Building From Within: Designing a Values-Based Cultural Template

Lifelong education and prolific writer Joseph Hester, together with businessman and philosopher H. Darrell Young, combine their years of knowledge and experience to introduce the reader to a cultural business plan designed for rebuilding businesses and organizations on a values foundation

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

In emerging markets, the concentration of corporate ownership has created agency conflicts between controlling owners and minority shareholders. Conventional corporate control mechanisms such as boards of directors and takeovers are typically weak in containing the agency problem. This study examines whether external independent auditors could be employed as monitors and as bonding mechanisms to alleviate the agency conflict. Using a broad sample of firms from eight East Asian economies, we document that firms are more likely to employ Big Five auditors when they are more subject to the agency problem imbedded in their ultimate ownership structure. One possible reason that this documented relation between auditor choice and the agency problem is more evident than the inconsistent results using U.S. and U.K. data is that alternative governance mechanisms are limited in East Asia. In addition, among East Asian auditees subject to the agency problem, Big Five auditors charge a higher fee and set a lower audit modification threshold while non-Big Five auditors do not. Taken together, the evidence suggests that Big Five auditors in emerging markets do have a corporate governance role.http://deepblue.lib.umich.edu/bitstream/2027.42/39784/3/wp400.pd

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

In emerging markets, the concentration of corporate ownership has created agency conflicts between controlling owners and minority shareholders. Conventional corporate control mechanisms such as boards of directors and takeovers are typically weak in containing the agency problem. This study examines whether external independent auditors could be employed as monitors and as bonding mechanisms to alleviate the agency conflict. Using a broad sample of firms from eight East Asian economies, we document that firms are more likely to employ Big Five auditors when they are more subject to the agency problem imbedded in their ultimate ownership structure. One possible reason that this documented relation between auditor choice and the agency problem is more evident than the inconsistent results using U.S. and U.K. data is that alternative governance mechanisms are limited in East Asia. In addition, among East Asian auditees subject to the agency problem, Big Five auditors charge a higher fee and set a lower audit modification threshold while non-Big Five auditors do not. Taken together, the evidence suggests that Big Five auditors in emerging markets do have a corporate governance role.corporate governance, auditor, ownership concentration, East Asia

Free-field propagation of high intensity noise

Observed spectral data from supersonic jet aircraft are known to contain much more high frequency energy than can be explained by linear acoustic propagation theory. It is believed that the high frequency energy is an effect of nonlinear distortion due to the extremely high acoustic levels generated by the jet engines. The objective, to measure acoustic waveform distortion for spherically diverging high intensity noise, was reached by using an electropneumatic acoustic source capable of generating sound pressure levels in the range of 140 to 160 decibels (re 20 micro Pa). The noise spectrum was shaped to represent the spectra generated by jet engines. Two microphones were used to capture the acoustic pressure waveform at different points along the propagation path in order to provide a direct measure of the waveform distortion as well as spectral distortion. A secondary objective was to determine that the observed distortion is an acoustic effect. To do this an existing computer prediction code that deals with nonlinear acoustic propagation was used on data representative of the measured data. The results clearly demonstrate that high intensity jet noise does shift the energy in the spectrum to the higher frequencies along the propagation path. In addition, the data from the computer model are in good agreement with the measurements, thus demonstrating that the waveform distortion can be accounted for with nonlinear acoustic theory

Expropriation of minority shareholders : evidence from East Asia

As many East Asian countries plunged into economic decline, the structure of concentrated ownership and associated corporate governance, along with weak corporate performance, have been blamed for the crisis. There is little empirical evidence, however, of the nature of ownership structures in East Asia and their relationship to corporate performance in the typical East Asian environment (where inefficient judicial systems, and weak property and shareholder rights are common). The authors examine evidence of the expropriation of minority shareholders for 2,658 corporations in nine East Asian countries in 1996. They distinguish control from cash-flow rights. They also distinguish between various types of ultimate owners, including family, state, widely held corporations, and widely held financial institutions. Higher cash-flow rights are associated with higher market values, consistent with Jensen and Meckling (1976). In contrast, deviations of control from cash-flow rights - through the use of dual-class shares, pyramiding, and cross-holdings - are associated with lower market values. This is especially true for corporations under family control and, in Japan, under the control of widely held financial institutions. They conclude that the risk of expropriation is the major principal-agent problem for large corporations, as suggested by La Porta and colleagues (1999). The degree to which certain ownership structures are associated with expropriation depends on country-specific circumstances. These may include the quality of banking systems, the legal and judicial protection of individual shareholders, and the degree of financial disclosures required.Small Scale Enterprise,Fiscal&Monetary Policy,Labor Policies,Economic Theory&Research,International Terrorism&Counterterrorism,Private Participation in Infrastructure,Microfinance,Economic Theory&Research,Fiscal&Monetary Policy,Small Scale Enterprise

Diversification and efficiency of investment by East Asian corporations

The East Asian financial crisis has been attributed in part to the corporate diversification associated with the misallocation of capital investment toward less profitable and more risky business segments. Much anecdotal evidence to support this view has surfaced since the crisis but there was little discussion of it before the crisis. Quite the contrary: The rapid expansion of East Asian firms by entering new business segments was viewed as contributing to the East Asian miracle. The authors examine the efficiency of investment by diversified corporations in nine East Asian countries, using unique panel data from more than 10,000 corporations for the pre-crisis period, 1991-96. They: 1) Document the degree of diversification in the corporate sector in Hong Kong, Indonesia, Japan, the Republic of Korea, Malaysia, the Philippines, Singapore, Taiwan (China), and Thailand, countries that have achieved enviable rates of economic growth over the past three decades. 2) Distinguished between vertical and complementary diversification and study the differences across nine countries. 3) Investigate whether diversification in East Asian has hurt economic efficiency. Their study tests the learning-by-doing and misallocation-of-capital hypotheses related to the types and degrees of diversification in East Asian countries. Firms in Indonesia, Korea, Taiwan, and Thailand appear to have suffered significant negative effects of vertical integration on short-term performance; the same countries gained significant short-term benefits from complementary expansion. The results suggests that the misallocation-of-capital hypothesis is appropriate for Korea and Malaysia; the learning-by-doing hypothesis for Indonesia, Taiwan, and Thailand. Firms in more developed countries succeed in vertically integrating and improve both short-term profitability and market valuation. Firms in more developed countries are ultimately more likely to benefit from such diversification (learn faster, to improve theirperformance). And diversification by firms in less developed countries is subject to more misallocation of capital.Microfinance,Fiscal&Monetary Policy,Economic Theory&Research,Small and Medium Size Enterprises,Small Scale Enterprise,Economic Theory&Research,Microfinance,Private Participation in Infrastructure,Small Scale Enterprise,Achieving Shared Growth