Agency theory, proposed by previous studies such as Guidry, Leone, and Rock (1999) and Arya and Huey-Lian (2004), suggests that bonus and other accounting-metric-based compensation can motivate managers to perform well in the short horizon while equity-based compensation, such as restricted shares and stock options, can serve the purpose of aligning the long run interests of shareholders and managers. The empirical evidence, for example Jensen and Murphy (1990), Kaplan (1994), Hall and Liebman (1998), Murphy (1999), Zhou (2000), and Chowdhury and Wang (2009), confirms that incentive compensation is popular in many countries. However, recent studies suggest that the relation between performance and incentive compensation is weak. Shaw and Zhang (2010) find that CEO bonus compensation is less sensitive to poor earnings performance than it is to good earnings performance. Fahlenbrach and Stulz (2011) study the relation between bank performance during the 2008 bank crisis and the bonus and equity-based compensation of bank CEOs. They find that banks with CEOs whose incentives were better aligned with the interests of shareholders performed worse than other banks. This study examines whether ownership structure can explain the differences among compensation structures of chief executive officers (CEOs). In particular, we examine the compensation structure of three distinct groups: family-controlled, institution-controlled, and widely-held firms. We distinguish these three kinds of firms to represent different levels of market imperfection. Compared with family-controlled and institution-controlled firms, widely held firms have dispersed ownership. The most significant weakness of a widely-held ownership structure is the lack of shareholder monitoring due to the unmatched benefit and cost of monitoring for small shareholders. In contrast, a holder of a large block of shares will have the same monitoring costs but the benefits to this shareholder from monitoring management and reducing agency costs would be substantial and larger than the costs of monitoring. Thus the presence of a large shareholder will reduce the agency costs. In addition, large shareholders may be willing to spend time and effort continuously to collect more information on management performance or to estimate the firms investment projects. This behaviour will reduce the problems that arise from information asymmetry and will decrease the waste of free cash flows by managers. Both family-controlled firms and institution-controlled firms have large shareholders. However, whether or not the control shareholders are playing an active monitoring role is still an important issue. From the viewpoint of aligning the interests of managers and shareholders, the family-controlled group is superior to the institution-controlled group. First, institutions are more flexible in moving their ownership from one firm to another depending on performance. If the costs of monitoring are high in comparison to the costs of rebalancing portfolios, institutions will choose to rebalance instead of monitoring. In contrast, a family that controls a firm does not have this flexibility. Second, family-controlled firms generally assign influential positions to family members whose focus is in line with that of the family group. Even though a non family member may be appointed as the manager, the level of monitoring is significant given the high ownership concentration by the family. However, the level of monitoring by a family may not necessarily translate into a reduction of agency costs for minority shareholders. Indeed, previous studies suggest that significant family ownership may lead to agency costs of its own. The family may divert company resources for its own benefit despite the presence of a manager who may or may not be a family member. Essentially, the family and the manager can collude to spend on perks and personal benefits at the expense of minority shareholders. Chourou (2010) suggests that excessive compensation of chief executive officers at some family owned Canadian corporations may be viewed as expropriation of minority rights. Overall, the main objective of this study is to examine whether block-holder monitoring is a substitute to the incentive components of compensation. We propose that as we move from widely-held to institution-controlled the level of monitoring may or may not increase. However, as we move further into higher control, as may be suggested by family ownership, the level of monitoring will increase but this monitoring may not necessarily reduce agency costs. The results show that the institution-controlled firms pay significantly less bonus compensation per dollar of assets than widely-held firms but the differences in equity based compensation are not significant. In addition, the family-controlled corporations offer the lowest performance-based compensation, bonus per dollar of assets, in comparison to the institution-controlled and the widely-held groups. These results indicate that the family-controlled Canadian corporations rely more on monitoring managers than paying them incentive payments in the form of bonus payments. In addition, our results indicate that the institutions which control corporations may be monitoring the managers of these corporations but this monitoring does not significantly reduce the need for the long-term incentive components of compensation. This result suggests that institutions may monitor the short-term performance effectively but they may prefer rebalancing their portfolio rather than monitoring long term performance.

Agency theory, proposed by previous studies such as Guidry, Leone, and Rock (1999) and Arya and Huey-Lian (2004), suggests that bonus and other accounting-metric-based compensation can motivate managers to perform well in the short horizon while equity-based compensation, such as restricted shares and stock options, can serve the purpose of aligning the long run interests of shareholders and managers. The empirical evidence, for example Jensen and Murphy (1990), Kaplan (1994), Hall and Liebman (1998), Murphy (1999), Zhou (2000), and Chowdhury and Wang (2009), confirms that incentive compensation is popular in many countries. However, recent studies suggest that the relation between performance and incentive compensation is weak. Shaw and Zhang (2010) find that CEO bonus compensation is less sensitive to poor earnings performance than it is to good earnings performance. Fahlenbrach and Stulz (2011) study the relation between bank performance during the 2008 bank crisis and the bonus and equity-based compensation of bank CEOs. They find that banks with CEOs whose incentives were better aligned with the interests of shareholders performed worse than other banks. This study examines whether ownership structure can explain the differences among compensation structures of chief executive officers (CEOs). In particular, we examine the compensation structure of three distinct groups: family-controlled, institution-controlled, and widely-held firms. We distinguish these three kinds of firms to represent different levels of market imperfection. Compared with family-controlled and institution-controlled firms, widely held firms have dispersed ownership. The most significant weakness of a widely-held ownership structure is the lack of shareholder monitoring due to the unmatched benefit and cost of monitoring for small shareholders. In contrast, a holder of a large block of shares will have the same monitoring costs but the benefits to this shareholder from monitoring management and reducing agency costs would be substantial and larger than the costs of monitoring. Thus the presence of a large shareholder will reduce the agency costs. In addition, large shareholders may be willing to spend time and effort continuously to collect more information on management performance or to estimate the firms investment projects. This behaviour will reduce the problems that arise from information asymmetry and will decrease the waste of free cash flows by managers. Both family-controlled firms and institution-controlled firms have large shareholders. However, whether or not the control shareholders are playing an active monitoring role is still an important issue. From the viewpoint of aligning the interests of managers and shareholders, the family-controlled group is superior to the institution-controlled group. First, institutions are more flexible in moving their ownership from one firm to another depending on performance. If the costs of monitoring are high in comparison to the costs of rebalancing portfolios, institutions will choose to rebalance instead of monitoring. In contrast, a family that controls a firm does not have this flexibility. Second, family-controlled firms generally assign influential positions to family members whose focus is in line with that of the family group. Even though a non family member may be appointed as the manager, the level of monitoring is significant given the high ownership concentration by the family. However, the level of monitoring by a family may not necessarily translate into a reduction of agency costs for minority shareholders. Indeed, previous studies suggest that significant family ownership may lead to agency costs of its own. The family may divert company resources for its own benefit despite the presence of a manager who may or may not be a family member. Essentially, the family and the manager can collude to spend on perks and personal benefits at the expense of minority shareholders. Chourou (2010) suggests that excessive compensation of chief executive officers at some family owned Canadian corporations may be viewed as expropriation of minority rights. Overall, the main objective of this study is to examine whether block-holder monitoring is a substitute to the incentive components of compensation. We propose that as we move from widely-held to institution-controlled the level of monitoring may or may not increase. However, as we move further into higher control, as may be suggested by family ownership, the level of monitoring will increase but this monitoring may not necessarily reduce agency costs. The results show that the institution-controlled firms pay significantly less bonus compensation per dollar of assets than widely-held firms but the differences in equity based compensation are not significant. In addition, the family-controlled corporations offer the lowest performance-based compensation, bonus per dollar of assets, in comparison to the institution-controlled and the widely-held groups. These results indicate that the family-controlled Canadian corporations rely more on monitoring managers than paying them incentive payments in the form of bonus payments. In addition, our results indicate that the institutions which control corporations may be monitoring the managers of these corporations but this monitoring does not significantly reduce the need for the long-term incentive components of compensation. This result suggests that institutions may monitor the short-term performance effectively but they may prefer rebalancing their portfolio rather than monitoring long term performance.

The thesis examines the dynamic impact of capital structure on firm performance in Nigeria. The aims of this thesis are; first, to investigate the impact of capital structure of firms on their performance in a dynamic framework. This is unlike previous studies in the capital structure literature that have used static analysis. Second, to examine the dynamic feedback from performance to capital structure using the two-step system generalized method of moment estimator. Third, to explore the determinants or variables that influence capital structure choice of firms in Nigeria and the rate of adjustment to achieve optimal debt position. Fourth, to assess the possibility of non-monotonicity effect of capital structure on firm performance and non-monotonicity effect of performance on capital structure. The second chapter discusses the theoretical framework and review the empirical literatures on capital structure and firm performance. Also, the chapter review empirical literature on firm performance and capital structure as well as on determinants of capital structure. The study find much evidence in support of the theoretical prediction of the agency cost theory of capital structure. The stuudy observed that there are limited empirical studies on the franchise value and efficiency-risk hypotheses of reverse causality from performance to capital structure. The empirical literatures on determinants of capital structure suggests that both firm specific and country factors are important variables that drive capital structure choice of firms. The thrid chapter examines the methodology of the study. The population, sampling and sampling size, estimation methods were discussed in this chapter. The fourth chapter analysis and described the data employed in the study. Specifically, the results of the dynamic relationship between capital structure and firm performance were presented in this chapter. The results indicate that capital structure has non-monotonic effect on firm performance thereby supports the agency cost theory of capital structure. The fifth chapter provides results on the reverse causality between performance and capital structure. The findings indicate that there is reverse causality between performance and capital structure. This is evidence in the statistically significant negative finding between performance and capital structure. This finding support the franchise value hypothesis. The findings of this study also reveal that non-monotonic relationship exist between performance and capital structure. The sixth chapter provides results on the determinants of capital structure of Nigerian firms. The findings indicate that both firm specific variables (return on equity, risk, profitablity, age, size, tangibility, growth opportunities, dividend, ownership) and country variables (inflation, interest rates, credit to private sector as percentage of gross domestic product, institutional quality) jointly influence capital structure choice of firms in Nigeria. The findings equally indicate that firms in Nigeria adjust to their optimal debt target relatively faster with lower cost of adjustment because of better access to private debt that public debt. Conclusions from the empirical chapters indicate that firm specific and country factors are major determinants of capital structure of firms in Nigeria and that capital structure choice of firms influence their performance. Equally, there is evidence that indicate that there is reverse causality from performance to capital structure of firms. The study therefore contend that the agency cost theory of capital structure and franchise value hypothesis are portable in the Nigerian context. Full portability of these theories in emerging market like Nigeria may require modifications to accommodate specific peculiarities of operating and business environment of Nigeria.

Many previous studies suggest that agency costs and information asymmetry are signifi-cant factors that affect the relationship between the investment expenditures of firms and the availability of cash from internal operations. Some other studies show that dividing firms in terms of the degree of ownership concentration further explains the relationship. However, the findings of previous studies are not consistent suggesting that other firm characteristics may be affecting the results. We propose that additional attention to the nature of ownership control of firms may explain the inconsistency. In this study, we examine the investment behaviour of family-controlled firms, institu-tion-controlled firms and widely-held firms. We distinguish between these three kinds of firms as they represent different levels of market imperfection. Therefore, we expect diverse investment behaviours among the three groups. Compared with family-controlled and institution-controlled firms, widely held firms have dispersed ownership structures. The greatest weakness of a widely-held ownership structure is the lack of shareholder monitoring due to the unmatched benefit and cost of control for small shareholders. The existence of at least one large shareholder will reduce the agency costs and asymmetric information. On one hand, enhanced monitoring will decrease the waste of free cash flows by managers. On the other hand, large shareholders are willing to spend time and effort to collect more information on management performance or to estimate the firms investment projects and thus reduce the information asymmetry. Both family-controlled firms and institution-controlled firms have large shareholders. However, whether or not the shareholders are playing an active monitoring role is still an important issue. From the point of aligning the interests of managers and shareholders, the family-controlled group is superior to the institution-controlled group as family-controlled firms generally assign influential positions to family members whose focus is in line with that of the family group. Even though a non family member may be appointed as the manager, the level of monitoring is significant given the high ownership concentration by the family. On the other hand, significant family ownership may lead to agency costs of its own. The main disadvantage of owner-managers is that they may lack the expertise to manage their firms although their position in the family may make it natural for them to be the manager. Another advantage of the family-controlled firm is that the family may divert company resources for its own benefit despite the presence of a manager who may or may not be a family member. Essentially, the family and the manager can all collude to spend on perks and personal benefits at the expense of minority shareholders. Therefore, as we move from widely-held to institution-controlled the level of agency costs may decrease but as we move further into higher control, as may be suggested by family ownership, the level of agency costs may increase again. Although previous studies have noticed the influence of ownership structure, no analysis has been carried out to explore the investment behaviour of firms controlled by the three differ-ent kinds of shareholders. Our first motivation is to fill this gap. Splitting our sample into three representative groups enables us to study the financing constraints and investment behaviour of firms that are family-controlled, institution-controlled, and widely held. The focus of this study is on Canadian firms. The Canadian evidence is worth particular attention because the Canadian business environment is similar to the US business environment in terms of legal, regulatory, and market institutions but it is similar to European or Asian firms in terms of ownership structure. Therefore, a study of Canadian firms can provide a useful and rational assessment of the investment behaviour of firms that follow the ownership structures of Europe and Asia but operate in a business environment and institutional setting similar to those of the US. Further, a large number of Canadian firms have controlling shareholders and a large proportion, approximately 60%, of Canadian firms can be categorized as having concentrated ownership structure. Among the firms with concentrated ownership, over 1/3 of them can be dis-tinguished as family-controlled. This dataset provides an ideal setting to study the investment behaviours of firms according to the nature of their controllers. Our results illustrate that the intensity of investments of widely-held firms is higher than the intensity of investments of concentrated ownership firms and that the intensity of investments of widely-held firms is positively and significantly affected by the availability of funds from internal sources. In contrast, for concentrated ownership firms the intensity is positively and significantly affected by the availability of growth opportunities. These observations suggest that in comparison with the concentrated ownership firms, the widely-held firms face higher levels of financing constraints and exhibit less value maximizing behaviour. However, once we separate the family-controlled firms from the institution-controlled firms, we find that the investment expenditures of the family-controlled firms and the institution-controlled firms are not significantly different in terms of their dependence on internal cash flows or on the market-to-book ratios. We also find that widely-held firms tend to invest in projects that payoff quickly. This preference may be the result of these firms desires to ease their external funding constraints by generating funds internally.

Many previous studies suggest that agency costs and information asymmetry are signifi-cant factors that affect the relationship between the investment expenditures of firms and the availability of cash from internal operations. Some other studies show that dividing firms in terms of the degree of ownership concentration further explains the relationship. However, the findings of previous studies are not consistent suggesting that other firm characteristics may be affecting the results. We propose that additional attention to the nature of ownership control of firms may explain the inconsistency. In this study, we examine the investment behaviour of family-controlled firms, institu-tion-controlled firms and widely-held firms. We distinguish between these three kinds of firms as they represent different levels of market imperfection. Therefore, we expect diverse investment behaviours among the three groups. Compared with family-controlled and institution-controlled firms, widely held firms have dispersed ownership structures. The greatest weakness of a widely-held ownership structure is the lack of shareholder monitoring due to the unmatched benefit and cost of control for small shareholders. The existence of at least one large shareholder will reduce the agency costs and asymmetric information. On one hand, enhanced monitoring will decrease the waste of free cash flows by managers. On the other hand, large shareholders are willing to spend time and effort to collect more information on management performance or to estimate the firms investment projects and thus reduce the information asymmetry. Both family-controlled firms and institution-controlled firms have large shareholders. However, whether or not the shareholders are playing an active monitoring role is still an important issue. From the point of aligning the interests of managers and shareholders, the family-controlled group is superior to the institution-controlled group as family-controlled firms generally assign influential positions to family members whose focus is in line with that of the family group. Even though a non family member may be appointed as the manager, the level of monitoring is significant given the high ownership concentration by the family. On the other hand, significant family ownership may lead to agency costs of its own. The main disadvantage of owner-managers is that they may lack the expertise to manage their firms although their position in the family may make it natural for them to be the manager. Another advantage of the family-controlled firm is that the family may divert company resources for its own benefit despite the presence of a manager who may or may not be a family member. Essentially, the family and the manager can all collude to spend on perks and personal benefits at the expense of minority shareholders. Therefore, as we move from widely-held to institution-controlled the level of agency costs may decrease but as we move further into higher control, as may be suggested by family ownership, the level of agency costs may increase again. Although previous studies have noticed the influence of ownership structure, no analysis has been carried out to explore the investment behaviour of firms controlled by the three differ-ent kinds of shareholders. Our first motivation is to fill this gap. Splitting our sample into three representative groups enables us to study the financing constraints and investment behaviour of firms that are family-controlled, institution-controlled, and widely held. The focus of this study is on Canadian firms. The Canadian evidence is worth particular attention because the Canadian business environment is similar to the US business environment in terms of legal, regulatory, and market institutions but it is similar to European or Asian firms in terms of ownership structure. Therefore, a study of Canadian firms can provide a useful and rational assessment of the investment behaviour of firms that follow the ownership structures of Europe and Asia but operate in a business environment and institutional setting similar to those of the US. Further, a large number of Canadian firms have controlling shareholders and a large proportion, approximately 60%, of Canadian firms can be categorized as having concentrated ownership structure. Among the firms with concentrated ownership, over 1/3 of them can be dis-tinguished as family-controlled. This dataset provides an ideal setting to study the investment behaviours of firms according to the nature of their controllers. Our results illustrate that the intensity of investments of widely-held firms is higher than the intensity of investments of concentrated ownership firms and that the intensity of investments of widely-held firms is positively and significantly affected by the availability of funds from internal sources. In contrast, for concentrated ownership firms the intensity is positively and significantly affected by the availability of growth opportunities. These observations suggest that in comparison with the concentrated ownership firms, the widely-held firms face higher levels of financing constraints and exhibit less value maximizing behaviour. However, once we separate the family-controlled firms from the institution-controlled firms, we find that the investment expenditures of the family-controlled firms and the institution-controlled firms are not significantly different in terms of their dependence on internal cash flows or on the market-to-book ratios. We also find that widely-held firms tend to invest in projects that payoff quickly. This preference may be the result of these firms desires to ease their external funding constraints by generating funds internally.

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Investment in hospitality firms is perceived to be riskier than investments in other types of industries. Based on literature linking good corporate governance to lower default risks and higher credit ratings, this quantitative study is designed to identify the effects of corporate governance on credit ratings in the hospitality industry. After exploring the various factors influencing the characteristics of corporate governance, as well as the specific risks for capital financing in hospitality firms, this research provides empirical evidence to show that hospitality firms with stronger shareholder influence tend to have higher credit ratings. In a related finding, this investigation confirms that hospitality stakeholders are able to evaluate their potential risks by determining a firm's credit ratings and can protect their long-term interest by increasing their power versus management in the corporate governance of the firm. / Master of Science

This dissertation consists of three papers that examine how aspects of public policy may impact private sector corporate governance. The first two examine the relationship between personal-tax policy and corporate agency costs. The first paper is a theoretical analysis based on an agency model of managerial behavior. A unique element of this paper is that it assumes a discontinuous compensation function, which reflects the occurrence of performance thresholds associated with the dismissal incentive and many common bonus plans. The analysis results in three main findings. First, the relative magnitude of proportional taxation has an indeterminate effect on managerial performance. Second, an increase in tax progressivity is associated with reduced managerial performance and increased agency costs. Third, the inclusion of performance thresholds and compensation discontinuities can cause tax system changes to have surprisingly large impacts on managerial performance. The second paper is an empirical investigation of the relationship between personal-tax progressivity and corporate operating efficiency. The analysis is based on variations in across-state tax policy and utilizes a sample of US-based firms. Using matched-pair testing and regression analysis, evidence is found that is consistent with the hypothesis that increased personal-tax progressivity negatively impacts managerial performance. Together, the analysis contained in the first two papers suggests a need to further examine the relationship between personal taxation and corporate agency costs, an issue that is largely absent from the research literature. The third paper investigates whether variations in state corporate law affect firm value. Previous research in this area generally treats all states other than Delaware as having homogeneous corporate law. I relax this assumption and analyze a large panel sample of US firms. Evidence is found that Delaware firms are worth more, on average, than non-Delaware firms. However, this effect is not consistent across all non-Delaware jurisdictions. The valuation differences are correlated to differences in statutory law. Specifically, corporate law that provides greater entrenchment of management is associated with reduced firm value. The results indicate that corporate law does affect corporate governance. Furthermore, the findings are inconsistent with the “race to the bottom” theory of corporate law. / May 2006

Background and problem: This paper illuminates the problem with temptation of earnings management. However, there are particular disadvantages when companies use this technique because it creates an information asymmetry at the stock market. Problem of earnings management is although not a new phenomenon there issue is the quality of financial reporting. The development is concerning, since recently the performance of financial report has a negative trend, a trend that could harm the financial world. If a company does not provide meaningful information the fundamentals of capital market lose confidence. Purpose: This study has two purposes. The first purpose is to evaluate the ability of various discretionary accruals model at Stockholm Exchange Market. The second purpose is concerning a new model in purpose to understand and reveal earnings management. Boundaries: Data contains only business corporations at large cap and operate at the Stockholm Stock Exchange market. Furthermore is this research based on a time series data from year 2000 – 2009 and cross section data from year 2009. Method: The approach of the methodology are inspired of prior earnings management research, as Healy (1985), DeAngelo (1986) and Jones (1991) which have relied on discretionary accruals to detect earnings management. Conclusion: The result indicates that the Jones modified model is the most powerful models to explain earnings management, which also is consistent with prior studies. The result from the extended Jones modified model indicates no improvement, concerning on revealing earnings management. Further, the results confirm that the null hypothesis can be rejected at 1% significant level but the F-value fall drastically compare to Jones modified model. Suggestions for further research: One suggestion is that more research should be conducted in order to develop accounting policies aimed at limiting the application of earnings management. Alternatively, future research should base on data that measures the phenomenon of earnings management at a deeper level. Yet there are some obstacles to gather desire data and therefore it is not easily accessible. / Bakgrund och problem: Den här studien undersöker resultatstyrning, då det finns både fördelar och nackdelar med att tillämpa denna metod. Problemet med resultatstyrning är dock inte ett nytt fenomen, där tidigare studier visar att kvalitet på den finansiella rapporteringen kan ifrågasättas. Företagens årsredovisning skall speglar en rättvisande bild av verksamheten och således är utvecklingen oroväckande eftersom trovärdigheten för den finansiella rapporteringen har fått en negativ trend, en trend som kan skada den finansiella marknaden. Syfte: Den här studien utvärdera och jämföra hur befintliga disketionära modeller förhåller sig på Stockholmsbörsen. Dessutom utvecklas en förbättringsmodell. En model med förklaringsvariabler som ger ett nytt och/eller annorlunda perspektiv på fenomenet. Avgränsningar: Undersökningen omfattar endast företag som är registrerad på large cap och verkar på Stockholmsbörsen. Data som används i studien är dels en tidsserie data från år 2000-2009 och dels tvärsnittsdata från år 2009. Metod: Den här undersökningen tillämpar liknande metoder som tidigare studier, beträffande resultatstyrning såsom Healy (1985), DeAngelo (1986) och Jones (1991) där de definierar diskretionär avsättning som vinstmanipulering. Slutsats: Resultaten visar att Jones modified model förklara och upptäcker resultatstyrning på ett bättre sätt än de andra modellerna. Denna slutsats överrensstämmer med tidigare studier. Resultaten från den utökande Jones modified model visar inte några förbättringar. Dock förkastar den noll hypotesen på 1 % signifikansnivå men F-värdet sjunker kraftigt jämförelsevis mot Jones modified model. Förslag till vidare forskning: Ett förslag är att framtida forskning bör bedrivas i syfte för att utveckla redovisningsprinciper som begränsar resultatstyrning. Alternativt förslag är att samla in data som mäter resultatstyrning på en djupare nivå, dock är det problematiskt med dagens