The productivity of RD and capital expenditures

The control market, corporate restructurings, and financial distress provide substantial evidence on the failings of corporate internal control systems. My purpose in this section is to provide another and more direct estimate of the effectiveness of internal control systems by measuring the productivity of corporate R& D and capital expenditures. The results reaffirm that many corporate control systems are not functioning well. While it is impossible to get an unambiguous measure of the...

Descriptive statistics on convexity in the wealthperformance relation

Table 15.2 presents the characteristics of the stock option portfolios held by the CEOs in the sample. Panel A indicates that the characteristics of the CEOs' options vary considerably. For each CEO, I compute the mean price-to-strike ratio and mean time-to-maturity of the options in their portfolio. The price-to-strike ratio is the stock price divided by the option's exercise price. The mean price-to-strike ratio indicates, on average, the extent to which the CEO's options are in the money....

References

Admati, A., Pfleiderer, P., and Zechner, J. 1994 , Large shareholder activism, risk sharing, and financial market equilibrium, Journal of Political Economy 102, 1097-1130. Allen, F. and Gale, F. 1998 , Corporate Governance and Competition, Working paper, New York University. Allen, F. and Gale, D. 2000 , Comparing Financial Systems. MIT Press, Cambridge and London. Audretsch, D. and Elston, J. 1997 ,'Financing the German Mittelstand', Small Business Economics Journal 9, 97-110. Audretsch, D....

Do pension funds affect firm value and board structure

Table 9.5 reports the results of the Logit regressions where the various agency variables are considered simultaneously. The dependent variable is equal to 1 if company i is in the test sample and 0 if it is part of the control sample. The table shows that, with the exception of the variables that proxy for firm value that are significantly lower for our test firms, there is no statistical difference between our test and control firms. As shown in Table 9.4, companies in which occupational...

Info

Table 10.1 reports summary statistics on ownership structure, board composition, and executive turnover for this sample. All variables used in the analysis are defined in Appendix A. Italian law limits the extent of cross-holdings to 2 of voting rights among traded companies. Moreover, controlled firms cannot exercise the voting rights eventually owned in their parent company. Hence, it is simple to identify the control chain once ownership data are available for all...

Leverage as a bonding device

Creditor intervention may be expected when the probability of defaulting on debt covenants increases or when the company needs to be refinanced. The choice of gearing can be considered as a bonding mechanism for management e.g. in Aghion and Bolton, 1992 Berkovitch et al., 1997 such that high turnover is positively related to high gearing Hypothesis 6 . Dennis and Dennis 1993 infer creditor monitoring from the fact that high leverage combined with managerial ownership improves shareholder...

Introduction

How do capital markets discipline the management of poorly performing firms We attempt to answer this question in the context of the UK capital market by running a horse race between the five principal competing parties suggested in the literature. First, shareholders, and in particular large shareholders, may intervene directly and replace management when performance is poor. Second, management replacement may follow the acquisition of a large block of shares. Third, bidders may discipline the...

Ownership cascades and the violation of one shareone vote rule

Table 11.2 shows that the ultimate ownership tier averages 2.2 where direct share stakes are level 1-shareholdings . Ownership cascades are usually used to dilute the one-share-one-vote rule a chain with intermediate holdings of e.g. 50 allows de facto majority control with limited cash flow rights. As a proxy for control leverage via ownership cascades, the ratio of the direct largest shareholding and its levered shareholding the multiplication of the shareholdings on consecutive ownership...

The decade of the 80s capital markets provided an early response to the modern industrial revolution

The macroeconomic data available for the 1980s shows major productivity gains Jensen 1991 . 1981 was in fact a watershed year Total factor productivity growth in the manufacturing sector more than doubled after 1981 from 1.4 percent per year in the period 1950 to 1981 to 3.3 percent in the period 1981 to 1990.2 Nominal unit labor costs stopped their 17-year rise, and real unit labor costs declined by 25 percent. These lower labor costs came not from reduced wages or employment, but from...

Acknowledgements

The editors and publishers wish to thank the authors and the following publishers who have kindly given permission for the use of copyright material. Academic Press Inc. for article Julian Franks, Colin Mayer and Luc Renneboog 2001 , 'Who disciplines management in poorly performing companies ', Journal of Financial Intermediation, 10 3-4 , 209-248. Blackwell Publishing Ltd for articles Michael C.Jensen 1993 ,'The modern industrial revolution, exit and the failure of internal control systems',...

Evidence On Blockholdings

The most striking fact about blockholdings in Europe is that they are so much higher than in the U.S.A. Table 6.1 presents the median size of the largest ultimate voting block in listed industrial companies for various countries. In several countries, the median largest voting stake in listed companies is over 50 , suggesting that voting control by a large blockholder is the rule rather than the exception and in no European country studied is the median largest shareholder small enough to fall...

Equity and option holdings of executives

Firms in which executives have large option holdings as compared to direct equity ownership are probably more likely to reprice. One explanation is that negative return shocks cause greater misalignment in managerial incentives when executives have more options rather than straight equity. Another explanation is that, whatever be the reason for ESO repricing, it is worth the effort only when option holdings are sufficiently large. Table 16.6 reports the number of options and shares held by all...

Governance performance and financial strategy

The papers in this part deal with the impact of governance structure on corporate performance and its financial strategy. Corporate governance and performance Although there has been an intensive debate on the relative merits of different systems of corporate governance, empirical evidence on the link between corporate governance and firm performance almost exclusively refers to the market-oriented Anglo-American system. The paper of Lehmann and Weigand 2000 therefore investigates the more...

Worldscope Stock Exchange Listed

Some of the previous studies of corporate ownership and control, such as Lins and Servaes 1999a, b , rely primarily on Worldscope. However, we find its coverage inadequate. For example, Worldscope includes only 176 of 632 Spanish listed firms at the end of 1997. In this case, we instead rely upon the Spanish Stock Exchange regulatory authority's files Comision Nacional del Mercado de Valores, 1998 which provides quarterly information on all shareholders with at least 5 of control rights, as...

Data

Our empirical approach utilizes two fundamental assumptions about agency costs 1 A firm managed by a 100 percent owner incurs zero agency costs and, 2 agency costs can be measured as the difference in the efficiency of an imperfectly aligned firm and the efficiency of a perfectly aligned firm. To operationalize this approach for measuring agency costs, we need certain data inputs i data on firm efficiency measures ii data on firm ownership structure, including a set of firms that are 100...

The Costs Of Large Investors

The benefits of large investors are at least theoretically clear they have both the interest in getting their money back and the power to demand it. But there may be costs of large investors as well.The most obvious of these costs, which is also the usual argument for the benefits of dispersed ownership, is that large investors are not diversified, and hence bear excessive risk see, e.g., Demsetz and Lehn 1985 . However, the fact that ownership in companies is so concentrated almost everywhere...

Iithe Second Industrial Revolution

The Industrial Revolution was distinguished by a shift to capital-intensive production, rapid growth in productivity and living standards, the formation of large corporate hierarchies, overcapacity, and, eventually, closure of facilities. See the excellent discussions of the period by Chandler 1977, 1990, 1992 , McCraw 1981, 1992 , and Lamoreaux 1985 . Originating in Britain in the late eighteenth century, the First Industrial Revolution as Chandler 1990, p. 250 labels it witnessed the...

Bank And Market Centered Governance

Traditional comparisons of corporate governance systems focus on the institutions financing firms rather than on the legal protection of investors. Bank-centered corporate governance systems, such as those of Germany and Japan, are compared to market-centered systems, such as those of the United States and the United Kingdom see, e.g., Allen and Gale, 2000 . Relatedly, relationship-based corporate governance, in which a main bank provides a significant share of finance and governance to each...

Alternative perspectives on corporate governance systems

This part deals with corporate governance systems and presents alternative typologies of such systems based on the institutional character i.e. bank-centred or stock market-centred , the legal traditions of countries and the extent of legal protection of investor rights against firms. The legal traditions are also shown as the outcome of long political and economic processes in different countries. The papers provide the historical backdrop to the observed differences in corporate governance...

Tables

1.1 Labor force and manufacturing wage estimates of various countries and areas playing an actual or potential role in international trade in the past and in the future 20 1.2 Total R amp D and capital expenditures for selected companies and the venture capital industry, 1980-1990 29 1.3 Benefit-cost analysis of corporate R amp D and investment 1.4 Difference between value of benchmark strategy for investing R amp D and net capital expenditure 32 1.5 Summary statistics on R amp D, capital...