Pornsit Jiraporn

Dividend Policy, Shareholder Rights, and Corporate Governance

Grounded in agency theory, this study explores agency costs as a determinant of dividend policy. Specifically, we examine how dividends are related to the strength of shareholder rights. The evidence reveals an inverse association between dividend payouts and shareholder rights, indicating that firms pay higher dividends where shareholder rights are more suppressed. This evidence is consistent with the substitution hypothesis (La Porta et al., 2000), which contends that firms with weak shareholder rights need to establish a reputation for not exploiting shareholders. As a result, these firms pay dividends more generously than do firms with strong shareholder rights. In other words, dividends substitute for shareholder rights. Finally, there is evidence that regulation influences the association between dividends and shareholder rights.

Dividend Payouts and Corporate Governance Quality: An Empirical Investigation

Motivated by agency theory, we investigate how a firms overall quality of corporate governance affects its dividend policy. Using a large sample of firms with governance data from The Institutional Shareholder Services, we find that firms with stronger governance exhibit a higher propensity to pay dividends, and, similarly, dividend payers tend to pay larger dividends. The results are consistent with the notion that shareholders of firms with better governance quality are able to force managers to disgorge more cash through dividends, thereby reducing what is left for expropriation by opportunistic managers. We employ the two-stage least squares approach to cope with possible endogeneity and still obtain consistent results. Our results are important as they show that corporate governance quality does have a palpable impact on critical corporate decisions such as dividend policy.

Does Corporate Social Responsibility (CSR) Improve Credit Ratings? Evidence from Geographic Identification

We show that a firm’s CSR policy is significantly influenced by the CSR policies of firms in the same 3-digit zip code, an effect possibly due to investor clienteles, local competition, and/or social interactions. We then exploit the variation in CSR across the zip codes to estimate the effect of CSR on credit ratings under the assumption that zip code assignments are exogenous. We find that more socially responsible firms enjoy more favorable credit ratings. In particular, an increase in CSR by one standard deviation improves the firm’s credit rating by as much as 4.5%.

Does founding family control affect earnings management

Because of concentrated ownership stakes, board composition and longer-investment horizons, founding-family controlled firms provide an interesting setting for examining issues relating to governance and control. Anderson and Reeb (2003a, b, 2004), find that the founding-family controlled structure results in superior stock market and accounting performance and lower cost of debt compared to their nonfamily controlled counterparts. We add to their findings by examining the relationships between founding family control and earnings management. The unique characteristics of family controlled firms could insulate these firms from pressures to manage earnings. Our results support this notion, and find that family firms are significantly less likely to manage earnings.

Capital Structure and Corporate Governance Quality: Evidence from the Institutional Shareholder Services (ISS)

Grounded in agency theory, this study explores how capital structure is influenced by aggregate corporate governance quality. We measure governance quality using broad-based comprehensive governance metrics provided by the Institutional Shareholder Services (ISS). The empirical evidence reveals a robust inverse association between leverage and governance quality. Firms with poor governance are significantly more leveraged. It appears that leverage substitutes for corporate governance in alleviating agency conflicts. Further, we utilize empirical methods that control for endogeneity and show that poor governance quality likely brings about, and does not merely reflect, higher leverage. Our results are important as they show that the overall quality of corporate governance has a material impact on critical corporate decisions such as capital structure choices.

Does Corporate Diversification Exacerbate or Mitigate Earnings Management? An Empirical Analysis

The purpose of this study is to determine whether earning management is exacerbated or alleviated in diversified firms. An explicit distinction is made between industrial and geographic diversification. The empirical evidence shows that earnings management is mitigated by 1.8% in industrially diversified firms. The evidence also shows that a combination of industrial and global diversification helps alleviate earnings management by 2.5%. Global diversification alone, however, does not appear to impact earnings management. We argue that diversified firms derive their cash flows from disparate business divisions. The accruals generated by these business divisions are imperfectly correlated and, hence, tend to offset each other at the entire firms level, making it difficult for managers to manage earnings considerably in either direction. Finally, our results show that diversified firms do not suffer more severe informational asymmetry, which may explain why earnings management does not occur to a greater extent in diversified firms.

Staggered Boards, Managerial Entrenchment, and Dividend Policy

Motivated by agency theory, we explore the potential impact of managerial entrenchment through staggered boards on dividend policy. The evidence suggests that firms with staggered boards are more likely to pay dividends. Among firms that pay dividends, those with staggered boards pay larger dividends. We also show that the impact of staggered boards on dividend payouts is substantially stronger (as much as two to three times larger) than the effect of all other corporate governance provisions combined. Overall, the evidence is consistent with the notion that dividends help alleviate agency conflicts. Thus, firms more vulnerable to managerial entrenchment, i.e., firms with staggered boards, rely more on dividends to mitigate agency costs. Aware of potential endogeneity, we demonstrate that staggered boards likely bring about, and are not merely associated with, larger dividend payouts. Our results are important, as they show that certain governance provisions have considerably more influence than others on critical corporate activities such as dividend payout decisions.

Capital Structure, CEO Dominance, and Corporate Performance

We use agency theory to investigate the influence of CEO dominance on variation in capital structure. Due to agency conflicts, managers may not always adopt leverage choices that maximize shareholders’ value. Consistent with the prediction of agency theory, the evidence reveals that, when the CEO plays a more dominant role among top executives, the firm adopts significantly lower leverage, probably to evade the disciplinary mechanisms associated with debt financing. Our results are important as they demonstrate that CEO power matters to critical corporate outcomes such as capital structure decisions. In addition, we find that the impact of changes in capital structure on firm performance is more negative for firms with more powerful CEOs. Overall, the results are in agreement with prior literature, suggesting that strong CEO dominance appears to exacerbate agency costs and is thus detrimental to firm value.

Delaware Incorporation and Earnings Management: An Empirical Analysis

Motivated by agency theory, this study examines whether the extent of earnings management significantly differs in firms incorporated in Delaware versus those incorporated elsewhere in the U.S. Delaware corporate law has been argued to affect agency costs. To the extent that shareholders make poor investment decisions based on managed accounting numbers, earnings management can be regarded as an agency cost. The evidence indicates that earnings management occurs to a lesser extent in Delaware firms. In addition, Delaware incorporation combined with a predominance of outside independent directors on the board, further constrains earnings management. Finally, the results suggest that earnings management is not diminished in Delaware firms that are controlled by founding families.

Debt Maturity Structure, Shareholder Rights, and Corporate Governance

This study investigates how debt maturity structure is influenced by the strength of shareholder rights. The empirical evidence reveals an inverse relation between the strength of shareholder rights and debt maturity. We contend that managers of firms with weak shareholder rights eschew choosing short-term debt to minimize frequent external monitoring. There is also evidence that regulation is a substitute for debt maturity in controlling agency costs. The effect of managerial entrenchment through classified boards is examined on debt maturity structure but is found to be insignificant. Finally, we demonstrate that weak shareholder rights likely bring about, and do not merely reflect, the use of longer-maturity debt.