Corporate Law

CIA 1 Component 1
Article review

Done by: Gadila Saharsh Reddy

Roll no: 1820612

Word Count: 1898

Due Date: 7th july 2019

Submitted on : 7th july 2019
Article : 1
Annual general meetings and stock returns:

The significance of this article is to find evidence of a negative relationship between stock
returns and the clustering of annual general meetings in the UK. This study re -examined the
bonding between the frequency of AMGs and stock returns using UK data spinning the
period 2004-2014. The study has collected 15372 AGM dates for 2107 listed equities during
the years 2004-2014 from annual reports, notices, and we searches .this was the first study
conducted outside the US which gives us from many AGM dates.

The author associates his reported positive stock to AMG clustering in US. The results also
indicate significantly negative average returns for the AGM cluster months. How-ever the
negative returns for the AGM cluster months are also consistent with weather related
Halloween effect. The results also suggest that average monthly returns are significantly
lower for AGM cluster months than the non–cluster months. There was no evidence found
for support of the tax loss effect. The data provided supports significantly negative relation
between market returns and the frequency of AMG at the 10% level. The relationship of this
study is however considered to be economically insignificant as the monthly negative returns
of 0.01% convert into an annualised negative returns of 0.12 which is not significant to
justify an average investment strategy and its association transaction costs requires the
investors to be existing in the market cluster.

To further conclude, the study has examined the relationship between stock returns and the
frequency of annual general meetings. The results suggest the evidence of AGMs clustering
in UK. It has also significantly proved the negative relationship between stock returns and
monthly frequency of AGMs. The study has showed market as a turning signal and also
suggested that the investors exit the market during the AGM clustering contrary.

References

Baker, R., Limmack, R.J., 1998. Firm size, monthly seasonalities and tax-loss selling: further
evidence from the UK. Br. Account. Rev. 30 (3), 221–248. Bouman, S., Jacobsen, B.,
2002. The Halloween indicator, ‘Sell in May and go away’: Another puzzle. Amer.
Econ. Rev. 92 (5), 1618–1635. Cao, M.,Wei, J., 2005. Stock market returns: A note
on temperature anomaly. J. Bank. Financ. 29 (6), 1559–1573.
Article :2

Directors’ duties of care and the value of auditing

This article reviews about and assesses the impact of the Centro case by analysing
weather it has increased the market value of the auditing expenditure. It shows us
that the results are positive , the strengthened director duties are associated with
high expectation of CARs for firms which have spent more on auditing. Also after
Centro, the auditing expenditure had lot of positive bonding with the market values.

The Centro decision has given a unique experimental environment by which to empirically
analyse the importance of the positively strengthened directors duties. Also directorial
oversight is often regarded as essential for the excellent corporate governance , further
studies have not yet analysed the role of these directors duties. The main idea of the centro
case is to strengthen overlook and oversight. The case specially analyses the responsibility of
the directors related the financial reports. It increases the directors oversight of the financial
reports. This spirit to the requirement for the managers to personally respond the reports of
finance under the Sarbanes –Oxley Act of 2002. The background of this articles has few
implications , the overarching expectation is that they spend a lot on auditing and it will
benefit most of the centro case. As indicated , it is expects to increase auditing oversight as
the firms with more auditing have more peculiar auditing issues.

To conclude, the article analysed the effect of the directors duties in the centro case, also uses
an event study framework to the check weather the increasing overlook associated with the
centro case is increasing the value auditing services. According to the study , this was done
for several reasons.

References

Arping, S., Sautner, Z. 2010. Corporate Governance and Leverage: Evidence from a Natural
Experiment. Finance Research Letters , 7(2), 127–134. Arping, S., Sautner, Z. 2013. Did
SOX Section 404 Make Firms Less Opaque? Evidence from Cross-Listed Firms.
Contemporary Accounting Research , 30(3), 1133–1165. Barber, B.M., Lyon, J.D. 1997.
Detecting long-run abnormal stock returns: The empirical power and specification of
test statistics. Journal of Financial Economics , 43, 341–372. Bebchuk, L., Cohen,
A., Ferrell, A. 2009. What Matters in Corporate Governance? Review of Financial Studies ,
22(2), 783–827. Becker, B., Stromberg, P. 2012. Fiduciary Duties and Equity-
debtholder Conflicts. Review of Financial Studies , 25(6), 1931–1969

Article :3
Foreign strategic ownership and minority shareholder protection

The articles shows that foreign strategic investors provide monitoring protection by reducing
the tunnelling by incorporating loans. In addition foreign strategic investors mitigate minority
share holders expropriation through controlling excessive borrowing, however firms without
foreign founders channel excessive borrowing to control shareholders using incorporate
loans. The global financial liberalization has subsequently reduced the barriers to
international investment, making it easier access to international markets. A share trading has
been opened to qualified foreign institutional investors in 2002. Under this scheme the
selected intuitional investors can buy RMB denominate tradable.

According to the article, the Chinese studies have first used 2 channels to study the effect of
foreign companies and trading markets. The conflicting interest between controlling
shareholders and minority shareholders has become one of the major concern for the Chinese
corporate governance. This conflict was to cause tunnelling , where controlling minority
shareholders tend to be weak in china compared to other countries. The initial sample of the
study included the corporate companies of the china country, also small and medium
companies were excluded since they had different characteristics including listing
requirements compared to the main corporate board companies.

To conclude, the conflict between controlling minority share holders has captured much
attention from researchers in the past decade. The Chinese companies in their interest to
improve the corporate governance , the policies which were made continued to have
regulatory changes that has effected the ownership structure of foreign investors. Further as
extended by Chinese governance, foreign founders had the incentives ,resources and
capabilities to influence corporate governance practices.

References

Aggarwal, R., Erel, I., Ferreira, M., Matos, P., 2011. Does governance travel around the
world? Evidence from institutional investors. J. Financ. Econ. 100 (1), 154–181. Allen, F.,
Qian, J., Qian, M., 2005. Law, finance, and economic growth in China. J. Financ. Econ.
77 (1), 57–116. Arellano, M., Bover, O., 1995. Another look at the instrumental
variable estimation of error-components models. J. Econ. 68, 29–51. Bena, J.,
Ferreira, M.A., Matos, P., Pires, P., 2017. Are foreign investors locusts? The long-term
effects of foreign institutional ownership. J. Financ. Econ. 126 (1), 122–146. Berkman, H.,
Cole, R.A., Fu, J.L., 2010. Political connections and minority-shareholders
protection: evidence from securities-market regulation in China. J. Financ. Quant. Anal.
45 (6), 1391–1417. Boubakri, N., Cosset, J.C., Saffar, W., 2013. The role of state and
foreign owners in corporate risk-taking: evidence from privatization. J. Financ. Econ.
108 (3), 641–658

Article :4

Monitoring or empowering CEOs? The moderating effect of shareholder rights

This article explains the conflicting evidences found on agency and stewardship theories in
the previous literature , by introducing shareholder rights as a moderator for the board
independence firm performance relationship. This study devotes special attention to the
impact of the shareholders rights on the bonding between the board mixing and the firm
ethics. This articles seeks to answer the presence of antitakeover provisions trigger an alarm
for the individual directors that a sticker monitoring process should be implemented.

The antitakeover provisions used in this study are the six provisions that make up the E-
Index. This study contributes to the review in several ways by previous studies and the
relationship between the government and its performance and relationship, a synthesis of
agency and stewardship theories that suggests that shareholders are the focal points that
decides which theory should be applied. The sample index merges three important indices to
make it into a single unit . so it covers a variety of 1500 US companies c making up around
90% of the total market capitalisation in the unites states of America. Finally the smoothness
activity analysis is carried out by different measures of board independence.

So to conclude, the paper explains the results by suggesting the rights moderate of the
shareholders and the independence performance relationships. Market for corporate control
has been identified as an important disciplinary mechanism for managerial behaviour. It also
suggests different size fits are suitable for governance structure and one size fits governance
cannot be realized efficiently.

References

Al Dah, B., Michael, A., Dixon, R., 2017. Antitakeover provisions and CEO monetary
benefits: revisiting the E-index. Res. Int. Bus. Finance. Bebchuk, L.A., Cohen, A., 2005. The
costs of entrenched boards. J. Finance Econ. 78 (2), 409–433. Bebchuk, L., Cohen, A.,
Ferrell, A., 2009. What matters in corporate governance? Rev. Financ. Stud. 22 (2),
783–827. Becker-Blease, J.R., 2011. Governance and innovation. J. Corp. Finance
17 (4), 947–958. Bhagat, S., Bolton, B., 2008. Corporate governance and firm
performance. J. Corp. Finance 14 (3), 257–273

Article : 5

Corporate governance, Incentives, and tax avoidance

This article examines the link between the corporate governance , managerial incentives and
the corporate tax avoidance. Consistent with mixed results examined in the prior studied ,
there was no relation found between the various corporate governance mechanisms and the
tax avoidance other than which shareholders would prefer.

This theory suggests that reducing tax planning will definitely reduce managerial diversion .
in contrast it is assumed that the leisurely governed firms will never use equity incentives to
encourage tax avoidance as the lack the governance mechanisms to avoid managerial
diversion. Also the same managers should have motivated incentives to lower the tax
payments and capture economic benefits. Through the sample of firms between 2007 and
2011 , it is found that equity incentives enhance a positive relationship with the average level
of tax avoidance. The sample selection starts with all firms listed on composted for the 2007-
2011 fiscal years. In general the patterns in the article indicate that the relation between
CEOs equity incentives and tax avoidance is generally positive and increasing I magnitude in
the right direction of the distribution.

Finally to conclude, we expand the scope of research by analysing the bonding not only at
the conditional mean , also through the entire tax avoidance distribution. The ability to the
document shifts in relation particularly important in the research setting. Collectively , the
results provided yield an understanding of how managerial incentives and certain corporate
governance mechanisms are related to the level of corporate tax avoidance.

References

Angrist, J. D. and J. S. Pischke, 2009. Mostly harmless econometrics. Princeton University

Press. Armstrong, C., Blouin, J., D. Larcker, 2012. The incentives for tax planning. Journal of
Accounting and Economics 53(1): 391-411. Armstrong, C., Jagolinzer, A. D., and D. F.
Larcker, 2010. Chief Executive Officer Equity Incentives and Accounting Irregularities.
Journal of Accounting Research 48: 225-271. Armstrong, C., Guay, W. R., and J. P. Weber,
2011. The role of information and financial reporting in corporate governance and debt
contracting. Journal of Accounting and Economics 50: 179-234.