Kuntara Pukthuanthong, Saif Ullah, Thomas J. Walker and Jing Zhang
The purpose of this paper is to examine operational and stock performance changes around forced CEO turnovers caused by conflicts between corporate boards and CEOs over the…
Abstract
Purpose
The purpose of this paper is to examine operational and stock performance changes around forced CEO turnovers caused by conflicts between corporate boards and CEOs over the strategic direction of the firm. In addition, the authors investigate whether changes in performance can be explained by board, CEO, or firm characteristics.
Design/methodology/approach
The authors apply propensity score matching to choose matching firms that do not forced CEO turnover but have similar characteristics with the sample firms. The authors compare their operating and stock performances. The authors apply both univariate analysis and multivariate regression analyses.
Findings
The authors find that the CEO turnovers caused by conflicts between corporate boards and CEOs over the strategic direction of the firms tend to be preceded by significant declines in a firm’s operating and stock performance and that corporate performance improves after turnovers. In addition, the authors find that an increase in long-term incentives and firm size and a decrease in turnover improve firm performance.
Originality/value
While the existing corporate governance literature emphasizes oversight as the main role of the board of directors and identifies the CEO as the leader who sets the strategic direction of the firm, in cases of conflict-induced forced CEO turnover, it is the board that sets the strategic direction. This paper is the first to provide evidence regarding the implications of conflict-induced forced CEO turnovers.
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Arash Amoozegar, Kuntara Pukthuanthong and Thomas J. Walker
In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the…
Abstract
Purpose
In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the governance has been cited as an influential factor that contributed to the financial crisis of 2007-2008. Various legislative and regulatory bodies have pressured financial firms to improve their risk governance structures to better weather potential future crises. Assuming that CROs and risk committees are given sufficient power to influence the corporate governance of financial institutions, can CROs and risk committees protect financial institutions from violating litigable securities law? Can they improve bank performance? The paper aims to discuss these issues.
Design/methodology/approach
The authors employ a principal component analysis to construct a single measure that captures various aspects of RM in a firm. The authors compare the risk governance characteristics of sued firms with their non-sued peers and consider one of the final outcomes of risky behavior: shareholder litigation. The authors compute ROA and buy-and-hold abnormal returns to capture operating and stock performance and examine whether risk governance improves bank performance by reducing litigation risk.
Findings
Proper risk governance reduces a firm’s litigation probability. The addition of the RM factor to models that have been previously proposed in the literature improves the accuracy of those models in identifying companies that are most susceptible to class action lawsuits. Better RM improves the financial and stock price performance of financial institutions.
Research limitations/implications
The data collection is laborious as the information about CRO governance has to be hand-collected from the 10-K report. A broader sample employing, e.g., non-US banks may provide additional insights into the relationship between RM practices, shareholder litigation, and bank performance.
Practical implications
The study shows that a bank’s RM functions play a critical role in improving bank and operating performance and in reducing shareholder litigation. Banks should emphasize the RM function.
Originality/value
This is the first study to examine the mechanism behind the positive association between RM and bank performance. The study shows that better RM improves overall bank performance by decreasing litigation risk.
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We study the relationship between underwriter prestige, family control, and IPO underpricing in an international setting. Data are collected for 5,789 firms that went public…
Abstract
We study the relationship between underwriter prestige, family control, and IPO underpricing in an international setting. Data are collected for 5,789 firms that went public across twenty‐five countries between 1995 and 2002. We find that non‐penny‐stock and non‐U.S. IPOs from countries where firms are predominately family‐controlled benefit from associations with well‐known investment bankers; i.e., these firms are less underpriced than similar firms from countries with a low level of family control. At the same time, our findings support prior evidence that suggests that underwriter prestige is positively related to underpricing in the U.S. IPO market. Family‐controlled firms should consider the findings of this study, which identifies factors that are associated with more successful IPO outcomes.
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Kuntara Pukthuanthong, Lee R. Thomas Lee R. Thomas III and Carlos Bazan
Recent research indicates that the random walk hypothesis (RWH) approximately describes the behavior of major dollar exchange rates during the post‐1973 float. The present…
Abstract
Purpose
Recent research indicates that the random walk hypothesis (RWH) approximately describes the behavior of major dollar exchange rates during the post‐1973 float. The present analysis seeks to examine the profitability of currency futures trading rules that assume that spot exchange rates can be adequately modeled as a driftless random walk.
Design/methodology/approach
Two random walk currency futures trading rules are simulated over all available data from the period 1984‐2003. In both cases, the investor buys currencies selling at a discount and sells those selling at a premium, as the RWH implies. The two rules differ only in the way they allocate the hypothetical investor's resources among long and short foreign currency positions.
Findings
Results show that an investor who used these trading strategies over the past decade would have enjoyed large cumulative gains, although periods of profit were interrupted by periods of substantial loss.
Research limitations/implications
The findings encourage the hope that profitable random‐walk‐based strategies for currency futures trading can be devised. The simulation results have important implications for those willing to hedge, borrowers, and speculators.
Originality/value
This paper provides evidence that purchasing futures contracts on currencies priced at a discount and selling futures contracts priced at a premium has generally been a profitable trading strategy during the last two decades of floating exchange rates.
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Jaemin Kim, Kuntara Pukthuanthong‐Le and Thomas Walker
The extant literature on initial public offerings (IPOs) generally assumes that a high degree of pre‐IPO leverage serves as a positive signal of firm quality as it forces a firm's…
Abstract
Purpose
The extant literature on initial public offerings (IPOs) generally assumes that a high degree of pre‐IPO leverage serves as a positive signal of firm quality as it forces a firm's managers to adhere to tough budget constraints. The purpose of this paper is to question the validity of this assumption when it is indiscriminately applied to all firms, while other potentially important determinants of a firm's optimal capital structure are ignored. High‐tech versus low‐tech firms are specifically focused on.
Design/methodology/approach
Multivariate regression controlling is used for various firm and offer characteristics, market and industry returns, and potential endogeneity between investment bank rankings, price revisions, and under‐pricing.
Findings
It is found that debt only serves as a signal of better firm quality for low‐tech IPOs, as reflected in smaller price revisions and lower under‐pricing. For high‐tech IPOs, the effect of leverage is reversed: for these firms, higher leverage is associated with increased risk and uncertainty as reflected by higher price revisions and greater under‐pricing. The results remain significant after controlling for various firm variables as mentioned above.
Practical implications
The research results allow managers of high‐tech firms that contemplate going public to better understand the effect their company's capital structure will have on the pricing of their IPO. Prior research generally suggests that – irrespective of a firm's underlying characteristics – higher financial leverage results in lower under‐pricing. The findings highlight the falsity of this generalization and point out that it only holds for low‐tech firms. Firms that operate in a high‐tech sector, on the other hand, will leave less money on the table if they use equity rather than debt financing.
Originality/value
It is shown that leverage only serves as a positive signal for low‐tech firms. The IPOs of these firms generally undergo smaller price revisions and are less under‐priced than the IPOs of low‐tech firms that use little debt in their capital structure. While this result is consistent with earlier studies, it is show that the relationship between these variables reverses for high‐tech IPOs. Specifically, it is found that high‐tech IPOs with high leverage undergo larger price revisions and are more under‐priced than high‐tech firms with low leverage. In contrast to earlier findings, this suggests that for high‐tech IPOs, higher leverage implies increased ex‐ante uncertainty and risks.
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Kuntara Pukthuanthong, Thomas J. Walker, Dolruedee Nuttanontra Thiengtham and Heng Du
– The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.
Abstract
Purpose
The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.
Design/methodology/approach
The paper studies a sample of Canadian companies listed on the Toronto Stock Exchange (TSX) between 1999 and 2007 and apply multivariate regression with firm value as a dependent variable. The paper measures firm value as Tobin ' s Q and ROA based either on net income or EBITDA. The independent variables include family firm dummy and ownership percentage.
Findings
It is found that control-enhancing mechanisms which are often employed by family companies add value to companies. Furthermore, it is found that agency conflicts between ownership and management are less costly than those between majority and minority shareholders, suggesting that family ownership helps resolve the agency conflicts between ownership and management and in turn enhances firm value. Finally, it is found that family companies with founders as CEOs outperform those with descendants as CEOs.
Research limitations/implications
The paper studies Canadian family firms; as such, the sample size is not relatively large. Nonetheless, the results should be generalized as Canada is one of the largest markets in the world and have high integration with the rest of the world.
Practical implications
The results suggest investors should invest in family ownership firms.
Originality/value
The paper shows whether firm ownership increases firm value and the determinant of family firm value.
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Kuntara Pukthuanthong and Thomas Walker
This study seeks to examine the peculiarities of the venture capital market in China and seeks to compare it with Western markets.
Abstract
Purpose
This study seeks to examine the peculiarities of the venture capital market in China and seeks to compare it with Western markets.
Design/methodology/approach
The paper provides insights based on both the practitioner and academic literature in the field.
Findings
It is noted that different cultural norms, corporate governance structures, a lack of appropriate exit strategies, and governmental intervention are important factors that set the markets apart and should be taken into consideration when making venture capital investments in China.
Practical implications
The paper should be of interest to practitioners considering investing in China and to academics doing research in this area.
Originality/value
The paper is to the best of the authors' knowledge the first to provide a detailed and comprehensive review of the Chinese venture capital market.