Nikos Vafeas

Board meeting frequency and firm performance

Abstract For 307 firms over the 1990–1994 period, I find that board meeting frequency is related to corporate governance and ownership characteristics in a manner that is consistent with contracting and agency theory. The annual number of board meetings is inversely related to firm value. This result is driven by increases in board activity following share price declines. I further find that operating performance improves following years of abnormal board activity. These improvements are most pronounced for firms with poor prior performance and firms not engaged in corporate control transactions. Overall, my results suggest that board activity, measured by board meeting frequency, is an important dimension of board operations.

The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis

We study how corporate boards and audit committees are associated with voluntary financial disclosure practices, proxied here by management earnings forecasts. We find that in firms with more effective board and audit committee structures, managers are more likely to make or update an earnings forecast, and their forecast is less likely to be precise, it is more accurate, and it elicits a more favorable market response. Together, our empirical evidence is broadly consistent with the notion that effective corporate governance is associated with higher financial disclosure quality.

Audit Committees, Boards, and the Quality of Reported Earnings*

I use data on 252 U.S. firms between 1994 and 2000 to study the relationship between audit committees and boards of directors with financial reporting quality. I initially document several changes in committee and board profile during the sample period. Results from logistic regressions suggest that measures of audit committee and board structure are related to earnings quality in a manner that is generally consistent with the predictions of agency theory. This study contributes to extant knowledge by employing different earnings quality measures from prior studies, and by expanding the range of audit committee attributes deemed important in determining audit committee performance.

Board structure and the informativeness of earnings

This study draws on prior research on corporate governance and examines whether the informativeness of earnings, proxied by the earnings - returns relationship, varies with the fraction of outside directors serving on the board and board size. The results suggest that earnings of firms with the smallest boards in the sample (with a minimum of five board members) are perceived as being more informative by market participants. By contrast, there is no evidence that board composition mitigates the earnings - returns relation. Policy implications are discussed.

The Nature of Board Nominating Committees and Their Role in Corporate Governance

This study examines the association between the employment and composition of nominating committees with board and ownership characteristics. First, the results suggest that the likelihood of using a nominating committee is inversely related to the level of inside ownership and positively weakly, related to the independence, but not the number, of outside board members. Second, the percentage of insiders participating in the committee is positively related to inside ownership, and negatively related to proxies for outside director quality. Finally, outside directors are more likely to serve on the nominating committee the more outside directorships they hold, and the longer their tenure in the firm. The likelihood of insider committee membership rises with a directors equity investment, with board tenure, and with other committee memberships. Taken together, the results are consistent with nominating committees substituting inside ownership in controlling management, mostly improving board quality, and being staffed with independent, experienced, and knowledgable members. Copyright Blackwell Publishers Ltd 1999.

Further Evidence on Compensation Committee Composition as a Determinant of CEO Compensation

I use more than 1,500 firm-year observations for 271 US firms between 1991-1997 to examine the relation between insider membership in compensation committees and CEO pay. I find a steady decline in the number of committees with insider participation during the sample period, and uncover some opportunism by insiders in setting pay prior to the compensation disclosure and tax reforms. Finally, I document changes in pay practices that would be consistent with the intent of these reforms. Based on this evidence, however, I cannot definitively conclude whether the reforms were efficient.

The Association Between Operating Cash Flows and Dividend Changes: An Empirical Investigation

The Association between earnings and dividend changes has been established since Lintners (1956) pioneering work. Subsequent research attempted to establish an association between operating cash flows and dividend changes, given earnings, without success (Simons, 1994). Recently, there has been increased attention in cash flow reporting. Regulatory bodies worldwide have stressed the significance of cash flow information in capital markets. Research on the association between cash flows and dividends has been limited, yielding inconclusive results. The purpose of this study is to re-evaluate and extend prior studies by examining the incremental ability of cash flows to explain dividend changes, given earnings. We argue that a positive relationship between cash flows and dividend changes should exist due to liquidity and accruals management considerations. The empirical evidence of this study supports that the dividend changes-cash flow relationship is significantly positive (a) when operating cash flows are low compared to earnings, and (b) when firm growth is moderate. Copyright Blackwell Publishers Ltd 1998.

The association between the SEC's 1992 compensation disclosure rule and executive compensation policy changes

Abstract In the midst of a public policy debate on executive compensation, the US Securities and Exchange Commission (SEC) adopted a new compensation disclosure rule in 1992 ( SEC, 1992b ). Our study assesses changes in the structure of compensation committees that followed this rule, as well as changes in the relationship between Chief Executive Officer (CEO) pay and firm performance. The results suggest that, following the new rule, compensation committees include significantly fewer insiders, meet more frequently, and converge to a moderate size. Moreover, following the rule, accounting and market performance measures explain significantly more of the cross-sectional variation in CEO pay compared to the pre-rule period.

The usefulness of earnings in explaining stock returns in an emerging market: the case of Cyprus

The paper presents evidence that earnings levels as well as changes in earnings are important in explaining stock returns in an emerging stock market. The study employs data on all listed firms in the Cyprus Stock Exchange over the ten-year period 1985-1994. Operating cash flows have no incremental information content beyond earnings. Earnings is more informative for larger firms consistent with the notion that accounting information by larger firms is perceived as being more reliable. Moreover, the earnings-returns relationship is not linear, being stronger for positive earnings levels and changes than for negative. Finally, the usefulness of earnings is statistically higher in the later half of the sample period. Overall, the results suggest that investors price earnings information in this emerging market.

Determinants of the adoption of director incentive plans

This study investigates the determinants of the adoption of director incentive plans. The tests compare the financial and governance characteristics of 122 firms adopting director incentive plans between 1989 and 1995 to a sample of control firms matched on industry affiliation and sales. The multivariate test results suggest that the likelihood of plan adoption increases with the fraction of outside directors serving on the board and a certain form of director cash compensation. Three years after plan adoption there is a significant increase in the share and option holdings of the outside directors of adopting firms, a relative decline in their cash compensation, and a reduction in the adopting firms inside ownership and board size. In general, these results suggest the plans are adopted by firms that rely more on the board as a monitoring device and that related governance improvements bring the adopting firms director compensation structure closer to that of control firms.