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Abstract:
CEO compensation varies widely, even within industries. In this paper, we investigate whether differences in skill explain these differences in CEO pay. Using the idea that skilled CEOs should be more likely to continue prior good performance and more likely to reverse prior poor performance, we develop a new methodology to detect whether skill is related to pay. We find that highly paid CEOs are more skilled than their less well paid peers when pay is performancebased and when there is a large shareholder. This detected link between pay and skill is strong even when we examine industry-wide declines: highly paid CEOs are more likely to reverse the firm's fortunes. We also examine CEO turnovers and show that the firm's post-turnover performance is related to differences between the two CEO's pay levels. These results highlight conditions where pay and skill are linked, and hence identify firms where high pay appears to have no justification.

Abstract:
CEO compensation varies widely, even within industries. In this paper, we investigate whether differences in skill explain these differences in CEO pay. Using the idea that skilled CEOs should be more likely to continue prior good performance and more likely to reverse prior poor performance, we develop a new methodology to detect whether skill is related to pay. We find that highly paid CEOs are more skilled than their less well paid peers when pay is performancebased and when there is a large shareholder. This detected link between pay and skill is strong even when we examine industry-wide declines: highly paid CEOs are more likely to reverse the firm's fortunes. We also examine CEO turnovers and show that the firm's post-turnover performance is related to differences between the two CEO's pay levels. These results highlight conditions where pay and skill are linked, and hence identify firms where high pay appears to have no justification.

Executive Compensation, Governance, CEO

Abstract:
I present evidence that Delaware corporate law improves firm value and facilitates the sale of public firms. Using Tobin?s Q as an estimate of firm value, I find Delaware firms are worth significantly more than similar firms incorporated elsewhere. The result is robust to controls for firm size, diversification, profitability, investment opportunity and industry. Delaware firms also receive significantly more takeover bids and are significantly more likely to be acquired. Firms with strong incentives to choose valuable legal regimes are likely to incorporate in Delaware when they go public. These results suggest that corporate law affects firm value.

Abstract:
This paper focuses on the widely held views that: (a) antitakeover provisions (ATPs) increase agency costs, thereby reducing firm value; and (b) firms going public minimize agency costs, thereby maximizing firm value. We show that these views cannot comfortably co-exist: ATPs are common in a sample of IPO-stage charters. Moreover, ATP use is not explained by two efficiency explanations of ATP use with theoretical support - target firms' need for bargaining power when a bid is made and the threat of managerial myopia. Rather, we find that antitakeover protection is used to protect management when takeovers are most likely and management performance most transparent. ATP use, however, is uncorrelated with a proxy for high private benefits.

Abstract:
Proxy advisory and corporate governance rating firms play an increasingly important role in U.S. public markets. Proxy advisory firms provide voting recommendations to shareholders on proxy proposals and sometimes take an active role persuading management to change governance arrangements. Corporate governance rating firms provide indices to evaluate the effectiveness of a firm's governance and claim to be able to predict future performance, risk, and undesirable outcomes such as accounting restatements and shareholder litigation. We examine these claims for the commercial corporate governance ratings produced for 2005 by Audit Integrity, RiskMetrics (previously Institutional Shareholder Services), GovernanceMetrics International, and The Corporate Library. Our results indicate that the level of predictive validity for these ratings are well below the threshold necessary to support the bold claims made for them by these commercial firms. Moreover, we find no relation between the governance ratings provided by RiskMetrics with either their voting recommendations or the actual votes by shareholders on proxy proposals.

corporate governance, governance ratings

Abstract:
When a firm spins off a subsidiary, the parent managers create a governance structure for the spinoff and decide whether spinoff management will be protected by takeover defenses. We find evidence that agency costs at the parent firm level affect the adoption of takeover defenses for the spinoff. Takeover defenses are most common when parent managers have weak incentives to maximize firm value, and more common when parent managers would personally benefit by entrenching spinoff managers. Takeover defenses in spinoffs are also more common than in similar IPOs, where governance decisions are made by parties with substantial ownership stakes in the firm. We also find that many spinoff charters commonly contain takeover defenses that are prohibited at the parent firm, thus effectively undercutting parent shareholders' rights. Finally, we find that this entrenchment reduces share value in the parent.

Corporate Governance, spinoff, takeover defenses, takeovers

Abstract:
This article focuses on the widely held views that antitakeover charter and bylaw provisions (ATPs) increase agency costs, thereby reducing firm value, but that firms going public minimize agency costs, thereby maximizing firm value. We show that these views cannot comfortably coexist: ATPs are common in a sample of IPO-stage charters and are no less common when the firm is backed by venture capitalists or leveraged buyout funds. Moreover, ATP use is not explained by two efficiency explanations of ATP use with theoretical support - target firms' need for bargaining power when a bid is made and the threat of managerial myopia. Rather, we find evidence that antitakeover protection is used to protect management when takeovers are most likely and management performance most transparent. We find no evidence, however, that ATPs are explained by managers` desire to protect unusually high private benefits.