Jorge Farinha

Dividend Policy, Corporate Governance and the Managerial Entrenchment Hypothesis: An Empirical Analysis

The conversion kit includes a pair of side frame mounting plates, one for each side frame of an older printing unit, wherein the mounting plates are mounted on the inwardly facing surfaces of their respective side frames after a cylinder, an ink fountain, and a doctor blade assembly of the printing unit are removed therefrom. The kit also includes a new ink fountain having an ink well positioned beneath the cylinder, and a sock roll for smoothing out ink on the cylinder and for impregnating engraved cells formed therein with ink. The ink fountain is mounted on and supported by the mounting plates. Also provided is an adjustable doctor blade assembly which is mounted on the mounting plates, the assembly having a doctor blade, and an actuating device for moving the doctor blade towards and away from the cylinder. The arrangement is such that by virtue of the adjustability of the doctor blade, the side frames of the printing unit can receive cylinders having various circumferences, wherein the new ink fountain and adjustable doctor blade assembly are mounted directly on the pair of side frame mounting plates and function as a self-contained unit.

The relation between dividends and insider ownership in different legal systems: international evidence

This paper provides new international evidence on the relationship between dividend policy and insider ownership by analysing a sample of USA, UK and Irish firms characterized by an Anglo-Saxon tradition and a matching sample of other EU companies from Civil Law legal systems. We hypothesize that, due to the different characteristics of both the legal system and the nature of agency conflicts in firms from those countries, the relation between dividend policies and ownership by insiders will be considerably distinct between the two sets of companies. We find that while in firms with an Anglo-Saxon tradition the relation between dividends and insider ownership follows the pattern negative–positive–negative, in Civil Law countries the relation is positive–negative–positive. These results are consistent with our hypotheses and breed new insights into the role of the dividend policy as a disciplining mechanism in countries with different legal systems and distinct agency problems.

Board Structure and Modified Audit Opinions: Evidence from the Portuguese Stock Exchange

Prior research has found evidence that some characteristics of the board of directors influence the quality of financial reporting. In this study we extend the literature by analysing a different dimension of financial reporting quality, the probability of a firm receiving a modified audit opinion. To this end, we considered a sample of companies listed on Euronext Lisbon where, unlike the current situation in other markets such as the US, firms can publish financial statements not in accordance with GAAP. Using 171 firm-year observations for the period 2002–05, the evidence we report is consistent with the hypotheses that firms with more diligent and independent boards are less likely to receive a modified audit opinion. Results are robust to different specifications and also show that the existence of dividend payments, financial health, performance and growth opportunities are additional factors associated with the likelihood of a modified audit opinion. Our analysis also shows that the transition in 2005 to a reporting framework based on international accounting standards is strongly related with better financial reporting quality.

How Do Banks and Investment Funds Affect Family Risk-Taking? Evidence from the Financial Crisis

We study the risk-return relationship for an international sample of family and non-family firms in the period 2007–2014. According to prior studies and following the prospect theory, we obtain a nonlinear risk-return relationship and a target level of profitability for family firms in order not to assume an excessive level of corporate risk-taking. This relationship is more prominent in companies from countries with lower protection of creditors and less aversion to uncertainty. We also find evidence that institutional investors exert pressure on family firms to increase corporate risk-taking, even when the return is lower than the target, with the negative consequence of reducing profitability and going to bankruptcy, as occurred during the years of financial crisis. Furthermore, as major shareholders, banks reduce risk as a result of trying to maintain their financial relationship with family firms. This conservative role has a positive influence on the profitability of the firm for values lower than the return target.

Are religion and culture relevant for corporate risk-taking? International evidence

Using a large sample of firms from 37 countries over the period of 2007–2015, we empirically analyse the impact of religion and national culture characteristics on the level of corporate risk-taking around the world and the channels through which this can take place. First, we initially observe that different religious backgrounds have different impacts on corporate risk-taking, these being negative for Catholic and Islamic-based countries and positive for firms in Protestant nations. Secondly, we observe that companies in countries with high scores of power distance, masculinity, individualism and long-term orientation tend to increase risk-taking while high levels of uncertainty avoidance moderates corporate risk-taking behavior. We also show results that in companies where institutional investors are the most relevant reference shareholder the influence of religion on corporate risk-taking is not felt, unlike when the main shareholder is an individual or a family.

What Explains European Banks Risk-Taking? A Simultaneous Equations Approach

The global financial crisis has led to an increasingly focused attention on excessive bank risk-taking. One of the consequences is that the role of internal governance mechanisms (such as the board of directors) in monitoring risk has come under greater scrutiny. In this paper we examine the impact of board structure, ownership structure, risk governance mechanisms and other bank-specific factors on bank risk-taking for a sample of 72 publicly listed European banks. Using a simultaneous equations approach, our main findings indicate that the proportion of independent directors, board size and Chief Executive Officer (CEO) power (or CEO authority) negatively affect bank risk-taking during the financial crisis. On the contrary, institutional shareholders positively influence bank risk-taking and both the existence of a risk committee and a Chief Risk Officer (CRO) who is a member of the board have no significant impact. The results remain unchanged when applying both three-stage least squares (3SLS) and the two-stage least squares (2SLS) estimation methods as well as when all variables are winsorised. Additionally, we extend our analysis for the period before the financial crisis (proxy for “stable” periods) to test whether the impact of governance mechanisms and other determinants of risk-taking depend on environmental conditions and we conclude that it is indeed sensitive to the economic context. In fact, we find that some of governance mechanisms are relevant in crisis conditions but not in non-crisis conditions and thus, their impact depends on macroeconomic conditions.

Price Discounts in Rights Issues: Why Do Managers Insist on What Investors Hate?

We analyse the causes and impact of the significant mean price discounts (25% for financial and 29% for non-financial firms) in rights issues in the UK using a sample of 264 observations for the period of 1994 to 2006. We observe that for non-financial companies the issue terms announcement returns are negatively affected by the discount size, while firm size, growth prospects and good previous stock performance have a positive impact. We also investigate which factors seem to influence managers to engage in deeper discounts when these are so disliked by investors. Evidence is provided that firms with more leverage, larger bid-ask spreads or suffering losses tend to choose deeper discounts. We conclude that managers balance the expected negative reaction of the market to a price discount with the risks of a costly issue failure, with these being higher when the firm experiences losses, has a higher volatility and also when the stock market climate is more adverse.

The Impact of Corporate Governance in the Banking Sector Performance: The Case of the 2007-2008 Financial Crisis

This research project aims to analyse the role of banks governance as an explanation to the recent financial crises. We claim to contribute to the current debate on the issue of governance mechanisms in explaining the performance of the banking sector, crucial to understanding of the 2007-2008 financial crises, in three important ways. Firstly, providing a unique and innovative analyse of the impact of board social and economic networks on bank performance, including political connections and business networks. Secondly, analysing the impact of deposit insurance on bank performance, considering both country and bank specific characteristics. Thirdly, analysing the banks’ characteristics that received government bailouts, namely in what concerns their corporate governance and try to shed more light on the extent to which banks’ governance characteristics determine the response to the financial crisis. The sample consists of 181 publicly listed banks from EMU countries, between 2002 and 2009 subject to the following criteria (1) being listed at least 1 year before year of analysis and (2) do no changed its governance structure due to mergers or acquisitions (M&A), in order to exclude banks than, eventually, around M&A have influenced stocks prices and/or manipulate results.