We document a large and broad-based increase in the use of corporate governance provisions in the late 1980s. As a result, most large publicly traded firms have complex governance structures. This violates an assumption implicit in many empirical studies that provision use is mutually independent. While overall provision use is not systematically related to industry grouping, the uses of some types of provisions are correlated. Most notably, supermajority vote requirements, classified boards, and shareholder meeting requirements tend to be used in concert. Firms reincorporating to Delaware tend to eliminate cumulative voting, and coverages by certain types of state antitakeover laws are correlated. We also find that firms with poison pills tend to have relatively high institutional ownership, low managerial ownership, and a high proportion of independent directors.

Proponents of state antitakeover legislation argue that previous empirical tests by financial economists of the wealth effects of Pennsylvania's 1990 antitakeover law are biased. We show that the proponents are correct. In particular, firm size, event-time clustering, and non-synchronous trading effects account for the wealth decreases reported in earlier studies. We also show, however, that both proponents and critics of the Pennsylvania legislation have ignored the earliest press release about it. The wealth effect associated with this announcement is negative, large, and statistically significant. These results therefore are consistent with the hypothesis that the Pennsylvania law decreased company values and with the hypothesis that the initial market reaction is an unbiased estimate of the law's effect on firm values.

We examine the importance of dividend-capture trading in NASDAQ stocks by testing for cross-sectional relations between ex-day abnormal returns and bid-ask spreads. Throughout, we find that ex-day returns and spreads are positively related. The relation increases across dividend-yield quintiles and is strongest in high-yield stocks. The relation does not appear in a sample of non-ex-dividend days. These findings indicate that dividend-capture trading affects the ex-day returns of at least some, particularly high-yield, NASDAQ stocks, and that dividend-capture trading is important for understanding ex-dividend-day returns.

We examine the stock-price effects of all second-generation state takeover laws introduced from 1982 through 1987 for which we find press announcements. On average, the announcements are associated with a small but statistically significant decrease in the stock prices of firms incorporated in the state and of large firms headquartered in the state. The stock-price effects are concentrated in firms without preexisting firm-level takeover defenses. Firms with prior defenses have no significant stock-price reactions.

The Alaska Native Claims Settlement Act of 1971 (ANCSA) established thirteen diffusely held profit-seeking corporations that were saddled with unusual organization restrictions, the most important of which is that stock cannot be traded. We find that these firms are characterized by poor financial performance, a high incidence of control contests, and high turnover among directors and managers. These and other findings about ANCSA firms are consistent, overall, with the theory of the firm. The results illustrate the importance of organizational form in accomplishing productive activities, and particularly the importance of freely transferrable shares for organizational efficiency in diffusely held corporations.

A dividend tax penalty creates profitable trading opportunities for short-term traders with sufficiently low transaction costs. In stocks with ex-dividend day returns affected by short-term trading, ex-day returns are positively correlated with transaction costs. Data from 1964–1985 indicate that short-term traders are the marginal investors in high-yield stocks, primarily since the introduction of negotiated commissions on the NYSE. Short-term trading is not evident in low-yield stocks, nor does it appear prevalent before negotiated commissions.

Most theoretical models of trade (Pfleiderer, 1984; Grundy and McNichols, 1989; Holthausen and Verrecchia, 1990; Kim and Verrecchia, 1991; Blume et al., 1994) imply that the trading volume prompted by a public announcement is positively related to the announcement's precision. Relying upon this notion, empirical researchers interpret high trading volume as an indication that an announcement is highly informative. We argue that such interpretations are not, in general, correct. In a world with transaction costs, the relation between information precision and trading volume is ambiguous and can be negative. This explains why, in empirical tests using data from actual markets, the relation between announcement precision and trading volume is not monotonically positive, even though in laboratory experiments it is. Our results imply that trading volume reactions to public announcements are most sensitive to announcement precision among low-transaction cost securities and in low-cost trading regimes.

We examine whether short sellers detect firms that misrepresent their financial statements, and whether their trading conveys external costs or benefits to other investors. Abnormal short interest increases steadily in the 19 months before the misrepresentation is publicly revealed, particularly when the misconduct is severe. Short selling is associated with a faster time‐to‐discovery, and it dampens the share price inflation that occurs when firms misstate their earnings. These results indicate that short sellers anticipate the eventual discovery and severity of financial misconduct. They also convey external benefits, helping to uncover misconduct and keeping prices closer to fundamental values.

The likelihood and speed of forced CEO turnover – but not voluntary turnover – are positively related to a firm's earnings management. These patterns persist in tests that consider the effects of earnings restatements, regulatory enforcement actions, and the possible endogeneity of CEO turnover and earnings management. The relation between earnings management and forced turnover occurs both in firms with good and bad performance, and when the accruals work to inflate or deflate reported earnings. These results indicate that boards tend to act proactively to discipline managers who manage earnings aggressively, before the manipulations lead to costly external consequences.