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Article
Publication date: 6 December 2024

Shin-Rong Shiah-Hou and Min-Hong Zhong

This study examines the role of “Professional Directors” and their association with the quality of monitoring outcomes proxied by investment efficiency. “Professional Directors”…

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Abstract

Purpose

This study examines the role of “Professional Directors” and their association with the quality of monitoring outcomes proxied by investment efficiency. “Professional Directors” are board members with no employment outside of serving as independent directors.

Design/methodology/approach

We collect data on directors on the board at the fiscal year-end from BoardEx from 2001 to 2019 with a sample of US publicly listed firms. We follow Richardson (2006) to measure the magnitude of abnormal investment, including overinvestment and underinvestment and use these to define investment efficiency.

Findings

We find professional directors improve investing efficiency, primarily by reducing overinvestment. Professional directors may generate higher monitoring quality through their financial expertise and CEO experience, making them effective in monitoring investment efficiency.

Practical implications

Our study suggests that a professional board enhances monitoring and advising effectiveness in the face of significant regulatory pressure to increase board diversity.

Originality/value

We use two perspectives: (1) the difference in the proxy variables of monitoring effectiveness and (2) the influence of the background of professional directors, to reasonably explain this challenge. We resolve the puzzle of the inconsistent evidence on the effectiveness of professional directors in the literature.

Details

Managerial Finance, vol. 51 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 29 June 2021

Shin-Rong Shiah-Hou

This study explores the effect of CEO power on earnings quality. If powerful CEOs make the information environment more opaque, they can easily conceal information to hide…

915

Abstract

Purpose

This study explores the effect of CEO power on earnings quality. If powerful CEOs make the information environment more opaque, they can easily conceal information to hide self-dealing behavior through earnings manipulation. Conversely, if powerful CEOs who are well-protected create a transparent information environment, they will provide better quality earnings.

Design/methodology/approach

The author constructs a composite index for CEO power by combining seven CEO characteristics and employs two variables including discretionary accruals and earnings response coefficient as proxies for earnings quality.

Findings

The author’s main results show a significant negative relation between CEO power and the firm's earnings quality. In addition, CEOs with stronger structural power and expert power are more likely to generate lower earnings quality, while those with stronger ownership power are more likely to provide higher earnings quality.

Originality/value

The findings suggest that CEO power reduces the firm's earnings quality because CEOs with structural power or expert power may destroy governance monitoring mechanisms.

Details

Managerial Finance, vol. 47 no. 12
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 November 2006

Wen‐Chung Guo, Shin‐Rong Shiah‐Hou and Yu‐Wen Yang

The main purpose of this paper is to investigate the relative firms’ performances of equity‐based compensation schemes using a panel regression approach from Taiwanese experience.

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Abstract

Purpose

The main purpose of this paper is to investigate the relative firms’ performances of equity‐based compensation schemes using a panel regression approach from Taiwanese experience.

Design/methodology/approach

Previous theory considers executive stock options as an important input in the production process, but the empirical support for the performances of equity‐based compensation schemes is mixed in developed countries. This paper uses a panel data regression to analyze the influence of stock bonus and executive stock option on performance.

Findings

The evidences in Taiwan suggest that there exist positive associations between the amount of stock bonuses and firms’ operating performance. It is also found that firms with larger firm size or high growth opportunity tend to adopt stock bonus

Research limitations/implications

The first limitation is that we the dataset over our sample period 1999‐2001 is still incomplete because the executive stock options allowed by the regulation are not prevalent in Taiwan over that period. The second limitation is the unique stock bonus system in Taiwan is not observed for developed countries.

Practical implications

The result imply a positive association between stock bonus and firm's operating performance. Companies with well‐designed bonus compensation may lead to better performance.

Originality/value

The unique stock bonus compensation schemes in Taiwan are used in general to contribute to the success of the high‐tech companies. This paper first addresses the importance of the stock bonus on compensation issue for high‐tech companies. This added knowledge is beneficial to practitioners and academics whose interest lies in equity‐based compensation and performance.

Details

Managerial Finance, vol. 32 no. 11
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 24 August 2012

Shin‐Rong Shiah‐Hou and Chin‐Wei Cheng

The purpose of this paper is to explore how outside directors' experience and their compensation affect firm performance through the quality of their monitoring and advising, when…

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Abstract

Purpose

The purpose of this paper is to explore how outside directors' experience and their compensation affect firm performance through the quality of their monitoring and advising, when traditional board structure devices do not seem to work well.

Design/methodology/approach

First, the authors use a two‐way fixed effects (FE) regression model to explore the effects of outside director experience and compensation on firm performance. Second, in order to address the potential endogeneity problem of outside director compensation, the authors adopt two‐stage least squares regression (2SLS).

Findings

Controlling for other potentially influential variables, it is found that outside director experience and outside director compensation have an economically positive impact on a firm's accounting and market performance. Even when taking into account the endogeneity problem of outside director compensation, outside director compensation and experience still have positive effects on firm performance, consistent with the authors' predictions.

Practical implications

It is inferred that regulators are able to ask publicly owned firms to provide outside director's experience and compensation in detail. In addition, future research should investigate the social relationships between outside directors, which also affect the functions of monitoring and advising.

Originality/value

First, this paper contributes to this area of the extant literature by simultaneously considering the direct impacts arising from the outside director's experience and compensation. Second, the paper highlights the importance of considering multiple dimensions of director's experience in assessing its effects on firm performance.

Details

Managerial Finance, vol. 38 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 14 March 2016

Shin-Rong Shiah-Hou

What is the role of analysts in reducing agency problems and information asymmetry between stockholders and managers? The purpose of this paper is to confirm the analyst’s role by…

585

Abstract

Purpose

What is the role of analysts in reducing agency problems and information asymmetry between stockholders and managers? The purpose of this paper is to confirm the analyst’s role by examining his or her influence on CEO compensation structure.

Design/methodology/approach

The major population for this study consists of publicly traded corporations of the S & P 1500 for which data on CEO compensation is available from Standard & Poor’s Execucomp database, along with the proxy statements of these firms. Regression analysis is used to test hypotheses about the effect of analyst coverage on CEO compensation.

Findings

The evidence shows that CEOs of firms with greater analyst coverage or higher analyst coverage quality (analyst coverage index) have higher pay-for-performance (Delta), more compensation incentives to increase firm risk (Vega), more total compensation, and more excess compensation. Even after controlling for the effect of other types of corporate governance, including internal governance and institutional holdings, analysts’ activities still have an incremental effect on CEO compensation structure.

Practical implications

The authors findings may be useful to investors who use analyst coverage to evaluate the firm’s CEO compensation, as it suggests that investors may reference the information about analyst coverage of firms to craft appropriate CEO compensation structures.

Originality/value

The authors results contribute by showing that the extra effect of analyst activities on CEO compensation structure exists, even after controlling for other types of governance mechanisms, such as internal governance and institutional investors’ holdings.

Details

Managerial Finance, vol. 42 no. 3
Type: Research Article
ISSN: 0307-4358

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