relating to the appointment/re-election of directors and board composition; remuneration packages and incentive schemes; and strategic issues that may impact on shareholders’ rights/ownership interests. The paper also contains an analysis of the resolutions which occur most frequently together with the average levels of dissent on such issues in various European countries: Austria, Belgium, France, the UK, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland. The barriers to voting that may arise are examined; such barriers include control enhancing mechanisms which are prevalent in many European countries as well as on a wider global basis.