We examine the effect of corporate spinoffs on the trading environment of the stock of firms that spinoff units. Spinoffs change the information environment of firms. The increased transparency following spinoffs can obviate informed traders' information or make it more valuable. We find that residual return variance increases following spinoffs. More importantly, transaction costs and the price impact of trades are also higher following spinoffs. These results are stronger for spinoffs where parent firms divest unrelated subsidiaries. Changes in the information environment associated with focusing spinoffs appear to benefit informed traders at the expense of uninformed traders.

[Top executives' compensation contracts typically provide for annual incentive awards that link executives' cash compensation and reported earnings. This link has been confirmed empirically by Lambert and Larcker (1987), who document a positive association between the cash compensation of chief executive officers (CEOs) and their firms' contemporaneous earnings performance. The widespread use of earnings-based incentives has prompted concerns that executives may select real decisions and accounting procedures to maximize their earnings-based compensation, irrespective of the impact on the economic well-being of the firm (Kaplan and Atkinson 1989, 724; Watts and Zimmerman 1986, 204). These concerns presume that the earnings-based performance measures specified in compensation contracts are strictly adhered to in setting executive compensation. In practice, however, these plans are administered by compensation committees, who could adjust compensation to prevent executives from engaging in opportunistic behavior. Existing research provides mixed evidence as to whether compensation committees adjust earnings-based compensation. For example, Abdel-khalik (1985) finds evidence that CEO compensation is adjusted in response to accounting procedure changes. In contrast, Healy et al. (1987) find no evidence that CEO compensation is adjusted for the effects of accounting procedure changes on reported earnings. This study provides evidence suggesting that compensation committees do adjust earnings-based incentive compensation. It documents reliable and systematic evidence that CEOs' cash compensation is adjusted for restructuring charges. We investigate a sample of 182 restructuring charges taken by 91 Fortune 500 firms between 1982 and 1989. The short-term incentive plans of the sample firms do not include explicit provisions for restructuring charges to be excluded from the definition of earnings used to determine executives' incentive compensation. The empirical analysis, however, indicates that CEO cash compensation is shielded from restructuring charges relative to other components of earnings. The results also suggest that the degree to which executive compensation is adjusted for a restructuring charge depends on the characteristics of the restructuring. Our evidence is consistent with the hypothesis that compensation committees systematically override the provisions of incentive plans to avoid providing executives with incentives to behave opportunistically. Restructurings typically require a large charge to earnings but can have a positive impact on the economic well-being of a firm. By adjusting executive compensation for restructuring charges, the compensation committee ensures that executives are not deterred from undertaking value-enhancing restructurings.]

Abstract Suggests that compensation committees adjust earnings-based executive incentive compensation. Annual executive incentive awards background; Hypotheses on the impact of restructuring charges on executives' annual incentive compensation; Description of sample selection and variable measurement.

We examine CEO turnover and firm financial performance. Accounting measures of performance relative to other firms deteriorate prior to CEO turnover and improve thereafter. The degree of improvement is positively related to the level of institutional shareholdings, the presence of an outsider-dominated board, and the appointment of an outsider (rather than an insider) CEO. Turnover announcements are associated with significantly positive average abnormal stock returns, which are in turn significantly positively related to subsequent changes in accounting measures of performance. This suggests that investors view turnover announcements as good news presaging performance improvements.

We examine financing activities of newly public firms for evidence on capital staging in the public equity market. Staging (sequential financing) can increase issuance costs but can limit costs associated with overinvestment. We find evidence consistent with the hypothesis that staging is employed to help control the overinvestment problem in public firms. Initial public offering (IPO) proceeds, relative to external financing requirements, are smaller for firms with more intangible assets and more research and development (R&D)-intensive firms. Asset intangibility and R&D intensity are also both negatively related to the length of time from a firm's IPO to its first post-IPO capital infusion.

ABSTRACT We report evidence on chief executive officer (CEO) turnover during the 1971 to 1994 period. We find that the nature of CEO turnover activity has changed over time. The frequencies of forced CEO turnover and outside succession both increased. However, the relation between the likelihood of forced CEO turnover and firm performance did not change significantly from the beginning to the end of the period we examine, despite substantial changes in internal governance mechanisms. The evidence also indicates that changes in the intensity of the takeover market are not associated with changes in the sensitivity of CEO turnover to firm performance.

Executive stock options and convertible securities can increase the number of common shares outstanding while adding less than the market value of the newly issued securities to a firm's assets. We model the effect of expected dilution on the earnings/return relation. Expected dilution effectively reduces the permanence of an earnings innovation. Empirical evidence supports the hypothesis that dilutive securities attenuate the relation between earnings and returns. Estimated earnings response coefficients (ERCs) are significantly lower when there are shares reserved for conversion. The effect is more pronounced for firms that have experienced price increases or positive earnings news, as these increase the expected dilutive effect of conversions.

ABSTRACT Compensation committees face special difficulties when setting pay in the last years of a CEO's tenure. For example, incentives to manipulate earnings for the purpose of enhancing earnings-based compensation are greater in CEOs' terminal years. We predict that compensation committees are aware of these incentives and adjust the relative weights placed on earnings components in the cash compensation function to mitigate the problem. Consistent with our prediction, we find that in CEOs' terminal years, positive changes in discretionary accruals receive significantly less weight than other income components in determining cash compensation. This provides new evidence that not all gains flow through to compensation. We also find that in non-terminal years, managers' compensation is partially shielded from the negative effects of selling, general, and administrative expenditures (SG&A), but this effect reverses in the terminal period, consistent with the compensation committee discouraging investment in legacy assets by outgoing CEOs. Overall, our findings suggest that compensation committees treat components of earnings differently when setting pay in the terminal period. JEL Classifications: M41; J33.