Gloria Yuan Tian

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.

Liquidity, Investor Sentiment and Price Discount of SEOs in Australia

Purpose - – The purpose of this paper is to empirically test whether stock liquidity and investor sentiment have interactive effects on seasoned equity offers (SEOs) price discounts in Australia. Design/methodology/approach - – The authors focus on the implicit cost borne by firms when issuing seasoned equity capital. This cost is measured as the relative difference between the SEO offer price and the last close price prior to the announcement of the issue. The primary measure of investor sentiment is a composite index constructed similar to that in Baker and Wurgler (2007). Findings - – The results show that, in periods of deteriorating investor sentiment, the increase in SEO price discounts for firms with illiquid stocks is larger than the corresponding increase for firms with liquid stocks. This suggests that, as sentiment wanes, investors become even more concerned about illiquidity, leading to even greater required compensation for holding illiquid assets. The authors find that information asymmetry is positively related to SEO price discounts but this relation is not affected by changing investor sentiment. Research limitations/implications - – Collectively, the empirical results provide support for the argument that price discount of SEOs represents compensation to investors for bearing costs associated with illiquidity. The results also lend some support to the behavioural argument that pricing of equity offers is dependent upon investor sentiment, particularly for firms with illiquid stocks. Practical implications - – The ability for firms to raise capital in a cost-effective manner is critical for firm growth and stability. Investors require compensation for bearing the costs of illiquidity of their investments in equity. Accordingly, firms need to be conscious of their stocks’ existing liquidity and its influence on the cost of raising additional capital which, in turn, affects their operational stability and investment opportunities. Social implications - – Ultimately, the implications of this study will assist firms in capital-raising decisions, investors in making portfolio investment decisions, and investment banks in setting offer prices on equity issues. Originality/value - – To the best of the authors’ knowledge, this is the first study to examine the interaction between investor sentiment and SEO price discounts in Australia.

CEO Incentive Compensation in U.S. Financial Institutions

This paper empirically addresses the questions of whether and, if yes, how U.S. bankers are compensated in particular with regard to incentive pay. Although the level of bank CEO pay has dropped during the financial crisis period, bank CEOs fared much better in comparison to their firms (and, in turn, their shareholders). Furthermore, bank CEO incentive pay beyond the justifiable portion is positively associated with CEO power measures. There is also some evidence, albeit weaker, that CEO power is positively related to CEO incentive pay switches.

Rumors of Mergers and Acquisitions: Market Efficiency and Markup Pricing

Rumors can be classified into two types, according to whether they can credibly predict impending events or not. The analysis of takeover rumors of publically traded US companies from 1990 to 2008 shows that these two types of rumors can be statistically distinguished by returns of rumored takeover targets before rumor publication. However, market responses to the rumors on the rumor day and the day after are statistically indifferent. Trading on such rumors can be profitable. Moreover, takeover premiums of sampled targets cannot be explained by markup pricing hypothesis although the hypothesis is supported by the view of efficient markets.

Are Entrepreneurs Special? Evidence from Board Appointments

We study the appointment of entrepreneurs as outside directors to examine their effect on corporate outcomes in firms not created by them. Entrepreneur directors are more likely to join smaller firms and firms whose founders currently serve as directors. Appointments of entrepreneur directors attract higher stock price reactions than appointments of other outside directors and firm value increases with the number of entrepreneur directors. The value effect is greater when the firm is smaller or operates in more competitive industries. Entrepreneur directors are also associated with higher corporate risk-taking, increased R&D investments, and improved revenue growth.

Business Groups in Canada: Their Rise and Fall, and Rise and Fall Again

Family-controlled pyramidal business groups were important in Canada early in the 20th century, amid rapid catch-up industrialization, but largely gave way to widely held free-standing firms by mid- century. In the 1970s and early 1980s – an era of high inflation, financial reversal, unprecedented state intervention, and explicit emulation of continental European institutions – pyramidal groups abruptly regained prominence. The largest of these were politically well-connected and highly leveraged. The two largest collapsed in the early 1990s in a recession characterized by very high real interest rates. The smaller groups that survived were more vertically integrated and less diversified at the time. Widely held freestanding firms and Anglo-Saxon concepts of the role of the state soon regained predominance.