This study examines the determinants of real estate investment trust (REIT) capital structure decisions from 1990 to 2008. Using a broad sample of 2,409 firm-year observations, we find that asset tangibility is positively related to leverage, whereas profitability and market-to-book ratios are negatively related. Additional evidence suggests that firm debt capacity varies systematically with the unique operating and financing mechanisms employed by REITs. These results are robust across both aggregate firm debt levels and marginal security issuance decisions. Finally, our results provide further insight into competing capital structure theories, generally supporting empirical predictions derived from the market timing and trade-off theories, although failing to support pecking order theory predictions.Capital structure theorists have long debated both the relative merits of the use of debt and equity to finance a firm's operations, as well as the distortions the use of borrowed money introduces into the firm's investment policies. Historically, the optimal capital structure has been viewed as that mix of debt and equity claims which optimizes the trade-off between the tax-advantaged nature of debt financing and the associated increase in the potential costs of financial distress. At the same time, the investment distortions include problems of underinvestment and asset substitution. More recently, the focus of these discussions has broadened to include alternative explanations of firm leverage decisions, such as the pecking order theory and market timing hypothesis.Interestingly, most empirical studies exploring these relationships explicitly exclude real estate investment trusts (REITs) and other regulated firms from their analyses. Although valid reasons exist to justify (and perhaps necessitate) this exclusion, with a market capitalization that topped $438 billion by the end of 2006, a closer investigation and better understanding of the capital *
We examine whether information about firms' directors' and officers' (D&O) liability insurance coverage provides insights into the likelihood of shareholder lawsuits. Using Canadian firms, we find evidence that firms with D&O insurance coverage are more likely to be sued and that the likelihood of litigation increases with increased coverage. These findings are consistent with managerial opportunism or moral hazard related to the insurance purchase decision. We also find that higher premiums are associated with the likelihood of litigation, indicating that insurers price this behavior. Taken together, the findings suggest that coverage and premium levels have the potential to convey information about lawsuit likelihood, and a firm's governance quality, to the marketplace.
We investigate the determinants and consequences of compliance with the Dey Committee recommendations encouraging greater board independence in Canada. Companies that acted on this recommendation appear to have done so to improve their performance and not for cosmetic purposes. Poorly performing firms that modified their boards experienced a greater increase in performance compared to those that did not. Overall, it appears that the primary function of the Dey Report was to refocus firms' attention on the quality of board monitoring, particularly those with poor relative performance. Copyright 2008, The Eastern Finance Association.
Using a large sample of North American firms, from 1999 to 2016, we investigate the effect of corporate governance structures, specifically ownership, board characteristics, and executive compensation contracts on innovation intensity and output. We consider both R[Formula: see text]D expenditures and patents as innovation proxies and evaluate consequences of the economic downturns of 2000 and 2008. We find that R[Formula: see text]D investment increases with ownership by institutional blockholders and with the number of institutional owners, confirming the key role institutions play in innovation activities of firms. We observe higher R[Formula: see text]D levels for firms with more independent boards, more females board members and more outside directorships held by directors. We report that firms with CEO/chair of the board duality have lower R[Formula: see text]D intensity, as do firms with higher ownership by directors and with a higher mean board age. Innovation is negatively related to CEO salary levels, but positively related to the ratio of incentives to total compensation, confirming that incentives contribute to aligning shareholders and management interests, which leads to better long-term decisions. However, those incentives reduce the number of patents. We do not find any systematic changes in R[Formula: see text]D for the 2000 recession, however there is an increase for the 2008 financial crisis.
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