Compensation Disclosures and Corporate Governance through Shareholder Voting

2019 ◽  
Vol 32 (3) ◽  
pp. 27-48 ◽  
Author(s):  
Brian Cadman ◽  
Richard Carrizosa ◽  
Xiaoxia Peng
Keyword(s):  
Corporate Governance ◽  
Fair Value ◽  
Data Availability ◽  
Shareholder Voting ◽  
Compensation Committee ◽  
The Public ◽  
Equity Compensation ◽  
Ceo Pay ◽  
Jel Classifications

ABSTRACT There are several measures of equity compensation that may provide shareholders with distinct and useful information for evaluating CEO pay. We examine whether shareholders consider additional disclosures of equity compensation measures beyond the grant date fair value when participating in corporate governance. We find that CEO equity compensation expense, a distinct measure of equity compensation, is a determinant of shareholder voting for management sponsored equity plans and voting for directors that serve on the compensation committee. After controlling for ISS recommendations, we find that voting outcomes remain significantly related to abnormal equity compensation expense. Consistent with shareholders considering the equity compensation expense, we document that firms shorten equity compensation vesting periods when they are no longer required to disclose the equity compensation expense. Our findings suggest that shareholders rely on multiple, distinct measures of equity compensation when participating in corporate governance. JEL Classifications: M12; M52; G34. Data Availability: Data are available from the public sources cited in the text.

Compensation Consultants and the Level, Composition, and Complexity of CEO Pay

2019 ◽  
Vol 95 (1) ◽  
pp. 311-341 ◽  
Author(s):  
Kevin J. Murphy ◽  
Tatiana Sandino
Keyword(s):  
Fixed Effects ◽  
Conflicts Of Interest ◽  
Data Availability ◽  
The Public ◽  
Say On Pay ◽  
Suggestive Evidence ◽  
Ceo Pay ◽  
The Impact ◽  
Equity Incentive ◽  
Jel Classifications

ABSTRACT We provide fresh evidence regarding the relation between compensation consultants and CEO pay. First, firms that employ consultants have higher-paid CEOs—this result is robust to firm fixed effects and matching on economic and governance variables. Second, while this relation is partly due to consultant conflicts of interest, it is largely explained by the impact consultants have on the composition and complexity of CEO pay plans; notably, this impact fully mediates the consultant-CEO pay relation. Third, firms with higher-paid CEOs and more complex pay plans are more likely to hire a consultant. Last, Say-on-Pay voting patterns suggest shareholders view positively the advice consultants provide, but only when consultants provide no other services. We also find suggestive evidence of boards “layering” new equity incentive plans over existing ones, thereby increasing the impact of composition and complexity on CEO pay beyond the premium the CEO would demand for bearing additional compensation risk. JEL Classifications: J33; M12; M52; M48. Data Availability: Data are available from the public sources cited in the text.

Compensation Consultant Fees and CEO Pay

2020 ◽  
Vol 32 (1) ◽  
pp. 51-78
Author(s):  
Jeh-Hyun Cho ◽  
Iny Hwang ◽  
Jeong-Hoon Hyun ◽  
Jae Yong Shin
Keyword(s):  
Corporate Governance ◽  
Executive Compensation ◽  
Positive Association ◽  
Data Availability ◽  
Compensation Contracts ◽  
Strong Incentive ◽  
Ceo Pay ◽  
Jel Classifications

ABSTRACT While compensation consultants are known to play an important role in the design of executive compensation contracts, evidence on the effect of consultant incentives on CEO pay is mixed. Using compensation consultant observations with mandatory fee disclosures, which a prior study identifies as an optimal pay setter, we examine whether CEO pay is associated with consultants' incentives to retain clients, measured by fees for executive compensation services. In contrast to previous studies that find no support for repeat business incentives, we find evidence that CEO pay is higher when consultants receive abnormally high fees, demonstrating a strong incentive to retain the client, and that this positive association occurs only in weakly governed firms. This finding highlights the importance of consultant incentives and corporate governance in executive compensation settings. JEL Classifications: M12; G34; G38. Data Availability: Data used in this study are publicly available.

Tax-Advantaged Trust Use Among IPO Executives: Determinants and Implications for Valuation and Future Performance

2019 ◽  
Vol 95 (3) ◽  
pp. 145-175 ◽  
Author(s):  
Michael J. Dambra ◽  
Matthew Gustafson ◽  
Phillip J. Quinn
Keyword(s):  
Stock Price ◽  
Relevant Information ◽  
Data Availability ◽  
Market Prices ◽  
The Public ◽  
Future Performance ◽  
Estate Taxes ◽  
Price Appreciation ◽  
One Year ◽  
Jel Classifications

ABSTRACT We examine the prevalence and determinants of CEOs' use of tax-advantaged trusts prior to their firm's IPO. Twenty-three percent of CEOs use tax-advantaged pre-IPO trusts, and share transfers into tax-advantaged trusts are positively associated with CEO equity wealth, estate taxes, and dynastic preferences. We project that pre-IPO trust use increases CEOs' dynastic wealth by approximately $830,000, on average. We next examine a simple model's prediction that trust use will be positively related to IPO-period stock price appreciation. We find that trust use is associated with 12 percent higher one-year post-IPO returns, but is not significantly related to the IPO's valuation, filing price revision, or underpricing. This evidence is consistent with CEOs' personal finance decisions prior to the IPO containing value-relevant information that is not immediately incorporated into market prices. JEL Classifications: D14; G12; G32; M21; M41. Data Availability: Data are available from the public sources cited in the text.

Auditors and the Principal-Principal Agency Conflict in Family Controlled Firms

2020 ◽  
Vol 39 (4) ◽  
pp. 31-55
Author(s):  
Chiraz Ben Ali ◽  
Sabri Boubaker ◽  
Michel Magnan
Keyword(s):  
Risk Assessment ◽  
Negative Relationship ◽  
Audit Fees ◽  
Data Availability ◽  
Audit Risk ◽  
Controlling Shareholder ◽  
Voting Power ◽  
The Public ◽  
Agency Conflict ◽  
Jel Classifications

SUMMARY This paper examines whether multiple large shareholders (MLS) affect audit fees in firms where the largest controlling shareholder (LCS) is a family. Results show that there is a negative relationship between audit fees and the presence, number, and voting power of MLS. This is consistent with the view that auditors consider MLS as playing a monitoring role over the LCS, mitigating the potential for expropriation by the LCS. Therefore, our evidence suggests that auditors reduce their audit risk assessment and audit effort and ultimately audit fees in family controlled firms with MLS. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G32; G34; M42; D86.

Friends in Need Are Friends Indeed: An Analysis of Social Ties between Financial Analysts and Mutual Fund Managers

2018 ◽  
Vol 94 (1) ◽  
pp. 153-181 ◽  
Author(s):  
Zhaoyang Gu ◽  
Zengquan Li ◽  
Yong George Yang ◽  
Guangqing Li
Keyword(s):  
Mutual Fund ◽  
Social Ties ◽  
Financial Analysts ◽  
Data Availability ◽  
Fund Manager ◽  
Mutual Fund Managers ◽  
Business Decisions ◽  
The Public ◽  
Fund Managers ◽  
Jel Classifications

ABSTRACT We examine how hometown, school, and workplace ties between financial analysts and mutual fund managers affect their business decisions. We show that a fund manager is more likely to hold stocks covered by analysts with whom she is socially connected, and that she also makes higher profits from these holdings. Such social tie-related holding returns are higher among more opaque firms. In return, a fund manager tends to cast her star analyst votes in favor of her connected analysts, and her fund company is more likely to allocate trading commissions to her connected analysts' brokerages. Additional tests indicate that analysts more actively acquire information (through conducting corporate site visits) and issue more optimistically biased recommendations for stocks held by fund managers with whom they are connected. Overall, our results illustrate the pronounced influence of social networks on the behaviors of analysts and fund managers. JEL Classifications: G10; G23; M40. Data Availability: Data are available from the public sources cited in the text.

Investor Sentiment for Corporate Social Performance

2018 ◽  
Vol 94 (4) ◽  
pp. 401-420 ◽  
Author(s):  
James P. Naughton ◽  
Clare Wang ◽  
Ira Yeung
Keyword(s):  
Corporate Social Performance ◽  
Social Performance ◽  
Abnormal Returns ◽  
Investor Sentiment ◽  
Data Availability ◽  
Time Varying ◽  
The Public ◽  
Valuation Uncertainty ◽  
Corporate Social ◽  
Jel Classifications

ABSTRACT We document time-varying investor sentiment for corporate social responsibility (CSR) performance. We show that announcements of CSR activities generate positive abnormal returns during periods when investors place a valuation premium on CSR performance. In addition, we find that firms boost CSR performance in response to investor sentiment, and that this response is more pronounced for those firms that are more inclined to respond to investor sentiment due to valuation uncertainty and investor horizon. Our results suggest that investor sentiment plays a role in firms' commitment to CSR. JEL Classifications: M41; D82; G14; G30; G31; G32; G34. Data Availability: Data are available from the public sources cited in the text.

An Analysis of “Little r” Restatements

2015 ◽  
Vol 29 (3) ◽  
pp. 667-693 ◽  
Author(s):  
Christine E. L. Tan ◽  
Susan M. Young
Keyword(s):  
Corporate Governance ◽  
Audit Quality ◽  
Cash Flows ◽  
Internal Controls ◽  
Data Availability ◽  
Policy Implications ◽  
Multivariate Tests ◽  
Material Weaknesses ◽  
Free Cash Flows ◽  
Jel Classifications

SYNOPSIS “Little r” restatements occur when a firm's immaterial errors accumulate to a material error in a given year. Unlike “Big R” restatements that must be reported through an SEC 8-K material event filing, little r restatements do not require an 8-K form or a withdrawal of the auditor opinion. This paper documents this previously unexamined form of restatement and analyzes the characteristics of the firms that have used this method of correcting accounting errors over the period 2009 through 2012. Contrary to concerns voiced by regulators and research agencies we find, in multivariate tests, that little r firms are generally more profitable, less complex, and show some evidence of stronger corporate governance and higher audit quality than Big R firms. Compared to non-revising or restating firms, little r firms have lower free cash flows, higher board expertise, higher CFO tenure, are less likely to use a specialist auditor, and less likely to have material weaknesses in their internal controls. We also find that the majority of little r firms do not include any discussion of why these little r's occurred. We discuss policy implications related to disclosure of little r revisions. JEL Classifications: M41; M48; G38. Data Availability: All data used in this study are publicly available from the sources indicated.

The Little Bank That Could: An Examination of the Historical and Financial Records of One Bank That Survived the Great Depression

2019 ◽  
Vol 46 (2) ◽  
pp. 9-23
Author(s):  
Eric D. Bostwick
Keyword(s):  
Great Depression ◽  
Data Availability ◽  
Historical Documents ◽  
Small Bank ◽  
The Public ◽  
The Great Depression ◽  
Financial Climate ◽  
National Bank ◽  
Jel Classifications

ABSTRACT Founded in 1910, The First National Bank of Oxford had been in existence for only about 20 years when the Great Depression struck. While other banks failed, this small bank in rural Mississippi survived, and it is still in operation today as FNB Oxford Bank. But beyond merely surviving, the First National Bank of Oxford appears to have thrived in this harsh financial climate: it doubled the balance of its individual depositors' accounts in the midst of the darkest months of the Great Depression. Using historical documents and extant accounting records, this paper examines how the First National Bank of Oxford was able to persist and prosper through the Great Depression. JEL Classifications: E02; G01; G21; G33; M41; N21. Data Availability: Data are available from the public sources cited in the text.

Determinants and Consequences of Quantitative Critical Accounting Estimate Disclosures

2019 ◽  
Vol 94 (5) ◽  
pp. 189-218 ◽  
Author(s):  
Matthew Glendening ◽  
Elaine G. Mauldin ◽  
Kenneth W. Shaw
Keyword(s):  
Audit Committee ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Financial Reports ◽  
The Public ◽  
Estimation Uncertainty ◽  
Earnings Surprises ◽  
Accounting Expertise ◽  
Insight Into ◽  
Jel Classifications

ABSTRACT The Securities and Exchange Commission (SEC) recommends that firms provide MD&A disclosures quantifying the earnings effect of reasonably likely changes in critical accounting estimates (quantitative CAE). This paper examines the determinants and consequences of quantitative CAE. We find that quantitative CAE are negatively associated with management's incentives to misreport (proxied by portfolio vega) and positively associated with audit committee accounting expertise and with audit offices with multiple quantitative CAE clients. These findings hold for the presence, initiation, number, and magnitude of quantitative CAE, and for both pension and non-pension quantitative CAE. We also find that incidences of AAERs, misstatements, and small positive earnings surprises decrease after initiation of quantitative CAE. Collectively, our findings provide insight into the use of quantitative disclosure to inform users about accounting estimation uncertainty in financial reports. JEL Classifications: M41; M42; M48. Data Availability: Data are available from the public sources cited in the text.

Analysts, Taxes, and the Information Environment

2019 ◽  
Vol 42 (1) ◽  
pp. 103-131 ◽  
Author(s):  
Sangwan Kim ◽  
Andrew P. Schmidt ◽  
Kelly Wentland
Keyword(s):  
Accounting Information ◽  
Earnings Forecasts ◽  
Information Environment ◽  
Data Availability ◽  
Forecast Errors ◽  
Complete Understanding ◽  
The Public ◽  
Earnings Information ◽  
Earnings Components ◽  
Jel Classifications

ABSTRACT This paper investigates the extent to which analysts incorporate tax-based earnings information into their earnings forecasts relative to other earnings information. We find that analysts' misreaction to tax-based earnings information is distinct from their misreaction to other (nontax) accounting information, on average. We then show that analysts differ in their misestimation of tax and other (nontax) earnings components only when firms have weak information environments; when firms have strong information environments, analysts' forecasts fully incorporate tax-based earnings information and exhibit no difference incorporating tax-based earnings information relative to other accounting information. Our evidence suggests that, on average, forecasting tax-based earnings information is more difficult for analysts relative to forecasting other accounting information. However, access to appropriate information and resources enables analysts to better process tax information. Overall, we contribute to the literature by providing a more complete understanding of the source of analysts' tax-related forecast errors. JEL Classifications: H25; M41; D82; G14. Data Availability: Data are available from the public sources identified in the text.

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