On theoretical grounds, monitoring of top executives by the (supervisory) board is expected to be value relevant. The empirical evidence is ambiguous and we analyze three non-competing explanations for this ambiguity: (i) The positive effect on firm value of board monitoring is hidden in stock price effects due to the simultaneous occurrence of the positive real effect of monitoring and the opposing information effect. (ii) The combination of board monitoring and monitoring by other parties prevents assessing the value relevance of board monitoring in isolation. (iii) The confounding effect of a simultaneous successor appointment typically generates an upward biased estimate. Based on an analysis of price effects and trading volumes at announcement, we conclude that monitoring by the supervisory board is valued by investors: Forced departures of executive directors, also without a successor appointment, are value relevant in the Netherlands where external control mechanisms and shareholder control were virtually absent in the period studied (1991–2000).

This paper shows the simultaneous optimally of debt and equity contracts in a principal-agent model. The agent (an entrepreneur) has an investment project but does not have the necessary funds to finance it. There is moral hazard in the model, generated by the dependence of the project's expected return on the (unobservable) agent's effort. Key to the optimality of these financial instruments is the nonassignable rent produced by the project and captured by the entrepreneur when the investment is successful.

This paper examines the evolution of corporate boards following a large performance decline. Over 40% of the original directors depart the board during the three years following underperformance. Measures of initial CEO influence over the board such as CEO ownership are associated with smaller increases in board independence and less board turnover. The underperforming firms undergo a strong recovery subsequently, with the largest performance improvement occurring among firms that experience no turnover on their boards and among firms that do not change their board independence. We conclude that the large board turnover experienced by underperforming firms presents significant challenges for subsequent recovery.

This study examines the effect of firm-level corporate governance on the cost of equity capital in emerging markets and how the effect is influenced by country-level legal protection of investors. We find that firm-level corporate governance has a significantly negative effect on the cost of equity capital in these markets. In addition, this corporate governance effect is more pronounced in countries that provide relatively poor legal protection. Thus, in emerging markets, firm-level corporate governance and country-level shareholder protection seem to be substitutes for each other in reducing the cost of equity. Our results are consistent with the finding from McKinsey's surveys that institutional investors are willing to pay a higher premium for shares in firms with good corporate governance, especially when the firms are in countries where the legal protection of investors is weak.

Golden parachutes (GPs) have attracted substantial attention from investors and public officials for more than two decades. We find that GPs are associated with higher expected acquisition premiums and that this association is at least partly due to the effect of GPs on executive incentives. However, we also find that firms that adopt GPs experience negative abnormal stock returns both during and subsequent to the period surrounding their adoption. This finding raises the possibility that even though GPs facilitate some value-increasing acquisitions, they do have, on average, an overall negative effect on shareholder wealth; this effect could be due to GPs weakening the force of the market for control and thereby increasing managerial slack, and/or to GPs making it attractive for executives to go along with some value-decreasing acquisitions that do not serve shareholders' long-term interests. Our findings have significant implications for ongoing debates on GPs and suggest the need for additional work identifying the types of GPs that drive the identified correlation between GPs and reduced shareholder value.

This paper investigates whether and how business sustainability performance and disclosure factors affect stock price informativeness (SPI). We find that non-financial environmental, social, and governance (ESG) sustainability performance factors are positively associated with idiosyncratic volatility (our proxy for SPI) after controlling for financial-economic performance. We further show that the association between sustainability performance factors and SPI is stronger for firms with higher sustainability disclosure. We find that the association between ESG sustainability performance factors and SPI is stronger when economic performance is weaker, suggesting that investors tend to pay more attention to ESG performance factors when firms are financially underperforming. This study shows that investors pay attention to both firm economic performance (corporate profitability and growth prospect) and ESG sustainability performance and disclosure factors, which have implications for policymakers, regulators, investors, businesses, and researchers.

This paper uses earnings announcements to analyze the trading behavior and associated price impacts of institutions that have a lending or underwriting relationship with client firms and also hold client firms' shares. Buying support from relationship institutions mitigates the negative impact of earnings surprises on client firms' stock prices, predicts subsequent negative earnings surprises, and is also associated with less selling by independent institutions holding the same firms' shares. Price reactions for firms without relationship institutions are significantly larger. Price support from relationship institutions appears to help resolve uncertainty accompanying clients' temporary earnings shocks, thus reducing noise in the capital markets.

Social media platforms are becoming increasingly important channels for information dissemination. This study examines how microblogging by top executives affects the information environment for listed firms in an emerging market. Using a manually collected data set of Sina Weibo, one of China's most popular and largest social media platforms, we find that a board chair having a Weibo account is associated with the dissemination of more firm-specific information to the capital market. This result holds up to a battery of robustness tests, including an alternative noise-trading explanation and alternative measures of information flows and definitions of Weibo usage. We also show that the relationship between board chairs' Weibo usage and information dissemination is stronger for smaller firms, firms that went public more recently, and firms characterized by less analyst coverage. In addition, Weibo usage primarily disseminates firm-specific news rather than industry news. Finally, we document that institutional trading is an important channel through which private information is incorporated into stock prices. Findings in this study have important implications for the understanding of the role of social media in the dissemination process of corporate information and corporate communication strategy.

Active corporate executives are a popular source of independent directors. Although their knowledge, expertise, and network can bring value to firms on whose boards they sit, independent executive directors may be more likely to be distracted than other directors due to their outside executive roles. Using newly constructed data linking independent directors to their employers, we identify periods when employers' poor performance may distract them from board service. We find that firms with distracted independent executive directors have lower performance and value, higher CEO compensation, reduced CEO turnover-performance sensitivity, lower earnings quality, and lower M&A performance. These adverse effects are mainly driven by distracted directors who sit on relevant committees, and are stronger for small boards.

We examine how equity mispricing affects corporate investment in an international setting. We find that investment is more sensitive to stock prices for equity-dependent firms than for non-equity-dependent firms in our international sample. Investment is also more sensitive to stock prices for firms located in countries with more developed capital markets (i.e., lower costs of raising capital), higher share turnover (i.e., shorter shareholder horizons), and higher R&D intensity (i.e., more opaque assets). More importantly, the positive relation between equity dependence and the sensitivity of investment to stock prices is more pronounced for firms located in these same countries. These findings are consistent with the equity-financing hypothesis and the catering hypothesis on corporate investment proposed by Baker et al. (2003) and Polk and Sapienza (2009), respectively.