Who Disciplines Management in Poorly Performing Companies?
AbstractEconomic theory points to five parties disciplining management of poorly performing firms: holders of large share blocks, acquirers of new blocks, bidders in takeovers, non-executive directors, and investors during periods of financial distress. This paper reports the first comparative evaluation of the role of these different parties in disciplining management. We find that, in the UK, most parties, including holders of substantial share blocks, exert little disciplining and that some, for example, inside holders of share blocks and boards dominated by non-executive directors, actually impede it. Bidders replace a high proportion of management of companies acquired in takeovers but do not target poorly performing management. In contrast, during periods of financial constraints prompting distressed rights issues and capital restructuring, investors focus control on poorly performing companies. These results stand in contrast to the US, where there is little evidence of a role for new equity issues but non-executive directors and acquirers of share blocks perform a disciplinary function. The different governance outcomes are attributed to differences in minority investor protection in two countries with supposedly similar common law systems.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 1999-FE-01.
Date of creation: 01 Apr 2001
Date of revision:
Corporate governance; control; restructuring; board turnover; regulation;
Find related papers by JEL classification:
- G3 - Financial Economics - - Corporate Finance and Governance
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Jana P. Fidrmuc, 2005. "The Effect of Ownership Structures on Managerial Disciplinary Mechanisms after Privatization in Slovakia," Working Papers wpn05-01, Warwick Business School, Finance Group.
- Schmidt, Reinhard H., 2003. "Corporate Governance in Germany: An Economic Perspective," CFS Working Paper Series 2003/36, Center for Financial Studies (CFS).
- Randall Morck & Bernard Yeung, 2009.
"Never Waste a Good Crisis: An Historical Perspective on Comparative Corporate Governance,"
NBER Working Papers
15042, National Bureau of Economic Research, Inc.
- Randall Morck & Bernard Yeung, 2009. "Never Waste a Good Crisis: An Historical Perspective on Comparative Corporate Governance," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 145-179, November.
- Ugur Lel & Darius P. Miller, 2006.
"International cross-listing, firm performance and top management turnover: a test of the bonding hypothesis,"
International Finance Discussion Papers
877, Board of Governors of the Federal Reserve System (U.S.).
- Ugur Lel & Darius P. Miller, 2008. "International Cross-Listing, Firm Performance, and Top Management Turnover: A Test of the Bonding Hypothesis," Journal of Finance, American Finance Association, vol. 63(4), pages 1897-1937, 08.
- Goergen, Marc & Renneboog, Luc, 2011. "Managerial compensation," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1068-1077, September.
- Rustam, Sehrish & Rashid, Kashif & Zaman, Khalid, 2013. "The relationship between audit committees, compensation incentives and corporate audit fees in Pakistan," Economic Modelling, Elsevier, vol. 31(C), pages 697-716.
- Franks, Julian R & Mayer, Colin & Rossi, Stefano, 2003. "The Origination and Evolution of Ownership and Control," CEPR Discussion Papers 3822, C.E.P.R. Discussion Papers.
- Julian Franks & Colin Mayer & Stefano Rossi, 2003.
"Ownership: Evolution and Regulation,"
OFRC Working Papers Series
2003fe14, Oxford Financial Research Centre.
- Ozkan, Neslihan, 2012. "Do CEOs gain more in foreign acquisitions than domestic acquisitions?," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1122-1138.
- Fidrmuc Jana P. & Goergen Marc & Renneborg Luc, 2005. "Insider Trading, News Releases and Ownership Concentration," Working Papers wpn05-03, Warwick Business School, Finance Group.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).
If references are entirely missing, you can add them using this form.