This book follows the theme of Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences also by David Larcker and Brian Tayan. Larcker is the James Irvin Miller Professor of Accounting, Stanford Graduate School of Business. Brian Tayan is a member of the Corporate Governance Research Program at the Stanford Graduate School of Business. While Corporate Governance Matters (see my review) focuses on debunking “best practices” in corporate governance, A Real Look at Real World Corporate Governance takes more of an abbreviated case study approach, delving into how several decisions were made by boards at specific companies. Continue Reading →
Tag Archives | accounting
No, this article isn’t about becoming famous though the internet, the Sisters of the Sororitas, or Famulous Eateries in Bangkok. Rather, I just spent an hour on a Webinar with GMI Ratings on their Forensic Alpha Model (FAM), designed to help investors predict stock returns using forensic-accounting and governance-related measures of issuer risk.
Yes, it was essentially a commercial… but it was very convincing. A few of the facts: Continue Reading →
This October paper by Jeffrey L. Callen, Feng Chen, Yiwei Dou, and Baohua Xin shows analytically and empirically that the relation between conservatism and covenants is conditioned on the extent of information asymmetry between borrowers and lenders. Continue Reading →
The Asian Corporate Governance Association (ACGA) released “CG Watch 2012,” their sixth joint survey on corporate governance in 11 Asian markets undertaken in collaboration with CLSA Asia-Pacific Markets since 2003. Continue Reading →
Bartley J. Madden’s recent paper, Management’s Knowing Process and the Theory of Constraints, explores the brain’s capability for forming and re-forming neural circuits that constitute our perceptions of the “world out there.” Our “realities” are built up from specific and limited past experiences.
Managers and boards would do well to be more attuned to uncovering erroneous assumptions as an aid to more successfully dissolving internal conflicts, adapting early to changes in the external environment, and securing competitive advantage. Madden discusses the Theory of Constraints (TOC), as a proven Continue Reading →
Risk Management and Corporate Governance: Interconnections in Law, Accounting and Tax by Marijn Van Daelen (Editor), Christoph Van Der Elst (Editor)
After the recent financial crisis more and more pension and other funds are adjusting their portfolios for risk. This book offers a fascinating look at the juxtaposition of corporate governance and risk analysis. Bob Tricker has often proclaimed the 19th century the entrepreneur’s, 20th century management’s, and 21st that of governance. It could also be the century when risk and probability finally enter everyday consciousness and is finally taught in grade school.
The law of probabilities defined by Fermat and Pascal in 1654 started us down the road. Authors represented in this small volume bring us up-to-date regarding how far we have come on the journey from passive prisoners of providence to attempting to measure and manage all possible events.
In the 17th century the Dutch East India Company was forced by shareowners to publish balance sheet statements and profit and loss statements. Today, shareowners call on Starbucks to “Adopt a Comprehensive Recycling Strategy for Beverage Containers.” Talk about drilling down. The London city directory mentioned 11 accountants in 1799; we’ve come a long way. The authors provide a brief tour of history, which includes a wide variety of risk models, such as Value at Continue Reading →
Corporate buybacks are now a daily news item. In 2007 US companies spent an astounding one trillion dollars on stock buybacks that exceeded dividends paid and accounted for two-thirds of net income that year. Since 2000 those same companies distributed three trillion dollars to shareholders through buybacks.
By any measure, these amounts are staggering and evidence a substantial distribution of cash to shareholders, which might otherwise be put to other uses, like investing in new technologies and creating jobs!
exclaimed Paul Griffin, who recently completed research with Professor Ning Zhu focusing on why executives and boards spend these substantial sums. Their work was recently published in the June 2010 issue of Journal of Contemporary Accounting & Economics, titled “Accounting Rules? Stock Buybacks and Stock Options: Additional Evidence.”
When a company engages in stock buybacks (buying its own stock) it removes stock from the market thus increasing earnings per share and, hopefully, stock price. Buybacks are meant to benefit all shareholders, but Griffin and Zhu found that weak governance and unclear accounting allow companies to tilt the playing field in favor of their executives, who receive additional compensation because the buyback makes their stock options more valuable. Previous research did not show a reliable relation between higher CEO stock option compensation and the decision to engage in a buyback. Explained Griffin,
This is how managers can receive additional compensation, and for some, especially in recent years, this aspect of compensation has been sky-rocketing. Few people are aware that these buybacks are being used to enhance CEO compensation, and certainly not the regulators.
The researchers also discovered a positive relation between CEO insider selling following a buyback and the number of shares repurchased, also consistent with governance not protecting outside shareholders.
Professor Paul A. Griffin is an internationally recognized specialist in the areas of accounting, financial valuation and the role of information in security markets. He has published extensively in leading accounting and finance journals, and has written research monographs for the Financial Accounting Standards Board and case books on corporate financial reporting.
Andrea Romi, a doctoral candidate at the University of Arkansas’ Sam M. Walton College of Business, examined the SEC filings of 309 companies that received notice from the Environmental Protection Agency between 1996 and 2005 that they should expect to pay at least $100,000 in fines – the minimum amount required for disclosure by SEC Regulation S-K, Item 103.
Romi found that 72% omitted this information on their filing forms, a violation of federal law. Companies that did follow the law and publicly announced the EPA sanction saw the value of their stock fall by an average of 1.6%.
Since those that omit the information are unlikely to suffer any consequences, it is clear that more enforcement is needed. (Accounting Study Reveals Firms’ Failure to Disclose Environmental Sanctions, 2/17/09) At minimum, the SEC should fine these identified companies and award a finders fee to Ms. Romi. Unfortunately, the SEC awards no such finders fees.