Governance Choices During Speculative Exuberance

Much of the existing research on corporate governance has taken an efficiency-oriented agency perspective where governance structures are chosen as efficient contracts that minimize both potential agency costs and the costs associated with the use of internal control mechanisms. Because both financial markets and contracts are assumed to be efficient and take into account all relevant factors, problems should generally be nonexistent, or at worst be short-term, self-correcting aberrations. However, the wave of recent corporate scandals casts doubt on the credibility of this strong-form efficiency assumption during periods of speculative exuberance. Unfortunately, little research examines this issue, and the impact of speculative exuberance on governance choices of firms is very much an open question. This dissertation is an attempt to address gaps in the literature by probing more deeply into the question of how firm governance practices are influenced by economic speculation. It explores the processes that underlie governance choices to discover if and how speculative exuberance impacts these choices. Specific hypotheses are developed and tested on a sample of firms drawn from the population of initial public offerings between January 1, 1986, and December 31, 2001. The results of this study support a mixed model of governance choice, where both efficiency and sociopolitical considerations appear to impact both the choice and effectiveness of governance mechanisms. It appears that IPO firms establish structurally stronger boards and use greater amounts of incentive-alignment mechanisms during periods of exuberance. These effects are enhanced for firms with experienced managers, and although the structural strength of the board appears to reduce the severity of agency problems, speculative exuberance decouples this relationship.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Business Administration

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2015

Author dc:creator

• Mishina, Yuri

Contributors dc:contributor

• Joseph Porac

• Business Administration, Management

Language dc:language

eng

Identifier

(MiAaPQ)AAI3130984

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/84536