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16 April 2014  

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See the latest research from the ECGI published in the ECGI Finance Working Paper series
Thu, 13 Mar 2014 16:54 GMT  
ECGI Finance Working Paper 412/2014

Hao Liang, Tilburg University Christopher Marquis, Harvard University Luc Renneboog, Tilburg University and ECGI Sunny Li Sun, University of Missouri at Kansas City

Submitted by
Luc Renneboog
Language, Future-Time-Reference, Categories, Culture, Corporate Social Responsibility, Sustainability

We argue that the language spoken by corporate decision makers influences their firms’ social responsibility and sustainability practices. Linguists suggest that obligatory future-time-reference (FTR) in a language reduces the psychological importance of the future. Prior research has shown that speakers of strong FTR languages (such as English, French, and Spanish) exhibit less future-oriented behavior (Chen, 2013). Yet, research has not established how this mechanism may affect the future-oriented activities of corporations. We theorize that companies with strong-FTR languages as their official/working language would have less of a future orientation and so perform worse in future-oriented activities such as corporate social responsibility (CSR) compared to those in weak-FTR language environments. Examining thousands of global companies across 59 countries from 1999-2011, we find support for our theory, and further that the negative association between FTR and CSR performance is weaker for firms that have greater exposure to diverse global languages as a result of (a) being headquartered in countries with higher degree of globalization, (b) having a higher degree of internationalization, and (c) having a CEO with more international experience. Our results suggest that language use by corporations is a key cultural variable that is a strong predictor of CSR and sustainability.

to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp
See the latest research from the ECGI published in the ECGI Law Working Paper series
Wed, 19 Mar 2014 14:51 GMT  
ECGI Law Working Paper 246/2014

Paul Edelman, Vanderbilt University Randall Thomas, Vanderbilt University and ECGI Robert Thompson, Georgetown University

Submitted by
Randall Thomas
corporate governance, corporate law, corporate voting, hedge fund activism, say on pay, institutional investors

Shareholder voting is a key part of contemporary American corporate governance. As numerous contemporary battles between corporate management and shareholders illustrate, voting has never been more important. Yet, traditional theory about shareholder voting, rooted in concepts of residual ownership and a principal/agent relationship, does not reflect recent fundamental changes as to who shareholders are and their incentives to vote (or not vote). In the first section of the article, we address this deficiency directly by developing a new theory of corporate voting that offers three strong and complementary reasons for shareholder voting. In the middle section, we apply our theory to a world where most shares are held by institutional investment intermediaries (and mostly within retirement plans). We show that intermediaries’ business plans give them little reason to vote those shares and even create conflicts of interest that may distort their votes. Yet several key developments have countered that reality and opened the way for voting’s new prominence. First, government regulations now require many institutions to vote their stock in the best interests of their beneficiaries. Second, subsequent market innovations led to the birth of third party voting advisors, including Institutional Shareholder Services (ISS), which help address the costs of voting and the collective action problems inherent in coordinated institutional shareholder action. Third, building on these developments, hedge funds have aggressively intervened in corporate governance at firms seen as undervalued, regularly using the ballot box to pressure targeted firms to create shareholder value, thereby giving institutional shareholders a good reason to care about voting. But there is more to the corporate franchise than hedge fund inspired voting. Say on Pay proposals, Rule 14a-8 corporate governance proposals, and majority vote requirements for the election of directors, are all important, recurrent topics involving shareholder votes. We must also explain why these lower value votes should be held. In our concluding section, we apply our theory to examine when shareholder voting is justified. We examine hedge fund activism as an example of high value voting situation and Say on Pay votes as an illustration of lower value cases where there are still good reasons to have shareholder votes.

to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp