Equity compensation provides incentives for executives to remain with the firm to avoid forfeiture of restricted shares and some or all of the value of stock options held. Empirically we show that the intrinsic value of unexercisable in-the-money options, the time value of unexercised options, and the value of restricted shares are inversely related to voluntary executive turnover. These findings which are most pronounced for strong performers, hold for CEOs and non-CEOs alike. While paying excess cash compensation also reduces turnover, the effect is less pronounced than that of equity compensation.

Research shows female directors are associated with proxies for improved monitoring, yet finds mixed results as to their effect on firm performance. Hypothesizing that their performance impact depends on the firms' information environment, we find that independent female directors have a negative (positive) effect on performance in opaque (transparent) firms, an effect which is incremental to that of independent male directors. We then explore the channels which drive this finding. The standard measure of the information environment considers opacity from the view of external parties such as analysts and investors. However, independent directors have greater access to information than external parties. Consequently, we investigate whether additional data sources, if they exist, mitigate the impact of “external” opacity on the effect of independent female directors on firm performance. We find that when independent female directors have greater access to information either from sources inside, e.g., an independent board chair, or outside, e.g., a large network, the firm, their negative effect on performance in opaque firms dissipates. Investigating their positive impact in transparent firms, we find that independent female directors decrease both discretionary accruals and the likelihood of an Accounting and Auditing Enforcement release.

Implementation methods mandated by the FASB allow firms to report equity-increasing changes as income and equity-decreasing changes as adjustments to stockholders' equity. These findings are consistent with the argument that the FASB, to reduce its political costs, attempts to minimize firms' costs of implementation. We find that the FASB permits flexibility in timing of adoption of mandated changes. Firms experiencing lower changes in return on assets (ROA) before adoption and expecting higher adoption income effects accelerate implementation. Early adopters select the year of adoption when their change in ROA is lowest and their change in leverage is highest.

Outside board chairs are more likely in firms that are smaller, have greater stock volatility and research and development intensity, and have a lower proportion of inside directors and less institutional ownership; they are also more likely when chief executive officers have shorter tenure and lower ownership. We also find that the existence of an outside chair is associated with geographical and industry norms. An outside chair is positively associated with firm performance, a finding robust to various estimation methods, including event study and multivariate analyses incorporating controls for endogeneity, as well as market and accounting measures of performance. We note, however, that the relationship between outside chair and firm performance varies with firm characteristics.

ABSTRACT In this paper we show that supporters reduce donations to nonprofits subsequent to disclosure of high executive compensation. We find evidence consistent with large, sophisticated donors actively seeking out and reacting to compensation information made available in IRS Form 990, while smaller donors react to compensation disclosures in the media. Additional analysis indicates that these results vary systematically across nonprofits, as we find a stronger negative relation in nonprofits classified as more charitable, and a weaker relation in nonprofits that provide services to their donors. In contrast neither grantors nor patrons appear to react to executive compensation disclosures. Data Availability: All data are available from public sources.

We show that hard to observe, indirect connections between a CEO and “independent” board members are associated with higher CEO compensation. While we find this result for the “friend of a friend” connection, we do not find it for direct connections, i.e. friends sitting on the board. We postulate that this differential result is caused by directors with readily observable connections to the CEO being wary of provoking outrage. In contrast we find both types of connections associated with reduced involuntary CEO turnover, suggesting that outrage is not as big a concern, e.g., compensation is the foci of stakeholders.

ABSTRACT Debt covenant violation alters firm dynamics, providing creditors with the right to demand repayment, and via that right, influence firm actions. We provide evidence consistent with creditors employing that channel to influence CEO compensation. Using regression discontinuity analysis, we show that in the year after a covenant violation, after controlling for other factors, CEO compensation is 8.5 percent lower and the CEO's compensation package contains fewer risk-taking incentives, as the vega associated with newly granted options is 26 percent lower. These changes are more pronounced when the creditor has greater influence, such as when the borrower and creditor have a prior lending relationship, the creditor is a highly reputable bank, or when the borrower is financially weaker. We also find that CEOs' risk-taking incentives decrease with the number of debt covenants; in particular, the number of performance debt covenants being breached. JEL Classifications: G21; G34.

In this paper we examine the effect of filing form 10-K on EDGAR on the incidence of small and large trades. We find that the change to EDGAR filings results in significant increases in the volume of small, but not large trades, during the five-day window (−1, 3) around the filing date. While our data does not allow us to directly examine the trading profits and transactions costs of investors, we are able to examine whether the trading patterns reflect information available in the 10-K differently in the pre- and post-EDGAR period. Using stock return as a proxy for the information content of the 10-K, our results show that post-EDGAR small trades are more likely to reflect that information, i.e., more likely than in the pre-EDGAR period to be buys (sells) when returns in the five-day window after the trade are positive (negative). We also find that while the product of the net buys (sells) and the price change over the five-day window after the trade for small trades in the post-EDGAR period is still less than that for large trades, the difference between the two groups decreased significantly. Consequently, while we cannot directly examine the profitability of these transactions, the evidence presented is consistent with EDGAR improving the trading outcomes of small vis-a`-vis large investors.

ABSTRACT We examine the impact of Internal Revenue Service (IRS) Code Section 4960 of the Tax Cuts and Jobs Act of 2017 on nonprofit organizations (NPOs). This section imposes a 21% excise tax on nonprofit employee compensation exceeding $1 million per covered individual. As this is an exogenous shock imposing a cost on NPOs with highly paid employees, it leads us to examine whether those employees share the newly added cost via a reduction in their compensation. Using a difference‐in‐differences analysis on data from IRS Form 990 filings for nearly 40,000 nonprofit employee‐year observations from 2015 to 2010, we find that the level of compensation, on average, increases for treated executives in the post–Section 4960 period, but at a slower rate than that of the control group of executives. These results are consistent with highly paid employees being reluctant, on average, to take a pay cut, but being more willing to accept a reduction in their rate of pay growth. Our results are robust to alternative treatment specifications and control samples, such as employees who earn more than $1 million but are not covered under Section 4960 and medical professionals who are specifically exempt from Section 4960. We also find that compensation decreases are more likely for treated employees post–Section 4960 and that replacements for treated CEOs take an even steeper pay cut post–Section 4960. Additionally, we observe increased turnover for treated CEOs post–Section 4960, consistent with Section 4960 leading to conflicts between treated CEOs and their boards regarding the excise tax and who should bear its cost.