Download (.pdf) Transplanted Company Law: An Ideological and Cultural Analysis of Market-Entry in Vietnam
51 International Comparative Law Quarterly (2002) pp. 641-672
The transplantation of company law to Vietnam is analysis in this article from broad ideological, cultural and... more
The transplantation of company law to Vietnam is analysis in this article from broad ideological, cultural and political economy perspectives. A conceptually plausible explanation for cross-cultural legal borrowing has been synthesized from legal transplantation theory. It locates the history of corporate borrowing in Vietnam within a political and economic context. The article focuses on the interaction of Western market-entry principles with Vietnamese precepts and practices. It concludes by suggesting that transplant viability varies among different social groups, primarily according to their ideological, cultural and economic capacity to benefit from borrowed law—a hypothesis that gives this discussion relevance beyond the borders of Vietnam.
Corporate Governance in the Annual Report: An Exploratory Study on Indonesian Islamic Banks
Presented at the 2011 International Seminar and Conference on Islamic Economics, Jakarta, Indonesia
Due to their different characteristics, banks are expected to report the features of their corporate governance in the... more Due to their different characteristics, banks are expected to report the features of their corporate governance in the corporate report. This paper is aimed to explore disclosure on corporate governance mechanisms in annual reports of Islamic commercial banks in Indonesia. Corporate governance mechanisms addressed in this study include the Shariah Supervisory Board, the Board of Commissioners, the Board of Directors, board committees, internal control and external audit, and risk management. Employing a sample comprising seven Islamic commercial banks in Indonesia, the present study constructs the so-called Corporate Governance Disclosure Index (CGDI) to score the banks’ disclosure level. It is revealed that Bank Muamalat and Bank Syariah Mandiri, the county’s two largest and oldest Islamic commercial banks, score higher than their peers. Disclosure of the sample banks on some dimensions, such as board members and risk management, is found to be strong. On the other hand, disclosure on internal control and board committees tends to be weak. The result of this study may have some important implications for the enhancement of corporate governance disclosure of Islamic banks, thereby wider acceptance and enhanced reputation could be gained.
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Board Compensation, Corporate Governance, and Firm Performance in Indonesia
Presented at the 14th National Symposium on Accounting, Banda Aceh, Indonesia
This paper examines the determinants of board compensation in a developing economy that adopts a two-tier board... more This paper examines the determinants of board compensation in a developing economy that adopts a two-tier board structure system. Corporate governance structure, firm-specific characteristics, and firm performance are hypothesized as significant determinants. The sample consists of 442 firm-year observations, comprising 255 listed firms on the Indonesia Stock Exchange (IDX) in the financial years 2006 and 2007. I provide empirical evidence that profitability, firm size, and the number of board members are positively associated with compensation level. Smaller firms are found to spend higher proportion of their financial resources to compensate their board members. Additionally, firm size and family control play important roles in explaining the relationship between board compensation and firm performance. Further, this study investigates pay-performance sensitivity and reveals that changes in firm value are positively associated with changes in board compensation.
Does Board Size Matter? New Evidence from a Two-Tier Board System
Presented at the 8th International Annual Symposium on Management, Surabaya, Indonesia
This paper contributes to the corporate governance literature by examining the impacts of board size, along with... more This paper contributes to the corporate governance literature by examining the impacts of board size, along with corporate governance structure and firm-specific characteristics, on firm value in a developing economy that adopts two-tier board structure system. Employing a sample comprising 802 firm-year observations of 304 non-financial firms listed on the Indonesia Stock Exchange (IDX) between 2005 and 2007, we conduct regression analysis separately for supervisory and management boards. Using Tobin’s q and return on assets (ROA) as measures of firm value, our empirical evidence reveals that the sizes of both supervisory and management boards are positively related to firm value. However, across different models and estimation techniques, the impact of board size on Tobin’s q is more robust compared to that on ROA. Our results also reveal that larger boards are more likely to be employed by larger firms. The large firms are found to benefit from having larger boards.
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Board Members' Education and Firm Performance: Evidence from a Developing Economy
Forthcoming in the International Journal of Commerce and Management
Empirical studies focusing on the influence of the educational backgrounds of CEO and board members on firm... more
Empirical studies focusing on the influence of the educational backgrounds of CEO and board members on firm performance are scarce in the literature. This study makes a contribution by addressing such an issue in the context of Indonesia, a developing country that adopts a two-tier board system. Using annual reports to collect information on the educational qualification of board members, I employ a sample consisting of 160 firms listed on the Indonesia Stock Exchange (IDX). I use four measures of educational qualification in this study, namely postgraduate degrees, degrees obtained from prestigious domestic universities, degrees obtained from developed countries, and degrees in financial disciplines. I provide evidence that the educational qualifications of board members and CEO matter, to a particular extent, for either return on assets (accounting-based performance) or Tobin’s Q (market-based performance). For example, CEOs holding degrees from prestigious universities perform significantly better than those without such qualifications.
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Do Women in Top Management Affect Firm Performance? Evidence from Indonesia
Forthcoming in Corporate Governance
This paper investigates the relationship between gender diversity on management boards and financial performance of... more This paper investigates the relationship between gender diversity on management boards and financial performance of Indonesian listed companies. We conduct cross-sectional regression analysis based on a sample comprising 92.4 percent of public firms listed on the Indonesia Stock Exchange (IDX). We find that the representation of female top executives is negatively related to both accounting and market performance, suggesting that female representation is not associated with improved level of performance. From correlation analysis, our results also reveal that smaller firms, which tend to be family-controlled, are more likely to have higher proportion of female members on management boards. This implies that large firms are “tougher” for women in terms of opportunities to hold seats on the board.
Board Diversity and Firm Performance: The Indonesian Evidence
Published in Corporate Ownership and Control Journal, Volume 9 (2011) Issue 1, pp. 524-539
This paper examines the associations between diversity of board members and financial performance of the firms listed... more This paper examines the associations between diversity of board members and financial performance of the firms listed on the Indonesia Stock Exchange (IDX). Three demographic characteristics of board members—gender, nationality, and age—are used as the proxies for diversity. Using a sample of 169 listed firms, this study finds that both accounting and market performance have significant negative associations with gender diversity. Nationality diversity is found to have no influence on firm performance. In contrast, the proportion of young members is positively related to market performance, providing evidence that young people in the boardrooms are associated with improved financial performance.
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Seen by: Exchanges and Their Investors: A New Look at Reporting Issues, Fraud, and Other Problems by Exchange
Cumming, Douglas J. and Johan, Sofia A., 2011. "Exchanges and Their Investors: A New Look at Reporting Issues, Fraud, and Other Problems by Exchange." Available at SSRN: http://ssrn.com/abstract=1985319 or http://dx.doi.org/10.2139/ssrn.1985319
Statistics reporting litigated cases of fraud on an exchange-by-exchange basis are not readily available to... more Statistics reporting litigated cases of fraud on an exchange-by-exchange basis are not readily available to investors. This paper introduces data from three countries with multiple exchanges with different listing standards, – Canada, the United Kingdom and the United States – to show litigated cases of fraud significantly vary by country, and the different exchanges within the country. Comparisons are also made to Brazil, China and Germany to assess out-of-sample inferences. The data examined suggest there are significant differences in the nature of observed fraud across exchanges within the United States; by contrast, outside the United States there appears to be a comparative lack of enforcement. The data also suggest policy implications for the ways in which fraud ought to be reported to improve investor knowledge, market transparency and market quality.
Mutual Funds that Invest in Private Equity? An Analysis of Labour Sponsored Investment Funds
Cumming, D.J., and J. MacIntosh, 2007. “Mutual Funds that Invest in Private Equity? An Analysis of Labour Sponsored Investment Funds” Cambridge Journal of Economics 31, 445-487
This paper considers the structure, governance and performance of a unique class of mutual funds that receives capital... more This paper considers the structure, governance and performance of a unique class of mutual funds that receives capital only from individuals, and reinvests this contributed capital in private companies, as opposed to traditional mutual funds that invest in publicly traded companies. It considers the particular class of mutual funds known as Canadian Labour-Sponsored Investment Funds (LSIFs). In contrast to expectations, it is shown that LSIFs have artificially low betas, returns that have significantly underperformed industry benchmarks, average management expense ratios greater than 4%, and have collectively accumulated $Can10 billion (£4.3 billion) as at 2005 since their statutory inception in various Canadian jurisdictions in the 1980s and 1990s. It is shown that these incongruous data are directly attributable to the LSIF statutory governance structure.
Advice and Monitoring in Venture Finance
Cumming, D.J., and S. Johan, 2007. “Advice and Monitoring in Venture Capital Finance” Financial Markets and Portfolio Management 21, 3-43. (lead article).
This paper provides empirical insights into the role of contracts and legal systems for managing investor-investee... more This paper provides empirical insights into the role of contracts and legal systems for managing investor-investee relationships along two dimensions: providing advice and addressing conflict. We examine a new detailed dataset from European venture capital (VC) funds. We match very specific contractual terms in VC contracts with the effort (total time spent) and advice that VCs provide to their entrepreneurial investee firms. We also analyze VC-entrepreneur conflicts. We compare the importance of contractual versus non-contractual governance mechanisms, as well as the role of legal systems in different countries for facilitating VC-entrepreneur relationships. The data indicate VC cash flow and control rights significantly facilitate effort and advice that VCs provide to entrepreneurs. VC-entrepreneur conflicts are closely tied to the quality of laws in which the entrepreneur resides: higher quality legal systems mitigate VC-entrepreneur conflicts. The data further indicate non-contractual governance mechanisms significantly facilitate VC advice and mitigate VC-entrepreneur conflicts. The results provide a unique unifying look into the role of actual VC contracts and legal settings versus non-contractual governance mechanisms, risk and success potential on VC-entrepreneur relationships in an international context.
Private Equity, Leveraged Buyouts and Governance
Cumming, D.J., D. Siegel and M. Wright, 2007. “Private Equity, Leveraged Buyouts, and Governance” Journal of Corporate Finance 13, 439-460
This paper provides an overview of the literature on private equity and leveraged buyouts, focusing on global evidence... more This paper provides an overview of the literature on private equity and leveraged buyouts, focusing on global evidence related to both governance and returns to private equity and leveraged buyouts. We distinguish between financial and real returns to this activity, where the latter refers to productivity and broader performance measures. We also outline a research agenda on this topic.
Government Policy towards Entrepreneurial Finance: Innovation Investment Funds
Cumming, D.J., 2007. “Government Policy towards Entrepreneurial Finance: Innovation Investment Funds” Journal of Business Venturing 22, 193-235.
- Reprinted in David Audtresch, ed., The International Library of Entrepreneurship, Edward Elgar, 2009.
This paper analyses 280 Australian venture capital and private equity funds and their investments in 845... more This paper analyses 280 Australian venture capital and private equity funds and their investments in 845 entrepreneurial firms over the period 1982 – 2005. I focus the analysis on the Innovation Investment Fund (IIF) governmental program, first introduced in 1997. In order to highlight the unique aspects of the IIF, I compare the properties of the Australian IIF program with government venture capital programs in Canada, the UK and the US. The IIF program is unique with a focus on partnering between government-private sector partnerships, as described herein. I analyse the performance of the IIF funds along several dimensions: the propensity to take on risk by investing in early stage and high-tech investments; the propensity to monitor and add value to investees through staging, syndication, and portfolio size per fund manager; and the exit success. For each of these evaluation criteria, I assess the performance of the IIF funds relative to other types of private equity and venture capital funds in Australia. The data analysed show – in both a statistically and economically significant way – that the IIF program has facilitated investment in start-up, early stage and high tech firms as well as the provision of monitoring and value-added advice to investees. Overall, therefore, the data are strongly consistent with the view that the IIF program is fostering the development of the Australian venture capital industry. However, the vast majority of investments have not yet been exited, and the exit performance of IIFs to date has not been statistically different than that of other private funds. Further evaluation of IIF performance and outcomes is warranted when subsequent years of data become available.
Bankruptcy Law and Entrepreneurship
Armour, J., and D.J.. Cumming, 2008. “Bankruptcy Law and Entrepreneurship” American Law and Economics Review 10(2): 303-350.
- Reviewed in James Surowiecki, April 7, 2008, “Going for Broke” in The New Yorker http://www.newyorker.com/talk/financial/2008/04/07/080407ta_talk_surow
Entrepreneurs, catalysts for innovation in the economy, are increasingly the object of policymakers’ attention. Recent... more Entrepreneurs, catalysts for innovation in the economy, are increasingly the object of policymakers’ attention. Recent initiatives both in the UK and at EU level have sought to promote entrepreneurship by reducing the harshness of the consequences of personal bankruptcy law. Whilst there is an intuitive link between the two, relatively little attention has been paid to the question empirically, particularly in the international context. We investigate the link between bankruptcy and entrepreneurship using data on self employment over 16 years (1990-2005) and 15 countries in Europe and North America. We compile new indices reflecting how ‘forgiving’ personal bankruptcy laws are, reflecting the time to discharge. These measures vary over time and across the countries studied. We show that bankruptcy law has a statistically and economically significant effect on self employment rates when controlling for GDP growth, MSCI stock returns, and a variety of other legal and economic factors. The results have clear implications for policymakers.
Contracts and Exits in Venture Capital Finance
Cumming, D.J., 2008. “Contracts and Exits in Venture Capital Finance” Review of Financial Studies 21, 1947-1982.
Using a sample of European venture capital investments, I study the relation between venture capital (VC) contracts... more Using a sample of European venture capital investments, I study the relation between venture capital (VC) contracts and exits. The data indicate that ex ante, stronger VC control rights increase the likelihood that an entrepreneurial firm will exit by an acquisition, rather than through a write-off or an IPO. My findings are robust to controls for a variety of factors, including endogeneity and cases in which the VC preplans the exit at the time of time of contract choice. My findings are consistent with control-based theories of financial contracting, such as Aghion and Bolton (1992).
Legality and Venture Capital Governance around the World
Cumming, D.J., D. Schmidt and U. Walz, 2010. “Legality and Venture Capital Governance around the World” Journal of Business Venturing 25, 54-72.
We analyze governance with a new dataset on investments of venture capitalists in 3848 portfolio firms in 39 countries... more We analyze governance with a new dataset on investments of venture capitalists in 3848 portfolio firms in 39 countries from North and South America, Europe and Asia spanning 1971–2003. We provide evidence that cross-country differences in legality, including legal origin and accounting standards, have a significant impact on the governance structure of investments in the VC industry: better laws facilitate faster deal screening and deal origination, a higher probability of syndication and a lower probability of potentially harmful co-investment, and facilitate investor board representation of the investor. We also show that country-specific differences exist apart from legal and economic development.
Private Equity Returns and Disclosure Around the World
Cumming, D.J., and U. Walz, 2010. “Private Equity Returns and Disclosure around the World” Journal of International Business Studies 41(4), 727-754.
- Reprinted as Cumming, D.J., and U. Walz, 2010. “Private Equity Returns and Disclosure around the World” Journal of Business Valuation, Vol 2., pp.1-33 (lead article)
- Winner of the Canadian Institute of Chartered Business Valuators (CICBV) Best Paper Prize ($5,000)
- PWC Global Competency Centre Research Excellence Award (€3,000)
To obtain more funds from the institutional investors, private equity fund managers may report inflated valuations of... more To obtain more funds from the institutional investors, private equity fund managers may report inflated valuations of private investee companies that are not yet sold. However, such overvaluations may result in a reputational cost when those investments are realized. Using evidence from 39 countries, we show that there are significant systematic biases in managers' reporting of fund performance. We find that these biases depend on the accounting and legal environment in a country, and on proxies for the degree of information asymmetry between institutional investors and private equity fund managers.
A Critical Analysis of Mudarabah & A New Approach to Equity Financing in Islamic Finance
Financial intermediation serves a valuable purpose, but it can also be structured using equity modes of financing.... more Financial intermediation serves a valuable purpose, but it can also be structured using equity modes of financing. This can relieve the financee and increase diversity of entrepreneurial undertakings as in debt based commercial financing, there is little room for diversity with obligatory and stipulated servicing of debt. Using Islamic equity modes of financing poses the challenge of the agency problem and moral hazard. The extent of this agency problem in Mudarabah and its impact on economic payoffs between counterparties is analyzed in this study with a simulation model. Based on review of alternate solutions proposed, the author presents two possible covenants which could make Mudarabah mode of financing more acceptable and widely usable in financial intermediation. This would also further the egalitarian objectives of an Islamic economic order.
Does Ownership Concentration Improve M&A Outcomes in Emerging Markets? Evidence from India
Co-authored with Ekta Selarka
Forthcoming in Journal of Corporate Finance
Using firm level data from India, we examine the impact of ownership concentration on post-M&A performance of... more Using firm level data from India, we examine the impact of ownership concentration on post-M&A performance of firms. Our analysis has implications for both the M&A literature, which emphasises the role of agency conflict between managers and owners of widely held companies as a key reason for M&A failures, and the corporate governance literature, especially in the context of emerging market economies. A cautious interpretation of our results suggest that while ownership concentration may reduce the manager-owner agency conflict, it may nevertheless precipitate other forms of agency conflict such that ownership concentration may not necessarily improve post-M&A performance. In particular, our results have implications for the literature on the agency conflict between large (or majority) shareholders and small (or minority) shareholders of a company, especially in contexts such as emerging market economies where corporate governance quality is weak.