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Abstract:
For over three decades, microstructure literature has grown and trading systems around the world have been reengineered into modern electronic platforms. This paper considers these developments, concentrating on microstructure issues that are germane to equity market architecture, and focusing on the design of one trading facility, Deutsche B¿rse's Xetra. Important insights were gained from the microstructure literature during Xetra's planning period (1994-1997), and Xetra's implementation has marked a huge step forward for Germany's equity markets. Nevertheless, academic research and the design of a real world marketplace remain works in progress.

microstructure

Abstract:
We study a period of severe disequilibrium to investigate whether board characteristics are related to corporate debt, investment policy, and firm value. Before 1930 and after 1938, when many firms plausibly operated with optimal or near optimal governance structures, we find no relation between firm performance and board attributes. During the 1930-1938 Depression era, when the corporate sector was severely shocked by an unprecedented downturn, we document a relation between board characteristics and firm performance that varies in economically sensible ways: Complex firms (that would benefit from board advice) exhibit a positive relation between board size and firm value, and simple firms exhibit a negative relation between board size and firm value (consistent with any benefits of larger boards for simple firms being more than offset by increased costs). Simple firms with large boards also invest more (or shrink less) and use more debt (or reduce debt less) during the 1930s depression. We document similar effects for the number of outside directors on the board. The results are consistent with agency problems existing in simple firms with large boards during the Depression, and these firms not downsizing adequately in response to a severe economic contraction.

Corporate Governance, Capital Structure, Investment Policy, Great Depression, Firm Stock Market Value

Abstract:
CEOs who manage earnings can impose costs on shareholders. But do boards act proactively to discipline such managers, or reactively and only when the earnings manipulations lead to external consequences? Using a sample of 297 forced turnovers and 1,185 voluntary turnovers from 1992-2004, we find that the likelihood and speed of forced CEO turnover are positively related to earnings management. A CEO’s job tenure also is negatively related to how actively earnings are managed. These results persist in tests that control for the possible endogeneity of CEO turnover and earnings management, and for such external consequences as earnings restatements and SEC enforcement actions. The relation between earnings management and forced turnover occurs both in firms with good and bad performance, and when the accruals work to inflate or deflate reported earnings. We infer that at least some boards act proactively to discipline managers who manage earnings aggressively, before the manipulations lead to costly external consequences. This is consistent with the view that internal governance does in fact work to mitigate managerial agency problems.

Management turnover, earnings management, corporate governance