Strategic corporate governance, employment risk, and firm risk taking a three essay investigation in the u s and taiwan

Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   STRATEGIC CORPORATE GOVERNANCE, EMPLOYMENT RISK, AND FIRM RISK TAKING: A THREE-ESSAY INVESTIGATION IN THE U.S AND TAIWAN SHUPING LI NATIONAL UNIVERSITY OF SINGAPORE 2014 i    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   STRATEGIC CORPORATE GOVERNANCE, EMPLOYMENT RISK, AND FIRM RISK TAKING: A THREE-ESSAY INVESTIGATION IN THE U.S AND TAIWAN SHUPING LI (M.A in Economics) A THESIS SUBMITTED FOR THE DEGREE OF DOCTOR OF MANAGEMENT DEPARTMENT OF STRATEGY AND POLICY NATIONAL UNIVERSITY OF SINGAPORE 2014 i    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   DECLARATION I hereby declare that the thesis is my original work and it has been written by me in its entirety I have duly acknowledged all the sources of information which have been used in the thesis This thesis has also not been submitted for any degree in any university previously SHUPING LI June, 2014 ii    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   ACKNOWLEDGEMENTS It takes a world to finish a dissertation On the top of my thank you list are my dissertation committee members Professors Ishtiaq Pasha Mahmood, Will Mitchell, Ivan Png, and Vivek Tandon They cajoled me into doing something other than reporting regular statistics and getting in touch with the reality to really open the black box As importantly, they never hesitated to give me advice and support when I frowned and moaned over the course I couldn’t have finished this dissertation without their intellectual generosity I owe most to Pasha and Will As my co-chairs, they spent numerous hours helping me build up my niche and also my confidence as an independent scholar Because of their constant mentoring and encouragement, I started to think that maybe I could survive in the field after all Outside my committee, I would like to thank Dr Sai Yayavaram for equipping me with rigorous STATA programming from scratch, Dr Ya-Hui Lin and Dr Chi-Nien Chung for helping me access a large part of my dissertation data These valuable assets benefit my work beyond the scope of the dissertation I also want to thank my support group: Jackie Yan, Zen Goh, Suzy Yu, Jessie Liang, Xiangyu Gao, Toshimitsu Ueta, and Qian Lu The regular lunches and outings with them have made my Ph.D life memorable And, finally, my deep gratitude to my dearest family Their endless love and comic relief keep me in touch with my childhood innocence despite the increasing complexity of life My special thanks are due to my mom for inspiring me to live a life with passion and intelligence, Wendong for sharing my happiness and sorrows, and Bo for bringing me courage and hope I dedicate this work to them iii    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   TABLE OF CONTENTS Chapter -1-41 Chapter 42-88 Chapter 89-131 Bibliography -132-141 Appendices 142-159 iv    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   SUMMARY This dissertation comprises three studies investigating how corporate governance affects firm risk taking through shaping executives’ employment risk It aims to reconcile inconsistent findings on the impact of corporate governance on firm risk taking in strategic corporate governance literature The three studies address two particular questions First, does corporate governance affect firm risk taking through shaping executives’ employment risk? And second, how does the relationship vary with distinct market institutions? Based on longitudinal analyses on public firms in the U.S and Taiwan, the findings provide new insights to resolving debates on the relationship between corporate governance and firm risk taking as well as to relaxing agency theory's simplistic assumptions, including constant agent risk aversion, congruent principal interests, and overlooked social contexts They also provide important managerial and policy implications in the face of increased executive employment risk around the globe Chapter 1, titled “Unbalanced changes in the codified and tacit dimensions of monitoring: The impact on shifts in managerial risk preferences”, is a joint work with Vivek Tandon and Will Mitchell It examines how imbalanced changes in different dimensions of information in the monitoring within U.S public firms after Sarbanes-Oxley Act affect managerial investment horizons Using a Difference-in-differences estimation based on a matched set of 856 U.S high-tech firms and 118 foreign crosslisted high-tech firms from 1996 to 2006, the study finds that increasing codified information without concurrently increasing tacit information in monitoring unexpectedly shifts managers’ preferences away from long-term v    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   investment (i.e., R&D) to short-term investments (i.e., IVST) due to monitors’ increased reliance on codified criteria in managerial evaluation The shift is stronger with greater ex-ante ambiguity regarding the veracity of codified information and with greater value of codified information in predicting a firm’s competitiveness.  Chapter 2, “Caught in the crossfire: How conflict of interests among large shareholders affects precipitate management turnover”, is a joint work with Will Mitchell It assesses the impact of interest conflicts among shareholders in a firm’s ownership structure on senior executives’ employment risk as reflected as their forced and abrupt voluntary exits Analyses based on 599 Taiwanese firms from 2000 to 2011 show that precipitate management turnover increases with the interaction between family and non-family large shareholders due to increased power struggles within the firm and incompatible job demands faced by executives The relationship is stronger with weaker corporate governance, higher resource intangibility, and some forms of lower executive power, each of which amplifies power struggles and/or incompatible job demands In Chapter 3, “Employment risk and risk taking with different time horizons: The moderating impacts of internal and external executive markets”, I further examine how the threat of executive dismissals, i.e., employment risk, affects their risk taking independently and interactively with executive market conditions Analyses based on 715 Taiwanese firms from 1997 to 2011 show that executives’ employment risk reduces their long-term risk taking (i.e., investment flow to Chinese subsidiaries, R&D, and technological exploration) while not affecting short-term risk taking (i.e., acquisition) The impacts of vi    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   employment risk on different time horizons of risk taking become weaker when a firm’s external managerial ties increase executives’ prospect of future job opportunities; this effect is stronger for executives more sensitive to external executive market due to high power contestation in the firms’ top management.   Despite the different empirical settings the studies are compatible in terms of the underlying micro-mechanisms centered on executive employment risk and the careful use of recent empirical methods to address endogeneity vii    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   LIST OF TABLES Table 1.1a -37 Table 1.1b -38 Table 1.2 39 Table 1.3 40 Table 1.4 41 Table 2.1 84 Table 2.2 85 Table 2.3 86 Table 2.4 87 Table 2.5 88 Table 3.1 -125 Table 3.2 -126 Table 3.3a -127 Table 3.3b -128 Table 3.4 -129 Table 3.5 -130 Table 3.6 -131 viii    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014   LIST OF FIGURES Figure 1.1 -35 Figure 1.2 -36 Figure 2.1 -82 Figure 2.2 -83 Figure 3.1 123 Figure 3.2 124 ix    Strategic Corporate Governance, Employment Risk, and Risk Taking Shuping Li 2014 Table A1.3b DID Estimation for Alternative Explanations of H1 (Mechanisms to 6) (Negative coefficients indicate reduced investment after change in monitoring) Alternative Mechanism 4: Alternative Mechanism 5: Alternative Mechanism 6: Delisting IT-Boom Collapse Scandal Effect Model 1a Model 1b Model 2a (IT) Model 2b (IT) Model 3a (non-IT) Model 3b (non-IT) R&D IVST R&D IVST R&D IVST -0.24** 0.41* 0.52 -0.84** -0.31*** -0.04 0.03 (0.11) (0.24) (0.34) (0.39) (0.08) (0.18) (0.06) 0.02 1.97** -0.23 2.23* -0.92*** 1.14* -0.48*** (0.40) (0.88) (0.96) (1.26) (0.27) (0.64) (0.13) Observations 289 288 204 202 1,129 1,124 3,879 R-squared 0.46 0.29 0.35 0.31 0.38 0.08 0.07 34 34 35 34 223 221 586 Dependent variable Effect of change on U.S firms (US*SOX) Constant Number of firms Model ROA *** p