[Empirical evidence on the relations between board independence and board decisions and firm performance is generally confounded by serious endogeneity issues. We circumvent these endogeneity problems by demonstrating the strong impact of the local director labor market on board composition. Specifically, we show that proximity to larger pools of local director talent leads to more independent boards for all but the largest quartile of S&P 1500. Using local director pools as an instrument for board independence, we document that board independence has a positive effect on firm value, operating performance, fraction of CEO incentive-based pay, and CEO turnover.]

[This paper demonstrates a positive effect of stock liquidity on blockholder governance. Liquidity increases the likelihood of block formation. Conditional upon acquiring a stake, liquidity reduces the likelihood that the blockholder governs through voice (intervention)—as shown by the lower propensity for active investment (filing Schedule 13D) than passive investment (filing Schedule 13G). The lower frequency of activism does not reflect the abandonment of governance, but governance through the alternative channel of exit (selling one's shares): A 13G filing leads to positive announcement returns and improvements in operating performance, especially in liquid firms. Moreover, taking into account the increase in block formation, liquidity has an unconditional positive effect on voice as well as exit. We use decimalization as an exogenous shock to liquidity to identify causal effects.]

[This paper documents significant momentum in a comprehensive sample of 81,491 U.S. corporate bonds with both transaction and dealer-quote data from 1973 to 2011. Momentum is driven by noninvestment grade (NIG) bonds. Momentum profits have increased over time, along with the growth of this segment. From 1991 to 2011, they average 59 basis points (bps) per month across all bonds and 192 bps in NIG bonds. NIG bonds issued by private firms earn even higher profits (282 bps). Momentum profits do not appear to compensate for risk or persist as a result of trading frictions. Bond momentum is not just a manifestation of equity momentum.]

Empirical evidence on the relations between board independence and board decisions and firm performance is generally confounded by serious endogeneity issues. We circumvent these endogeneity problems by demonstrating the strong impact of the local director labor market on board composition. Specifically, we show that proximity to larger pools of local director talent leads to more independent boards for all but the largest quartile of S&P 1500. Using local director pools as an instrument for board independence, we document that board independence has a positive effect on firm value, operating performance, fraction of CEO incentive-based pay, and CEO turnover.

This paper documents significant momentum in a comprehensive sample of 81, 491 U.S. corporate bonds with both transaction and dealer-quote data from 1973 to 2011. Momentum is driven by noninvestment grade (NIG) bonds. Momentum profits have increased over time, along with the growth of this segment. From 1991 to 2011, they average 59 basis points (bps) per month across all bonds and 192 bps in NIG bonds. NIG bonds issued by private firms earn even higher profits (282 bps). Momentum profits do not appear to compensate for risk or persist as a result of trading frictions. Bond momentum is not just a manifestation of equity momentum. The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

This paper demonstrates a positive effect of stock liquidity on blockholder governance. Liquidity increases the likelihood of block formation. Conditional upon acquiring a stake, liquidity reduces the likelihood that the blockholder governs through voice (intervention)—as shown by the lower propensity for active investment (filing Schedule 13D) than passive investment (filing Schedule 13G). The lower frequency of activism does not reflect the abandonment of governance, but governance through the alternative channel of exit (selling one's shares): A 13G filing leads to positive announcement returns and improvements in operating performance, especially in liquid firms. Moreover, taking into account the increase in block formation, liquidity has an unconditional positive effect on voice as well as exit. We use decimalization as an exogenous shock to liquidity to identify causal effects.