This paper examines one type of failure in the governance system, the case where directors do not protect shareholders from securities fraud. We find that shareholders can influence large changes in governance and compensation by targeting the full board of directors, but it is more costly in terms of legal fees. Naming directors in a class action lawsuit based on securities fraud, on average, leads to increases in CEO incentive pay, but decreases in director incentive pay. Additionally, naming directors results in a greater change in board composition. These changes in compensation and corporate governance appear to lead to enhanced performance in the years following the lawsuit.

Using detailed loan level data, we examine bank lending to corporate customers relying on principal suppliers. Customers experience larger loan spreads, higher intensity of covenants and greater likelihood of requiring collateral when they depend more on the principal supplier for inputs. The positive association between the customer’s loan spread and its dependence on the principal supplier is less pronounced when the bank has a prior loan outstanding with the principal supplier, and when the bank has higher market share in the industry. Longer relationships between the customer and its principal supplier, and between the bank and the principal supplier, mitigate lending constraints. The evidence is consistent with corporate suppliers serving as an informational bridge between the lender and the customer.

Using a cross-country sample, we examine the chief executive officer (CEO) tournament structure (measured alternatively as the ratio and the difference of pay between the CEO and other top executives within a firm). We find the tournament structure to vary systematically with firm and country cultural characteristics. In particular, firm size and the cultural values of power distance, fair income differences, and competition are significantly associated with variations in tournament structures. We also establish support for the primary implication of tournament theory in that tournament structure tends to be positively related to firm value, even after controlling for endogeneity.

Examining the relationship between social capital and bank/consumer relations, we find banks in high social capital areas pay more interest and charge fewer fees on deposits, charge lower rates on loans, are less risky, more profitable, hold less capital, and display lower likelihoods of default and failure. Results reflect that commercial banks operating in high social capital areas do not solely maximize profits but seem to pursue objectives promoting stakeholder interests. To clarify this, we examine and find that banks operating in high social capital areas have higher community CSR scores. Banks operating with a CSR conscious perspective are more inclined to consider community interests than purely profit-maximizing banks. Thus, social capital matters because it motivates banks to adopt objectives other than pure profit maximization.

Employing a cross-country sample, we examine how a population’s underlying cultural values help explain gender compensation variation across corporate executives. The results show that the cultural differences, embedded in societies long before the board’s compensation decisions, have significant explanatory power for the observed gender gap in executive compensation. Using an Oaxaca–Blinder decomposition combined with variables previously shown to be fundamental determinants of executive compensation, we find that adding cultural measures increases the model’s explanatory power of the gender compensation gap from 44% to 95%. We use further identification strategies to support causal inference.