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Agency Conflict and Corporate Strategy: The Effect of Divestment on Corporate Value
Abstract
Among the various stakeholders of a firm, senior managers are the most likely targets for private and public political pressures. Other stakeholder groups are less visible and may be perceived as less influential in corporate strategy formulation and implementation. In some situations, consequently, senior executives may adopt corporate strategies in response to political pressures even if these strategies may be costly to shareholders. In this study, a special case is examined: the effect of divestment of South African business units on firm value. Using data from 1984 through 1990, we examine the impact that announcements of divestments have upon the stock return behavior of publicly traded firms. Our results indicate that significant and negative excess returns accrue to shares of companies announcing divestments of South African operations. These results are supportive of the premise that noneconomic pressures may influence managerial strategies rather than value-enhancement goals. © 1997 by John Wiley & Sons, Ltd.
... According to this view, resources devoted to CSR would be more wisely spent, from a social perspective, on increasing firm efficiency. This theory has been tested empirically by Wright and Ferris (1997), who found that stock prices reacted negatively to announcements of divestment of assets in South Africa, which they interpreted as being consistent with agency theory. ...
The study investigated the use of Community Relations in the implementation of Chevron‘s Global
Memorandum of Understanding in the Niger Delta Region of Nigeria. It seemed that while Chevron‘s
Global Memorandum of Understanding (GMoU) - a stakeholder engagement cum development
framework, which was adopted in 2005, is currently in operation in the Niger Delta region. It appears to
be having disuniting effects on the host communities in the region. The GMoU is a community relations
model which appears not to be working. The study focused on two states in the Niger Delta, namely Imo
and Delta, which have a similar model of the GMoU. Seven research questions and two hypotheses were
formulated to guide the study. The research method adopted for the study was survey. Personal interview
and a questionnaire were the survey instruments used. Data from the survey were analysed in relation to
the research questions and hypotheses stated in the study. The study revealed that Chevron‘s Global
Memorandum of Understanding in Nigeria‘s oil-rich Niger Delta region, though an improvement, in its
development response, did not address most of the crucial, core, age-long and canvassed issues and was
therefore not sustainable. Despite Chevron‘s introduction of the Global Memorandum of Understanding
as a Corporate Social Responsibility response, there is a deep-seated disdain and disenchantment by
people of the Niger Delta over her Corporate Social Responsibility practice. Apart from its inability to
address some age-long issues, other problems of the GMoU model range from perceived insincerity,
corruption, government interference, poor capacity and governance regime of the implementation
committees, absence of an effective implementation framework in the implementation process, as well as
poor funding. There are fears that failure of the GMoU may lead to renewed hostilities in the region,
especially, in Chevron‘s host communities; since the GMoU was her only Corporate Social Responsibility
response in the region. The study therefore recommends that a review of the model is necessary, with a
view to filling the identified gaps. This has to be done with the full co-operation and participation of all
stakeholders, especially, the oil bearing communities. This should lead members of the host communities
to see Chevron and other oil companies in the area as partners in progress in the development of their
communities.
... Whether CSR practices help firms improve their performance is under debate (Mackey et al., 2007). Previous literature finds the relationship inconclusive, such as no relationship (McWilliams & Siegel, 2000), a positive relationship (Waddock & Graves, 1997), and a negative relationship (Wright & Ferris, 1997). On the one hand, CSR may lead managers to pursue personal value, causing agency costs and deteriorating firm value (Masulis & Reza, 2015). ...
This paper shows that local institutional shareholders tend to improve firm performance through corporate social investments. Using an extensive U.S. mutual fund-firm dataset, we find that local mutual funds tend to promote corporate social responsibility (CSR). In addition, the social investments are positively associated with firm performance. Finally, it is evident that CSR mediates the relation between local ownership and firm performance. Consistent with instrumental stakeholder theory, our findings suggest that local shareholders help firms develop reputational and relationship capital through CSR and lead to higher firm performance.
... CSR concepts have now been founded on principles that emphasize on doing the proper things to foster admirable social order and atmosphere (Freeman 1984 andMurray et al., 2007). There are various CSR theories, including those proposed by "Friedman (1970"Friedman ( -2007; Jones Khan et al., 2017 andWrigh andFerris (1997)". They claimed that the social issue of used CSR implementation was allegedly associated to the agency theory or was properly marked as the personal interest of management and controlling shareholders. ...
The critical study in vogue spells out the relationship between CSR and an established firm's financial performance. The study sample size is the CSR Award-winning companies of Pakistan. We have scientifically derived this research on CSR activities which are not directly affecting a firm's revenue, sales, operations, etc. The results interpreted that Award-winning-firm policies of CSR received an encouraging impact on Companies' financial performance, productivity, routine operations, and social policies. The contemporary study results invariably find that the best Award-winning CSR company's social legislation properly obtains meaningful contribution on social CSR activities since CSR (-1) merely enjoys a linear relation with CSR.
... Research has been widely conducted in order to explore the relationship between corporate financial performance and ESG factors Chen Z. & Xie G., 2022;Zhang D., 2020;Zhang D., 2022;Fernandes et al., 2024), exploring how sustainability can 8 influence organizations' performance, either positively or negatively (Wright P. & Ferris S., 1997) understanding that ESG factors are embedded in the field of Corporate Social Responsibility (RSC). The effect of disclosure of ESG information is controversial when associated with the financial performance of companies. ...
Objective: The aim of this study is to analyze if the practice of Greenwashing is related to the level of financial constraints of companies in the capital market. Theoretical Framework: This section presents the main concepts and theories that underpin the research. Relevant theories, models, or frameworks are highlighted, providing a solid foundation for understanding the research context. Method: To achieve this objective, this research proposes an econometric model that seeks to relate variables representing financial constraint conditions to the Greenwash score. For this purpose, financial data from 3,574 companies from 21 countries were analyzed for the period between 2016 and 2022. The proposed model in the research was analyzed through multiple linear regression with panel data. Results and Discussion: The results obtained allow inferring that the variables used to capture the level of financial constraint of companies are significantly related to the practice of Greenwashing. However, the Financial Risk and Debt Cost variables were negatively associated with the Greenwash score, showing a relationship with the dependent variable diverging from what was expected. Research Implications: The results of this research allow inferring for the analyzed sample that the practice of Greenwashing is impacted by the financial constraint situation of companies. Such a result can contribute to academic studies on best ESG practices and provide support for improving market monitoring regarding the manipulation of Corporate Social Responsibility actions by companies. Originality/Value: This study contributes to the literature by expanding the analysis of Greenwashing practice to a significant and representative sample of companies in relation to the largest global economies. The relevance and value of this research are evidenced by evaluating aspects of corporate management beyond financial ones, relating environmental and social aspects to the financial risks of companies in the capital market.
... Firm performance is one of the most important topics being debated in the financial and business literature and attracts many scholars in the research field as well as managers and investors. Also, for any firm, the most important goal is normally maximizing firm value, which reflects the firm's market share maximization or is also understood as maximizing shareholder wealth (Fama, 1978, Wright and Ferris, 1997, Walker 2000, and Qureshi, 2006. This most important goal can be achieved by efficiently implementing the financial management system and through the making of cautious and precise decisions by managers (Jensen andSmith, 1994, Fama andFrench, 1998). ...
Managerial overconfidence plays an important role in firm performance. It is stated that the greater the overconfidence level of managers, the higher risk, and the greater the probability of loss in firm value. It is also supported by evidence that overconfident managers tend to hold less cash, hence increasing the risk of getting a lower firm performance. Interestingly, the empirical evidence from this study indicates a different result whereby managerial overconfidence is shown to have a positive impact on firm value, however, firms with the combination of both managerial overconfidence and low cash holdings tend to have a worse firm performance than others. The result is illustrated through empirical research from a sample size of 648 listed firms on the Vietnamese stock exchange market.
... The nature of this link has been a subject of long-standing debate and remains an open question (Grewal et al., 2019;Griffin and Mahon, 1997;Margolis and Walsh, 2003;McWilliams and Siegel, 2000;Orlitzky et al., 2003;Ullmann, 1985). Some believe that CSR engagement negatively affects a firm's financial performance, owing to the additional costs it brings (Donaldson and Preston, 1995;Friedman, 1962Friedman, , 1970Jensen, 2002;McWilliams and Siegel, 1997;Wright and Ferris, 1997). Conversely, others argue that CSR can attract essential resources, such as a positive corporate image and skilled employees, which may ultimately improve a firm's financial performance (Barnett and Salomon, 2012;Cochran and Wood, 1984;Freeman, 1984;Jones, 1995;Posnikoff, 1997;Waddock and Graves, 1997). ...
The study seeks to enhance the current understanding of how corporate social responsibility (CSR) and environmental,
social, and governance (ESG) factors influence firm performance. We establish a theoretical framework
and provide empirical data on the influence of CSR/ESG on the sustained financial performance of publicly
traded Fortune 500 companies between 2018 and 2021. Our model explains the way CSR/ESG activities affect a
firm’s ongoing financial success by revealing valuable signals to stakeholders. We employed quantile regression
analysis to assess the connection, and found that a firm’s CSR/ESG initiatives have both immediate and lasting
long-term effects. Our findings contribute to and expand the literature on firm performance and sustainable
competitive advantage. Companies adopting CSR/ESG can enhance a firm’s performance and attain a sustainable
competitive advantage.
... The results of these studies confirm a positive relationship, some negative, and some found no relationship. A negative relationship resulted for example from the work of authors Wright and Ferris (1997). Posnikoff (1997) found a positive relationship, while Teoh, Welch, and Wazzan (1999) argue that there is no relationship between CSR and financial performance. ...
Corporate SCorporate Social Responsibility (CSR) has been forming very dynamically and intensively for several decades. The rapid development, as well as the relatively large scope of this concept, which is cross-sectionally related to a number of different social disciplines, so far causes a very significant terminological inconsistency. The paper focuses on the relationship between CSR and the financial performance of companies, or on the positive consequences of applying the concept of CSR in business on the example of a selected company Deutsche Telekom AG, which applies CSR in its business and which achieves positive results not only from this point of view, but also from the point of view of company profitability. When analyzing the company from the point of view of the global market, it quantitatively monitors the impact of the measured indicators on the profitability of total assets (ROA) and on net profit, by testing the basic assumptions made on the classical linear regression model. The main goal of the paper was to find out the impact of CSR on the financial results of the parent company Deutsche Telekom AG for the period 2001-2021 and to find the relationship between CSR and economic benefits.
... The balance sheet approach assesses a company's value based on its assets, while the market approach takes into account metrics like market capitalization and the market value of debt minus cash on hand [28]. Furthermore, the capital structure of a company plays a significant role in determining its valuation, as outlined by [29], with valuation often relying on proxies such as stock values [30]. Additionally, the value of a company is closely intertwined with shareholder profits in relation to stock movements [31]. ...
One indicator that shows how effective and efficient a company is in achieving its goals is its financial performance. Maintaining and improving financial performance is mandatory for a company to continue to exist and attract investors. This financial information functions as a means of information, a tool for management accountability to business owners, a representation of company success indicators, and consideration for decision making. Tobin's Q is an indicator that can be used to measure a company's financial performance from an investment perspective. The aim of this research is to find out the conditions and determinant factors in analyzing financial performance in consumer cyclical companies for the 2015-2022 period. The research method uses dynamic panel data regression with the Arellano-Bond Generalized Method of Moment (GMM) approach on 24 consumer cyclical sector companies from 2015 to 2022 listed on the BEI. The research results show that partially the company value in the previous period (Tobin’s Q(-1)) has a significant positive effect and can be backward looking towards achieving high and sustainable company value (Tobin’s Q) in the next period. Profitability (ROA) has a significant positive effect on company value (Tobin’s Q). This shows the company's prospects for sustainability in the future.
... Event risk covenants in bond contracts can lower the agency costs of debt (Bae et al. 1994), but, nonetheless, the concept of debt overhang is well-established in the literature and has been demonstrated to exist even when firms have the flexibility of choosing both the timing and the size of investments (Nishihara et al. 2019). There is even evidence that noneconomic pressures influence managerial strategies rather than value-enhancing goals (Wright and Ferris 1997). There are ways to mitigate agency costs, such as compensating managers with firm shares or stock options (Jensen and Meckling 1979), implementing internal financial controls (Qi et al. 2017), and incorporating CSR-contingent executive compensation (Li and Thibodeau 2019). ...
This paper examines the determinants of bond issuance in the Chinese market and the influence of capital structure—in particular direct debt finance—on firm performance and the cost of debt. The results reveal that institutional factors in the Chinese market, in particular the involvement of the financial authority permission process during bond issuance, enhance the credibility of firms that are able to successfully issue bonds. Empirical analysis of Chinese listed manufacturing firms over the period from 2010 to 2021 demonstrates that firms with higher outstanding levels of bonds perform better and face lower costs of both bond and nonbond direct finance. We interpret this as bond issuance approval serving as a signal to markets of an implicit government guarantee on firms that are approved to issue bonds. The agency problem is analyzed using propensity-score matching and Logit analysis, revealing a trade-off between the principal–agent conflict and conflicts of interest among different shareholders when power is very concentrated through CEO duality: the CEO simultaneously serves as the chairman of the board. In large firms, as measured by total assets, the cost-reducing effect of the principal–agent problem being mitigated by CEO duality outweighs the agency costs arising from conflicts of interest between large and small shareholders, leading to an increased likelihood of successful bond issuance. However, in large firms, as measured by market capitalization, where share ownership is likely more diversified, this effect diminishes. In conclusion, this paper posits that policymakers ought to investigate strategies for granting preferential treatment to high-growth, small to mid-sized enterprises, enabling them to secure funding through direct debt financing.
... The specification tests confirm the fixed effect model (FEM), is an appropriate method for regression analyses. Research on CSR disclosures and financial performance association have revealed positive and mixed findings, [57], [58], and negative, [59], whereas, few studies have revealed a neutral relationship, [60], [61]. On the same pattern, various research works found a positive relation between CSR disclosures and long-term profitability, [62], [63]. ...
This study aimed to find out the impact of a paradigm shift in corporate social responsibility on corporate financial performance. Developing an inclusive and prosperous society needs to reformulate the business-society nexus concerning social responsibility. Corporations are supposed to not only on economic priorities but on societal and environmental implications as well. In the present scenario business organizations must divert the profits to social obligations like medical & and education facilities, hunger & and poverty eradication, a pollution-free environment, and equality of gender. The government has been following constructive initiatives to formalize corporate responsibility toward society from voluntary guidelines to legal obligations. Keeping in view the historical legal reforms, the present study focuses on the empirical analysis of the association between CSR disclosures and corporate financial performance among Indian companies after the enactment of the amended Companies Act. The analyses highlight that companies’ CSR disclosures have a significant impact on their financial performances. The findings of the study are consistent with earlier research, where the CSR disclosure and financial performance relationship is positive. Several companies are engrossed in social obligations towards external and internal stakeholders, as spending on social responsibilities will ensure good financial health. The current research imparts empirical support as well as theoretical support and motivation for the corporate sector towards CSR initiatives.
... Some studies have found a positive relationship between CSR and a firm's performance (e.g., Cornett et al., 2016;Nguyen et al., 2017). However, other studies have suggested an inconclusive or negative relationship between CSR and firm performance (e.g., Wright & Ferris, 1997). In addition, in recent times, there has been significant focus on the relationship between CSR and risk. ...
The research on corporate social responsibility (CSR) has taken on particular importance in the current banking literature. This literature focused on the direct effect of CSR on bank performance. However, this study fills this gap by examining the relationship between CSR and Islamic bank stability (IBS). More specifically, it examined, on the one hand, the non-linear relationship between CSR and IBS and, on the other hand, the moderating effect of governance practices (Sharia supervisory board, governance structure, institutional quality) on CSR-IBS nexus. To do this, we selected a group of 43 Islamic banks operated in Gulf Cooperation Council countries over a period from 2012 to 2020. The results obtained using the System GMM method showed that there is a U-shaped relationship between CSR and IBS. Furthermore, they revealed that governance practices have a moderating effect on the relationship between CSR and IBS. Our findings indicate that the combination of corporate social responsibility and governance practices enhances IBS, but a bank risk could occur due to weak governance practices. These findings are likely to be useful for managers, policymakers, and stakeholders. Managers should prioritize CSR aligned with core objectives, enhancing reputation and stability, while a balanced approach is recommended to avoid financial risks. GCC policymakers should encourage CSR in line with national development goals, incorporating responsible practice indicators and appropriate governance standards to ensure stable operations. Stakeholders should consider a moderate level of CSR to enhance trust, returns, industry resilience and employee satisfaction, adapting the implications for sustainable banking stability.
... Studies to date suggest that a stronger regulatory environment reduces the discrepancy in the information available to managers and investors and allows investors to make better investment decisions (Healy & Palepu, 2001;Shima & Gordon, 2011;Watts & Zimmerman, 1986), whereas a poor/weak regulatory environment encourages managers to use CSR to pursue their own social, political, or career objectives increasing friction between managerial and shareholder objectives (Barnea & Rubin, 2010;Wright & Ferris, 1997). In this regard, if overstating CSR is considered a form of misleading advertising (Delmas & Burbano, 2011) that generates information asymmetry between management and stakeholders (Crilly et al., 2012), the quality and enforcement of the regulations regarding wrongdoing become crucially important for reducing the information gap, permitting firms to be valued more accurately. ...
This study examines the effect of corporate social responsibility (CSR) decoupling on firm value across firms that understate versus overstate CSR. We also analyze the moderating impact of a firm's regulatory environment on the relationship between CSR decoupling and firm value. Using longitudinal analysis across 20 developed countries for the period 2008–2016 and employing a Bayesian item response theory method to measure CSR performance, we find that overstating CSR increases firm value whereas understating CSR decreases firm value. Our results also show that firms that overstate their CSR saw a reduction in firm value when the regulatory environment is included as a moderator.
... El asunto de la Responsabilidad Social Empresarial, ha sido debatido en varios aspectos; ya que desde la década de los años setenta hasta ahora se ha intentado hallar la relación entre la Responsabilidad Social y las empresas; por lo que ha sido estudiada tanto desde el ámbito empresarial como desde el académico y sus enfoques son variados (Wright y Ferris, 1997). La mayoría de las empresas ha practicado durante mucho tiempo algún tipo de responsabilidad social y ambiental con el objetivo, simplemente, de contribuir al bienestar de las comunidades y de la sociedad a la que afectan y de la que dependen. ...
... These agency conflicts can effect strategic decisions in numerous ways. Insiders (mangers) can effect divestiture choices to guard their position (Wright & Ferris, 1997), dividend policy (Easterbrook, 1984;Lang & Litzenberger, 1989), firm rearrangement (Johnson, Hoskisson, & Hitt, 1993;Bethel & Liebeskind, 1993), diversification strategy (Agrawal & Mandelker, 1990;Hill & Snell, 1988;Amihud & Lev, 1981;Kroll, Wright, Toombs, & Leavell, 1997) and anti-takeover attitude (Stulz, 1988). A most significant strategic choice on which success and development of business is dependent is risk taking strategy; it is also under the control of management because in above stated situation they are in strong position to take decision to reinforce themselves in the company. ...
Ownership structure has a substantial impact on corporate decision-making and plays a significant part in the corporate governance framework. Ownership structure can accomplish a significant purpose in aligning interest of managers and owners. The legal protections provided to shareholders in a country have a significant impact on ownership concentration. From 2008 to 2018, data on 225 non-financial companies were obtained from the Pakistan Stock Exchange in order to analyze the effects of ownership concentration on business risk-taking and performance. Results postulated that Single large shareholder negatively affect corporate risk taking in act to preserve their personal benefits and support conservative investment policy. Presence of Multiple large shareholders proved to be a significant cause of internal governance mechanism, such firm’s charades higher risk taking profile because agency conflict between Single large shareholder and other shareholders were unfriendly and multiple large shareholders can enforce value exploiting risky investments by their voting power. Individual ownership (diffused ownership) is significantly negative associated with risk taking and performance measures. Diffuse ownership imparts power to managers because disperse owners cannot directly monitor managers’ practices and monitoring cost is very high. In such case mangers take those decisions which are in their personal favor and therefore favor low risk portfolio. Multiple conflicts between management and diffuse shareholders ultimately results in poor performance of the firm.
... Several studies followed the stakeholder theory and found a positive correlation between financial performances and CSR activities (Frederick, 1994;Freeman, 1984;Wright & Ferris, 1997). In the same way, Bartlett and Preston (2000) and Wood (1984), concluded that socially responsible business activities reduce conflicts between stakeholders and firms, which ultimately improve the financial performance of firms. ...
Businesses that contribute to social welfare and development are regarded as reliable and generate more wealth for their stakeholders. This study attempts to determine how corporate social responsibility (CSR) and environmental protection measures influence the financial performance of Indian businesses. A panel dataset containing 330 Nifty 500 companies is included to determine their relationship. The quarterly and semi‐annual share prices are employed as proxies for the financial performance of companies. In the regression model, the lagged share prices (log) of two periods serve as the response variable, while the CSR and the CSR plus the environment and pollution control expenses (CSREP) serve as explanatory variables. The results suggest that the fixed‐effect regression model is suitable where the explanatory variables are time‐invariant and the relationship between the dependent and explanatory variables across firms is constant over time. Our analysis indicates that CSR spending alone has little effect on the share prices of companies over two prospective time periods. However, as companies invest more in environmental and pollution control activities in addition to their CSR expenditure, the market recognises this as a significant factor, and their share prices rise. Consequently, we discovered that CSREP (CSR plus environmental and pollution control expenditure) is a significant factor that influences quarterly and semi‐annual share prices.
... A body of research, including studies by Clacher and Hagendorff [12] and others [12,13,44], suggests a lack of positive association or even a negative relationship between CSR performance and firm financial performance. Specifically, Clacher and Hagendorff [12] did not observe strong evidence supporting a positive or negative relationship between CSR performance and the financial performance of UK firms. ...
We examine the longitudinal relationship between corporate social responsibility (CSR) performance and financial performance by investigating attributes among firms operating in different industry sectors longitudinally. Using panel regression analysis on Australian publicly listed firms from 2007 to 2021, we find that CSR performance positively influences financial performance. Furthermore, our industry-specific analysis uncovers notable distinctions. Specifically, within the consumer product markets, including recreational facilities, travel and tourism, lodging, dining, and leisure products, firms benefit from stakeholder rewards for their CSR efforts, leading to sustained financial gains. However, this positive association is absent for firms operating in industrial product markets, where stakeholders do not offer similar rewards for CSR performance. The significance of stakeholder engagement becomes evident in consumer market sectors, as firms with higher levels of CSR performance secure stakeholder support, resulting in superior long-term financial performance. Our findings contribute to the existing CSR literature and offer practical insights and implications for managers operating in diverse product market industries, including the dynamic field of tourism and hospitality seeking to harness CSR performance, meet stakeholder expectations, and achieve financial advantages.
... In academics, researchers have also begun to study CSR-related issues, including strategic, economic, and financial aspects. Much literature also uses the role of stakeholders to explore the value of CSR (Donaldson and Preston, 1995;Freeman, 1984) or how CSR affects financial performance (McWilliams and Siegel, 2000;Ramchander et al., 2012;Waddock and Graves, 1997;Wright and Ferris, 1997). In addition, some scholars have also investigated the impact of CSR on the capital market, such as the impact on risk (Jo and Na, 2012;Wu and Hu, 2018) and the impact on capital costs (El Ghoul et al., 2011, Wu et al., 2014. ...
Corporate social responsibility (CSR) has drawn much attention from society and has become an important issue in the market, such as corporate governance, employee protection, and environmental protection. However, firms are not asked to issue CSR reports compulsorily in Taiwan. Moreover, the electronics industry has played an important role in Taiwan's industry. Therefore, this study employs the behavioral theory of the firm to examine what kinds of firms are willing to publish the CSR report. We use the listed firms in the electronic industry from 2005 to 2017 as our sample and build the logit and probit model to investigate the relation between five situations firms faced and the intention of CSR report disclosure. The results show that firms with higher performance gaps are more likely to issue CSR reports. When the performance exceeds the target, the firm is more willing to give a CSR report. Similarly, the firm is more inclined to issue a CSR report when there is a smaller gap between performance and target in a negative performance gap. The firm with more potential slack, higher survival distress, less competitive pressure, and lower bankruptcy threat is more willing to issue a CSR report.
... Consequently, SRIs and CSP have gained attention among professionals, private investors, researchers and local governments. On this premise, although several studies have attested to the capability of a CSP-screened portfolio to reduce social investors' risk, allowing them to outperform (Kempf and Osthoff, 2007;Waddock and Graves, 1997), researchers still show contrasting findings regarding this relationship (Margolis and Walsh, 2001;Ullmann, 1985;Wright and Ferris, 1997). Indeed, Oikonomou et al. (2012) found a negative but non-significant association between CSP commitment and systematic risk, while socially irresponsible behavior is positively linked to systematic risk regarding Standard & Poor's (S&P's) 500 companies. ...
Purpose
This study aims to explore the impact of controversial firms’ corporate sustainability assessments on their risk exposure according to the environmental, social and governance (ESG) paradigm.
Design/methodology/approach
This study conducts a cross-sectional study using the ordinary least squares approach to test how corporate social responsibility practices affect firms’ risk exposure, testing the three single impacts of ESG components and the impact of an overall ESG assessment. This study considers the largest Standard & Poor’s (S&P) 500 stock market index companies and focus on a double-risk measurement – systematic and idiosyncratic – developing an empirical study on 132 controversial companies listed on the S&P index.
Findings
Empirical findings indicate that the overall ESG assessment and the environmental and social sub-dimensions decrease idiosyncratic firm risk. At the same time, no significant results are found according to the systematic risk component.
Originality/value
This study fits into the domain of risk management research, investigating whether additional and non-financial disclosures regarding sustainability issues decrease information asymmetries, improving investors’ decision-making and stakeholders’ relations. Prior literature has shown limited evidence on the relationship between corporate social performance (CSP) and firm risk based on controversial companies. The main contribution is to consider the controversy as an independent factor from the industry sector, given that the implications of CSP actions and practices are mainly firm-specific.
... Numerous scientific findings support this idea. Wright and Ferris (1997), for instance, evaluated the influence of divestment on South African stock market gains. ...
This paper investigates the relationship between corporate social responsibility and the financial performance of Ghana's publicly listed financial institutions. Twelve listed financial institutions on the Ghana Stock Exchange (GSE) provided secondary data during a 10-year period (2010-2019). The data were examined using descriptive statistics, correlation matrix, rotated factors, factor score efficiency, and regression results. Corporate social responsibility (CSR) has a favourable effect on profitability and stock returns, according to the data. This demonstrate that while CSR enhances businesses' capacity for financial success, it should not be viewed as an optional activity but rather be included in long-term business strategies. The study recommends management of financial institutions to ensure CSR activities are formally inbuilt into their policy statements and backed with an effective budget. The study further recommends more publicity be given to CSR programs undertaken by financial institutions to assist them get the needed potential benefits in enhancing their ROE and ROA. This study serves as a guide for policymakers and reference for future research on the effect of CSR on company performance in Sub-Saharan Africa. K E Y W O R D S corporate social responsibility, panel data, profitability, stock returns
... The responsibility includes a responsibility for the natural environment; decisions should be taken in the wider interest and not just the narrow shareholder interest (Tutor 2u.net). According to Wright and Ferris (2017), stakeholder theory is based upon the assertion that maximizing wealth for shareholders, which fails to maximize wealth for society and all its members and that only a concern with managing all stakeholder interest. Stakeholder theory states that all stakeholders must be considered in the decision making process of the organization. ...
Aim/purpose-This paper examines the mediating role of corporate governance and firm value as it relates to determinant of persistent crises in the Nigeria insurance sector. Design/methodology/approach-The design adopted for this research is the ex-post facto. The study made use of secondary data collected from the fact book of the NSE and websites of the selected insurance firms. Data collected was for both corporate governance and firm value variables. The data collected was analysed using both descriptive and inferential statistics (Ordinary Least Squares) via the Statistical Package for Social Sciences (SPSS). Finding-The study provides evidence that corporate governance of firms in Nigerian insurance firms has significant impact on the firm value as measured by their return on investment. Recommendations-The study recommends that everyone should be carried along, there should be friendly ties between the boards of the insurance, the management, and the shareholders. Below standard corporate governance tactics by Nigerian insurance should not be tolerated by the government or regulators like the NAICOM. To guarantee that all stakeholders' interests in the Nigerian insurance sector are constantly protected, the national insurance commission should conduct its interactions with the insurance firms in a fair and transparent manner.
... McWilliams, Siegel & Teoh (1999), Meznar, Nigh & Kwok (1994), Ngassam (1992) as well as Wright and Ferris (1997) reported political divestiture to be associated with shareholder wealth loss. ...
... Research conducted by scientists to identify the relationship between financial performance and the level of corporate social responsibility has had very different results. A review of the literature has revealed that the absence of such a relationship or its zero value has been repeatedly found in studies of the last century, for example, Wright, Ferris (1997) & Teoh, Welch & Wazzan (1999). Since the 2000s, Nakao, Yuriko, Akihiro, Amano, Kanichiro, Matsuma, Kiminori Genba, & Makiko, Nakano (2007), King & Lenox (2001) have found a close statistical relationship between the level of environmental responsibility of companies and the size their profits. ...
Successful economic activity of companies in the field of agribusiness requires consideration of the most important for current and future generations issues of environmental, social and economic security of social development. The implementation of the principles of sustainable development in practice requires appropriate information and analytical support provided by corporate non-financial reporting of economic entities. The purpose of the article is to substantiate the methodological principles of building a corporate architecture of reporting on sustainable development of Ukrainian agricultural companies and assess the degree of impact of such reporting and the cost of agribusiness. The analysis of the current level of sustainable development of agriculture in Ukraine has shown the existence of significant problems and deterioration of environmental, social and economic components of the industry. The proposed architecture of sustainable development reporting of Ukrainian agricultural companies should be built in the system of agro-industrial complex, as part of the national concept of sustainable development of the national economy. The implementation of the architecture of reporting on sustainable development in practice requires supplementing the methodological basis of the conceptual basis of reporting, which was done in terms of its key qualitative characteristics. The assessment of the degree of impact of corporate reporting on sustainable development on the financial results and value of agribusiness showed the presence of close direct links in large agricultural holdings and uncertainty in medium and small agricultural companies. The main problem was the low motivation of the management of medium and small agricultural companies in Ukraine to participate in sustainable development programs. The results convincingly show that corporate reporting on sustainable development as an element of meeting the needs of internal and external users and potential investors is an important component of corporate responsibility of modern agribusiness in Ukraine and improves reputational, financial, economic and socio-environmental performance
... From a theoretical point of view, the neoclassical theory suggests that the relationship between ESG and financial performance is uniformly negative [19]. The underlying and reasonable assumption is that the returns of ESG activities do not exceed their costs and, as [20] points out, the maximization of owners' profits is the firm's only social responsibility. ...
The main objective of this research is to shed more light on how ESG may be seen as a valuable investment for family firms. We study the impact of ESG performance on the value of family firms by considering the moderating role played by financial constraints and agency costs. Using an international sample of 254 firms that belong to the 500 largest family-owned firms worldwide over the period 2015–2021, we report that the overall ESG score is positively associated with firm value. Among the three ESG components, we find that environmental and social performances have a positive and statistically significant impact on firm value. However, we find no evidence of any significant effect of governance score on firm value. More importantly, we also find that the impact of ESG performance on firm value is lower under the presence of financial constraints and agency costs.
ABSTRACT
This study investigates the impact of board competency and ownership
structure on firm performance, using data from 80 (800 firms-year) non-financial
firms listed in Muscat Securities Market of Oman between 2003 and 2012. Oman
business environment is surrounded by issues like incompetent board members, poor
internal controls, ownership concentration and several incidences of fraud that lead
to corporate failures. Furthermore, since the issuance of corporate governance code
in 2002, there has not been any rigorous study that evaluates the impact of code
adoption on firm perormance. In this study, board competency has been assessed
using two approaches, a composite-index approach and an individual variable
approach where the impact of each of the components of the index on firm
performance is examined. This study uses seven performance metrics covering firm
profitability, firm short-term liquidity, firm market value and firm risk of failure.
Descriptive statistics reveal that since the issuance of corporate governance code in
2003, the board competency has been enhanced. The multivariate regression results
of board competency index (BCI) confirm the hypothesis that there is a positive and
significant relationship between BCI and firm performance. Findings of the
individual variable model reveal several novel results; firms with board comprises of
8 to 10 directors is more profitable, they enjoy better short-term liquidity and are in a
secure zone from corporate failure. Findings also indicate a negative and significant
impact of directors' absence and having more than 4 multiple directorships
concurrently on firm performance. This study also discovers that firms having 33%
or more independent members perform better. With regard to ownership structure,
the study shows that institutional investors have a positive impact on firm
profitability and firm‘s short term liquidity, whereas firms with government
ownership display more resilience to corporate failure. Surprisingly, firms that
receive more soft government funds are found to be less profitable and more
susceptible to corporate failure. The outcomes of various tests for robustness and
sensitivity propose that empirical results are vigorous. This study has important
implications to corporations in strengthening their corporate govenance and attaining
cost reduction by eliminating unnecessary corporate governance mechanisms. Policy
makers and regulators can use these findings to issue regulations that may have a
positive impact on firm‘s performance. Results gained also provide more avenues for
further research.
Purpose
Over the past years, business strategies have been designed to improve ‘firms' financial and non-financial performances and achieve sustainable development, leading to corporate sustainability. This article is a bibliometric analysis of two decades of the relationship between corporate sustainability and firm performance, identifying the research focus and the gaps for future research.
Design/methodology/approach
The bibliometric review of corporate sustainability and performance research is between January 2004 and June 2023. As per the Web of Science database, the theme's research commenced around 2004, growing gradually till 2023. Five hundred thirty-nine published articles by peer-reviewed ABDC-indexed A and A* journals in English have been reviewed. The bibliometrix package in R software is used with VOSviewer for the bibliometric analysis.
Findings
The study's findings indicate a lack of research on the theme from developed and underdeveloped nations. Further, the analysis reveals five clusters of research: (1) business sustainability, (2) corporate sustainability reporting, (3) corporate sustainability, strategy, and innovation, (4) stakeholder and corporate sustainability, and e) corporate sustainability assessment.
Originality/value
The future research areas proposed are on two major themes, namely, corporate sustainability and organizational competitive advantage, including sub-themes such as “Environmental, Social, and Governance (ESG) and financial performance” and “greenhouse-gas emissions” and “market orientations,” respectively. There is a need for more research in developing markets, a comprehensive definition of corporate sustainability, and further exploration of the theme linking strategy and innovation.
Penelitian ini bertujuan: untuk mengembangkan dan menganalisis pengaruh dari struktur kepemilikan terhadap kebijakan deviden dan nilai perusahaan pada perusahaan manufaktur yang terdaftar di bursa efek Indonesia. Hasil penelitian menunjukkan bahwa variabel kepemilikan manajerial terhadap kebijakan deviden berpengaruh positif dan signifikan sebesar 3,005 dengan nilai t sebesar 0,617 dengan standar Error (SE) senilai 4,874 pada taraf signifikansi 0,537 dan nilai perusahaan sebesar 0,048 dengan nilai t sebesar 1,079 dengan standar Error (SE) senilai 0,045 pada taraf signifikansi 0,281. Kepemilikan institusonal terhadap kebijakan deviden berpengaruh negative sebesar -1,497 dengan nilai t sebesar -2,981 dengan standar Error (SE) senilai 0,502 pada taraf signifikansi 0,003 dan pada nilai perusahaan sebesar 0,064 dengan nilai t sebesar 2,990 dengan standar Error (SE) senilai 0,021 pada taraf signifikansi 0,003. Sedangkan kebijakan deviden terhadap nilai perusahaan berpengaruh positif dan signifikan sebesar 0,025 dengan nilai t sebesar 37,398 dengan standar Error (SE) senilai 0,001 pada taraf signifikansi 0,000. Hasil penelitian ini mengindikasikan bahwa saat proporsi kepemilikan manajerial dan institusional meningkat maka akan diikuti oleh penurunan pembayaran deviden namun akan meningkatkan nilai perusahaan.
Shareholders generally want a relatively stable dividend distribution because it reduces uncertainty about the expected returns from the investments they make. It can also increase shareholder confidence in the company so that the share value can also increase. This study aims to obtain empirical evidence of the effect of dividend policy on firm value and the ability of profitability and leverage variables as moderating variables. The approach used in this research is a quantitative approach in the form of causality. The location of this research was carried out on the Indonesia Stock Exchange in manufacturing companies listed during 2017-2019. The sampling method used in this study was a saturated sample and obtained 15 manufacturing companies that distributed dividends in a row during 2017-2019. The data were then analyzed using a moderated regression analysis test. The results of the study explain that the dividend policy variable has no effect on firm value, the leverage variable as a moderating variable strengthens the effect of dividend policy on firm value and the profitability variable is not able to moderate the effect of dividend policy on firm value
Objetivos: Determinar el efecto de la Responsabilidad Social Empresarial sobre la rentabilidad empresarial, medida por los indicadores de desempeño financiero: rentabilidad de los activos y rentabilidad del patrimonio, de mil empresas colombianas de seis sectores económicos: agropecuario, comercial, construcción, manufacturero, minero y servicios. Métodos: La metodología utilizada es cuantitativa y los métodos usados para el procesamiento de los datos son los de Mínimos Cuadrados Ordinarios y por errores robustos para corregir problemas de heterocedasticidad, y de Mínimos Cuadrados Generalizados Factibles. Resultados: El efecto de la Responsabilidad Social Empresarial sobre la rentabilidad no es significativo para los sectores agropecuario y comercial, lo que confirma la hipótesis de neutralidad. Para la rentabilidad del patrimonio en el sector minero, y para la rentabilidad de los activos en los sectores de manufacturas y servicios, los resultados sí son significativos mostrando un efecto positivo de la Responsabilidad Social Empresarial, por el contrario, la rentabilidad del patrimonio para los sectores construcción y servicios, siendo significativa evidencia una relación negativa entre la Responsabilidad Social Empresarial y este indicador. Conclusión: El efecto de la Responsabilidad Social Empresarial sobre la rentabilidad depende del sector económico y del indicador de desempeño financiero que se analice.
The strategic role of environmental, social, and governance (ESG) activities in firm performance has recently drawn increasing attention. In particular, the dynamics of ESG management in family-owned firms have become a crucial factor in increasing firm value. Using novel data from Korea, a suitable context for our analysis, we focus on the interplay between ESG investment and family ownership. Our results reveal that ESG activities can mitigate the agency problems inherent in family ownership, but their careful management is essential for maximizing firm value. We introduce the concept of the marginal effect of ESG, decompose its factors, and identify a critical threshold of family ownership that is instrumental for increasing firm value through ESG activities. Depending on a firm’s position relative to this threshold, we recommend strategies to increase or reduce ESG investment, showing that the timing of such investment or disinvestment in ESG activities emerges as a key strategic consideration. Our findings provide practical insights for family-owned firms to make informed decisions on ESG investment, thereby contributing not only to their own sustainability but also the long-term vitality of ESG activities.
Corporate social responsibility (CSR) research can help to address some of society's grand challenges (for example, climate change, energy sustainability and social inequality). Historically, CSR research has focused on organizational-level factors that address environmental and social issues and the firm's resulting financial performance, with much less focus on individual-level factors. In response to research calls to consider the individual level of analysis, we provide a narrative review to improve our understanding of the interconnections between CSR and individual behaviour. We organize existing research around three individual-level categories: CSR perceptions, CSR attitudes and CSR behaviours. We summarize research elucidating how perceptions and attitudes influence behaviours and how organization and higher-level CSR context and individual-level CSR readiness moderate perceptions-behaviours and attitudes-behaviours relationships. We offer a conceptual model that organizes the diverse, conflicting and multidisciplinary research on the CSR-individual behaviour link and that can be used to guide future research.
The research aims to analyze the different theoretical perspectives under which corporate social responsibility (CSR) has been analyzed. Based on the narrative review conducted, five motivations have been identified that drive the implementation of CSR practices: (1) the alignment of interests between agents and principal, (2) the satisfaction of stakeholder demands, (3) compliance with the institutional context, (4) obtaining a competitive advantage, and (5) maintaining congruence between the objectives of society and the objectives of the organization. These objectives are not mutually exclusive, but complementary. Thus, the reason why organizations develop CSR practices can be an accumulation of the five factors mentioned above.
Although the Chinese government has effectively enacted green policies to address climate challenges, the country's heavy reliance on fossil fuels has made these problems serious barriers to China's sustainable growth. This study analyzes data from 653 Chinese manufacturing companies and examines the relationship between corporate social responsibility and environmental performance. The suggested hypotheses have been investigated by employing structural equation modeling. The results showed that there is no direct association between corporate social responsibility and the environmental performance of manufacturing firms. In comparison, it is linked to green transformational leadership and green innovation that improves environmental performance. Furthermore, the results showed that the link between corporate social responsibility and environmental performance is mediated by green innovation and green transformational leadership. The study's results provide managers and decision-makers in manufacturing businesses with critical knowledge on managing corporate social responsibility, green innovation, and green transformational leadership. Increasing internal resources to improve environmental performance may be advantageous to general managers of big manufacturing enterprises.
Purpose – The coronavirus (COVID-19) is the worst pandemic in recent memory in terms of its economic and social impacts. Deadly second wave of COVID-19 in India shook the country and reshaped the ways organizations functions and societies behave. Medical infrastructure was unaffordable and unsupportive which created high distress in society, especially for poor. At this juncture, some pharmaceutical firms made a unique social investment when they reduced price of drugs used to treat COVID-19 patients. This study examines how the market and the society respond to the price reduction announcement during psychological distress of COVID-19.
Design/methodology/approach – Market reactions are analyzed by conducting event study on stock market data and visual analytics-based sentiment analysis on Twitter data.
Findings – Overall, we find positive abnormal returns on the day and around the day of event. Interestingly, we find that returns during the time of high distress is significantly higher. Sentiment analysis conveys that net sentiment is favorable to the pharmaceutical firms around the day of event and it sustains more during the time of high distress.
Originality/value – This study is unique in contributing to the Business and Industrial Marketing literature by highlighting market reactions to social responsibility of business during the time of psychological distress in an emerging economy.
This study aims to examine the impact of corporate social responsibility (CSR) on the financial performance of manufacturing companies in Indonesia and examine the role of CEO ability as moderating variable. Hierarchical regression analysis is used to test the effect of CSR on firm performance and test CEO ability as moderating variable. This study uses 213 samples observation data from manufacturing companies listed on Indonesia Stock Exchange (IDX) during 2019 until 2021. The results showed that CSR disclosures has an effect on firm performance as measured by return on assets (ROA). The results of this study also showed that CEO ability as moderating variables unable to increase the influence of CSR on firm performance. These results indicate that when firm performance has no significant growth and firm has problem that decreased the firm profitability for example COVID-19 pandemic, CEOs have a tendency not to carry out an activity that costs money for example CSR.
Purpose: The purpose of this research is to understand the greater responsibility placed by various organizations on the social responsibilities of the organizations towards their stakeholders. It also aims to explore the Corporate Social Responsibility (CSR) for daily operations of organizations to fulfill their social responsibilities to society. Theoretical Framework: The study made assumptions based on in-depth review to investigate variables in Iraqi context. One of the comprehensive measurement criteria provided by Liao (2019) covers the three dimensions of effectiveness, efficiency, and consistency. Design/methodology/approach: The statistical population contains all listed companies on the Iraqi Stock Exchange between 2015 and 2021. The hypotheses were tested employing a multivariate regression model. The hypotheses of the study were tested using a sample of 168 observations from listed Iraqi banks from 2015 to 2021 and a multiple regression model based on the panel data technique of the random effects model. Findings: The results showed a positive and statistically significant relationship between social responsibility and bank performance. Also, information technology governance (ITG) moderates this effect. Additional methods (t+1, fixed effects, ordinary least squares) were employed to test the validity of the research models. Research, Practical & Social Implication: As this is the first study to investigate this issue in emerging markets, it provides users, analysts, and legal bodies with valuable information regarding CSR, which substantially impacts banks' performance. Originality/value: The finding suggests several consequences of IT governances and its effects on corporate social responsibility which contributing to the development of knowledge.
Date de soumission : 31/01 /2023 Date d'acceptation : 22 /04 /2023 Résumé : De nos jours, les entreprises opèrent dans un environnement constitué de plusieurs parties prenantes susceptibles d'affecter ou d'être affectées par son activité, d'où la nécessité de les prendre en considération. Encore plus, quand il s'agit d'opérer dans un environnement instable et hostilement concurrentiel. Toute entreprise est censée gérer ses parties prenantes si elle veut réussir, créer de la valeur et rester compétitive. Et par une bonne gestion des parties prenantes, une organisation se permet d'avoir une meilleure prise de décision, une meilleure réputation, une image de marque améliorée, une satisfaction de la clientèle et à un plus grand succès dans la réalisation des objectifs organisationnels. Basé sur une exploration théorique sous la forme d'une revue de littérature des travaux pionniers sur la gestion des parties prenantes, son utilité stratégique et son impact sur la performance, Le présent papier expose la gestion des parties prenantes et analyse son impact en tant qu'outil managérial sur la performance de l'entreprise. Nous avons essayé de cerner les concepts de base et leurs interactions. Les aboutissements de notre recherche affirment l'effet de la gestion des parties prenantes sur la performance. Ces résultats sont cohérents avec les travaux antérieurs Abstract: Nowadays, companies operate in an environment made up of several stakeholders likely to affect or be affected by its activity, hence the need to take them into consideration. Even more, when it comes to operating in an unstable and hostile competitive environment. Any business is expected to manage its stakeholders if it wants to succeed, create value, and stay competitive. And through good stakeholder management, an organization enables itself to have better decision-making, better reputation, improved brand image, customer satisfaction and greater success in achieving organizational goals. Based on a theoretical exploration in the form of a literature review of pioneering works on stakeholder management, its strategic utility and its impact on performance, this paper exposes stakeholder management and analyzes its impact as a managerial tool on company performance. We have tried to identify the basic concepts and their interactions. The results of our research affirm the effect of stakeholder management on performance. These results are consistent with previous work
This study offers a comprehensive and multidisciplinary review of the research on the antecedents of investor valuation in the management, accounting, and finance literature. Despite the growing recognition of the importance of investors and financial markets, our current understanding of the factors that drive investor valuation remains incomplete. To address this gap, we classify the existing literature on investor valuation into three perspectives: social, cognitive, and economic. The social perspective examines how social forces, such as institutional norms and pressure, shape investor valuation. The cognitive perspective focuses on the psychological underpinnings of investors’ valuation decisions, while the economic perspective emphasizes how investors determine the value of firms through rational cost-and-benefit calculations. This review compares the research on investor valuation in the management literature to that in the accounting and finance literature, identifying gaps in the management literature and discussing emerging trends that may influence investor valuation. The review also proposes an agenda for future research. In conclusion, this study illuminates the intricate and multifaceted nature of investor valuation, as well as the underlying factors that influence it.
The dissertation paper attempted to examine the motives of non-governmental organizations (NGOs) and multinational companies (MNCs) for partnering, as well as to establish the extent of strategic partnerships between both parties in Bulgaria. Two empirical studies were conducted – Study 1: MNCs in Bulgaria and Study 2: NGOs in Bulgaria. Study 1 aimed to identify the motives of MNCs (n=65/500) for initiating and entering into partnerships with NGOs. Their main motives are legitimacy, public expectations and social awareness. Respectively, Study 2 aimed to identify the motives of NGOs (n=112/300) for initiating and entering into partnerships with MNCs. Their main motives are strongly related to the opportunities for financial support, in-kind donations and management of larger projects. Altogether, NGOs-MNCs partnerships in Bulgaria are rather still in their early stages of development, as they are predominantly driven by their personal necessities. Their support for mutual strategic partnerships is also marginal.
Citizens firms are supposed to behave ethically especially with specific structures of governance which can hinder discretionary strategy. In this paper, we examine the validity of this assertion by examining whether mechanisms of governance can curb managerial discretion by constraining earnings manipulation. Specifically, we investigate the relation between governance structures and discretionary accounting behavior, as measured by discretionary accruals and the effect of mechanisms of governance and social performance. Our findings show that Governance mechanisms in citizens firms seem to be not vigilant to limit managerial discretion. Moreover social status and governance mechanisms, combined together, cannot also limit these manipulations but more worst they seem to be explanatory frameworks of these discretionary strategies. Social commitment seems to be met only if it can increase the wealth of shareholders and that of managers. These corporate citizens show, actually, a lot of rhetoric and very little practice.
This study investigated the influence of IFR on the value of firms listed at the Nairobi Stock Exchange (NSE). The study used financial capital reporting, manufactured capital reporting, intellectual capital reporting, human capital reporting, social, and environmental capital reporting as independent variables, firm size as a moderating variable, and firm value and dependent variable. The study used both primary data and secondary data. The secondary data was obtained from individual firms’ annual financial reports and websites then captured in a data collection sheet. Data was obtained from a total of 64 firms listed at the NSE with data ranging from January 1, 2016, to December 31, 2020. Multiple linear regression model was used to test the combined effect on the dependent variable. The study found that there was a positive and significant relationship between financial capital reporting and the value of firms listed at the NSE; there was insignificant relationship between manufactured capital reporting and the value of firms listed at the NSE; intellectual capital reporting had a positive and significant effect on the value of firms listed at the NSE; there existed a positive and significant relationship between human capital reporting and value of firms listed at the NSE; environmental capital reporting had insignificant effect on the value of firms listed at the NSE; social capital reporting had insignificant effect on the value of firms listed at the NSE. The study further established that firm size had moderating effect on the relationship between integrated financial reporting and the value of companies listed at the NSE. The study concludes that integrated financial reporting has a positive relationship with the value of firms listed at the NSE. The study thus recommended that the management of firms listed at the NSE should strive to adopt the various integrated financial reporting in enhancing the value of their firms.
This paper examines the extent to which monitoring and incentive alignment of Chief Executive (CEO) compensation and influence patterns of various actors on CEO pay vary as a function of ownership distribution within the firm. Based on the reports of 175 chief compensation officers in manufacturing, it was found that the level of monitoring and incentive alignment was greater in owner-controlled than management-controlled firms. For both types of firms, there was a direct relationship between monitoring and the risk level to the CEO of annual bonuses and long-term income, although the relationship was stronger among owner-controlled firms. In the owner-controlled firms, there was more influence over CEO pay by major stockholders and boards of directors. In management-controlled firms, the CEO pay influence was separated from major stockholders and boards. The results suggest that a behavioral approach to measuring agency theory concepts can provide some new insights into the process used to determine CEO pay.
The nature of a firm's risk-taking behavior can significantly affect corporate performance. In an agency context, we examined the influence of equity ownership structure upon corporate risk taking. Results support our premise that the wealth portfolios of corporate insiders may influence firm risk taking. They also support our analysis of entrenchment theory and our presumption that financial and nonfinancial benefits or costs may, at high levels of stock ownership, induce executive decisions inconsistent with growth-oriented risk taking. Institutional owners exerted a significant, positive influence on risk taking, but the role of blockholders was negligible. Finally, ownership structure affected corporate risk taking in the presence of growth opportunities, represented by Tobin's q.
A model of optimal dividend payout is presented in which increased dividends lower agency costs but raise the transactions cost of external financing. The optimal dividend payout ratio minimizes the sum of these two costs. A cross-sectional test of the model relates dividend payout to the fraction of equity held by insiders, the past and expected future revenue growth of the firm, the firm's beta coefficient, and the number of common stockholders. The coefficients of all variables are significant in the predicted directions. The results indicate that investment policy influences dividend policy.
There is an impressive body of empirical evidence which indicates that successive price changes in individual common stocks are very nearly independent. Recent papers by Mandelbrot and Samuelson show rigorously that independence of successive price changes is consistent with an efficient market, i.e., a market that adjusts rapidly to new information. It is important to note, however, that in the empirical work to date the usual procedure has been to infer market efficiency from the observed independence of successive price changes. There has been very little actual testing of the speed of adjustment of prices to specific kinds of new information. The prime concern of this paper is to examine the process by which common stock prices adjust to the information (if any) that is implicit in a stock split. In doing so we propose a new event study methodology for measuring the effects of actions and events on security prices.
This paper presents a model of how decision-makers interpret stategic issues. The model of strategic issue diagnosis identifies three critical events: activation, assessments of urgency and assessments of feasibility. The relationship of each of these interpretive assessments to the creation of momentum for change allows one to predict if and how organizations will respond to a changed decision environment. The paper further links strategic issue diagnosis to organizational responses by highlighting the systematic effect of two contextual variables—the organization's belief structure and its resources—upon the assessments in diagnosis. In this way, the model of issue diagnosis provides a framework for understanding how and why organizations respond differently to strategic issues.
This study developed and tested a conceptual model explaining variability in the organizational structures firms develop to identify, analyze, and respond to their social and political environments. Institutional and resource dependence theories offer plausible explanations for these structural differences; we tested both, finding that those explanations are distinct but complementary. Issues management is both an institutional response and a strategic adaptation to external pressures. But contrary to our predictions, each theory provided only a partial explanation by accounting for particular responses. Institutional constraints appeared to limit managerial discretion over corporate social responses. We propose a new contingency model of corporate social performance based on these findings.
Earlier work has examined executive control and merger activity and suggested that mergers are sometimes undertaken in the best interests of managers rather than stockholders. This study has examined the relationships among firm control (owner versus manager), merger strategy (related versus unrelated) and returns to stockholders. The results suggest that both firm control and merger strategy affect merger performance. Therefore, an assessment of the control of the acquiringfirms should temper the interpretation of any research comparing the performance of related versus unrelated diversification strategies.
A great many people provided comments on early versions of this paper which led to major improvements in the exposition. In addition to the referees, who were most helpful, the author wishes to express his appreciation to Dr. Harry Markowitz of the RAND Corporation, Professor Jack Hirshleifer of the University of California at Los Angeles, and to Professors Yoram Barzel, George Brabb, Bruce Johnson, Walter Oi and R. Haney Scott of the University of Washington.
Corporate restructuring is an area of great interest to researchers in corporate strategy, finance and organizational studies. In this chapter, we briefly review prior research on corporate restructuring, and then introduce the articles in the special issue. In the papers in the issue there are indications that restructuring can be performance-enhancing for the firm, but it can also have significant unintended consequences. The papers in this issue apply a broad range of research methods and theoretical perspectives to corporate restructuring, its initiating forces, and its consequences.
This article reviews research on corporate restructuring by examining representative studies of acquisitions, divestitures and management buyouts. Theoretical arguments used in prior research on these aspects of restructuring are presented and the empirical evidence is reviewed. Three challenges in researching corporate restructuring are identified: trading off theoretical abstraction for institutional detail, defining strategically meaningful research questions, and the pursuit of partial models versus development of a comprehensive theory of restructuring. the conclusion is that theoretical and methodological pluralism are essential for advancement of research on this topic. the article concludes with a call for more research involving institutional detail and linking modes of restructuring to performance.
Market failure concepts together with a corporate strategy taxonomy have important implications for the direction of growth of firms and their possible success. This paper discusses the relationship between these concepts and shows how specific types of market failure give rise to specific classes of firms. Arguments are presented why specific types of firms will be more or less successful than others. Empirical research by Rumelt is then cited which supports the themes developed in the paper.
This paper investigates the relationship between ownership structure and corporate restructuring in a sample of 93 surviving public Fortune 500 firms during the period 1981–87. The results show that blockholder ownership is associated significantly with corporate restructuring, suggesting that many managers restructured their corporations during the 1980s only when pressured to do so by large shareholders.
This paper reviews the evidence on takeover waves of the 1960s and 1980s, and discusses the implications of this evidence for corporate strategy, agency theory, capital market efficiency, and antitrust policy. We conclude that antitrust policy played an important role in the two takeover waves, and that the wave of the ';60s presents a problem for efficient capital markets.
Corporate strategy, the overall plan for a diversified company, is both the darling and the stepchild of contemporary management practice — the darling because CEOs have been obsessed with diversification since the early 1960s, the stepchild because almost no consensus exists about what corporate strategy is, much less about how a company should formulate it.
This paper investigates share-price performance following corporate takeovers. We use multifactor benchmarks from the portfolio evaluation literature that overcome some of the known mean-variance inefficiencies of more traditional single-factor benchmarks. Studying 399 U.S. takeovers consummated in the 1975–1984 period, we conclude that previous findings of poor performance afer takeover are likely due to benchmark errors rather than mispricing at the time of the takeover.
This paper documents the organizational status over time of 183 large leveraged buyouts completed between 1979 and 1986. By August 1990, 62% of the LBOs are privately owned, 14% are independent public companies, and 24% are owned by other public companies. The percentage of LBOs returning to public ownership increases over time, with LBOs remaining private for a median time of 6.82 years. The majority of LBOs, therefore, are neither short-lived nor permanent. The moderate fraction of LBO assets owned by other companies implies that asset sales play a role, but are not the primary motivating force in LBO transactions.
This paper examines properties of daily stock returns and how the particular characteristics of these data affect event study methodologies. Daily data generally present few difficulties for event studies. Standard procedures are typically well-specified even when special daily data characteristics are ignored. However, recognition of autocorrelation in daily excess returns and changes in their variance conditional on an event can sometimes be advantageous. In addition, tests ignoring cross-sectional dependence can be well-specified and have higher power than tests which account for potential dependence.
This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.Adam Smith, The Wealth of Nations, 1776, Cannan Edition(Modern Library, New York, 1937) p. 700.
In this article theoretical and empirical explorations that have addressed the question, Whose interests do top managers pursue? are synthesized and grouped under two categories. Based on the review of the literature, three propositions are tested on two groups of organizations—mutual insurers and stock insurers. The results of the study lend support the premise that top executives do not necessarily act in the best interests of owners.
The influence of history on an organization is a powerful but often overlooked force. Managers, in their haste to build companies, frequently fail to ask such critical developmental questions as, Where has our organization been? Where is it newt and What do the answers to these questions mean for where it is going? Instead, when confronted with problems, managers fix their gaze outward on the environment and toward the future, as if more precise market projections will provide the organization with a new identity. In this HER Classic, Larry Greiner identifies a series of developmental phases that companies tend to pass through as they grow. He distinguishes the phases by their dominant themes: creativity, direction, delegation, coordination, and collaboration. Each phase begins with a period of evolution, steady growth, and stability, and ends with a revolutionary period of organizational turmoil and change. The critical task for management in each revolutionary period is to find a new set of organizational practices that will become the basis for managing the next period of evolutionary growth. Those new practices eventually outlast their usefulness and lead to another period of revolution. Managers therefore experience the irony of seeing a major solution in one period become a major problem in a later period. Originally published in 1972, the article's argument and insights remain relevant to managers today. Accompanying the original article is a commentary by the author updating his earlier observations.
Includes bibliographical references. Photocopy. Thesis (Ph. D.)--Harvard University, 1979.
The authors' estimates of the pay-performance relation (including pay, options, stockholding, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 changes in shareholder wealth. Although the incentives generated by stock ownership are large relative to pay and dismissal incentives, most CEOs hold trivial fractions of the firms' stock, and ownership levels have declined over the past fifty years. The authors hypothesize that public and private political forces impose constraints that reduce the pay-performance sensitivity. Declines in both the pay-performance relation and the level of CEO pay since the 1930s are consistent with this hypothesis. Copyright 1990 by University of Chicago Press.
The corporate-control market The conventional approach to a merger problem takes corporations merely as decision-making units or firms within the classical market framework. This approach dictates a ban on many horizontal mergers almost by definition. The basic proposition advanced in this paper is that the control of corporations may constitute a valuable asset, that this asset exists independent of any interest in either economies of scale or monopoly profits, that an active market for corporate control exists, and that a great many mergers are probably the result of the successful workings of this special market. Basically this paper will constitute an introduction to a study of the market for corporation control. The emphasis will be placed on the antitrust implications of this market, but the analysis to follow has important implications for a variety of economic questions. Perhaps the most important implications are those for the alleged separation of ownership and control in large corporations. So long as we are unable to discern any control relationship between small shareholders and corporate management, the thrust of Berle and Means's famous phrase remains strong. But, as will be explained below, the market for corporate control gives to these shareholders both power and protection commensurate with their interest in corporate affairs. A fundamental premise underlying the market for corporate control is the existence of a high positive correlation between corporate managerial efficiency and the market price of shares of that company.
Pressure for divestment and mandatory disinvestment sanctions directed against South Africa are an instance of domestic interest groups in one country seeking policy change in another. The link from shareholder divestment to disinvestment by firms is tenuous, however (since South Africa-active firms do not seem to suffer as a consequence of divestment pressure), and legislated sanctions are likely to have unpredictable and sometimes perverse effects on the extent of apartheid practices.
This paper studies a sample of large acquisitions completed between 1971 arid 1982. By the end of 1989, acquirers have divested almost 44% of the target companies. Using the accounting gain or loss recognized by the acquirer, press reports, and the sale price, we characterize the ex post success of the divested acquisitions and consider only 34% to 50% of classified divestitures as unsuccessful. Acquirer returns and total (acquirer arid target) returns at the acquisition announcement are significantly lower for unsuccessful acquisitions than for divestitures not classified as unsuccessful arid for acquisitions not divested. These results suggest that market reactions to acquisition announcements reflect expectations of future profits and that unprofitable acquisitions are recognized as such when initiated. Diversifying acquisitions are almost four times more likely to be divested than related acquisitions. However, we do not find strong evidence that diversifying acquisitions were less successful than related ones.
This paper examines the hypothesis that an important role of corporate takeovers is to discipline the top managers of poorly performing target firms. The authors document that the turnover rate for the top manager of target firms in tender offer-takeovers significantly increases following completion of the takeover and that prior to the takeover these firms were significantly under-performing other firms in their industry as well as other target firms which had no post-takeover change in the top executive. We interpret the results to indicate that the takeover market plays an important role in controlling the nonvalue maximizing behavior of top corporate managers. Copyright 1991 by American Finance Association.
The authors test the proposition that corporate control considerations motivate the means of investment financing-cash (and debt) or stock. Corporate insiders who value control will prefer financing investments by cash or debt rather than by issuing new stock, which dilutes their holdings and increases the risk of losing control. Their empirical results support this hypothesis: in corporate acquisitions, the larger the managerial ownership fraction of the acquiring firm the more likely the use of cash financing. Also, the previously observed negative bidders' abnormal returns associated with stock financing are mainly in acquisitions made by firms with low managerial ownership. Copyright 1990 by American Finance Association.
Two agency-cost expla-Lashgari,Social investing: The Sullivan principles', Review of Social nations of dividends
- F H M K Easterbrook
- D R Gant
Easterbrook, F. H. (1984). 'Two agency-cost expla-Lashgari, M. K. and D. R. Gant (1989). 'Social investing: The Sullivan principles', Review of Social nations of dividends', American Economic Review, 74, pp. 650–659.
Agency problems and the theory Martin,Corporate performance, corporate takeover and management of the firm
- E F K Fama
- J J Mcconnell
Fama, E. F. (1980). 'Agency problems and the theory Martin, K. and J. J. McConnell (1991). 'Corporate performance, corporate takeover and management of the firm', Journal of Political Economy, 88, pp. 288–307.
New immigrants: For some Mergers, Sell-offs, and Economic Efficiency. Brookings Insti-blacks, South Africa becomes land of opportunity
- C M Ford
Ford, C. M. (1994). 'New immigrants: For some U.S. Ravenscraft, D. and F. M. Scherer (1987). Mergers, Sell-offs, and Economic Efficiency. Brookings Insti-blacks, South Africa becomes land of opportunity', Wall Street Journal, 75, pp. 1, 11. tution, Washington, DC.
Growth, beta, and agency costs as Franks,The post-merger share-price performance of acquiring firms', determinants of dividend payout ratios
- M J Rozeff
- R Harris
- S Titman
Rozeff, M. (1982). 'Growth, beta, and agency costs as Franks, J., R. Harris and S. Titman (1991). 'The post-merger share-price performance of acquiring firms', determinants of dividend payout ratios', Journal of Financial Research, 5, pp. 249–259.
Diversifi-cation through AcquisitionManagerial control, performance, and executive compensationThe industrial state: Old myths and new realities
- M S Salter
- W A Weinhold
Salter, M. S. and W. A. Weinhold (1979). Diversifi-cation through Acquisition. Free Press, New York. 'Managerial control, performance, and executive compensation', Academy of Management Journal, Scott, B. R. (1973). 'The industrial state: Old myths and new realities', Harvard Business Review, 51, 30, pp. 51–70.
Evolution and revolutionTakeover in the '60s and the '80s: Evidence and implications', organizations grow
- L E Greiner
- A Shleifer
- R W Vishny
Greiner, L. E. (1972). 'Evolution and revolution as Shleifer, A. and R. W. Vishny (1991). 'Takeover in the '60s and the '80s: Evidence and implications', organizations grow', Harvard Business Review, 50, pp. 37–46.
Strategies for Declining Busi-nessesChallenges in researching corporate restructuring
- K R D C Harrigan
- Heath
- Lexington
- H Singh
Harrigan, K. R. (1979). Strategies for Declining Busi-nesses. Lexington Books/D. C. Heath, Lexington, Singh, H. (1993). 'Challenges in researching corporate restructuring', Journal of Management Studies, 30, MA.
It's Good Business. of the firm: Managerial behavior, agency cost and ownership structure
- R Solomon
- K Hansen
Solomon, R. and K. Hansen (1985). It's Good Business. of the firm: Managerial behavior, agency cost and ownership structure', Journal of Financial Econom-Atheneum, New York.
Divestment, investment sanctions, and disin-Analysis and Antitrust Implications vestment: An evaluation of antiapartheid policy instruments
- O E Williamson
Williamson, O. E. (1975). Markets and Hierarchies: Kaempfer, W. H., J. A. Lehman and A. D. Lowenberg (1987). 'Divestment, investment sanctions, and disin-Analysis and Antitrust Implications. Free Press, New York. vestment: An evaluation of antiapartheid policy instruments', International Organization, 41, Wright, P., S. P. Ferris, A. Sarin and V. Awasthi (1996). 'Impact of corporate insider, blockholder, pp. 457–473.
The staying power of leveraged and institutional equity ownership on firm risk tak-ing', Academy of Management Journal, 39, pp. buyouts', working paper
- S N Kaplan
Kaplan, S. N. (1990). 'The staying power of leveraged and institutional equity ownership on firm risk tak-ing', Academy of Management Journal, 39, pp. buyouts', working paper, University of Chicago.
Corporate focus and stock returns', working paper, William Simon Graduate School of Business Administration
- R Comment
- G Jarrell
Comment, R. and G. Jarrell (1992). 'Corporate focus
and stock returns', working paper, William Simon
Graduate School of Business Administration, University of Rochester.