Essays on director liability protection and joint ventures




Aguir, Iness

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First, we examine the effect of liability protection on the compensation of directors and on takeover outcomes. Consistent with the hypothesis that directors require additional compensation if they bear liability, we find that director compensation is higher for firms that provide less liability protection. Examining takeovers, we find that takeovers of firms with protected directors are less likely to succeed. Moreover, firms with protected directors are more likely to accept a lower bid premium. This finding is consistent with protected directors having reduced incentives to negotiate for the highest possible price during the acquisition.

Second, we study the relation between director liability and firm value. We find that firms with greater director liability protection have significantly lower firm value as measured by Tobin's Q. Moreover, the relation between director liability and firm value varies with different firm characteristics. Further, we find that firms with better governance are more likely to remove director liability protection.

Third, we examine the choice of ownership, and its impact on the value to the U.S. partner in the context of two-party international joint ventures (IJV). We focus on the foreign country characteristics and the role of the legal origin. We find that the origin of a country's legal system does not have a significant bearing on the U.S. firm's choice of ownership levels. The U.S. partner gains more value if there is a dominant partner, whether of U.S. or foreign origin: the dominant partner possibly provides greater stability to the IJV and minimizes agency costs.


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Director Compensation, Director Liability, International Joint ventures, Ownership Structure, Takeovers, Value Creation