We examine the accounting and market performance of reverse leveraged buyouts (i.e., firms making their first public offering after previously completing a leveraged buyout). On average, the accounting performance of these firms is significantly better than their industries at the time of the initial public offering (IPO) and for at least the following four years, though there is some evidence of a decline in performance. Cross-sectional variation in accounting performance subsequent to the IPO is related to changes in the equity ownership of both operating management and other insiders, and is unrelated to changes in leverage. Finally, there is no evidence of abnormal common stock performance after the reverse leveraged buyout.

This paper examines the economic consequences associated with the board of director’s choice of whether to adhere to proxy advisory firm policies in the design of stock option repricing programs. Proxy advisors provide research and voting recommendations to institutional investors on issues subject to a shareholder vote. Since many institutional investors follow the recommendations of proxy advisors in their voting, proxy advisor policies are an important consideration for corporate boards in the development of programs that require shareholder approval such as stock option repricing programs. Using a comprehensive sample of stock option repricings announced between 2004 and 2009, we find that repricing firms following the restrictive policies of proxy advisors exhibit statistically lower market reactions to the repricing, lower operating performance, and higher employee turnover. These results are consistent with the conclusion that proxy advisory firm recommendations regarding stock option repricings are not value increasing for shareholders.

[This paper examines the factors influencing the relative weights placed on financial and non-financial performance measures in CEO bonus contracts. We find that the use of non-financial measures increases with the level of regulation, the extent to which the firm follows an innovation-oriented strategy, the adoption of strategic quality initiatives, and the noise in financial measures. We find no evidence that the choice of performance measures in bonus contracts is associated with the level of financial distress or the value of CEO equity holdings relative to salary and bonus. Our results also provide no support for the hypothesis that CEOs with greater influence over the board of directors are more likely to be compensated based on non-financial measures.]

[This paper provides an analysis of the association between the accounting gain produced by an equity-for-debt swap and executive compensation. Our results suggest that the executives of firms completing a swap transaction experience an increase in cash compensation (salary plus bonus). The increase is largest both in absolute magnitude and in statistical significance for firms whose compensation plans are more "accounting-oriented" (i.e., firms whose executives would be expected to experience the greatest increase in compensation under the hypothesis that firm's compensation plan is not adjusted for the accounting gain produced by the swap). We also find that, on average, the value of the executives' personal equity holdings decreases in the period surrounding the announcement of the swap. The magnitude of this decrease is, on average, comparable in size to the increase in their compensation. However, there is some weak evidence that executives of firms whose compensation plans are more "accounting-oriented" experience a statistically significant increase in their total wealth (i.e., the sum of excess compensation and the value of personal equity holdings) as a result of the swap transaction.]

ABSTRACT: Diverse interpretations of the security market reaction to the Exposure Draft for FASB Statement No. 19 exist. This paper provides a detailed analysis of the oil and gas accounting controversy, First, expanded theoretical models for the potential incentive effects and political effects that have been proposed as explanations for the observed security price behavior are developed. Second, the independent variables isolated by our models are used to explore the differential security market reactions of the full cost firms to the Exposure Draft. The empirical results indicate that the variables posited by our theoretical models explain a non-trivial portion of the differential security market reaction for full cost firms. These results provide evidence which is consistent with the existence of an incentive effect.

This paper analyzes the valuation of a compensation contract from a manager's perspective. This perspective is appropriate, for example, in research on the incentive effects of a compensation plan, because such effects are determined by how the manager's actions affect his valuation of his compensation. In contrast, in a study of the cost-effectiveness of a compensation plan, the shareholders' perspective is appropriate. Measuring the value to a manager of his compensation is difficult because some of the diverse components of compensation packages (e.g., executive stock options and restricted stock) have payoffs that are uncertain when the compensation is granted. In most empirical studies, each component is valued independently (without consideration of the structure of the compensation package as a whole), and these values are summed. Moreover, the values are frequently determined using formulas for publicly traded securities with similar payoff structures (i.e., from the perspective of security market participants). Market imperfections create divergence between managers' and shareholders' valuations of a component of a compensation scheme. In particular, moral hazard and adverse selection issues cause shareholders to tie

We examine the press’ role in monitoring and influencing executive compensation practice using more than 11,000 press articles about CEO compensation from 1994 to 2002. Negative press coverage is more strongly related to excess annual pay than to raw annual pay, suggesting a sophisticated approach by the media in selecting CEOs to cover. However, negative coverage is also greater for CEOs with more option exercises, suggesting the press engages in some degree of “sensationalism.” We find little evidence that firms respond to negative press coverage by decreasing excess CEO compensation or increasing CEO turnover.

In this study, we investigate whether investors are willing to trade off wealth for societal benefits. We take advantage of unique institutional features of the municipal securities market to provide insight into this question. Since 2013, states and other governmental entities have issued over $23 billion of green bonds to fund eco-friendly projects. Comparing green securities to nearly identical securities issued for non-green purposes by the same issuers on the same day, we observe economically identical pricing for green and non-green issues. In contrast to a number of recent theoretical and experimental studies, we find that in real market settings investors appear entirely unwilling to forgo wealth to invest in environmentally sustainable projects. When risk and payoffs are held constant and are known to investors ex-ante, investors view green and non-green securities by the same issuer as almost exact substitutes. Thus, the greenium is essentially zero.

Instrumental variable (IV) methods are commonly used in accounting research (e.g., earnings management, corporate governance, executive compensation, and disclosure research) when the regressor variables are endogenous. While IV estimation is the standard textbook solution to mitigating endogeneity problems, the appropriateness of IV methods in typical accounting research settings is not obvious. Drawing on recent advances in statistics and econometrics, we identify conditions under which IV methods are preferred to OLS estimates and propose a series of tests for research studies employing IV methods. We illustrate these ideas by examining the relation between corporate disclosure and the cost of capital.