We independently and jointly test multiple proposed explanations for chief executive officer (CEO) pay-for-luck asymmetry, comparing their contributions to the observed asymmetry. Measuring luck based on both stock and operating performance, we analyze pay asymmetry for both the average and median CEO. We document that favorable labor market opportunities—measuring executive retention concerns—most consistently underlie pay asymmetry across specifications, while CEO power and bankruptcy avoidance incentives are only weakly related. However, none of these independently explains pay asymmetry across our expanded tests. Our results highlight important empirical modeling concerns and provide valuable insight for future theoretical and empirical work.

This paper compares the value of political ties and market credibility in China by examining the consequence of corporate scandals. We categorize Chinese corporate scandals by whether the scandal is primarily associated with the destruction of (i) the firm's political networks (political scandals), (ii) the firm's market credibility (market scandals), or (iii) both (mixed scandals). Consistent with our hypothesis that scandals signaling the destruction of political ties are associated with greater losses in firm value than scandals signaling the destruction of market credibility, we find that the stock market reacts more negatively to political and mixed scandals than to market scandals. In addition, the greater negative market reactions associated with political and mixed scandals are primarily driven by firms that rely more on political networks. We also find that, compared to market scandals, political and mixed scandals lead to larger decreases in operating performance, greater reduction in loans from state‐owned banks, and higher departure of political directors.

Recent research suggests that adopting imprecise accounting standards elevates audit firm litigation exposure and could undermine auditor objectivity if audit firms respond by herding to industry norms. This paper reports the results of two experiments that demonstrate how audit firms can effectively mitigate the elevated litigation exposure without herding to industry norms by staffing engagements with recognized technical experts, using judgment frameworks and automated decision aids, and providing persuasive evidence of adherence to auditing standards. We find that judgment frameworks are particularly well‐suited for defending judgments under imprecise standards, and represent a cost‐effective alternative to using technical experts. However, our results also indicate that judgment frameworks may provide a safe harbor for relatively low‐quality judgments when those frameworks are used under precise standards. We discuss implications for audit firms, courts, and regulators that currently conduct or evaluate audits within and across jurisdictions where the precision of accounting standards varies considerably.

Unregulated US corporations dramatically increased their debt usage over the past century. Aggregate leverage—low and stable before 1945—more than tripled between 1945 and 1970 from 11% to 35%, eventually reaching 47% by the early 1990s. The median firm in 1946 had no debt, but by 1970 had a leverage ratio of 31%. This increase occurred in all unregulated industries and affected firms of all sizes. Changing firm characteristics are unable to account for this increase. Rather, changes in government borrowing, macroeconomic uncertainty, and financial sector development play a more prominent role. Despite this increase among unregulated firms, a combination of stable debt usage among regulated firms and a decrease in the fraction of aggregate assets held by regulated firms over this period resulted in a relatively stable economy-wide leverage ratio during the 20th century.

Despite its wide use, the Hill estimator and its plot remain to be difficult to use in Extreme Value Theory (EVT) due to substantial sampling variations in extreme sample quantiles. In this paper, we propose a new plot we call the eigenvalue plot which can be seen as a generalization of the Hill plot. The theory behind the plot is based on a heavy-tailed parametric distribution class called the scaled Log phase-type (LogPH) distributions, a generalization of the ordinary LogPH distribution class which was previously used to model insurance claims data. We show that its tail property and moment condition are well aligned with EVT. Based on our findings, we construct the eigenvalue plot from fitting a shifted PH distribution to the excess log data with a minimal phase size. Through various numerical examples we illustrate and compare our method against the Hill plot.

We examine the roles of two financial intermediaries, lenders and venture capitalists, in a sample of more than 6000 IPO firms during 1980–2012. Venture capitalists and lenders generally fund different types of firms and, on average, are substitutes; however, in some instances we observe interactions and complementary roles between the two funding sources. Firms with high debt have lower valuation uncertainty, and lower initial day returns than those backed by venture capital. However, firms with high debt levels underperform in the long-run, especially those without venture capital. We provide some evidence that firms backed by reputable venture capitalists perform better.

We investigate whether the media plays a role in corporate governance by disseminating news. Using a comprehensive data set of corporate and insider news coverage for the 2001–2012 period, we show that the media reduces insiders’ future trading profits by disseminating news on prior insiders’ trades available from regulatory filings. We find support for three economic mechanisms underlying the disciplining effect of news dissemination: the reduction of information asymmetry, concerns regarding litigation risk, and the impact on insiders’ personal wealth and reputation. Our findings provide new insights into the real effect of news dissemination.

Using a novel data set that tracks all web traffic on the SEC 's EDGAR servers from 2008 to 2011, we examine the determinants and capital market consequences of investor information acquisition of SEC filings. The average user employs the database very few times per quarter and most users target specific filing types such as periodic accounting reports; a small subset of users employ EDGAR almost daily and access many filings. EDGAR activity is positively related with corporate events (particularly restatements, earnings announcements, and acquisition announcements), poor stock performance, and the strength of a firm's information environment. EDGAR activity is related to, but distinct from, other proxies of investor interest such as trading volume, business press articles, and Google searches. Finally, information acquisition via EDGAR , both to obtain earnings news and to provide context for it, has a positive influence on market efficiency with respect to earnings news. Overall, our results are important because they provide a unique, user‐based perspective on investor access of mandatory disclosures and its impact on price formation.