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Governance and the decision to issue a profit warning
Author(s) -
Francoeur Claude,
Labelle Réal,
Martinez Isabelle
Publication year - 2008
Publication title -
canadian journal of administrative sciences / revue canadienne des sciences de l'administration
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 48
eISSN - 1936-4490
pISSN - 0825-0383
DOI - 10.1002/cjas.80
Subject(s) - corporate governance , shareholder , warning system , profit (economics) , agency cost , business , principal–agent problem , economics , actuarial science , finance , microeconomics , computer science , telecommunications
The theoretical concept of agency costs developed by Jensen and Meckling (1976) and Jensen (2005) are used to study the relationship between the quality of a firm's governance and its decision to issue a profit warning (PW) when it is overvalued. Based on a sample of Canadian companies between 2000 and 2004, results were only partially supportive of the hypotheses. The characteristics of the board seem to play only a secondary role in the decision to issue a profit warning when the firm is overvalued. On the other hand, as expected, governance mechanisms that factor in market values to align the interests of managers and directors with those of shareholders are negatively related to the profit warning decision. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.