Abstract

This study deals with the composition of corporate boards and examines the impact of independent (outside) and inside directors. We analyze the effect of independent and representative board members on firm performance and shareholder protection. Overseeing the CEO to ensure value maximization is one of the key functions of boards. Hence, boards appear as a protective mechanism that protects shareholder rights. With this reasoning regulators promote independent directors at boardrooms. The literature corroborates the notion that independent directors are instrumental in mitigating agency problems. At the same time, increasing worker representation has been considered as a mechanism to contain, or balance the power of controlling shareholders for big companies. In Norway, employee representation in boards has been promoted by the legislation long before. Employee representatives have insider information about the companies and leaves little room for executives to mislead the board. For companies that adopt the gender balance law, and change their boards, we look at the impact of outsiders. We take the insiders into consideration by controlling for the board ownership, and use the incremental effect of female additions to the board as variable capturing the outsider impact. We examine the explanatory power of outsiders at board over the value and tax returns of the company. Conversely, we try to see how the employee representatives are related with firm fundamentals. For the companies that change their organizational form, we gauge the differential impact of employee representation when we control for other factors. The key posits are that employee representatives can protect employee rights, alleviate layoffs, and moderate the executive pay. This view has found audience among policy makers recently. Preliminary results demonstrate that increasing outside and independent directors have a positive effect on the firm value. Furthermore, independent board directors are essential in promoting efficient outcomes. Further, they are instrumental in returning the value to shareholders, limiting the executive compensation, and curbing the relative tax burden.

Abstract

This study examines the comparative performance of the call and put implied volatility (IV) of at-the-money European-style SPX Index Options on the S&P 500 Price Index as a precursor to the ex-post realized volatility. The results confirm that implied volatility contains valuable information regarding the ex-post realized volatility during the last decade for the S&P 500 market. The empirical findings also indicate that the put implied volatility has a higher forecast performance. Furthermore, from the wavelet estimations it has been concluded that the long-run variation of the implied volatility is consistent and unbiased in explaining the long-run variations of the ex-post realized volatility. Wavelet estimations further reveal that in the long-run put and call implied volatility contain comparable information regarding the realized volatility of the market. However, in the short-run put implied volatility dynamics have better predictive ability.