I use data from chief executive officer (CEO) successions to examine the impact of inherited control on firms' performance. I find that firms where incoming CEOs are related to the departing CEO, to a founder, or to a large shareholder by either blood or marriage underperform in terms of operating profitability and market-to-book ratios, relative to firms that promote unrelated CEOs. Consistent with wasteful nepotism, lower performance is prominent in firms that appoint family CEOs who did not attend “selective” undergraduate institutions. Overall, the evidence indicates that nepotism hurts performance by limiting the scope of labor market competition.

The paper analyzes the effect of changes in eight types of bank-oriented macroprudential policies on bank competition and stability. Using a bank-level database of a maximum of 2511 listed banks from 52 countries, I find that a tightening in bank-oriented macroprudential policies on average increases both bank competition and stability. However, there are differences across policies and countries. Loan supply and liquidity-based policies increase bank competition whereas capital and tax-based policies reduce bank competition. Tighter legal restrictions on entry and activity in a country reduce the positive (increase the negative) effect of macroprudential policies on bank competition. In terms of policy implications, I identify a sub-set of especially useful macroprudential policies that increase not only financial stability but also bank competition.

This paper analyzes how the impact of the global financial crisis on corporate investment varies across countries depending on the protection of creditor rights and bank market competition. Results for 8546 publicly traded industrial firms in 34 countries indicate that stronger protection of creditor rights and stronger bank competition are associated with a greater reduction in corporate investment during the crisis. Differences in bank dependent firms suggest the relevance of both the demand and supply effects of the crisis. These findings indicate that creditor rights and bank competition affect not only the likelihood of a financial crisis but also the real effects of the crisis once it happens. The results are robust to alternative specifications and definitions of the crisis period, changes in the countries included in the sample, and alternative proxies for bank dependence, creditor rights, and bank market competition.

We use a hand-collected international database to analyze the change in the risk-taking incentives embedded in bank executive compensation after the onset of the global financial crisis. Our results reveal a reduction in both the risk sensitivity of stock option grants (vega) and total and cash pay-risk sensitivities in countries suffering systemic banking crises. This reduction is greater in countries with strong shareholder protection, especially in banks with good corporate governance, solvent banks, and banks that suffered a reduction in their specific investment opportunity set. The regressions control for government intervention, banking development, and crisis intensity. Our results confirm that the contracting hypothesis is more relevant in countries with stronger shareholder protection, and provide support for measures improving shareholder rights in the approval of bank executive compensation.

This paper uses a panel database of 251 banks in 36 countries to analyze the impact of bank regulation on bank charter value and risk-taking. After controlling for deposit insurance and for the quality of a country's contracting environment, the results indicate that regulatory restrictions increase banks' risk-taking incentives by reducing their charter value. Banks in countries with stricter regulation have a lower charter value, which increases their incentives to follow risky policies. These results corroborate a negative relation between regulatory restrictions and the stability of a banking system. Deposit insurance has a positive influence on bank charter value, mitigating the risk-shifting incentives it creates. This positive influence disappears when we control for the possible endogeneity of deposit insurance.

This paper suggests that accounting and auditing systems can be effective devices to counteract tendencies for firm risk-taking associated with bank safety nets. Results are obtained from an international sample of publicly traded banks after controlling for other regulatory control devices for bank risk such as restrictions on banking activities, minimum regulatory capital requirements and official discipline. The efficacy of accounting and auditing systems in controlling bank risk diminishes with bank charter value and increases with moral hazard stemming from a country's deposit insurance. The results also indicate that accounting and auditing systems are complements for minimum capital requirements, but substitutes for restrictions on bank activities and official discipline.

This paper analyzes the country determinants of risk-taking incentives embedded in bank executive compensation using hand-collected international panel data on 135 publicly-traded banks in 26 countries. We exploit time-series changes in investor protection within a country and confirm that stronger protection leads to a higher vega. Moreover, the positive effect on vega is higher in countries where stronger bank competition and more extensive safety nets increase bank shareholders' risk-taking incentives. Our analysis controls for changes in bank regulation, systemic banking crises, and government bailouts. The results are robust to alternative specification models, alternative proxies for country determinants, and remain when we apply a more traditional cross-sectional analysis.

This paper analyzes the effect of bank market concentration and institutions on capital structure in 39 countries. Results for 12,049 firms over 1995–2004 indicate that firm leverage increases with greater bank concentration and stronger protection of creditor rights, but drops with stronger protection of property rights. The results also indicate that greater bank concentration substitutes for creditor protection and asset tangibility to reduce the agency cost of debt between shareholders and debtholders. Weaker protection of property rights raises the agency cost of external funds, leading to the preferential use of internal funds as posited by the pecking order theory. The trade-off theory, however, is more valid in countries with stronger protection of property rights.

We examine the labor market effects of incomplete information about the workers' own job-finding process. Search outcomes convey valuable information, and learning from search generates endogenous heterogeneity in workers' beliefs about their job-finding probability. We characterize this process and analyze its interactions with job creation and wage determination. Our theory sheds new light on how unemployment can affect workers' labor market outcomes and wage determination, providing a rational explanation for discouragement as the consequence of negative search outcomes. In particular, longer unemployment durations are likely to be followed by lower reemployment wages because a worker's beliefs about his job-finding process deteriorate with unemployment duration. Moreover, our analysis provides a set of useful results on dynamic programming with optimal learning.

This paper analyzes the channels through which financial liberalization affects bank risk-taking in an international sample of 4333 banks in 83 countries. Our results indicate that financial liberalization increases bank risk-taking in both developed and developing countries but through different channels. Financial liberalization promotes stronger bank competition that increases risk-taking incentives in developed countries, whereas in developing countries it increases bank risk by expanding opportunities to take risk. Capital requirements help reduce the negative impact of financial liberalization on financial stability in both developed and developing countries. However, official supervision and financial transparency are only effective in developing countries.