Tag: Pedro Matos


International Corporate Governance Spillovers

The following post comes to us from Rui Albuquerque of the Department of Finance at Boston University; Miguel Ferreira, Professor of Finance at Nova School of Business and Economics; Luis Brandao Marques, Senior Economist at the International Monetary Fund; and Pedro Matos of the Finance Area at the University of Virginia.

In the paper, International Corporate Governance Spillovers: Evidence from Cross-Border Mergers and Acquisitions, which was recently made publicly available on SSRN, we investigate whether the change in corporate control following a cross-border M&A leads to changes in corporate governance of non-target firms that operate in the same country and industry as the target firm. We focus on the strategic complementarity in governance choices between the target firm and its rival firms in the local market. We take the view that corporate governance is affected by the choice of other competing firms as in the models developed by Acharya and Volpin (2010), Cheng (2010), and Dicks (2012).

To provide guidance for our empirical analysis, we develop a simple industry oligopoly model, which captures the idea that rival firms operating in a given industry change their governance in response to competitive forces. The spillover effect occurs as firms in an industry recognize that corporate governance is used more efficiently by the target firm and therefore strengthen their own governance as a response. The model has two decision stages and builds on the work of Shleifer and Wolfenzon (2002) and Albuquerque and Wang (2008). In the first stage, outside shareholders choose firm-level governance (i.e., how much to monitor and limit of managerial private benefits), given the governance choices of other firms. In the second stage, firm managers choose output and the level of private benefits that they extract in the context of a symmetric oligopolistic industry. In the Nash equilibrium outcome, managers have an incentive to “overproduce” (because their private benefits increase with revenues) and industry-level profits are not maximized.

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(Why) Are US CEOs Paid More?

The following post comes to us from Nuno Fernandes, Professor of Finance at IMD Business School; Miguel Ferreira, Professor of Finance at Nova School of Business and Economics; Pedro Matos, Associate Professor of Business Administration at the University of Virginia, Darden School of Business; and Kevin Murphy, Professor of Finance at the University of Southern California, Marshall School of Business.

The high pay of U.S. CEOs relative to their foreign counterparts has been cited as evidence of excesses in U.S. executive compensation practices. This perception of a “pay divide” between the United States and the rest of the world is usually based on estimates provided by professional services firms like Towers Watson that receive a good deal of press coverage. However, attempts to understand the magnitude and determinants of the U.S. pay premium have been plagued by data limitations due to international differences in rules regulating the disclosure of executive compensation.

In our paper, Are U.S. CEOs Paid More? New International Evidence, forthcoming in the Review of Financial Studies, we use new data to compare CEO pay in 1,648 U.S. firms versus 1,615 firms from 13 foreign countries. Thanks to recently expanded disclosure rules, our sample includes publicly listed firms from both Anglo-Saxon and continental European countries that had mandated disclosure of CEO pay by 2006. It covers nearly 90% of the market capitalization of firms in these markets and, importantly, comprises firms with different corporate governance arrangements.

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Does Governance Travel Around the World?

The following post comes to us from Reena Aggarwal, Professor of Finance at Georgetown University’s McDonough School of Business; Isil Erel of the Finance Department at The Ohio State University; Miguel Ferreira of the NOVA School of Business and Economics; and Pedro Matos of the Finance Department at the University of Southern California.

In our paper Does Governance Travel Around the World? Evidence from Institutional Investors, forthcoming in the Journal of Financial Economics, we examine whether institutional investors affect corporate governance by analyzing portfolio holdings of institutions in companies from 23 countries during the period 2003-2008.

We find that international institutional investors export good corporate governance practices around the world. In particular, foreign institutional investors and institutions from countries with strong shareholder protection are the main promoters of good governance outside of the U.S. Our results are stronger for firms located in civil-law countries. Thus, international institutional investment is especially effective in improving governance when the investor protection in the institution’s home country is stronger than the one in the portfolio firm’s country.

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