Corporate venture capital, strategic alliances, and the governance of newly public firms

We examine the effect of investments by corporate venture capitalists (CVCs) on the governance structures of venture backed IPOs. One of the main differences between CVCs and traditional venture capitalists (TVCs) is that the former often invest for strategic reasons and enter into various types of strategic alliances with their portfolio firms that last well beyond the IPO. We argue that the presence of such strategic alliances will have a significant impact on the governance structure of CVC backed firms when they go public and in the following years. Using a sample of venture backed IPOs, we evaluate several hypotheses concerning the role of CVCs in the corporate governance of newly public firms. We find that strategic CVC backed IPOs have weaker CEOs and more outsiders on the board and on the compensation committee than a carefully selected sample of matching firms. In addition, the probability of forced CEOs turnover is higher for strategic CVC backed IPOs, while at the same time these firms use staggered boards more frequently. In contrast, the governance structures of purely financial CVC backed IPO firms and their matching firms do not exhibit any significant differences.

The effect of the 1987 Stock Crash on international financial integration

This paper examines daily open-to-close returns from three major stock markets over the past five years including the October 1987 Stock Market Crash. We find some evidence that volatility spillover effects emanating from Japan have been gathering strength over time, especially after the 1987 Crash. This may be attributed to a growing awareness of domestic investors about the economic interdependence of international financial markets

Overnight News and Daily Equity Trading Risk Limits

This paper proposes a new bivariate modeling approach for setting daily equity-trading risk limits using high-frequency data. We construct one-day-ahead Value-at-Risk (VaR) forecasts by taking into account the different dynamics of the overnight and daytime return processes and their covariance. The covariance is motivated by market microstructure effects such as price staleness and news spillover. Among the competitors we include a simpler bivariate model where the overnight return is redefined by moving the open price further into the trading day, and a univariate model based on the close-to-close return and an overnight-adjusted realized volatility. We illustrate the different approaches using data on the S&P 500 and Russell 2000 indices. The evidence in favour of modeling the covariance is more convincing for the latter index due to the lower trading volumes and, relatedly, the less efficient price discovery at market open for small-cap stocks

What drives security issuance decisions: Market timing, pecking order, or both?

We study market timing and pecking order in a sample of debt and equity issues and share repurchases of Canadian firms from 1998 to 2007. We find that only when firms are not financially constrained is there evidence that firms issue (repurchase) equity when their shares are overvalued (undervalued) and evidence that overvalued issuers earn lower postannouncement long-run returns. Similarly, we find that only when firms are not overvalued do they prefer debt to equity financing. These findings highlight an interaction between market timing and pecking order effects

Does Private Equity Create Wealth? The Effects of Private Equity and Derivatives on Corporate Governance

Private equity has reaped large rewards in recent years. We claim that one major reason for this success is due to the corporate governance advantages of private equity over the public corporation. We argue that the development of substantial derivative contracts and trading has significantly weakened the governance of public corporations and has created a need for financially sophisticated directors and much closer supervision of management. The private equity model delivers these benefits and allows corporations to be better governed, creating wealth gains for investors

AUSTRALIAN NOT-FORPROFIT INVESTMENT GOVERNANCE

Seminal research estimates the impact of investment governance may account for as much as 100 to 300 basis points of performance per year.1 Ensuring best practice investment governance comprising organisational coherence, people and process is frictionally aligned for NFP purpose in Australia is an opportunity to bring significant benefit to a sector that employs around 1.3 million Australians, contributes about 4-5% of GDP and oversees roughly $166 billion in receipts annually

Managerial and disciplinary responses to abandoned acquisitions in bidding firms: a new perspective

Manuscript Type: Empirical Research Question/Issue: Existing research suggests that internal and external corporate governance mechanisms substitute for one another to mitigate agency problems in bidding firms. This paper tests whether the interaction between these mechanisms is more complementary. Research Findings/Insights: While there is evidence for disciplinary responses to bids for unrelated targets involving strategic retrenchment and significant asset divestment, the influence of the information conveyed by this characteristic on the likelihood of post-abandonment discipline is not amplified when boards are less independent. Theoretical/Academic Implications: The results suggest that certain characteristics are used to distinguish between abandoned bidders which require discipline and those that do not. However, our findings do not suggest that interaction between internal and external governance mechanisms is contingent on board independence. Instead, these interactions between shareholders and boards seem to be contingent on a range of company, industry, and situation-specific factors. Practitioner/Policy Implications: While policy in the UK has focused on board independence as a means of effective corporate governance, our results suggest that this is not a panacea. Effective governance involves active owners, communicating their interests to boards, and boards responding accordingly. Further encouragement of such communication before, during, and after acquisitions will improve signals tomanagers that shareholders can target the necessary discipline of those whomthey perceive to need it most

Comparing CEO Employment Contract Provisions: Differences Between Australia and the United States

This study compares CEO employment contracts across two common law countries: the United States and Australia. Although the regulatory regimes of these jurisdictions enjoy many comparable features, there are also some important institutional differences in terms of capital market, tax, and regulatory structures, which are discussed here. Debate has raged in the United States on the issue of whether executive compensation is efficient and determined at arm\u27s length, or skewed by a power imbalance between managers and shareholders. A comparative analysis of the kind undertaken in our study provides an additional perspective on the optimal contracting and managerial power models of executive pay in U.S. academic literature. Even if one model has greater explanatory power in the U.S. context, this will not necessarily be the case in other jurisdictions, such as Australia. In order to do our comparison, we create pairs of U.S. and Australian firms that are matched on a number of dimensions including firm size and industry. We find that Australian CEOs have significantly greater base salaries than their U.S. counterparts, while U.S. CEOs are more likely to be compensated with restricted stock and stock options than the Australian CEOs. More striking is the fact that U.S. CEO employment contracts tend to last longer than Australian contracts, and they are more likely to have arbitration provisions, change-in-control provisions, tax gross ups, do-not-compete clauses, and supplemental executive retirement plans. We also find that Australian contracts are much more apt to include performance hurdle requirements before CEOs can receive restricted stock and options, and restrictions on CEO hedging of restricted stock and options. A number of the contractual differences we document appear to be consistent with key institutional differences between the two countries

Geographic Location, Excess Control Rights, and Cash Holdings

We assess the extent to which remotely-located firms are likely to discretionarily accumulate cash rather than distribute it to shareholders. We consider that these firms are less subject to shareholder scrutiny and, thus, will have high agency conflicts as the distance will facilitate the extraction of private benefits. Consistent with our predictions, we find a positive relation between the distance to the main metropolitan area and cash holdings, and this impact is more pronounced when the controlling shareholder has high levels of excess control rights (i.e., separation of cash-flow rights and control rights). Our results hold even after accounting for all control variables, including financial constraints, and suggest that geographic remoteness can be conducive to severe agency problems, particularly when there is a large separation of cash-flow rights and control rights