An NBER-Universities Research Conference on "Corporate Governance" took place in Cambridge on May 9 and 10. The organizers were Bengt Holmstrom, NBER and MIT, and Steven N. Kaplan, NBER and University of Chicago. These papers were discussed:
Simi Kedia, Harvard University, "Do Executive Stock Options Generate Incentives for Earnings Management? Evidence from Accounting Restatements" Narayanan Subramanian, Atreya Chakraborty, and Shahbaz Ali Sheikh, Brandeis University, "Performance Incentives, Performance Pressure, and Executive Turnover"
Discussant: Jeremy Stein, NBER and Harvard University
Chris McNeil, Pennsylvania State University, and Greg Niehaus and Eric Powers, University of South Carolina, "Management Turnover in Subsidiaries of Conglomerates Versus Stand Alone Firms"
Francisco Perez-Gonzalez, Columbia University, "Inherited Control and Firm Performance"
Discussant: Marianne Bertrand, NBER and University of Chicago
Renee B. Adams, Federal Reserve Bank of New York, and Daniel Ferreira, Getulio Vargas Foundation, "A Theory of Friendly Boards"
Harley E. Ryan, Jr., Louisiana State University, and Roy A. Wiggins, III, Bentley College, "Who Is In Whose Pocket? Director Compensation, Board Independence, and Barriers to Effective Monitoring"
Discussant: George Baker, NBER and Harvard University
Rajesh K. Aggarwal, Dartmouth College, and Andrew A. Samwick, NBER and Dartmouth College, "Empire-Builders and Shirkers: Investment, Firm Performance, and Managerial Incentives" Bernie Black, Stanford University; Hasung Jang, Korea University; and Woochan Kim, KDI School of Public Policy and Management, "Does Corporate Governance Affect Firm Value? Evidence from Korea"
Discussant: Michael Weisbach, NBER and University of Illinois
R. Gaston Gelos, International Monetary Fund, and Shang-Jin Wei, NBER and Harvard University, "Transparency and International Investor Behavior" (NBER Working Paper No. 9260) Mariassunta Giannetti and Andrei Simonov, Stockholm School of Economics, "Which Investors Fear Expropriation? Evidence from Investors' Stock Picking"
Mihir A. Desai, NBER and Harvard University; Alexander Dyck, Harvard University; and Luigi Zingales, NBER and University of Chicago, "The Protecting Hand: Taxation and Corporate Governance"
Discussant: Rene Stulz, NBER and Ohio State University
Kedia examines the option grants and option exercises of top executives of 224 firms that announce restatements of their financial results because of accounting irregularities between January 1997 and June 2002. He finds that firms that announce large negative restatements grant about 50 percent more stock options to their top executives in the years prior to the announcement than members of a size-and-industry-matched control group. Top executives of firms with large negative and large positive restatements also exercise significantly more options in the years prior to the announcement than members of a size-and-industry-matched control group. Higher option exercises appear to be concentrated among firms that are subsequently subject to SEC enforcement actions, while higher option grants are not concentrated in this group of extreme violators. Further, Kedia finds that the percentage of restating firms in the highest quintile, by option grants, is double that in the lowest quintile; this difference is significant at the 1 percent level.
Subramanian, Chakraborty, and Sheikh examine the relationship between the optimal incentive contract and the firm's decision to fire a manager for poor performance. They find that CEOs with steeper compensation contracts (that is, with greater incentives) are more likely to be fired following poor firm performance. Logit estimations indicate that, among poorly performing firms, a CEO receiving incentives at the 60th percentile level is roughly 10 percent more likely to be fired than a CEO with incentives at the 40th percentile. …