Agency Costs And Corporate Financial Policies: A Simultaneous Equations Approach

Financial economists have devoted great attention to corporate financial policies, such as the firm’s capital structure. It is also understood that these policies are not determined independently, but jointly with other corporate policies such as dividend policy and ownership structure. The purpose of this paper is to incorporate the pension funding decision into this policy mix. The design and administration of a firm’s pension fund affects the firm because of the size and risks of the pension fund. The degree of funding of a defined benefit plan affects the value and risk of a company’s common shares. This paper simultaneously explains leverage, dividend policy, ownership structure, and pension funding using several independent variables that, based on agency theory, should affect these policies. The results are significant and reinforce the notion of simultaneous determination of corporate policies

Stock market reactions and firm performance surrounding CEO succession: antecedents of succession and successor origin

This study investigates the effects of CEO succession on the stock and financial performance of large publicly held corporations over the years 1977-1994. Using a market signaling framework, this study examines how the stock market responds to the expected financial performance of the firm at the announcement of CEO succession. The impact of successor origin of the CEO on the financial performance of the firm is also investigated. Findings indicate that the stock market responded more favorably to the announcement of succession caused by unanticipated events than to announcements of anticipated succession. Although successions resulted in significant improvement in some aspects of financial performance, the findings could not be generalized across all financial performance measures. However, those firms with inside CEO succession performed generally better than those firms utilizing outside succession with respect to operations and profitability