Do golden parachutes matter? Evidence from firms that ultimately filed for bankruptcy

Maskara, Pankaj K.; Miller, Laura S.

doi:10.1016/j.qref.2017.05.002

Cited by 10 publications

(4 citation statements)

References 41 publications

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“…GPs can protect shareholder wealth by encouraging the use of M&A instead of bankruptcy (Evans & Hefner, 2009). Similarly, when a company is in financial distress, GPs can help to recruit managers with better reputations, which helps the company handle its difficulties better (Maskara & Miller, 2018). Studies have also shown that companies with GPs have younger management, which indicates that shareholders tend to establish a stable long-term relationship with young CEOs by means of GPs (Lefanowicz et al, 2000); this is the embodiment of optimal contracting theory.…”

Section: Gps From the Perspective Of Optimal Contracting Theorymentioning

confidence: 98%

The Motivation and Consequences of Golden Parachute Provisions: A Case Study of TBEA Co., Ltd.

Huo

Zhang

Huang

2021

China Journal of Accounting Studies

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The paper examines the motivation and consequences of Golden Parachute (GP) contracts in the context of TBEA, a Chinese company whose GP payment was 1,000 times executive annual salary and which rescinded its GP provision in 2019. We find that for TBEA, whose ownership is dispersed, anti-takeover was the main motivation for the adoption of GPs, and that managerial power was the key factor in designing GPs with payment of high monetary value. We also find that such GPs may induce higher excess executive compensation, lower shareholder participation, and reduce firm value, and that market reaction to the rescinding of GPs is positive. These results show that emerging capital markets should beware of the negative effect of GPs on firm value.

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Section: Gps From the Perspective Of Optimal Contracting Theorymentioning

confidence: 98%

The Motivation and Consequences of Golden Parachute Provisions: A Case Study of TBEA Co., Ltd.

Huo

Zhang

Huang

2021

China Journal of Accounting Studies

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“…This allowed us to empirically test the entrenchment hypothesis proposed by Bhargava et al (2017) and, consequently, expand previous evidence by examining if, in some circumstances, stock price crash risk could be associated with an aggressive managerial entrenchment' mechanism, namely eternity poison pills. (3) We are primarily focused on the scrutiny of one specific antitakeover defense, instead of examining anti-takeover laws spanning varied mechanisms, each one with different characteristics that do not always focus on benefiting shareholders, such as golden parachutes, as discussed by Maskara and Miller (2018).…”

Section: Ijmf 193mentioning

confidence: 99%

Stock price crash risk and the adoption of poison pills: evidence from Brazil

Azevedo

Schwarz²,

Dias³

et al. 2022

IJMF

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PurposeThe purpose of this paper is to examine the effect of stock price crash risk on the adoption of poison pills.Design/methodology/approachThe authors estimate logit and probit regressions. Their sample includes 185 Brazilian public firms for the period 2010–2018. Following previous studies, the authors use the negative skewness of firm-specific weekly returns and the down-to-up volatility of firm-specific weekly returns as measures of firm's stock price crash risk. As proxies of poison pills, the authors employ the “conventional” poison pills in their baseline models and the “eternity” poison pills, which prevent the removal of poison pills from bylaws, in additional models.FindingsThe authors find that stock price crash risk measures are not associated with poison pill adoption. However, although stock price crash risk does not lead to poison pill adoption as a complementary corporate governance mechanism that protects firms against hostile takeover attempts, further results show that managers do not draw on stock price crash risk as a pretext to entrench themselves. Additional analyses also highlight that CEO power seems to play a role in moderating the relationship between stock price crash risk and eternity poison pill adoption.Originality/valueThe authors contribute to the literature on stock price crash risk, which calls for research in international contexts to better understand the effect of stock price crash risk on country-specific idiosyncratic features. The authors discuss a controversial anti-takeover mechanism that has been debated by Brazilian policymakers.

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“…This unique setting enables us to test the entrenchment hypothesis proposed by Bhargava et al (2017) and, consequently, expand prior findings by looking at whether poison pill adoption in the IPO setting is related to aggressive managerial entrenchment practices through earnings manipulations. Finally, we primarily focus on scrutinizing one specific antitakeover defense instead of examining antitakeover laws spanning various mechanisms, each with different characteristics that do not always focus on benefiting shareholders, such as golden parachutes, as discussed by Maskara and Miller (2018).…”

Section: Introductionmentioning

confidence: 99%

Poison pills adoption, real earnings management and IPO failure

Trabelsi¹,

Chalwati²

2023

CAFR

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PurposeThis paper examines the relationship between poison pills, real earnings management and initial public offering (IPO) failure.Design/methodology/approachThe authors sampled 2,997 IPO firms that went public during 1993-2015.FindingsThe authors find that IPO firms manipulate earnings upward using real earnings management. The authors also find that IPO firms exhibiting a higher level of real earnings management have a higher probability of IPO failure. In addition, the authors find that weak shareholders' governance is positively associated with IPO failure.Practical implicationsThese results suggest that poor governance structures in failed firms open the door to manipulating real activities and increasing operational risk.Originality/valueThe study findings are of most significant interest to potential investors and other stakeholders affiliated with a firm going public, an auditor, an underwriter, the lawyers who consult with the firm and employees or executives who might consider joining that firm.

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Do golden parachutes matter? Evidence from firms that ultimately filed for bankruptcy

Cited by 10 publications

References 41 publications

The Motivation and Consequences of Golden Parachute Provisions: A Case Study of TBEA Co., Ltd.

The Motivation and Consequences of Golden Parachute Provisions: A Case Study of TBEA Co., Ltd.

Stock price crash risk and the adoption of poison pills: evidence from Brazil

Poison pills adoption, real earnings management and IPO failure

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