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24 October 2014  

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See the latest research from the ECGI published in the ECGI Finance Working Paper series
Thu, 09 Oct 2014 23:40 GMT  
ECGI Finance Working Paper 441/2014

Juyoung Cheong, Korea Advanced Institute of Science and Technology Woochan Kim, Korea University and ECGI

Submitted by
Woochan Kim
executive compensation, family firms, business groups, chaebols, dividend

According to the prior literature, family executives of family-controlled firms receive lower compensation than non-family executives. One of the key driving forces behind this is the existence of family members who are not involved in management, but own significant fraction of shares and closely monitor and/or discipline those involved in management. In this paper, we show that this assumption falls apart if family-controlled firm is part of a large business group, where most of the family members take managerial positions but own little equity stakes in member firms. Using 2014 compensation data of 564 executives in 368 family-controlled firms in Korea, we find three key results consistent with our prediction First, family executives are paid more than non-family executives (by 27% more, on average) and this family premium is pronounced in larger business group firms even after controlling for potential selection bias problems. Second, pay to family-executives falls with the influence of outside family members (their aggregate ownership in the firm minus the ownership held by the family executive in the same firm). Third, family premium in large business group firms rises with group size, but falls with family’s cash flow rights. It also rises for group chairs, but falls with the number of board seats the family-executive holds within the group.

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, 24 Sep 2014 17:37 GMT  
ECGI Law Working Paper 265/2014

C.N.V. Krishnan, Case Western Reserve University Steven Davidoff Solomon, University of California Randall Thomas, Vanderbilt University and ECGI

Submitted by
Randall Thomas
Shareholder class action lawsuits, mergers and acquisitions, M&A transactions, top plaintiffs’ law firms, law firm reputation, lawsuit activity, law suit success, law firm popularity, selection bias controls, Docket entries, Injunction Motion, Motion to Expedite, Motion for Dismiss, Delaware Court

Using a hand-collected sample of 1,739 class actions that challenge the fairness of M&A transactions from the period 2003 through 2012, we examine the effectiveness of plaintiffs’ law firms. We divide plaintiff law firms into top-10 and non-top-10 firms using various reputation measures. We further segregate top law firms into top 5 law firms based on their popularity with informed plaintiffs and ability to obtain large attorneys’ fees awards. We find that the presence of a top plaintiffs’ law firm is significantly and positively associated with a higher probability of lawsuit success. These results hold even after controlling for selection bias - the likelihood that top law firms get to pick better cases that have higher chances of success. We find that top plaintiffs’ law firms are significantly more active than other plaintiffs’ law firms: they file more documents in the cases they litigate and they are more likely to bring injunction motions to enjoin a transaction. Defendants are also less likely to file a motion to dismiss cases filed by top plaintiffs’ law firms. Overall, we find evidence that law firm litigation activity aids top law firms in their success, which, in turn, feeds into their popularity. Our results inform the debate over shareholder litigation generally as well as the appropriate method for appointing lead counsel in shareholder class action litigation.

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