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During recent years, financial economists have made a significant contribution to the rapid development of a vibrant and growing literature on organization structure and corporate governance. In reviewing the development of this literature, it becomes easy to see how the seminal contributions of Ronald Coase (awarded the Nobel Prize in Economics in 1991) have become the cornerstone of a new institutional economics. In particular, researchers following in Coase’s footsteps have clarified the conditions under which voluntary contracts between private agents can resolve a wide variety of so-called “agency problems.” More than just representing an important discovery of the significance of transaction costs and property rights for the institutional structure and functioning of the economy, Coase’s work has become an important foundation for the theory of contracts and for the whole field of “organization economics.”

Using a sample of 466 grants of stock options to executives of Japanese firms over the years 1997–2001, this study tests the managerial power theory of compensation design developed by Bebchuk, Fried, and Walker (2002) and Bebchuk and Fried (2004). This theory argues that managers of firms with weak corporate governance will use their “power” to design executive compensation that is “manager-advantageous.” Using our option grants sample, we test to determine if any of the firm's governance mechanisms are able to limit managerial self-dealing with respect to executive stock options. We find that smaller boards and a higher percentage of independent directors are important governance mechanisms for the control of managerial influences in the design of stock-option compensation. An alternative hypothesis, that firms elect to grant advantageously designed options to encourage risk taking by managers, is not supported by our empirical results. Finally, we determine that the market response to the announcements of such grants varies inversely with the extent to which the options are managerially advantageous. Overall, we conclude that managerial power effects are present in the design of executive stock options and that theory of managerial power advanced by Bebchuk et al. holds internationally.

This paper empirically explores the relationship between the identity and concentration of different block holders and firm value for 89 industrial and service firms listed at the Amman Stock Exchange (ASE) over the period 1998–2001. The paper examines the role of block holders (institutional investors who are not on the board of directors, the institutional investors who are on the board of directors, the ownership of the board of directors, and the financial policy of the firm, such as the capital structure) in controlling the managerial actions which leads, on average, to better firm valuation in the emerging market of Jordan. The paper employs a piecewise regression specification methodology. The results of the piecewise regression analysis indicate a positive and significant relationship between the ownership of securities above 25% by the board of directors, institutional investors on the board of directors, the institutional investors not on the board of directors and firm value. There is no significant relationship between the above-mentioned ownership and firm value for ownership below 25%. The results also indicate a significant and negative relationship between ownership by the CEO below 5% and firm value. Leverage is significantly and positively related to firm value when we relate ownership by institutional investors not on the board of directors and firm value. This might imply that creditors work as complementary monitors of value along with institutional investors who are not on the board of directors. The paper concludes that block holders are important monitors of firm value especially if they own large amounts of securities to justify the high cost of monitoring.

This chapter examines the determinants of managerial incentives at the time of an Initial Public Offering (IPO) on the Alternative Investment Market (AIM) of the London Stock Exchange. We identify a trade-off relation between board monitoring and incentives that is specific to CEOs. We also investigate the role of stock option grants and share transactions at the IPO. We find that the IPO may be used as a wealth diversification opportunity. We report that undiversified managers with large pre-IPO shareholdings receive smaller stock options grants and sell more shares in the IPO than more diversified managers.

This study investigates the impact of corporate governance mechanisms on performance related turnover. Our results indicate that smaller boards and institutional block holders are positively related to the likelihood of performance related turnover. CEOs that also hold the position of the chairman of the board or belong to a founding family face lower likelihood of turnover. CEO stock ownership is negatively related to turnover and CEOs who own 3 percent or more of their company stock face a significantly lower likelihood of performance related turnover. Moreover, protection from external control market has no effect either on the likelihood of turnover.

The purpose of this study is twofold. First, to investigate whether internal attributes of corporate governance such as board size, board composition, CEO duality, board meetings, blockholders' ownership, managerial ownership, CEO remuneration, and directors' remuneration affect the capital structure (i.e., total debt ratio, long-term debt ratio, and short-term debt ratio) choice of non-financial firms listed on Pakistan Stock Exchange Limited during 2009–2014. Second, whether theories relevant to corporate governance developed in western settings provide support to understand the financing behavior of firms in a developing country, Pakistan. In sum, results indicate that corporate governance measures have some role in shaping the financing behavior of firms. It is worth mention that each company is bound to explicitly confirm in annual report regarding compliance with code of corporate governance, but results indicate a different story. For instance, descriptive statistics indicate that five individual larger shareholders on average hold more than 68% shares.

I test empirically the hypothesis that the monitoring role of the board of directors depends on the severity of the agency problems and the amount of information needed to monitor. I show that in high growth firms, where the agency conflicts are low and managers are likely to reveal more information to get advice, boards are more independent but less likely to monitor, while in low growth firms, boards are less likely to be independent, but the relationship between firm value and board independence is strong. Overall, boards become more independent but monitor less as firms’ growth opportunities increase, suggesting that managers trade off the amount of information released to the board to get a better advice and to mitigate the monitoring role of the board.

The insurance industry often experiences criticism for unethical and frequently illegal activities. This document suggests that insurers operate in an uncompetitive environment and that the nature of insurer operations leads otherwise ethical individuals in the direction of questionable ethical decisions throughout the operations of an insurance company.

The practice of real earnings management (REM) or earnings manipulation through the company’s real activities is increasingly widespread. Companies that want to achieve profit targets have switched from accrual-based to REM, especially in the firm family owner, who is an active manager. Our study aims to determine whether family ownership in a company will be a factor in the existence of greater REM practices. The authors collected 2,613 observational data from non-financial companies on the Indonesia Stock Exchange (IDX) during 2013–2018 using a purposive sampling method and then analyzed using panel random effect (RE) regression. The results show that family ownership significantly negatively affects abnormal operating cash flow which means that family firms are more likely to reduce operating cash flow to report higher income than non-family firms. Thus, it can be concluded that family firms in Indonesia are more likely to be involved in REM than non-family firms.

Prior research suggests that hospitality firms behave differently than other firms in terms of financing and investment issues. Such behavior may be attributable in part to agency problems and corporate governance structures in hospitality firms. This paper contains a report of an investigation into whether corporate governance mechanisms differ in hospitality firms relative to other industries. Our findings suggest that hospitality firms are more likely to experience agency problems than are nonhospitality firms. Hospitality firms have lower governance control mechanisms, better financial performance and higher-quality earnings than nonhospitality firms. An understanding of corporate governance control mechanisms helps to reduce agency problems and improves the hospitality firm's performance in the hospitality corporation.