Journal of Applied Corporate Finance最新文献

{"title":"Bet on innovation, not ESG metrics, to lead the net zero transition","authors":"Bartley J. Madden","doi":"10.1111/jacf.12554","DOIUrl":"https://doi.org/10.1111/jacf.12554","url":null,"abstract":"<p>In 1987, the United Nations defined sustainable development as meeting the needs of present generations without compromising the needs of future generations. Today, the top priority for sustainability is the transition to Net Zero—that is, net zero greenhouse gas (GHG) emissions. Carbon dioxide, a GHG, is a major contributor to global warming.</p><p>In the pages that follow, I provide three different perspectives on how companies are most likely to help get us to Net Zero. The first is the widespread, conventional perspective that Environmental, Social, and Governance (ESG) metrics will lead the way to a successful transition to Net Zero. The second uses systems thinking to better describe the complexity of navigating a path to Net Zero and highlights the critical role of innovation. The third promotes systems thinking for corporate boards with the aim of improving decision-making and accelerating innovation and adaptation in a fast-changing Net Zero world.</p><p>Facing pressure from institutional asset managers, companies today must begin navigating a path to Net Zero.1 As metrics keyed to the “E” of ESG and specifically related to GHG emissions proliferate, investors are increasingly using ESG scorecards as part of their decision-making. At the beginning of 2022, the capital devoted to exchange-traded, ESG-focused funds exceeded $2.7 trillion. Moreover, regulatory bodies continue to make this kind of data mandatory in corporate reports. As a consequence, managements and boards of directors are motivated to take actions that can make their companies look good at least in terms of ESG metrics.</p><p>But the objective of such companies ought, of course, to be to reduce their GHG emissions. The current default reporting methodology is the GHG Protocol, in accord with which Scope 1 emissions are those directly produced by a firm's operations—for example, from driving owned and leased vehicles. Scope 2 missions are those produced by facilities that generate electricity bought and consumed by the company. Scope 3 emissions originate from upstream operations in a company's supply chain and from downstream use by both its “wholesale” and end-use consumers. The GHG Protocol methodology has been criticized as lacking accuracy and verifiability (primarily in terms of Scope 3), in significant part for requiring that the same emissions reported multiple times by different companies.</p><p>To address this and other limitations of the Protocol, Robert Kaplan and Karthik Ramanna have proposed an innovative solution that recognizes the integrated nature of pollution activities across the economy. A company's existing accounting system and cost-accounting infrastructure would record the GHG units emitted during operations as an <i>E-liability</i>.2 All along the supply chain, companies would transfer the E-liability associated with goods delivered and record their end-of-period E-liability. This method eliminates multiple counting of emissions in the conceptua","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"35 2","pages":"35-44"},"PeriodicalIF":0.9,"publicationDate":"2023-06-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jacf.12554","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50124421","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation","authors":"Patrick Bolton,&nbsp;Wei Jiang,&nbsp;Anastasia Kartasheva","doi":"10.1111/jacf.12553","DOIUrl":"https://doi.org/10.1111/jacf.12553","url":null,"abstract":"<p>The response to the global financial crisis (GFC) of 2007–2008 has famously been described as the problem of too-big-to-fail.1 In the middle of a worsening crisis, financial regulators had to recognize that bank bailouts were the only way to stabilize financial markets. One of the two priorities of regulatory reforms post-crisis was to address the too-big-to-fail problem by introducing a resolution procedure for systemically important financial institutions.2 Among financial regulators (with the notable exception of the USA), contingent convertible bonds (CoCos) were seen as a major innovation to address the too-big-to-fail problem and quickly became a popular “bail-in” instrument to facilitate the instant recapitalization of a distressed bank. The quick deleveraging that could be achieved with CoCo conversions would serve the dual roles of recapitalizing “a going-concern bank” and reducing the resolution costs for a “gone concern” bank.</p><p>During the press conference on March 19, 2023 the Swiss Financial Market Supervisory Authority (FINMA) announced that, as part of the emergency package in response to the loss of trust and the run on Credit Suisse, the contingent convertible bonds that were part of the Credit Suisse Additional Tier 1 (AT1) regulatory capital had been written off.3 The decision by FINMA took many by surprise and provoked a flood of negative market commentary, with the commonly stated view that conversion violated the priority order of claims between debt and equity. Indeed, in the final rescue deal, the shareholders of Credit Suisse retain around $3 billion of equity value, while the CoCo bond principal write-down amounted to a wipeout of $17 billion for CoCo investors. Implicitly corroborating this commentary, the European Central Bank (ECB), the Bank of England, and other regulators made public statements on the Monday following the Credit Suisse deal that they do not intend to follow the FINMA approach and that they intend to respect the usual priority order of claims in resolution.4 How can these divergent views of regulators be reconciled? Why did the Credit Suisse AT1 CoCo bondholders face losses before shareholders were wiped out? What are the lessons for the effectiveness of post-GFC too-big-to-fail reforms? This article provides clarification of these important questions.</p><p>CoCo bonds are designed to absorb losses of a distressed going-concern bank at conversion, thereby helping to capitalize the bank. Their primary purpose is to reduce the need for a capital injection by the government in times of crisis when nobody else is willing to provide additional external capital. Such public support is costly to taxpayers and exacerbates moral hazard.</p><p>CoCo bonds have two main contract features: the loss absorption mechanism and the trigger that activates that mechanism (illustrated in Graph 1).5 CoCos can absorb losses either by converting into common equity or through a principal write-down (partial or full). ","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"35 2","pages":"66-74"},"PeriodicalIF":0.9,"publicationDate":"2023-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jacf.12553","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50131301","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Lessons for ESG activists: The case of Sainsbury's and the living wage","authors":"Tom Gosling","doi":"10.1111/jacf.12550","DOIUrl":"10.1111/jacf.12550","url":null,"abstract":"&lt;p&gt;Sainsbury's, one of the UK's large supermarket chains, found itself in the crosshairs of ESG activism in 2022. That was when ShareAction, a well-known responsible investment NGO, filed the first Living Wage resolution in the UK.1&lt;/p&gt;&lt;p&gt;Among the 10 co-filers were blue-chip names in the UK investment world, including Legal and General, HSBC Asset Management, Fidelity International, Nest, and the Brunel Pension Partnership.&lt;/p&gt;&lt;p&gt;This Living Wage resolution was rejected by roughly five out of every six of the Sainsbury's investors that voted on the resolution at the company's Annual General Meeting on July 7, 2022. To understand how and why this measure failed to gain acceptance, it's useful to start by noting the difference between The Living Wage and the National Living Wage, which is briefly described in the box below.&lt;/p&gt;&lt;p&gt;ShareAction clearly saw its Living Wage resolution at Sainsbury's as the opening salvo in a battle it intended to conduct with the entire UK supermarket sector. It was also one of the NGO's first efforts to draw attention to the importance of the “S” in ESG. The proposal described the resolution as a “litmus test for investors’ social commitments amid the cost-of-living crisis.”&lt;/p&gt;&lt;p&gt;In an unusual move, Schroders, the well-known UK asset manager with one of the five largest investment positions in Sainsbury's, published &lt;i&gt;ahead of the vote&lt;/i&gt; its rationale for its decision &lt;i&gt;not&lt;/i&gt; to support the resolution. Kimberley Lewis, Head of Schroders’ Active Ownership group, wrote an article titled, “Why Sainsbury's AGM is a Pivotal Moment for ESG.”4 After pointing out that Sainsbury's is widely recognized as a well-run company that considers all important stakeholders in key decisions and has invested heavily in its employees, the article then expressed the concern that imposing this further restriction on Sainsbury's at a time when no other UK supermarket was a Living Wage Employer could undermine the company's competitive position, which would end up doing economic harm to many of its employees and customers as well as its investors.&lt;/p&gt;&lt;p&gt;Lewis closed her article with a warning against the unforeseen risks of applying ESG factors “in a blanket way and without due consideration,” describing it as “‘unthinking ESG’ … which harms the credibility of sustainable investing.” Along with this warning, she also expressed her view of the outcome of the impending resolution as “a test of whether important nuances in these debates can be heard”.&lt;/p&gt;&lt;p&gt;There is much that could be said about this resolution. We might start by asking how ShareAction could claim that the resolution—which requires the company to adopt a floor on employee pay set by a third party—would leave board discretion wholly unaffected and intact, because the Living Wage Foundation “would merely set the minimum level”. But while we are raising such questions about the NGO, we could also ask why Schroders, itself a Living Wage Employer, thinks that what is sauce for","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"35 2","pages":"8-15"},"PeriodicalIF":0.9,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jacf.12550","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43294902","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Stakeholder capitalism: What it is, what it isn't, and a new model for measuring stakeholder trade-offs","authors":"Gregory W. Brown,&nbsp;Gerald D. Cohen","doi":"10.1111/jacf.12552","DOIUrl":"10.1111/jacf.12552","url":null,"abstract":"","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"35 2","pages":"16-25"},"PeriodicalIF":0.9,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42440425","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Overseeing the dynamic materiality of ESG risks: The board's role","authors":"Norman T. Sheehan Pro.,&nbsp;Han-Up Park Pro.,&nbsp;Richard C. Powers Pro.,&nbsp;Sarah Keyes CEO","doi":"10.1111/jacf.12551","DOIUrl":"10.1111/jacf.12551","url":null,"abstract":"","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"35 2","pages":"52-57"},"PeriodicalIF":0.9,"publicationDate":"2023-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45475168","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Executive Summaries","authors":"","doi":"10.1111/jacf.12549","DOIUrl":"https://doi.org/10.1111/jacf.12549","url":null,"abstract":"","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"35 1","pages":"4-7"},"PeriodicalIF":0.9,"publicationDate":"2023-05-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50154295","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Executive Summaries","authors":"","doi":"10.1111/jacf.12547","DOIUrl":"https://doi.org/10.1111/jacf.12547","url":null,"abstract":"","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"34 4","pages":"4-7"},"PeriodicalIF":0.9,"publicationDate":"2023-05-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"137771948","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Does board independence matter in companies with a controlling shareholder?","authors":"Jay Dahya,&nbsp;Orlin Dimitrov,&nbsp;John J. McConnell","doi":"10.1111/jacf.12543","DOIUrl":"https://doi.org/10.1111/jacf.12543","url":null,"abstract":"&lt;p&gt;Studies have reported valuation discounts for publicly traded companies based in countries that provide weak legal protection for minority shareholders.1 Such discounts are often attributed to the ability of controlling shareholders to extract “private benefits” that come at the expense of minority shareholders. Without sufficient legal deterrents, controlling shareholders have both the incentive and the ability to transfer corporate resources to themselves for personal consumption or gain. These transfers take a number of forms, including related-party “tunneling” transactions as well as corporate perks and, in some cases, outright theft.&lt;/p&gt;&lt;p&gt;But under certain circumstances—notably, when their companies want to raise capital by selling shares—the controlling shareholders may face a stronger incentive to reduce this value discount by providing credible commitments to outside investors to forgo this diversion of corporate resources. Various commitment mechanisms have been proposed in the literature, including cross-listing on U.S. exchanges as well as general improvements in overall corporate governance systems.2 But another possible solution is more effective oversight of controlling shareholders by corporate boards.&lt;/p&gt;&lt;p&gt;We recently published a study that investigated the effects of appointing more independent directors on the value discounts of companies controlled by a dominant shareholder.3 Using biographical data on nearly 8000 directors of 799 closely held companies in 22 countries, we found a significant positive correlation between corporate value and the fraction of the board made up of independent directors. Moreover, we found this relation to be especially pronounced in countries that afford investors weak legal protection—countries where controlling shareholders presumably have then greatest opportunity to increase corporate values by submitting to greater oversight.&lt;/p&gt;&lt;p&gt;Thus, the findings of our study are consistent with the possibility that the appointment of directors with no ties to the controlling shareholder can be a powerful mechanism to reduce the threat of resource diversion and transfer of value from minority shareholders. But how reliable is this interpretation, given that the same controlling shareholders that have the power to appoint the board members also have the power—perhaps if they do too good a job—to dismiss them?&lt;/p&gt;&lt;p&gt;To address this issue, we performed several additional tests designed to detect the ability of independent directors to monitor the actions of the controlling shareholder. One such test revealed that 71% of independent directors in our sample sat on multiple corporate boards. We reasoned that multiple appointments are more likely to be a proxy for “reputational capital,” and that directors with multiple appointments should be less willing to jeopardize those reputations by proving to be ineffective monitors. As a second check on whether independent directors help reduce the threat of transf","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"35 1","pages":"72-82"},"PeriodicalIF":0.9,"publicationDate":"2023-04-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jacf.12543","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50155665","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"A survey of US corporate financing innovations: 1970–1997","authors":"Kenneth A. Carow,&nbsp;Gayle R. Erwin,&nbsp;John J. McConnell","doi":"10.1111/jacf.12542","DOIUrl":"https://doi.org/10.1111/jacf.12542","url":null,"abstract":"&lt;p&gt;An appropriate subtitle for this article might well be “The Evolution Lives! Long Live the Evolution!” Previous articles in this journal have described innovations in financial security design and the forces that give rise to such innovations.1 In this article, we expand upon and update those articles by documenting changes over the past 30 years in the way US public corporations finance themselves both in public and private security markets.2&lt;/p&gt;&lt;p&gt;The past articles have focused mainly on innovations in the kinds of securities issued. But major changes have also occurred in the &lt;i&gt;way&lt;/i&gt; securities are issued, and in the national markets &lt;i&gt;where&lt;/i&gt; they are issued. Traditional registered offerings have been partly displaced by shelf registered offerings and Rule 144A private offerings. And once exclusively domestic US offerings are increasingly being supplemented by foreign market offerings by US companies, and by simultaneously domestic and foreign offerings. In the research summarized in this article, we tracked not only the kinds of securities (both by number and by dollar amount) issued each year by US public companies between 1970 and 1997, but also their method of issuance and the locale of the offerings.&lt;/p&gt;&lt;p&gt;In a 1992 article in this journal entitled “An Overview of Corporate Securities Innovation,” John Finnerty traced innovations (through the first half of 1991) in the design of securities issued by US corporations by identifying the year in which the design first appeared.3 Our study extends that article's findings in two ways: (1) by updating developments in the design of corporate securities through the end of 1997 and (2) by presenting an annual time series of security issues classified according to the design of the security from 1970 through 1997.&lt;/p&gt;&lt;p&gt;Our updating of new developments in security design provides clear evidence that the pace of innovation in securities design has not slackened. For example, whereas Finnerty identified 40 types of securities that were first issued by US companies in the 1980s,4 our study found 34 kinds that were first issued during the first eight years of the 1990s.5 Among these securities were equity indexed bonds, commodity indexed preferred stock, convertible exchangeable notes, and dividend enhanced convertible securities.&lt;/p&gt;&lt;p&gt;Our study also attempted to identify which innovations have prospered over time and which have languished or even disappeared. For example, the first non-convertible floating rate note (FRN) was issued in 1974. The use of FRNs increased steadily throughout the next 24 years and, in 1997 alone, US public companies issued 1411 FRNs with an aggregate face value of $139.8 billion. By contrast, after the first convertible adjustable rate bond (CARB) came to market in 1981, 10 additional CARBs were issued during the remainder of the 1980s, and none have been issued since. Our findings suggest that financial innovation is a trial and error process in which “failure is","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"35 1","pages":"55-71"},"PeriodicalIF":0.9,"publicationDate":"2023-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jacf.12542","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50117740","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"CEOs, abandoned acquisitions, and the media","authors":"Baixiao Liu,&nbsp;John J. McConnell","doi":"10.1111/jacf.12545","DOIUrl":"https://doi.org/10.1111/jacf.12545","url":null,"abstract":"&lt;p&gt;Do the media play a role in corporate governance and, if so, how? Those questions are broad and their answers have broad implications. This is especially so in countries such as the U.S. that are characterized by a free and vigorous business press. By corporate governance, we mean the traditional role of corporate governance in monitoring corporate management to ensure that top managers act in shareholders’ interests. So the questions are whether this active media coverage plays a role in guiding corporate managers to act in shareholders’ interests and, if so, how do they do it.&lt;/p&gt;&lt;p&gt;Academic studies have proposed that the media can play such a role by influencing the value of top managers’ reputational capital.1 In this framework, a manager's reputational capital is viewed as the present value of his future wages and employment opportunities.2 The media are said to affect such values by reporting on managers’ actions and by shaping perceptions of those actions. And to the extent that they influence managers’ reputational capital, the media can play a role in guiding managers’ actions. Whether they do so—and whether they do so in ways that are in shareholders’ interests—are open questions. We address those questions in one specific set of circumstances: namely, when would-be acquirers are considering whether to carry out or abandon acquisition attempts that the market perceives as “value-reducing.”&lt;/p&gt;&lt;p&gt;Several prior studies have reported that would-be acquirers are significantly more likely to abandon takeover attempts when the market responds to the announcement of the proposed acquisition with a downward revision of the potential acquirer's stock price. A common interpretation of this finding is that “managers listen to the market.” But this begs the question: why do managers listen to the market?&lt;/p&gt;&lt;p&gt;Our answer to that question is that acquirers’ top managers—their CEOs—have two sets of skin in the game. First, and perhaps obviously, the CEO owns stock in the acquiring company. Call this his financial capital. To the extent that cancellation of a proposed “value-reducing” takeover results in recovery of the announcement period stock price decline and the CEO owns shares in the company, the CEO stands to gain from that price recovery.&lt;/p&gt;&lt;p&gt;Second, we propose that the CEO stands to gain from the recovery of his personal reputational capital that may also have been diminished as a result of the market's perception that the announced takeover attempt is value-destroying. The media influence the CEO's reputational capital by interpreting and disseminating information about the CEO's acquisition decisions. The worse the tone of the media coverage and the broader its dissemination, the greater the negative impact on the CEO's reputational capital. To the extent that the CEO's reputational capital has been diminished by media coverage of the takeover attempt, abandonment of that attempt may be associated with a recovery of that loss.&lt;/p&gt;&lt;p&gt;Th","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"35 1","pages":"83-90"},"PeriodicalIF":0.9,"publicationDate":"2023-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jacf.12545","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50146496","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}