Search results

1 – 3 of 3
Per page
102050
Citations:
Loading...
Access Restricted. View access options
Article
Publication date: 9 May 2016

Yin Yu-Thompson, Ran Lu-Andrews and Liang Fu

This paper aims to perform empirical analysis to test whether less severe agency conflict between managers and controlling shareholders may improve family firms’ corporate and…

2708

Abstract

Purpose

This paper aims to perform empirical analysis to test whether less severe agency conflict between managers and controlling shareholders may improve family firms’ corporate and stock liquidity, compared to non-family firms.

Design/methodology/approach

The authors use the ordinary least square and two-stage generalized method of moments regression analyses. They also use match-paired design for robustness check.

Findings

Focusing on Standard & Poor’s 500 firms, the authors find that family firms are more conservative by hoarding more corporate liquid assets (as measured by accounting balance sheet liquidity ratios) than their peer non-family firms to prevent underinvestment from external costly finance. These family firms also exhibit higher level of stock liquidity and lower liquidity risk as measured by effective bid–ask spread than non-family firms. The results are consistent with the motivation that organizations (i.e. family firms in this study) whose shareholders can efficiently monitor that their managers are associated with higher level of corporate liquidity and stock liquidity, and lower level of liquidity risk.

Originality/value

This study contributes to the literature on liquidity (both corporate liquidity and stock liquidity) and ownership structure, more broadly corporate governance. It provides insights into corporate and stock liquidity within a unique ownership context: family firms versus non-family firms. Family firms in the USA are subject to both Type I (agency problems arising from the separation of ownership and control) and Type II agency problems (agency conflict arising between majority and minority shareholders). It is an ongoing debate whether family firms suffer more or less agency problems from one type versus the other than non-family firms. The finding that family firms have higher corporate and stock liquidity is consistent with that family firms being subject to less severe agency conflict due to separation of ownership from control.

Details

Review of Accounting and Finance, vol. 15 no. 2
Type: Research Article
ISSN: 1475-7702

Keywords

Access Restricted. View access options
Article
Publication date: 7 September 2015

Ran Lu-Andrews and Yin Yu-Thompson

The authors intend to perform empirical analysis to test the theory proposed by Edmans and Liu (2011) that CEOs with more debt-like compensations care more about the liquidation…

4427

Abstract

Purpose

The authors intend to perform empirical analysis to test the theory proposed by Edmans and Liu (2011) that CEOs with more debt-like compensations care more about the liquidation value of the firm. The purpose of this paper is to examine the relations between CEO inside debt ratios and tangible assets (i.e. asset tangibility, liquidation value, and fixed asset investment).

Design/methodology/approach

The authors use the Ordinary Least Square (OLS) contemporaneous and lead-lag regression analyses. They also use two-stage least-square (2SLS) regression analysis for robustness check.

Findings

The findings are fourfold: first, CEO inside debt has a positive effect on asset tangibility of the firm; second, CEO inside debt has a positive effect on the liquidation value of the firm; third, CEO inside debt has a positive effect on the tangible asset investment (as measured by capital expenditures) of the firm; and fourth, these positive effects are found in both the contemporaneous year and the subsequent year and in both OLS and 2SLS frameworks. The research provides further evidence that CEOs with higher inside debt holdings exhibit safety-seeking behavior. The authors document direct proof for the theory proposed by Edmans and Liu (2011) that these CEOs, like any creditors, care a great deal of the asset tangibility and liquidation value of the firm.

Originality/value

This study contributes to the existing literature by providing further empirical evidence to support that CEO inside debt holdings have impacts on firm investment decisions and capital allocations. Inside debt does help align the executive managers’ personal incentive with firms’ value, and mitigate the agency conflicts between managers and debt holders. This study provides significant empirical evidence to support the theory suggested by Edmans and Liu (2011) that CEOs with higher level of inside debt holdings do care a greater deal about the asset liquidation value of the firm, and these firms tend to invest more in tangible assets to preserve the liquidation value.

Details

International Journal of Managerial Finance, vol. 11 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Access Restricted. View access options
Article
Publication date: 10 August 2015

Yin Yu-Thompson, Seong Yeon Cho and Liang Fu

The purpose of this study is to examine how pension risk shifting can be explained and constrained by debt component in chief executive officer (CEO) compensation and to explore…

1068

Abstract

Purpose

The purpose of this study is to examine how pension risk shifting can be explained and constrained by debt component in chief executive officer (CEO) compensation and to explore whether a CEO’s relatively large holdings of inside debt to equity compensation would result in a well-funded pension status.

Design/methodology/approach

The authors use two-stage least-squares model to control the potential unobserved and uncontrolled firm characteristics that could drive both CEO inside debt determinants and firm pension funding status.

Findings

This paper finds a positive relationship between the CEO inside debt ratio and firm funding status. Additional tests show a positive association between the CEO inside debt ratio and financial slack measures and a negative association between this ratio and financial constraint measure. Additional evidence also shows that the CEO inside debt ratio is negatively associated with other contemporaneous investment activities. Overall, the findings suggest that CEO inside debt creates managerial incentives that can affect pension funding decisions and decrease pension risk shifting.

Research limitations/implications

One of the difficulties facing the compensation literature is the unobservable nature of the entire compensation negotiation and design process. Pension funding status is another challenging topic given that management has discretion over the pension assumptions and the calculations themselves are complicated. Therefore, the determinants of pension status used in this paper are not all-inclusive. Although a two-stage least-squares methodology is applied to mitigate endogeneity, it is still possible that an omitted variable problem exists in both cases.

Originality/value

This study provides direct evidence of the executive debt-like compensation’s effect on pension risk-shifting behavior and pension funding decisions and also contributes to the literature that investigates the association between CEO inside debt and firm risk by examining the trade-off between pension funding and other contemporaneous investment activities.

Details

Review of Accounting and Finance, vol. 14 no. 3
Type: Research Article
ISSN: 1475-7702

Keywords

1 – 3 of 3
Per page
102050