H. Young Baek, Soonhong Min and Sungmin Ryu
We introduce agency and team production theories to explain the international joint venture (IJV) phenomenon. We regard IJV partners as participants in a team production and…
Abstract
We introduce agency and team production theories to explain the international joint venture (IJV) phenomenon. We regard IJV partners as participants in a team production and identified agency conflicts among partners as well as between parents and IJV affi liates. We empirically test the stability of IJVs with such determinants as the existence of monitoring principal, the history of repeated exchanges between partners, the efficiency of mutual monitoring by partners, the effi ciency of affiliate monitoring by parent firms, and the degree of international experience of the partners. The test results show that the existence of monitoring principal and the degree of international experience prove to be significant factors for IJV stability.
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Dong‐Kyoon Kim, Chuck C. Y. Kwok and H. Young Baek
The authors examine how a firm’s risk change around an international acquisition is related to the managerial equity interest in the firm. Focusing on the international…
Abstract
The authors examine how a firm’s risk change around an international acquisition is related to the managerial equity interest in the firm. Focusing on the international acquisitions made by bidding fi rms that have weak monitoring from outside shareholders, those that make an acquisition in an unrelated industry, and those that experience negative stock returns around announcements, the authors find that managers of these firms tend to undertake risk‐decreasing international acquisitions with the increase of managerial equity ownership and previously granted stock options. The evidence suggests that managerial incentives to use foreign acquisitions to reduce the risk of their personal wealth are more often utilized in the absence of shareholder monitoring.
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We theoretically identify two levels of agency conflicts related to foreign direct investment (FDI): within a parent firm and between parent(s) and an affiliated firm. For a…
Abstract
We theoretically identify two levels of agency conflicts related to foreign direct investment (FDI): within a parent firm and between parent(s) and an affiliated firm. For a sample of 182 firms that announced U.S.‐related FDIs in 1995, we examine the effects of agency conflicts on the choice between a wholly owned subsidiary (WOS) and a joint venture (JV), and the relative share ownership of a parent. Firms with higher management ownership, especially the firms that made related FDIs, and firms with higher foreign affiliate monitoring efficiency are more likely to choose a WOS. Differences between U.S. and non‐U.S. parents are also examined.
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Hyungkee Young Baek, David D. Cho and Philip L Fazio
The purpose of this paper is to explain how family firm ownership and management control affect corporate capital structure strategy after controlling for other significant…
Abstract
Purpose
The purpose of this paper is to explain how family firm ownership and management control affect corporate capital structure strategy after controlling for other significant variables. The authors argue that, although family ownership has a positive effect on a firm’s leverage, family control through the CEO position and equity performance moderate its impact.
Design/methodology/approach
Using a stratified random sample of 200 US public firms in the S & P Small-Cap 600 index from 1999 to 2007, this study uses random effect panel regressions to test the impact of family ownership on market value and book value debt ratios and the moderating effects of family control and equity performance after controlling for firm, industry, and macroeconomic variables.
Findings
The initial panel regression suggests that family ownership is not related to debt ratios. However, further examination with controls for family CEO and equity performance shows that family ownership is positively related to market and book value debt ratios, but its effect is offset by family control through the CEO position and equity performance.
Research limitations/implications
This study’s methodology can be extended to examine how family firm governance factors affect other firm behaviors such as investment, risk management, and CEO compensation.
Practical implications
Practitioners should consider family ownership and management control factors when establishing financing strategy. The Small Business Administration and other government agencies should make similar considerations when setting policies.
Originality/value
This paper separates ownership and management control factors to explain why family firms use more or less leverage. This study, thus, reconciles the mixed results of prior studies, which do not differentiate between these two governance factors.
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Pedro Vázquez and Miguel Méndez
The board of directors of a firm is a governing body exercising key top-level decisions. Due to the involvement of the controlling families, boards of directors of family firms…
Abstract
The board of directors of a firm is a governing body exercising key top-level decisions. Due to the involvement of the controlling families, boards of directors of family firms have been found to behave differently than those of other organizations. Besides family control, national and/or regional contexts have been suggested to influence how companies are governed. Boards of directors of family firms have been studied mostly in developed regions and knowledge from developing regions such as Latin America is scarce. This chapter summarizes the main findings about boards of directors in family firms and compares this research with our knowledge from Latin America. It discusses the different challenges and opportunities that owners of family firms and boards of directors face in the Latin American context. Finally, it suggests that research on boards of directors of family firms in Latin America has a very promising future as it still has to validate and/or contextualize findings in developed regions, overcome some theoretical and empirical limitations, explore some salient characteristics related to the institutional context in depth, and provide recommendations linking board characteristics and firm performance.
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H. Young Baek, Dong‐Kyoon Kim and Joung W. Kim
The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement.
Abstract
Purpose
The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement.
Design/methodology/approach
Employing the adverse selection cost method suggested by George et al., the paper compares for each sample firm the adverse selection cost around earnings announcement in forecasting years with that in non‐forecasting years.
Findings
Consistent with Diamond and Verrecchia is the finding that the earnings announcement in non‐forecasting years decreases information asymmetry during a three‐day announcement period and increases in a post‐announcement period up to seven days. No significant change in information asymmetry between pre‐ and post‐announcement periods when firms released a “good” news forecast is found. The firms that previously released a “bad” news forecast experience a significantly lower information asymmetry than those that did not forecast during announcement or post‐announcement days, and experience a decrease in information asymmetry in a five to seven‐day post‐announcement period.
Originality/value
This paper provides the first empirical reports on the different information asymmetry changes around earnings announcements followed by a “good” news management forecast from those followed by a “bad” news forecast.
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Hamza Aib, Jacques Liouville and Hemant Merchant
The purpose of this study is to demonstrate the effect of initial international joint ventures (IJV) structural conditions on two main equity-based instability facets: change of…
Abstract
Purpose
The purpose of this study is to demonstrate the effect of initial international joint ventures (IJV) structural conditions on two main equity-based instability facets: change of IJV ownership structure and acquisition of the IJV by one of the IJV partners. Drawing on the transaction cost theory, the authors examine three key initial structural conditions: IJV formation mode, number of partners and IJV’s ownership structure.
Design/methodology/approach
The authors apply the “Event history analysis” technique to test the hypotheses using a data set of 140 French-foreign JVs.
Findings
The findings show that the mode of an acquisitive IJV and unequal equity positions held by partners increase the likelihood of a change of IJV’s ownership structure and its eventual acquisition by one of the partners. In addition, the findings show that while an increase in the number of IJV partners is directly related to the change of IJV ownership structure, it has a statistically insignificant effect on IJV acquisition.
Originality/value
Drawing on “transaction costs” arguments, this study advances the literature by offering fine-grained results related to the effects of initial structural conditions on aspects of unintended instability in French-foreign JVs.
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FAYEZ A. ELAYAN, JAMMY S.C. LAU and THOMAS O. MEYER
Incentive‐based executive compensation is regarded as a mechanism for alleviating agency problems between executives and shareholders. Seventy‐three New Zealand (NZ) listed…
Abstract
Incentive‐based executive compensation is regarded as a mechanism for alleviating agency problems between executives and shareholders. Seventy‐three New Zealand (NZ) listed companies are used to examine the relationship between executive incentive compensation schemes (ICS) and firm performance. The results suggest that neither compensation level nor adoption of an ICS are significantly related to returns to shareholders or ROA. However, there is a statistically significant relationship between Tobin's q and both CEO compensation and executive share ownership. Further, the evidence suggests the recent compensation disclosure requirements in NZ are not yet stringent enough to allow adequate analysis of the link between ICSs and corporate performance.
Faten Hakim and Mohamed Ali Omri
The purpose of this paper is to examine the relationship between information asymmetry and the quality of the external audit in the Tunisian capital market.
Abstract
Purpose
The purpose of this paper is to examine the relationship between information asymmetry and the quality of the external audit in the Tunisian capital market.
Design/methodology/approach
The paper uses panel data methodology.
Findings
The results show that the bid‐ask, a market‐based measure of information asymmetry, is negatively related to the employment of an industry specialist and big auditors; and positively related to audit firm tenure. However, further tests refine those conclusions, in that the positive association between tenure and bids‐ask spread differs between specialist and non‐specialist auditors and between Big 4 and non‐Big 4 auditors. Specifically, the paper finds that bid‐ask spreads is increasing in tenure for clients of non‐specialist and clients of non‐Big 4.
Research limitations/implications
The difficulties in specifying correct models for determining the audit quality, the research analyze the auditor's quality such as big auditor, tenure, and specialist. The paper leaves this and other issues for future research.
Originality/value
Analyzing the effect of auditor's quality on information asymmetry and bid‐ask spreads is an emerging economy such as Tunisia is very appealing because earnings quality is the most important quality investors look for. And this research makes a link between two important areas of auditing and finance.