Within the nexus of contracts that makes up the firm, relatively little is known about the relationship between firms and their directors. Using a unique dataset comprising director compensation and activity, I find that firms use meeting fees and equity-based compensation as substitutes. In addition, paying directors for attending board/committee meetings is associated with more active boards and more active monitoring and advising committees. In contrast, a higher proportion of equity-based compensation is positively associated with monitoring activity but negatively associated with advising activity. Furthermore, more active boards and committees are paid more. Finally, I find that the variation in director compensation and activity generally reflects trade-offs between the costs and benefits of director effort, consistent with prior work.

We re-examine the negative association between leverage and returns while also focusing on the role of boards of directors. To do so, we utilize the unique setting of real estate investment trusts (REITs), their high leverage, and the volatility that the industry experienced during the recent financial crisis. We find that during the financial crisis REIT board activity increased, especially among firms with high leverage. We also find that board activity helps mitigate the previously reported negative effect of leverage on returns during this time period. Post-crisis, we find evidence suggesting that firms with more active boards reduce their leverage if their pre-crisis leverage was high. Further, firms with more active boards have better post-crisis returns. Our findings are robust to using different measures of activity that take into account director experience in real estate and finance.

Many executives have compensation that is potentially forfeit conditioned on the circumstances surrounding their departure from the firm. We study firms' endogenous decisions to use such compensation “holdbacks” as a bonding device and find that firms with higher executive replacement costs, greater information asymmetry, more certain operating environments, and recent accounting concerns are more likely to have holdbacks. Additionally, holdbacks are negatively associated with incentive-based compensation, consistent with theoretical predictions that termination incentives can substitute for incentive pay. Further, holdbacks are positively associated with abnormal compensation, consistent with arguments that managers demand a premium to accept risky pay.

A broad stream of research shows that information flows into underlying stock prices through the options market. For instance, prior research shows that both the Put–Call Ratio (P/C) and the Option-to-Stock Volume Ratio (O/S) predict negative future stock returns. In this paper, we compare the level of information contained in these two commonly used option volume ratios. First, we find that P/C ratios contain more predictability about future stock returns at the daily level than O/S ratios. Second, in contrast to our first set of results, O/S ratios contain more predictability about future returns at the weekly and monthly levels than P/C ratios. In fact, our tests show that while P/C ratios contain predictability about future daily returns and, to some extent, future weekly returns, the return predictability in P/C ratios is fleeting. O/S ratios, on the other hand, significantly predict negative returns at all levels: daily, weekly, and monthly. While Pan and Poteshman (2006) show that signed P/C ratios, which require proprietary data, have predictive power, we find that unsigned P/C ratios, which do not require proprietary data, also have predictive power.