We analyze the relation between CEO compensation and networks of executive and non-executive directors for all listed UK companies over the period 1996–2007. We examine whether networks are built for reasons of information gathering or for the accumulation of managerial influence. Both indirect networks (enabling directors to collect information) and direct networks (leading to more managerial influence) enable the CEO to obtain higher compensation. Direct networks can harm the efficiency of the remuneration contracting in the sense that the performance sensitivity of compensation is then lower. We find that in companies with strong networks and hence busy boards the directors' monitoring effectiveness is reduced which leads to higher and less performance-sensitive CEO compensation. Our results suggest that it is important to have the ‘right’ type of network: some networks enable a firm to access valuable information whereas others can lead to strong managerial influence that may come at the detriment of the firm and its shareholders. We confirm that there are marked conflicts of interest when a CEO increases his influence by being a member of board committees (such as the remuneration committee) as we observe that his or her compensation is then significantly higher. We also find that hiring remuneration consultants with sizeable client networks also leads to higher CEO compensation especially for larger firms.

We study the impact of corporate networks on the takeover process. We find that better connected companies are more active bidders. When a bidder and a target have one or more directors in common, the probability that the takeover transaction will be successfully completed augments, and the duration of the negotiations is shorter. Connected targets more frequently accept offers that involve equity. Directors of the target firm (who are not interlocked) have a better chance to be invited to the board of the combined firm in connected M&As. While connections have a clear impact on the takeover strategy and process, we do not find evidence that the market acknowledges connections between bidders and targets as the announcement returns are not statistically different from those bidders and targets which are ex ante not connected.

We analyze the relation between insider trading and the networks of executive and non-executive directors in UK listed companies. While most existing studies focus on firm-specific private information, we find that non-firm-specific information – such as information on other companies and information on industry and market trends – plays an important role in insider trading behavior and performance. Well-connected directors trade shares less frequently and for smaller values. However, their transactions are more profitable, especially when they make consecutive opportunistic purchases in the multiple companies on whose boards they sit. Taken together, well-connected directors are likely to outperform their peers with inferior connections.

Regulators and governance activists are pressuring firms to abolish CEO duality (the Chief Executive Officer is also the Chairman of the Board). However, the literature provides mixed evidence on the relation between CEO duality and firm performance. Using the exogenous shock of the 1989 Canada–United States Free Trade Agreement, we find that duality firms outperform non-duality firms by 3–4% when their competitive environments change. Further, the performance difference is larger for firms with higher information costs and better corporate governance. Our results underscore the benefits of CEO duality in saving information costs and making speedy decisions.

Compared to the past literature on prediction markets that uses small-scale observational field data or experiments, this present research examines the efficiency of such markets by studying catastrophe (CAT) bonds. We collect actual catastrophe loss data, match them with the defined trigger events of each CAT bond contract, and then employ an empirical pricing framework to obtain the excess CAT premiums in order to represent the market-based forecasts. Our results indeed show that market-based forecasts have more significant predictive content for future CAT losses than professional forecasts that use natural catastrophe risk models. Although the predictive information for CAT events is specialized and complex, our evidence supports that CAT bond markets are successful prediction markets that efficiently aggregate information about future CAT losses. Our resultsalso highlight that actual CAT losses in future periods can explain the excess CAT bond spreads in the primary market and provide support for market efficiency when pricing CAT risk.

Exploring the role of social proximity in bank lending using a proprietary data set, we uncover evidence of a significant social proximity effect on private information acquisition. Local loan officers have better information to identify higher-quality borrowers through improved screening. This advantage is greater when firms have higher information asymmetry and lower ratings. Results suggest that sociocultural resources drive locals’ informational advantages and improve their lending performance. Importantly, we find that the social proximity advantage interacts with loan officer incentives. Strong evidence suggests that loan officers can be incentivized to use their social proximity advantage to make better loans.

We examine how the mandatory adoption of extended auditor's reports (EARs) affects managerial bad-news hoarding through the lens of stock price crash risk. Relying on the UK's auditing standard change in 2013 as a quasi-natural experiment, we document a crash risk reduction for firms that were required to adopt EARs, relative to firms that were not so required. The crash risk reduction is related to EARs' disclosure of risks of material misstatement in revenue recognition. The negative effect of EARs adoption on crash risk is more pronounced for firms with scant public information and firms with non-Big-4 or non-industry-specialist auditors. EARs adoption induces firms to disclose more smaller pieces of negative information without changing firms' accruals management. Taken together, our results suggest that EARs adoption dampens bad-news hoarding by managers.

This study examines the nexus between Confucianism, the choice of the leadership successor, and firm performance in family firms in China. It provides original evidence that firm founders who are deeply influenced by Confucianism have a higher likelihood of choosing a family member or a guanxi-connected nonfamily member as the successor. Moreover, family/guanxi-connected successors have a positive effect on firm performance compared with their counterparts outside of the family/guanxi circle. One underlying reason is that, affected by Confucianism, only the family/guanxi-connected successors can acquire the founder's specialized assets via pre-succession internal managerial experience, which, in turn, enables them to outperform other successors.

We argue that cross-ownership increases the amount of private information in stock prices, enhancing the ability of stock prices to provide feedback to managers. Consistent with this argument, we find greater cross-ownership heightens a firm’s investment- q sensitivity. This effect is stronger for firms with a lower propensity for voluntary disclosure and for firms whose managers hold less private information. Furthermore, we find that cross-ownership is negatively associated with the sensitivity of a firm’s investment to its peers’ stock prices. Additionally, cross-ownership has a stronger impact on the investment- q sensitivity when measured among investors who trade more actively in the firm’s shares. By using financial institution mergers as an identification strategy, we strengthen the causal inference. Overall, our results suggest that cross-ownership helps increase revelatory price efficiency (RPE), potentially leading to more efficient corporate decisions.

This study examines the role of independent directors’ network centrality in bank risk-taking. Following the shareholder-incentive hypothesis and social-network theory, we predict and find that independent directors’ connectedness is positively associated with bank risk-taking. The results hold after a battery of robustness checks and endogeneity tests. Furthermore, consistent with the influence channel of networks, we show that connectedness empowers independent directors, whereas influential independent directors facilitate aggressive investment. We also find that the risk-taking effects are more pronounced for complex banks and banks with higher equity capital, higher income diversity, and lower cost-efficiency.