John Byrd

Life Cycle Investing, Holding Periods, and Risk

This article examines the relative performance of bills, bonds, and stocks over various holding periods. Using a resampling technique that accounts for the cross–sectional correlation between security classes, the authors find that the risk of underperformance for a strategy of investing in higher risk classes of investments is minimal over long holding periods, while the rewards are substantial.

Director tenure and the compensation of bank CEOs

Purpose - The purpose of this paper is to examine how board tenure affects the compensation of CEOs using a sample of 93 publicly traded US banks. Design/methodology/approach - The paper proposes a CEO allegiance hypothesis whereby long-term relationships with executives and other directors will shift allegiance from shareholders to executives vs a more traditional expertise hypothesis that predicts superior monitoring of executives by directors with longer tenure. A generalized least squares regression methodology is used to examine the relationship between CEO compensation and outside director tenure. Findings - For the full sample, board tenure variables were found to be insignificant. However, when examining a subsample of firms with CEO tenure of greater than six years or more, the relationship between CEO pay and the median tenure of outside directors becomes positive, supporting a CEO allegiance hypothesis. Research limitations/implications - On a caveat, since this study relies on data for large bank holding companies over a short period of time, further research is needed to determine if the results carry over to a broader sample of firms and across time. Practical implications - The results suggest that the independence of outside directors may be compromised when they serve for longer tenure periods together with the same CEO; an important consideration for better corporate governance. Originality/value - The study provides a unique examination of outside director independence from the perspective of board tenure and the long-term relationships with executives and other directors that may result in allegiance shifts away from shareholders and towards managers.

Financial Policies and the Agency Costs of Free Cash Flow:Evidence from the Oil Industry

Jensen (1986) posits that costly conflicts of interest between managers and shareholders are especially pronounced in companies with substantial amounts of free cash flow. Jensen argues that, all else equal, firms that finance assets with debt will be less prone to this agency problem of overinvestment than other firms. Picchi (1985) and McConnell and Muscarella (1986) provide evidence that investment opportunities in exploration and development were quite limited during the early 1980s. During the same period, cash flows to petroleum producers were large because of high crude oil prices. This research uses data from 1979-1985 for a sample of U.S. oil and gas production and exploration companies to test Jensen’s free cash flow theory. Our evidence indicates that estimated agency costs are inversely related to financial leverage, consistent with the control effects of debt. These results persist across a variety of model specifications and data aggregation methods.

Let's talk: an analysis of the “vote vs. negotiated withdrawal” decision for social activist environmental health shareholder resolutions

Social and environmental shareholder activists engage in a form of corporate social governance by submitting proxy resolutions for a specific change in corporate behavior deemed to be harmful to society. Using a unique data-set for environmental health shareholder resolutions filed by shareholder activists at 70 different companies during 2006–2011, we examine the success rate of resolutions and characteristics affecting the “vote vs. negotiated withdrawal” decision. Supporting a self-interest hypothesis, resolutions targeting specific consumer/retail companies, with regard to chemicals in products or product safety issues, are more likely to be negotiated and withdrawn, while firms with entrenchment-related governance characteristics are more likely to be voted on. Examining wealth effects, consumer/retail companies with a resolution vote experience a −0.38% stock price reaction surrounding the annual meeting date, resulting in a significant economic average loss of −

Investors and stranded asset risk: evidence from shareholder responses to carbon capture and sequestration (CCS) events

453.5 million.

Accounting and Economic Biases in Donations to NGO's is Scaling the New Overhead Myth in Charity Giving?

ABSTRACT To avoid catastrophic climate change risk, the case for fossil fuel reserves not being burned has become stronger. This is particularly the case for coal, as the highest emitter of CO2 per unit of energy, with large portions of coal reserves likely to become stranded assets, posing significant risk to investors. Technology in the past has come to the rescue, so investor valuations may depend on perceptions for the success of technology in reducing stranded asset risk. We examine whether coal company shareholders perceive coal as a technologically stranded asset by studying shareholder reactions to news about CCS (carbon capture and sequestration) technology breakthroughs and setbacks. We find significant positive reactions to CCS breakthroughs, but no reaction for setbacks. This suggests investors have embedded expectations of stranded asset risk into their valuations, but also recognize the significance of successful CCS technology development and deployment for the economic prospects of the coal industry.

The shareholder wealth effects of an executive joining another company's Board

We examine how two trends in choosing which NGOs or not-for-profit organizations to support create biases in the types of organizations that are supported and how that bias in giving may affect the impact of international development organizations, especially those whose mission is sustainable development. The two trends that we examine are: 1) basing funding decisions on an organization’s overhead-to-program expenses; and 2) basing funding on the ability of the organization to quickly scale up their activities. Efficiency is appealing because donors want their contributions to be invested well. Scaling is attractive because the need in the developing world is huge and scaling allows more of that need to be met. While scale is a very appropriate metric for certain types of activities, as a sole funding decision criterion it has serious flaws. We argue that these biases result in suboptimal development activities and that donors need to develop a much more complex and nuanced approach to giving, based on outcomes determined by the clients being served.

Do outside directors monitor managers? *1: Evidence from tender offer bids

Purpose - The purpose of this paper is to examine the impact of high-level-executives joining the Board of another US company on the shareholder wealth of the firms in which these executives work. Design/methodology/approach - The “event-study” methodology is used first to estimate the shareholder effects and then, through multivariate regression analysis, establish a relationship of these effects with executive characteristics. Findings - The paper documents that the abnormal return becomes more positive the closer the executive is to retirement and more negative as the number of other corporate Boards the executive already sits on increases. Unlike previous research, it is not found that prior performance of the employing company helps explain the cross-sectional variation in the announcement day abnormal returns. Research limitations/implications - The result supports the concerns of shareholder activists that key executives joining the Boards of other companies do their home shareholders a disservice by being spread too thin. It supports the hypothesis that investors interpret a CEO joining the Board of another firm as value decreasing. Originality/value - The paper provides a link between managerial labor and shareholder wealth. Important and high-level-executives, while attempting to enhance their own personal benefits by joining other Boards, can destroy shareholder value of the company for which they work.