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The Latest Research in Corporate Governance: Finance. Joseph K. Tanimura, Ph.D., J.D. Top-Tier Finance Journals. Journal of Business Journal of Finance Journal of Financial and Quantitative Analysis Journal of Financial Economics Review of Financial Studies. Current Areas of Research.

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The Latest Research inCorporate Governance:Finance

Joseph K. Tanimura, Ph.D., J.D.


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Top-Tier Finance Journals

  • Journal of Business

  • Journal of Finance

  • Journal of Financial and Quantitative Analysis

  • Journal of Financial Economics

  • Review of Financial Studies


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Current Areas of Research

  • Litigation and corporate governance

  • Firm performance and corporate governance

  • Responses to bad acquisition bids

  • Cash holdings and corporate governance

  • Labor and corporate governance

  • Determinants of corporate governance


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Litigation and Corporate Governance

  • Class-action lawsuits

    • There is broad agreement that financial fraud leads to significant valuation losses for investors

    • What is the role of reputation in the market for directorships as an incentive mechanism for monitoring fraudulent behavior?


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Class-Action Lawsuits

  • Fich, Eliezer M. and Anil Shivdasani, 2007. Financial Fraud, Director Reputation, and Shareholder Wealth

  • Primary findings

    • Following a financial fraud lawsuit, outside directors do not face abnormal turnover on the board of the sued firm

    • However, they experience a significant decline in the number of other board seats held


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Class-Action Lawsuits (cont.)

  • Helland, Eric, 2006. Reputational Penalties and the Merits of Class-Action Securities Litigation

  • Primary findings

    • There is little evidence of a negative effect associated with allegations of fraud

    • Only in shareholder class actions in the top quartile of settlements, or in which the SEC has initiated a case, do directors appear to suffer a reputational penalty when a board they serve on is accused of fraud


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Litigation and Corporate Governance

  • SEC and DOJ enforcement actions

    • There is broad agreement that financial fraud leads to significant valuation losses for investors

    • Do managers suffer personal consequences for cooking the books?


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SEC and DOJ Enforcement Actions

  • Karpoff, Jonathan M., D. Scott Lee and Gerald S. Martin, 2007. The Consequences to Managers for Financial Misrepresentation

  • Primary findings

    • Most lose their jobs

    • Culpable managers bear substantial financial losses through restrictions on their future employment and SEC fines

    • A sizeable majority face criminal charges and penalties


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Litigation and Corporate Governance

  • Derivative lawsuits

    • Many legal commentators question whether derivative lawsuits serve a useful purpose

    • Do they have positive effects on corporate governance?


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Derivative Lawsuits

  • Ferris, Stephen P., Tomas Jandik, Robert M. Lawless and Anil Makhija, 2007. Derivative Lawsuits as a Corporate Governance Mechanism: Empirical Evidence on Board Changes Surrounding Filings

  • Primary findings

    • Proportion of outside representation on the board increases after a derivative lawsuit

    • Outside representation increases by 6% for successful and by 2% for unsuccessful suits


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Firm Performance and Corporate Governance

  • Operating performance

    • Is stronger corporate governance associated with higher operating performance?

    • What are the different ways in which to measure corporate governance?


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Operating Performance

  • Fich, Eliezer M. and Anil Shivdasani, 2006. Are Busy Boards Effective Monitors?

  • Primary findings

    • Firms with busy boards exhibit lower operating performance

    • A significant relation between performance and CEO turnover exists only when a majority of board members are not regarded as busy


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Operating Performance (cont.)

  • Dahya, Jay and John J. McConnell, 2007. Board Composition, Corporate Performance, and the Cadbury Committee Recommendation

  • Primary findings

    • Compliance with the Cadbury Report results in an increase in operating performance


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Operating Performance (cont.)

  • Core, John E., Wayne R. Guay, and Tjomme Rusticus, 2006. Does Weak Governance Cause Weak Stock Returns? An Examination of Firm Operating Performance and Investors’ Expectations

  • Primary findings

    • Weak shareholder rights are associated with poor operating performance


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Firm Performance and Corporate Governance

  • Stock price effects

    • How does the market react to changes in firms’ corporate governance?

    • Does the market forecast the difference in operating performance based on differences in corporate governance?


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Stock Returns – Event Studies

  • Fich, Eliezer M. and Anil Shivdasani, 2006.

  • Primary findings

    • The departure of a busy outside director that leaves a majority of the remaining outside board members as non-busy leads to an average abnormal return of 2.2%


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Stock Returns – Event Studies (cont.)

  • Dahya, Jay and John J. McConnell, 2007.

  • Primary findings

    • Instances in which companies with fewer than three outside directors announced the addition of enough to get over three are accompanied by a 2-day abnormal return of 0.44%


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Stock Returns – Market Efficiency

  • Core, John E., Wayne R. Guay, and Tjomme Rusticus, 2006.

  • Primary findings

    • Weak shareholder rights are associated with poor operating performance

    • However, analysts’ forecast errors and earnings announcement returns show no evidence that this underperformance surprises the market


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Responses to Bad Acquisition Bids

  • CEO turnover

    • Several studies document a relation between firm performance and CEO turnover

    • Does corporate governance affect the relation between bidder returns and the probability of CEO turnover in acquiring firms?


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CEO Turnover

  • Lehn, Kenneth M. and Mengxin Zhao, 2006. CEO Turnover after Acquisitions: Are Bad Bidders Fired?

  • Primary findings

    • An inverse relation exists between bidder returns and the likelihood of CEO turnover

    • However, this relation is not associated with governance structure


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Responses to Bad Acquisition Bids

  • Corrective action

    • Results of existing studies suggest that investors believe that independent boards are good for them

    • Does corporate governance influence the decision to complete value-decreasing bids or to initiate asset restructuring following completed bids?


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Corrective Action

  • Paul, Donna L., 2007. Board Composition and Corrective Action: Evidence from Corporate Responses to Bad Acquisition Bids

  • Primary findings

    • Firms with independent boards are less likely to complete value-decreasing bids

    • Board independence is also associated with unusually high frequencies of asset restructuring for bids that are completed


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The Latest Research inCorporate Governance