Global Corporate Governance Colloquia (GCGC) 2016

Global Corporate Governance Colloquia (GCGC) 2016

  • 10 - 11 June 2016
  • Stockholm, Sweden

The aim of the conference series is to attract current research papers of the highest scholarly quality in the field of corporate governance. The conferences are primarily ‘academic to academic’ events with some participants from industry and the public sector including the practitioner partners of GCGC and other invited panelists. The current practitioner partners are the European Investment Bank (EIB), Zurich Insurance Group, and Japan Exchange Group (JPX).

Attendance at this event was by invitation only. Researchers were invited to submit recent papers or extended abstracts and selected papers were presented at the conference. In addition, there were two panel discussions involving participants from industry and the public sector.

Information

Address:
Sveavägen 65, 113 83 Stockholm, Sweden
Contact:
Elaine McPartlan
European Corporate Governance Institute (ECGI)

10 June - Day 1

08:15

Registration & coffee

08:30
- 09:00

Introduction - Conference Chairman: Professor Mike Burkart

09:00

Session 1: Contracts - Session Chairman: Professor Mike Burkart

09:00
- 09:45

Commitment And Entrenchment In Corporate Governance

Speakers:
Discussant:
Alan Schwartz
Back to full programme

Commitment And Entrenchment In Corporate Governance

Time:
09:00h
- 09:45h

Over the past twenty years, a growing number of empirical studies have provided evidence that governance arrangements protecting incumbents from removal promote managerial entrenchment, reducing firm value. As a result of these studies, “good” corporate governance is widely understood today as being about stronger shareholder rights.

This Article rebuts this view, presenting new empirical evidence that challenges the results of prior studies and developing a novel theoretical account of what really matters in corporate governance. Employing a unique dataset that spans from 1978 to 2008, we document that protective arrangements that require shareholder approval—such as staggered boards and supermajority requirements to modify the charter—are associated with increased firm value. Conversely, protective arrangements that do not require shareholder approval—such as poison pills and golden parachutes—are associated with decreased firm value. This evidence suggests that limiting shareholder rights serves a constructive governance function as long as the limits are the result of mutual agreement between the board and shareholders. We argue that this function commits shareholders to preserve a board’s authority to exploit competitive private information and pursue long-term wealth maximization strategies.

By documenting that committing shareholders to the longer-term matters as much as, if not more than, reducing entrenchment for good corporate governance, our analysis sheds much needed light on issues such as the optimal allocation of power between boards and shareholders, managerial accountability, and stakeholder interests. We conclude by outlining the implications of our analysis concerning the direction corporate governance policies ought to take.

Speakers

Discussants

Professor
Alan Schwartz

Conference Documents

Back to full programme

Contracts versus Institutions: A Critique of Corporate Governance Theory

Time:
09:45h
- 10:30h

While there is no accompanying paper to this presentation, this critique of Corporate Governance theory focuses on some of the following headings:

 

Introduction: What has been Happening?

Carl Fürstenberg‘s view

Conventional Economics: Contract Theory and Governance

The Conventional Approach to Corporate Governance

Contract Theory and Governance

Applications

A Real World Example: Union Bank of Switzerland

A management-focussed interpretation

Why then the Ascendancy of “Market Discipline“

Why in the nineties?

Does it Matter? Challenges for Economic Theory

Challenges for Descriptive Analysis

Implications for Investment Allocations

Normative Concerns

The role of permanence

Mechanisms of governance

The Politics of Corporate Governance

Speakers

Discussants

Conference Documents

10:30
- 10:45

Coffee break

10:45

Session 2: Takeover Defenses - Session Chairman: Professor Bala Dharan

10:45
- 11:30

Price and Probability: Decomposing the Takeover Effects of Anti-Takeover Provisions

Speakers:
Discussant:
Back to full programme

Price and Probability: Decomposing the Takeover Effects of Anti-Takeover Provisions

Time:
10:45h
- 11:30h

This paper decomposes the expected takeover premium from adopting an anti-takeover provision into three components (a causal effect on the takeover probability; a causal effect on the premium paid; and a selection effect) and provides causal evidence on each of those, thus being able to ascertain the contribution of each to shareholder value creation from takeovers.

Using data on shareholder-sponsored proposals to remove an anti-takeover provision voted on in annual meetings of S&P 1500 firms between 1994 and 2013, we extend the regression discontinuity design using the approach in Angrist and Rokkanen (2014) to provide causal estimates that do not rely only on firms around the discontinuity. In order to account for selection in observed mergers we estimate sharp bounds for the causal effect of anti-takeover provisions on the takeover premium (Lee, 2009).

For an average firm, voting to remove an anti-takeover provision leads to a 4.5% higher probability of being taken over and a 2.8% higher expected unconditional takeover premium. We also find evidence that increased competition in takeover contests is one driver of the estimated increased premium for firms that remove an anti-takeover provision. Finally, we show that 53% of the shareholder gains come from the increased probability of a takeover, with also significant shares for selection and premium effects.

Click here to access the Working Paper page

Speakers

Discussants

Conference Documents

11:30
- 12:15

Can Staggered Boards Improve Value? Evidence from the Massachusetts Natural Experiment

Speakers:
Robert Daines
Discussant:
Back to full programme

Can Staggered Boards Improve Value? Evidence from the Massachusetts Natural Experiment

Time:
11:30h
- 12:15h

We study the effect of staggered boards on long-run firm value using a natural experiment: a 1990 law that imposed a staggered board on all firms incorporated in Massachusetts. We find a significant and positive average (and median) increase in Tobins Q for innovating firms, particularly those facing greater Wall Street scrutiny. This increase in value appears to come, at least in part, from increased investment in R&D and capital expenditures and from valuable patents.

Our findings suggest that staggered boards can be beneficial when firms and investors face information asymmetries – when firms are young, innovating, and reliant on R&D.

Click here to access the Working Paper page

Speakers

Robert Daines

Discussants

Conference Documents

12:15
- 14:00

Lunch

14:00

Session 3: Bankruptcy - Session Chairman: Tobias Tröger

Back to full programme

Corporate Leverage and Employee Protection in Bankruptcy

Time:
14:00h
- 14:45h

The seniority of employees’ claims in the liquidation of insolvent firms, and their rights in the renegotiation of their debt varies greatly across countries. We show that the balance between these rights of employees and those of other creditors should affect the leverage chosen by firms.

In a simple model of strategic leverage, employees’ seniority is predicted to increase the positive response of leverage to appreciation of its real estate or an increase in its revenue, while stronger employees’ rights in the renegotiation of corporate debt have the opposite effect. These predictions differ starkly from those that obtain if firms’ leverage is determined by a collateral constraint. To test them, we construct novel measures of employees’ protection in bankruptcy via questionnaires to law firms and other sources, and investigate whether these measures affect the response of firm leverage in a sample of 12,445 companies in 28 countries between 1988 and 2013.

We find that increases in the value of these firms’ real estate is associated with a greater increase in leverage for companies located in countries where employees have stronger seniority in company liquidation and weaker rights in debt renegotiation, as predicted by the strategic leverage model. For a subsample of 928 mining and oil companies, we find a similar differential response of leverage to profitability shocks resulting from changes in the prices of the commodities produced by these companies.

Speakers

Discussants

Conference Documents

Back to full programme

Three Ages of Bankruptcy

Time:
14:45h
- 15:30h

During the past century, three decisionmaking systems have arisen to accomplish a bankruptcy restructuring restructuring—judicial administration, a deal among the firm’s dominant players, and a sale of the firm’s operations in their entirety. Each is embedded in the Bankruptcy Code today, with all having been in play for more than a century and with each having had its heyday—its dominant age.

The shifts, rises, and falls among decisionmaking systems have previously been explained by successful evolution in bankruptcy thinking, by the happenstance of the interests and views of lawyers that designed bankruptcy changes, and by the interests of those who influenced decisionmakers. Here I argue that these broad changes also stem from baseline market capacities, which shifted greatly over the past century; I build the case for shifts underlying market conditions being a major explanation for the shifts in decisionmaking modes.

Keeping these three alternative decisionmaking types clearly in mind not only leads to better understanding of what bankruptcy can and cannot do, but also facilitates stronger policy decisions today here and in the world’s differing bankruptcy systems, as some tasks are best left to the market, others are best handled by the courts, and still others can be left to the inside parties to resolve.

Speakers

Discussants

Conference Documents

15:30
- 15:45

Coffee break

15:45

Session 4 - Session Chairman: Professor Jeff Gordon

Back to full programme

Political Determinants of Competition

Time:
15:45h
- 16:30h

Do political factors affect the degree of product market competition?

To explore this hypothesis we first look at the international variability in PPP-adjusted retail prices. We find a greater variability of international prices in regulated sectors (where the political influence is greater) and lower prices in more democratic countries. To probe deeper we focus on the mobile telecommunication sector. After controlling for differences in market size, we find that the degree of competition is higher in more democratic countries, especially in Scandinavian ones, and lower when the incumbent phone operators have more political connections. We also find some direct evidence of how political power affects the degree of competition through spectrum auctions and antitrust enforcement (or lack thereof).

Not surprisingly, in the mobile sector more competition leads to lower prices. Yet, there is no evidence that it leads to lower quality or less investments, if anything it is the other way around. Finally, we estimate the potential welfare transfer of reduced competition. U.S. consumers would gain $72bn a year if U.S. prices were in line with Danish ones and $32bn if they were in line with German ones.

Click here to access the Working Paper page

Speakers

Discussants

Conference Documents

16:30

End of Academic Sessions

Back to full programme

Panel: The Corporate Governance of Infrastructure

Time:
17:00h
- 18:15h

This panel discussion focused on the topic of: The Corporate Governance of Infrastructure, with Prof. Erik Berglof, London School of Economics, as moderator. The Panelists for this session were: Mr. Gordon Bajnai, Group Chief Operating Officer, Meridiam, and former Prime Minister of Hungary; Prof. Patrick Bolton, Barbara and David Zalaznick Professor of Business, Columbia Business School; Dr. Rajiv B. Lall, Founder, MD and CEO of Infrastructure Development Finance Company (IFDFC) Bank, India.

Moderator

Panelists

19:00

Reception & Dinner - Sjöfartshuset Restaurant

11 June - Day 2

08:15

Registration & coffee

08:45

Introduction - Conference Chairman: Professor Mike Burkart

09:00

Session 1 - Session Chairman: Professor Tan Cheng Han

09:00
- 09:45

Are Foreign Investors Locusts? The Long-Term Effects of Foreign Institutional Ownership

Speakers:
Discussant:
Back to full programme

Are Foreign Investors Locusts? The Long-Term Effects of Foreign Institutional Ownership

Time:
09:00h
- 09:45h

This paper challenges the view that foreign investors lead firms to adopt a short-term orientation and forgo long-term investment. Using a comprehensive sample of publicly listed firms in 30 countries over the 2001-2010 period, we find instead that greater foreign institutional ownership fosters long-term investment in tangible, intangible, and human capital. Foreign institutional ownership also leads to significant increases in innovation output. We identify these effects by exploiting the exogenous variation in foreign institutional ownership that follows the addition of a firm to the MSCI indices. Our results suggest that foreign institutions exert a disciplinary role on entrenched corporate insiders worldwide.

Click here to access the Working Paper page

Speakers

Discussants

Conference Documents

10:30
- 10:45

Coffee break

10:45

Session 2 - Session Chairman: Professor Luh Luh Lan

10:45
- 11:30

Bonded to the State: A Network Perspective on China’s Corporate Debt Market

Discussant:
Back to full programme

Bonded to the State: A Network Perspective on China’s Corporate Debt Market

Time:
10:45h
- 11:30h

A corporate bond market is thought to play an important role as a supplement to bank- oriented financial systems in emerging markets – functioning in effect as a “spare tire.” Yet bond markets typically rely upon a formal institutional foundation that is often lacking in developing economies. China’s corporate bond market is huge, yet scholarly analysis of it is relatively scarce and some of its elements remain poorly understood.

In this paper, we use a network perspective to explore the formation, operation and function of the Chinese corporate bond market. Our effort begins by unpacking the complexities of the market’s structure and formal regulation, which have been shaped by a surprising degree of regulatory competition among the three central government ministries overseeing the issuance and trading of corporate debt instruments. Next, we analyze China’s corporate bond market as a network of relationships – relationships that invariably lead back to the state – and explore the consequences of the state-centric network on the pricing, rating, and default of corporate bonds. The latter have been governed by informal norms protecting issuers from default, but these norms are under considerable stress. We label these norms TBTF (too big to fail); TCTF (too connected to fail), and TMTF (too many Chinese bondholders to fail) and illustrate their operation and limitations with recent examples.

The paper concludes by highlighting some key policy issues raised by our analysis, including the consequences of regulatory competition, the potential role of the bankruptcy system in handling issuer financial distress, and the inter-linkages between the corporate bond market and China’s rapidly expanding shadow banking system.

State centricity has helped the Chinese corporate bond market grow exponentially, from virtually nonexistent fifteen years ago to the third largest in the world today. But state centricity has resulted in an institutionally fragile market. Several consequences of the market’s development along this path, such as concentration of risk in state-linked financial intermediaries, expansion of credit to local state-owned enterprises, growth in the shadow banking system, and the informal resolution of bond defaults, may undermine the spare tire function. The Chinese corporate bond market thus well illustrates both the accomplishments and the limitations of state capitalism.

Click here to access the Working Paper page

Speakers

Discussants

Conference Documents

Back to full programme

Corporate Governance Indices and Construct Validity

Time:
11:30h
- 12:15h

We conduct an exploratory analysis of how researchers can address the issue of “construct validity”, which poses a major challenge to all studies of the effect of corporate governance on firm performance. Many corporate governance studies rely on aggregate governance “indices” to measure underlying, unobserved governance. But we are not confident that we know how to build these indices – often we are unsure both as to what is “good” governance, and how one can proxy for this vague concept using observable measures. These are construct validity questions.

As the basis for analysis, we begin with our prior work, in which we build governance indices in four major emerging markets (Brazil, India, Korea, and Turkey). In that work, we argue that one must build country-specific indices, which use country-specific elements that reflect local norms, local institutions, and local data availability. We show that these similar-but-not-identical indices predict firm market value in each country and when pooled across countries, in firm fixed-effects (FE) regressions with extensive covariates. This approach puts great stress on the construct validity challenge of assessing how well a governance measure matches the underlying concept. We address here what can be said about how well these four country-specific indices, and subindices for aspects of governance such as board structure or disclosure, measure unobserved, underlying actual governance quality.

Click here to access the Working Paper page

Speakers

Discussants

Conference Documents

12:15
- 13:15

Lunch

14:15
- 14:30

Coffee break

14:30

Session 3 - Session Chairman: Gen Goto

Back to full programme

Are CEOs Different? Characteristics of Top Managers

Time:
14:30h
- 15:15h

We use a data set of over 2,600 executive assessments to study thirty individual characteristics of candidates for top executive positions – CEO, CFO, COO and others.

Candidate characteristics can be classified by four primary factors: general ability, execution skills, charisma and strategic skills. CEO candidates tend to score higher on all four of these factors; CFO candidates score lower. Hired candidates score higher than all assessed candidates on interpersonal skills (for each job category) suggesting that such skills are important in the selection process. Scores on the four factors also predict future career progression. Non-CEO candidates who score higher on the four factors are subsequently more likely to become CEOs.

The patterns are qualitatively similar for public, private equity and venture capital owned companies. We do not find economically large differences in the four factors for men and women. Women, however, are ultimately less likely to become CEOs holding the four factors constant.

 

Speakers

Discussants

Conference Documents

15:15
- 16:00

Executive Remuneration Standards and the “Conformity Gap” at Controlled Corporations

Speakers:
Discussant:
Back to full programme

Executive Remuneration Standards and the “Conformity Gap” at Controlled Corporations

Time:
15:15h
- 16:00h

In this paper we analyze the relationship between conformity to executive remuneration standards, corporate ownership, and the level and structure of CEO compensation for large European listed companies in the years 2007 and 2010.

We show that controlled corporations, either family or State owned, conform to executive remuneration standards less than widely held firms. We also show that weaker compliance is associated with lower CEO pay and more “conservative” incentive structures. We interpret this “conformity gap” from the perspective of individual firms and from a societal perspective, with the aim to contribute to frame the policy questions concerning executive pay at controlled corporations.

Different policy implications depend on whether the conformity gap reflects a lower need for managerial incentives, given the monitoring by controlling shareholders, or the latter’s willingness to extract private benefits of control. We argue in this paper that the former hypothesis seems to prevail, so that regulators should abstain from increasing the level of enforcement of executive remuneration standards.

Click here to access the Working Paper page

Speakers

Discussants

Conference Documents

16:15

Session 4 - Session Chairman: Henry Hansmann

Back to full programme

The Responsibility of Business is to Pursue Shareholder Value: True or False?

Time:
16:15h
- 17:00h

Nobel Laureate, Prof. Oliver Hart (Andrew E. Furer Professor of Economics, Harvard University) presents his paper on “The Responsibility of Business is to Pursue Shareholder Value: True or False?” at the 2016 GCGC Conference in Stockholm. Discussion of the paper is then presented by Prof. Michael Klausner (Nancy and Charles Munger Professor of Business and Professor of Law, Stanford Law School).

 

Speakers

Discussants

17:00

Public Draw for 2018, 2019, 2020 Conference Locations

17:15

Drinks & Reception

Speakers

Robert Daines

Presentations

Video: 

Commitment And Entrenchment In Corporate Governance

Back to all presentations

Commitment And Entrenchment In Corporate Governance

Time:
09:00h
- 09:45h

Over the past twenty years, a growing number of empirical studies have provided evidence that governance arrangements protecting incumbents from removal promote managerial entrenchment, reducing firm value. As a result of these studies, “good” corporate governance is widely understood today as being about stronger shareholder rights.

This Article rebuts this view, presenting new empirical evidence that challenges the results of prior studies and developing a novel theoretical account of what really matters in corporate governance. Employing a unique dataset that spans from 1978 to 2008, we document that protective arrangements that require shareholder approval—such as staggered boards and supermajority requirements to modify the charter—are associated with increased firm value. Conversely, protective arrangements that do not require shareholder approval—such as poison pills and golden parachutes—are associated with decreased firm value. This evidence suggests that limiting shareholder rights serves a constructive governance function as long as the limits are the result of mutual agreement between the board and shareholders. We argue that this function commits shareholders to preserve a board’s authority to exploit competitive private information and pursue long-term wealth maximization strategies.

By documenting that committing shareholders to the longer-term matters as much as, if not more than, reducing entrenchment for good corporate governance, our analysis sheds much needed light on issues such as the optimal allocation of power between boards and shareholders, managerial accountability, and stakeholder interests. We conclude by outlining the implications of our analysis concerning the direction corporate governance policies ought to take.

Discussants

Professor
Alan Schwartz

Conference Documents

Back to all presentations

Contracts versus Institutions: A Critique of Corporate Governance Theory

Time:
09:45h
- 10:30h

While there is no accompanying paper to this presentation, this critique of Corporate Governance theory focuses on some of the following headings:

 

Introduction: What has been Happening?

Carl Fürstenberg‘s view

Conventional Economics: Contract Theory and Governance

The Conventional Approach to Corporate Governance

Contract Theory and Governance

Applications

A Real World Example: Union Bank of Switzerland

A management-focussed interpretation

Why then the Ascendancy of “Market Discipline“

Why in the nineties?

Does it Matter? Challenges for Economic Theory

Challenges for Descriptive Analysis

Implications for Investment Allocations

Normative Concerns

The role of permanence

Mechanisms of governance

The Politics of Corporate Governance

Speakers

Discussants

Conference Documents

Video: 

Price and Probability: Decomposing the Takeover Effects of Anti-Takeover Provisions

Back to all presentations

Price and Probability: Decomposing the Takeover Effects of Anti-Takeover Provisions

Time:
10:45h
- 11:30h

This paper decomposes the expected takeover premium from adopting an anti-takeover provision into three components (a causal effect on the takeover probability; a causal effect on the premium paid; and a selection effect) and provides causal evidence on each of those, thus being able to ascertain the contribution of each to shareholder value creation from takeovers.

Using data on shareholder-sponsored proposals to remove an anti-takeover provision voted on in annual meetings of S&P 1500 firms between 1994 and 2013, we extend the regression discontinuity design using the approach in Angrist and Rokkanen (2014) to provide causal estimates that do not rely only on firms around the discontinuity. In order to account for selection in observed mergers we estimate sharp bounds for the causal effect of anti-takeover provisions on the takeover premium (Lee, 2009).

For an average firm, voting to remove an anti-takeover provision leads to a 4.5% higher probability of being taken over and a 2.8% higher expected unconditional takeover premium. We also find evidence that increased competition in takeover contests is one driver of the estimated increased premium for firms that remove an anti-takeover provision. Finally, we show that 53% of the shareholder gains come from the increased probability of a takeover, with also significant shares for selection and premium effects.

Click here to access the Working Paper page

Speakers

Discussants

Conference Documents