1,721,064 research outputs found
The effects of top management team strategic cognition on corporate financial health and value: an interactive multi-dimensional approach
Get PDFThe upper echelons theory posits that the values, personalities, experience and education background of the top management team (TMT) affect both executives’ strategic cognition and corporate outcomes. Since TMT members differ in their cognitive structures, as also acknowledged by the presence of managerial biases and irrationalities in the behavioural finance theories, policy makers and scholars are saddled with the problem of identifying specific cognitive elements that can secure optimum organisational outcomes. Conceptual approaches or linear relationships between TMT strategic cognition (TMT-SC) and outcomes are unable to capture the complex interdependencies among TMT-SC, TMT attributes and performance. We propose and empirically test a dynamic multi-dimensional TMT-SC model. Using handpicked UK company panel data, we provide robust empirical evidence that extends our understanding of the theory. Our PLS-SEM analyses show that heterogeneity in TMT academic and professional qualifications, and work experience alone cannot provide optimal benefits to organisations. However, when they are combined with other TMT cognitive factors such as social networking, innovativeness and risk-taking levels, these aspects appear to improve firm value and financial health
The impact of governmental intervention on the association between initial public offering and future stock issuance
Get PDFWe examine the effect of initial public offering (IPO) characteristics on seasoned equity offering (SEO) decisions in relation to governmental intervention in China. Our results confirm the process of underpriced IPOs in promoting earlier and larger IPOs in the Chinese context. The study examines three channels through which the Chinese government intervenes in equity issuance activities named state ownership, politically connected executives and economic development areas. We find that the connection between IPOs and SEOs becomes less apparent in government-intervened firms. We attribute our results to the conflict between the state and minority shareholders, which leads to high uncertainty and risk in government-intervened firms
Capital structure and market timing in the UK : empirical evidence from UK firms
Get PDFThis thesis studies capital structure of non-financial firm in the UK. It specifically examines the market timing theory of capital structure in the three different empirical chapters. Given that the market timing theory is new relative to the trade-off and pecking order explanations of firms‟ capital structure decisions; it provides an interesting discourse for the wider finance community. The thesis empirically tests the theory and provides evidence as well as theoretical implications for practising managers.The first empirical chapter looks at the timing of IPOs and SEOs in the UK as well as the reversal and persistence of timing attempts. Consistent with the findings in Barker and Wurgler (2002) we find that firms do time IPOs as well as SEOs. However, similar to Alti (2006), we do not find that the effect is persistent. In addition to that, we find that the motive for timing SEOs are distinctively different from the motive for IPO managers. Although timers in both markets are inferior (they are less profitable and have a smaller growth frontier), SEO firms appear to be over-levered and their timing attempts appear to be motivated by reaching a target level. The findings in this chapter lay out an interesting avenue that provides opportunities for future research work.The second empirical chapter studies the timing of issues as well as repurchases. Similar to Elliot et al. (2007) we use a direct measure of equity mispricing to measure how firms adjust security issues to reflect equity mispricing. Consistent with their findings in the US market, we find that firms increase debt issues during periods of undervaluation and equity issues during period of overvaluation to finance their deficit. We further investigate the impact of equity mispricing on repurchasing activities. The findings confirm those of Oswald and Young (2004) where firms repurchase activities are driven by equity mispricing and contradict Rau and Vermaelan (2002) where repurchases in the UK are tax driven. I further find that financial constraints play a critical role in timing of issues and repurchases. Constrained firms are more sensitive to equity mispricing and thus time the market more evidently. In addition to that, building from the work in Warr et al (2011) I find that firms are inclined to time security issues and repurchases to reach their target leverage levels.The third empirical chapter studies the probabilities of firms issuing and repurchasing securities to time periods of equity mispricing. I find that firms time issues and thus rely on debt issues during periods of undervaluation (and vice versa). This action leads them to deviate further from target levels. This is an intuitive finding and supports conclusions derived in Hovakimian (2006) where firms that set target leverage levels also engage in market timing. Similar to Huang and Ritter (2009) I find that equity mispricing drive the issue decision as well as the issue choice. Building on the work of Hovakimian et al. (2001) I also find that issue size is also driven by market timing considerations. Further to that I also find that equity mispricing similarly influences on the repurchasing decision, size and choice of repurchases. Contributing further, I find that firms decision to issue equity accompanied by reducing debt (or issue debt accompanied by repurchasing equity) are more likely to be driven by equity mispricing than pure issue or repurchase decisions, suggesting that managers do try to lower overall cost of capital by switching to a relatively cheaper source of financing.In brief this thesis provides empirical evidence that equity market timing influences capital structure decisions. In support of the market timing theory, I find that managers do indeed time security issues and repurchase securities to reflect equity mispricing. Their timing motivations seem to be driven by targeting behaviour and also financial capacity. I further find that managers substitute one form of financing with another due to market timing considerations. Further research into debt market timing such as Doukas et al. (2011) might shed further light into managerial timing decisions and its impact on capital structure of firms. Comparing both views simultaneously would also provide a more complete and insightful understanding of capital structure
An empirical analysis of top management team strategic cognition, managerial attributes, audit committee effectiveness and their implications for corporate risk and performance
No full textThe events of the global financial crisis have hastened the refinement of existing corporate governance regulations and the development of new ones to strengthen corporate governance mechanisms. However, critics of this approach argue that strengthening the corporate governance system by itself cannot guarantee better organizational outcomes. Rather, understanding the cognitive footprints of the top management team (top management strategic cognition) and its implications on organizational outcomes represent a better alternative. Currently, empirical research that examines the effects of top management team (TMT) strategic cognition on firm outcomes is scarce and sparse. Therefore, our knowledge and understanding of how TMT cognitive structures (mental models) influence organizational outcomes is limited and scattered. This study uses a sample of balanced panel data from 311 UK FTSE companies from 2007 to 2016 to examine the effects of TMT strategic cognition on organizational outcomes. Since TMT members differ in their cognitive structures, both researchers and policy makers find it difficult to identify specific cognitive elements that can secure optimum organizational outcomes. The motivation for this thesis is to contribute to the corporate governance literature by presenting a unique decision making framework that examines six different top management strategic cognition pathways and how the elements in each pathway influences firm outcomes. This thesis uses the partial least squares- structural equation modelling (PLS-SEM) and fixed effects estimation methods. The findings based on this thesis provide three original contributions to the literature. First, the results show that a TMT strategic cognition that combines innovativeness and high risk preference can secure better organizational outcomes. Second, the analyses further show that firms that have experienced accounting and finance experts and communicate more about their corporate sustainability to their stakeholders perform better in both crisis periods and stable periods. Third, a bankruptcy model that combines managerial attributes, accounting data and market data can provide a better prediction of a firm’s bankruptcy probability and the variability in its market returns
Three essays in corporate governance and corporate finance : international evidence
Get PDFThis thesis presents three original research frameworks, two in corporate governance and one in corporate finance, distributed in three empirical chapters, respectively. Specifically, in Chapter 1, a novel multi-criteria decision analysis (MCDA) approach is developed not only to quantify an aggregate quality of corporate governance at firm level, but also to overcome the limitations of the existing measures (i.e., corporate governance indices) mainly with respect to full compensatory structures and industry-wide heterogeneity. Furthermore, the empirical approach, using PROMETHEE methods and econometric analysis of panel data, provides a strong inverse relationship between firm performance and corporate governance quality. The results rely on outranking relationships (over five million pair comparisons) among companies (1,203 US listed firms during 2002 to 2014) across various corporate governance criteria, comparing the aggregate quality against a well-known corporate governance index (ASSET4 ESG in Datastream).In Chapter 2, the theory of system reliability is used to model the behaviour of companies in terms of their corporate governance practices and mechanisms. Particularly, machine-learning techniques are proposed to assess a corporate governance system. The mapping of its inputs or specific indicators (e.g., corporate social responsibility, average number of board meetings, compensation policy, auditing independency and independent board) as components (either in operating or failed state), along with firm-specific conditions (i.e., age, size, risk, growth), into a reliability system aims to determine an approximate structure function that models the behaviour of the system. The proposed approach is applied to another data sample set of 1,109 US listed companies during 2002 to 2014, the financial and non-financial indicators are modelled as components of the corporate governance system, and returns on assets is defined as the system output. The results show that growth opportunities matter for the proper functioning of the system, and suggest that if companies are more transparent (i.e., components show a low probability of failure) both the trustworthiness of the companies and the system reliability improves.In Chapter 3, a research framework to analyse failure in mergers and acquisitions (M&A) reveals that not only deal characteristics (i.e., deal attitude, means of payments, deal size, ownership), but also acquirers’ and targets’ firm size, acquirers’ economic freedom, and targets’ accounting returns significantly explain the likelihood of deal failure. To this aim, a large dataset of 137,116 worldwide M&A deals (during 1977–2014 on more than 140 countries) and novel specifications of logit regression models are analysed. This chapter contributes and expands the literature in M&A deals and business research by evaluating how incumbents’ specific information can constrain the firms’ assets movement (efficiency perspective).Regarding the implications, the findings in Chapter 1 are of particular interest to both scholars and decision makers (e.g., managers, shareholders, investor, policy makers) including rating agencies, who want to assess advantages and disadvantages of corporate governance indices. Chapter 2’s findings are useful mainly for board of directors for detecting what corporate governance components are more line up with the most successful companies, or for quantifying firm reliability. The results in Chapter 3 suggest to bidders to be aware of not only deal characteristics, but also firm size discernments, economic freedom outlooks, and accounting figures when considering the exit option of a deal withdrawal
Three essays in corporate governance and corporate finance : international evidence
Get PDFThis thesis presents three original research frameworks, two in corporate governance and one in corporate finance, distributed in three empirical chapters, respectively. Specifically, in Chapter 1, a novel multi-criteria decision analysis (MCDA) approach is developed not only to quantify an aggregate quality of corporate governance at firm level, but also to overcome the limitations of the existing measures (i.e., corporate governance indices) mainly with respect to full compensatory structures and industry-wide heterogeneity. Furthermore, the empirical approach, using PROMETHEE methods and econometric analysis of panel data, provides a strong inverse relationship between firm performance and corporate governance quality. The results rely on outranking relationships (over five million pair comparisons) among companies (1,203 US listed firms during 2002 to 2014) across various corporate governance criteria, comparing the aggregate quality against a well-known corporate governance index (ASSET4 ESG in Datastream).In Chapter 2, the theory of system reliability is used to model the behaviour of companies in terms of their corporate governance practices and mechanisms. Particularly, machine-learning techniques are proposed to assess a corporate governance system. The mapping of its inputs or specific indicators (e.g., corporate social responsibility, average number of board meetings, compensation policy, auditing independency and independent board) as components (either in operating or failed state), along with firm-specific conditions (i.e., age, size, risk, growth), into a reliability system aims to determine an approximate structure function that models the behaviour of the system. The proposed approach is applied to another data sample set of 1,109 US listed companies during 2002 to 2014, the financial and non-financial indicators are modelled as components of the corporate governance system, and returns on assets is defined as the system output. The results show that growth opportunities matter for the proper functioning of the system, and suggest that if companies are more transparent (i.e., components show a low probability of failure) both the trustworthiness of the companies and the system reliability improves.In Chapter 3, a research framework to analyse failure in mergers and acquisitions (M&A) reveals that not only deal characteristics (i.e., deal attitude, means of payments, deal size, ownership), but also acquirers’ and targets’ firm size, acquirers’ economic freedom, and targets’ accounting returns significantly explain the likelihood of deal failure. To this aim, a large dataset of 137,116 worldwide M&A deals (during 1977–2014 on more than 140 countries) and novel specifications of logit regression models are analysed. This chapter contributes and expands the literature in M&A deals and business research by evaluating how incumbents’ specific information can constrain the firms’ assets movement (efficiency perspective).Regarding the implications, the findings in Chapter 1 are of particular interest to both scholars and decision makers (e.g., managers, shareholders, investor, policy makers) including rating agencies, who want to assess advantages and disadvantages of corporate governance indices. Chapter 2’s findings are useful mainly for board of directors for detecting what corporate governance components are more line up with the most successful companies, or for quantifying firm reliability. The results in Chapter 3 suggest to bidders to be aware of not only deal characteristics, but also firm size discernments, economic freedom outlooks, and accounting figures when considering the exit option of a deal withdrawal
Essays on investor behaviour and corporate governance in sub-Saharan African frontier markets
Get PDFThis thesis consists of three essays that address the question, whether the dynamics of investing in the developed markets are applicable in the Sub-Saharan African (SSA) frontier markets following the emerging market’s experience. The first essay (chapter 3) explores the existence of herding behaviour among investors in a sample of 10 frontier markets. The study employs the cross-sectional absolute deviation (CSAD) test for detecting presence of herding behaviour. The findings reveal the presence of herd formation during the period under study in all markets. Furthermore, the evidence shows a non-existence of herding during periods of extreme market conditions. Moreover, the South African market does not seem to motivate herding in other African markets.The second essay examines the impact of corporate governance practices of the East African Community (EAC) listed companies on performance. The present study employs the fixed-effects (FE) and the random-effects (RE) – two-stage least square – instrumental variable (RE-2SLS-IV) regression models to analyse data from a sample of 47 firms. The empirical investigation shows that the size of the board has a positive impact on market values but a negative effect on operating performance. The essay also documents that the largest investors, most of whom are strategic investors too, have an adverse effect on market values, whereas they have little or no effect on improving operating performance. The result also suggests foreigners and civil servants (or politicians) board members to impact positively on operating performance.The third study is an examination of the influence of psychological factors on retail investors’ trading behaviour at the Dar es Salaam Stock Exchange (DSE). The study employed a survey approach. The main finding is that retail investors in the market are prone to several behavioural biases. Perceived trading knowledge and perceived experience, for example, affect both the trading frequency and portfolio diversification. The tendency to focus on attention grabbing stocks explains why retail investors at the DSE prefer domestic over foreign stocks and the extent of diversifying their portfolios. The tendency to exhibit the disposition effect is mainly explained by gender, extrapolation of past performance, and perceived competence
Capital structure and market timing in the UK : empirical evidence from UK firms
Get PDFThis thesis studies capital structure of non-financial firm in the UK. It specifically examines the market timing theory of capital structure in the three different empirical chapters. Given that the market timing theory is new relative to the trade-off and pecking order explanations of firms‟ capital structure decisions; it provides an interesting discourse for the wider finance community. The thesis empirically tests the theory and provides evidence as well as theoretical implications for practising managers.The first empirical chapter looks at the timing of IPOs and SEOs in the UK as well as the reversal and persistence of timing attempts. Consistent with the findings in Barker and Wurgler (2002) we find that firms do time IPOs as well as SEOs. However, similar to Alti (2006), we do not find that the effect is persistent. In addition to that, we find that the motive for timing SEOs are distinctively different from the motive for IPO managers. Although timers in both markets are inferior (they are less profitable and have a smaller growth frontier), SEO firms appear to be over-levered and their timing attempts appear to be motivated by reaching a target level. The findings in this chapter lay out an interesting avenue that provides opportunities for future research work.The second empirical chapter studies the timing of issues as well as repurchases. Similar to Elliot et al. (2007) we use a direct measure of equity mispricing to measure how firms adjust security issues to reflect equity mispricing. Consistent with their findings in the US market, we find that firms increase debt issues during periods of undervaluation and equity issues during period of overvaluation to finance their deficit. We further investigate the impact of equity mispricing on repurchasing activities. The findings confirm those of Oswald and Young (2004) where firms repurchase activities are driven by equity mispricing and contradict Rau and Vermaelan (2002) where repurchases in the UK are tax driven. I further find that financial constraints play a critical role in timing of issues and repurchases. Constrained firms are more sensitive to equity mispricing and thus time the market more evidently. In addition to that, building from the work in Warr et al (2011) I find that firms are inclined to time security issues and repurchases to reach their target leverage levels.The third empirical chapter studies the probabilities of firms issuing and repurchasing securities to time periods of equity mispricing. I find that firms time issues and thus rely on debt issues during periods of undervaluation (and vice versa). This action leads them to deviate further from target levels. This is an intuitive finding and supports conclusions derived in Hovakimian (2006) where firms that set target leverage levels also engage in market timing. Similar to Huang and Ritter (2009) I find that equity mispricing drive the issue decision as well as the issue choice. Building on the work of Hovakimian et al. (2001) I also find that issue size is also driven by market timing considerations. Further to that I also find that equity mispricing similarly influences on the repurchasing decision, size and choice of repurchases. Contributing further, I find that firms decision to issue equity accompanied by reducing debt (or issue debt accompanied by repurchasing equity) are more likely to be driven by equity mispricing than pure issue or repurchase decisions, suggesting that managers do try to lower overall cost of capital by switching to a relatively cheaper source of financing.In brief this thesis provides empirical evidence that equity market timing influences capital structure decisions. In support of the market timing theory, I find that managers do indeed time security issues and repurchase securities to reflect equity mispricing. Their timing motivations seem to be driven by targeting behaviour and also financial capacity. I further find that managers substitute one form of financing with another due to market timing considerations. Further research into debt market timing such as Doukas et al. (2011) might shed further light into managerial timing decisions and its impact on capital structure of firms. Comparing both views simultaneously would also provide a more complete and insightful understanding of capital structure
An empirical analysis of top management team strategic cognition, managerial attributes, audit committee effectiveness and their implications for corporate risk and performance
Get PDFThe events of the global financial crisis have hastened the refinement of existing corporate governance regulations and the development of new ones to strengthen corporate governance mechanisms. However, critics of this approach argue that strengthening the corporate governance system by itself cannot guarantee better organizational outcomes. Rather, understanding the cognitive footprints of the top management team (top management strategic cognition) and its implications on organizational outcomes represent a better alternative. Currently, empirical research that examines the effects of top management team (TMT) strategic cognition on firm outcomes is scarce and sparse. Therefore, our knowledge and understanding of how TMT cognitive structures (mental models) influence organizational outcomes is limited and scattered. This study uses a sample of balanced panel data from 311 UK FTSE companies from 2007 to 2016 to examine the effects of TMT strategic cognition on organizational outcomes. Since TMT members differ in their cognitive structures, both researchers and policy makers find it difficult to identify specific cognitive elements that can secure optimum organizational outcomes. The motivation for this thesis is to contribute to the corporate governance literature by presenting a unique decision making framework that examines six different top management strategic cognition pathways and how the elements in each pathway influences firm outcomes. This thesis uses the partial least squares- structural equation modelling (PLS-SEM) and fixed effects estimation methods. The findings based on this thesis provide three original contributions to the literature. First, the results show that a TMT strategic cognition that combines innovativeness and high risk preference can secure better organizational outcomes. Second, the analyses further show that firms that have experienced accounting and finance experts and communicate more about their corporate sustainability to their stakeholders perform better in both crisis periods and stable periods. Third, a bankruptcy model that combines managerial attributes, accounting data and market data can provide a better prediction of a firm’s bankruptcy probability and the variability in its market returns
Essays on investor behaviour and corporate governance in sub-Saharan African frontier markets
Get PDFThis thesis consists of three essays that address the question, whether the dynamics of investing in the developed markets are applicable in the Sub-Saharan African (SSA) frontier markets following the emerging market’s experience. The first essay (chapter 3) explores the existence of herding behaviour among investors in a sample of 10 frontier markets. The study employs the cross-sectional absolute deviation (CSAD) test for detecting presence of herding behaviour. The findings reveal the presence of herd formation during the period under study in all markets. Furthermore, the evidence shows a non-existence of herding during periods of extreme market conditions. Moreover, the South African market does not seem to motivate herding in other African markets.The second essay examines the impact of corporate governance practices of the East African Community (EAC) listed companies on performance. The present study employs the fixed-effects (FE) and the random-effects (RE) – two-stage least square – instrumental variable (RE-2SLS-IV) regression models to analyse data from a sample of 47 firms. The empirical investigation shows that the size of the board has a positive impact on market values but a negative effect on operating performance. The essay also documents that the largest investors, most of whom are strategic investors too, have an adverse effect on market values, whereas they have little or no effect on improving operating performance. The result also suggests foreigners and civil servants (or politicians) board members to impact positively on operating performance.The third study is an examination of the influence of psychological factors on retail investors’ trading behaviour at the Dar es Salaam Stock Exchange (DSE). The study employed a survey approach. The main finding is that retail investors in the market are prone to several behavioural biases. Perceived trading knowledge and perceived experience, for example, affect both the trading frequency and portfolio diversification. The tendency to focus on attention grabbing stocks explains why retail investors at the DSE prefer domestic over foreign stocks and the extent of diversifying their portfolios. The tendency to exhibit the disposition effect is mainly explained by gender, extrapolation of past performance, and perceived competence
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