Tag Archives | agency costs

Shareholder Collaboration

Shareholder Collaboration is a new ECGI working paper by Jill Fisch and Simone M. Sepe. Fisch is one of my favorite researchers, being insightful and less predictable than many of those in the primary academic hubs of corporate governance (Harvard, Stanford, and Delaware). In Shareholder Collaboration, the authors discuss the growing importance of a collaborative model, in contrast to models based on management power or shareholder power. (download paper in pdf) Continue Reading →

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Review: Corporation Nation

Corporation Nation (Haney Foundation Series) by Robert E. Wright  delves into the history of the corporation, particularly in pre-Civil War United States (the antebellum period). Like the earlier reviewed Shareholder Democracies?: Corporate Governance in Britain and Ireland before 1850, Corporation Nation addresses central issues such as agency theory, democracy and public interest through the lens of history.

Despite protests that corporations were potentially corrupting, U.S. state governments early on combined to charter more corporations per capita than any other nation—including Britain—effectively making the United States a “corporation nation.” Robert E. Wright traces the shift in corporate governance from relatively self-governing business republics to the much more regulated entities we are familiar with today. Continue Reading →

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Review: The History of Modern US Corporate Governance

CheffinsMODcorpgovThis unique “must have” two volume set traces the development of corporate governance thought around the core issue of the separation of ownership and control while also touching on the board of directors, executive pay, shareholder activism and the regulatory structures that shape corporate governance in the U.S. I include the index to both volumes at the bottom of this review for your reference. The word “modern” in the title refers roughly to the post 1970 world.

Although referenced, the set does not stem directly from The Modern Corporation and Private Property by Adolf Berle and Gardiner Means.  And of course, scholars continue to explore the consequences of this rift in books such as Citizens Continue Reading →

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Staggered Boards Tend to Reduce Firm Value: More Evidence

Bebchuk, Lucian A., Cohen, Alma and Wang, Charles C. Y., Staggered Boards and the Wealth of Shareholders: Evidence from a Natural Experiment (November 2010). Available at SSRN. Abstract follows:

While staggered boards are known to be negatively correlated with firm valuation, such association might be due to staggered boards’ either bringing about or merely being the product of the tendency of low-value firms to have staggered boards. In this paper, we use a natural experiment setting to identify how market participants view the effect of staggered boards on firm value. In a recent and not-fully-anticipated recent ruling, the Delaware Chancery Court approved the legality of a shareholder-adopted bylaw that shortened the tenure of directors whose replacement was precluded by a staggered board by moving the company’s annual meeting up from August to January. We find that the decision was accompanied by abnormal and economically meaningful positive stock returns to firms with a staggered board, relative to firms without a staggered board.

The identified positive stock returns were especially pronounced for firms likely to be impacted by the decisions, because (i) their past annual election took place in later months of the calendar year, (ii) they are incorporated in Delaware or (iii) do not have supermajority voting requirements that make it difficult for shareholders to amend the bylaws. The identified positive stock returns were also especially pronounced for firms for which control contests are especially relevant because of their (i) below-industry return on assets, (ii) relatively small firm size, and (iii) absence of supermajority voting requirements making a merger of the company difficult.

Our findings are consistent with market participants’ viewing staggered boards as bringing about a reduction in firm value. They are thus consistent with the policies of leading institutional investors in favor of proposals to repeal classified boards, and with the view that continuation of the ongoing process of board declassification by many public firms will enhance shareholder value.

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