Stock option incentives and firm performance

This paper analyzes the performance consequences of employee stock options for a broad sample of firms during the period 1996-1999. Our tests are performed separately for the top 5 executives and all other employees. We estimate the expected level of option incentives based on each firm's economic characteristics. We examine the association between the unexpected level of option incentives and firm performance as measured by future abnormal returns, future return on assets, and current and future firm value (Tobin's Q). We find consistent evidence that firms with unexpectedly high levels of option incentives exhibit significantly higher levels of firm performance. The results hold for both Executives and Employees and are consistent across each of our three measures of firm performance.Employee stock options; financial performance; corporate governance;

Corporate social responsibility in a general equilibrium stock market model: Solving the financial performance puzzle

We analyze corporate social responsibility (CSR) in a general equilibrium stock market model with uncertainty in production. Production generates non-market costs and consumers take this into account when they construct their portfolio. We deduce empirically testable hypotheses and analyze how CSR affects various financial performance indicators. We show that our model offers an excellent explanation of the seemingly contradictory findings in the existing empirical literature. We stress that our findings are not a result of assumptions on the operational level of the firm. We conclude that there is a clear and direct association between CSR and different measures of corporate financial performance.

Who issues debt securities in emerging countries?

This paper focuses on the differences of capital market accessibility and investigates the determinants of firm debt securities issuance in emerging countries. The following results are derived from the empirical analysis. First, country panel analyses showed that the debt securities market development and domestic equity market development were positively related. Second, firm panel data analyses of ASEAN countries suggest that debt securities issuers and frequent equity issuers overlap. Third, analyses of daily stock price data of ASEAN firms reveal that debt securities are not issued for infrequent equity issuers, regardless of the stock price, whereas frequent equity issuers choose debt securities issuance as a funding tool when the stock price is low. Fourth, as compared to accessible frequent equity issuers, market-inaccessible firms are less sensitive to the financial cost of debt securities issuance.Debt Securities Issuance, Asian Bond Market, Corporate Finance

The Managerial Labor Market and the Governance Role of Shareholder Control Structures in the UK

We simultaneously analyze two mechanisms of the managerial labor market: CEO turnover and monetary remuneration schemes.Sample selection models and hazard analyses applied to a random sample of 250 firms listed on the London Stock Exchange over a six-year pre-Cadbury period show that managerial remuneration and the termination of labor contracts play an important role in mitigating agency problems between managers and shareholders.We find that both the CEO's industry-adjusted monetary compensation and their replacement are strongly performance-sensitive.Top executive turnover is shown to serve as a disciplinary mechanism for corporate underperformance, whereas the level of monetary compensation rewards good performance.We also investigate whether specific corporate governance mechanisms (different types of blockholders or of boards of directors) have an impact on managerial disciplining or on the pay-for-performance contracts.There is little evidence of outside shareholder monitoring and CEOs with strong voting power successfully resisting replacement irrespective of corporate performance.This case of strong managerial entrenchment is even exacerbated when the CEO also holds the position of chairman of the board.In firms with large outside shareholdings, CEO compensation is lower, but outside shareholder do not impose a stricter performance-related incentive remuneration scheme.When insiders have strong voting power, the CEOs remuneration is lower except when the stock price performance is poor: it seems that when the CEOs wealth resulting from their investment goes down due to decreasing stock prices, the CEOs cash compensation is higher.The presence of a remuneration committee has no impact on remuneration.Finally, we find strong support for the incentive effect-hypothesis of remuneration: CEOs with higher levels of monetary compensation attain better subsequent accounting and stock price-based measures of corporate performance.labour turnover;agency theory;labour market;managers;corporate governance;shareholders;corporate ownership

European macroeconomic imbalances at a sectorial level: Evidence from German and Spanish food industry

P u r p o s e: This research has analyzed the structural differences observed comparing medium size Spanish and German firms in the food industry, specifically biscuit production. A second objective has been to analyze if the different macroeconomic conditions in Spain and Germany have affected the performance of firms. Design/methodology: Using financial information from AMADEUS data base, a sample of firms (135 observations) in the food industry from Spain and Germany have been analyzed, considering the changes observed in the periods 2007-2009, 2010-2012 and 2013-2015. Productivity, real investment, cost per employee, profitability and interests paid by the firms are among the variables considered. The different hypotheses proposed have been tested using non-parametric test, mainly, Mann-Whitney test and Rho Spearman coefficient. Findings: Medium size German firms are bigger, using number of employees, than Spanish firms and show a higher profitability (using ROE) whatever the period consider. The evidence suggests that after a certain threshold size the correlation between size and productivity is negative. An interesting result is the negative correlation between interest rate and labour productivity; financial conditions can have a clear effect on firm’s performance. At this sector level there is no evidence of the process of internal devaluation, probably because the growth observed either by increase in real investment or sales have been accompanied by the need to hire skilled labour. Research limitations/implications: The main limitation is that this research has only focused on particular economic activity, biscuit producers, to include others firms in the food industry must be considered in future research. Practical implications: Size is a strategic decision that managers must face, to understand how labour productivity and financial performance is affected by size will help to take the optimum decision. The performance of the firm is also partially affected by the interest rate that the firm faces, the negative correlation found between interest rate and labour productivity is important in informing right decisions about increasing firm’s debt level. Social implications: Europe is rethinking industrial policy in the aftermath of the financial crisis (20082009) and in a global context with an increasing number of industrial activities locating in low labour costs destinations. Understanding the structural differences that industries across the European countries show is a key factor in deciding an efficient industrial policy. Originality/value: The last decade has accentuated the macroeconomic differences, in terms of long term interest rates or levels of unemployment between the core of Europe, Germany, and the periphery, including countries like Spain. This research is one the first ones in analyzing how these differences are affecting financial performance and structural differences in a particular industry, that is one of the most important exporters of the European Union.Peer Reviewe

What Determines the Speed of Adjustment to the Target Capital Structure?

We use a dynamic adjustment model and panel methodology to investigate the determinants of a time-varying optimal capital structure. Because firms may temporarily deviate from their optimal capital structure in the presence of adjustment costs, we also endogenize the adjustment process. In particular, we analyze the effects of firm-specific characteristics as well as macroeconomic factors on the speed of adjustment to the target leverage. Our sample comprises a panel of 90 Swiss firms over the years 1991 to 2001. We find that faster growing firms and those that are further away from their optimal capital structure adjust more readily. Our results also reveal interesting interrelations between the adjustment speed and popular business cycle variables. For example, the speed of adjustment is higher when the term spread is higher, i.e., when economic prospects are goodCapital structure; dynamic adjustment; business cycle; panel data

What Determines the Speed of Adjustment to the Target Capital Structure?

We use a dynamic adjustment model and panel methodology to investigate the determinants of a time- varying optimal capital structure. Because firms may temporarily deviate from their optimal capital structure in the presence of adjustment costs, we also endogenize the adjustment process. In partic ular, we analyze the effects of firm-specific characteristics as well as macroeconomic factors on the speed of adjustment to the target leverage. Our sample comprises a panel of 90 Swiss firms over the years 1991 to 2001. We find that faster growing firms and those that are further away from their optimal capital structure adjust more readily. Our results also reveal interesting interrelations between the adjustment speed and popular business cycle variables. For example, the speed of adjustment is higher when the term spread is higher, i.e., when economic prospects are good.Capital structure, dynamic adjustment, business cycle, panel data

The effects of corporate governance mechanisms on the financial leverage–profitability relation

Purpose This paper aims to investigate the moderating effects of corporate governance mechanisms on the financial leverage–profitability relation in emerging market firms. Design/methodology/approach The paper examines the impacts by estimating the empirical model in which a firm’s accounting profitability is a dependent variable, while financial leverage, board size, board independence, CEO duality, CEO ownership, state ownership and the interaction variables are predictors. The paper uses the panel data set of 295 listed firms in Vietnam in the period 2011-2015 and two key econometric methods for panel data, namely, the two-stage least square instrumental variable and general moments method. Findings The paper finds the evidence for the significant and positive effect of board size, board independence and state ownership on the financial leverage–profitability relation. The effect of CEO duality on the financial leverage–profitability relation tends to be negative, and the impact CEO ownership inclines to be positive, although both of them are statistically insignificant. The results are consistent across different estimation methods. Originality/value This paper is the first investigating the moderating effect of various corporate governance mechanisms on the financial leverage–profitability relationship in emerging market firms

Working Capital Management and Firm Profitability: Evidence from Nigerian Quoted Companies

This study examines the relationship between working capital management and firms’ profitability of twenty-five Nigerian quoted companies for the seven-year period 2005-2011. Data used in the study were sourced from audited financial statements of the companies. Multiple Regression analysis was used to analyze the data and results showed a negative relationship between working capital management (Cash Conversion Cycle) and firm profitability (ROA). This finding is consistent with prior empirical studies and provides evidence in support of aggressive policy of working capital management. Keywords: Working Capital Management, Cash Conversion Cycle, ROA, Nigeria