Browsing by Subject "corporate governance"
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Item Board Independence and Credit Ratings(2010) Bradley, Michael; Chen, DongUsing Sarbanes-Oxley Act (SOX) as a natural experiment, we find evidence consistent with an optimal level of board independence for credit ratings. We test two hypotheses that could explain this optimality: information cost hypothesis (ICH) that the effectiveness of independent boards increases with the private benefits of the management, and decreases with the cost of monitoring and advising, and the shareholder empowering hypothesis (SEH) that the empowering of shareholders through stronger board independence reduces the agency cost of equity but exacerbates the agency cost of debt. We find mixed evidence supporting ICH, and stronger evidence supporting SEH.Item Classified Boards, the Cost of Debt, and Firm Performance(2012) Chen, DongThis paper documents that classified boards substantially reduce the cost of debt. The evidence is not consistent with the argument that bondholders benefit from board classification because they are concerned about hostile takeovers. Instead, the results suggest that weak shareholder rights in the form of classified boards reduce managerial risk-taking, and the lessened concern for takeovers also increases managerial incentive for financial disclosure, with both effects inuring to bondholders’ benefit. Under the circumstances that the agency conflict between shareholders and bondholders is severe, classified boards are benign to firm performance, despite their adverse impact on performance otherwise.Item Corporate Governance and the Cost of Debt: Evidence from Director Limited Liability and Indemnification Provisions(Elsevier, 2010) Bradley, Michael; Chen, DongWe find that firms that provide limited liability and indemnification for their directors enjoy higher credit ratings and lower yield spreads. We argue that such provisions insulate corporate directors from the discipline from potential litigation, and allow them to pursue their own interests by adopting low-risk, self-serving operating strategies, which coincidentally redound to the benefit of corporate bondholders. Our evidence further suggests that the reduction in the cost of debt may offset the costs of directorial shirking and suboptimal corporate policies occasioned by this insulation, which may explain why stockholders have little incentive to rescind these legal protections.Item The Effects of Corporate Governance Attributes on Credit Ratings and Bond Yields(2008) Bradley, Michael; Chen, Dong; Dallas, George S.; Snyderwine, ElizabethThis study examines the empirical relations between the governance structure of public corporations in the United States and the credit ratings and pricing of their debt securities. We study an unbalanced panel of 775 unique firms from 2001 through 2007. Consistent with the existing literature, we find that the primary determinant of a firm’s credit rating is its financial condition. However, governance attributes relating to transparency, ownership structure, shareholder rights, board structure and executive compensation are significantly related to credit ratings as well, even after accounting for the financial condition of the firm. We also find that the presence of anti-takeover measures is associated with higher credit scores for firms with investment grade debt and lower for firms with speculative grade debt. Finally, our empirical results suggest that stable boards, defined as boards having attributes relating to tenure, liability indemnification and classified board structures, have higher credit ratings and lower bond spreads. We conjecture that boards with greater stability may be better positioned to take into consideration the longer term interests of the firm as a whole, thereby benefiting the firm’s bondholders.Item #FAN(2020-07-12) Phillips, James; Simon, Julie; Rhee, Megan; University of Baltimore. Yale Gordon College of Arts and Sciences.; University of Baltimore. Master of Fine Arts in Integrated DesignThe everchanging role of the National Football League (NFL) sports fan, in a world of billion-dollar dreams, global domination, and poor consumer relations. The sport fan has many reasons that they love watching professional sports, most of which are personal to them. These are a number of personal identifiers and motivations that differ from fan to fan, but in no way reflect the business practices found within most professional sports, especially the NFL. As the fans and the NFL continue on from season to season, the fan needs remain stay the same, yet the NFL’s continue to grow along with their revenue. How can these two entities continue on with such different expectations without experiencing a conflict of interest?Item Golden Parachutes, Takeover Incentive, and Risk-taking(Midwest Finance Association 2013 Annual Meeting Paper, 2013-06-09) Chen, Dong; Rose, Morgan; Finance & Economics; Finance & EconomicsWe examine the relations between golden parachutes (GPs), pay-performance sensitivity (delta), and managerial risk-taking. We find an insignificant effect of GPs, but a negative and significant interaction of GPs with delta, on risk-taking. These results are consistent with the “takeover incentive hypothesis,” an original proposition stating that GPs influence risk-taking through the incentive of a CEO with a GP to accept a takeover, as well as delta’s role in affecting the weight of the CEO’s incentive to maximize the expected takeover-associated equity portfolio wealth. The findings do not support the proposition that GPs influence risk-taking through an insurance effect.Item Golden Parachutes, Takeover Probability, and Risk-Taking(Midwest Finance Association, 2011) Chen, Dong; Rose, Morgan J.This paper is the first to examine the relationships among golden parachutes (GPs), CEO compensation incentives, and managerial risk-taking. GPs are positively associated with risktaking, but only when controlling for the surprisingly negative interactions of GPs with CEO pay-volatility sensitivity (vega) and with pay-performance sensitivity (delta). These results appear consistent with the takeover probability hypothesis that a GP indicates a higher probability that a firm will be acquired, which increases the divergence between the CEO’s incentives as a manager and as an equity owner. The hypothesis that these results are due to CEO entrenchment is not supported.Item The Non-Monotonic Effect of Board Independence on Credit Ratings(2012) Chen, DongUsing Sarbanes-Oxley Act (SOX) as a natural experiment, we find evidence consistent with an optimal level of board independence for credit ratings. We test two hypotheses that could explain this optimality: information cost hypothesis (ICH) that the effectiveness of independent boards increases with the private benefits of the management, and decreases with the cost of monitoring and advising, and the shareholder empowering hypothesis (SEH) that the empowering of shareholders through stronger board independence reduces the agency cost of equity but exacerbates the agency cost of debt. We find mixed evidence supporting ICH, and stronger evidence supporting SEH.Item The Relation between Corporate Governance and Credit Risk, Bond Yields and Firm Valuation(2007) Bradley, Michael; Chen, Dong; Dallas, George S.; Snyderwine, ElizabethThis study examines the empirical relations between the governance structure of public corporations in the United States and the rating and pricing of their debt securities. We study an unbalanced panel of 775 unique U.S. firms from 2001 through 2007 and identify several statistically significant relations between corporate governance factors and credit ratings, bond spreads and firm values. We find that credit ratings are negatively related to the presence of antitakeover measures for firms with speculative grade ratings and positively related to the presence of antitakeover measures for firms with investment grade ratings. Moreover, we find that spreads are positively related to the presence of antitakeover measures, and this relation is significantly stronger for firms with less than investment grade credit ratings. Our findings also suggest that more stable boards, defined as having attributes relating to board tenure, director liability indemnification and classified board structures are related to higher credit ratings and lower bond spreads. We conjecture that boards with greater stability may be better positioned to take into consideration the longer term interests of the firm as a whole, thus benefiting the firm's creditors.