Geographically dispersed ownership and inter-market stock price arbitrage—Ahold's crisis of corporate governance and its implications for global standards

Abstract

Scandals of corporate governance in the United States and Europe in the aftermath of the TMT bubble captured the public imagination. In play were the interests of senior executives in relation to investors, prompting debate over countries' standards of corporate governance in the global market place. Ahold was (and is) an especially important instance, involving significant internal accounting and reporting failures and poor public disclosure of market-sensitive information. Ahold is also a global corporation crosslisted on major financial markets. In this paper, we report the analysis of market trading in Ahold stock between Amsterdam and New York. It is shown that greater volatility in Amsterdam daily closing prices presaged the crisis to come in Ahold shares implying leakage of information to privileged local insiders. It is also shown that in the aftermath of Ahold's crisis, management responded to the lack of global investor confidence by improving transparency and governance standards consistent with the expectations of global investors. Implications are drawn for the pricing of corporate governance and the process of convergence in national standards of corporate governance. The continuity of different regimes of governance is subject to inter-market arbitrage especially if corporations seek to maintain and enhance their reputations in the global financial market place.

The remuneration of independent directors in the UK and Italy: An empirical analysis based on agency theory

“…INEDs who have an interest at stake may behave differently from those who are fully independent because whilst they are deemed to be formally independent, in reality they may not be. Those INEDs may act in the interests of corporate insiders, collude with the CEO (or the controlling shareholder) and exercise their monitoring duties less efficiently (Melis, 2005;Clark, Wójcik & Bauer, 2006). …”

Where Do “Impatient” Mutual Funds Invest? A Special Attraction for Large Proximate Markets and Companies with Strategic Investors

“…They document a negative relationship between European stock price volatility and ownership concentration, proving once again the importance of geography. In the same vein, the study of Clark, Wójcik, and Bauer (2006) [40] showed a negative relationship between the quality of corporate governance and stock price volatility. Clark and Wójcik (2007) [5] carried out a study on portfolio managers, the issue being whether they are better placed to pursue a passive-index strategy or an active-investment strategy in the specific case of the German industry.…”

Revisiting the US food retail consolidation wave: regulation, market power and spatial outcomes

“…Meanwhile the performance of Dutch food operator, Ahold has stagnated within the US, partly due to the shockwaves emanating from a 2003 financial scandal relating to significant accounting irregularities (Wrigley and Currah, 2003;Clark et al, 2006). While some of these problems stemmed from the retailer's Argentinian business (Wrigley and Currah, 2003), in the US, the retailer was forced to restate more than $800 million in earnings from its US Foodservice operation after executives had inflated promotional rebates from suppliers -something that led the retailer to pay $1.1 billion to the Securities and Exchange Commission (SEC) to resolve shareholder lawsuits (Tse and Williams, 2007).…”