| Summary: | 博士 === 國立成功大學 === 會計學系碩博士班 === 90 === The purposes of this dissertation are to examine the effect of the agency problem due to collateralized shares on the relation between accounting earnings and stock prices and the effect of the agency problem on the firm performance. I further investigate whether monitoring mechanisms including institutional investors, creditors and dividend policy can alleviate the agency problem due to shares as collateral by board of directors.
The empirical results show that the higher the extent of shares as collateral by the board of directors, the weaker the relation between the accounting earnings and stock prices. Collateralized shares will reinforce the agency problem between controlling shareholders and outside shareholders leading to lower prediction power of current earnings on future earnings. Furthermore, shares as collateral by the board of directors raise the incentives of earnings management. Earnings management will reduce the credibility of accounting numbers and thus will mitigate the relation between accounting earnings and stock returns.
Moreover, I also find that the effect of collateralized shares on the relation between accounting earnings and stock prices is even weaker for the firm experiencing losses or for the firms experiencing stock price decline. When firm experience losses or stock price decline, the managers might have higher incentives to expropriate outsider shareholders or to engage in earnings management. Hence, the stock market might not positively response to good news in earnings because of severe agency problems.
The effect of collateralized stock on the relation between accounting earnings and stock prices is also weaker for the non-electronic firms than for the electronic firms. Electronic firms typically face strong product competition and need professional supports. Under this scenario, institutional investors are generally not from the same family and can monitor one another more efficiently. Thus, monitoring from the board is stronger for the electronic firms and leads to less severe agency problems. The monitoring from the board lessens the adverse effect of shares as collateral by board of directors on price-earnings relation.
For the firm performance, this dissertation indicates that there is an inverse relationship between shares as collateral and firm performance. When the entire sample is divided into a subsample of conglomerate firms and a subsample of non-conglomerate firms, I further show that the inverse relationship exists only in conglomerate firms. The findings imply that agency problems resulting from shares as collateral by board of directors are more serious in conglomerate firms than in non-conglomerate firms.
Finally, this dissertation provides evidence that the monitoring from institutional investors, creditors and dividend policy can reduce the agency problems of shares as collateral effectively and thus can improve firm performance. Empirical findings indicate that institutional holdings, debt ratio and dividend payout ratio can mitigate the negative effect of agency problems on firm performance. In addition, monitoring mechanisms are more beneficial in conglomerate firms than in non-conglomerate firms.
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