This dissertation contains five research projects within the context of two distinctive issues that concern the effectiveness of executive compensation in aligning executive interests with shareholders and how institutional investors play a role in structuring corporate governance mechanisms. The objective of this dissertation is to first determine how institutions should exert their influence if they are serious about alleviating agency problems and improving firm performance. Second, the thesis seeks to determine whether institutional investors use their influence to shape executive compensation and corporate governance mechanisms in a manner consistent with aligning managerial interests with shareholders and increasing shareholder wealth. The thesis finds that CEOs with option incentives increase the likelihood that a firm will increase risk by undertaking both major real investments and acquisitions. Moreover, CEO option grants are positively related to measures of firm valuation and operating performance suggesting option incentives are an important mechanism to align CEO interests with shareholders. This is robust to alternative measures of firm valuation and operating performance, also various estimation techniques. Using these findings to motivate the direction of institutional influence on executive compensation, it is found that institutional investors, particularly smaller activist traders, significantly increase option grant incentives received by executives. Institutional influence also raises CEO pay which is consistent with preservation of reservation CEO utility levels. Addressing the role of institutional investors in the context of other corporate governance mechanisms, it is found that institutional investor influence is also negatively related to board size and positively related to board independence, which is achieved by removal of inside directors. Such actions are consistent with empirical studies that show smaller boards and increased levels of independent directors improve firm performance and board decision making. The main conclusion from this dissertation is that option incentives are an effective mechanism to align CEO interests with those of shareholders. Institutional investors appear to recognise this importance, and effectively use their influence to increase options received by executives. Combined with institutional investors putting in place corporate boards that provide better oversight of management, institutional investors appear to be effective monitors of the firms in which they invest.

This dissertation contains five research projects within the context of two distinctive issues that concern the effectiveness of executive compensation in aligning executive interests with shareholders and how institutional investors play a role in structuring corporate governance mechanisms. The objective of this dissertation is to first determine how institutions should exert their influence if they are serious about alleviating agency problems and improving firm performance. Second, the thesis seeks to determine whether institutional investors use their influence to shape executive compensation and corporate governance mechanisms in a manner consistent with aligning managerial interests with shareholders and increasing shareholder wealth. The thesis finds that CEOs with option incentives increase the likelihood that a firm will increase risk by undertaking both major real investments and acquisitions. Moreover, CEO option grants are positively related to measures of firm valuation and operating performance suggesting option incentives are an important mechanism to align CEO interests with shareholders. This is robust to alternative measures of firm valuation and operating performance, also various estimation techniques. Using these findings to motivate the direction of institutional influence on executive compensation, it is found that institutional investors, particularly smaller activist traders, significantly increase option grant incentives received by executives. Institutional influence also raises CEO pay which is consistent with preservation of reservation CEO utility levels. Addressing the role of institutional investors in the context of other corporate governance mechanisms, it is found that institutional investor influence is also negatively related to board size and positively related to board independence, which is achieved by removal of inside directors. Such actions are consistent with empirical studies that show smaller boards and increased levels of independent directors improve firm performance and board decision making. The main conclusion from this dissertation is that option incentives are an effective mechanism to align CEO interests with those of shareholders. Institutional investors appear to recognise this importance, and effectively use their influence to increase options received by executives. Combined with institutional investors putting in place corporate boards that provide better oversight of management, institutional investors appear to be effective monitors of the firms in which they invest.

This dissertation contains five research projects within the context of two distinctive issues that concern the effectiveness of executive compensation in aligning executive interests with shareholders and how institutional investors play a role in structuring corporate governance mechanisms. The objective of this dissertation is to first determine how institutions should exert their influence if they are serious about alleviating agency problems and improving firm performance. Second, the thesis seeks to determine whether institutional investors use their influence to shape executive compensation and corporate governance mechanisms in a manner consistent with aligning managerial interests with shareholders and increasing shareholder wealth. The thesis finds that CEOs with option incentives increase the likelihood that a firm will increase risk by undertaking both major real investments and acquisitions. Moreover, CEO option grants are positively related to measures of firm valuation and operating performance suggesting option incentives are an important mechanism to align CEO interests with shareholders. This is robust to alternative measures of firm valuation and operating performance, also various estimation techniques. Using these findings to motivate the direction of institutional influence on executive compensation, it is found that institutional investors, particularly smaller activist traders, significantly increase option grant incentives received by executives. Institutional influence also raises CEO pay which is consistent with preservation of reservation CEO utility levels. Addressing the role of institutional investors in the context of other corporate governance mechanisms, it is found that institutional investor influence is also negatively related to board size and positively related to board independence, which is achieved by removal of inside directors. Such actions are consistent with empirical studies that show smaller boards and increased levels of independent directors improve firm performance and board decision making. The main conclusion from this dissertation is that option incentives are an effective mechanism to align CEO interests with those of shareholders. Institutional investors appear to recognise this importance, and effectively use their influence to increase options received by executives. Combined with institutional investors putting in place corporate boards that provide better oversight of management, institutional investors appear to be effective monitors of the firms in which they invest.

Στη συγκεκριμένη διπλωματική εργασία θα αναλύσω τον ρόλο που παίζει η αστάθεια στην ευρύτερη χρηματιστηριακή αγορά, σε συνδυασμό με τους θεσμικούς επενδυτές. Δηλαδή θα αναλύσουμε κατά πόσο οι συναλλαγές των θεσμικών επενδυτών επηρεάζουν την αστάθεια που παρατηρείται στις αποδόσεις των δεικτών των χρηματιστηρίων. / In this desertation will analyze the rule to play the volatility in the stocks markets, in combination with the institutional investors. I analyze that how the trading of institutional investors affected the volatility of equity returns of index of stock markets.

This study consists of two essays. In the first essay, I examine whether the overlap in institutional investors between the supplier and its customer can be an efficient monitoring mechanism in the product market. Using a large sample of supplier–customer relationships for the period 1980–2011, I provide the following evidence. First, a high level of overlapping institutional ownership mitigates the adverse effect of asymmetric interdependence between supplier and customer on their firm performance. Second, relationship-specific investments and partnership duration are identified as underlying channels through which overlapping institutional ownership mitigates the adverse effect of asymmetric interdependence on partners’ performance. Third, overlapping institutional ownership is negatively associated with accounts receivable when the supplier is more financially constrained than the customer, suggesting that overlapping institutional ownership improves the efficiency of trade credit allocation. These findings survive out of a series of robustness checks. The findings of this study highlight that the overlap in institutional investors between supplier and customer plays as an efficient monitoring mechanism in the product market. In the second essay, I examine the informational role of overlapping transient institutional investors who hold stocks of both the firm and its customers in disseminating customer information to the firm’s bond market and document four findings. First, I find that overlapping transient institutional ownership significantly alleviates the prediction of lagged customer-portfolio bond returns to supplier bond returns even after controlling for the interaction effect between stock market and bond market. This finding survives out of a series of robustness checks. The alleviation effect is more pronounced for firms with high customer concentration and low customer industry competition, or with non-investment grade. Second, I find that overlapping transient institutional ownership represents more than a mere proxy for investor attention and leads to information advantage over overlapping institutional bondholders. Third, I find that current customer-portfolio return is significantly associated with the trading volume of overlapping transient institutional investors in the bond market, suggesting that overlapping transient institutional investors indeed take customer information into account when they trade bonds of suppliers. Fourth, I examine the real effect of customer information on bondholders and find that customer bond return is significantly related to the supplier’s future operating performance, which is an important predictor of credit risk. Overall, my results show that overlapping transient institutional shareholders take economically linked information into account when they trade in the bond market and improve the informativeness of bond price. Keywords: supplier–customer relationships, overlapping institutional investors, monitoring mechanism, bond price informativeness

In terms of the specific topics covered in the thesis, my research aims to further understanding of risky asset return and volatility behaviour from a macro-finance perspective. In three of the four chapters, the macro drivers of both risky asset returns (the first moment) and volatility (the second moment) are studied and analyzed in detail across different geographies and various time periods. The use of both long sample sets and relevant sub-sample periods allows for a more in-depth assessment of the nature and form of these drivers as well as their influence on risky asset return and volatility dynamics, whilst weakening the impact of any endogeneity bias which the empirical estimation framework used may be subject to. The earliest data used in this research starts from the 18th century. In the first chapter, entitled “Macro Drivers of Equity Market Volatility”, the focus is on the construction and analysis of macro state variables, which are shown to have a strong influence on the behaviour of equity return volatility, especially during periods of severe market upheaval. Chapter two examines the relative abilities of GARCH and Stochastic Volatility Models (SV) to forecast volatility, in a world where the true model can be depicted by an EGARCH(1,2) formulation. Turning to chapter three, the relationship between equity returns and inflation (specifically, if equities are a hedge against inflation) is explored using long-term historical data for the US, the UK, Germany and Japan. Finally, chapter four analytically tackles the question of how various investors' (institutional and retail) asset allocation decisions are dependent on both the formulation of the wealth maximization function and the differentiated nature of information signals. Specifically, this chapter focusses on how asset allocation behaviour of various categories of investors (facing different objective functions) may lead to “herding”.

Current real estate investment decision making frameworks fail to recognise differences posited by the retail sector. The investment decision stage concerned with forecasting expected returns relies on financial and quantitative models such as those derived from the Modern Portfolio Theory. In a shopping mall environment, however, future performance is driven by nonfinancial factors, for example tenant mix and superior customer experience. Therefore, forecasting expected returns in a retail environment requires a nuanced approach relative to other commercial property sectors. Using a Balanced Scorecard framework, this study investigated the usefulness of nonfinancial factors in forecasting expected returns in retail. An electronically administered survey using a sample of institutional investors that contributed to South Africa’s SAPOA/IPD Index for 2012 was conducted. Only officials occupying investment decision making positions were invited to participate in the survey. Nonfinancial factors identified from the literature were presented to the respondents on a Likert-Style scale. In aggregate, participants to the survey possessed 156 years of commercial property experience and 56 years of retail experience. Mean scores obtained from participants’ responses were used to analyse the research findings. The study found nonfinancial factors useful when forecasting expected returns in a retail investment decision environment. Further, the study suggested the use of a Balanced Scorecard framework in order to guide developments in the area of retail investment decisions. In conclusion, the study gave direction for future research in the retail sector. / Dissertation (MBA)--University of Pretoria, 2013. / zkgibs2014 / Gordon Institute of Business Science (GIBS) / MBA / Unrestricted

We introduce the topic of this Special Issue on the "Role of Financial and Legal Institutions in International Governance", with a particular emphasis on a notion of "international mobility of corporate governance". Our discussion places the Special Issue at the intersection of law, finance, and international business, with a focus on the contexts of foreign investors and directors. Country-level legal and regulatory institutions facilitate foreign ownership, foreign directors, raising external financial capital, and international M&A activity. The interplay between the impact of foreign ownership and foreign directors on firm governance and performance depends on international differences in formal/regulatory institutions. In addition to legal conditions, informal institutions such as political connections also shape the economic value of foreign ownership and foreign directors. We highlight key papers in the literature, provide an overview of the new papers in this Special Issue, and offer suggestions for future research.

A relevância da informação contábil está na capacidade de uma informação fazer a diferença na tomada de decisão dos usuários da contabilidade, em razão da alteração de suas expectativas quanto ao desempenho das entidades. Os investidores e credores tomam suas decisões fundamentadas na contabilidade com um objetivo em comum: o provimento de capital. Nesse contexto, as decisões desses usuários são a negociação de ativos ou ações das empresas pelos investidores, refletida nos movimentos do preço das ações, e a concessão de crédito às empresas pelos credores, refletida no financiamento obtido pelas empresas tomadoras de crédito. Os mecanismos de proteção adotados por esses usuários (BURKART; GROMB; PANUZI AL, 1997; STRAHAN, 1999; BEBCHUK; KRAAKMAN; TRIANTIS, 2000; NIKOLAEV, 2010; ARMSTRONG; GUAY; WEBER, 2010) e suas diferentes necessidades informacionais (HEALY; PAPELU, 2001; BALL; ROBIN; SADKA, 2008; PEEK; CUIJPERS; BUIJINK, 2010), assim como a função intrínseca dos modelos de VR (value relevance) e CR (credit relevance) trouxe a premissa de que as informações contábeis utilizadas por esses dois agentes econômicos são diferentes em suas decisões de provimento de capital. Os dados contábeis relevantes são em grande parte evidenciados para os investidores nos estudos de VR (DEVALLE; ONALLI; MAGARINI, 2010; CLARKSON et al., 2011; TSALAVOUTAS; DIONYSIOU, 2014; BARTH et al, 2014; CLOULT; FALTA; WILLETT, 2016). No entanto, há poucas evidências a respeito da relevância contábil para os credores (HOLTHAUSEN; WATTS, 2001; FLOROU; KOSI, 2015), sendo que o mercado de crédito corresponde a uma fonte de recursos substancial para as empresas (BEIRUTH, 2015; BEIRUTH et al., 2017). Os estudos de CR (HANN; LU; SUBRAMANYAM, 2007; KOSI; POPE; FLOROU, 2010; WU; ZHANG, 2014) atestaram que as informações contábeis úteis para a estimativa do risco de crédito são relevantes para os credores e impactam a decisão dos analistas de agências de classificação de risco. Assim, a partir da premissa subjacente de que as informações contábeis para credores e investidores são diferentes, o objetivo geral da pesquisa foi verificar se as informações contábeis relevantes são diferentes para os credores e para os investidores em suas decisões de provimento de capital. Os objetivos específicos foram identificar se as informações contábeis são menos relevantes para os credores por empréstimos na condição de maior risco informacional (menor enforcement) e se são mais relevantes nas situações de maior risco de crédito (maior alavancagem e baixa classificação dos ratings de crédito). A análise contemplou as empresas de 25 países no período de 2010 a 2015, com a aplicação do modelo de VR e do modelo proposto para o credor por empréstimo (VCR). Os resultados indicaram que todas as informações foram relevantes para os investidores, porém nem todas foram relevantes para os credores. Esta evidência significa que os modelos de decisão desses dois grupos de usuários são diferentes entre si. Na decisão do credor para o provimento de capital, as informações contábeis foram menos relevantes na condição de risco informacional, enquanto, nas condições de maior risco de crédito, essas informações foram mais relevantes. / The relevance of accounting information lies in the ability of information affecting the decision-making of accounting users, due to the change of their expectations for the performance of entities. Investors and creditors make their decisions based on accounting with one common goal: the provision of capital. In this context, decisions of these users are the trading of companies\' assets or shares by investors, reflected in the stock price movements, and the granting of credit to the companies by creditors, reflected in the financing obtained by borrowers. Protection mechanisms adopted by these users (BURKART; GROMB; PANUZI AL, 1997; STRAHAN, 1999; BEBCHUK; KRAAKMAN; TRIANTIS, 2000; NIKOLAEV, 2010; ARMSTRONG; GUAY; WEBER, 2010) and their differing informational requirements (HEALY; PAPELU, 2001; BALL; ROBIN; SADKA, 2008; PEEK; CUIJPERS; BUIJINK, 2010), as well as the intrinsic function of VR models (value relevance) and CR models (credit relevance) brought the premise that accounting information used by these two economic agents are different in their decisions of capital provision. The relevant accounting data are largely highlighted for investors in the studies of VR (DEVALLE; ONALLI; MAGARINI, 2010; CLARKSON ET AL, 2011; TSALAVOUTAS; DIONYSIOU, 2014; BARTH et al., 2014; CLOULT; WILLETT, 2016). However, there is little evidence regarding accounting relevance for creditors (HOLTHAUSEN; WATTS, 2001; FLOROU; KOSI, 2015), since the credit market corresponds to a source of substantial resources for businesses (BEIRUTH, 2015; BEIRUTH et al., 2017). CR studies (HANN; LU; SUBRAMANYAM, 2007; KOSI; POPE; FLOROU, 2010; WU; ZHANG, 2014) attested that useful accounting information for the estimation of credit risk are relevant for creditors and impact the decision of the analysts of credit rating agencies. So, from the underlying premise that accounting information to creditors and investors are different, the general objective of this research was to verify if relevant accounting information is different for creditors and investors in their provision of capital decisions. The specific objectives were to identify whether accounting information are less relevant for creditors by loans in higher-risk informational condition (lowest enforcement) and if they are more relevant in situations of higher credit risk (greater leverage and low ranking of credit ratings). The analysis included companies from 25 countries in the period from 2010 to 2015, with the application of the VR model and of the proposed model to the creditor by loan (VCR). The results indicated that all information were relevant for investors, although not all were relevant for creditors. This evidence means that the decision models for these two groups are different from each other. In the creditor\'s decision of credit granting, accounting information were less relevant under informational risk condition, while under higher credit risk this information were more relevant.

This study provides an insight into the behavior of foreign institutional investors in Swedish corporate governance matters. We look at the presence of foreign institutional investors on the Swedish nomination committee and their voting power, to show their influence on board independence in Sweden. Collecting data for two years that is 2018 and 2019, from Swedish firms listed on the Swedish stock exchange markets, and analyze the data using the panel regression analysis. The result shows that foreign institutional investors only influence board independence in Sweden when a controlling owner has more than 50 % of the voting right. Also, we show that foreign institutional investors generally have little or no influence on the number of independent directors on Swedish listed firms. However, it is the controlling owners and the board sizes that significantly determine the level of board independence in Sweden. This study concluded that for foreign institutional investors to influence board independence they should participate on the nomination committee.