Multiple-performance-measure agency models predict that optimal contracts should place greater reliance on performance measures that are more precise and more sensitive to the agent's effort. We apply these predictions to CEO retention decisions. First, we develop an agency model to motivate proxies for signal and noise in firm-level performance measures. We then document that accounting information appears to receive greater weight in turnover decisions when accounting-based measures are more precise and more sensitive. We also present evidence suggesting that market-based performance measures receive less weight in turnover decisions when accounting-based measures are more sensitive or market returns are more variable.

The study examines the capital market pricing of discretionary and nondiscretionary components of a major accrual in the banking industry, the allowance for loan losses. The analysis employs a two-stage approach in which the allowance account is first decomposed into estimates of its nondiscretionary and discretionary components. The second stage evaluates the market's valuation of the estimates of the components. Evidence suggests that the capital market perceives the allowance to be comprised of two components, a nondiscretionary component which is negatively priced and a discretionary component whose incremental pricing coefficient is positive.

We examine the relation between audit committee compensation and the demand for monitoring of the financial reporting process. We find that total compensation and cash retainers paid to audit committees are positively correlated with audit fees and the impact of the Sarbanes-Oxley Act, our proxies for the demand for monitoring. Our results are robust to the inclusion of audit committee quality, measured as the committee chair financial expertise. Our results suggest a recent willingness by firms to deviate from the historically prevalent one-size-fits-all approach to director pay in response to increased demands on audit committees and differential director expertise.

We investigate going-private decisions in response to the passage of the Sarbanes–Oxley Act of 2002 (SOX). We study firms that go private from 1998 to May 2005 and find: (1) the quarterly frequency of going-private transactions has increased after the passage of SOX, and (2) abnormal returns surrounding both the passage of SOX and the going-private announcement are significantly related to proxies for the costs and benefits of SOX and the net benefits of being a public firm. Our empirical evidence is broadly consistent with the notion that SOX has affected firms’ going-private decisions.

We posit that limited transparency of firms’ operations to outside investors increases demands on governance systems to alleviate moral hazard problems. We investigate how ownership concentration, directors’ and executive's incentives, and board structure vary with: (1) earnings timeliness, and (2) organizational complexity measured as geographic and/or product line diversification. We find that ownership concentration, directors’ and executives’ equity-based incentives, and outside directors’ reputations vary inversely with earnings timeliness, and that ownership concentration, and directors’ equity-based incentives increase with firm complexity. However, board size and the percentage of inside directors do not vary significantly with earnings timeliness or firm complexity.