We study the impact of inside debt holdings on the likelihood of product market recalls. Consistent with inside debt better aligning incentives, we find it is negatively associated with subsequent recalls. This relation is pronounced for industries where managers have greater control over the supply chain and when examining severe recalls. Our results hold irrespective of the firm's financial constraints or cash flow risk. Inside debt has the greatest influence on older and longer tenured executives, indicating that managerial risk aversion plays an important role. Overall, our results indicate that compensation policies can have a positive effect by decreasing the likelihood of costly recalls.

We examine the relation between institutional investors and management discipline over the last several decades to better understand how CEO turnover has increased. Using a sample of forced and voluntary turnovers, we investigate the changing roles of activism and exit among institutional investors between 1982–1994 and 1995–2006. We find evidence of activist investors throughout the sample period and their impact is consistently significant in multivariate analysis. In contrast, voting with their feet has declined to the point where it no longer affects turnover outcomes. Nonetheless, activism is fairly uncommon and does not explain the higher turnover observed over time. Block holdings of known activists have increased and are linked to improving target firms. However, other blocks merely reflect the increasing size of institutional money managers. Going forward, the increasing size of institutional investors seems likely to inhibit voting with their feet while activism remains an important vehicle for change.

We examine stock market reactions, direct costs of compliance, and board adjustments to California Senate Bill No. 826 (SB 826), the first mandated board gender diversity quota in the United States. Announcement returns average −1.2% and are robust to the use of multiple methodologies. Returns are more negative when the gap between the mandated number and the pre-SB 826 number of female directors is larger. These negative effects are less severe for firms with a greater supply of female candidates, and for those that can more easily replace male directors or attract female directors. For small firms, the annual direct cost of compliance through board expansion is non-trivial, representing 0.76% of market value. Following SB 826, firms significantly increase female board representation, and the increase is greater for firms in California than control firms in other states.

Events that disrupt customer–supplier relationships pose a source of risk for suppliers that depend on a customer for a large portion of their revenues. We identify the replacement of a customer’s chief executive officer (CEO) as a disruptive event that results in suppliers losing substantial sales. These losses are greater when an incumbent customer CEO is more likely to be entrenched and stem largely from the successor divesting assets. Finally, we document that losses in sales following a customer CEO turnover lead to declines in a supplier’s financial performance and that suppliers experience negative abnormal stock returns to announcements of customer CEO departures.

We examine California Assembly Bill No. 979 (AB 979), the first law mandating racial, ethnic, and other forms of diversity on corporate boards. Conventional t-tests show that stock returns around the enactment of the law are negative, economically large, and statistically significant; returns are more negative for smaller firms and firms with no diverse directors, suggesting higher compliance costs. However, statistical significance disappears after controlling for event date cross-correlation, when comparing returns on event dates to the pre-event distribution of returns, and in multivariate regressions. At least 90 % of firms comply with the first stage of AB 979 and the qualifications of mandated directors are largely similar to those of benchmarks, suggesting compliance costs are low. We also find no evidence that compliance affects firm operating performance. Overall, our results suggest that the diversity mandate has statistically and economically small effects relative to typical variation in stock returns and firm outcomes, which highlights the importance of considering appropriate counterfactuals and examining multiple dimensions when analyzing the impact of such mandates.