Finance - Theses
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ItemBoard interlocking network and financial decisions( 2015)Previous literature demonstrates that interlocking director networks are significant in various financial areas. However, the distinction between network selection and behavioral influence effects is not considered. Few studies in the finance discipline have sufficiently considered social networks in a statistically robust way. This inattention may cause bias similar to omitted variable bias, resulting in incorrect conclusions being reached from the reported results. We employ recent advances in statistical modeling to investigate the effect of the interlocking director network on executive compensation, capital structure and mergers and acquisitions. Results show selection and influence effects are strongly significant. Firms select directors from firms with a similar proportion of fixed executive compensation (such as salary) and a similar level of acquisitiveness. Firms are influenced via the interlocking director network to become more similar with respect to executive compensation practices and capital structure choice, and more dissimilar for the number of acquisitions undertaken. That firms become more dissimilar in level of acquisitiveness may be attributed to negative feedback on acquiring because prior research shows that acquisitions are generally value destructive for the acquirer. The results suggest that the interlocking director network is a potent mechanism for the spread of firm practices. Common dependent variables from prior literature are less significant in explaining observed outcomes when the network is taken into account. For executive compensation, the profitability of a firm is no longer significant for the model including the interlocking director network but is significant when the same data are used in a standard linear regression. A similar occurrence happens for asset tangibility in the capital structure models. Tobin’s q and free cash flow are significant for the same data in a Poisson regression model for count data, and not significant for interlocking director network mergers and acquisitions models.
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ItemThe corporate treasury function: risk management and performance measurement( 1997-05)The Australian financial system has changed dramatically in recent years, creating both threats and opportunities for value adding activities. Many large corporations have set up a separate treasury division or department to handle their financing requirements. This thesis derives the rationale for a separate treasury function from theory of the firm. A framework has been developed by drawing upon both the old theory of the firm (transaction cost economics) and the new theory of the firm (agency theory) to determine the appropriate governance structure to manage financial arrangements. Formal analysis of corporate treasury functions and performance measurement research has not kept pace with the growth of treasury activities. Appropriate benchmarks provide management with information to manage financial risk and to more accurately assess treasury performance. A benchmark is required for core treasury tasks, including debt portfolio management. Optimal treasury benchmarks are difficult to determine, due to the complexity involved in measuring financial exposures for firms which derive income from physical, rather than financial assets. The inter-relationships between financial risks, including maturity, interest rate and currency risk, further compounds the problem. Decomposition of financial risk into these respective elements allows identification of the firm specific factors that influence financial exposure. Appropriate benchmarks for managing repricing, refunding and foreign exchange risk depend upon the trade-off between transaction costs, agency costs and information signalling costs. Theory suggests growth options in real assets within the firm's investment opportunity set provide opportunities for natural hedges that offset financial risk. However, empirical analysis of share price sensitivity to interest rates and an analysis of debt maturity structure indicates growth options and agency factors are less important than firm specific characteristics when setting up benchmark portfolios to manage financial risk. Treasuries are often classified as either active or passive managers, but a continuum of strategies is possible when managing financial risk, rather than points at either end of a spectrum. Tolerance levels around the benchmark constrain activity within a relevant range - the more active the treasury, the broader the range. Constraints allow the degree of activity to be fine-tuned. The decision to actively manage risk depends upon whether value can be added in risk-adjusted terms. This is a function not only of whether opportunities exist, but also whether value can be added consistently, compared with a passive approach. The majority of practising treasurers describe themselves as 'active hedgers'. Subject to caveats outlined in the thesis, field experiments conducted over a three year period indicate the ability of corporate treasurers to add value to the firm through outperforming a passive benchmark portfolio of debt is limited. Respondents to an international survey on corporate treasury control and performance standards cited difficulty in setting benchmarks, particularly risk-adjusted benchmarks, as the major reason for not measuring treasury performance. Empirical determinants of benchmark structures for repricing risk, refunding risk and currency risk have been identified. A better understanding of the factors that determine financial risk will assist management when they are designing or refining benchmarks to manage financial risk and measure treasury performance.