Christodoulos Louca

Cross-Listing, Bonding Hypothesis and Corporate Governance

This paper examines the relationship between cross-listing and corporate governance for Canadian firms, that were cross-listed on US stock exchanges during the period 1997-2003. We find that cross-listed firms have more independent boards and audit committees after the listing relative to a non-cross-listed matched sample of firms and relative to the pre-listing period. Moreover, cross-listed firms experience changes in their ownership structure after the listing. Finally, we provide evidence that the sensitivity of the relation between cross-listed firm valuation with audit committee independence and ownership structure becomes more important after the listing. The results are robust after adjusting for various firm risk characteristics. Overall, the results are consistent with the literature on the bonding role of cross-listings on US stock exchanges. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

Cross-Listing and Operating Performance: Evidence from Exchange-Listed American Depositary Receipts

In this paper we examine the operating performance of non-US firms that enter major US stock exchanges using American Depositary Receipt (ADR) programs. Our dataset consists of 108 capital-raising and non-capital-raising firms from twenty four countries, cross-listed on major US stock exchanges during the period 1994-2004. We provide evidence that capital-raising cross-listed firms experience improvements in their operating performance after the listing, relative to a non-cross-listed matched sample of firms and relative to the pre-listing period, whereas non-capital-raising cross-listed firms out-perform a non-cross-listed matched sample of firms for both the pre-listing and the post-listing periods. These results suggest that the type of ADR program conveys information about changes in the post-listing operating performance. Moreover, both capital-raising and non-capital-raising cross-listed firms have positive abnormal returns due to the cross-listing and these abnormal returns are positively related with the post-listing abnormal changes in operating performance, suggesting that the market anticipates the post-listing abnormal changes in operating performance. Results are robust after adjusting for various firm and country risk characteristics. Copyright (c) 2009 The Authors Journal compilation (c) 2009 Blackwell Publishing Ltd.

Ownership structure and operating performance: evidence from the European maritime industry

In this paper we examine the relation between ownership structure and operating performance for European maritime firms. Using a sample of 266 firm-year observations, during the period 2002–2004, we provide evidence that operating performance is positively related with foreign held shares and investment corporation held shares, indicating better investor protection from managerial opportunism. We also find no relation between operating performance and employee held shares, suggesting no relation between employee commitment and firms’ economic performance. Furthermore, we find no relation between operating performance and government held shares, indicating that government may not adequately protect shareholders’ interests from managerial opportunism. Finally, we do find a positive relation between operating performance and portfolio held shares for code law maritime firms but not for common law maritime firms. Results are robust after adjusting for various firm and country risk characteristics. Overall, our results on the importance of the ownership structure are new to this setting and add to a large body of evidence linking ownership characteristics to corporate performance.

Managerial Ability and Firm Performance: Evidence from the Global Financial Crisis

We use the 2008 global financial crisis as a natural experiment setting to investigate the relationship between managerial ability and corporate investment. We find a strong positive relation between pre-crisis managerial ability and capital expenditure during the crisis period, which remains robust in the presence of a large array of control variables capturing corporate governance attributes, executive compensation incentives and CEO characteristics. This relationship was prevalent only among firms with CEOs that had general managerial skills, rather than firm-specific skills. Our results also show that the positive relationship between managerial ability and corporate investment was supported by the capacity of such firms to secure greater financing and be less vulnerable to financial constraints during the crisis. Finally, we find that, on average, the stock market evaluates crisis-period investments positively, yet this effect is evident solely among firms characterized by high pre-crisis managerial ability. Overall, the results are consistent with the view that high managerial ability helps to mitigate underinvestment problems during a crisis period, which in turn increases firm value.

The impact of vertical integration on inventory turnover and operating performance

This paper investigates how vertical integration may influence inventory turnover and firm operating performance. A causal model is developed to investigate the effects of vertical integration on three types of inventory, namely raw materials inventory (RMI), work in progress inventory (WIPI) and finished goods inventory (FGI). The model tests the interactions between inventory types and the consequences of inventory turnover performance on various aspects of firm performance including costs and profitability. In particular, path analysis supports systematic differences with respect to how vertical integration affects RMI, WIPI and FGI. Vertical integration has a positive effect on RMI and FGI turnover but no significant effect on WIPI turnover. FGI contributes to a reduction in supporting processes costs which causes an improvement in return on sales (ROSs). Vertical integration impacts ROS directly.

Corporate Governance, Agency Problems, and Firm Performance: Empirical Evidence from an Emerging European Market

Agency problems may arise from the separation of ownership and management (Type I) or from conflicts of interest between controlling and non-controlling shareholders (Type II). In this study, we investigate whether the relation between corporate governance and firm performance depends on the type of agency problem. Given its unique characteristics in terms ownership dispersion across the stock market’s segments, we use Cyprus as a natural experiment setting and we find a relation between governance and performance, primarily for firms more prone to Type I rather than to Type II agency problems. We interpret these findings as consistent with the view that governance effectiveness is a function of the type of agency problem. Thus, a uniform set of governance regulations, which is often applied, is unlikely to be efficient and/or optimal for all firms.

CEO Overconfidence and the Valuation Effects of Corporate Diversification & Refocusing Decisions

This study presents a theoretical model that links chief executive officer (CEO) overconfidence to the value loss of corporate diversification. Consistent with the model’s prediction, the findings show that diversified firms run by overconfident CEOs experience value loss compared to diversified firms run by their rational counterparts. Empirically, the value loss is economically significant and ranges between 12.5% and 14.1%. In addition, the model predicts heightened corporate refocusing activity by overconfident CEOs who pursued diversified investments in the past once realized returns fail to match initial expectations. The empirical odds of corporate refocusing decisions are 67% to 98% higher when past diversifications are undertaken by overconfident rather than rational CEOs. Another prediction of the model is that overconfident CEOs exhibit preference for diversified investments, especially in the presence of ample internal funds. This prediction is also strongly supported by the data. Overall, this study proposes CEO overconfidence as a unified and consistent explanation of why firms pursue value-destructive corporate diversification policies and later adopt refocusing policies aiming to restore value.