Rehbein, Waddock & Graves: Corporate Social Exposure, Risk, and Shareholder Resolutions

ABSTRACT:

Why do some companies get targeted by shareholder activists and others not? Despite the volume of shareholder resolutions submitted, little is known about why certain corporations become the targets of social policy shareholder resolutions (IRRC, 1999). This study takes the position that targeted companies are more “socially exposed” (Miles, 1987) in a variety of ways and that it is this social exposure that draws attention from activists. Social exposure is potentially evidenced through size and profitability, high levels of CEO compensation, problems of corporate governance, diversity, and human rights, products that are problematic in the eyes of some investors, overall risk, as well as in the very nature of the industry in which a company participates.

The present study uses nearly 3000 social-policy shareholder resolutions (or proxies) submitted to companies between 1988-1999 and social research firm of KLD’s database on corporate responsibility. We find significant relationships between corporate practices and activists’ targeting of companies with social policy resolutions for size, CEO compensation, governance, human rights, product characteristics, and some industries, but not for profitability, diversity, or risk. We conclude that shareholders activists appear to provide a social monitoring function. They single out firms that may be qualitatively  worse than other corporations with respect to their social agenda on specific issues of concern.

 

Available for download here.

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Larusson: Commercial or Political Interests – Oil and Gas in the Russian Arctic

Summary:

The Russian efforts of developing the natural resources in the Arctic region have intensified during the last years, and the leadership of the country is underlining the importance of speeding up the process of doing do. Putin has states that the current resources on land are depleting, and that a substitute needs to be found. But the Russian state companies Gazprom and Rosneft, the two companies who have been granted licenses to develop the Arctic shelf, are struggling against heavy bureaucracy and tight restrictions. Not the least because the Russian energy sector is considered an issue of national security, foreign involvement is heavily restricted. Furthermore, profitability of such offshore Arctic projects is uncertain, due to large demands for investments and high technology and the need for a high world oil price.

The dubious nature of developing the Arctic thus spurs the question of why the Russian government is so keen on landing these oil and gas reserves. By highlighting the economic viability of developing the northern oil and gas resources and putting them in contrast to other potential reasons for developing the regions resources, this study attempts to present possible drivers for the Russian development of the Arctic oil and gas riches. Furthermore, the question of what the state oil and gas companies do to try to affect the regulations for their Arctic endeavors is studied.

Even though the Arctic is expected to hold large amounts of resources, the economic viability of developing the Arctic region is questionable. The crucial oil price, which recently has experienced a sharp decline, could pose difficulties for the profitability of the oil and gas development projects. Furthermore there are potential development sites on land that do not require the same costs and risks. Russian governmental officials however, have pointed to the development of the Arctic as a way of giving a boost to the Russian economy, not just by sales of oil and gas, but also by using domestic technology and expertise to support the Arctic activities. As a result of the Ukraine sanctions against Russia, Rosneft has stated that it could replace the foreign equipment used in a matter of three to four years.

Having this dubious economic outlook for developing the Arctic, other drivers are suggested. One driver connects to the image-making of Putin. Being one of the first to land resources in the unhospitable conditions of the Arctic is a feather in the hat for Putin, and leads to a positive international reputation.

Another highly topical potential driver is geopolitics. The planned increased military presence is portrayed as a guarantor for the safety and security of the commercial activities in the Arctic, but it should also be able to discourage other powers from engaging in any of the contested sea areas. Furthermore, the increased US interest in the Arctic, as well as the deteriorating relations between Russia and the West as a result of the events in Ukraine, could be seen as factors instigating this driver.

For Rosneft and Gazprom the Arctic is a difficult place to operate and the profits are uncertain. However, their Arctic ventures attract capital investments, something which both companies are in need of. In order to facilitate their work on the shelf, they do try to influence the leadership. Letters leaked to the media, sent to the president and the government from the state companies, give an indication of how they try to lobby the state and what issues they focus on. One of the major issues the state companies lobbied against was to allow any other actors onto the shelf. To date, it appears as if this has been successful – only Rosneft and Gazprom are allowed access. Another result of the lobbying efforts could be seen in the Interdepartmental Commission for removing administrative barriers for subsoil development. Rosneft had prior to this sent letters to state representatives about the tight regulations and excessive red tape for the oil and gas business. As these letters were surely preceded and succeeded by informal and non-public lobbying efforts, the result is still clear. Both state companies were to be included in the Interdepartmental Commission, which gives them a better position to influence and present their views. Similar lobbying efforts had earlier been attempted by e.g. Lukoil, but without any success. Igor Sechin’s arrival as the President of Rosneft has made the state companies’ voice stronger and seemingly more influential. His close ties with Putin and his understanding of the political drivers and the commercial realities of oil and gas development in such difficult areas as the High North, has given him a unique position in the development of the Russian Arctic.

 

Available for download here.

Soltes, Srinivasan, Vijayaraghavan: What Else do Shareholders Want? Shareholder Proposals Contested by Firm Management

ABSTRACT:

Shareholder proposals provide investors an opportunity to exercise their decision rights within a firm. However, not all proposals created by shareholders receive consideration. Managers can seek permission from the Securities and Exchange Commission (SEC) to exclude specific proposals from the proxy statement. From 2003-2013, we find that managers seek to exclude 40% of all proposals they receive, but the SEC does not permit exclusion in over a quarter of the cases. Of the proposals that managers seek to exclude but the SEC does not allow, 28% win shareholder support or the firm voluntarily implements prior to a vote. Our analysis of contested shareholder proposals suggests that managers often seek to avoid the implementation of legitimate shareholder interests.

 

Available for download here.

Fornero: Economic-Financial Literacy and (Sustainable) Pension Reforms: Why the Former is Key to the Latter

ABSTRACT:

Financial literacy has important implications for economic reforms. Reforms are meant to change people’s behavior and their effectiveness crucially depends on the ability of citizens to recognize and generally approve their necessity, their general design, and their “sense of direction.” Without basic understanding by citizens, reforms risk having little or no effect or even being reversed. Informed judgment about economic reforms requires information and numeracy as well as literacy. This is particularly true of pension reforms because of their profound impact on people’s life plans. The 2011 Italian pension reform is a case in point.

 

Available for download here.

Ru: Government Credit, a Double-Edged Sword: Evidence from the China Development Bank

ABSTRACT:

Using unique data from the China Development Bank (CDB), this paper examines the effect of government credit onfirm investment, employment, debt, profitability, and survival. I explore the different effects of various types of government credit (infrastructure vs. industry credit). I also trace the effect of government credit across different levels of the supply chain. Using municipal government turnover timing as an instrument of local government borrowing from the CDB, I find that CDB industry loans to SOEs crowd out private firms in the same industry but crowd in private firms in downstream industries. Private firms with better political connections benefit significantly more from upstream CDB industry loans. I also find both SOEs and private firms benefit from CDB infrastructure loans. From 1998 to 2009, on average, a $1 million increase in government industry credit from the CDB led to a $0.52 million decrease in the private sector’s total assets. Local politicians play a role in CDB credit allocation. I find that municipal politicians borrow significantly more during the early period of their terms, and that promotion prospects incentivize politicians to employ the borrowing pattern.

 

Available for download here.

Hořejší: Foreign Direct Investment – The Changing Picture

ABSTRACT:

The main actors in foreign direct investment as one of the phenomena of globalization of the economy, are for the decades developed countries. This fact was reflected in some of the concepts of foreign direct investments (FDI), such as The Product Life Cycle (Vernon, 1966) or The Eclectic Paradigm (Dunning, 1988). Dunning himself in this context speaks of the old paradigm of development (Dunning, 2006). At the end of the 20th century, however, a number of changes, whether economic – administrative nature (decrease of barriers to international trade and investment), the major technological changes (development of the microprocessor and subsequently the development of telecommunications and transport technologies) and policy changes occur. The old paradigm of development is proving to be very narrow and does not reflect the institutional infrastructure and social capital, which seem to be essential for current development. Through these key determinants developing countries can increase their effectiveness, usage of their resources and access to international markets.

 

Available for download here.

An analysis of the Papua New Guinea Sovereign Wealth Fund’s process of formulation and progress towards establishment

ABSTRACT:

The National Research Institute (NRI) commissioned this Issues Paper to review and analyse the process of the formulation of Papua New Guinea (PNG)’s sovereign wealth fund (SWF); its current status; and lessons and future prospects. After providing the background and PNG’s historical attempts at creating SWFs, the paper then discusses the current SWF including its design, formulation process, structure, and the organic law. The paper then provides some key lessons emanating from the analysis, which include the need:

Bauerle Danzman: Cronies, Capitalists, and Control: How the Financing Environment Shapes Firms’ Strategies over Foreign Direct Investment

ABSTRACT:

What explains liberalization of foreign direct investment (FDI)? Standard Political Economy models of deregulation argue economic liberalization occurs when incumbent firms lose political power vis-à-vis groups that generally benefit from open markets. This has led to the popularity of models that place democratization, and the empowerment of labor, at the center of explanations of economic liberalization. In the particular case of FDI, however, prominent firms have often supported openness while anti-FDI coalitions frequently consist of small firms, state-owned enterprise, and labor groups. I argue theories of political economy must do more to explain the conditions under which insiders will support regulatory reform. Movements toward FDI openness through the latter part of the 20th century can be explained as resulting from a series of economic shocks that forced governments to fundamentally reform their banking sectors and in the process reoriented local firms’ financing strategies. While politically connected domestic enterprises can easily finance operations and investment through state-subsidized loans during times of financial repression, banking sector reforms raise the cost of borrowing sufficiently to induce firms to look to equity finance. FDI, particularly in the form of joint venture, provides local firms with access to foreign capital while also allowing them to maintain private benefits to control. Using large-n statistical techniques to model FDI openness, I show support for this explanation of regulatory change.

 

Available for download here.

Carrera-Marquis: Banking on Global Sustainability

ABSTRACT:

Adequate financial markets are fundamental to sustainable development. Accurate capital allocation requires return on investment incorporates the social and environmental variables impacting, negatively or positively, such investment. Values-based capital allocation relies on sound corporate governance structures guiding the decision-making process towards sustainability objectives, not short-term returns. One where the use of natural capital preserves the stock of capital, assuring that all generations live-off the income-flow. Concurrently financial markets, especially in emerging markets, should further engage in growth and redistribution models to create wealth for and inclusion of SMEs. Long-term financial sustainability is then aligned with environmental sustainability and social inclusion. Enhancing the potential of formal and informal SMEs requires strengthening credit channels. With the implementation of downscaling strategies, financial institutions (FIs) contribute to address existing levels of inequality while supporting the sustainable development path. At the same time FIs have the opportunity to impact the public policy dialogue regarding SMEs formalization. Formalized SMEs are in a better position to grow, to have higher labor and capital demand and productivity. For FIs this implies a market expansion. For society, higher productivity and more equitable growth contribute to a better income distribution and closing the inequality gap. Redefining the financial sector’s role is relevant for all stakeholders. Is not a choice, is the ethical response. FIs have to acknowledge their impact on society and the environment carries great responsibility and that their legitimacy as agents of social change, depends on the realization that their role goes beyond the traditional financial intermediation.

 

Available for download here.

Brooks: Commitment Credibility in Funding Public-Employee Pensions (2001-2011)

ABSTRACT:

State governments have utilized defined benefit (DB) pensions to compensate public employees while keeping visibility and taxes low. Pensions somewhat recently have entered the political problem stream, though, as funding has declined. Absent a lack of strong national regulation, state politics might contribute to variation in plan performance. I utilize fixed effects and seemingly unrelated regression approaches to jointly examine variation in funding, liabilities, and assets. I focus on political independent variables, while controlling for economic and actuarial factors. Funding appears to operate at arm’s length from legislative politics and union membership. However, more politicized boards have lower funding ratios, as well as greater assets and liabilities, suggesting they are less credible. Additionally, pensions in states with more conservative legislatures tend to have especially large liabilities in comparison to general budget revenue. Thus, while it appears that pensions are quite robust to many political forces, increased insulation protects them from short-term political decision-making. Politics do appear to matter for these public plans, influencing credibility, credit ratings, and future politics.

Available for download here.