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https://hdl.handle.net/2142/84536
Description
Title
Governance Choices During Speculative Exuberance
Author(s)
Mishina, Yuri
Issue Date
2004
Doctoral Committee Chair(s)
Joseph Porac
Department of Study
Business Administration
Discipline
Business Administration
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Management
Language
eng
Abstract
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.
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