Corporate governance white paper harvard university. By examining flhis elationship, we are able to develop new insights into the determinants of the method by which corporate control changes are made and the pace efects of various forms of takeovev in addition, we obtain several results on the capital structure changes that accompany contests for corporate control. The measure is adjusted for takeover probability, blockholding costs, and dividend and liquidity differences between the share classes. Capital structure and the market for corporate control. Estimating the effects of large shareholders using a geographic instrument.
This study investigates the capital and ownership structure of firms receiving tender. Corporate control contests and capital structure sciencedirect. An assessment 473 participate actively and independently in companys strategic decisions. Topics include the security issuance by both corporate and notforprofit organizations, and the role of the investment bank in corporate restructuring and corporate control contests. Section iv surveys models based on corporate control considerations. The results suggest that board structure is partly determined by past corporate performance. The mechanisms of corporate governance in the united states. Not unexpectedly, the number of proxy fights initiated in 2007 increased dramatically. Liefmann, 1909, 1920 originating in the gilded age twain and warner, 187311 and later to the managerial corporation. The optimal debt level balances a decrease in the probability of acquisition against a higher share of the synergy for the targets shareholders.
Control and capital structure mar09 unsw business school. In addition, we obtain several other results on price effects and on the capital structure changes that accompany contests for corporate control. As such, our study confirms several hypotheses from the financial contracting literature aghion and bolton 1992 and dewatripont and tirole 1994, which has received little attention from empirical capital structure studies. This was already acknowledged by modigliani and miller themselves. The patterns of corporate capital structures around the world are also discussed. Capital structure and corporate governance are the important areas that represent salient part of corporate finance research. The data show an increasing importance of external funds, and especially of debt. Grouping models based on the force driving capital structure allows discus sion of the model to be consolidated in one place and facilitates an examina 2 in addition to those surveys mentioned in footnote 1, see bradley, et al. Corporate control contests and capital structure northwestern. Steinberger, chair 1 another example would be the creation of a holding company structure where a public operating company becomes a subsidiary of a newlyformed holding company.
The maturity structure is viewed as subsumed under the composition of. Capital structure and corporate governance springerlink. Corporate control contests and capital structure econpapers. The theory of capital structure milton harris business. Introduction separation of ownership and control in corporate organizations creates information asymmetry problems between shareholders and managers that expose shareholders to agency costs. Corporate governance and capital structure dynamics.
Garvey and gordon hanka abstract we find that firms protected by second generation state antitakeover laws substantially reduce their use of debt, and that unprotected firms do the reverse. N2 this paper explores the determinants of corporate takeover methods proxy fights versus tender offers and their outcomes and price effects. Csb 6414 management of financial institutions 3 credits. Furthermore, extreme forms of takeover defenses can have some relatively severe side effects because. Corporate capital structure in the united states ciccolo and baum show that the chief aggregate features exhibited by this dataset over time are broadly consistent with the principal developments documented at the aggregate level by other researchers. Read the fulltext online edition of contests for corporate control. The market for corporate control the market for corporate control consists of all mergers, acquisitions, and reorganizationsincluding those by a competitor, a conglomerate, or a private equity buyer. Impact of ownership structure and corporate governance on. Through a combination of exquisite scholarship and independent analysis, she has created an indispensable starting point for all those interested in these subjects. Corporate governance and the cost of equity capital. In japan, it is the keiretsus other asian countries have modeled their system after japan, with family. This paper investigates the question of control and its impact on firms capital structure using 5,975 publicly listed firms from 38 different countries. Sorry, we are unable to provide the full text but you may find it at the following locations.
Shareholder voting in proxy contests for corporate control. Impact of corporate governance on capital structure a. Strategic control focuses on the dual questions of whether. Hence, this paper examines how corporate transparency affects the efficiency of industrial investment and growth conditional on the degree of property rights protection. Strategic control and corporate governance strategic control this is the process of monitoring and correcting deviations from the firms strategy and performance. Corporate control and capital structure essays onproperty. The weight of scientific evidence and the casual observation of control contests suggests that such a view is. Form 1099cap is furnished to shareholders who receive cash, stock, or other property from an acquisition of control or a. The model predicts, for example, that the targets stock price appreciates less following a successful proxy contest than in a successful tender offer. The distribution of power among corporate managers. The capital structure puzzle is unravelled and a clear picture is presented in terms of why capital structure matters. The distribution of power among corporate managers, shareholders, and directors the managerial economics research center william e. Simon graduate school of business administration the university of rochester. We focus on the effect of leverage on the takeover method and outcome.
Theoretical considerations a firm could use three methods to determine its capital structure. Pdf capital structure and corporate governance researchgate. The economic structure of corporate law, they characterize shareholders as gap fillers in the. Executive incentive plans, corporate control, and capital. Corporate control contests and capital structure, journal of financial economics, elsevier, vol. By studying various aspects of the two areas, this study attempts to deepen our understanding of the two.
Executive incentive plans, corporate control an,d capital structure hamid mehran abstract agency theory recognizes that the interest osf managers and shareholders may conflict and that, lef ot n their own, managers may make major financial policy decisions as the, such. Capital structure and corporate financing decisions provides an indepth examination of critical capital structure topics, including discussions of basic capital structure components, key theories and practices, and practical application in an increasingly complex corporate world. Estimating the effects of large shareholders using a geographic instrument volume 46 issue 4 bo becker, henrik cronqvist, rudiger fahlenbrach. In japan, it is the keiretsus other asian countries have modeled their system after japan, with family companies forming the core of the new corporate families. Corporate control and capital structure stockholm school of. Corporate governance and economic performance in the united states and germany 2001. We focus on the complementarity in terms of control and on the interrelationship between control and return aspects of the firms contracts. Form 1099cap is furnished to shareholders who receive cash, stock, or other property from an acquisition of control or a substantial change in capital structure. Each of these four categories is discussed in a separate section.
The traditional school, at one extreme, argues that there is an optimum capital structure at. Strategic control and corporate governance corporate. From a theoretical perspective, this study not only explains how corporate governance affects firm performance, but also uncovers the importance of capital structure in a corporate governance system. Capital structure and ownership distribution of tender offer. Corporate debt policy has also been viewed as an internal control mechanism, which can reduce agen cy conflicts between management and. The aim of this research is to analyze the impact of corporate governance on capital structure of pakistani firms. T1 corporate control contests and capital structure. Agency costs arise when managers have incentives to pursue their own interests at. In section v, we summarize the theoretical results and compare them with the evidence. The final sample includes a total of 634 uk firms listed in the london stock exchange. We use firms ownership structure to detect control motivations. Capital structure theories the debate on optimal capital structure that leads to maximum market valuation and minimum cost of capital is perennial. Share repurchase as a takeover defense journal of financial. Pdf purpose modern day organizations lay ample emphasis on developing a corporate structure.
The theory and practice of corporate capital structure january 2006 2 liability strategies group executive summary this paper discusses the theory and practice of corporate capital structure, drawing on results from a recent survey. Shareholder voting in proxy contests for corporate control, uncontested director elections and management proposals. Introduction at the most basic level a corporate governance problem arises whenever an outside investor wishes to exercise control differently from the manager in charge of the. This 1 capital structure also has a time dimension, i. These informationbased rationales, however, clearly do not incorporate the important role that corporate control contests seem to play in the e.
Pdf this paper examines the relationship between corporate firms ownership and capital structure in context of an emerging market economy, india. Interactions of capital structure with behavior in the product or input market or with characteristics of products or inputs are taken up in section iii. The defensive role of debt financing ronen israel abstract a capital structure theory based on corporate control considerations is presented. Corporate governance and the cost of equity capital i.
The theory of capital structure harris 1991 the journal. Sp, where sp 0 more outsiders submit shares when p is higher stage 0 stage 2 the firm is established. The weight of scientific evidence and the casual observation of control contests suggests that such a view is incorrect. Home browse books book details, contests for corporate control. A study of defensive adjustments in asset and ownership structure. The company making the offer is the acquirer or bidder. The clearest example of a shareholder with control motives is a family blockholder. View citations in econpapers 8 track citations by rss feed. The papers discussed in this section provide a theory of capital structure related to takeover contests. File form 1099cap, changes in corporate control and capital structure, for shareholders of a corporation if control of the corporation was acquired or it underwent a substantial change in capital structure. Property rights protection, corporate transparency, and growth. Throughout, the book emphasizes how a sound capital structure. The mechanisms of corporate governance in the united.
Share repurchase as a takeover defense volume 26 issue 2 sidharth sinha. Capital structure, for shareholders of a corporation if control of the corporation was acquired or it underwent a substantial change in capital structure. Simon graduate school of business administration, university of rochester. According to modern corporate finance theories, agency cost is one of the determinants of capital structure whereas corporate governance is structured to alleviate agency issues. Study sample of this research consists of 30 renowned companies that are based or operational in pakistan and listed in kse. This chapter covers several topics related to corporate governance. So far, only small national samples were studied and there was no. The theory of capital structure wiley online library. In germany, the banks form the core of this system. Journal of financial economics, 20 01 03 1988, 87 128. The theory of capital structure milton harris ecsocman. Considering this, the results document that there is no relation between characteristics of the board of directors and corporate performance measured by tobins q.
155 1026 1296 1499 455 579 959 1265 54 1185 1140 624 1344 1489 303 291 245 151 256 1214 1439 205 773 1453 1237 257 736 1333 647 615