TY - BOOK

T1 - Corparate governance mechanisms in management research

T2 - Designs and strategic implications for M&AS, CEO contracting and shareholder voting

AU - Demirtas, Cihan

N1 - Doctoral thesis

PY - 2023

Y1 - 2023

N2 - Since the second half of the 20th century, corporate governance of publicly traded companies has been an integral part of management research and a constantly debated topic in management science (Aguilera et al., 2015; Aguilera & Jackson, 2010; Bebchuk & Weisbach, 2010; Dalton et al., 2007; Davis, 2005; Filatotchev & Boyd, 2009; Rau et al., 2013; Tihanyi et al., 2014). A central component of the debate is principal-agent theory, which describes a conflict of interest due to “the separation of ownership and control” between management and shareholders (Jensen & Meckling, 1976, p. 302). The influential analyses of Mace (1971), Jensen & Meckling (1976), Shleifer and Vishny (1997), and Fama & Jensen (1983) identify governance mechanisms that attempt to mitigate principal-agent conflicts. These governance mechanisms have come to the forefront of theoretical and empirical research, such as the contractual design of management contracts (Cowen, King, & Marcel, 2016) and shareholder proposals (Goranova & Ryan, 2014). The purpose of this dissertation is to examine how shareholders can use novel governance mechanisms, such as shareholder proposals and severance agreements, to resolve principal-agent conflicts and thereby promote corporate success. In addition to the influence of shareholders on operational governance, this dissertation also examines CEOs' contractual arrangements (severance agreements) and their influence on managers' personal preferences, such as their affinity for risk. The first paper examines how corporate owners exert their influence on corporate governance through shareholder proposals. Previous research has paid particular attention to the influence of shareholder proposals in recent decades. In particular, the mechanisms underlying shareholder proposals, such as the incentive function of management (Say on Pay), employee compensation (Employee Stock Options) and their frequency (Say on Frequency), as well as the interactions with the choice of auditor providing transparency (Independent Auditors), are not yet fully understood. Based on the principal-agent theory, hypotheses were developed about the interaction of different shareholder proposals as well as their interaction in the context of Mergers & Acquisitions (M&A) transactions. These hypotheses were empirically tested and confirmed using a dataset of 170 companies and 369 shareholder proposals. By showing the interaction between shareholder proposals, a significant contribution to principal-agent theory is made. The second paper deals with the question of how combinations (complementary and substitutive) of shareholder proposals affect the return on equity. To date, there is no uniform view in the literature on the interaction of shareholder proposals. Shareholder proposals are seen as a recommendation by the company owners to the company management (due to their non-binding character) to influence the management of the company. In a configuration analysis with a data set of 744 shareholder proposals in 124 companies, the influence of shareholder proposals on return on equity is investigated. In this context, classic success factors such as alignment of interests and transparency have a significant influence on the jointly achievable return on equity, while employee incentives have no impact on return on equity. Therefore, the study presents the relevance of shareholder proposals as a governance tool and recommends an evaluation of the design of the various shareholder proposals for the different stakeholders. The third paper focuses on incentive measures that company owners can use to strengthen management's willingness to take risks, e. g. severance agreements. Previous research has only recently paid special attention to the effect of severance agreements and their incentive function. In particular, the underlying mechanisms, such as the triggering of risk-taking through the design of human capital protection and the CEO's income perspective, are not yet understood. Based on a theoretical framework by Cowen et al. (2016) and basic tenets of PAT, I examine the influences of various dimensions of severance agreements on risk affinity within a configuration framework using a dataset of 58 ex ante severance agreements. Individual elements of severance agreements have a significant influence on CEOs' risk affinity. The design of severance packages, i. e. several severance elements in combination, also has an influence on CEOs' risk affinity. The study thus underscores the importance of severance agreements and encourages an evaluation of the configurations of the various severance elements.

AB - Since the second half of the 20th century, corporate governance of publicly traded companies has been an integral part of management research and a constantly debated topic in management science (Aguilera et al., 2015; Aguilera & Jackson, 2010; Bebchuk & Weisbach, 2010; Dalton et al., 2007; Davis, 2005; Filatotchev & Boyd, 2009; Rau et al., 2013; Tihanyi et al., 2014). A central component of the debate is principal-agent theory, which describes a conflict of interest due to “the separation of ownership and control” between management and shareholders (Jensen & Meckling, 1976, p. 302). The influential analyses of Mace (1971), Jensen & Meckling (1976), Shleifer and Vishny (1997), and Fama & Jensen (1983) identify governance mechanisms that attempt to mitigate principal-agent conflicts. These governance mechanisms have come to the forefront of theoretical and empirical research, such as the contractual design of management contracts (Cowen, King, & Marcel, 2016) and shareholder proposals (Goranova & Ryan, 2014). The purpose of this dissertation is to examine how shareholders can use novel governance mechanisms, such as shareholder proposals and severance agreements, to resolve principal-agent conflicts and thereby promote corporate success. In addition to the influence of shareholders on operational governance, this dissertation also examines CEOs' contractual arrangements (severance agreements) and their influence on managers' personal preferences, such as their affinity for risk. The first paper examines how corporate owners exert their influence on corporate governance through shareholder proposals. Previous research has paid particular attention to the influence of shareholder proposals in recent decades. In particular, the mechanisms underlying shareholder proposals, such as the incentive function of management (Say on Pay), employee compensation (Employee Stock Options) and their frequency (Say on Frequency), as well as the interactions with the choice of auditor providing transparency (Independent Auditors), are not yet fully understood. Based on the principal-agent theory, hypotheses were developed about the interaction of different shareholder proposals as well as their interaction in the context of Mergers & Acquisitions (M&A) transactions. These hypotheses were empirically tested and confirmed using a dataset of 170 companies and 369 shareholder proposals. By showing the interaction between shareholder proposals, a significant contribution to principal-agent theory is made. The second paper deals with the question of how combinations (complementary and substitutive) of shareholder proposals affect the return on equity. To date, there is no uniform view in the literature on the interaction of shareholder proposals. Shareholder proposals are seen as a recommendation by the company owners to the company management (due to their non-binding character) to influence the management of the company. In a configuration analysis with a data set of 744 shareholder proposals in 124 companies, the influence of shareholder proposals on return on equity is investigated. In this context, classic success factors such as alignment of interests and transparency have a significant influence on the jointly achievable return on equity, while employee incentives have no impact on return on equity. Therefore, the study presents the relevance of shareholder proposals as a governance tool and recommends an evaluation of the design of the various shareholder proposals for the different stakeholders. The third paper focuses on incentive measures that company owners can use to strengthen management's willingness to take risks, e. g. severance agreements. Previous research has only recently paid special attention to the effect of severance agreements and their incentive function. In particular, the underlying mechanisms, such as the triggering of risk-taking through the design of human capital protection and the CEO's income perspective, are not yet understood. Based on a theoretical framework by Cowen et al. (2016) and basic tenets of PAT, I examine the influences of various dimensions of severance agreements on risk affinity within a configuration framework using a dataset of 58 ex ante severance agreements. Individual elements of severance agreements have a significant influence on CEOs' risk affinity. The design of severance packages, i. e. several severance elements in combination, also has an influence on CEOs' risk affinity. The study thus underscores the importance of severance agreements and encourages an evaluation of the configurations of the various severance elements.

U2 - 10.15488/13235

DO - 10.15488/13235

M3 - Doctoral thesis

CY - Hannover

ER -