CORPORATE GOVERNANCE

The reasons why I choose “Corporate Governance in China: an Overview” article:

This paper shows about corporate governance (gongsi zhili) is a concept whose time seems definitely to have come in China.

COMPONENT OF COMPARISONS	ARTICLE 1 COURSE READING PACKAGE (CRP)	ARTICLE 2
TITLE	Identification of Role of Social Audit by Stakeholders as Accountability Tool in Good Governance S.S. Ghonkrokta and Anu Singh Lather	corporate governance in China: an Overview Donald C. Clarke
TOPIC	Corporate Governance Social audit is being viewed as a promising approach to improve the performance and social accountability in private as well as in public sector.	Corporate Governance The major theme of this article is that the state wants to make SOEs operate more efficiently by subjecting them to a new and different set of rules, the rules of organization under the “Modern enterprise system”.
THEORY USED BY ARTICLE RESEARCH	Social audit Good governance Accountability (Asian Development Bank-2000 and scientific)	Corporate governance Chinese CGLI reform Company Law Corporatization
HYPOTHESIS OF RESEARCH	Social audit creates confidence in society regarding government initiatives, promotes transparency and efficiency, improves social, ethical and environmental performance, enhance inclusion, facilitates monitoring and ensures accountability.	Chinese corporate governance in this narrow sense, and attempts to explain some perplexing features of its discourse, laws, and institutions.
VARIABLE USED	This research uses questionnaire that list about 30 positive statements identifying the likely role of social audit is prepared and placed in a 5 point Likert scale. To check the face and construct validity, questionnaire is given for examination and examined by 6 experts. To check the test and retest reliability, questionnaire was given to a set of 30 stakeholders taken from 5 categories of stakeholders	State-owned enterprises (SOEs), particularly after their transformation into one of the corporate forms provided for under the Company Law, and listed companies, which must be companies limited by shares (CLS) under the Company Law.
METHOD OF ANALYSIS	This research uses questionnaire that list about 30 positive statements identifying the likely role of social audit is prepared and placed in a 5 point Likert scale. The most positive answer is rated at 5 point and the most negative at 1 point. To check the face and construct validity, questionnaire is given for examination and examined by 6 experts. These experts were selected from different stakeholders, 1 citizen, 1 legal, 1 politician, 2 officials, and 1 educationist so as to include specialists from different categories, professions, and fields. To check the test and retest reliability, questionnaire was given to a set of 30 stakeholders taken from 5 categories of stakeholders (citizen, legal professionals, political persons, bureaucracy/officials and media). Retest was done after 15 days interval. Results were compiled and Pearson’s correlation coefficient calculated along with other statistical analysis done by using SPSS software.	Chinese corporate governance discourse in practice focuses almost exclusively on agency problems, and within only two types of firms: state-owned enterprises (SOEs), particularly after their transformation into one of the corporate forms provided for under the Company Law, and listed companies, which must be companies limited by shares (CLS) under the Company Law.
RESULT OF THE ANALYSIS RESEACRH	High reliability and validity of the instrument developed on positive statement establishes the appropriateness of the tool designed for assessing the role of social audit and its likely benefits and utility to stakeholders. Reliability and validity go side by side. The benefits of role areas: Stakeholder accepted that social audit helps the government in monitoring, accounting for and reporting the activities/actions. The exercise of social audit improves social, ethical, and environmental performance. Public is convinced and confident that social audit contributes towards achievement of efficacy and effectiveness of the administration. The important finding was that it creates confidence on governmental actions in the community. It makes administration more transparent and accountable. It provides verifiable data to substantiate claims on social performance. It enhances inclusions, partnership, and participation. Collectively, social audit is a tool for social accountability in good governance.	Any discussion of corporate governance in China must take seriously the implications of the state’s policy of continuing and significant involvement in enterprise ownership. Many of the problems the drafters of the Company Law sought to address are not necessarily best addressed by a statute like the Company Law, or even by an institution such as legislation and government enforcement.

INTERNATIONAL INVESTMENT

ARTICLE 1
COURSE READING PACKAGE (CRP)
FOREIGN OWNERSHIP AND INVESTMENT: EVIDENCE FROM KOREA
International Investment
This study examines whether an increase in foreign ownership affects investment in Korea.

THEORY USED BY ARTICLE RESEARCH – Modigliani and Miller

HYPOTHESIS OF RESEARCH – Cash flow sensitivity of investment is lower in firms with high foreign ownership than in firm with low foreign ownership.

VARIABLE USED
fi is firm specific effect
dt is time specific effect
εit is white noise
I represent investment
K capital stock
Q Tobin’s q
CF the firm’s internal financial position

High is the Dummy variable for firms with high foreign ownership
Low is the dummy variable for firms with low foreign ownership

Before and after represent the time period before and after 1998

METHOD OF ANALYSIS
Financial Variable Augmented Q model
(I/K)it=c+β1(I/K)it-1+β2Qit+β3(CF/K)it+fi+dt+εit
To test whether cash flow sensitivity of investment differs across foreign ownership structure:
(I/K)it=c+β1(I/K)it-1+β2Highi*Qit+β3 Highi* (CF/K)it+ β4Lowi*Qit+β5 Lowi* (CF/K)it +fi+dt+εit
(I/K)it=c+β1(I/K)it-1+β2Beforet *Qit+β3Beforet * (CF/K)it+ β2Aftert *Qit+β3Aftert * (CF/K)it +fi+dt+εit

RESULT OF THE ANALYSIS RESEACRH
For both the q model and the Euler model, it is found that firms are financially constrained since the coefficient in CF/K is statistically significant at the conventional level.
Both a q model and an Euler equation are estimated, adopting two classification methods to distinguish high foreign ownership from low foreign ownership. In both models, the cash flow sensitivity for firms with high foreign ownership is statistically insignificant. Cash flow has a significant impact on the investment of firms with low foreign ownership.
Liquidity constraints are reduced mainly in firms with low foreign ownership. Cash flow sensitivity in firms with high foreign ownership is statistically insignificant regardless of time periods.
If the value of the firm is directly related to financial constraints that the firm faces, the effect of cash flow on investment may also have a non linear relationship with the level of foreign ownership.
Cash flow sensitivity of investment decreases as foreign ownership increases. This implies that foreign ownership improves a firm’s accessibility to external finance.
The findings simply suggest that foreign ownership plays a role in reducing financial constraints on firms, and thus improves accessibility of external financing for investment. In addition to capital inflows, the relaxation of the information asymmetry can also be potential benefit of open financial markets.

ARTICLE 2
INVESTMENT FOLLOWING A FINANCIAL CRISIS: DOES
FOREIGN OWNERSHIP MATTER?
International Investment
This study investigates whether foreign ownership shields firms from liquidity constraints following a financial crisis.

THEORY USED BY ARTICLE RESEARCH
Trade theory assumes that relative prices are important, and no price is more important than the relative price of currency the real exchange rate.
When a currency undergoes a real devaluation, exports become more competitive.
In addition, firms that compete against imported goods become more competitive.
Firms that import most of their raw and intermediate goods, in contrast, become less competitive.

HYPOTHESIS OF RESEARCH
The rupiah devaluation should have affected foreign and domestic exporters in the same manner, all else being equal.

VARIABLE USED
Outcomeit is the log of value added, the log of labor, and the log of capital in the respective specifications,
(Exporter * Post)it is the interaction of indicators for a pre-crisis (anytime during 1994-1996) exporting establishment i and postcrisis years (1999-20000)
(Foreign Leverage*Post)it and (Domestic Leverage_ Post)it are the interactions of foreign and domestic leverage, respectively, and post-crisis years,
αi is a fixed effect for factory i, γt is a dummy variable
for year t.
Foreign is an indicator for firms with foreign equity.

METHOD OF ANALYSIS
First, we compare the effect of the crisis on wholly
Indonesian-owned firms, both exporters and non-exporters. Our aim to establish exporters as beneficiaries of the rupiah devaluation.
Second, we compare the post-crisis outcomes of Indonesian-owned exporters with those of foreign-owned exporters.
Equation estimates the effect of the crisis on firm outcomes.
Ln Outcomeit =β0(Exporter * Post)it + β1(Foreign Leverage * Post)it+ β2(Domestic Leverage * Post)it + αi + γt + εit
Ln Outcomeit =β0(Foreign * Post)it + β1(Foreign Leverage * Post)it+ β2(Domestic Leverage * Post)it + αi + γt + εit

RESULT OF THE ANALYSIS RESEACRH
Because of the rapid devaluation and inflation during 1997 and 1998, it difficult to interpret values during those years. Focusing on 1999 and 2000 hints at the trend that the regression analysis will show: only foreign exporters are investing post-crisis.
Because of the rapid rupiah devaluation during 1997 and 1998, a difference of just a few weeks in the reporting date could dramatically affect values.
Trade theory suggests that exporting firms should increase profits, expand employment, and invest in new capital following a real devaluation. For domestic exporters, we observe the first two effects, but do not see evidence of increased investment even though conditions warrant it. Liquidity constraints are a likely explanation. Whereas increases in employment could be financed through cash flow, capital investment required obtaining credit from a struggling financial sector.
In contrast, exporters with foreign ownership did expand investment. A priori, we see no reason why investment would depend on ownership other than financing availability. While domestic exporters may have faced a credit crunch, exporters with foreign ownership could access credit through their parent company and thus insure themselves against liquidity constraints.

Relations among Financing Decision, Dividend Policy, and Ownership

The reasons why I choose Financial Decisions, Ownership and Governance on Corporate Value article:

This paper shows about the impact of financial decisions (debt and dividend policies) on corporate performance and firm market value.

COMPONENT OF COMPARISONS	ARTICLE 1 COURSE READING PACKAGE (CRP)	ARTICLE 2
TITLE	Interrelationship among Capital Structure, Dividends, and Ownership: Evidence from South Korea	Financial Decisions, Ownership and Governance on Corporate Value
TOPIC	Relation among Financing Decision, Dividend Policy, and Ownership This paper examines the interrelationships among debt policy, dividend policy, and ownership structure using a simultaneous equation framework.	Relation among Financing Decision, Dividend Policy, and Ownership This paper shows about the impact of financial decisions (debt and dividend policies) on corporate performance and firm market value.
THEORY USED BY ARTICLE RESEARCH	Principal Agent Problem – the conflict of interest between a firm’s owners and managers. Agency Cost – ensure that the firm’s management acts in appropriate fashion.	Agency Conflict Theory
HYPOTHESIS OF RESEARCH	Cash flow and liquidity are expected to have a negative impact on debt. Liquidity and profitability are expected to have positive impacts on dividends. Size is expected to be negatively related to stock ownership. Debt policy, dividend policy, and ownership structure might be related directly through information asymmetry and agency theory.	When firm face growth opportunities and have high cash flows, dividends and debt will probably have a positive effect on firm value. The structure of corporate ownership can affect financial decision and, hence, it can also have a significant impact on corporate performance and firm value.
VARIABLE USED	LEV : total debt / total assets DIV : dividends / operating income OWN : percentage of stocks owned by insiders CF : (net income + depreciation) / total assets CR : current assets / current liabilities PRO : net income / net sales SIZE : natural log of market value of equity	LEVER : leverage DIVID : ratio of dividends over total assets LOGMV : firm size
METHOD OF ANALYSIS	3SLS – 3 stage least square methodology	A multivariate regression model
RESULT OF THE ANALYSIS RESEACRH	Table 1 – presents descriptive statistics for all the variables defined in the data. Table 2 – report the correlation coefficients among the three policy variables and the four control variables. The DIV, CF, CR, and PRO variables are significantly and negatively correlated with the LEV variable. Table 3 – present the OLS and 3SLS estimates for the debt equation. As the evidenced by the high F-statistic values, the collection of regressors in each equation jointly explains a significant amount of variation in our leverage variable. Table 4 – shows the OLS and 3SLS estimates for the dividend equation. Both equations in table 4 are highly significant, exhibiting F-statistics that exceed their critical values at five percent level of significance. Table 5 – report the OLS and 3SLS estimates for the ownership equation. Both equations are statistically significant at the five percent level. CONCLUSION 3SLS regression results suggest that higher levels of ownership and dividends negatively affect leverage. Ownership and leverage both positively impact dividend. Leverage is negatively associated with ownership, while dividends positively impact ownership.	Firms with growth prospects require funds to finance new investment project. A negative relationship between dividend payments and firm value has been anticipated, when firm face growth opportunities. The positive relationship between ownership concentration and firm market value indicates that large shareholders have incentives to monitor whether management promotes growth opportunities. Managerial ownership has positive effects on firm value, since managers have substantial incentives to act in the interest of shareholders, maximizing firm value.

DIVIDEND POLICY

The reasons why I choose Corporate Governance, Market Valuation and Dividend Policy in Brazil article:

This paper responds to the effects of the corporate governance structure on market valuation and dividend payout of Brazilian companies.

COMPONENT OF COMPARISONS	ARTICLE 1 COURSE READING PACKAGE (CRP)	ARTICLE 2
TITLE	The Effect of Asymmetric Information on Dividend Policy	Corporate Governance, Market Valuation and Dividend Policy in Brazil
TOPIC	Dividend Policy This article examines the effect of asymmetric information on dividend policy in light of an alternative explanation based on the pecking order theory.	Dividend Policy This article responds to the effects of the corporate governance structure on market valuation and dividend payout of Brazilian companies.
THEORY USED BY ARTICLE RESEARCH	Pecking Order Theory Signaling Theory Dividend Policy	Corporate Governance Market Valuation Dividend Policy
HYPOTHESIS OF RESEARCH	Other things equal, the pecking order theory predicts that the higher the level of asymmetric information, the lower the dividend.	H1: Higher concentration of voting rights by the controlling shareholder is associated with lower corporate valuation. H2: Higher cash flow ownership by the controlling shareholder is associated with higher corporate valuation. H3: Higher separation of voting from cash flow rights by the controlling shareholder is associated with lower corporate valuation. H4: Higher concentration of voting rights is associated with lower dividend payout H5: Higher concentration of cash flow rights is associated with higher dividend payout. H6: Higher separation of voting from cash flow rights is associated with lower dividend payout
VARIABLE USED	Control Variables: -Agency costs of (external) equity -Growth or investment opportunity -Cash flow -Agency costs of debt and financial distress	We estimated this model for each of the two dependent variables (Tobin’s Q and dividend payout). The independent variables include measures of control and ownership structure (voting capital, total capital, voting/total capital ratio), and variables that might influence the dependent variables, previously identified and selected from the literature, such as leverage (debt/asset ratio), size (ln (assets)), ROA (EBITDA/Asset ratio), risk (stock volatility), current asset/total asset ratio. Specifications that included the squared variables (voting capital)2, (total capital)2, (voting/total capital ratio)2, and dummy variables that indicated the type of the shareholder were also tes ted.
METHOD OF ANALYSIS	Empirical model of dividend policy Yi* = β’X + εi Yi* =optimum dividend level for firm i Yi =measured dependent variable (of optimum dividend level) X =vector of explanatory variables Εi =Disturbance term Dependent Variable Measures =use the conventional dividend yield (DIVYLD) that equals the reatio of dividends per share to price per share.	The first analysis is a parametric test that compares averages, in order to evaluate possible differences between market valuation and dividend payout of the firms, classified according to the origin of capital and to the ownership and control concentration. Then, we conduct a more formal analysis using multiple linear regression procedures. Using this technique, we are able to study how independent variables, specially the direct and indirect control and ownership structure, affects the market valuation and dividend payout of Brazilian firms. Therefore, we assume a causality relation among variables, such that the dependent variable is explained by the independent variables.
RESULT OF THE ANALYSIS RESEACRH	The empirical result above indicates that dividends are positively related to both analyst following and cash flow, but negatively related to growth opportunities. A higher analyst following implies less asymmetric information. The positive relation between dividends and analyst following is consistent with the pecking order theory. The positive relation between dividend and cash flow and the negative relation between dividend and growth opportunity are consistent with the pecking order theory. Dividends are unrelated to the insider ownership variable when the level of asymmetric information is explicitly controlled.	Table I shows the direct structure of ownership and control of Brazilian à show a high degree of concentration of the voting capital. Table II shows the indirect structure of control and ownership of Brazilian à show a small increase in the invested capital. Table III shows the direct and indirect structure of control and ownership of firms according to the identity of the largest shareholder (foreigners, government, family and institutional investors) Table IV shows the existence of shareholding agreements, pyramidal structures and the percentage of voting capital on total capital of Brazilian firms. Table V shows the market valuation (Tobin’s Q), and the payout of Brazilian firms, according to the identity of the controlling shareholder (foreigners, government, family and institutional investors). Table VI shows the results of the 6 model specifications for the study of the market valuation of Brazilian companies, considering the direct structure of ownership and control. Table VII shows the results of the 6 model specifications for the study of the market valuation of Brazilian companies, considering the indirect structure of ownership and control. Table VIII shows the results of the 6 model specifications for the study of the payout of Brazilian firms, considering the direct structure of ownership and control. Some variables present statistically significant coefficients, with signs that confirm what is predicted by the theory. Table IX shows the results of the 6 model specifications for the study of the payout of Brazilian firms, considering the indirect structure of ownership and control. The results are mainly the same as the direct structure, but in the indirect structure the p-values of variables related to corporate governance tend to be lower than in the direct structure, which means that those variables have a higher statistical power in the indirect structure. In this way, the relationship between payout, voting capital, total capital, and the separation between voting and total capital becomes statistically significant at the 1%, 5% or 10% levels, depending on the specification. CONCLUSION Results show a high degree of voting capital concentration. Even when there is no controlling shareholder, the largest shareholder owns a significative portion of the voting capital. The firm is controlled, on average, by its 3 largest shareholders. We can also note a significant difference between the voting and total capital owned by the largest shareholders. This mechanism seems to be used by majority shareholders to keep the firm’s control without having to own 50% of the total capital. The results of the tests show that there is a relationship, which is statistically significant in many cases, between governance structure, market valuation, and dividend policy of Brazilian firms. The results are basically the same when we use the direct and indirect structures, but indirect structure variables tend to have a higher statistical power. A possible explanation is that indirect structure variables really measure who is the actual owner of the firm. Therefore, the study of ownership and control should focus not only on the direct structure, but also on who is the ultimate owner of the companies.

CAPITAL STRUCTURE

The reasons why I choose Capital structure and corporate strategy: an overview article:

1. This paper responds to the general call for integration between finance and strategy research by examining how financial decisions are related to corporate strategy.
2. This article summarizes, the potential interaction between managers, financial stakeholders, and non-financial stakeholders influences capital structure, corporate governance activities, and value creation processes.

COMPONENT OF COMPARISONS	ARTICLE 1 COURSE READING PACKAGE (CRP)	ARTICLE 2 SSRN-id1023461-1
TITLE	An Empirical Study on the Determinants of the Capital Structure of Listed Indian Firms	Capital structure and corporate strategy: an overview
TOPIC	Capital Structure This article presents empirical evidence on the determinants of the capital structure of non-financial firms in India based on firm specific data.	Capital Structure This article examining how financial decisions are related to corporate strategy, and summarizes, the potential interaction between managers, financial stakeholders, and non-financial stakeholders influences capital structure, corporate governance activities, and value creation processes.
THEORY USED BY ARTICLE RESEARCH	Capital Market Capital Structure: -The Tax Based Theory -The Signaling Theory -The Agency Theory	Capital Structure Corporate Strategy Stakeholder Theory Competitive Strategy
HYPOTHESIS OF RESEARCH	Tax effect and signaling effect play a role in financing decisions where as agency cost effect financing decision of big business houses and foreign firms The size of the firm and business risk became significant factors influencing the capital structure during post-liberalization period. More and more firms accessed equity funds during post liberalization period due to friendly regulatory framework for equity issues.	The potential interaction between managers, financial stakeholders, and non financial stakeholders influences capital structure, corporate governance activities, and value creation processes.
VARIABLE USED	Measures of leverage Explanatory variables -Non-debt tax shield (NDTS) -Tangibility -Profitability -Business risk -Growth opportunity -Growth -Size -Agency variables (big business group firms, foreign private firms, other firms)	Financial policy and investment: the effect of the relation among managers, shareholders and bondholders: Overinvestment problems (Managerial overinvestment and Overinvestment in risky projects: incentives for risk-shifting) Underinvestment problems (Underinvestment à la Myers or debt overhang and Underinvestment in risky projects: incentives for risk avoidance) Overinvestment and underinvestment: determining factors and consequences Financial policy and corporate strategy: the effect of the relation among managers and non-financial stakeholders
METHOD OF ANALYSIS	Regression model	Use analysis of: Financial policy and investment: the effect of the relation among managers, shareholders and bondholders. Financial policy and corporate strategy: the effect of the relation among managers and non-financial stakeholders
RESULT OF THE ANALYSIS RESEACRH	Summary Statistics The book value based leverage (LBV) has decrease during post liberalization period whereas, market value based leverage (LMV) shows increase during the same period. Non-dept tax shield (NDTS) has decreased during post liberalization period due to declined tax rates. Profitability has also decreased due to increased competition due to liberalization and general recession in some major sectors. Aggregate Changes in Corporate Leverage (LBV) The significant decrease in mean debt equity ratio across the groups and industries. More and more firms accessed equity funds during post liberalization period due to friendly regulatory framework for equity issues. Paired Changes in Corporate Leverage (LBV) There has been significant decrease in mean debt equity ratio in post liberalization period across the groups and industries. Total Debt to Total Assets Ratio Significant difference is in case of foreign firms whose leverage ratio has increase during post liberalization period. Correlation Matrix Except growth rate and size all other explanatory variables have significant correlation with leverage (both book value and market value based) during liberalization period whereas all the explanatory variables are significantly correlated with leverage during post liberalization period. Regression Analysis for the Pre-liberalization period and for Post-liberalization period The traditionally estimated covariance matrix is inappropriate for cross sectional data showing heteroscedasticity. The interpretation of these result is presented below: Tax and signaling effects on financing decisions The overall results are consistent with the prediction of the tax based model and signaling model. The estimated coefficients of Non-debt tax shield, Cash operating profit, Market to book value ratio are consistently significant and have predicted signs across the equations. Agency effects on financing decisions The estimated coefficients of ownership patterns are negative and significant for all regressions only for foreign firms. It implies that foreign investors are not adopting high leverage to discipline management. For big group firms these coefficients are negative and significant when leverage is measured in terms of market value. Conclusions: Traditional factors that are affecting financing decisions are profitability, tangibility, taxes, and growth are all significant. Comparative analysis of pre and post liberalization period reveals that size and risk measures are additional factors which influence capital structure decisions during post liberalization period.	Strategy and finance are growing closer together. It is necessary to match strategy and investment plans with financing requirements, complementing external source of finance to strategies for corporate development. A good integration between strategy and finance dimensions can be tantamount to a competitive weapon. The interaction between financing and real decisions creates a situation in which high or low debt can compromise a firm’s ability to take advantage of strategic options. The common theme here is that a firm’s financial policy and its ability to support the value creation process are affected by its relationship with (1) financial stakeholders, referring to shareholders and debt holders (2) non-financial stakeholders, such as customers, workers, and suppliers. Decision-making regarding capital structure is not simply a matter of deterministic, prescriptive principles, due to the complex number of forces that influence firm relations and managerial activity. It is, rather, an art that, despite all the innovations in financial engineering and changes in the competitive context, are part of today’s financial world and cannot be separated from the intellectual skill of “good” financial managers.

CAPITAL BUDGETING & INVESTMENT DECISIONS

The reasons why I choose this article:

In today’s complex business environment, making capital budgeting decisions are among the most important and multifaceted of all management decisions as it represents major commitments of company’s resources and have serious consequences on the profitability and financial stability of a company.

It is important to evaluate the proposals rationally with respect to both the economic feasibility of individual projects and the relative net benefits of alternative and mutually exclusive projects.

COMPONENT OF COMPARISONS	ARTICLE 1 COURSE READING PACKAGE (CRP)	ARTICLE 2
TITLE	Capital Budgeting: NPV v. IRR Controversy Unmaking Common Assertions	Effects of Inflation on Capital Budgeting Decision- an Analytical Study
TOPIC	Capital Budgeting and Investment Decisions This journal making a detail about the conflict between NPV and IRR. Discuss about which one of both findings has the first claim.	Capital Budgeting and Investment Decisions This journal explain about the inflation plays a vital role on capital budgeting decisions and also about the effect of inflation that influence to the decision making in capital budgeting.
THEORY USED BY ARTICLE RESEARCH	Capital Budgeting – among the most important choices made by managers: selection or rejection of investment proposals defines the firm’s profitability and, in the end, its survival.	Capital Budgeting: Inflation ( rising price or fall in the value of money) Cash Flows (the cash oriented measures of return, generated by a proposal) Discount Rate (the minimum requisite rate of return on funds committed to the project) = Fisher’s effect
HYPOTHESIS OF RESEARCH	NPV and IRR method is plain mathematics and does not pretend to be ranking device.	Effect of inflation (in the term of cash flows and discount rate) influence in capital budgeting decisions.
VARIABLE USED	I/100 =  the discount rate per period (discrete), for each of the three periods.	Cash flows: Revenue Expenses Earning Before Tax Tax Earning After Tax Depreciation Cash Flow Accounting Profit: Revenue Expenses Earning Before Tax Tax Earning After Tax Discount rate: Nominal of Discount rate = r Combination of real rate = K Expected inflation rate = α
METHOD OF ANALYSIS	NPV method IRR method	Measuring the cash and benefits of a proposal: Cash flows Accounting Profit Measuring Discount rate
RESULT OF THE ANALYSIS RESEACRH	NPV and IRR are not two measures of investment worth, they are just two sides of one and the same method. NPV is the function of the discount rate, a curve in the plat plane. Both finding NPV and IRR follow from the very same mathematics.	Effects of Inflation on Cash Flows: Both net revenues and the project cost rise proportionately, the inflation would not have much impact. There are two reasons: First, the rate used for discounting cash flows is generally expressed in nominal terms. It would be inappropriate and inconsistent to use a nominal rate to discount cash flows which are not adjusted for the impact of inflation. Second, selling prices and costs show different degrees of responsiveness to inflation. Effects of Inflation on Discount Rate: Deflation of any series of interest rates over time by any popular price index does not yield relatively constant real rates of interest. Implication Effects of inflation significantly influence the capital budgeting decision making process. If the prices of outputs and the discount rates are expected to rise at the same rate, capital budgeting decision will not be neutral. The implications of expected rate of inflation on the capital budgeting process and decision making are as follows: The company should raise the output price above the expected rate of inflation. If the company is unable to raise the output price, it can make some internal adjustments through careful management of working capital. With respect of discount rate, the adjustment should be made through capital structure. Conclusion Effects of inflation are significantly influenced on capital budgeting decision making process. Every finance manager encounters during their capital budgeting decision making process for optimum utilization of scarce resources especially in two major aspects namely cash flow and discount rate. Using of the proper discount rate depends on whether the benefits and costs are measured in real or nominal cash flows. To be consistent, the cash flows should match with discount rate. A mismatch can cause significant errors in decision making. It is very difficult to take decision, free from effect of inflation as it is highly uncertain.

SECURITIES VALUATION

ARTICLE 1 (from CRP)

TITLE: Discussion of The Book to Price Effect in Stock Returns: Accounting for Leverage

TOPIC: Securities Valuation

THEORY USED BY ARTICLES RESEARCH  :

Book-to-market à The ratio of book value to market value of equity. A high ratio is often interpreted as a value stock (the market is valuing equity relatively cheaply compared to book value). This is the same as a low price to book value ratio. Value managers often form portfolios of securities with high book to market values.

HYPOTHESIS OF RESEARCH    :

• Financial leverage has a negative relation with future returns
• Whether the observed relations are the result of endogeneity or correlated omitted variables

VARIABLES USED            :

PRT decompose the book to market ratio into the formula that the variables consist of:

• An unlevered, net operating asset based pricing multiple
• Financial leverage

METHOD OF ANALYSIS  :

• The use of book value to measure net debt
• the classification of operating versus financial leverage
• measurement of asset risk

RESULT OF THE ANALYSIS RESEARCH      :

• Leverage is an endogenous choice
• The relation between leverage and returns could be an artifact of an omitted factor
• To the extent that financing choices, the use of variable rate or short term loans, or the retention of excess cash, are driven by some underlying firm characteristic or risk attribute, it is possible to the measurement error to predict return especially after controlling for the firms’ general level of expected asset growth and profitability.
• To the extent that leverage variable reflects the outcome of an endogenous capital structure choice, the fundamental factors driving each firm’s capital structure decision could also be responsible for the observed leverage returns relation.

ARTICLE 2

REASON:

We can see that multiple simulations are required to explore the full structure of the delivery option but suggest how to use one simulation to approximate pricing even when the delivery option is present.

TITLE:

THE DELIVERY OPTION IN MORTGAGE BACKED SECURITY VALUATION SIMULTATIONS

TOPIC: Securities Valuation

This article concentrate in a delivery option exists in mortgage-backed security market. The explanation is about the delivery option in the “To Be Announced” trade. The valuation presence the delivery option affects the use of the standard pricing simulation technique. This technique uses a risk neutral interest rate simulation with a prepayment option model to recover a price which is an expectation over the possible rate outcomes.

THEORY USED BY ARTICLES RESEARCH  :

Agency Mortgage Backed Security (MBS) market

HYPOTHESIS OF RESEARCH    :

OAS of MBS as the excess return over a comparable risk-free fixed income investment

VARIABLES USED            :

1. Valuation method in the context of pricing a particular MBS with known attributes, defined as the expected value of present value of future cashflows

• P is the price of the MBS,
• V is the value of the MBS, which is a random variable, dependent on the realization of the economic scenario,
• PV(t) is the present value for cash flow at time t,
• d(t) is the discounting factor at time t,
• c(t) is the cash flow at time t,
• M is the maturity of the MBS.

1. OAS (Option Adjusted Spread)

• Credit Spread
• Liquidity Spread
• Model Uncertainty Risk Premium
• Delivery Option
• Negative OAS

METHOD OF ANALYSIS  :

The simulation technique uses Monte Carlo integration with a suitable selected pseudo or quasi-random sequence. To recover market prices a spread term called the “Option Adjusted Spread” is required.

RESULT OF THE ANALYSIS RESEARCH      :

1.    Relative Value of the TBA Trade

OAS method of MBS valuation that we have found in the literature assume that the pool characteristics are known, that is there are defined inputs for the cashflow function. TBA trade can be thought of as a purchase of the average of all similar pools. Besides the average of possible pools, one might use the cheapest to deliver characteristics or the most likely to be delivered characteristics. The cheapest to deliver characteristics is based on the assumption the seller has sufficient variety of pools available to deliver that they can select the worst possible pool from the purchasers point of view. And the third is Average OAS for all available pools. The most flexible and influential characteristic in a TBA trade is the WALA (weighted average loan age)

2.    Pricing Specified Pools with TBA OAS

A pay-up will be calculated as the difference between the prices of the specified pools and the TBA market. Then there will be some buyer adjustment to make a final offer price. Generally the buyer will not offer the full pay-up for the specified pools, because of the following reasons:

• They are not sure about using the TBA OAS to price seasoned pools
• They require higher OAS to compensate the uncertainty associated with seasoned pools
• Seasoned pools have better quality, thus higher OAS.

RISK, RETURN, & MARKET EFFICIENCY

The reasons why I choose the Risk, return, and Gambling Market Efficiency article:

1. the simple gambling market test of market efficiency is to determine if significant profits are made by a betting strategy.
2. straightforward test of market efficiency that is consistent with accepted economic theory.

COMPONENT OF COMPARISONS	ARTICLE 1 COURSE READING PACKAGE (CRP)	ARTICLE 2 Risk and Gambling Market Efficiency
TITLE	Extending the capital asset pricing model: the reward beta approach, by Graham Bornholt	Risk, Return, and Gambling Market Efficiency
TOPIC	Risk, Return, and Market Efficiency	Risk, Return, and Market Efficiency
THEORY USED BY ARTICLE RESEARCH	Fama And French (1992), doubt about the validity of the CAPM. Fama And French (2004), CAPM,s empirical problems invalidate most of its current applications. Fama And French (1993), three factor model are receiving more attention in empirical research. Fama And French (1992), strong evidence for size and bok to market effects. Bawa and Lindenberg (1977), Kaplanski (2004), alternative mean risk asset pricing model by replacing the mean variance assumption with a specific mean risk assumption. Bornholt (2006), deriving a broad class of mean risk asset pricing models that includes the CAPM as a special case. Fama And French (1993), show increasing average excess return and decreasing CAPM betas as book to market equity increases. Fama And French (1992, 1993, 1995, 1996),if stock are price rationally, then size and book to market equity must proxy for underlying risk factors. Fama And French (1993),three factors to explain the cross section of stock expected return: – the excess return on a market portfolio – the difference between returns on small and large stocks – the difference between the returns on high and low book to market equity Fama And French (2004), the poor performance of the CAPM in explaining the cross section of average returns just adds to the already strong empirical evidence against the CAPM.	The major effort of academic research in gambling markets has been to determine if consistent, economically significant profits occur. Long run outcome of point spread or horserace betting is no different from that of other casino games. That is, gamblers lose money in the end because the odds favor the “house.” However, the effective odds for sports betting and horse racing are a direct result of human decisions and can therefore potentially exhibit consistent error. Human decisions are integral in the outcomes of the bets rather than the fixed odds of dice throw or card play outcomes suggest that they may not be random and could represent solid investments opportunities. Tryfos, Casey, Cook, Leger, and Pylypiak, (1984), showed that the test for point spread betting efficiency, rather than a simple Z-test against winning fifty percent of the time, must incorporate the eleven-for-ten betting rule. Woodland and Woodland (1997) modified the Tryfos et al. test to not include bets that end in ties. This method, a simple Z-test against a null win percentage of 52.38 percent, is the current standard of evaluation and has been used in some form by various authors to test for “inefficiencies” with mixed success. These include but are not be limited to; Vergin and Scriabin (1978), Zuber, Gandar, and Bowers (1985), Brajer, Ferris, and Marr (1988), Gandar, Zuber, O’Brien and Russo (1988), Lacey (1990), Golec and Tamarkin (1991), Brown and Sauer (1993), Badarinathi and Kochman (1996), Dare and MacDonald (1996), Gray and Gray (1997), Gandar, Dare, Brown, and Zuber (1998), Vergin and Sosik (1999), and Dare and Holland (2004). Thorpe (1975), Ziemba and Hausch (1987), far-reaching importance of the equation and adapted it to investments and gambling. The Kelly criterion (or a fractional Kelly strategy) is a proportional strategy shown by numerous authors as the optimum money management strategy for betting. These authors include; Breiman, Hakansson, and Thorp (1975), Bell and Cover (1980), Ethier and Tavare (1983), Finkelstein and Whitley (1981), Friedman (1981), Griffin (1984) and MaClean, Ziemba and Blazenko (1987). Mclean, Ziemba and Blazenko (1987) and McClean show that fractional Kelly strategies are “effective” in that betting a fixed fraction (for example a half or a quarter) of the Kelly proportion reduces return monotonically but curvilinearly reduces risk and therefore offers potentially interesting strategy tradeoffs. Kelly proportion offers the highest return for a strategy and thus gives us the maximum likelihood of rejecting efficiency. Dare and Holland (2004) report that betting NFL home-underdogs for the six 1995-2000  seasons would have resulted in 374 bets with a win percentage of 55.6 percent. The method of statistical investigation in place, we turn to the important question of which return to use. Gandar, Zuber, O’Brien and Russo (1988) suggest that betting has no systematic risk. even zero beta investments should return the risk-free rate. We argue that the risk-free rate is insufficient because of the enormous undiversifiable risk betting strategies have if using a Kelly strategy. Strategy risk is not the result of the result of bet covariance.
HYPOTHESIS OF RESEARCH	Impact of size and book to market effects on estimates of expected return. Alternative method for estimating expected returns. Reward beta approach performs well empirically and is based on asser pricing theory.	A betting fund significantly outperform as this new fund would be expected to do. Significant profits are made by betting strategy. If consistent, economically significant profits occur
VARIABLE USED	The reward beta approach (The Sharpe Lintner capital asset pricing model). Rf=the risk free rate Ri and Rm=random returns of security I and the market Βi= CAPM beta A version of the market model J= portfolio j Εj= a random error term Used in the cross section regression test, reward beta model. Empirical evaluation	w = win percentage of the strategy f = payoff ratio (amount paid per amount bet, which here is a constant 10/11 but can be set at other odds ratios as necessary for example those common in horseracing). The overall return strategy: N is the number of bets made by strategy Used strategy win percentage w and the number of bets made by N strategy N to solve for strategy return, r.
METHOD OF ANALYSIS	The reward beta approach (The Sharpe Lintner capital asset pricing model). A version of the market model. Empirical evaluation Three factors model	The simple test is for the money winnings of a betting strategy to exceed a null of no profits Standard binomial statistical methods are used to test for the statistical significance of 52.38 percent. A first step beyond the simple test requires observation of the obvious.
RESULT OF THE ANALYSIS RESEACRH	– size and book to market effects – data – design – within sample estimates of betas and factor sensitivities – out of sample tests – robustness – interpretation of result Both the CAPM and the Fama French three factors model are known to have deficiencies. The empirical evidence does not support the CAPM, whereas the three factor model lacks theoretical asset pricing justification and its appeal is limited in practice by estimation problems. The reward beta approach is based on asset pricing theory and is strongly supported by the empirical evidence reported. These advantages make this approach a better choice across a range of applications.	The test for betting market efficiency was rejected out-of-hand because of it’s erroneous hurdle rate of simply making a profit. At a minimum, a betting strategy should at least make the risk-free rate to be considered an inefficiency. A method to determine if a strategy bests a reasonable required return for risky assets is developed. The method uses the Kelly criterion to calculate new hurdle rates for efficiency. Using the new hurdle rates on the NFL home-underdog bias indicate that only one year in the last twenty-four was likely inefficient – about what one would expect to find in a random sample. Over the entire sample, we did not find statistical significance for inefficiency of a strategy of betting the home underdog using the new hurdle rate. Finally, we argued that a risk-free hurdle rate of return for gambling markets is woefully inadequate and offer a proposed level, while not completely quantified, that is at least double that of the market return and could be approaching 30-40 percent. The proposed method has broad applicability and “real world” assumptions.

Ownership, Control, and Compensation

COMPONENT OF COMPARISONS	ARTICLE 1 COURSE READING PACKAGE (CRP)	ARTICLE 2 Mei-Lun Lin, Chung-Jen Fu The reasons: – to know the effects of CEO ownership and corporate governance on compensation -to know the factors that affect them how they deal with this kind of situation
TITLE	OWNERSHIP STRUCTURE, INVESTMENT, AND THE CORPORATE VALUE: AN EMPIRICAL BY MYEONG HYEON CHO	THE EFFECTS OF CEO OWNERSHIP AND CORPORATE GOVERNANCE ON EXECUTIVE COMPENSATION CONTRACT
TOPIC	Ownership, Control, and Compensation	Ownership, Control, and Compensation
THEORY USED BY ARTICLE RESEARCH	Morck et al (1988) and Mc Connell (1990) à non linear relation between ownership structure and corporate value. Exploring how ownership structure affects corporate value. Testing whether it is appropriate to treat ownership structure as exogenous. Demsetz and Lehn (1985) à OLS (Ordinary Least Square) will generate inconsistent parameter estimates which can lead to misinterpretation of regression results and incorrect management decisions. Morck et al.(1988) à a significant relation between insider ownership and corporate value. A similar non monotonic relation between insider ownership and investment, where investment is measured by both capital expenditures and research and development expenditures. Theoretical predictionsà focusing whether ownership structure affects investment. Jensen and Meckling (1976) and Stulz (1988) à ownership structure affects corporate value. Jensen and Meckling (1976)à ownership structure affects corporate value by its affect on investment. Morck et al.(1988) and Mc Connell (1990) and Servaes (1990) à empirically explore the overall relation between ownership structure and corporate value using Tobin’s Q as a proxy for corporate value. Tobin’s Q may serve as a proxy for other things such as corporate quality or corporate opportunities. Morck et al (1988) and Mc Connell (1990) àtreat ownership structure as exogenous in exploring the relation between ownership structure and corporate value. Demsetz and Lehn (1985) à ownership structure is endogenously determined in equilibrium. Kole (1994) àa reversal of causality in ownership corporate value relation, suggesting that corporate value could be a determinant of the ownership structure rather than being determined by ownership structure. Kole (1994) à corporate value effects ownership structure in causality test of the relation between ownership structure and corporate value. Fazzari et al. (1988) à the regression result indicate the liquidity and corporate value positively affect investment.	Theoretical frameworks for examining relationships between principals and their agents in many disciplines à agency and related theories. Oyer (1998) àholding calendar seasonality constant, firm sales tend to be higher at the end of the fiscal year, and lower at the beginning. Healy (1985) àexecutives with higher marginal compensation from taking actions to increase the firm’s income in the short term. Hallock and Oyer (1999) à either CEOs attempt to smooth their firms; incomes from year to year, or that the income increasing and income decreasing actions of CEOs are roughly offsetting. Mc Connell and Servaes (1990) à the levels of CEO ownership not only affect the management effort but also has an influence on the firm’s performance and stock price. Core et al. (1999) à measures of board and ownership structure explain a significant amount of cross sectional variation in CEO compensation. Bergen et al. 2002 à an efficient contract is one that brings about the best possible outcome for the principal given the constraints imposed by the situation, rather than one that maximizes the joint utility of both principal and agent. Holmstrom (1979) à the “standard” agency model analyzes incentive problems. Lambert and Larcker (1987) àThe principal must rely on imperfect measures of the agent’s actions, such as his output and other information for both evaluation and motivation. Fu et al. (2002) àthe CEO compensation incentive scheme. Core et al. (1999) à the importance of corporate governance on CEO compensation. Core et al. 1999; Core and Guay (1999) àthe board and ownership structure variables are treated as exogenous. Pukthuanthong et al. (2004) à the pay-for-performance relation appears to be curvilinear in CEO stock ownership, but they focus on the financial services sector only. Himmelberg et al. (1999) à observable determinants of managerial ownership, but they cannot conclude that changes in managerial ownership affect firm performance. Jensen (1993) à large boards can be controlled more easily by CEOs. Core et al. (1999) à CEO compensation is higher when the board is larger. Pukthuanthong et al. (2004) à board effectiveness may also be related to its size.
HYPOTHESIS OF RESEARCH	Ownership structure affects investment which, in turn, affects corporate value. The possibility that ownership structure, investment, and corporate value are endogenously determined rather than assuming that ownership structure is exogenous. Ownership structure, investment, and corporate value might be interdependent. That is, ownership structure affects investment which, in turn, affects corporate value, and corporate value, again, affects ownership structure and so forth.	When CEO ownership is at low levels, it exhibits a negative relation with the CEO compensation, and when CEO ownership is at high levels, it becomes a positive relation with the CEO compensation, resulting in a U-shape relation.
VARIABLE USED	Insider ownership (%) Replacement cost of assets ($million) Tobin’s Q (1990) Tobin’s Q (1991) Capital expenditure to replacement cost R&D expenditure to replacement cost Cash flow to replacement cost Investment equation with control variables, include a liquidity variable, which is define as cash flow divided by the replacement cost of assets and is meant to control for the effect of liquidity on investment. Cash flow is defined as after tax income plus depreciation and amortization. A volatility variable to control for variability of profit. Industry dummy variables based on two digit SIC codes are introduced to control for industry affects.	Board of director variables à CEO compensation is higher when the CEO is also the board chair, the CEO is also a director, and the board is larger. The other ownership variables àCEO compensation is a decreasing function of the directors’ ownership and the existence of a blockholder who owns at least 10% of the equity. Firm performance is measured by using market, financial and nonfinancial performance measures. Market performance is measured by using the annual stock return (e.g., Core et al. 1999; Cheng 2004). Financial performance is measured by using the return on equity (e.g., Craighead et al. 2004) and return on asset (e.g., Core et al. 1999). Nonfinancial performance is measured by the growth rate of sales revenue (e.g., Fu 2001; Fu et al. 2002), which is computed as the difference of net sales between year t and year t-1 divided by the net sales at year t-1.
METHOD OF ANALYSIS	Piecewise OLS regression analysis, Morck et al (1988), grid search technique. Seek to find the level of insidr ownership, starting with 0%, that produces the most significant slope coefficient on the first insider ownership variable in the regression. Fix this level, then search for the second ownership level that yields the most significant slope coefficient on the second and third insider ownership variables in the regression. Using an iterated search technique around the two initial point, seek to find the two levels of ownership that provide the most significant slope coefficients on the three insider ownership variables simultaneously. Simulatneous equation regression analysis à to address the potential endogencity effect, a simultaneous equations system of ownership structure, investment, and corporate value using the two stage least squares (2SLS)	This paper extends the compensation contract model developed by Fu et al. (2002) to examine the determinants of CEO compensation, with a special focus on the effect of corporate governance to explain the reserve utility of the agent theory. we empirically examine the nonlinearity impact of CEO ownership on CEO compensation. Prior studies focus on a nonmonotonic relation between firm performance and managerial ownership, or a linear relation between CEO compensation and ownership, but little examines whether a nonlinear relation exists between CEO compensation and CEO ownership. we find a U-shaped function relation between the CEO compensation and CEO ownership. The empirical analysis of CEO compensation is based on cash compensation, including salary, bonus and traffic allowances. The regression model also contains two indicator variables that control for the year in which compensation was paid and industry differences in the demand for managerial talent (Murphy 1985; Core et al. 1999). The sensitivity of the results to number of alternative specifications: (1) change CEO compensation relation from RET to financial performance, ROA; (2) only including the ownership of CEOs without interaction terms.
RESULT OF THE ANALYSIS RESEACRH	Investment regression result à a significant non monotonic relation between the level of investment and insider ownership. The relation between insider ownership and investment is significant for ownership levels between 0% and 38%, but is insignificant for level above 38%. Simultaneous equation regression analysis à higher level of insider ownership are expected at firm with high corporate value. Robustness test àrelation between corporate value and debt is negative for high growth firms and positive for low growth firms. The possibility that ownership structure, investment, and corporate value are endogenously determined. The evidence presented in the paper shows that endogencity significantly affects the inferences one can draw regarding the relation among ownership structure, investment, and corporate value. OLS regression suggests that ownership structure affects investment and therefore corporate value. However. Simultaneous regression reveals that investment affects corporate value which, in turn, affects ownership structure, but not vice versa. These finding suggest that the implicit assumption of exogenous ownership structure severely affects the result from OLS regression and leads to misinterpretation of the results. The finding also brings into question the result in previous studies, such as Morck et al. (1988) that treat ownership structure as exogenous. It also offers an important managerial implication. In particular, the main finding that investment affects corporate value which, in turn, affects ownership structure, but not reverse suggests that ownership may not be an effective incentive mechanism to induce managers to make value maximizing investment decisions.	Model 1 includes ROA and Model 2 includes ROE. Consistent with the previous literature, financial performance, and firm size have a strong positive effect on CEO compensation, whereas the coefficient on the market performance and nonfinancial performance is not significant. Model 1 shows that the significant coefficient on the dummy variable for dual CEO/board chair indicates that a CEO who also serves as board chair receives additional compensation The coefficients of the ownership-performance product terms are significant in all of the two regressions, the coefficient of first order term is negative and the sign of quadratic term is significantly positive, indicating a U-shaped function relation between the pay-for-performance and CEO ownership. A U-shape arise in equation, when the coefficient on RET*OWNCEO is negative and the coefficient on RET*OWNCEO2 is positive, capturing an increasing effect of RET*ONWCEO on CEO compensation. Prior studies (e.g., Morck et al. 1988; McConnell and Servaes 1990) generally interpret the positive relation at low levels of CEO ownership as evidence of incentive alignment, and the negative relation at high levels of managerial ownership. However, the results of our finding in Taiwanese firms are different from those of prior studies. The empirical results show that when management controls enough of a firm’s voting rights, the CEO may be paid more, or at least different from other CEOs. Such evidence supports the “skimming” view of CEO compensation as it suggests that such managers are paying themselves more (Wan 2004). In accord with the study of Jensen and Meckling (1976), when CEO ownership falls, it will tend to encourage CEO to appropriate large amounts of the corporate resources in the form of perquisites because of decline in CEO’s fractional claim on the outcomes. This empirical finding is consistent with the theoretical deduction, the effect of CEO ownership on CEO compensation depends on his level. The pay-for-performance relation appears to be curvilinear in CEO ownership but in a U-shaped function relation.The effect of corporate governance is according with the Core et al. (1999). The signs of the coefficients of CEO duality, board size, ownership of director, and ownership of blockholder are consistent with the interpretation that when corporate governance is weak, the CEO is able to extract additional compensation from the firm. In sensitivity test à the interactive variables specific to each set of regressions are found to be highly significant, and the market and financial specifications lead to very similar results. Importantly, it indicates a similar role in both the market and financial measures of performance as a base for compensation. The CEO ownership plays a nonlinear role on CEO compensation. All of this amount to say that the CEO compensation relation appears to be curvilinear in CEO ownership and shows a U-shaped relation. The results lead to the conclusion that our empirical results are proved to be robust to a battery of specification checks and consist with the theoretical model. Agency and related theories can greatly improve our understanding of why organizations exist and how they work. Each agent is assumed to have some minimum reservation utility, the value to the agent of the best alternative opportunity outside a relationship with a given principal. The theoretical model indicates that the optimum weights placed on market, financial and nonfinancial measures of performance are all positive when a CEO has a very low equity stake in the firm. With the increase in CEO ownership, the optimum weight placed on market measure of performance is decreasing. The analysis reveals that CEO compensation was affected by his ownershipand the level he owned. CEO compensation is higher when board is large, the CEO is also the board chair, and the CEO is also the board director. CEO compensation is lower when there exists an external blockholder who owns at least 10% of the shares, and CEO compensation is a decreasing function of the directors’ ownership. These results suggest that firms with weaker governance structures have greater CEO compensation. find a U-shaped function relation between the CEO compensation and CEO ownership.