Posts Tagged ‘Rock Center for Corporate Governance’

Linguistic Diversity and Stock Trading Volume (SSRN)

Authors:  Yen-Cheng Chang,  Shanghai Advanced Institute of Finance; China Academy of Financial Research (CAFR);  Harrison G. Hong, Princeton University – Department of Economics; National Bureau of Economic Research (NBER); Larissa Tiedens, Stanford Graduate School of Business;
Bin Zhao, Shanghai Advanced Institute of Finance; China Academy of Financial Research (CAFR)
Paper Date: March 14, 2013
Rock Center for Corporate Governance at Stanford University Working Paper No. 134

Abstract:      

We test the hypothesis that the linguistic diversity of a stock’s investor base leads to more trading. Trading might be due to beliefs differing across languages or investor exposure to multiple languages leading to more trading ideas. Using stock message boards from China, which has ten languages, we measure the linguistic diversity of a stock’s investor base using a Herfindahl index of messages posted from different languages. A firm’s diversity increases in the number of languages spoken in the province where it is headquartered. Using the latter as the instrument, trading volume in a stock rises with its linguistic diversity. We then attempt to discriminate among competing mechanisms. We also show using a sample of forty-one countries that countries with more linguistic diversity have greater stock market turnover.

CEO Preferences and Acquisitions

Dirk Jenter 
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Katharina Lewellen 
Dartmouth College – Tuck School of Business

December 2011

Rock Center for Corporate Governance at Stanford University Working Paper No. 105

Abstract: 
This paper explores the impact of target CEOs’ retirement preferences on the incidence, the pricing, and the outcomes of takeover bids. Mergers frequently force target CEOs to retire early, and CEOs’ private merger costs are the forgone benefits of staying employed until the planned retirement date. Using retirement age as an instrument for CEOs’ private merger costs, we find strong evidence that target CEO preferences affect merger patterns. The likelihood of receiving a takeover bid increases sharply when target CEOs reach age 65. The probability of a bid is close to 4% per year for target CEOs below age 65 but increases to 6% for the retirement-age group, a 50% increase in the odds of receiving a bid. This increase in takeover activity appears discretely at the age-65 threshold, with no gradual increase as CEOs approach retirement age. Moreover, observed takeover premiums and target announcement returns are significantly lower when target CEOs are older than 65, reinforcing the conclusion that retirement-age CEOs are more willing to accept takeover offers. These results suggest that the preferences of target CEOs have first-order effects on both bidder and target behavior.

Keywords: takeover bids, CEO retirement preferences and acquisitions, mergers & acquisitions

 JEL Classifications: G32, G34, G35

• Are Current CEOs the Best Board Members? (PDF)

• Related: 2011 Corporate Board Survey from Stanford Rock Center and Heidrick & Struggles

By many measures, current CEOs should be the best candidates to serve on boards of directors.  They have extensive strategic, operational, and risk management expertise, as well as experiences and leadership attributes that are important for a firm’s long-term success.

 However, there is currently no widely accepted, rigorous study that demonstrates that current CEOs are better board members or that companies with CEO directors benefit in terms of improved advice or monitoring.  In fact, recent survey data suggests that active CEOs might not always be the best board members because of the time constraints of their full time job and personality attributes that may make it difficult for them to contribute constructively to a boardroom environment.

 We examine this issue in closer detail and ask:

 1.       Should companies reassess the importance of this criteria when looking for new board members?

2.       Does the requirement for CEO-level experience limit the pool of available directors, particularly diversity candidates who may be less likely to have this experience?

3.       If the availability of CEO directors is low, should professional directors be recruited to fill the gap?

4.       Do the positive qualities of a retired CEO deteriorate, or do they never become outdated?

 Read the attached Closer Look and let us know what you think!  

To receive monthly alerts about the Closer Look series, please email the Stanford Corporate Governance Research Program at corpgovernance@gsb.stanford.edu. You can also follow more corporate governance news at http://twitter.com/#!/StanfordCorpGov.To see all of the Stanford Closer Look series, click here.

STANFORD, Calif. — May 09, 2011

Many institutional investors rely on a proxy advisory firm to assist them in voting company proxies and fulfilling the fiduciary responsibility they have to vote in the interest of beneficial shareholders. But according to a new study at the Stanford Graduate School of Business, proxy advisory firm recommendations may actually decrease shareholder value.

The recommendation of proxy advisory firms is not inconsequential. Studies conducted by Stanford GSB faculty member David F. Larcker, who is Director of the Corporate Governance Research Program, and doctoral students Allan L. McCall and Gaizka Ormazabal, show that an unfavorable recommendation from the largest proxy advisory firm (Institutional Shareholder Services, ISS) can reduce shareholder support significantly, depending on the matter of the proposal.

While there are potential benefits and drawbacks to relying on the voting recommendations of proxy advisory firms, little empirical research to date has been performed on whether the voting recommendations of these firms are “correct.” That is, are shareholders really better off if they follow their recommendations?

To answer this question the researchers examined the impact of ISS voting policies on 264 exchange offers during 2004 to 2009. They find that companies that design their exchange offer so that it receives a positive recommendation from proxy advisory firms exhibit a statistically lower market reaction, lower operating performance, and higher executive turnover than those firms that do not design their plans in accordance with the proxy advisory firm guidelines. These results indicate that proxy advisory firm recommendations on stock option exchanges do not increase, and in fact actually decrease, shareholder value.

The research paper, “Proxy Advisory Firms and Stock Option Exchanges: The Case of Institutional Shareholder Services,” and companion case study, “Do ISS Voting Recommendations Create Shareholder Value?” are available online from the Stanford Corporate Governance Research Program: http://www.gsb.stanford.edu/cgrp/topics/shareholder/closer_look.html.

Larcker is coauthor, with Brian Tayan, of the book, “Corporate Governance Matters: A Closer Look at Organizational Choices and their Consequences” (FT Press-Pearson Prentice Hall, 2011).

Contact:

Stanford Graduate School of Business
Helen Chang, 650-723-3358
chang_helen@gsb.stanford.edu