| Corporate Governance: An Overview | p. 1 |
| Introduction | p. 1 |
| The Modern Corporation | p. 2 |
| Civic Republicanism | p. 3 |
| Liberalism | p. 5 |
| The Corporation Complicates the World | p. 6 |
| The Separation of Management and Ownership | p. 8 |
| The Trustee Approach | p. 9 |
| Managerial Capitalism and the Managerial Technocracy | p. 11 |
| The Contractual Shareholder Model | p. 14 |
| The Governance Structure of American Corporations | p. 17 |
| A Schematic Contractual Governance Structure | p. 17 |
| The Owners | p. 19 |
| Voting Rights | p. 24 |
| The Board of Directors | p. 25 |
| Corporate Executives and Senior Managers | p. 26 |
| Creditors | p. 27 |
| Relationships With Suppliers and Customers | p. 28 |
| An Organic Version of the Modern Corporation | p. 29 |
| Do Managers Accept the Shareholder Supremacy Model? | p. 31 |
| Markets: Can You Trust Them? | p. 33 |
| Introduction | p. 33 |
| Financial Market Efficiency | p. 34 |
| Weak-Form Efficiency (Past Prices) | p. 35 |
| Semistrong-Form Efficiency (Public Information) | p. 37 |
| Strong-Form Efficiency | p. 43 |
| Market Inefficiencies and Anomalies | p. 45 |
| IPOs | p. 45 |
| Earnings Announcements | p. 46 |
| The 2000 NASDAQ Crash | p. 47 |
| What Market Efficiency Means for Managers and Governance | p. 48 |
| How Are We Doing? | p. 48 |
| Don't Try to Outguess or Beat the Market | p. 50 |
| Don't Try to Fool Investors | p. 51 |
| Transparency and Market Efficiency | p. 53 |
| Valuation | p. 57 |
| Introduction | p. 57 |
| Valuing Common Stock | p. 57 |
| Cash Dividends and Earnings | p. 59 |
| Investors' Required Rate of Return | p. 59 |
| The Capital Asset Pricing Model | p. 62 |
| Does the CAPM Work? | p. 64 |
| Assets in Place Versus Growth Opportunities | p. 65 |
| An Expanded Valuation Model | p. 66 |
| Relative Valuation Using Comparables | p. 70 |
| Corporate Governance Issues in Investment Decisions | p. 73 |
| Introduction | p. 73 |
| The NPV Rule | p. 74 |
| A Stylized NPV Example | p. 75 |
| The Data | p. 75 |
| The Present Values | p. 77 |
| Interpreting NPV | p. 78 |
| Do Investors Behave as Predicted by the NPV Rule? | p. 79 |
| Implication of the NPV Rule for Internal Allocation of Capital | p. 81 |
| Legitimate and Illegitimate Criticisms of the NPV Rule | p. 82 |
| Strategic Options and the NPV Rule | p. 84 |
| Competitive Analysis Approach | p. 85 |
| Corporate Governance Issues and the Financing Decision | p. 89 |
| Introduction | p. 89 |
| The Setup | p. 91 |
| Shareholder/Bondholder Conflicts of Interest | p. 93 |
| The Events | p. 94 |
| How Creditors Protect Themselves with Covenants | p. 95 |
| Shareholder/Manager Conflicts of Interest | p. 96 |
| The Financing Decision and Customers | p. 99 |
| The Financing Decision and Employees | p. 100 |
| Bank Debt Versus Public Debt | p. 101 |
| Does Where You Raise Funds Matter? | p. 103 |
| Corporate Governance Dividend Issues | p. 105 |
| Introduction | p. 105 |
| The Setup: Why Pay Cash Dividends? | p. 106 |
| Solving Informational Asymmetry Problems | p. 107 |
| Dividends, Free Cash Flow, and Conflicts of Interest | p. 110 |
| Dividends and Growth Opportunities | p. 110 |
| Dividends and Legal Systems | p. 111 |
| Dividends, Taxes, and Share Repurchases | p. 113 |
| An Example of Disgorging Cash: Ford Motor Company | p. 114 |
| Explicit Free Cash Flow Dividend/Share Repurchase Policies | p. 115 |
| Corporate Governance and Managerial Compensation | p. 117 |
| Introduction | p. 117 |
| The Problem | p. 118 |
| Measuring Effort and Performance | p. 119 |
| Common Pay and Performance Schemes | p. 121 |
| Base Salary Examples | p. 122 |
| Short-Term Incentive Plans | p. 123 |
| Short-Term Incentive Examples | p. 124 |
| Problems With Short-Term Incentive Plans | p. 125 |
| Problems with Accounting Measures | p. 125 |
| Problems with Budgets | p. 126 |
| Potential Gaming Behavior | p. 127 |
| Long-Term Incentive Plans | p. 128 |
| Examples of Long-Term Incentive Plans | p. 130 |
| Problems with Stock Option and Restricted Stock Plans | p. 130 |
| Reported Earnings and Paying Managers with Stock or Stock Options | p. 132 |
| Abusive Manipulation of Earnings | p. 134 |
| EVA: A Very Popular Compensation Plan and Corporate | |
| Governance Metric | p. 136 |
| A Stylized EVA Example | p. 137 |
| Using EVA to Set Compensation | p. 140 |
| The Evidence About Pay and Performance | p. 141 |
| Pay and Performance in 2000 | p. 142 |
| The Corporate Control Market | p. 149 |
| Introduction | p. 149 |
| Why a Corporate Control Market? | p. 150 |
| A Restructuring Plan for LeisurePark | p. 151 |
| A Tender Offer for LeisurePark | p. 153 |
| Mergers and Acquisitions | p. 155 |
| United Airlines and US Airways | p. 156 |
| Hewlett-Packard and Compaq | p. 158 |
| When Do Mergers Create Value? | p. 159 |
| How Can Mergers Destroy Shareholder Value? | p. 161 |
| Divestitures, Spin-Offs, and Carve-Outs | p. 162 |
| Going Public: IPOs | p. 164 |
| Why Go Public? | p. 164 |
| LBOs and MBOs | p. 165 |
| Why LBOs and MBOs? | p. 166 |
| Potential Problems for Public Investors | p. 167 |
| The Board of Directors and Shareholders Rights | p. 169 |
| Introduction | p. 169 |
| A Historical Perspective | p. 170 |
| From World War II to the 1970s | p. 170 |
| Boards Again Attract Attention | p. 171 |
| Composition and Compensation of the Board of Directors | p. 172 |
| Board Committees | p. 173 |
| Board Compensation | p. 174 |
| The CEO and the Board Chair | p. 178 |
| Shareholder Rights | p. 178 |
| Voting Rights | p. 179 |
| How Many Votes for Each Shareholder? | p. 179 |
| Confidentiality Issues | p. 180 |
| ERISA and Institutional Investor Voting Responsibilities | p. 181 |
| Electing the Board of Directors | p. 181 |
| Cumulative Voting | p. 181 |
| Staggered Boards | p. 182 |
| Poison Pills, Supermajority Rules, and Greenmail | p. 183 |
| A Shareholder Rights Plan at First Virginia Banks (FVA) | p. 184 |
| Evidence About Antitakeover Devices | p. 184 |
| Board Governance and Firm Performance | p. 185 |
| Alternative Governance Systems: Germany and Japan | p. 187 |
| Introduction | p. 187 |
| The German System | p. 188 |
| German Governing Boards | p. 189 |
| Absence of Corporate Control Market | p. 190 |
| Universal Banking: A German Governance Solution | p. 191 |
| Advantages of Universal Banking | p. 191 |
| Disadvantages of Universal Banking | p. 193 |
| Banks May Care About Firm Survival, Not Share Price | p. 194 |
| Weak Investor Protection Laws | p. 194 |
| Absence of an Equity Market Hinders Formation of New Firms | p. 195 |
| What's the Evidence with Respect to Germany? | p. 196 |
| Why German Firms Adopt an American Governance Structure | p. 197 |
| The Japanese Keiretsu | p. 199 |
| Reciprocal and Control-Oriented Share Ownership | p. 200 |
| Relational Contracting | p. 202 |
| A Critique of the Keiretsu | p. 204 |
| Advantages of the Keiretsu | p. 204 |
| Disadvantages of the Keiretsu | p. 205 |
| Japanese Reforms | p. 206 |
| Convergence or Diversity? | p. 207 |
| OECD Principles of Corporate Governance | p. 209 |
| Notes | p. 211 |
| Index | p. 215 |
| About the Author | p. 227 |
| Table of Contents provided by Syndetics. All Rights Reserved. |
