The impact of targets' social performance on acquisition premiums

Thesis (Ph.D.)--Boston UniversityThis study examines whether the corporate social responsibility (CSR) performance of the target firms influences the acquisition premiums paid by the acquirers. Using U.S. public merger and acquisition (M&A) deals, I found that acquisition premiums increase in the targets' perceived CSR quality, an effect incremental to previously documented drivers of such premiums. These findings are robust to (1) using four proxies for CSR measures, and (2) using three proxies for acquisition premiums. Greater value-enhancing and synergistic capabilities of targets with superior quality CSR, acquirers' environmental, social and reputational risk protection needs, and market imperfections- related incorrect valuation of CSR activities are possible explanations for this observed positive association between targets' CSR and acquisition premiums. Analysis specific to each CSR attribute reveals that targets' environmental performance has positive and the strongest effects on acquisition premiums. In addition, superior-quality community and diversity influence acquisition premiums significantly and positively. However, this analysis does not indicate any consistent association between target firms' product attributes and acquisition premiums. Additionally and perhaps more strikingly, this investigation reports a significant negative association between targets' employee relations and acquisition premiums. Additional tests document that the positive association between target firms' perceived CSR quality and acquisition premiums is stronger for acquirers with high quality CSR and large targets. Overall, in this study, I combine the CSR and M&A literature by demonstrating that superior quality CSR performance affects acquisition premiums positively. Thus, this study expands our understanding of the value-enhancing role of CSR by studying the M&A market

Audit Committee Composition and Effectiveness: A Review of Post-SOX Literature

The Sarbanes–Oxley act (SOX) was enacted to strengthen corporate governance practices in the United States; since SOX enactment, the audit committee has received increasing emphasis in accounting research. The main objective of this study is to review and synthesize the growing volume of audit committee literature in the post-SOX era. While summarizing the post-SOX literature, this study also focuses on selected pre-SOX studies to compare the research issues and findings of pre- and post-SOX literature and to show how governance reforms shape the literature’s domain. The extant audit committee literature reflects an enormous body of knowledge. Pre-SOX literature documents that audit the committee composition criteria play a significant role in determining the effectiveness of the audit committee. Like the pre-SOX literature, post-SOX literature establishes the notion that independent and expert audit committees enhance the effectiveness of the audit committee monitoring processes and improve the overall quality of financial reporting and auditing. These findings supplement the scholarly support for SOX requirements. In the post-SOX era, researchers have focused on those issues driven by SOX. However, other issues that are not addressed by SOX have also emerged during the post-SOX period, including audit committee compensation and the social ties of committee members with the chief executive officer as well as the supervisory or other expertise of audit committee members. However, for some issue, the findings are not conclusive. For example, post-SOX researchers have documented inconsistent findings regarding the association between the audit committee monitoring process and the different forms of compensation for audit committee members. Moreover, both the pre- and post-SOX literature contain predominantly experimental research. So, there remains ample room for future empirical research that can shed further light on the more theoretical issues. Future researchers can investigate unanswered questions by establishing an implicit understanding of existing findings and developing theories in this area

An Empirical Examination of Economic Determinants of Financial CEO Compensation: A Comparative Study on Pre and Post Financial Crisis Periods

Inadequate risk monitoring and the executive incentive system of US financial institutions are considered to be significant factors in exacerbating the 2008 financial crisis, and regulators attempted to reform the executive compensation system in the post-crisis period. In this study, we conduct a comparative analysis of the economic determinants of the compensation for chief executive officers (CEOs) between the pre- and post-financial crisis periods, using data from US financial service institutions, since this is the sector that has been most affected by the financial crisis. We find that the mean values of total compensation and its incentive components, including cash bonus and long-term compensations, decreased significantly in the post-crisis period. While the proportion of fixed salary to total compensation increased, the bonus decreased significantly during the pre- to post-crisis period. In the pre-crisis period, total compensation was determined by stock performance, accounting profit, long-term growth and business leverage, whereas in the post-crisis period stock returns and leverage are the major economic factors influencing total compensation. We also find that leverage is positively associated with total compensation and that a firm’s leverage negatively influences the sensitivity of the pay for performance in both the preand post-crisis periods. But the influence of leverage on pay for performance is weaker in the postcrisis period compared to the pre-crisis period. The Dodd-Frank Act, enacted in 2011, empowered shareholder influence on CEO pay. This encourages CEOs to focus on short-term stock returns to satisfy the scrutiny of empowered shareholders. Disregarding other economic factors and narrowing the focus on stock returns for determining executive compensation in the post-crisis period might have unintended consequences, deterring firms to take wider forward-looking approaches for their long-term sustainability

Regulations, Governance, and Resolution of Non-Performing Loan: Evidence from an Emerging Economy

How do banks resolve a severe bad loan problem in a capital-constrained, low-income economy when a government bailout is not an option? We address this question by examining new evidence from a sharp decline in bad loan ratios in a panel of conventional commercial banks in Bangladesh. On the aggregate level, the bad loan ratio in this market has dropped from 41% in 1999 to only 10% in 2012. We find that at a micro level, this dramatic improvement is associated with bank management quality and internal governance that were substantially enhanced during a decade of large-scale regulatory reforms. The bank-level findings persist even after controlling for market monitoring, bank- and industry-level factors, and macroeconomic variables. Both economic growth and financial development paved the way for banks operating in this macroeconomic environment to reduce non-performing loans over time

Social Media Information and Analyst Forecasts

In the past decade, social networking has changed the landscape of information dissemination. The rapid diffusion of social media services such as Facebook and Twitter is unprecedented and offers immense possibilities for corporations to communicate with, and engage core stakeholders in, various business decisions. In this study, we investigate whether social media play any role as a source of information for financial analysts. We specifically focus on information revealed on the official Facebook pages of S&P 500 firms. We define information content on a Facebook page as the total number of posts by the corporations and the comments, likes and shares (CLS) by Facebook users. By using the data of 4,929 quarterly forecasts from 2008 to 2012, we find that analyst forecast errors decrease significantly with the amount of information content on Facebook. This finding is robust, using the information content on Facebook pages for various time windows before the forecast dates. We further find that the information that helps analysts with forecasting is generated from public reaction, i.e., the CLS provided by the public and subscribers, but not from the number of posts provided by the corporations. Our findings confirm the increasing role of social media as a means of information dissemination, and the evidence of the efficient use of that information by sophisticated users such as financial analysts

It’s who you know that counts: Board connectedness and CSR performance

Highlights: We examine whether and how board connections affect the firm\u27s corporate social responsibilities (CSR). We find that board connectedness is positively associated with CSR performance. Our findings suggest firms that operate in a complex business environment or require more advising benefit more from a well-networked board. Firms that are poorly governed, have high stock return volatility, low market capitalization, or low institutional ownership tend to benefit more from the well-connected board when the cost of acquiring information is higher. In addition, we show that independent directors’ abilities to gather information and resources from their networks can facilitate the transmission of information. Overall, our study documents the informational advantage of a network as the predominant channel that allows a well-connected board to improve a firm’s CSR performance

Value-Enhancing Capabilities of CSR: A Brief Review of Contemporary Literature

This study reviews and synthesizes the contemporary business literature that focuses on the role of corporate social responsibility (CSR) to enhance firm value. The main objective of this review is to proffer a precise understanding of what has already been investigated and the findings of those investigations regarding the value-enhancing capabilities of CSR for public firms. In addition, this review identifies gaps in the existing literature, evaluates inconsistent findings, discusses possible data sources for empirical researchers, and provides direction for exploring other promising avenues in future studies. The thrust of the CSR literature largely acknowledges the value-enhancing capabilities of firms’ social and environmental activities. However, the predominance of inconsistent theoretical grounds in major CSR-benefits-related areas suggests that there is ample room for future research to contribute to the extant literature. Anecdotal evidence, the prevalence of theoretical arguments, and the availability of large cross-sectional firm-level data suggest that future research will enrich the literature by investigating the real insights behind several unanswered questions, by establishing implicit understandings regarding recognized findings, and by developing new theories in this emerging field

Corporate Governance and Real Earnings Management: The Role of the Board and Institutional Investors

This study investigates whether corporate governance can mitigate real earnings management. Specifically, this study investigates the role of the board and institutional owners to mitigate real earnings management. In recent years, firms have been switching from accrual-based earnings management to real earnings management, and the incidence of real earnings management has increased. The role of corporate governance to reduce accrual-based earnings management is well documented in the literature; however, there is no firm evidence regarding the role of corporate governance to constrain real earnings management. In order to fill the gap in the literature, this paper examines whether corporate governance, specifically the board of directors and institutional investors, play any role to reduce real earnings management. In this study, I find the evidence that firms engage in real earnings management either to avoid reporting losses or to meet analysts’ forecasts. The cross-sectional analysis reveals that these activities are less prevalent for the firms that have larger institutional investors; however, no evidence regarding the role of the board to prevent real earnings management is indicated

Product Recall and CEO Compensation: Evidence from the Automobile Industry

This study examines the association between product recall and CEO compensation. Using a sample of U.S. automobile industry product recalls from 1999 to 2018, we find that product recalls have significant negative impacts on CEO compensation. Our findings hold after controlling for the common determinants of CEO compensation, such as firms’ stock market and operating performance and CEO-specific characteristics. An additional analysis shows that CEOs’ total and long-term compensation decreases with the number of recalls. However, we find no association between CEOs’ cash compensation and product recalls

Carryforward Effects of CSR Champions

This study investigates whether executives of socially responsible firms carry forward corporate social policies when they move to different firms. In order to identify the carryforward effects of top executives on corporate social responsibility (CSR) policies, we construct a data set by tracking the movements of executives across firms. We designate top executives as CSR Champions if their firms demonstrate superior-quality CSR practices. We find that the entrance of a CSR Champion into a new firm improves its CSR performance, and we label these incremental effects CSR-Carryforward Effects. Our findings are stronger in firms with poor past CSR performance. Overall, this study extends the executive and CSR-related literature by documenting that executives of socially responsible firms have positive CSR-related effects on their new firms