Internal capital markets (ICMs) provide firms an alternative to costly external financing; however, they also provide an avenue to avoid the monitoring associated with issuing external capital. We argue that firms operating inefficient internal capital markets will avoid outside financing. Consistent with this view, conglomerates that cross-subsidize divisions or engage in value-destroying investment avoid external capital market oversight by refraining from issuing both debt and equity. We further show that firms issuing bonds while engaging in value-destroying investment experience yield spreads that are, on average, 46 basis points higher than those of other diversified firms. They similarly experience yield spreads that are 18 basis points higher when they issue syndicated loans. Value-destroying conglomerates also witness SEO announcement returns that are, on average, 1% more negative than firms operating more efficient internal capital markets.

We explore the labor market effects of gender and race by examining board leadership appointments. Prior studies are often limited by observing only hired candidates, whereas the boardroom provides a controlled setting where both hired and unhired candidates are observable. Although diverse (female and minority) board representation has increased, diverse directors are significantly less likely to serve in leadership positions despite possessing stronger qualifications than nondiverse directors. While specialized skills such as prior leadership or finance experience increase the likelihood of appointment, that likelihood is reduced for diverse directors. Additional tests provide no evidence that diverse directors are less effective.

Personal managerial indiscretions are separate from a firm's business activities but provide information about the manager's integrity. Consequently, they could affect counterparties’ trust in the firm and the firm's value and operations. We find that companies of accused executives experience significant wealth deterioration, reduced operating margins, and lost business partners. Indiscretions are also associated with an increased probability of unrelated shareholder-initiated lawsuits, Department of Justice and Securities and Exchange Commission investigations, and managed earnings. Further, chief executive officers and boards face labor market consequences, including forced turnover, pay cuts, and lower shareholder votes at re-election. Indiscretions occur more often at poorly governed firms where disciplinary turnover is less likely.

Antitakeover measures are controversial because the evidence of their net effect on shareholders is mixed. We propose that, for many firms, the potential bonding benefits outweigh the agency costs of the quiet life, explaining the mixed results. We study business combination and poison pill laws as exogenous shocks to takeover vulnerability and use shareholder valuation of internal slack as an indicator of the net effect of takeover protection. Firms susceptible to quiet life agency problems exhibit a decrease in the market-assessed value of internal slack. Conversely, cash appreciates at companies where takeover protection bonds commitments with major counterparties.

We investigate whether compensation consultants recommend excessive pay to earn repeat business by studying consultant changes. Our results show consultants’ interests are aligned with shareholders’ to appropriately pay the CEO. Boards dismiss consultants making large pay recommendation errors, particularly positive ones. However, powerful or poorly monitored CEOs interfere with such disciplinary turnover, weakening the relation. Peer groups are more likely to change with new consultant appointments. New consultants are less likely to include highly paid executives in the compensation peer group and CEO pay falls following the change. Directors earn higher votes in annual elections when they replace compensation advisors.

Using transactions generally overlooked in the compensation literature—joint ventures, strategic alliances, seasoned equity offerings (SEOs), and spin-offs—we find that, beyond compensation for increases in firm size or complexity, chief executive officers (CEOs) are rewarded for their deal-making activities. Boards pay CEOs for the core motivation of the deal, as well as for deal volume. We find that compensating for volume instead of core value creation occurs under weak board monitoring and that in deal-making firms, neither CEO turnover nor pay-for-performance responds to underperformance. We introduce an input monitoring explanation for these results: boards compensate for deal volume because of their inability to perfectly monitor outputs.

We study off-the-clock indiscretion accusations against corporate officers and directors and examine the extent, effectiveness, and context of auditors’ response. In the year that indiscretion allegations are first publicized, auditors charge higher fees and are more likely to resign. Auditors respond to allegations against both top executives and board members. Further, reactions are strongest when allegations demonstrate a lack of individual integrity and, separately, when the audit office has previously audited other similarly accused clients. Importantly, the resulting increase in auditors’ effort partially negates the association between indiscretions and lower financial reporting quality. However, auditors are primarily reactive, rather than proactive, and their response is stronger when the accused client is less important economically. These results suggest that company leadership’s off-the-clock indiscretions are signals to auditors of poor tone at the top, but the audit response is not uniform across all clients.