Does Corporate Governance Matter More for High Financial Slack Firms?

• 成果类型: Article
• 署名作者: John, Kose; Li, Yuanzhi; Pang, Jiaren
• 署名单位: New York University; Pennsylvania Commonwealth System of Higher Education (PCSHE); Temple University; Tsinghua University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2015.2392
• 发表日期: 2017
• 页码: 1872-1891
• 关键词: CORPORATE GOVERNANCE; financial slack; Business combination laws

摘要

The effect of corporate governance may depend on a firm's financial slack. On one hand, financial slack may be spent by managers for their private benefits; a high level is likely associated with severe agency conflicts. Thus corporate governance matters more for high financial slack firms (i.e., the wasteful spending hypothesis). On the other hand, financial slack provides insurance against future uncertainties; a lowlevel may signal deviations from the best interests of shareholders. Then corporate governance is more effective for low financial slack firms (i.e., the precautionary needs hypothesis). We differentiate the two hypotheses using the passage of antitakeover laws to identify exogenous variation in governance. Consistent with the wasteful spending hypothesis, the laws' passage has a larger negative impact on the operating and stock market performance of high financial slack firms. Further analysis shows that these firms do not invest more but become less efficient at cost management after the laws' passage.