Yves Bozec

Governance–Performance Relationship: A Re‐examination Using Technical Efficiency Measures

The objective of this study is to analyse further the governance–performance relationship while improving on two methodological issues: control for endogeneity and firm performance measurement. To mitigate the endogeneity problem, we first focus on subsamples of firms for which we ex ante expect better corporate governance to cause better performance. Second, we use generalized least squares regressions for panel data. To control for potential measurement bias, we measure firm performance using data envelopment analysis (DEA). The research is conducted in Canada over a five-year period from 2001 to 2005. Corporate governance is measured based on the Report on Business corporate governance index published by the Globe and Mail. Overall, the results show that better governed firms are more efficient. This study is in line with a growing number of recent studies that propose alternative measures of firm performance. By using DEA, this study brings together the corporate finance and productivity literature.

Law of Incorporation and Ownership Structure: The Law and Finance Theory Revisited

La Porta et al.s [La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1998). Law and finance. Journal of Political Economy, 106(6), 1113-1155] theory of law and finance predicts that minority controlled ownership structures, i.e. those that allow voting rights to exceed cash-flow rights, are more numerous in legal contexts that do not adequately protect investors against expropriation attempts by dominant shareholders. The purpose of our study is to test this prediction in a unique environment, that of the province of Quebec. Quebec owes its distinct status to the fact that it is the only jurisdiction among the 10 provinces of Canada to operate under civil law, while the other nine provinces operate under common law. We show that, in comparison to those in the rest of Canada, dominant shareholders in Quebec corporations hold a higher percentage of voting rights, with a wider gap between their voting rights and cash-flow rights.

Incorporation Law, Ownership Structure, and Firm Value: Evidence from Canada

In this article, we reexamine the law and finance theory in the Canadian context, characterized by a dichotomy in the legal traditions that govern incorporation law across provinces. We specifically examine the relation between incorporation law, corporate ownership structure, and firm value, taking into account the endogeneity of ownership structure. Using a sample of 181 Canadian firms between 2002 and 2005, we show that firms from Quebec mostly choose to incorporate under the federal law (CBCA), perceived as more protective of shareholder rights, rather than under the provincial law (QCA). Our 2SLS regressions show that Quebec firms incorporated under the QCA tend to have more concentrated ownership and that ownership concentration is negatively related to firm value (Tobins Q). These results are in line with the previous literature, which, in different pieces, has identified the positive relationship between less stringent legal environment and ownership concentration, as well as the negative relationship between ownership concentration and firm value. In this study, we formalize these relationships while taking into consideration the fact that firm value could also influence ownership concentration, as shown by Cho (1998). These results take on a particular importance as many researchers and organizations dedicated to the protection of investors, in Europe and in many countries around the world, have criticized the existence of ownership concentration and excess voting rights (wedge). These results thus reinforce the need for better corporate governance regulations to minimize the risks of minority shareholders expropriation.

The relation between excess control and cost of capital

Purpose - – The purpose of this study is to investigate the relationship between dominant shareholders, whose voting rights exceed cash flow rights (excess control), and firms’ cost of capital, including both equity capital and debt. Design/methodology/approach - – This research is conducted in Canada over a four-year period from 2002 to 2005 and uses panel data of 155 S&P/TSX firms. The weighted average cost of capital is regressed on excess control using fixed-effect regressions in a two-stage least squares framework. Findings - – The paper finds evidence that the cost of capital increases with excess control. The paper also confirms that for firms incorporated under the less protective Quebec incorporation law the excess control and, therefore, cost of capital is higher than for firms incorporated in the other provinces under the common law regime. Originality value - – Prior work examined the relationship between excess control and firm value, mostly Tobins

Controlling shareholder entrenchment, corporate governance and corporate performance

The objective of this study is to explore the link between controlling shareholder entrenchment and firm performance while focusing on the mitigating effects of corporate governance practices. This research is conducted in Canada covering a six-year period from 2002 to 2007 and uses panel data from 334 S%P/TSX firms. The quality of firm-level governance is measured based on the ROB index published by The Globe and Mail. The measurement of controlling shareholder entrenchment is based on voting rights and the wedge between voting and cash-flow rights. Using fixed-effect regressions, we find strong evidence that the negative impact of entrenchment on firm performance is attenuated when corporate governance practices are strong.

Corporate ownership and governance practices in Canada: a longitudinal study

The objective of this study is to analyse convergence of corporate governance in Canada in a period characterised by high financial uncertainty (1999-2008). The methodological strength of this study resides in the combination of a longitudinal approach with a multilevel analysis, focusing on both governance practices and ownership structure. Our results show that ownership structure and control did not change over time. Canadian firms remained controlled by an ultimate shareholder who often is in a position to enjoy all of the private benefits of control while internalising only a small fraction of the costs. However, corporate governance practices converged toward a US model over the period under investigation, overall lending support to functional convergence, not formal convergence.

Founder-Controlled Firms and R&D Investments: New Evidence From Canada

Our study investigates the R&D investment behavior of founder-controlled Canadian listed firms. We use De Massis et al.’s model of the sufficiency conditions of ability and willingness and adapt it to predict investments in R&D. As founder-controlled firms are heterogeneous in nature, we distinguish four categories: lone founder firms and family founder firms with and without excess voting rights. In line with our predictions, we find that only lone founder firms without excess voting rights have both the ability and the willingness to invest in R&D and so they invest more in R&D than their counterparts.

Dominant shareholders, excess control and audit fees in Canada

Public firms throughout the world tend to be controlled by large shareholders who possess significant control rights in excess of their cash-flow rights (excess control). Extensive evidence suggests that concentrated ownership structures and excess control entail large agency costs. However, little is known about the impact of the presence of dominant shareholders on the pricing of audit fees. The objective of this paper is to address this issue. Using a panel of 242 S%P/TSX Canadian firms over the period 2002-2008, we document a positive association between excess control and audit fees while disentangling the effects of both ownership concentration and family ownership. We also document that excess control primarily impacts on audit fees over and above the effects of ownership concentration and/or family ownership. Furthermore, we find that the different sources of excess control, dual-class shares and pyramids, have different impact on audit fees.