The popular press and scholarly studies have noted a number of trends in corporate governance. This article addresses, from a theoretical perspective, whether these trends are linked. And, if so, how? The article finds that a trend toward greater board diligence will lead, sometimes through subtle or indirect mechanisms, to trends toward more external candidates becoming CEO, shorter tenures for CEOs, more effort/less perquisite consumption by CEOs (even though such behavior is not directly monitored), and greater CEO compensation. An additional prediction is that, under plausible conditions, externally hired CEOs should have shorter tenures, on average, than internally hired CEOs.

We derive conditions under which limits on executive compensation can enhance efficiency and benefit shareholders (but not executives). Having its hands tied in the future allows a board of directors to credibly enter into relational contracts with executives that are more efficient than performance-contingent contracts. This has implications for the ideal composition of the board. The analysis also offers insights into the political economy of executive-compensation reform.

The authors examine the effects of renegotiation in an agency relationship. They show how renegotiation affects (1) the set of actions the principal can induce the agent to take and (2) the cost of implementing a given action. The authors show that, when the principal receives an unverifiable signal of the agent's action, renegotiation can improve welfare. This result stands in contrast to earlier findings that renegotiation lowers welfare when the principal receives no signal about the agent's action prior to renegotiation.

Public policy discussions typically favor greater corporate disclosure as a way to reduce firms' agency problems. This argument is incomplete because it overlooks that better disclosure regimes can also aggravate agency problems and related costs, including executive compensation. Consequently, a point can exist beyond which additional disclosure decreases firm value. Holding all else equal, we further show that larger firms will adopt stricter disclosure rules than smaller firms and firms with better disclosure will employ more able management. We show that mandated increases in disclosure could, in part, explain recent increases in both CEO compensation and CEO turnover rates.