A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value

Grennan, Jillian

doi:10.2139/ssrn.2345384

Cited by 57 publications

(37 citation statements)

References 68 publications

(103 reference statements)

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“…Bianchi, Farina and Fiordelisi, 2016;Fiordelisi and Ricci, 2014;Moniz, 2016;Popadak, 2013;Srivastava et al, 2018). Bianchi, Farina and Fiordelisi, 2016;Fiordelisi and Ricci, 2014;Moniz, 2016;Popadak, 2013;Srivastava et al, 2018).…”

Section: Does Corporate Culture Affect Bankmentioning

confidence: 99%

“…Finally, we join recent works on corporate culture that use natural language processing on large datasets in order to measure corporate culture (e.g. Bianchi, Farina and Fiordelisi, 2016;Fiordelisi and Ricci, 2014;Moniz, 2016;Popadak, 2013;Srivastava et al, 2018). This approach allows us to measure the corporate culture of a large crosssectional sample of banks compared with studies that survey small samples of firms (Chatman and O'Reilly, 2016).…”

Section: Introductionmentioning

confidence: 98%

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Does Corporate Culture Affect Bank Risk‐Taking? Evidence from Loan‐Level Data

Nguyen

Sila

2019

British J of Management

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Using comprehensive corporate and retail loan data, we show that the corporate culture of banks explains their risk-taking behaviour. Banks whose corporate culture leans towards aggressive competition are associated with riskier lending practices: higher approval rate, lower borrower quality, and fewer covenant requirements. Consequently, these banks incur larger loan losses and make greater contributions to systemic risk. The opposite behaviour is observed among banks whose culture emphasizes control and safety. Our findings cannot be explained by heterogeneity in a bank's business model, CEO compensation incentives or CEO characteristics. We use an exogenous shock to the US banking system during the 1998 Russian default crisis to support a causal inference.We are grateful to Marc Goergen (Associate Editor) and three anonymous referees for very helpful comments and suggestions. We also thank . Harvard IV-4 Psychosocial Dictionary. For instance, words like 'fast, expand, performance and win' are associated with compete culture, words like 'envision, freedom and venture' are associated with create culture, words like 'cooperate, human and partner' are associated with collaborate culture and words like 'monitor, competence and long-term' are associated with control culture.C 2019 British Academy of Management.

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Section: Does Corporate Culture Affect Bankmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 98%

Does Corporate Culture Affect Bank Risk‐Taking? Evidence from Loan‐Level Data

Nguyen

Sila

2019

British J of Management

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“…Moreover, the increase in the sensitivity of executive compensation to performance could give mangers stronger incentives to monitor employees and improve their efficiency. Relatedly, Popadak (2014) shows that hedge fund activism reduces the "culture" orientation of the firm, where culture includes customer-focus, employee integrity, and collaboration.…”

Section: Brav Et Al (2013) Analyze the Changes In Wages And Work Houmentioning

confidence: 99%

Recent Advances in Research on Hedge Fund Activism: Value Creation and Identification

Brav

Jiang

Kim

2015

Annu. Rev. Financ. Econ.

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Hedge fund activism has emerged as a major force of corporate governance since the 2000s. By the mid-2000s, there were between 150-200 activist hedge funds in action each year, advocating for changes in 200-300 publicly listed companies in the U.S. In this paper, we review the evolution and major characteristics of hedge fund activism, as well as the short-and long-term impact of such activities on the performance and governance of the targeted companies. Though most of the analyses are based on a comprehensive sample of over 2,000 activism events in the U.S. from 1994 to 2011, hand-collected by the authors from regulatory filings and news searches, this paper covers all major studies on the topic, including those on non-U.S. markets. I. Data on Hedge Fund ActivismThis section reviews the approaches researchers have taken to construct samples of hedge fund activism events. Data on activist interventions in the U.S. are generally based on Schedule 13D filings submitted to the SEC. Section 13(d) of the 1934 Securities Exchange Act requires investors who are beneficial owners of over 5% of any class of publicly traded securities of a company, and who have an intention to influence corporate control, to disclose their ownership and intent within 10 days of crossing the 5% threshold. The Schedule 13D filing provides the filing date and information about the identity of the filer, such as the filer's ownership and its changes, cost of purchase, and most importantly, the purpose of the investment (from Item 4 "Purpose of Transaction").It is important to note that the SEC allows beneficial owners who have purchased shares in the ordinary course of business and do not intend to influence control to file a Schedule 13G, which requires less information and allows the filer a longer delay in disclosure. Brav et al. (2008) summarize the stated objectives that the activist funds provide when they announce their intent to intervene into the following five major categories: II. Characteristics of Hedge Fund Activism Events"general undervaluation/maximize shareholder value," "capital structure," "business strategy," "sale of target company," and "governance." The objectives, except the first, are not mutually exclusive as one activist event can target multiple issues. The first category represents 59.5% of the sample and includes events in which the hedge fund believes that the company is undervalued and/or that the fund can help the manager maximize shareholder value. The second category (12.7% of the sample) includes activism targeting firms' payout policies and capital structure. The third set of events includes activism targeting issues related to business strategy, such as operational efficiency, business restructuring, mergers and acquisitions, and growth strategies. This group represents 17.8% of all events. The fourth category, comprising 15.2% of activist events, involves activism demanding the sale of the target. In this category, hedge funds attempt either to force a sale of the target company to a third par...

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“…Previous papers document that governance deficiencies and disagreements over strategy are important triggers for shareholder activism (McCahery, Sautner, and Starks, 2014) and that activists tend to target smaller firms with higher operating performance and lower payouts and that their activities are associated with positive abnormal returns and changes to firm performance that are consistent with activists creating shareholder value. 7 Activists have also been found to affect a wide range of other outcomes including innovation (Brav, Jiang, Ma, and Tian, 2014), corporate culture (Popadak, 2013), director labor markets (Fos and Tsoutsoura, 2014), labor productivity (Brav, Jiang, and Kim, 2015), mergers (Boyson, Gantchev, and Shivdasani, 2015), resistance by managers (Boyson and Pichler, 2016), and measures of adverse selection (Collin-Dufresne and Fos, 2015). While the effects of activism have been widely studied, relatively little is understood about how such investors choose their tactics and what factors contribute to their success.…”

Section: Introductionmentioning

confidence: 99%

Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism

2018

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We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists. We find activists are more likely to pursue changes to corporate control or influence (e.g., via board representation) and to forego more incremental changes to corporate policies when a larger share of the target company's stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of proxy fights and a higher likelihood the activist obtains board representation or the sale of the targeted company. Overall, our findings suggest that the increasingly large ownership stakes of passive institutional investors mitigate free-rider problems associated with certain forms of intervention and ultimately increase the likelihood of success by activists."This is the biggest shift in the battle for corporate control since private equity was invented in the 1980s…activists realize they can influence [the] concentrated shareholder base at many companies, and they're tapping into the desires of shareholders to see change take place." -James Rossman, head of corporate preparedness at Lazard

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A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value

Cited by 57 publications

References 68 publications

Does Corporate Culture Affect Bank Risk‐Taking? Evidence from Loan‐Level Data

Does Corporate Culture Affect Bank Risk‐Taking? Evidence from Loan‐Level Data

Recent Advances in Research on Hedge Fund Activism: Value Creation and Identification

Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism

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