In 2005, U.S. employers spent more than $500 billion on health insurance. I argue that firms invest in worker health to mitigate the depreciation in human capital that occurs when workers get sick, which increases the productivity of human and physical capital. Using firm-level health insurance data, I find firms that have higher labor productivity, spend more on research and development, and are larger invest more in health capital. Further, health capital investment positively affects firm value and overall productivity. To identify these effects, I instrument for insurance with state mandates and the number of persons covered by insurance contracts.

There is a tenuous link between market efficiency and economic efficiency in that stock prices are more informative when the information has less social value. We investigate this link in the context of CEO turnover. Our theoretical model predicts that, when the board’s monitoring intensity and the informed trader’s information decision are jointly endogenized, stock price informativeness is negatively related to the board’s monitoring effort. Our empirical tests provide supporting evidence for this negative effect. Moreover, using the passage of the Sarbanes–Oxley Act (SOX) as a quasi-natural experiment, we find that SOX, while strengthening corporate governance, has a negative effect on stock price informativeness, especially among firms with complex organizational structures.

We summarize and synthesize the results from 73 studies that examine the consequences of shareholder activism for targeted firms, and draw two primary conclusions. First, activism that adopts some characteristics of corporate takeovers, especially significant stockholdings, is associated with improvements in share values and firm operations. Activism that is not associated with the formation of ownership blocks is associated with insignificant or very small changes in target firm value. Second, shareholder activism has become more value increasing over time. Research based on shareholder activism from the 1980s and 1990s generally finds few consequential effects, while activism in more recent years is more frequently associated with increased share values and operating performance. These results are consistent with Alchian and Demsetz' (1972) argument that managerial agency problems are controlled in part by dynamic changes in ownership, and with Alchian's (1950) observation that business practices adapt over time to mimic successful strategies.

In a widely cited note in this Review (1975), Giora Hanoch drew attention to the distinction between two different concepts of returns to scale, one concerning the relative change in output for equiproportionate changes in all inputs along a ray from the origin, and the other concerning the change in output relative to costs along the expansion path. Hanoch demonstrated that the two concepts give equal measures for the point-elasticity of scale, ?, at any point on the expansion path for any production function. However, if the production function is nonhomothetic, the rate of change in with output along a ray is generally not equal to its rate of change along the expansion path. Hanoch also demonstrated that the shape of the average cost curve depends upon the change in along the expansion path, not along a ray, and that the assumption of a downward-sloping technically optimal surface (where -=1), with - I below it, is neither necessary nor sufficient for classical U-shaped average cost curves. This note utilizes the envelope theorem to provide an alternative derivation of Hanoch's results concerning the relationship between changes in along a ray and changes in along the expansion path. This approach gives greater intuitive insight into Hanoch's conclusions. It allows graphical illustration of the results, with obvious pedagogical rewards. In addition, the derivation provides one significant new result, namely, a general proposition that the rate of change in ? along a ray must be algebraically less than its rate of change along the expansion path at a point where the ray and the expansion path intersect.

We examine the value consequences of corporate social responsibility through the lens of institutional shareholders. We find a sharp asymmetry between corporate policies that mitigate the firm’s exposure to environmental risk and those that enhance its perceived environmental friendliness (“greenness”). Institutional investors shun stocks with high environmental risk exposure, which we show have lower valuations, as predicted by risk management theory. These findings suggest that corporate environmental policies that mitigate environmental risk exposure create shareholder value. In contrast, firms that increase greenness do not create shareholder value and are also shunned by institutional investors.

We develop a model to predict expected or normal director compensation. Based on this, we then calculate whether directors of corporate boards are over- or undercompensated. On average, we find greater evidence of over- rather than undercompensation. For companies that overpay, the average excess compensation is greater than $60,000 per director, while directors that are underpaid receive about $33,000 less than predicted. Excess compensation declines over our sample period, which may be consistent with increased director workloads as well as increased scrutiny. We also find that overcompensated directors exacerbate agency problems and lead to reduced CEO turnover sensitivity to performance and a decrease in CEO pay-for-performance sensitivity. Thus, director excess compensation may be a sign of board entrenchment where overcompensated directors are not necessarily focused on protecting shareholder interests.

ABSTRACT We explore revealed preferences for the contractual treatment of changes to GAAP in a large sample of private credit agreements issued by publicly held U.S. firms. We document a significant time‐trend toward excluding GAAP changes from the determination of covenant compliance over the period from 1994 to 2012. This trend is positively associated with proxies for standard setters’ shift in focus toward relevance and international accounting harmonization. At the firm level, borrowers facing higher uncertainty are more likely to write contracts that include GAAP changes, but these firms also show a more pronounced time‐trend toward excluding GAAP changes. While this evidence is broadly consistent with an efficiency role for GAAP changes in debt contracting, it is also consistent with a shift in standard setters’ focus offering a partial explanation of why fewer contracts rely on GAAP changes in 2012 than in 1994.