Date of Award

1-1-2011

Document Type

Campus Access Dissertation

Department

Moore School of Business

First Advisor

Omrane Guedhami

Abstract

Corporate governance represents the collection of ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. This dissertation first reviews the various corporate governance mechanisms that have been extensively studied in prior research. Then, I develop two original essays that study the effectiveness of two mechanisms of corporate governance, namely the presence of multiple blockholders beyond the largest owner and the external monitoring by high-quality auditors. Additionally, I investigate how a country's legal institutions interact with these mechanisms.

In the first essay, I investigate the impact of multiple large shareholders on the relation between cash holdings and firm value for a sample of 2,723 firms from 22 countries. I find that the presence of multiple large shareholders enhances the value of firm's cash. I show that the value of cash is positively associated with an even distribution of blockholders' voting rights and with higher control contestability of the largest shareholder. The results also offer new evidence that the value of cash holdings is not monotonic across firms in economies with a good institutional environment. Overall, the results of the first essay contribute to the literature on corporate governance by showing that multiple large shareholders improve internal monitoring and moderate the agency costs of a firm's liquid assets.

In the second essay, I examine the importance of Big Four audits to reducing agency costs evident in corporate debt maturity worldwide. Analyzing a large sample of public firms from 42 countries reveals that the fraction of long-term debt in firms' capital structures rises with the presence of a Big Four auditor, suggesting that higher-quality audits substitute for short-term debt for monitoring purposes. In evidence supporting another two predictions, I find that the role that auditor choice plays in debt maturity is concentrated in firms from countries with strong institutions governing property rights and creditor rights. Collectively, the results of the second essay imply that Big Four audits matter to corporate debt maturity, although the impact is isolated in firms operating in countries with more protective legal regimes.

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