Browsing by Subject "Corporate Governance"

Now showing 1 - 4 of 4
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    Determinants and Consequence of the Alliance Partner Network Distance
    (2015-06) Kang, Ribuga
    This dissertation consists of two essays on the determinants and innovation consequences of alliance partner choice. To narrow down the scope of alliance partner choices, I focus on how a focal firm and a partner firm are connected in their network. To understand the relational connection, I use the notion of alliance partner network distance, which refers to how far away the partner is from the focal firm in the network. Methodologically, the notion of alliance partner network distance is captured by the shortest alternative path to the partner firm from the focal firm in the time period prior to alliance formation. Theoretically, network distance explains the social mechanism and the characteristics of information flowing between the two firms. If there is a mutual partner between the two firms (i.e., a close partner), the relational risk is reduced (Coleman, 1988), and the novelty of information coming from an unconnected partner (i.e., a distant partner) is higher than that from a connected partner (Burt, 1992). This dissertation examines the effects of corporate governance on network distance as a determinant of alliance partner network distance in the first essay and the innovation consequences of alliance partner network distance in the second essay. Drawing on multiple managerial perspectives and an innovation perspective, taken together, the essays in this dissertation provide a comprehensive understanding of alliance partner choices. In the first essay, entitled "Determinants of Alliance Partner Choice: Alliance Partner Network Distance and Agency Theory," I argue that an agency problem is involved in alliance partner choice, in particular between distant partners and close partners, as a determinant of alliance partner selection. I ask if managerial opportunism may be a significant problem in the alliance partner choice and examine the role of corporate governance mechanisms designed to address agency problems in explaining alliance partner network distance. I propose that the increased relational risk of allying with distant partners may be mitigated by managerial incentives and monitoring by outsider directors. Using a sample of 310 alliances of U.S. firms from the pharmaceutical and biotechnology industries from 1996 to 2010, I find support for the presence and mitigation of agency hazards in alliance partner choice. Firms tend to form alliances with close partners to avoid employment and other risks, which are mitigated by managerial ownership and outside director ownership. In addition, managerial tenure moderates the relationship between network distance and managerial incentives, and the relationship between network distance and board monitoring. This study makes a theoretical contribution to the body of literature on alliance partner choice by adding a new lens of agency hazards. The second essay, entitled "How Does an Alliance Partner Network Distance Affect a Firm's Innovation?"� investigates how an alliance partner's network distance affects a firm's innovation. I propose that an alliance with a distant partner contributes to exploratory innovation and better-quality innovation with novel and non-redundant information from the distant partner, while an alliance with a close partner contributes to innovation quantity based on social capital with the close partner. Technological distance substitutes network distance for innovation quality. I test the effect of alliance partner network distance on innovation with 534 R&D alliances of 189 firms in the pharmaceutical and biotechnology industries in the U.S. between 1996 and 2009. This study makes theoretical contributions to the literature on innovation by addressing the conflicting theories about the benefits of social capital and the benefits of novel information.
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    Essays On Corporate Governance
    (2017-11) Qi, Jin
    In the first essay, I examine how the threat of activist intervention affects firm innovation. I argue that when firm managers pursue innovation, firm stock price may reflect less precise information about the firm's fundamental value, which makes firm managers vulnerable to shareholder intervention. Under the threat of shareholder intervention, managers will be biased against innovation projects to minimize their job termination risk. Consistent with this mechanism, I find that: (1) increasing the threat of shareholder intervention has a significant and economically important negative impact on firm innovation; (2) the threat of shareholder intervention exerts less negative effects on firms that are more likely to have efficient stock prices (e.g., firms with more monitoring institutional investors and/or more financial analysts). To establish causality, I use a novel identification strategy that relies on a quasi-natural experiment of activist fund closures to generate exogenous variation in the level of shareholder intervention threat. The difference-in-differences estimates show that firm-level innovation significantly improves following exogenous activist fund closures. The results from this identification strategy suggest a negative causal effect of shareholder intervention threat on firm innovation. In the second essay, I examine the effects of shareholder derivative litigation on board effectiveness. Specifically, I investigate the effects of Delaware's judicially-led reforms in 2003. In response to the Sarbanes-Oxley Act, Delaware courts adjusted their corporate law jurisprudence, moving to a more restrictive application of the business judgment rule and more vigorous enforcement of officer and director fiduciary duties. By lowering the procedural hurdles to derivative litigation (e.g., demand requirement, and special litigation committee), the courts allowed more shareholder derivative lawsuits to survive pretrial motions to dismiss. These reforms have greatly enhanced the ability of shareholders to effectively pursue derivative litigation against corporate directors and officers. Using a sample of 2153 publicly-traded firms from 1999 to 2007 and the difference-in-differences method, I find that following the 2003 reforms, Delaware chartered corporations have exhibited higher CEO pay-for-performance sensitivity and greater CEO turnover-performance sensitivity than have non-Delaware firms. These results show that empowering shareholders to pursue derivative litigation provides high-powered incentives to directors to improve their corporate governance decisions.
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    Essays on corporate governance.
    (2011-11) Pan, Yihui
    My dissertation focuses on corporate governance and executive compensation. By relating the two components of the labor market outcome, job assignments and executive compensation, I investigate: a) how pay levels and turnover dynamics are determined in the executive labor market, b) the impact of the preceding labor market competition on corporate outcomes. Chapter one studies complementarities between executive and firm characteristics to identify the sources of matching synergy. Productivity parameters reflecting the relative importance of various complementarities are structurally estimated through a multidimensional matching model. Complementarity between the diversification degree of the firm and the cross-industry experience of the manager and complementarity between the R&D intensity of the firm and the technical education of the manager are shown to be more important than the well-known size/talent complementarity. Further, executive compensation, announcement abnormal returns, subsequent Tobin's Q, and executive tenure duration are all higher for better executive-firm matches. Chapter two is coauthored with Rajesh K. Aggarwal and Huijing Fu. Acharya, Myers, and Rajan (2011) theorize that self-serving actions and rent extraction by CEOs can be constrained by subordinate managers when the managers' efforts are needed in production. This force, which they call internal governance, works best when the CEO and the managers are both important to firm output, in the sense that their relative contributions to firm value are balanced. We empirically examine the effects of internal governance on firm investment and performance. We develop a measure of internal governance that captures the relative contribution of the CEO compared to non-CEO executives in firm value creation. Consistent with the theory, we find that there is a hump-shaped relation between relative contributions and corporate investment measured as either capital expenditures or R&D spending. We also find a hump-shaped relation between relative contributions and several measures of firm performance: Tobin's Q, ROA, and free cash flow. The hump-shaped relations between investment and relative contributions and between firm performance and relative contributions are more evident for firms with a greater age difference between the CEO and the managers, firms in growing industries, firms with non-founder CEOs, firms with weaker external monitoring, and firms in which internal managers are more likely to become CEO in the future. Further, neither external governance nor board governance diminishes the importance of internal governance. Overall, our results are strongly supportive of the theory.
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    Guardians of Market Integrity: Political Institutions, Regulatory Independence, and Stock Market Development
    (2017-03) Lockhart, Lucas
    Prior approaches to the politics of stock market development associate consensual political institutions with the stagnation rather than the growth of equity markets. Other research suggests that independent regulatory agencies will almost invariably be captured by industry interests thereby lessening their ability to protect minority shareholders and retail investors. This paper challenges both of these assertions.While politicians do have difficulty credibly committing to investor protection and market integrity, more numerous veto players, proportional elections, and regulatory independence can at least partially ameliorate their credibility problems. Using preexisting measures of political institutions as well as an original dataset of public and private securities market regulatory organizations, I find that consensualism and regulators’ political independence are positively related to stock market size and performance. Furthermore, regulatory independence appears to be especially important for stock market development when consensual political institutions are absent.