[Using eight thousand public companies, we study the impact of the Sarbanes-Oxley Act (SOX) of 2002 and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased directors' workload and risk (reducing the supply), and increased demand by mandating that firms have more outside directors. We find both broad-based changes and cross-sectional changes (by firm size). Board committees meet more often post-SOX and Director and Officer (D&O) insurance premiums have doubled. Directors post-SOX are more likely to be lawyers/consultants, financial experts, and retired executives, and less likely to be current executives. Post-SOX boards are larger and more independent. Finally, we find significant increases in director pay and overall director costs, particularly among smaller firms.]

Regulators and governance activists are pressuring firms to abolish CEO duality (the Chief Executive Officer is also the Chairman of the Board). However, the literature provides mixed evidence on the relation between CEO duality and firm performance. Using the exogenous shock of the 1989 Canada–United States Free Trade Agreement, we find that duality firms outperform non-duality firms by 3–4% when their competitive environments change. Further, the performance difference is larger for firms with higher information costs and better corporate governance. Our results underscore the benefits of CEO duality in saving information costs and making speedy decisions.

We address how mutual funds vote on shareholder proposals and identify factors that help determine support of wealth-increasing shareholder proposals. We examine 213,579 voting decisions made by 1799 mutual funds from 94 fund families for 1047 shareholder proposals voted on between July 2003 and June 2005. In an analysis of voting across funds within the same fund family, we find significant divergence in voting within families, emphasizing the importance of focusing on voting by individual funds. We also find that, in general, mutual funds vote more affirmatively for potentially wealth-increasing proposals and funds' voting approval rates for these beneficial resolutions are significantly higher than those of other investors. Our results suggest that funds tend to support proposals targeting firms with weaker governance. We also find that funds with lower turnover ratios and social funds are more likely to support shareholder proposals. Finally, fund voting approval rates significantly impact whether a proposal passes and whether one is implemented.

Using 8,000 public companies we study the impact of the Sarbanes-Oxley Act (SOX) and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased director workload and risk (reducing the supply), and increased demand by mandating that firms have more outside directors. We find both broad-based changes and cross-sectional changes (by firm size). Board committees meet more often post SOX and Director and Officer (D&O) insurance premiums doubled. Directors post SOX are more likely to be lawyers/consultants, financial experts and retired executives, and less likely to be current executives. Post-SOX boards are larger and more independent. Finally, we find significant increases in director pay and overall director costs, particularly among smaller firms.?

We show that public companies frequently changed their board structures before implementation of the Sarbanes–Oxley Act, with two-thirds of firms changing board size or independence during an average two-year period. Board changes were associated with changes in firm-specific fundamentals, but the rate of change toward predicted structures was negatively associated with the level of CEO influence. Companies changed board structures in either direction as underlying firm fundamentals changed, consistent with the pursuit of economically efficient board structures. However, board changes have become less frequent since the Sarbanes–Oxley Act was enacted. We provide some evidence that companies became less likely to decrease board independence when changes in fundamentals suggested they should, which may reflect a loss of economic efficiency.

We provide the first comprehensive and robust evidence on the relationship between board independence and firm performance in China. We find that independent directors have an overall positive effect on firm operating performance in China. Our findings are robust to a battery of tests, including endogeneity checks using instrumental variables, the dynamic generalized method of moments estimator, and the difference-in-differences method. The positive relationship between board independence and firm performance is stronger in government-controlled firms and in firms with lower information acquisition costs. We also document that Chinese independent directors play an important role in constraining insider self-dealing and improving investment efficiency.

Directors’ and officers’ liability insurance (D&O insurance) is one of the most controversial and least understood governance tools. Using manually collected voting data for all director types at Chinese listed firms, we provide the first evidence for the impact of D&O insurance on directors’ voting decisions and the subsequent effects on corporate governance and financial performance. We find that independent directors at firms carrying D&O insurance are more likely to dissent when benchmarked against their peers in the same firm on the same proposal. Our results are robust to endogeneity checks. We identify channels through which the incentive effects of D&O insurance operate. We also find that the positive effect of D&O insurance on independent director dissension is associated with better firm performance and monitoring outcomes, including less litigation and lower claim values, less underinvestment, better internal control quality, and improved CEO pay- and turnover-performance sensitivities.

Despite the growing importance of institutional investors in global capital markets and the link between bank earnings management and financial crash risk, little is known about the role of institutional investors in mitigating bank earnings management. We conduct the first international analysis of this issue using a broad sample of banks and institutional investors. We find a negative relation between institutional ownership and bank earnings management, after controlling for the stringency of a country's bank regulations and other relevant bank and country characteristics. Additionally, institutional ownership is more negatively related to earnings management in countries with more-stringent bank disclosure requirements or when ownership is held by domestic rather than foreign institutional investors. Institutional ownership is also more negatively related to earnings management in countries in which insiders extract more private benefits or when ownership is held by institutional blockholders. Our findings have important policy implications regarding institutional investors' engagement with banks.