Emma Schultz

Endogeneity and the corporate governance - performance relation

The governance-performance literature is characterized by its inability to reach a consensus regarding the nature of the relation. We posit that these inconsistent findings are symptomatic of inadequacies in the econometric techniques employed when adjusting for all forms of endogeneity. To test this, we fit a comprehensive model of performance and governance using a range of econometric techniques. Once a dynamic generalized method of moments (GMM) specification robust to all forms of endogeneity is employed, we observe no causal relation between governance and firm performance, suggesting that apparently significant relations uncovered by pooled ordinary least squares (OLS) and fix-effects models are the result of spurious correlations.

Fundamental and Technical Analysis: Substitutes or Complements?

Although the fundamental and technical analysis literatures invest considerable effort in assessing their respective ability to explain share prices, they invariably do so without reference to each other. In this context, we propose an equity valuation model integrating both fundamental and technical analysis and, in doing so, recognize their potential as complements rather than as substitutes. Testing confirms the complementary nature of fundamental and technical analysis by showing that, although each performs well in isolation, models integrating both have superior explanatory power. While our findings relate to the valuation of shares, they also have implications for other valuation exercises.

Corporate Governance and the CEO Pay-Performance Link: Australian Evidence

We examine the influence of corporate governance mechanisms, namely blockholdings and board structure, on CEO pay-performance sensitivity in listed Australian firms. Results highlight blockholders’ role in shaping observed pay-performance associations and their impact varying with their independence and relative magnitude of ownership. Monitoring blockholders increase the sensitivity of long-term at-risk pay to performance, better aligning manager and shareholder interests. However, consistent with a shorter investment horizon, insider blockholders increase (decrease) the responsiveness of cash bonuses (long-term at-risk pay). Finally, consistent with them affording less effective monitoring, larger boards raise (lower) the sensitivity of known pay (long-term at-risk pay) to performance.

Toeholds and the Bidder Shareholder Wealth Effects of Takeover Announcements

This paper provides new evidence regarding the bidder shareholder wealth effects of takeover announcements by utilizing a robust method not previously employed in the area, namely Barber and Lyons (1997) control firm approach. Thereafter, the study offers the first Australian evidence of the impact of toeholds on bidder abnormal returns. Finally, it considers whether this effect differs between single-bidder and multiple-bidder takeover contests. Using a dataset of 122 takeover announcements made by Australian listed companies between 1997 and 2004 inclusive, no significant bidder abnormal returns are documented in response to takeover announcements on average. However, examination of the cross-sectional variation in these wealth effects reveals a significantly positive association between the presence of toeholds/toehold size and bidder abnormal returns. Furthermore, immediate market reaction is consistent with Bukarts (1995) and Singhs (1998) Overbidding Hypothesis, which predicts a less pronounced toehold impact for rivaled bidders. Nonetheless, market expectation of overbidding for toehold bidders proves incorrect in the long-run post-announcement period, where the positive impact of toeholds does not differ between different models of takeover contests.

Corporate governance and the probability of default

We employ Mertons probability of default as a continuous ex-ante measure of the likelihood of firm failure and dynamic panel generalised method of moments to better characterise the relationship between corporate governance and the chance of default. In doing so, we overcome limitations of discrete proxies widely used in previous studies and more completely account for endogeneity issues permeating this area of research. While initial testing designed to facilitate comparison with previous studies suggests a significant relationship between the probability of default and executive pay, board structure and ownership structure, once endogeneity concerns are accounted for, no such relationship remains.

Information Linkages between Emission Allowance and Energy Markets

We employ a rational expectations framework similar to Fleming, Kirby and Ostdiek (1998) to examine volatility and information linkages between the emission allowance and energy markets as well as the sources thereof. Estimating the model for bivariate pairings of securities suggests that market linkages arise from sensitivities to common information rather than from indirect spillovers, with emission allowances most strongly linked to the crude oil market.

Ownership Structure and The Public / Private Equity Choice

We take advantage of both the relatively high concentration of insider ownership in Australian firms, absent the dominance of founding families, and the widespread issuance of non-tradable rights to examine the heterogeneous influence of insider and monitor shareholders in shaping the firm’s public/private choice. Specifically, by focusing on determinants of the underwriting arrangements in these issues, we highlight monitoring demand, not control dilution avoidance, as the key driver of the public/private choice in this general setting of firms controlled by non-founding insiders. Results show firms with larger, more concentrated pre-issue monitor shareholdings are more likely to undertake private placements. Further, post-issue ownership changes reveal this demand dependent on pre-issue ownership concentration: While firms with low monitor concentration use private placements as a means of acquiring additional monitoring, those with higher concentration use private placements to substitute insiders for monitors, reducing the level of independent oversight.