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THE EFFECTS OF CORPORATE SOCIAL RESPONSIBILITY ON FINANCIAL PERFORMANCE
Title
THE EFFECTS OF CORPORATE SOCIAL RESPONSIBILITY ON FINANCIAL PERFORMANCE.
Creator
Mentor, Marly, Roberts, Robin, Gatchev, Vladimir, University of Central Florida
Abstract / Description
Companies have taken the initiative to be socially responsible over the years. In the past, the focus for companies has been on maximizing wealth. With the growth of corporate social responsibility (CSR), there has been many debates regarding its benefits. More companies are beginning to realize the value of being socially responsible and how critical it is to business function. This paper researches past studies on the relationship between corporate social responsibility and financial...
Show moreCompanies have taken the initiative to be socially responsible over the years. In the past, the focus for companies has been on maximizing wealth. With the growth of corporate social responsibility (CSR), there has been many debates regarding its benefits. More companies are beginning to realize the value of being socially responsible and how critical it is to business function. This paper researches past studies on the relationship between corporate social responsibility and financial performance. This relationship is then tested using a reliable source of data on corporate social responsibility performance. This study uniquely looks at the accounting and market-based measurements of financial performance. The dataset includes most of the S&P 500 firms and covers years 2005-2014. An empirical model is constructed which includes factors that were found significant in the works of Capon, Farley, and Hoenig (1990). The relationships are tested using cross-sector/panel data time-series regressions. Results indicate that CSR and the accounting measurements of financial performance are positively related. CSR and the market-based measurements of financial performance are negatively related. This suggests that CSR positively affects a company�s profits and negatively affects future stock returns. One interpretation of this result is that socially responsible stocks have a lower required rates of return. The results indicate that since investors are more willing to invest in CSR stocks, these firms end up experiencing lower future stock returns. The results are consistent with past studies and support the hypotheses.
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Date Issued
2016
Identifier
CFH2000047, ucf:45506
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFH2000047
Three essays on the compensation, structure, and decision making of the board of directors
Title
Three essays on the compensation, structure, and decision making of the board of directors.
Creator
Pham, Duong, Frye, Melissa, Turnbull, Geoffrey, Gatchev, Vladimir, Farrell, Kathleen, University of Central Florida
Abstract / Description
My first essay examines compensation of newly formed boards of directors following tax-free corporate spin-offs. The empirical results show newly formed spin-off boards are paid significantly more than peer boards in the same industry with similar firm size. Higher compensation is observed for spin-off firms where the CEOs are not formerly employed by the parent firms but not for spin-off firms with parent related CEOs, indicating that new directors demand higher compensation for the work...
Show moreMy first essay examines compensation of newly formed boards of directors following tax-free corporate spin-offs. The empirical results show newly formed spin-off boards are paid significantly more than peer boards in the same industry with similar firm size. Higher compensation is observed for spin-off firms where the CEOs are not formerly employed by the parent firms but not for spin-off firms with parent related CEOs, indicating that new directors demand higher compensation for the work involved in setting up the new governing system for the spun-off firms especially when there is a brand new CEO managing the spinoff firm. Differences in the structure of director compensation are consistent with better incentive alignment for the newly formed spinoff boards who have the rare opportunity to design their compensation from scratch. The paper also finds evidence that limited CEO's influence on the composition of the spinoff board leads to weaker cronyism between the board and the CEO of spinoff firms.My second essay explores the role CEO gender plays in shaping the board of directors. The literature provides strong evidence that male CEOs are more overconfident than female CEOs. I contend that a male CEO, who may overestimate his ability and/or underestimate the monitoring role of the board, will prefer to exert as much control over the board as possible and thus prefer a weaker board. I find consistent results that new male CEOs are more likely to increase board size, decrease board independence, reduce board gender diversification, have worse director attendance and have lower overall board monitoring. In contrast, new female CEOs have more gender diversified boards and are associated with an increase in overall board monitoring intensity. I also find supporting evidence in terms of CEO compensation, where new male CEOs gain more control and are compensated more in both total compensation and equity compensation post transition, consistent with what we expect from a weaker board.iiiMy third essay examines CEO's influence on the board of directors in spinoff firms. CEO's influence on the board of directors has been the main concern for shareholders who entrust the firm board with the task of monitoring the firm CEOs. Current literature shows that the more powerful the CEO, the better he is able to extract rents via his compensation at the expense of shareholders. In this study, I utilize a sample of spinoff firms that need to form a brand new board of directors from scratch to shed more lights on the CEO influence question. Particularly, I hypothesize and find that since spinoff CEOs appointed from the parent firm have more influence over the selection of spinoff directors, they enjoy higher compensation with lower pay-performance sensitivity (PPS) and have lower turnover-performance sensitivity than CEOs at similar non-spinoff firms. In contrast, spinoff CEOs hired from outside the pre-spinoff business have similar compensation, PPS and turnover-performance sensitivity to their peers. The results provide supporting evidence for the CEO influence hypothesis and show that limiting CEO's involvement in the selection of directors might help mitigate subsequent CEO rent seeking behavior.
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Date Issued
2017
Identifier
CFE0006639, ucf:51245
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0006639
Three Essays on Compensation and the Board of Directors
Title
Three Essays on Compensation and the Board of Directors.
Creator
Cherry, Ian, Gatchev, Vladimir, Turnbull, Geoffrey, Schnitzlein, Charles, Roberts, Robin, University of Central Florida
Abstract / Description
In my first essay, I find a statistically and economically significant director-specific component in CEO pay following the enactment of the Sarbanes-Oxley Act of 2002 (SOX). In the cross-section of firms, directors that award relatively higher (lower) CEO pay in one firm also award relatively higher (lower) CEO pay in other firms of whose boards they are members during the year. Based on my estimates, the director-specific component is responsible for around (&)#177;3.5% of total CEO pay or...
Show moreIn my first essay, I find a statistically and economically significant director-specific component in CEO pay following the enactment of the Sarbanes-Oxley Act of 2002 (SOX). In the cross-section of firms, directors that award relatively higher (lower) CEO pay in one firm also award relatively higher (lower) CEO pay in other firms of whose boards they are members during the year. Based on my estimates, the director-specific component is responsible for around (&)#177;3.5% of total CEO pay or around (&)#177;$230,000 per CEO-year on average. In addition to affecting CEO pay levels, the director-specific component also has a significant effect on the changes and the composition of CEO pay, thus affecting CEO incentives. I pursue two potential explanations for our findings(-)changes in board composition and changes in director behavior after SOX. I do not find evidence that the director-specific component in CEO pay is due to changes in board composition. Instead, I find evidence that the director-specific component in CEO pay is due to changes in director behavior related to the additional risks and employment concerns imposed on directors after SOX. My findings are consistent with the view that SOX discourages directors from taking risks when awarding CEO pay and so directors award CEO pay that they can more easily justify through direct experiences in other firms. These findings have wide implications about the importance of directors in setting CEO pay, the existence of agency problems within the board, and the consequences of regulation in general and SOX in particular.My second essay concerns the compensation of directors themselves. I find that institutional ownership is positively related to the level of director compensation and the proportion of equity based compensation that directors receive. These results are consistent with the interpretation that institutions prefer stronger links between firm performance and board compensation and are willing to pay higher levels of compensation for better governance. I also investigate the difference between the effects of active versus passive institutional investment and find that active institutions appear to have a larger economic impact on director compensation. However, I do not find a statistical difference between the effects of active and passive ownership.My third essay studies the strategies that firms follow when apportioning incentive compensation within the board of directors. Firms tend to preserve the structure of director incentives over time so that firms using equal (variable) incentives in one year are more likely to use equal (variable) incentives in the following year. I further examine whether the structure of director incentives within the board affects acquirer performance in corporate acquisitions. I find that the five-day announcement returns of firms awarding equal director incentives are around 1% higher than the returns of firms that award variable director incentives within the board. These results are robust to standard controls related to acquirer returns, to different lengths of the announcement window, and to alternative incentive strategy classification schemes. Overall, my findings are consistent with the idea that director incentives play a significant role in corporate performance and with the idea that equal director incentives dominate variable incentives in circumstances where the success of the outcome is likely to depend on the board as a whole.
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Date Issued
2015
Identifier
CFE0005588, ucf:50265
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0005588
Essays on the Effect of Excess Compensation and Governance Changes on Firm Value
Title
Essays on the Effect of Excess Compensation and Governance Changes on Firm Value.
Creator
Dah, Mustafa, Frye, Melissa, Whyte, Ann, Gatchev, Vladimir, Schnitzlein, Charles, Campbell, Terry, University of Central Florida
Abstract / Description
This dissertation consists of three essays on the effect of excess compensation and corporate governance changes on the firm's performance. The first paper utilizes a cost minimization stochastic frontier approach to investigate the efficiency of director total compensation. Our findings suggest that board members are over compensated. We show that, on average, the director actual compensation level is above the efficient compensation level by around 63%. Our results suggest that an increase...
Show moreThis dissertation consists of three essays on the effect of excess compensation and corporate governance changes on the firm's performance. The first paper utilizes a cost minimization stochastic frontier approach to investigate the efficiency of director total compensation. Our findings suggest that board members are over compensated. We show that, on average, the director actual compensation level is above the efficient compensation level by around 63%. Our results suggest that an increase in director excess compensation decreases the likelihood of CEO turnover, reduces the turnover-performance sensitivity, and increases managerial entrenchment. Thus, the surplus in director compensation is directly associated with managerial job security and entrenchment. Furthermore, although director excess compensation is not significantly inversely related to the firm's future performance, it has an indirect negative effect on future performance through its impact on the entrenchment-performance relationship. Therefore, this essay proposes that the overcompensation of directors is directly associated with a board culture predicated by mutual back-scratching and collusion between the CEO and the board members. The second essay tests the effect of an exogenous shock, the Sarbanes-Oxley Act (SOX) of 2002, on the structure of corporate boards and their efficiency as a monitoring mechanism. The results suggest an increase in the participation of independent directors at the expense of insiders. Consequently, we investigate the implications of board composition changes on CEO turnover and firm value. We document a noticeable reduction in CEO turnover in the post-SOX period. We also demonstrate that, after SOX, a board dominated by independent directors is less likely to remove a CEO due to poor performance. Finally, we highlight a negative association between the change in board composition and firm value. We propose that our findings are predicated on an off equilibrium result whereby firms were forced to modify their endogenously chosen board composition. Therefore, contrary to the legislators' objectives, we suggest that the change in board structure brought about inefficient monitoring and promoted an unfavorable tradeoff between independent directors and insiders. The third essay examines the relationship between the firm's governance structure and its value during different economic conditions. We show that both relative industry turnover and CEO entrenchment increase during economic downturns. We also find that relative industry turnover and managerial entrenchment have opposite impacts on the value of the firm throughout the recessionary period. While industry turnover leads to an appreciation in firm value, managerial entrenchment reduces shareholders' wealth. The negative impact of managerial entrenchment on firm value, however, outweighs the positive impact of industry turnover. Accordingly, we propose that a recession provides managers with a good opportunity to camouflage their behavior and extract more private benefits and, thus, blame the poor performance on bad economic conditions.
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Date Issued
2012
Identifier
CFE0004202, ucf:49029
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0004202
Three Essays on Market Efficiency and Corporate Diversification
Title
Three Essays on Market Efficiency and Corporate Diversification.
Creator
Jaber Hyder, Fawzi, Chen, Honghui, Gatchev, Vladimir, Frye, Melissa, Choi, Yoon, Schnitzlein, Charles, University of Central Florida
Abstract / Description
In my first essay, I use additions to the S(&)P 500 index as a laboratory to investigate how the interaction between arbitrageurs and arbitrage risk affects security prices. I find that the price effect is strong when there is high arbitrage risk (as measured by the lack of close substitutes) and low presence of arbitrageurs (as measured by low ownership by active institutions). Furthermore, a strong presence of arbitrageurs moderates the effect of arbitrage risk on the post-addition price...
Show moreIn my first essay, I use additions to the S(&)P 500 index as a laboratory to investigate how the interaction between arbitrageurs and arbitrage risk affects security prices. I find that the price effect is strong when there is high arbitrage risk (as measured by the lack of close substitutes) and low presence of arbitrageurs (as measured by low ownership by active institutions). Furthermore, a strong presence of arbitrageurs moderates the effect of arbitrage risk on the post-addition price reaction of added stocks. I also find a significant decrease in arbitrageurs' ownership in the added stocks post addition. More importantly, this decrease is accompanied by a significant increase in arbitrageurs' ownership in the added stocks' close substitutes. My second essay examines the sensitivity of investments to changes in investment opportunities for diversified and for single-segment firms. Because many concerns have been raised about existing proxies of investment opportunities, I introduce and examine the empirical performance of a new proxy based on financial analysts' earnings forecasts. The findings are consistent with the idea that firms respond efficiently to changes in investment opportunities. I find that firms increase (decrease) their capital expenditures when there is a favorable (unfavorable) change in opportunities. In addition, I find that diversified firms are more sensitive to changes in investment opportunities than are single-segment firms and that much of the difference in investment behavior between the two types of firms is explained by changes in investment opportunities. My findings are consistent with the idea that, when compared to single-segment firms, diversified firms use their larger internal capital markets and enjoy a less constrained response to changes in investment opportunities. The overall findings are in contrast to existing evidence that diversified firms allocate resources inefficiently.In my third essay, I investigate how the diversification discount depends on internal and external governance control mechanisms. The study uses CEO power to measure internal control and institutional ownership to measure external control. I find that CEO power has a negative effect on firm value and that this effect is greater for diversified firms. I also find that while institutional ownership is positively related to the value of single-segment firms it is not significantly related to the value of multi-segment firms. The overall findings that the diversification discount is more pronounced for firms with weaker internal and external governance control mechanisms support the hypothesis that governance control mechanisms are less effective in diversified firms than in single-segment firms.
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Date Issued
2017
Identifier
CFE0006606, ucf:51265
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0006606
Two Applications of Financial Economics to Real Estate
Title
Two Applications of Financial Economics to Real Estate.
Creator
Dibartolomeo, Jeffrey, Gatchev, Vladimir, Chen, Honghui, Turnbull, Geoffrey, Harrison, David, Schnitzlein, Charles, University of Central Florida
Abstract / Description
My first essay examines the effects of dividend policy on the liquidity risk of REITs. I argue that the mandatory high cash payouts of REITs reduce investor reliance on the stock market to satisfy their liquidity needs. Using a sample of equity REITs from 1980 through 2015, I find strong empirical evidence consistent with this paradigm. Unlike non-REIT property companies, I find REITs exhibit negative sensitivity to marketwide liquidity shocks; a result that is evident across most property...
Show moreMy first essay examines the effects of dividend policy on the liquidity risk of REITs. I argue that the mandatory high cash payouts of REITs reduce investor reliance on the stock market to satisfy their liquidity needs. Using a sample of equity REITs from 1980 through 2015, I find strong empirical evidence consistent with this paradigm. Unlike non-REIT property companies, I find REITs exhibit negative sensitivity to marketwide liquidity shocks; a result that is evident across most property type sectors. Moreover, while my findings are robust across a wide range of portfolios based on size, dividend frequency, leverage, market-to-book, operations type, and the presence of dividend reinvestment plans, smaller REITs mitigate liquidity risk only when their dividend frequency is relatively high. Finally, I find that price sensitivities to marketwide liquidity shocks increase after firms elect to discontinue REIT status. These findings strongly support the notions that investors view dividend payouts as a substitute for liquidity, and that REITs' relatively high mandated payout requirements benefit investors with reduced liquidity risk.My second essay re-examines the ability of the Mills-Muth neoclassical land use theory to explain urban sprawl. I test the robustness of Brueckner and Fansler's (1983) seminal study using data drawn from the 1970 U.S. Census. A repeated sampling test shows that their 1970 sampling methodology led to spurious estimates; their conclusions regarding the economic factors driving sprawl cannot be supported. Nor can they be supported using more recent data from the 2000 and 2010 Census. Given this, I offer two alternate measures of urban sprawl: the traditional population density gradient and a new measure that relaxes the monotonicity constraint implied by traditional density gradients. I find the factors identified by neoclassical theory better explain sprawl when using the density gradient and the non-monotonic measure than the Brueckner-Fansler approach.
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Date Issued
2018
Identifier
CFE0006995, ucf:51619
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0006995
Two Essays on Investors' Attention to Economically Linked Firms
Title
Two Essays on Investors' Attention to Economically Linked Firms.
Creator
Khoshnoud, Mahsa, Chen, Honghui, Frye, Melissa, Gatchev, Vladimir, Turnbull, Geoffrey, Harrison, David, Roberts, Robin, University of Central Florida
Abstract / Description
My first essay examines the degree to which the market prices of publicly traded firms reflect and respond to new information regarding the economic viability and vitality of organizations to which they are strategically linked. More specifically, I exploit the uniquely transparent nature of the lessor-lessee relationship across commercial real estate markets to evaluate whether future returns to real estate investment trusts (REITs) are systematically affected by the financial return...
Show moreMy first essay examines the degree to which the market prices of publicly traded firms reflect and respond to new information regarding the economic viability and vitality of organizations to which they are strategically linked. More specifically, I exploit the uniquely transparent nature of the lessor-lessee relationship across commercial real estate markets to evaluate whether future returns to real estate investment trusts (REITs) are systematically affected by the financial return performance and/or operational opacity of the tenants who lease their investment properties. Using a hand collected data set identifying the principal tenants of 96 publicly traded REITs, I find those firms with the best performing tenants generate annualized abnormal returns which are approximately six percent higher than those realized by REITs with the worst performing tenants. These results are robust to a variety of model specifications, and a closer inspection of the results reveals these performance differentials are consistent with emerging evidence across the literature suggesting investors' limited attention materially influences the return predictability of assets. With respect to the current investigation, I thus conclude investors' limited attention leads to the failure of REIT prices to fully reflect the valuation implications of their tenants' return performance.My second essay investigates how sophisticated investors, such as short sellers, trade on information along the supply chain. Short sellers are known to be generally better informed than common investors. Given the economic linkages that exist between the suppliers and customers, one would expect short sellers to trade on such information. My results indicate that short interest predicts unexpected earnings news, consistent with short sellers extracting information from economic relationships. When I evaluate stock return and short interests in regression analysis, I find strong negative relation between short interest in supplier firm and the future stock returns for the customer firm for the return in the next month. The negative relation persists for twelve months. I find similar results from portfolio approach. I argue that one plausible channel that explains the information content of supplier (customer) firm's short interest for the customer (supplier) firms is short sale constraints on the customer (supplier) firms. My results are consistent with this explanation. Overall, my findings suggest that short sellers play an important role in the price discovery of related firms on supply chain, beyond their direct effects documented previously.
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Date Issued
2017
Identifier
CFE0006755, ucf:51842
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0006755
Three Essays on Short-selling, Maring Trading and Market Efficiency
Title
Three Essays on Short-selling, Maring Trading and Market Efficiency.
Creator
Wang, Song, Gatchev, Vladimir, Chen, Honghui, Schnitzlein, Charles, Hofler, Richard, University of Central Florida
Abstract / Description
My dissertation contains three essays on short-selling, margin trading, and market efficiency. The first essay uses a unique exogenous event, the introduction of short selling in the Chinese stock market, to examine the direct link between idiosyncratic risk and short selling. Based on Shleifer and Vishny (1997), I hypothesize that idiosyncratic risk deters arbitrageurs with negative information from taking short positions in overvalued stocks. Consequently, the stocks with high idiosyncratic...
Show moreMy dissertation contains three essays on short-selling, margin trading, and market efficiency. The first essay uses a unique exogenous event, the introduction of short selling in the Chinese stock market, to examine the direct link between idiosyncratic risk and short selling. Based on Shleifer and Vishny (1997), I hypothesize that idiosyncratic risk deters arbitrageurs with negative information from taking short positions in overvalued stocks. Consequently, the stocks with high idiosyncratic risk are more overvalued at the onset of the introduction of short sale and perform worse in the subsequent period. The second essay examines the impact of the introduction of margin trading and short selling in the Chinese stock market on market quality. The third essay examines the relationship between short selling and SEO discount under the SEC's amendment to Rule 105. If the amendment is binding, the short-selling prior to seasoned equity offering (SEO) should correctly reflect negative information and promote price efficiency. Thus the winner's curse problem during SEO process is reduced and the value discount of a SEO should be less.
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Date Issued
2012
Identifier
CFE0004614, ucf:49941
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0004614