The average shareholder

A time when corporate managers sought to expand AholicEs global reach, institutional investors sought to discount their Ahold holdings while expanding their global portfolios. In combination, stock-price market information became more important than ever before. Relatively poor disclosure practices and a lack of transparency in terms of managers’ goals and objectives meant, however, that market agents could not perform their pricing responsibilities in a manner consistent with the needs of the average shareholder whether located in Europe or in the A. Consistent with Goldstein and Kavajecz (2.004), as Ahold became embroiled in crisis over its projected revenue figures, market agents retreated to Amsterdam and the gossip sukanya samriddhi scheme in hindi networks so important, it appears, when making judgements about the integrity or otherwise of corporate management in conditions of uncertainty. Our findings are also consistent with those of Sthlz (1999: 28-9) who noted ‘it is not the case, however, that all effects of globalisation necessar-ily increase the monitoring of management in the short TIM. The reason for this is that globalisation can disrupt existing relationships within a country that led the monitoring of management or large shareholders. Based upon an analysis of the circumstances when Japanese banks relaxed the standards used to assess domestic debt offerings in the face of com-petition from foreign banks, he suggested ‘in the case of Japan, therefore, globalisation in the short run reduced the power of banks, but did not replace that power by the power of the market’.

See, more generally, Stutz (2005) on the limits of globalization. The Ahold case exposed investors to a series of risks that were not well-appreciated in Anglo-American markets and were discounted by Dutch analysts who neither represented the interests of Anglo-American markets nor, perhaps, had the independence of judgement necessary to be critical of popular corporate officials. Cross-listing on the NYSE did not add to market information; quite the contrary, in New York investors followed Amsterdam prices when circumstances began to spin out of control. The Ahold case reminds us that whatever the significance of global-ization in terms of corporate strategy, the nation-state remains impor-tant for setting the terms and conditions of corporate governance, In the European case, where pressures have been brought to bear to discount the power of majority investors, Becht et al. (2003: 114) concluded their survey of European corporate governance and control not ‘limiting the power of large investors can also result in greater managerial discretion and scope for abuse’.

This ‘solution’ is an issue of political economy that would put in play national regimes of accumulation and the relationships between competing claimants for corporate income such that ‘national models’ may be jettisoned in favour of the Anglo-American model. This prospect is viewed with alarm in some quarters (witness Dore 2,000). Finally, the Ahold case could be thought as an instance of what Clark and Hebb (2004) referred to as ‘pension hind corporate engagement’: an instance where major institutional investors intervened directly with the firm to force through reform in the interests of prompting better stock market performance. It seems that domestic and EU regulatory agencies came last to the Ahold crisis; while legal proceedings were instituted to assess the liability of Ahold’s auditors and the like, the swiftest response to the crisis came from those with the biggest ownership stakes in the firm sukanya samriddhi yojana form and sukanya samriddhi scheme calculator.



Corporate Governance at A hold

The ratings for shareholders’ rights and duties and for takeover-defences are still relatively low, but the overall corporate governance rating of Ahold was now above the median figure for continental retail companies (see, for more detail, our results in Chapter 2). In the light of Ahold’s poor corporate governance score sheet in 2000 and 20030 it is perhaps not surprising there was a corporate governance scandal at the company. While we would hesitate to suggest that cor-porate scandals can be predicted using past corporate governance rat-ings, we would nevertheless suggest that the Ahold case underscores the value and significance of such ratings (compare Larcker, Richard-son, and Tuna 2004). As noted above, Ahold has a relatively dispersed ownership structure, According to Deminor, Ahold’s free float increased from 49 in 2000 to 78 per cent in 2003, making Ahold’s ownership the most diluted of all continental European retail companies rated by Deminor.

But ownership dispersion at A hold limited the effectiveness of shareholders in disciplining management; in effect, there was no other mechanism for governing the agency problem. Moreover, given the inherent difficulties of organizing Ahold’s geographically dispersed share-holders and the weakness of its board, Ahold’s management was on its own, Consider Ahold’s poor corporate governance in conjunction with the previous results on the growing volatility of Ahold stock market prices. Recall our argument in Chapter 3 concerning the relationship between corporate governance and stock price volatility, In our view, poor cor-porate governance and disclosure in particular) implies a high premium on the circulation of information; where information is held internally, uncertainty among outside investors 1.vith regard to the fundamental value of a company implies relatively high stock price volatility. Empirical support for this hypothesis elicited for Germany can be also found in research commissioned by Institutional Shareholder Services. Covering over 5,000 US corporations, BTOWIl and Caylor’s study (2004) established a negative relationship between the quality of corporate governance and stock price volatility.6 The study showed that the aspect of corporate governance most strongly related to volatility was board composition (lack of independent directors). With a positive relationship between poor corporate governance ratings and stock price volatility, once Ahold’s poor governance practices came to light that relationship simply strengthened.

Interpreting the corporate governance scores of Ahold, we need also to consider the significance of cross-listing between Amsterdam and New York, Ahold was the only retail corporation included in the FTSE Eurotop 300 and rated by Deminor that had its ADRs listed on the NYSE. The issue is whether the NYSE listing had any impact on Ahold’s corporate governance. As noted above, traders on the NYSE followed Amsterdam prices, particularly after the shock of February. 2003. The disadvantages of an overseas or foreign trading location in terms of access to quality infor-mation is well documented in the finance literature (e.g. Bacidore and Sofianos 2002). in our analysis, the potential for geographical informa-tion asymmetries between markets was compounded by poor corporate governance. We would suggest that US traders having information about Ahold provided through the NYSE, but being far from the headquarters and management of a badly governed Ahold, had little objective reason to trust New York market information.

Overall corporate governance score

It took the onset of the 2003 scandal to reveal the full magnitude of corporate governance problems at Ahold, thereby discounting trust in the available public infonnation. There is other evidence to substantiate our claim about the relationship between the location of stock market price information and corporate governance. Hupperets and Menkveld (2002) analysed price discovery in mid-1990s for seven Dutch blue chips cross-listed between the NYSE and Amsterdam. They found the contribution of New York in relation to Amsterdam to be high for Royal Dutch Shell and Unilever, low for KLM, Philips, and Aegon, and negligible for KPN and Ahold. Strikingly, if we used 2003 Deminor data and arrayed the above companies in descending order of their overall corporate governance score, their order would be exactly the same. This finding supports our hypothesis about the trace mobile number relationship between price discovery of cross-listed stocks and corporate governance. The poorer a company’s corporate governance rating, the more likely that price discovery is best based on information originating in the home stock market of the company.


This chapter builds on Chapter 6 by providing a framework for analysing inter-market stock price arbitrage using Granger tests of causality to deter-mine the interplay between leading and lagging global stock markets on a 2.4-hour basis. One contribution of the chapter is its use of proprietary data on corporate governance ratings to measure and assess the respon-siveness of one firm to the stock market interests of global investors at home and abroad. Most importantly, we were able to link the substantive fields of economic geography and finance to interrogate the performance of global stock markets, national systems of corporate governance, and corporate response. We show that the economic geography of stock mar-ket information has profound implications for the performance of global stock markets even if the mobile number location tracker expectations imposed by institutional investors on recalcitrant firms are such that the market for information is becoming more global according to common expectations regarding standards of disclosure and transparency (Hebb 2006). For some, globalization carries with it important positive incentive effects driving nation-state regulatory regimes and the behaviour of larger firms towards best-practice.

Global Financial Markets as Standard-Setters

The values of the coefficients and their statistical significance are presented in Table 72. In addition, Table 72 reports the values of F -test statistics for both the AMS and NYSE regressions. For the whole period of the analysis as well as for each of the sub-periods, AMS(t) provides highly significant information about NYSE(t). In contrast, the contribution of NYSE (1- – 1) to explaining AMS(t), though statistically significant, is much smaller in terms of magnitude between 1993 and February 2003, and after February 2,003 disappears altogether. Before interpretation, we should compare our results with the findings of previous research. Investigating Italian companies traded over the 1980s on the SEA(-International in London, Pagano and RoeIl (1991) found that the London market used prices from lvlilan to set their quotes. Grammig, Melvin, and Schlag (2005) investigated three months of intra-day prices of US-listed German stocks in 1999 to find Frankfurt Stock Exchange’s XETRA prices dominated NYSE prices, even though the latter explained almost 18 and 10 per cent of total variation of XETRA SAP and DamilerChrysler prices respectively. However, there is research showing that the home stock exchange does not always dominate price discovery. Hedvall, Liljeblom, and Nummelin (1997) found that for Nokia the NYSE played the dominant price-discovery role, at the same time accounting for a large proportion of Nokia’s stock trading volume. Eun and Sabherwahl (2003) found for Canadian stock listed in the US significant price discov-ery takes place in the USA. In addition, they suggest a positive relationship between the fraction of total trading that takes place in the USA and the contribution of the US market to price discovery. By contrast, our results underscore the significance of Ahold’s ‘home base’ in the stock market price formation of a cross-listed company rein-forcing the results of Hailing.

In terms of the volume of trading, Citibank (2003) shows that Ahold trade on the NYSE represented only several percent of trading in Amster-dam. Notwithstanding the relative thinness of the NYSE trading in Ahold ADRs, Broekstra, Sornette, and Zhou (2004) reported that Ahold’s annual sales in the USA passed annual sales in the Netherlands for the first time in 1996, The consolidated financial statements of Ahold reveal that between 1999 and 2.003 the share of the US market in company net sales increased from 65 to 70 per cent while the share of the European market fell from 30 to 25 per cent (Ahold 2004). In the light of the high and growing level of ‘Americanization’ of Ahold’s sales operations, it is striking to see the negligible role of the NYSE in price discovery and its disappearance at the moment of crisis.

Using proprietary data provided by D eminor, we also analysed Ahold’s corporate governance compared with other European retail companies. Table 7.3 represents Ahold’s corporate governance ratings; broken down into four building blocks: shareholders’ rights and duties, takeover defences, disclosure, and board structure and functioning. Ahold’s scores are set against the median scores of Dutch, and continental European retail companies, all continental European, and all European companies. Each of the first three groups is a relevant subset of the universe of European companies rated by Deminor, while the last group represents all companies included in Deminor ratings. The table presents the state and structure of corporate governance in 2004, 2003, and 2000.