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Abstract:
We study the relation between firms’ internal governance mechanisms and the market for corporate control by examining how CEO compensation changed following the enactment of anti-takeover laws by various states in the 1980s. We find that CEOs are paid more after controlling for performance and their compensation is more sensitive to performance (both stock returns and accounting return-on-assets) following the enactment of these laws. We also find that the increased sensitivity to performance is attributable only to the “good luck” components of stock returns and accounting return-on-assets (defined as the positive components of performance attributed to market and industry factors). We interpret these findings as consistent with the view that the market for corporate control and CEO compensation are complementary governance mechanisms.

Anti-takeover laws, CEO compensation, Performance-based Incentives, Corporate governance

Abstract:
In certain circumstances, insider trades such as private transactions between executives and their firms could be disclosed after the end of the firm's fiscal year, on a Form-5 filing. We find that insider sales disclosed in such a delayed manner for large firms are predictive of negative future returns ( 6 to 8 percent), as well as lower future annual earnings relative to analyst forecasts. These results stand in contrast to existing findings on the uninformativeness of quickly disclosed open-market insider sales. The Sarbanes-Oxley Act curtailed the use of Form 5 under the presumption that managers used this vehicle opportunistically. Our systematic evidence supports this presumption.

K22, G34, G38, G30, M41

Abstract:
This study provides empirical evidence that firms with larger boards have lower variability of corporate performance. The results indicate that board size is negatively associated with the variability of monthly stock returns, annual accounting return on assets, Tobin's Q, accounting accruals, extraordinary items, analyst forecast inaccuracy, and R&D spending, the level of R&D expenditures, and the frequency of acquisition and restructuring activities. The results are consistent with the view that it takes more compromises for a larger board to reach consensus, and consequently, decisions of larger boards are less extreme, leading to less variable corporate performance.

Boards of directors, Corporate governance

Abstract:
In certain circumstances, insider trades such as private transactions between executives and their firms could be disclosed after the end of the firm's fiscal year, on a Form 5 filing. We find that insider sales disclosed in such a delayed manner for large firms are predictive of negative future returns (-6% to -8%), as well as lower future annual earnings relative to analyst forecasts. These results stand in contrast to existing findings on the uninformativeness of quickly disclosed open-market insider sales. The Sarbanes-Oxley Act curtailed the use of Form 5 under the presumption that managers used this vehicle opportunistically. Our systematic evidence supports this presumption.

insider trading, earnings

Abstract:
This study uses the introduction of second-generation antitakeover legislation as a natural experiment setting to infer the value that managers place on the control rights conferred by stock ownership. We conjecture that managers will reduce their stockholdings in the post-legislation period, because they can ensure their prior level of control while holding fewer risky shares. Using a variety of specifications, we find robust evidence consistent with this "revealed preference" hypothesis. Further demonstrating the key role played by control considerations in managers' stockholding decisions, the reductions in ownership are concentrated in management teams with higher levels of initial ownership, and in firms without poison pills.

Antitakeover legislation, Managerial ownership, Control

Abstract:
This study investigates whether compensation committees seek to prevent opportunistic reductions in R&D expenditures. I hypothesize that changes in R&D spending are more strongly positively associated with changes in CEO compensation in two situations: (1) when the CEO approaches retirement, and (2) when the firm faces a small earnings decline or a small loss. Consistent with these hypotheses, the results indicate that the association between changes in R&D spending and changes in the value of CEO annual option grants is significantly positive in the above two situations, and insignificant otherwise. Similar results hold for changes in CEO annual total compensation. The results also show that neither situation is associated with reduced R&D spending. Overall, these findings suggest that compensation committees respond to, and effectively mitigate, potential opportunistic reductions in R&D spending.

R&D expenditures, CEO compensation, managerial opportunism