Using a sample of 986 convertible bond issuers of U.S. operating companies during 1975–1990, we document poor stock and operating performance in the years following the offering. The underperformance of stock returns cannot be explained by new issues activity (recent initial public offerings (IPOs) or seasoned equity offerings (SEOs)) or the level of the proceeds. Concurrent with the low subsequent stock returns, we document a rapid decline in the operating performance of the issuers following the offering. Profit margin and return on assets for the issuers are approximately halved in the four years after the convertible bond issue.

Using recent U.S. data, we find that long-horizon abnormal returns following repurchase announcements made after 2001 are much lower than those following earlier announcements. The equity-linked compensation of senior management of buyback firms exceeds that of matching firms, especially for repurchases announced after 2001. Transient institutional investors equity holdings of buyback firms are smaller than their holdings of matching firms following buyback announcements by repeat repurchasers during 2002–2006. The results suggest that many recent buybacks have not been motivated by fundamentals-based factors such as undervaluation, and that non-fundamentals-based factors such as managerial self-interest have become more important.

We examine how owner-managers incentives and firm-specific measures of corporate governance affect restructuring decisions during an economy-wide shock. Using a large sample of Korean firms that had experienced a severe financial crisis during 1997–1998, we find that the likelihood of restructuring is negatively related to the divergence of cash flow rights and control rights of controlling shareholders, and that the announcements of restructuring by chaebol firms with such divergence are greeted more negatively by investors. However, firm-specific measures of corporate governance such as total debt, bank loans, and equity ownership by unaffiliated financial institutions mitigate these negative effects, thereby influencing firms to choose value-maximizing restructuring policies. Our results suggest that the controlling shareholders' incentives to expropriate other investors are high during an economic shock. Our results also highlight the importance of corporate governance in mitigating such expropriation incentives, and provide important implications for the role of corporate governance during an economic shock, such as the 2007–2008 global financial crisis.

We investigate whether voluntary corporate restrictions on insider trading effectively prevent insiders from exploiting their private information. Our results show that insiders of firms with seeming restrictions on insider trading continue to take advantage of positive private information while being more cautious when exploiting negative private information. The results suggest that insiders continue to exploit their informational advantages in a way that minimizes their legal risk. We also find that the degree of information asymmetry is significantly lower in firms with restriction policies and that corporate governance significantly affects firms' decisions to adopt these policies.

A rich literature argues that stock repurchases often serve as positive economic signals beneficial to investors. Yet due to their inherent flexibility, open-market repurchase programs have long been criticized as weak signals lacking commitment. We evaluate whether some managers potentially use buyback announcements to mislead investors. We focus on cases where managers were seemingly under heavy pressure to boost stock prices and might have announced a repurchase only to convey a false signal. For suspect cases, the immediate market reaction to a buyback announcement does not differ from that generally observed. However over longer horizons, suspect firms do not enjoy the improvement in economic performance otherwise observed. Suspect firms repurchase less stock. Further, managers in suspect firms have comparatively higher exposure to stock options, a potentially endogenous result suggesting greater sensitivity to both stock valuation and to future equity dilution. Overall, the results suggest only a limited number of managers may have used buybacks in a misleading way as “cheap talk.” Yet as theory also suggests, we find no long-run economic benefit to this behavior.

This paper examines the influence of corporate governance systems on insiders' ability to profit from their information advantage and the ways through which corporate governance systems influence such ability. We find that corporate governance significantly reduces the profitability of insider sales but not that of insider purchases. Given that sales involve greater legal risk than purchases, the results suggest that well-governed firms restrict informed insider trading mainly to reduce legal risk. We also find that better-governed firms reduce the profitability of insider sales by increasing the likelihood of adopting ex-ante preventive measures (e.g., voluntary insider trading restriction policies), implementing such measures more effectively, and taking ex-post disciplinary actions more actively. These results highlight how better-governed firms are able to restrict insiders from exploiting private information.