Sustainable Investment Research Initiative Library

The Sustainable Investment Research Initiative (SIRI) Library is a searchable database of academic studies. Learn about the impact of sustainability factors on risk and return for long-term investors like CalPERS. Narrow your results by using the search box or filtering by Category.

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Title	Year	Category
Does Ownership Structure Affect Firm Value? Evidence from Eqyptian Stock Market. Author: Abdel Shahid, S. Journal: Working Paper The study finds a highly concentrated ownership structure in the Eqyptian market. However, the researchers do not find evidence to suggest a direct relationship between ownership structure and firm performance.	2003	Governance
The Quality Effect: Does Financial Liberalization Improve the Allocation of Capital? Author: Abeiad, A., N. Oomes, K. Ueda Journal: Journal of Development Economics This paper documents evidence of a "quality effect" of financial libereralization on allocative efficiency, as measured by dispersion in Tobin's Q across firms.The authors predict that financial liberalization, by equalizing access to credit, is associated with reduced variation in expected marginal returns. They find robust evidence that financial liberalization, rather than financial deepening, is associated with improved allocative efficiency.	2008	Governance
Unbundling Institutions Author: Acemoglu, D., S.A. Johnson Journal: Journal of Political Economy This paper evaluates the importance of "property rights institutions," which protect citzens against exportation by the government and powerful elites, and "contracting institutions," which enable private contracts between citzens. The authors find that property rights institutions have a first-order effect on long-run economic growth, investment, and financial development. Contracting institutions appear to matter only for the form of financial intermediation.	2005	Governance
Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth. Author: Acemoglu, D., S. Johnson, J. Robinson, Y. Thaicharoen Journal: Journal of Monetary Economics Countries that have pursued distortionary macroeconomics policies, including high inflation, large budget deficts and misaligned exchange rates, appear to have suffered more macroeconomic volatillity and also grown more slowly during the postwar period. This paper documents that countries that inherited more "extractive" institutions from theircolonial past were more likely to experience high volatility and economic crisis during the postwar period.	2003	Governance
Corporate Governance Externalities. Author: Acharya, V., P. Volpin Journal: Review of Finance The choice of governance ina firm both affects and is affected by choices of competing firms. Firms with weaker governance offer managers more generous incentive compensation. this in turn induces firms with good governance to overpay for their management. Poor governance can be employed by incumbent firms to deter entry by new firms.	2010	Governance
Corporate Governance and Value Creation: Evidence from Private Equity. Author: Acharya, V., O. Gottschalg, M. Hahn, C. Kehoe Journal: Review of Financial Studies The authors use deal-level data from transactions initiated by large private equity houses, and find that the abnormal performance of deals is positive on average, after controlling for leverage and sector returns. General partners who are ex-consultants or ex-industrial are associated with outpreforming deals focused on internal value-creation programs, and ex-bankers or ex-accountants with outperforming deals involving significant mergers and acquisitions	2013	Governance
The Internal Governance of Firms Author: Acharya, V., S. Myers, R. Rajan Journal: Journal of Finance This paper creates a theoretical model demonstrating that subordinate employees in a firm create an internal governance structure. Internal governance and external governance from financiers complement each other and improve efficiency.	2011	Governance
Internal Governance Mechanisms and Operational performance: Evidence from Index Mutual Funds. Author: Adams, J., S. Mansi, and T. Nishikawa Journal: Review of Financial Studies The authors find an inverse relation between board size and fund performance. They also find evidence that organizational form plays an important role in determining operational performance.	2010	Governance
Women in the Boardroom and Their impact on Governance an Preformance Author: Adams, R. and D. Ferreira Journal: Journal of Financial Economics The authors found that the female board directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. They also find that chief executive officer turnover is more sensitive to stock performance and directors recieve more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses.	2009	Governance
A Theory of Friendly Boards Author: Adams, R. and D. Ferreira Journal: Journal of Finance This theoretical model exploits the dual role of Boards of Directors in providing both an advisory and a monitoring function. CEOs may be reluctant to share information with an independent board. Thus, management-friendly boards can be optimal.	2007	Governance
From Female Labor Force Particpipation to Boardroom Gender Diversity Author: Adams, R. and T. Kirchmaier Journal: Working Paper The authors examine whether low female labor force participation is the main reason women hold seats on corporate boards using data from 22 countries over the 2001-2010 period. The authors find that labor force participation is significantly related to representation of women on boards when part-time and unemployed workers are excluded. However, cultural norms, the presence of boardroom quotas and codes promoting gender diversity are also correlated with female representation	2013	Social, Governance
The Cost of Socially Responsible Investing Author: Adler, T. and M. Kritzman Journal: Journal of Portfolio Management The authors employ a simulation technique known as Monte Carlo simulation to measure the cost of socially responsible investing, and find that it increases with the investor's skill, cross-sectional dispersion of the investing universe, fraction of the universe that is restricted, and number of securities in the portfolio.	2008	Governance
The "Wall Street Walk" and Shareholder Activism: Exit as a Form of Voice Author: Admati, A and P. Pfleiderer Journal: Review of Financial Studies This theoretical paper examines whether a larger sherholderr can alleviate conflicts of intrest between managers and shareholders through the credible threat of exit on the basis of private information. This paper presents a model where the threat of exit often reduces agency cost, but additinal private information need not enhance the effectiveness of the mechanism. The results are consistant with empirical findings on the interaction between managers and minority large shareholders and have further empirical implications.	2009	Governance
A History of Corporate Governance around the World: Family Buisness Groups to Professional Managers Author: Aganin, A. and P. Volpin Journal: University of Chicago Press In this paper the authors use a unique data set with information on the control of all companies traded on the Milan Stock Exchange (MSE) in the twentieth century to study the evolution of the stock market, the dynamics of the ownership structure of traded firms, the birth of pyramidal groups, and the growth and decline of ownership by families in Italy.	2005	Governance
Does Governance Travel Around The world? Evidence from Institiutional Investors Author: Aggarwal, R., I. Erel, M. Ferreira and P. Matos Journal: Journal of Financial Economics The authors find that firm-level governance is positively associated with international institutional investment. Changes in institutional ownership over time positively affect subsequent changes in firm-level governance, but the opposite is not true. Firms with higher institutional ownership are more likely to terminate poorly performing Chief Executive Officers (CEOs) and exhibit improvements in valuation over time.	2011	Governance
Differences in Governance Practices between U.S and Foreign Firms: Measurments, Causes, and Consequences. Author: Aggarwal, R., I. Erel, R. Stulz and R. Williamson Journal: Review of Financial Studies Researchers construct a firm-level governance index that reflects minority shareholder protection. Results suggest that lower country-level investor protection and other country characteristics make it suboptimal for foreign firms to invest as much in governance as U.S. firms do. Overall, minority shareholders benefit from governance improvements and do so partly at the expense of controlling shareholders.	2009	Governance
The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market Author: Aggarwal, R., P. Saffi and A. Sturgess Journal: AFA 2013 San Diego The authors find that institutional investors restrict or call back their loaned shares prior to the record date in order to excerside their voting right. The authors find higher recall for firms with weaker corporate governance, weaker performance, higher instituional ownership, and when antitakeover or compensation proposals are on the ballot. The influence of proxy advisory firm ISS is also evident in voting outcome. If ISS opposes management then the authors find the higher recall to be associated with less FOR votes for the proposal.	2013	Governance
Ensuring Validity in the Measurment of Corporate Social performance: Lessons from Corporate United Way and PAC Campaigns Author: Agle, B and P. Kelly Journal: Journal of Buisness Ethics This paper argues for the necessity of incorporating all three portions of Wood's (1991) theoretical model of corporate social performance (CSP) into its measurement. It begins by describing the two studies of an organiational phenomenon not commonly studied - inernal fund drives to employees. Insights from these studies of corporate PAC and United Way campaigns are then used to illustrate how important it is to incorporate all three portions of Wood's model into the measurement of CSP to prevent drawing faulty conclusions.	2001	Environmental, Social, Governance
Institutional Monitoring through Shareholder Litigation Author: Anges Cheng, C., H.He Huang, Y. Li and G. Lobo Journal: Journal of Financial Economics This paper investigates the effectiveness of using securieties class action lawsuits in monitoring defendant firms by institutional lead plantiffs from two aspects: (1) immediate litigation outcomes, including the probability of surviving the motion to dismiss and the settlement amount, and (2) subsequent governance improvement such as changes in board independence. The authors show that securities class actions with institional owners as lead plaintiffs are less likely to be dismissed and have larger monetary settlements than securities cladd actions with individual lead plantiffs. They also find that, after the lawsuit fillings, defendant firms with institutional lead plaintiffs experienced greater improvements in their board independence than defendant firms with individual lead plaintiffs.	2010	Governance
Impact Investing for Small, Place-Based Fiduciaries: the Reasearch Study Initiated by the United Way of the Bay Area Author: Agnew, L. Journal: Federal Reserve Bank of San Francisco This paper is the result of a challenge to identify if and how a model portfolio could be built for a small, place-based endowment fund, like that of the United Way of the Bay Area (UWBA), and whether stock and bond investments could be aligned with the mission to reduce poverty in the San Francisco Bay Area without deviating from fiduciary responsibilities.	2013	Social
Corporate Governance Objectives of Labor Union shareholders: Evidence from Proxy Voting. Author: Agrawal, A. Journal: Review of Financial Studies Labor union pension funds have become increasingly vocal in governance matters. The author examines the proxy votes of AFL-CIO union funds around an exogenous change in union representation. AFL-CIO affilated shareholders become significantly less opposed to directors once the labor organization no longer represents a firm's workers. Other institution investors, including mutual funds and public pension funds, do not exhibit similar voting behavior. Union opposition is also associated with negative valuation effects.	2012	Social
Codes of Good Governance Worldwide: What is the Trigger? Author: Aguilera, R. and A. Cuervo-Cazurra Journal: Organization Studies Efficiency needs and legitimation pressure leads firms in 49 countries to adopt good governance 'best practice' codes. In addition, the study finds that countries with strong shareholder protection rights embedded in their legal system tend to develop codes.	2004	Governance
Codes of Good Governance Author: Aguilera, R. and A. Cuervo-Cazurra Journal: Corporate Governance This paper provides a review of the rapid spread of literature on codes of good governance. Codes of good governance appear to have generally improved the governance of countries that have adopted them. The author also propse a multi-level framework to discuss three main topics that have emerged within the codes literature: the motivvations behind the diffusion of codes across countries and its implications for convergence of corporate governance practicies; the content of the codes and their "comply or explain" dimension; and the relationship between code compliance and firm performance.	2009	Governance
The Cross-National Diversityy od Corporate Governance: Dimensions and Determinants Author: Aguilera, R. and G. Jackson Journal: Academy of Management Review The authors developed a theoretical model to describe and explain variation in corporate governance among advanced capitalist economies, identifying the social relations and institutional arrangements that shape who controls corporations, what intrests corporations serve, and the allocation of rights and responisibilities among corporate stakeholders. This paper's "actor-centered" institutional approach explains firm-level corporate governance practices in terms of institutional factors that shape how actors' intrests are defined ("socially constructed") and represented.	2003	Governance
Corporate Governance and Social Responsibility: A Comparative Analysis of the UK and the U.S. Author: Aguilera, R., C. Williams, J. Conly and D. Rupp Journal: Corporate Governance Key differences between the U.K. and the U.S. in the importance ascribed to a company's CSR reflect differences in the corporate governance arrangements in these two countries. The authors draw on a model of instrumental, relational and moral motives to explore why institutional investors are becoming concerned with firms' social and environmental actions.	2006	Governance
The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation Author: Ahern, K. and A. Dittmar Journal: Quarterly Journal of Economics In 2003, a new law required that 40 percent of Norwegian firms' directors be women- at the time only 9 percent of directors were women. They find that the constraint imposed by the quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin's Q over the following years, consistent with the idea that firms choose boards to maximize value. The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance.	2012	Social, Governance
The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts Author: Ajinkya, B., S. Bhojraj and P. Sengupta Journal: Journal of Accounting Research The authors investigate the relation of the board of directors and institutional ownership with the properties of management earning forecast. They find that firms with more outside directors and greater institutional ownership are more likely to issue a forecast and are inclined to forecast more frequently. In addition, these forecast tend to be more specific, accurate and less optimistically biased.	2005	Governance
Labor Contracts as Partial Gift Exchange Author: Akerlof, G. Journal: Quarterly Journal of Economics This paper explains involuntary unemployement in terms of the response of firms to workers' group behavior. In a norm-gift-exchange model of the microeconomics of the labor market, workers put forth efforts in excess of the minimum standard and firms give wages in excess of the current rate. The sizeable nature of the gift component of labor input and wages is endogenously determined.	1982	Social
Do Financial Markets Care about SRI? Evidence from Mergers and Acquisitions Author: Aktas, N., E. De Bodt and J. Cousin Journal: Journal of Banking & Finance Acquirer gains in m&A deals relate positively to the target's ability to cope with social and environmental risks and more synergistic deals occur with targets that exhibit better environmental performance. The authors also document that the environmental and social performance of the aquirer increases following the acquisition of a SRI aware target.	2011	Environmental, Social, Governance
Agency Conflicts, Investments, and Asset Pricing Author: Albuquerque, R. and N. Wang Journal: Journal of Finance This paper develops an analytically tractable dynamic stochastic general equilibrium model to study asset pricing and welfare implications of imperfect investor protection. Consistent with empirical evidence, the model predicts that countries with weaker investor protection have more incentives to overinvest, lower Tobin's Q, higher return volatility, larger risk premium, and higher interest rate. Calibrating the model to the Korean economy reveals that perfecting investor protection increases the stock market's value by 22 percent, a gain for which outside shareholders are willing to pay 11 percent of their capital stock.	2008	Governance
Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence Author: Albuquerque, R., A. Durnev and Y. Koskinen Journal: Working Paper This paper presents an idustry equilibrium model of corporate social responsibility (CSR) and its asst pricing effects. The authors model CSR activities as an investment in higher customer loyalty. This paper test the model predictions empirically and finds evidence consistent with the following: CSR firms exhibit lower systematic risk and expected returns, systematic risk of CSR firms has increased over time, the ratio of CSR profitd to non-CSR profits is countercyclical, and, increased industry CSR adoption lowers systematic risk for non-Adopters.	2013	Environmental, Social, Governance
Green Management Matters Regardless Author: Alfred, A and R. Adam Journal: Academy of Management Perspectives Green Management matters for many reasons, but fundamentally it matters because people expect managers to use resources wisely and responsibly; protect the environment; minimize the amounts of air, water, energy, minerals, and other materials found in the final goods people consume; recycle and reuse these goods to the extent possible rather than drawing on nature to replenish them; respect nature's calm, tranquility, and beauty; and eliminate toxins that harm people in the workplace and communities. From a moral or normative perspective the obligation for green management is absolute, and whether it "pays" to be green is only partly relevant.	2009	Environmental
The Use of Foreign Currency Derivatives, Corporate Governance, and Firm Value Around the World Author: Allayannis, G., U. Lel and D. Miller Journal: Journal of international Economics Currency Derivatives can be used for a manager's self-interest, for hedging, or for speculative purposes. This study finds that the use of currency derivatives for firms that have stroong internal firm-level or external country-level governance is associated with a firm premium.	2011	Governance
Stakeholder Capitalism, Corporate Governance and Firm Value Author: Allen, F., E. Carletti and R. Marquez Journal: Working Paper This paper analyzes the advantages and disadvanteges of stakeholder-oriented firms that are concerned with employees and suppliers compared to shareholder firms when marginal cost uncertainty is greater (less) than demand uncertainty. The authors identify the circumstances where stakeholder firms are more valuable than shareholder firms, and compare these mixed quilibria with stakeholder firms only.	2009	Governance
Active Institutional Shareholders and Cost of Monitoring: Evidence from Executive Compensation Author: Almazan, A., J. Hartzell and L. Starks Journal: Financial Management Although evidence suggest that institutional investors play a role in monitoring management, not all institutions are equally willing or able to serve this function. The authors present a stylized model that examines the effects of institutional monitoring on executive compensation. The model predicts that institutions' influence on managers, pay-for-performance sensitivity and level of compensation is enhanced when institutions have lower implied costs of monitoring, but that these effects are attenuated when the firm-specific cost of monitoring is high.	2005	Governance
A Theory of Pyramidal Ownership and Family Buisness Groups Author: Almeida, H and D. Wolfenzon Journal: Journal of Finance This theoretical paper provides a new rationale for pyramidal ownership in family buisness groups. The model is consistant with recent evidence of a small seperation between ownership and control in some pyramids, and can differentiate between pyramids and dual-class shares, even when either method can achieve the same deviation from one share-one vote. Other predictions of the model are consistant with both systematic and anecdotal evidence.	2006	Governance
Environmental Policies and Firm Value Author: Al-Najjar, B. and A. Anfimiadou Journal: Business Strategy and the Environment This paper uses three definitions of Eco- Efficiency to demonstrate a strong positive relationship between firm value and Eco-Efficiency. The authors apply Ohlson's (1995) model and adopt a modified version of the methodology of Sinkin et al (2008). The main outcome indicates a strong positive relationship between the market price and the Eco-Efficiency variable. Companies that have ISO 14001 certification and publish a CSR report show greater value than firms that participate in two Eco-Efficiency indices for a minimum of 5 years.	2012	Environmental
The Relations among Environmental Disclosure, Environmental Performance, and Economic Performance: A Simultaneous Equations Approach Author: Al-Tuwaijri, S., T. Christensen and k. Hughes Journal: Accounting, Organizations and Society The authors obtain results that suggest "good" environmental performance is significantly associated with "good" economic performance, and also with more extensive quantifiable environmental disclosure of specific pollution measures and occurrences.	2004	Environmental
Corporate Social Responsibility as a Market Governance Mechanism: Any Implications for Corporate Governance in Emerging Economies? Author: Ameshi, K., O. Osuji and J. Doh Journal: International Finance Corporation This paper argues that CSR is fundamentally a market mechanism for the governance of global problems that cannot be resolved through markets, civil society, or state regulation alone.	2011	Governance
Does it Pay to Be Green? A Systematic Overview Author: Ambec, S. and P. Lanoie Journal: Academy of Management Perspectives The aim of this paper is to review empirical evidence of improvement in both environmental and economic or financial performance. The authors systematically analyze the mechanism involved in each of the following channels of potential revenue increased or cost reduction owing it to better ennviromental practices: (a) better access to certain markets; (b) differentiating products; (c) selling pollution-control technology; (d) risk management and relations with external stakeholders; (e) cost of material, energy, and services; (f) cost of capital; and (g) cost of labor.	2008	Environmental
Socially Responsible Investment Performance in France Author: Amenc, N and V. Le Sourd Journal: EDHEC Risk and Asset Management Reasearch Centre Using the Fama-French three-factor model to compute alpha, the paper did not identify alpha values both positive and statistically significant for SRI funds. For most SRI funds, the paper obtained negative, but not statistically significant alpha, indicating that SEI security selection in itself does not lead to outperformance. The results show that SRI fund performance is accounted for instead by style biases and market cycles.	2008	Environmental, Social, Governance
Corporate Governance and Firm Value: International Evidence Author: Ammann, M., D. Oesch and M. Schmid Journal: Journal of Empirical Finance In this paper, the authors investigate the relation between frim-level corporate governance and firm value and find a strong and positive relation between firm-level corporate governance and firm valuation. In addition, they investigate the value of relevance of governance attributes that document the companies' social behavior. Regardless of whether these attributes are considered individually or aggregated to indices, and even when "standard" corporate governance attributes are controlled for, they exhibit a positive and significant effect on firm value.	2011	Governance
Corporate Governance and the Environment: Evidence from Clean Innovations Author: Amore, M and M. Bennedsen Journal: Working Paper This paper presents casual evidence on the important of corporate governance for the environmental performance of firms. The authors show that worse governed firms patent fewer clean innovations relative to their total innovation effort. They also find that worse governed firms patent more non-green innovations, suggest that the governance shock affects the composition of innovative activities by including a substitution from green to dirty projects.	2013	Environmental, Governance
Founders, Heirs, and Corporate Opacity in the United States Author: Anderson R., A. Duru and D. Reeb Journal: Journal of Financial Economics The authors create an opacity index that ranks the relative transparency of the two thousand largest industrial U.S. firms. Large publicly traded companies with significant founer or heir ownership are significantly less transparent than firms with diffuse shareholders. Founder and heir-controlled firms exhibit a negative relation to performance in all but the most transparent firms.	2009	Governance
Board Characteristics, Accounting Report Integrity, and the Cost of Debt Author: Anderson R., S. Mansi and D. Reeb Journal: Journal of Accounting and Economics This paper finds that the cost of debt is inversely related to board independence and board size. The authors also find that fully independent audit committees are associated with significantly lower cost of debt financing. Similarly, yeild spreads are also negatively related to audit committee size and meeting frequency.	2004	Governance
Pension Fund Asset Allocation and Liability Discount Rates: Camouflage and Reckless Risk Taking by U.S. Public Plans? Author: Andonov, A., R. Bauer and K. Cremers Journal: Working Paper The authors document that U.S. public funds exploit the opaque incentives provided by their distinct regulatory environment and behave very differently from U.S. corporate funds and both public and non-public pension funds in Canada and Europe. In the past two decades, U.S. public funds uniquely increased their allocation to riskier invvestment strategies in order to maintain high discount rates and present lower liabilities, especially if their proportion of retired memebers increased more.	2013	Governance
A Survey of Recent Developments in the Literature of Finance and Growth Author: Ang, J. Journal: Journal of Economic Surveys This paper provides a survey of recent progress in the literature of financial development and economic growth. The survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables.	2008	Governance
The Impact of Voluntary Environmental Protection Instruments on Company Environmental Performance Author: Annandale, D., A. Morrison-Saunders and G. Bouma Journal: Business Strategy and the Environment This paper uses a survey of 40 companies operating in Western Australia to determine the extent to which the Implementation of voluntary environmental protection tools such as corporate environmental reporting (CER) and environmental management systems (EMS) has influenced company environmental performance. The influence of these voluntary instruments was not as strong in practice as the existing literature suggest it should be. While EMS are perceived as having a more significant impact on environmental performance than CER, both rank low on the list of 'drivers' that influence environmental performance.	2004	Environmental
Research Notes. Strategic Proactivity and Firm Approach to the Natural Environment Author: Aragon-Correa J. Journal: Academy of Management Journal A relationship was found between strategic proactivity and approaches to the natural environment. The firms with the most proactive buisness strategies ("prospectors") employed both traditional corrective and modern preventive approaches to natural environment issues. Firm size had a major impact on the amount of training related to the natural environment in the sample firms and on their corrective approaches but made no difference to their preventive approaches.	1998	Environmental
A Contingent Resource-Based View of Proactive Corporate Environmental Strategy Author: Aragon-Correa J. and S. Sharma Journal: Academy of Management Review This paper integrates perspectives from the literature on contingency, dynamic capabilities, and the natural resource-based view of the firm to propose a generic theory of how dimensions of the general competitive environment of a buisness will influence the development of a dynamic, proactive corporate strategy for managing the buisness-natural environment interface. The authors explain how certain characteristics of the general buisness environment-uncertainty, complexity, and munificence- moderate the relationship between the dynamic capability of a proactive environmental strategy and competitive advantage.	2003	Environmental
Environmental Strategy and Performance in Small Firms: A Resource-Based Perspective Author: Aragon-Correa J., N. Hurtado-Torres, S. Sharma and V. Garcia-Morales Journal: Journal of Environmental Management Contrary to conventional wisdom in the extant liturature, even small and medium sized enterprises (SMEs) can adopt proactive environmental practices and these practices can lead to superior financial performance via specific capabilities based on the unique strategic characteristics of SMEs. The authors research also contributes to the resource-based view by showing that this perspective is relevant for SMEs' competitive strategies generally.	2008	Environmental
Corporate Governance in Emerging Markets: Why it Matters to Investors- and What They Can Do about It Author: Ararat, M and G. Dallas Journal: International Finance Corporation This paper explores two key dimensions of ownership structure: the quality of board independence, and mitigation of the risk of buisness group affiliations. The authors also provide practical guidance to investors in each of these areas.	2011	Governance
The Effects of Board Independence in Controlled Firms: Evidence from Turkey Author: Ararat, M., H. Orbay and B. Yurtoglu Journal: Working Paper This paper analyzes the relationship between board structure and firm performance. Classifying the board members as independent and affiliated directors, the authors report three main results: (i) Board independence is unrelated to equity issues, (ii) Independant directors are unlikely to curb the extent of related party transactions, and (iii) the presence of independent board members and firm performance are negatively related or uncorrelated.	2010	Governance
Too Much Finance Author: Arcand, J., E. Berkes and U. Panizza Journal: International Monetary Fund This paper examines whether there is a threshold above which financial development no longer has a positive effect on economic growth. The results suggest that finance starts having a negative effect on output growth when credit to the private sector reaches 100 percent of GDP.	2012	Governance
Investing in Mutual Funds: Does it Pay to be a Sinner or a Saint in Times of Crisis Author: Areal, N., M. Cortez and F. Silva Journal: Working Paper This paper investigates the performance of U.S. socially responsible funds that employ different stock selection criteria: religious, social and 'irresponsible' criteria. The 'irresponsible' fund outperforms in low volatility regimes, but underperforms in high volatility regimes. Furthermore, the risk of the 'irresponsible' fund is higher in low volatility regimes and lower in higher volatility regimes. Socially responsible funds do not adjust risk according to market conditions.	2010	Environmental, Social, Governance
Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis Author: Armour, J., S. Deakin, P. Siems and A. Singh Journal: Journal of Empirical Legal Studies This paper examines a range of developed and developing countries, and shows that common-law systems were more protective of shareholder interests than civil-law ones in the period 1995-2005. The authors find no evidence of a positive impact of these legal changes on stock market development.	2009	Governance
Executive Stock Options, Differential Risk- Taking Incentives, and Firm Value Author: Armstrong, C. and R. Vashishtha Journal: Journal of Financial Economics The authors show that the sensitivity of stock options' payoff to return volatility, or vega, provides risk-averse CEOs with an incentive to increase their fims' risk more by increasing systematic rather than idiosyncratic risk. This effect manifests because any increase in the firms' systematic risk can be hedged by a CEO who can trade the market portfolio. Consistent with this prediction, the authors find that vega gives CEOs incentives to increase their firms' total risk by increasing systematic risk but not idiosyncratic risk.	2012	Governance
Academy of Management Journal Author: Arthur, M Journal: Academy of Management Journal This study of 130 announcements in the Wall Street Journal illustrated a significant, positive relationship between work-family human resource initiatives and share price. As hypothesized, the work-family initiative and shareholder return relationship was higher in high-tech industries and, to a lesser extent, in industries with higher proportions of female employees.	2003	Social
Do Pension-Related Business Ties Influence Mutual Fund Proxy Voting? Evidence from Shareholder Proposals on Executive Compensation Author: Ashraf, R., N. Jayaraman and H. Ryan, Jr. Journal: Working Paper This paper examines the relation between mutual fund votes on shareholder exective compensation proposals and pension-related buisness ties between the mutual fund and the firm. Mutual funds with buisness ties are less likely to support shareholder proposals. Among mutual funds with buisness ties, support for shareholder proposals varies inversely with the fees that the fund family recieves from the firm.	2010	Governance
Corporate Social Responsibility and Environmental Management Author: Aslaksen, I and T. Synnestvedt Journal: Corporate Social Responsibillity and Environmental Management Considering ethical screening as a kind of segmentation of the equity market, it is shown with a theoretical model that screening can create incentives for changes in firms' behavior. The strength of this incentive depends on the relative share of screened portfolios, which in turn partically depends on the financial performance of the screened portfolios. While some theoretical arguments suggest that screening imposes a handicap compared with conventional portfolios, the existing empirical evidence does not indicate that screened portfolios systematically underperform conventional portfolios.	2003	Environmental
Review of Financial Studies Author: Aslan, H. and P. Kumar Journal: Review of Financial Studies The authors theoretically and empirically addree the endogeneity of corporate ownership structure and the cost of debt, with a novel emphasis on the role of control concentration in post-default firm restructurng. Control concentration raises agency cost of debt, and dominant shareholders trade off private benefits of control against higher borrowing costs in choosing their ownership stakes. This paper presents new evidence on the firm- and macro-level determinants of corporate control concentration and the cost of debt.	2012	Governance
Journal of Financial Economics Author: Atanasov, V., B. Black, C Ciccotello and S. Gyoshev Journal: Journal of Financial Economics This paper examines 2002 Bulgaria securities law changes which limit two forms of equity tunneling - dilutive equity offerings and freezeouts. Following the changes, minority shareholders participate equally in secondary equity offers, where before they suffered severe dilution; freezeout offer price/sales ratios quadruple; and Tobin's q rises sharply for firms at high risk of tunneling, relative to lower risk firms. At the same time, return on assts declines for high-equity-tunneling-risk firms.	2010	Governance
Labor and Corporate Governance: International Evidence from Restructuring Decisions Author: Atanassov, J. and E. Kim Journal: Journal of Finance The authors find that strong union laws not only protect workers but also underperforming managers. Weak investor protection combined with strong union laws are conducive to worker-management alliances, wherin poorly performing firms sell assets to prevent large-scale layoffs, garnering worker support to retain management. Asset sales in weak investor protection countries lead to further deteriorating performance, whereas in strong investor protection countries they improve performance and lead to more layoffs. Strong union laws are less effective in preventing layoffs when financial leverage is high.	2009	Governance
Mentoring and Diversity Author: Athey, S., C. Avery and P. Zemsky Journal: National Bureau of Economic Research The authors study how diversity evolves at a firm with entry-level and upper-level employees who vary in "ability and type" (gender and ethnicity). Using a theoretical model, they characterize possible steady states, including a "glass ceiling", where the upper level remains less diverse than the entry level, and temporary affirmative-action policies have a long-run impact.	1998	Social
Multiple Large Shareholders, Control Contests, and Implied Cost of Equity Author: Attig, N., O. Guedhami and D. Mishra Journal: Journal of Corporate Finance This paper examines whether the presence of multiple large shareholders alleviates firm's agency costs and information asymmetry embedded in ultimate ownership structures. The authors find evidence that the implied cost of equity decreases in the presence of large shareholders beyond the controlling owner. They also find that the voting rights, the relative voting size (vis-á-vis the first largest shareholder) and the number of blockholders reduces firm's cost of equity. The study uncovers that the presence of multiple controlling shareholders with comparable voting power lowers firm's cost of equity.	2008	Governance
Corporate Legitimacy and Investment-Cash Flow Sensitivity Author: Attig, N., S. Cleary and A. Ghoul Journal: Journal of Buisness Ethics The authors find that CSR performance leads to a decrease in investment- cash flow sensitivity (ICFS). They further find that ICFS decreases (increases) when CSR strenghts (concerns) increase. They find that the effect of CSR on ICFS is driven by the areas Community, Diversity, and Human Rights.	2013	Governance
Corporate Social Responsibility and Credit Ratings Author: Attig, N., S. Ghoul and A. Guedhami Journal: Journal of Buisness Ethics This study provides evidence on the relationship between corporate social responsibility (CSR) and firms' credit ratings. The authors find that credit rating agencies tend to award relatively high ratings to firms with good social performance. They also find that CSR strengths and concerns influence credit ratings, and that the individual components of CSR that relate to primary stakeholder management (i.e., community relations, diversity, employee relations, environmental performance, and product characteristics) matter most in explaining firms' creditworthiness.	2013	Environmental, Social
Bid-Ask spread, Asymmetric Information and Ultimate Ownership Author: Attig, N., Y. Gadhoum and H. Lang Journal: International Monetary Fund This paper examines the relationship between stock liquidity and ultimate ownership structure. The results suggest that the presence of family ownership increase the bid-ask spread. In addition, the magnitude of the deviation between ultimate ownership and ultimate control at the presence of families is important in determining the bid-ask spread.	2003	Governance
Creditor Rights, Enforcement, and Bank Loans Author: Bae, K-H. and V. Goyal Journal: Journal of Finance This paper examines whether differences in legal protection affect the size, maturity, and intrest rate spread on loans to borrowers in 48 countries. Results show that banks respond to poor enforceability of contracts by reducing loan amounts, shortening loan maturities, and increasing loan spreads.	2009	Governance
Do Controlling Shareholders' Expropriation Incentives Imply a Link between Corporate Governance and Firm Value? Theory and Evidence Author: Bae, K-H., J. Baek, J. -K. Kang and W. Liu Journal: Journal of Financial Economics This paper develops and tests a model that investigates how controlling shareholders' expropriation incentives affect firm values during crisis and subsequent recovery periods. The authors find that during the 1997 Asian financial crisis, Asian firms with weaker corporate governance experienced a larger drop in their share values.	2012	Governance
Employee Treatment and Firm Leverage: A Test of the Stakeholder Theory of Capital Structure Author: Bae, K-H., J. -K. Kang and J. Wang Journal: Journal of Financial Economics This paper investigates the stakeholder theory of capital structure from the perspective of a firm's relations with its employees. The authors find that the firms that treat their employees fairly maintain low debt ratios. This result is robust to two measures of fair employee treatment- namely, high employee friendly raitings or inclusion in Fortune's "100 Best Companies to Work For."	2011	Social
Corporate Governance and Conditional Skewness in the World's Stock Market Author: Bae, K-H., K. Wei and C.-W. Lim Journal: Working Paper This paper investigates why stock returns in emerging markets tend to be more positively skewed than those in developed markets. The authors find that the positive skewness is more profound in stocks from the markets that have poor corporate governance. Analogous results are also obtained from aggregate stock market returns.	2003	Governance
Culture, Corporate Governance, and Dividend Policy: International Evidence Author: Bae, S., K. Chang and E. Kang Journal: Joyrnal of Financial Research This paper finds that two Hofstede's cultural dimensions, uncertainty avoidance and long-term orientation, remain significant in the determination of dividend policy even after controlling for governance and firm-specific fators. When uncertainty avoidance is high, only firms in countries with stronger investor protection pay more dividends as investors' desire of having a sure dividend dominates managers' desire of retaining more cash. Similarily, when a society's long-term orientation is strong, firms tend to pay less dividends	2012	Governance
Buisness Groups and Tunneling: Evidence from Private Securities Offerings by Korean Chaebols Author: Baek, J.-S., J.-K. Kang and I. Lee Journal: Journal of Finance The authors examine whether equity-linked private securities offerings are used as mechanism for tunneling among firms that belong to a Korean Chaebol. They find that chaebol issuers involved in intragroup deals set the offering prices to benefit their controlling shareholders. They also find that chaebol issuers (member acquirers) realize 8.8 percent (5.8 percent) higher (lower) announcement returns than do other types of issuers (acquirers) if they sell private securities at a premium to other member firms, and if the controlling shareholders recieve positive net gains from equity ownership in issuers and acquirers.	2006	Governance
The Road to Recovery Author: Bank, W. Journal: World Bank This paper offers an in depth analysis of East Asia financial crisis and a plan for restoring growth. This report focuses on a three-pronged strategy: reactivating growth, protecting the poor, and mobilizing capital.	1998	Governance
Monitoring the Monitor: Evaluating CalPERS' Activism Author: Barber, B. Journal: Journal of Investing This paper reviews the theory and empirical evidence underlying the motivation for institutional activism and finds that CalPERS has pursued shareholder activism (i.e. reforms at focus list companies that would increase shareholder rights) as well as social activism (e.g., the divestment of tobacco stocks). The author estimates the total wealth creation from the former to be $3.1 billion between 1992 and 2005. The author argues that institutional activism should be limited and that it should pursue the intrests of investors.	2007	Governance
Corporate Social Responsibility as a Conflict between Shareholders Author: Barnea, A. and A. Rubin Journal: Journal of Buisness Ethics This paper argues that insiders (managers and large blockholders) who are affiliated with the firm may want to over-invest in CSR for their private benefit since it improves their reputation as being good global citizens. The authors find that insiders' ownership and leverage are negatively related to the social rating of firms, while institutional ownership is uncorrelated with it.	2010	Environmental, Social, Governance
Green Investors and Corporate Investment Author: Barnea, A., R. Heinkel and A. Kraus Journal: Structural Change and Economic Dynamics This paper presents a theoretical equlibrium model that explores the effect of ethical screening on the investment decision firms that fail the screen ('polluting' firms) and on their decision to reform so as to pass the screen. The authors find that green investors can induce polluting firms to reform and that SRI results in under-investing by polluting firms, which leads to lower total investment in the economy. In intermediate cases when reforming cost are positive but not so high that firms never reform, no fraction of green investors strictly between 0 and 1 generates as much investment as all or none. For 10-12 percent green investors, as estimated to be the fraction of total managed funds which are subject to SRI strategies, increasing the fraction of green investors lowers total investment.	2005	Environmental
Stakeholder Influence Capacity and the Variability of Financial Returns to Corporate Social Responsibility Author: Barnett, M Journal: Academy of Management Review This theoretical paper argues that research on the buisness case for corporate social responsibility must account for the path-dependent nature of firm-stakeholder relations, and develops the construct of stakeholder influence capacity to fill this void. This construct helps explain why the effects of corporate social responsibility on corporate financial performance vary across firms and time.	2007	Governance
Does it Pay to be Really Good? Addressing the Shape of the Relationship Between Social and Financial Performance Author: Barnett, M. and R. Salomon Journal: Strategic Management Journal The authors bring together contrasting literatures on the relationship between corporate social performance (CSP) and corporate financial performance (CFP) to hypothesize that the CSP-CFP relationship is U-shaped. Their results support this hypothesis. The authors find that firms with low CSP have higher CFP than firms with moderate CSP, but firms with high CSP have the highest CFP.	2012	Environmental, Social, Governance
Beyond Dichotomy: The Curvilinear Relationship between Social Responsibility and Financial Performance Author: Barnett, M. and R. Salomon Journal: Strategic Management Journal As the number of social screens used by an SRI fund increases, financial returns decline at first, but then rebound as the number of screens reaches a maximum. Community relations screening increased financial performance, but environmental and labor relations screening decreased financial performance.	2006	Environmental, Social
The Economics and Politics of Corporate Social Performance Author: Baron, D., M. Agus Harjoto and H. Jo Journal: Business and Politics This paper provides an empirical test of a theory that relates corporate financial performance (CFP), corporate social performance (CSP), and social pressure from government and social activists for improved social performance. CFP is increasing CSP and decreasing in social pressure. CSP is increasing in social pressure. CSP in also increasing in CFP. Social pressure is decreasing in CFP and increasing in CSP. Thus, overall mixed results.	2009	Social
Estimation and Market Valuation of Environmental Liabilities Relating to Superfund Sites Author: Barth, M. and M. McNichols Journal: Journal of Accounting Research The authors investigate whether characteristics known at various points in a Federal Superfund site's regulatory history explain cleanup cost estimates. The cleanup cost amalysis indicates that several site characteristics provide explanatory power in explaining cost estimates, including the type of site, the hazard score assigned by the EPA, the identified remediation technology, and the number of cubic yards of contaminated soil. This papers evidence also indicates that market particippants assess an environmental liability in excess of that recognized by the sample firms, averaging 28.6 percent of the market value of equity.	1994	Environmental
The Impact of U.S. Firms' Investments in Human Capital on Stock Prices Author: Bassi, L., P. Harrison, J. Ludwig and D. McMurrer Journal: Working Paper The authors hypothesis is that firms that make unusually large investments in employee development subsequently enjoy higher stock prices than comparable firms that make smaller investments in employee development. The premise is that the current accounting treatment and reporting requirememnts cause "high investment" firms to be under-priced in the short run. Consistent with this, they find that firms' stock prices exhibit "super-normal" returns to human capital, measured as formal employee education and training expenditures in the previous year.	2004	Social
Board Classification and Managerial Entrenchment: Evidence From the Market for Corporate Control Author: Bates, T., D. Becher and M. Lemmon Journal: Journal of Financial Economics This paper considers the relation between board classification, takeover activity, and transaction outcomes. Target board classification does not change the likelihood that a firm, once targeted, is ultimately acquired. Moreover, shareholders of targets with classified board realize bid returns that are equivalent to those of targets with a single class of directors, but recieve a higher proportion of total bid returns that are equivalent to those of targets with a single class of directors, but recieve higher proportion of total bid surplus. Board classification does reduce the likelihood of receiving a takeover bid, however, the economic effect of bid deterrence on the firm is quite small.	2008	Governance
Corporate Environmental Management and Credit Risk Author: Bauer, R. and D. Hann Journal: Working Paper This study analyzes corporate environmental management and its implications for bond investors. The authors provide support for the view that the credit standing of borrowing firms is influenced by legal, reputational, and regulatory risks associated with environmental incidents. The document that (i) environmental concerns are associated with a higher cost of debt financing and lower credit ratings, and (ii) proactive environmental practices are associated with a lower cost of debt.	2010	Environmental
Corporate Governance and Cross-Listing: Evidence From European Companies Author: Bauer, R., D. Wojcik and G. Clark Journal: Working Paper This paper documents the relationship between cross-listing and corporate governance of the largest European companies. Companies with a U.S. cross-listing, and particularly those listed on a U.S. stock exchange had higher corporate governance rating than companies without a U.S. cross-listing. The U.S. cross-listed firms had higher ratings not only in terms of disclosure but also in terms of board structure and functioning. In contrast to the importance of cross-listing in the U.S., there is no significant relationship between corporate governance and cross-listing within Europe. Implications are drawn for the debate on bonding and the future of European stock markets.	2004	Governance
Employee Relations and Credit Risk Author: Bauer, R., J. Derwall and D. Hann Journal: Working Paper Consistent with the theory that human capital management influences organizational performance and risk, the authors find that employee relations explain the cross-sectional variation in credit risk. They construct an aggregate measure for the quality of employee relations based on the firm's engagement in employment practices and policies, and document that firms withstronger employee relations enjoy a statistically and economically lower cost of debt financing, higher credit ratings, and lower firm-specific risk.	2009	Social
International Evidence on Ethical Mutual Fund Performance and Investment Style Author: Bauer, R., K. Koedijk and R. Otten Journal: Journal of Banking & Finance This paper reviews and extends previous research on ethical mutual fund performance. The authors find no significant differnce between the returns of ethical and conventional funds. Results also suggest that ethical mutual funds underwent a catching up phase, before delivering financial returns simialar to those of conventional mutual funds.	2005	Environmental, Social, Governance
Empirical Evidence on Corporate Governance in Europe. The Effect on Stock Returns, Firm Value and Performance Author: Bauer, R., N. Guenster and R. Otten Journal: Journal of Asset Management This study builds portfolios consisting of well-governed and poorly governed companies and compares their performance. The results show a positive relationship between these variables and corporate governance. This relationship weakens substantially after adjusting for country differences. The authors find a negative relationship between governance standards and earning based performance ratios.	2004	Governance
Corporate Governance and Performance: The REIT Effect Author: Bauer, R., P. Eichholtz and N. Kok Journal: Real Estate Economics The authors document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies and a control sample of firms with high corporate real estate ratios, they find a strong and significantly positive relation between the governance index and several performance variables, indicating that the partial lack of relation between governance and performance in the real estate sector might be explained by REIT effect.	2010	Governance
Industry Competition, Ownership Structure and Shareholder Activism Author: Bauer, R., R. Braun and M. Viehs Journal: Working Paper The authors study shareholder activism through proxy proposals in the United States. They investigate the determinants for being targeted and the corresponding voting results. The authors hypothesize that a lack of industry competition in combination with higher managerial entrenchment increases the likelihood of being targeted. The empirical results support this hypothesis.	2010	Governance
Ethical Investing in Australia: Is There a Financial Penalty Author: Bauer, R., R. Otten and A. Rad Journal: Pacifics-Basin Financial Journal The authors observe no evidence of significant differnces in risk-adjusted returns between ethical and conventional funds during 1992-2003. This result however is sensitive to the chosen time period. During 1992-1996 domestic ethical funds under-performed their conventional counterparts significantly, whereas during 1996-2003 ethical funds matched the performance of conventional funds more closely.	2006	Environmental, Social, Governance
The Law and Economics of Blockholer Disclosure Author: Bebchuk and R. Jackson, L., Jr. Journal: Harvard Buisness Law Review The authors argue that the propsed changes to the SEC's rules in the Williams Act, which regulates the disclosure of large blocks of stock in public companies, should similarly be examined in the larger context of the optimal balance of power between incumbent directors and these blockholders. They discuss the beneficial and documented role that outside blockholders play i corporate governance and the adverse effect that any tightening of the Williams Act's disclosure thresholds can be expected to have on such blockholders.	2011	Governance
Executie Pensions Author: Bebchuk and R. Jackson, L., Jr. Journal: Journal of Corporation Law This paper presents evidence that omitting the value of pension benefits significantly undermines the accuracy of existing estimates of executive pay, its ariability, and its sensitvity to performance companies. The authors find that the CEOs' plans had a median actuarial value of $15 million; that the ratio of the executives' pension value to executives' total compensation (including both equity and non-equity pay) during their service as CEO had a median value of 34 percent; and that including pension values increased the median percentage of the executives' total compensation composed of salary-like payments during and after their service as CEO from 15 percent to 39	2005	Governance
Why Firms Adopt Antitakeover Arrangements Author: Bebchuk, L. Journal: University of Pennsylvania Law Review This paper identifies explanations for the increasing prevalence of antitakeover provisions in IPO charters. Specifically, the author analyzes explanations based on (1) the role of antitakeover arrangements in encouraging founders to break up their initial control blocks, (2) efficient private benefits of control, (3) agency problems amoung pre-IPO shareholders, (4) agency problems between pre-IPO shareholders and their IPO lawyers, (5) asymmetric information between founders and public investors about the firm's future growth prospects, and (6) bounded attention and imperfect pricing at the IPO stage.	2003	Governance
The Case for Increasing Shareholder Power Author: Bebchuk, L. Journal: Harvard Law Review This article reconsiders the basic allocation of power between boards and shareholders in publicly traded companies with dispersed ownership. Professor Bebchuk's analysis and his empirical evidence indicate that shareholders' existing power to replace directors is insufficient to secure the adoption of value-increasing governance arrangements that management disfavors. He puts forward an alternative regime that would allow shareholders to initiate and adopt rules-of-the-game decisions to change the company's charter or state of incorporation.	2003	Governance
The Costs of Entrenched Boards Author: Bebchuk, L. and A. Cohen Journal: Journal of Financial Economics This paper investigates empirically how the value of publicly traded firms is affected by arrangements that protect management from removal. The authors find that staggered boards are associated with an economically meaningful reduction in firm value (as measured by Tobin's Q). They also provide suggestive evidence that staggered boards bring about, and not merely reflect, a reduced firm value. This paper shows that the correlation with reduced firm value is stronger for staggered boards that are established in the corporate charter (which shareholders cannot amend) than for staggered boards established in the company's bylaws (which shareholders can amend).	2005	Governance
The Elusive Quest for Global Governance Standards Author: Bebchuk, L. and A. Hamdani Journal: University of Pennsylvania Law Review Because of this fundamental difference between companies with and without a controlling shareholder, any governance-rating methodology that applies a single metric to companies or countries worldwide is bound to produce an inaccurate or even distorted picture.	2008	Governance
Bundling and Entrenchment Author: Bebchuk, L. and E. Kamar Journal: Harvard Law Review This article provides the first systematic evidence that managements have been using bundling to introduce antitakeover defenses that shareholders would likely reject if they were to vote on them seperately. The authors study a hand-collected dataset of public mergers and find that while shareholders were strongly opposed to staggered boards during this period and generally unwilling to approve charter amendments introducing a staggered board on a stand-alone basis, the deal planners ofeten bundled the mergers studied with a move to staggered-board structure. In mergers in which the combined firm was on of the parties, a part'y odds of being chosen to survive as the combined firm were significantly higher if it had a staggered board and the other party did not.	2009	Governance
Pay without Performance: Overview of the Issues Author: Bebchuk, L. and J. Fried Journal: Academy of Management Perspectives In this paper, the authors outline some of the main elements of their critique of contemorary executive compensation and corporate governance arrangements, as well as their proposals and suggested reforms. The authors show that managerial influence can explain many features of the compensation landscape, and explain how this influence has led to opaque and distorted pay arrangements. This paper concludes with a discussion of proposals for making more transparent, improving the design of pay arrangements, and increasing board accountability.	2006	Governance
Executive Compensation as an Agency Problem Author: Bebchuk, L. and J. Fried Journal: Journal of Economic Perspectives This paper provides an overview of the main theoretical elements and empirical underpinnings of a "managerial power" approach to executive compensation. Under this approach, the design of executive compensation is viewed not only as an instrument for addressing the agency problem between managers and shareholders but also as apart of the agency problem itself. Boards of publicly traded companies with dispersed ownership, the authors argue, cannot be expected to bargain at arm's length with managers. As a result, managers wield substantial influence over their own pay arrangements, and they have an intrest in reducing the saliency of the amount of their pay and the extent to which that pay is de-coupled from managers' performance.	2003	Governance
A Theory of Path Dependence in Corporate Governance and Ownership Author: Bebchuk, L. and M. Roe Journal: Stanford Law Review This theoretical paper develops a theory of path dependence of corporate structure. Two sources of path dependence - structure driven and rule driven - are identified and analyzed. The authors' theory of path dependence sheds light on why the advanced economies, despite pressures to converge, vary in their ownership structures.	1999	Governance
The State of Corporate Governance Research Author: Bebchuk, L. and M. Weisbach Journal: Review of Financial Studies This review on the state of corporate government research features seven papers on corporate governance that were presented in a meeting of the NBER's corporate governance project. For each of these areas, the authors discuss the importance of the area and the questions it focuses on, and how the paper in the special issue makes a significant contribution to this area.	2009	Governance
What matters in Corporate Governance? Author: Bebchuk, L., A. Cohen and A. Ferrell Journal: Review of Financial Studies The authors put forward an entrenchment index based on staggered boards, limits to shareholder bylaw amendments, poison pills, golden parachutes, and supermajority requirments for mergers and charter amendments. Increases in the index level are monotonically associated with economically significant reductions in firm valuation.	2009	Governance
Learning and the Disappearing Association between Governance and Returns Author: Bebchuk, L., A. Cohen and C. Wang Journal: Journal of Financial Economics During the period 1991-1999, stock returns were correlated with the G-Index based on twenty-four governance provisions (Gompers, Ishii and Metrick (2003)) and the E-Index based on the six provisions that matter most (Bebchuk, Cohen, and Ferrell (2009)). This correlation, however, did not persist during the subsequent period 2000-2008. The authors provide evidence that both the identified correlation and its subsequent disappearance were due to market participants' gradually learning to appreciate the difference between firms scoring well and poorly on the governance indices.	2013	Governance
Staggered Boards and the Wealth of Shareholders: Evidence from Two Natural Experiments Author: Bebchuk, L., A. Cohen and C. Wang Journal: Working Paper While staggered boards have been documented to be negatively correlated with firm valuation, such association might be due to staggered boards either bringing about lower firm value or merely reflecting the tendency of low-value firms to have staggered boards. In this paper, the authors use two natural experiments to shed light on the causality question. The findings are consistent with the market's viewing staggered boards as bringing about a reduction in firm value. The findings are thus consistent with leading institutional investors' policies in favor of board de-staggering, and with the view that the ongoing process of board de-staggering in public firms can be expected to enhance shareholder value.	2011	Governance
Golden Parachutes and the Wealth of Shareholders Author: Bebchuk, L., A. Cohen and C. Wang Journal: Working Paper The authors analyze the relationship that golden parachutes have with expected acquisitions premia and with firm value. They find that golden parachutes are associated with higher expected acquisition premia, and that this association is at least partly due to the effect of golden parachutes on incentives. They also find that firms that adopt a golden parachute experience a reduction in their industry-adjusted Tobin's Q, as well as negative abnormal stock returns both during the inter-volume period of adoption and subsequently.	2010	Governance
The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Particants Author: Bebchuk, L., J. CoatesIV and G. Subramanian Journal: Stanford Law Review This reply develops and defends the authors earlier analysis of the powerful antitakeover force of staggered boards. The authors find that having a majority if independent directors does not address the concren that defensive tactics might be abused. They also find "effective" staggered boards do not appear to have a significant beneficial effect on premiums in negotiated transactions.	2002	Governance
The CEO Pay Slice Author: Bebchuk, L., K. Cremers and U. Peyer Journal: Journal of Financial Economics The authors investigate the relationship between the CEO Pay Slice (CPS) - the fraction of aggregate compensation of the top-five executive team caputured by the CEO - and the value, performance, and behavior of public forms. The authors find that CPS is correlated with (i) lower (industry-adjusted) accounting profitability, (ii) lower stock returns accompanying acquisitions announced by the firm and higher likelihood of a negative stock return accompanying such announcements, (iii) higher odds of the CEO recieving a lucky otion grant at the lowest price of the month, (iv) lower performance sensitivity of CEO turnover, and (v) lower stock market returns accompanying the filing of proxy statements for periods where CPS increases.	2011	Governance
Lucky CEOs and Lucky Directors Author: Bebchuk, L., Y. Grinstein and U. Peyer Journal: Journal of Finance This paper studies the relationship between opportunistic timing of option grants and corporate governance, focusing on at-the-money "lucky" grants awarded at the lowest price of the grant month. The authors find that lucky grants to CEOs and directors are associated with higher CEOcompensation from other sources, and are correlated with a lack of majority of independent directors on the board, no independent compensation committee with an outside blockholder, or a long-serving CEO. For any given firm, the odds of a lucky grant increased when the payoffs from luck were high and when a preceding grant was lucky.	2010	Governance
Corporate Social Responsibility and Shareholder's Value: An Event Study Analysis Author: Becchetti, L., R. Ciciretti and I. Hasan Journal: Bank of Finland Research Discussion paper Deletion from an established SR index (Domini index) results in significantly negative abnormal returns. However in a period of 11 to 24 days, the gap between deletion and addition events tends to be bridged. These findings suggest that penalty for exit from SR index might depend more from the reaction of ethically screened funds, than from an expected negative shock on shareholder value.	2009	Environmental, Social, Governance
Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund Author: Becht, M., J. Franks, C. Mayer and S. Rossi Journal: Review of Financial Studies This article reports a unique analsis of private engagements by a pension activist fund. In contrast with most previous studies of activism, The authors report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially ouperforms benchmarks and The authors estimate that abnormal returns are largely associated with engagements reather than stock picking.	2009	Governance
Legal Institutions and Financial Development Author: Beck, T. and R. Levine Journal: Handbook of New Institutional Economics This paper provides a concise, selective review of research on the role of legal institutions in shaping the operation of financial systems. While a burgeoning literature finds that financial development exerts a first-order impact on economic growth, the law and finance literature seeks to understand the role of legal institutions in explaining international differences in financial systems.	2005	Governance
Stock Markets, Banks, and Growth: Does Firm Size Matter? Author: Beck, T. and R. Levine Journal: Journal of Banking & Finance This paper investigates the impact of stock markets and banks on economic growth applying recent GMM techniques developed for dynamic panels. On balance, The authors find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity, ommitted variables or observed country-specific effects.	2004	Governance
Law and Finance: Why Does Legal Origin Matter? Author: Beck, T., A. Demigiruc-Kunt and R. Levine Journal: Journal of Comparative Economics A growing body of work suggest that cross-country differences in legal origin help explain differences in financial development. This paper empirically assesses two theories of why legal orgin influences financial development. The authors use historical comparisons and cross-country regressions to assess the role of these two channels.	2003	Governance
Financial and Legal Constraints to Growth: Does Firm Size Matter? Author: Beck, T., A. Demigiruc-Kunt and V. Maksimovic Journal: Journal of Finance Financial and institutional development weakens the constraining effects of financial, legal, and corruption obstacles and it is the small firm that benefit the most. There is only a weak relation between firms' perception of the quality of the courts in their country and firm growth. The authors also provide evidence that the corruption of bank officials constrains firm growth.	2005	Governance
Finance and the Sources of Growth Author: Beck, T., R. Levine and N. Loayza Journal: Journal of Financial Economics This paper evaluates the empirical relation between the level of financial intermediary development and (i) economic groth, (ii) total factor productivity growth, (iii) physical capital accumulation, and (iv) private savings rates. The authors find that (1) financial intermedediaries exert a large, positive impact on total factor productivity growth, which feed through to overall GDP growth and (2) the long-run links between financial intermediary development and both physical capital growth and private savings rates are tenuous.	2000	Governance
The Impact of Strikes on Shareholder Equity Author: Becker, B. and C. Olson Journal: Industrial and Labor Relations Review The authors find that strikes substantially affect shareholder equity. Over a twenty-year period, the average strike involving 1,000 or more workers resulted in a 4.1 percent drop in shareholder equity, representing a decline of $72-87 million in 1980 dollars. Costs varied widely across industries. Capital markets are usually able to anticipate whether an impending contract deadline will result in a strike or settlement.	1986	Social
Human Resources Strategies, Complementarities, and Firm Performance Author: Becker, B. and M. Huselid Journal: Working paper Using survey data, the authors find that high performance Human Resource Management (HRM) systems have an economically and statistically positive effect on firm performance. Both an integrated system and a compensation-focused strategy are associated with significantly higher firm performance than is a traditional "personnel" strategy.	1998	Social
HR as a Source of Shareholder Value: Research and Recommendations Author: Becker, B., M. Huselid, P. Pickus and M. Spratt Journal: Human Resource Management The authors argue that the traditional practice of HRM does not create value for the organization. They suggest that HRM can have an economically significant effect on firm performance through a shared perspective of the HRM system as a source of strategy implementation and a means to achieve important buisness priorities.	1997	Social
Socially Responsible Investing and Portfolio Diversification Author: Bello, Z. Journal: Journal of Financial Research This paper finds that socially responsible funds do not differ significantly from conventional funds in attributes such as characteristics of assets held, and portfolio diversification. Moreover, the effect of diversification on investment performance is not different between the two groups. Both groups underperform the Domini 400 Social Index and S&P 500 during the study period.	2005	Environmental, Social, Governance
The Nontradable Share Reform in the Chinese Stock Market: The Role of Fundamentals Author: Belratti, A. and B. Bortolotti Journal: International Research Conference on Corporate Governance in Emerging Markets This paper evaluates the stock price effects of Chinese Financial reforms trying to relate expected returns to changes in fundamentals. The results show that Nontradable shares (NTS) reform was beneficial for the market as a whole, and especially for those companies with lower disclosure standards.	2007	Governance
The Credit Crisis around the Globe: Why Did Some Banks Perform Better Author: Belratti, A. and R. Stulz Journal: Journal of Financial Economics This paper evaluates the importance of factors that have been put forth as having contributed to the poor performance of banks during the credit crisis. The evidence is supportive of theories that emphasize the fragility of banks financed with short-term capital market funding. The better-performing banks had less leverage and lower returns imediately before the crisis. Differences in banking regulations across countries are generally uncorrelated with the performance of banks during the crisis, except that large banks from countries with more restrictions on bank activities performed better and decreased loans less.	2012	Governance
Strategic Corporate Social Responsibility and Economic Performance Author: Belu, C. and C. Manescu Journal: Applied Economics Findings reveal a neutral relationship between the strategic CSR index and economic performance. Whereas a simple equally-weighted CSR index had a negative correlation with economic performance.	2012	Environmental, Social, Governance
Socially Responsible Investment Funds: Investor Reaction to Current and Past Returns Author: Benson, K. and J. Humphrey Journal: Journal of Banking & Finance SRI investors are more likely to reinvest in funds they already own. SRI investors are less concerned about returns than conventional investors. They are also less likely to switch funds.	2008	Environmental, Social, Governance
Do Socially Responsible Fund Managers Really Invest Differently? Author: Benson, K., T. Brailsofrd and J. Humphrey Journal: Journal of Buisness Ethics This paper finds no statistically significant difference between SRI funds and conventional fund returns. However returns of SRI funds are generated through different industry exposures when compared to conventional funds.	2006	Environmental, Social, Governance
Enforcement and Good Corporate Governace in Developing Countries and Transition Economies Author: Berglof, E. and S. Claessens Journal: World Bank Research Observer This theoretical paper presents a framework to help explain enforcement, the impact on corporate governance when rules are not enforced, and what can be done to improve corporate governance in weak enforcement environments. The limited empirical evidence suggests that private enforcement tools are often more effective than public tools. Concentrated ownership aligns incentives and encourages monitoring, but it weakens other corporate governance mechanisms and can impose significant costs.	2006	Governance
Investor Protection and the Coasian View Author: Bergman, N. and D. Nicolaievsky Journal: Journal of Financial Economics The corporate charters of a sample of Mexican firms show that private firms often significantly enhance the legal protection offered to investors, but public firms rarely do so. The authors construct a model that endogenizes the degree of investor protection that firms provide, using as a springboard the assumption that legal regimes differ in their ability to enforce precisely filtering contracts that provide protection only in those cases where expropriation can occur. Their model generates predictions about the types of contracts that would be employed and the levels of investor protection that would prevail across different legal regimes in both private and public firms.	2007	Governance
Human Capital, Bankruptcy, and Capital Structure Author: Berk, J., R. Stanton and J. Zechner Journal: Journal of Finance The authors derive the optimal labor contract for a levered firm in an economy with perfectly competitive capital and labor markets. Employees become entrenched under this contract and so face large human costs of bankruptcy. The firm's optimal capital structure therefore depends on the trade-off between these human costs and the tax benefits of debt. Optimal debt levels consistent with those observed in practice emerge without relying on frictions such as moral hazard or asymmetric information.	2010	Social
Does Stakeholder Orientation Matter? The Relationship between Stakeholder Management Models and Firm Financial Performance Author: Berman, S., A. Wicks, S. Kotha and T. Jones Journal: Academy of Management Hournal In this study, the authors contributed to stakeholder theory development by (1) deriving two distinct stakeholder management models from extant research, (2) testing the descriptive accuracy of these models, and (3) including important variables from the strategy literature in the tested models. The results provide support for a strategic stakeholder management model but no support for an intrinsic stakeholder commitment model. Implications of these findings for management practice and future research are discussed.	1999	Social
Environmental Performance and Executive Compensation: An Integrated Agency-Insitutional Perspective Author: Berrone, P. and L. Gomez-Mejia Journal: Academy of Management Journal This paper finds evidence to support that in polluting industries, good environmental performance increases CEO pay; that environmental governance mechanisms strengthen this linkage; and that pollution prevention strategies affect executive compensation more than end-of-pipe pollution control.	2009	Environmental
Ferreting out Tunneling: An Application to Indian Buisness Groups Author: Bertrand, M., P. Mehta and S. Mullainathan Journal: Quarterly Journal of Economics This paper proposes a general methodology to measure the extent of tunneling activities. The methodology rests on isolating and then testing the distinctive implications of the tunneling hypothesis for the propagation of earning shocks across firms within a group. When applying the methodology to data on Indian buisness groups, the authors find a significant amount of tunneling, much of it occuring via nonoperating components of profit.	2002	Governance
Smart Beta Strategies: The Socially Responsible Investment Case Author: Bertrand, P. and V. Lapointe Journal: Working paper In this article the authors propose to extend the streams of research about smart beta strategies and about Socially Responsible Investment (SRI) by studying the impact of using an SRI universe on the properties of smart beta portfolios and by studying the impact of using smart beta strategies on the performance of SRI portfolios.	2013	Environmental, Social, Governance
Can labor Regulation Hinder Economic Performance? Evidence from India Author: Besley, T. and R. Burgess Journal: Quarterly Journal of Economics The authors show that Indian states that amended the Industrial Disputes Act in a pro-worker direction experienced lowered output, employment,incestment, and productivity in registered or formal manufacturing. Regulating in a pro-worker direction was also associated with increases in urban poverty. This suggests that attempts to redress the balance of power between capital and labor can end up hurting the poor.	2004	Social
Labour Market Regulation and Industrial Performance in India: A Critical Review of the Empirical Evidence Author: Bhattacharjea, A. Journal: Indian Journal of Labour Economics This paper offers a critique of recent empirical studies on the impact of labor regulation on industrial performance in India. It criticizes the widely-used index of state-level labor regulation devised by Besley and Burgess (2004), and the econometric methodology they use to establish that excessively proworker regulation led to poor performance in Indian manufacturing. This paper also reviews other evidence on the actual enforcement of labor laws, labor flexibility, and industrial employment.	2006	Social
Are Foreign Banks Bad for Development Even if They Are Efficient? Evidence from the Indian Banking Industry Author: Bhaumik, S. and J. Piesse Journal: Biennial Pacific Rim Conference of the WEAI at Taipei This paper shows that while foreign banks have high credit-deposit ratios, the domestic banks of India experienced much greater improvements in technical efficiency in the context of credit. The most significant improvements in technical efficiency are registered by the domestic de novo banks. There is weak evidence that foreign banks may be bullish only with respect to blue chip borrowers.	2004	Governance
How Important is Ownership in a Market with Level Playing Field?: The Indian Banking Sector Revisited Author: Bhaumik, S. and R. Dimova Journal: Journal of Comparative Economics In India, banking sector reforms and dergulation were initiated in 1992, encouraging entry and establishing a level playing field for all banks. Evidence suggests that after the reforms, ownership was no longer a significant determinant of performance. Rather, competition induced public-sector banks to eliminate the performance gap that existed between them and both domestic and foreign private-sector banks.	2004	Governance
Effect of Corporate Governance on Bond Ratings and Yields: The Role of Institutional Investors and Outside Directors* Author: Bhojraj, S. and P. Sengupta Journal: Journal of Buisness Ethics This article provides evidence linking corporate governance mechanisms to higher bond ratings and lower bond yields. Governance mechanisms can reduce default risk by mitigating agency costs and monitoring managerial performance and by reducing information asymmetry between the firm and the lenders. The authors find firms that have greater institutional ownership and stronger outside control of the board enjoy lower bond yields and higher ratings on their new bond issues. However, concentrated institutional ownership has an adverse effect on yields and ratings.	2003	Governance
Environmental Disclosures, Regulatory Costs, and Changes in Firm Value Author: Blacconiere, W. and D. Patten Journal: Journal of Accounting and Economics This study examines the market reaction of chemical firms to a particular environmental catastrophe, and the evidence indicates that a significant negative intra-industry reaction occurred. However, firms with more extensive environmental disclosures in their financial report prior to the chemical leak experienced a less negative reaction than firms with less extensive disclosures. This result suggests that investors interpreted such disclosures as a positive sign of the firm managing its exposure to future regulatory costs.	1994	Environmental
Shareholder Activism and Corporate Governance in the United States Author: Black, B. Journal: New Palgrave Dictionary of Economics and the Law A small number of American institutional investors, mostly public pension plans, spend a trivial amount of mooney on overt activism efforts. They don't conduct proxy fights, and don't try to elect their own candidates to the board of directors. The currently available evidence, taken as a whole, is consistent with the proposition that the institutions achieve the effects on firm performance that one might expect from this level of effort- namely, not much.	1998	Governance
Can Corporate Governance Reforms Increase Firm Market Values? Event Study Evidence from India Author: Black, B. and V. Khanna Journal: Journal of Empirical Legal Studies The May 1999 announcement by Indian securities regulators of plans to adopt corporate governance reforms is accompanied by a 4 percent increase in the price of large firms over a two-day event window (the announcement date plus the next trading day), relative to smaller public firms ( not affected by the intial reforms); the difference grows to 7 percent over a five-day event window and 10 percent over a two-week window. Cross-listed firms gained more than other firms, suggesting that local regulation can sometimes complement, rather than substitute for, the benefits of cross-listing.	2007	Governance
The Effect of Board Structure on Firm Value: A Multiple Identification Strategies Approach Using Korean Data Author: Black, B and W. Kim Journal: Journal of Financial Economics This paper uses a 1999 Korean law as an exogenous shock to assess how board structure affects firm market value. The law mandates 50 percent outside directors and an audit committee for large public firms, but not smaller firms. The legal shock produces large share price increases for large firms, relative to mid-sized firms; share prices jump in 1999 when the reforms are announced	2012	Governance
What Matters and for Which Firms for Corporate Governance in Emerging Markets? Evidence from Brazil (and Other BRIK Countries) Author: Black, B., A. de Carvalho and E. Gorga Journal: Journal of Corporate Finance This paper constructs a corporate governance index, and shows that the index, as well as subindices for ownership structure, board procedure, and minority shareholder rights, predict higher lagged Tobin's q. In contrast to other studies, greater board independence predicts lower Tobin's. Firm characteristics also matter: governance predicts market value for nonmanufacturing (but not manufacturing) firms, small (but not large) firms, and high-growth (but not low-growth) firms. The authors also find that country characteristics strongly influence both which aspects of governance predict firm market value, and at which firms that association is found.	2012	Governance
Corporate Governance in Korea at the Millenium: Enhancing International Competitiveness- Final Report and Legal Reform Recommendations to the Ministry of Justice of the Republic of Korea Author: Black, B., B. Metzger, T. O'Brien and Y. Shin Journal: Journal of Corporation Law This report reviews South Korea's corporate governance system and recommends legal reforms to improve Korean corporate governance and protect against a repeat of Korea' governance-related financial crisis of 1997-1998. The report's principal recommendations include enhancing the role of public company boards of director, strengthening independent director and non-interested shareholder review of related party transactions, and requiring cumulative voting and preemptive rights for public companies.	2000	Governance
Does Corporate Governance Predict Firms' Market Values? Evidence from Korea Author: Black, B., H. Jang and W. Kim Journal: Journal of Law, Economics, & Organization This paper reports strong OLS and instrumental variable evidence that an overall corporate governance index is an important and likely casual factor in explaining the market value of Korean public companies. In OLS, a worst-to-best change in KCGI predicts a 0.47 increase in Tobin's Q (about 160% increase in share price). The authors also find that Korean firms with 50 percent outside directors have 0.13 higher Tobin's Q (roughly 40 percent higher share price), after controlling for the rest of KCGI. This effect, too, is likely causal.	2006	Governance
Restoring Public Purpose to the Private Corporation Author: Blackwell, R. and T. Kochan Journal: Working paper This paper argues that the era of shareholder maximizing that emerged in the 1980s and has dominated since then has produced a set of perverse economic outcomes that have limited or stopped economic progress for the majority of the workforce and holds back an economic recovery capable of closing the jobs deficit and improving living standards. Building a more sustainable economy will, therefore, require replacing this narrow conception of the purpose of the firm with a broader theory and with policy and institutional reforms that rebalance the power of investors, corporate executives, workers, and their representatives.	2013	Environmental, Social, Governance
Unionism and Employment Behaviour Author: Blanchflower, D., N. Milward and A. Oswald Journal: Economic Journal This study provides evidence on the consequences of trade union activity for the level and growth of employment using a microeconomic data set of British workplaces. Trade unions depress the rate of employment growth (or increase the extent of employment decline) by about 3 percent per year.	1991	Social
Management Practices, Work-Life Balance, and Productivity: A Review of Some Recent Evidence Author: Bloom, N. and J. Van Reenen Journal: Oxford Review of Economic Policy In an international survey of management practices and work-life balance. When looking within countries, however, the authors reject the pessimistic model of 'trade-off' between WLB and productivity. WLB outcomes are significantly associated with better management, so that well-run firms are both more productive and offer better conditions for their employees.	2006	Social
Are Family-Friendly Workplace Practices a Valuable Firm Resource? Author: Bloom, N., T. Kretshmer and J. Van Reenen Journal: Strategic Management Journal The authors study the determinants and consequences of family-friendly workplace practices (FFWP) using a sample of over 450 manufacturing firms in Germany, France, U.K., and U.S. They find a positive correlation between firm productivity and FFWP. This association disappears, however, once they control for a measure of the quality of management practices.	2011	Social
FSB Principles for Sound Compensation Practices: Implementation Standards Author: Board, F. Journal: Financial Stability Board This report responds to the call by the G20 Finance Ministers and Governors to submit to the Pittsburgh Summit detailed specific proposals on corporate governance reforms, global standards on pay structure and greater disclosure and transparency, to strengthen adherence to the FSB Principles for Sound Compensation Practices, issued in April 2009.	2009	Governance
Alliances and Corporate Governance Author: Bodnaruk, A., M. Massa and A. Simonov Journal: Journal of Financial Economics This paper studies the link between a firm's quality of governance and its alliance activity. The authors consider alliances as a commitment technology that helps a company's Chief Executive Officer overcome agency problems that relate to the inability to ex ante motivate division managers. This paper shows that well-governed firms are more likely to avail themselves of this technology to anticipate es post commitment problems and resolve them. Governance also mitigates agency issues between alliance partners; dominant alliance partners agree to a more equal split of power with junior partners that are better governed.	2013	Governance
L-Shares: Rewarding Long-Term Investors Author: Bolton, P. and F. Samama Journal: Working paper The authors argue that a fundamental reason for the short term perspective of corporate executives is the short-term orientation of shareholders and financial markets that drive the performance benchmarks of CEOs. Long-term committed shareholders can provide substantial benefits to the company they invest in and although some shareholders are prepared to take a more long-term view, they are generally not rewarded for their loyalty to the company. The authors believe that because they are a scarce resource and provide benefits to the company and other shareholders that have all the features of a public good, long-term shareholders need to recieve financial incentives.	2013	Governance
Corporate Governance and Control Author: Bolton, P., M. Becht and A. Roell Journal: Handbook of the Economics Finance This paper reviews the theoretical and empirical research on the main mechanisms of corporate control, discuss the main legal and regulatory institutions in different countries, and examine the comparative corporate governance literature. A fundamental dilemma of corporate governance emerges from this overview: regulation of large shareholder intervention may provide better protection to small shareholders; but such regulations may increase managerial discretion and scope for abuse.	2003	Governance
The Determinants of Corporate Board Size and Composition: An Empirical Analysis Author: Boone, A., L. Casares Field, J. Karpoff and C. Raheja Journal: Journal of Financial Economics The author show that: (i) board size and independence increase as firms grow in size and diversify over time; (ii) board independence is negatively related to the manager's influence and positively related to constraints on such influence; and (iii) board size reflects a trade-off between the firm-specific benefits of monitoring and the cost of such monitoring. The data do not support the view that boards are structured randomly or to facilitate managers' consumption of value-decreasing private benefits.	2007	Governance
Stakeholder Relations and Stock Returns: On Errors in Expectations and Learning Author: Borgers, A., J. Derwall, A. Koedijk, and J. ter Horst Journal: Journal of Empirical Finance The authors investigate whether stakeholder information predicted risk-adjusted returns due to errors in investors' expectations and ultimately ceased to do so as attention for such information increased. The stakeholder-relations index (SI) was positively associated with long-term risk-adjusted returns, earning announcement returns, and errors in analysts' earning forecasts over the period 1992-2004.	2013	Governance
Postprivatization Corporate Governance: The Role of Ownership Structure and Investor Protection Author: Boubakri, N., J. Cosset and O. Guedhami Journal: Journal of Financial Economics This paper investigates the role of ownership structure and investor protection in postprivatization corporate governace. The authors find that the government relinquishes control over time to the benefit of local institutions, individuals, and foreign investors, and that private ownership tends to concentrate over time. Firm size, growth and industry affiliation, privatization method, as well as the level of institutional development and investor protection, explain the cross-firm differences in ownership concentration. The positive effect of ownership concentration on firm performance matters more in countries with weak investor protection.	2005	Governance
A Cross Sectional Analysis of Clean Technology Winners by Country and Industry Author: Boulatoff, C. and C. Boyer Journal: Working paper This paper looks at the performance of clean technology firms over the last five years, utilizing a sample of companies comprised of 508 firms in 34 countries. The authors look at which countries have the highest performance based on stock returns and industry performance relative to the Russell 2000 index. Thus, the paper indicates what industries are performing well today, as well as which industries are promising tomorrow and which countries have a comparative advantage in which areas of clean technology.	2013	Environmental
Corporate Social Responsibility and Financial Risk Author: Boutin-Dufresne, F. and P. Savaria Journal: Journal of Investing This paper finds that combining socially responsible stocks into portfolios could reduce diversifiable risk component. SR investing does not impair financial prospects of a portfolio.	2004	Environmental, Social, Governance
Corporate Governance Propagation through Overlapping Directors Author: Bouwman, C. Journal: Review of Financial Studies This article proposes, and empirically verifies, that observed governance practices are partly the outcome of network effects among firms with common directors. While firms attempt to select directors whose other directorships are at firms with similar governance practices ("familiarity effect"), this matching of governance practices is imperfect because other factors also affect the director choice. This generates an "influence effect" as directors acquainted with different practices at other firms influence the firm's governance to move toward the practices of those other firms. These network effects cause governance practices to converge.	2011	Governance
The Theory of Bank Risk Taking and Competition Revisited Author: Boyd, J. and G. De Nicolo Journal: Journal of Finance This paper reviews the empirical literature with regards to bank chhoosing more risky portfolios in the face of increased competition, and concludes that the evidence is best described as mixed. The authors show that existing theoretical analyses of this topic are fragile, since there exists fundamental risk-incentive mechanisms that operate in exactly the opposite direction, causing banks to become more risky as their markets become more concentrated.	2005	Governance
Activist Arbitirage: A Study of Open-Ending Attempts of Closed-End Funds Author: Bradley, M., A. Brav, I. Golstein and W. Jiang Journal: Journal of Financial Economics This paper documents frequent attempts by activist arbitrageurs to open-end discounted closed-end funds, particularly after the 1992 proxy reform which reduced the costs of communication among shareholders. Open-ending attempts have a substantial effect on discounts, reducing them, on average, to half of their original level. The size of the discount is a major determinant of whether a fund gets attacked. Other important factors include the costs of communication among shareholders and the governance structure of the targeted fund.	2010	Governance
Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures Author: Brammer, S., C. Brooks and S. Pavelin Journal: Financial Management Firms with higher social performance scores tend to achieve lower returns, while firms with the lowest possible CSP scores of zero outperformed the market. Various aspects of corporate social behavior must be examined separately in order to achieve an accurate picture on their impact of returns.	2006	Environmental, Social
The Effect of Ethical Fund Portfolio Inclusion on Executive Compensation Author: Brander, J. Journal: Journal of Buisness Ethics This paper provides evidence that CEO compensation, other executive compensation, and director compensation tend to be lower in Domini Social Index (DSI) firms than in other firms in the S&P 500. The estimated compensation discount for CEOs of DSI firms is approximately 12 percent.	2006	Social, Governance
Empty Voting and the Efficiency of Corporate Governance Author: Brav, A. and R. Mathews Journal: Journal of Financial Economics The authors model corporate voting outcomes when an informed trader, such as a hedge fund, can establish separate positions in a firm's shares and votes (empty voting). The authors find that the trader's presence can improve efficiency overall despite the fact that it sometimes ends up selling to a net short position and then voting decrease firm value. An efficiency improvement is likely if other shareholders' votes are not highly correlated with the correct decision or if it is relatively expensive to seperate votes from shares on the record date.	2011	Governance
Payout Policy in the 21st Century Author: Brav, A., J. Graham, C. Harvey and R. Michaely Journal: Journal of Financial Economics The authors find that the link between dividends and earnings has weakened. Many managers now favor repurchases because they are viewed as being more flexible than dividends and can be used in an attempt to time the equity market or to increase earnings per share. Executives believe that institutions are indifferent between dividends and repurchases and that payout policies have little impact on their investor clientele. In general, management views provide little support for agency, signaling, and clientele hypotheses of payout policy. Tax considerations play a secondary role.	2005	Governance
The Real Effects of Hedge Fund Activism: productivity, Risk, and Product Market Competition Author: Brav, A., W. Jiang and H. Kim Journal: Working paper This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency within two years after activism, and this improvement is concentrated in industries with a high degree of product market competition. By following plants that were sold post-intervention the authors also find that efficient capital redeployment is an important channel via which activists create value.	2011	Governance
Hedge Fund Activism: A Review Author: Brav, A., W. Jiang and H. Kim Journal: Foundations and Trends in Finance This article reviews shareholder activism by hedge funds. The authors analyze possible value creation brought about by activist hedge funds, both for shareholders in the target companies and for investors in the hedge funds. The evidence generally supports the view that hedge fund activism creates value for shareholders by effectively influencing the governance, capital structure decisions, and operating performance of target firms.	2009	Governance
The Returns to Hedge Fund Activism Author: Brav, A., W. Jiang, F. Partnoy and R. Thomas Journal: Financial Analysts Journal Hedge fund activism is a new form of investment strategy. The authors find that activist hadge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. The abnormal stock return upon announcement of activism is approximately 7 percent, with no reversal during the subsequent year. Target firms experience increases in payout and operating performance and higher CEO turnover after activism. The authors find large positive abnormal return to hedge fund activists, which is higher than the return to other equity-oriented hedge funds.	2008	Governance
Hedge Fund Activism, Corporate Governance, and Firm Performance Author: Brav, A., W. Jiang, F. Partnoy and R. Thomas Journal: Journal of Finance This paper finds hat activist hedge funds in the United States propse strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. The abnormal return around the announcement of activism is approximately 7 percent, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. The analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.	2008	Governance
Outside Directors and the Adoption of Poison Pills Author: Brickley, J., J. Coles and R. Terry Journal: Journal of Financial Economics This paper finds that the average stock-market reaction to announcements of poison pills is positive when the board has a majority of outside directors and negative when it does not. The probability that a subsequent control contest is associated with an auction is also positively related to the fraction of outsiders on the board. These results are largely driven by directors who are retired executives from other companies.	1994	Governance
The Value of Investor Protection: Firm Evidence from Cross-Border Mergers Author: Bris, A. and C. Cabolis Journal: EFA 2005 Moscow Meetings Paper This paper finds that the announcement effect of a cross-border merger for the target firm is higher-relative to a matching, domestic acquisition-the better the shareholder protection and the accounting standards in the country of origin of the acquirer. In addition, this result is only significant when the acquirer comes from a more protective country, which suggests that target firms avoid adopting weaker protection via private contracting.	2004	Governance
Investor Protection and Firm Liquidity Author: Brockman, P. and D. Chung Journal: Journal of Finance The purpose of this study is to investigate the relation between investor protection and firm liquidity. This paper's empirical findings verify that firm liquidity is significantly affected by investor protection. Regression and matched-sample results show that Hong Kong-based equities exhibit narrower spreads and thicker depths than their China-based counterparts.	2003	Governance
Unionization, Incomplete Contracting, and Capital Investment Author: Bronars, S. and D. Deere Journal: Journal of Buisness This article investigates empirically the hypothesis that unionization alters firm behavior. The empirical evidence is broadly consistent with the notion that unionized firms attempt to limit union appropriation of quasi rents. Higher firm-specific unionization rates are associated with less investment in physical capital, research and development, and advertising; slower employment growth; and a greater reliance on debt finance.	1993	Social
Corporate Governance and Firm Valuation Author: Brown, L. and M. Caylor Journal: Journal of Accounting and Public Policy The authors create Gov-Score, a summary governance measure based on 51 firm-specific provisions representing both internal and external governance, and show that a parsimonious index based on seven provisions underlying Gov-Score fully drives the relation between Gov-Score and firm value. The authors find five of these measures to be unrelated to firm valuation. They document that only one of the seven governance provisions important for firm valuation was mandated by either the Sarbanes-Oxley Act of 2002 or the three major U.S. stock exchanges.	2006	Governance
Corporate Governance Study: The Correlation between corporate Governance and Company Performance Author: Brown, L. and M. Caylor Journal: Institutional Shareholder Services firms with weaker corporate governance perform more poorly. They have lower stock returns in the preceding three, five, and ten-year periods than do firms with stronger corporate governance.	2004	Governance
Corporate Governance and Regulation: Can There be Too Much of a Good Thing? Author: Bruno, V. and S. Claessens Journal: World Bank Policy Research Working Paper This paper finds that in any legal regime a few specific governance practices improve performance. Companies with good governance practices operating in stringent legal environments, however, show a valuation discount relative to similar companies operating in flexible legal environments. At the same time, a stronger country-level regime does not reduce the valuation discount of companies with weak governance practices.	2007	Governance
Profiting from Regulation: An Event Study of the EU Carbon Market Author: Bushnell, J., H. Chong and E. Mansur Journal: National Bureau of Economic Research This paper investigates how cap-and-trade regulation affects profits. In late April 2006, the EU CO2 allowance price dropped 50 percent, equating to a 28 billion Euro reduction in the value of aggregate annual allowances. Despite reductions in environmental costs, the authors find that stock prices fell for firms in both carbon- and electricity-intensive industries, particularly for firms selling primarily within the EU.	2009	Environmental
Do Outside Directors Monitor Managers?: Evidence from Tender Offer Bids Author: Byrd, J. and K. Hickman Journal: Journal of Financial Economics The authors categorize outside directors as either independent of or having affiliation with managers, and find that bidding firms on which independent outside directors hold at least 50 percent of the seats have significantly higher announcement-date abnormal returns than other bidders. However, the relationship between bidding firms' abnormal stock returns and the proportion of board seats held by independent outside directors is nonlinear, suggesting it is possible to have too many independent outside directors. All results are lost if the traditional inside-outside board classification method is used.	1992	Governance
Doing Well by Looking Good: The Casual Impact of Media Coverage of Corporate Social Responsibility on Firm Value Author: Byun, S. and J. Oh Journal: Midwest Finance Association Meeting Paper Does the visibility of corporate social responsibility (CSR) rather than the action itself enhance firm value? Using media coverage of firm's CSR activities as a proxy for the visibility of CSR, the authors find that the higher CSR media coverage is associated with higher firm value and higher excess stock returns. Moreover, the effect of visibility is stronger for firms that actively engage in CSR, highlighting the complementary role between CSR and visibility.	2013	Environmental, Social
Incentive Effects of stock and Option Holdings of Target and Acquirer CEOs Author: Cai, J. and A. Vijh Journal: Journal of Finance Acquisitions enable target chief executive officers (CEOs) to remove liquidity restrictions on stock and option holdings and diminish the illiquidity discount. The authors show that CEOs with higher holdings (illiquidity discount) are more likely to make acquisitions (get acquired). Further, target CEOs with a higher illiquidity discount accept a lower premium, offer less resistance, and more often leave after acquisition. Similarly, aquirer CEOs with higher holdings pay a higher premium, expedite the process, and make diversifying acquisitions using stock payment.	2007	Governance
Electing Directors Author: Cai, J., J. Garner and R. Walkling Journal: Journal of Finance The authors document that shareholder votes are significantly related to firm performance, governance, director performance, and voting mechanisms. However, most variables, except meeting attendance and ISS recommendations, have little economic impact on shareholder votes- even poorly performing directors and firms typically recieve over 90 percent of votes cast. Nevertheless, fewer votes lead to lower "abnormal" CEO compensation and a higher probability of removing poison pills, classified boards and CEOs.	2009	Governance
Finance for Growth: Policy Choices in a Volatile World Author: Caprio, G. and P. Honohan Journal: World Bank Policy Research Report The world bank report provides evidence to show that financial development has a strong independent role in increasing general prosperity. Countries that build a secure institutional environment for financial contracts, making it possible for banking and organized securities markets to prosper, will see these efforts bear fruit in the fight against poverty.	2001	Governance
The Influence of Institutions on Corporate Governance Through Private Negotiations: Evidence from TIAA-CREF Author: Carleton, W., J. Nelson and M. Weisbach Journal: Journal of Finance This paper analyzes the process of private negotiations between financial institutions and the companies they attempt to influence. It relies on a private database consisting of the correspondence between TIAA-CREF and 45 firms is contacted about governance issues between 1992 and 1996. This correspondence indicates that TIAA-CREF is able to reach agreemens with targeted companies more than 95 percent of the time. In more than 70 percent of the cases, this agreement is reached without shareholders voting on the proposal. The authors verify independently that at least 87 percent of the targets subsequently took actions to comply with these agreements.	1998	Governance
Changes to Ownership and Control of East Asian Corporations between 1996 and 2008: The Primacy of Politics Author: Carney, R. and T. Child Journal: Journal of Financial Economics this paper finds that where the status quo political arrangements persist, preexisting ownership arrangements go unchanged or become more entrenched. Where major political changes occurred, corporate ownership would undergo substantial changes. Also, the state has become increasingly important as an owner of domestic firms as well as foreign firms.	2013	Governance
Corporate Governance, Board Diversity, and Economic Growth Author: Carter, D., B. Simkins and W. Simpson Journal: Financial Review This study examines the relationship between board diversity and firm value for Fortune 1000 firms. Board diversity is defined as the percentage of women, African Americans, Asians, and Hispanics on the board of directors. The authors find significant positive relationships between the fraction of women or minorities on the board and the firm value. The authors also find that the proportion of women and minorities on boards increases with firm size and board size, but decreases as the number of insiders increases.	2003	Social, Governance
Investor Protection, Optimal Incentives, and Economic Growth Author: Castro, R., G. Clementi and G. MacDonald Journal: Quarterly Journal of Economics The authors introduce investor protection into a standard overlapping generations model of capital accumulation. Better investor protection implies better risk-sharing. Because of entrepreneurs' risk aversion, this results in a larger demand for capital. This is the demand effect. A second effect (the supply effect) follows from general equilibrium restrictions. Better protection (i.e., higher demand) increases the intrest rate and lowers the income entrepreneurs, decreasing current savings and next period's supply of capital.	2004	Governance
Corporate Social Responsibility (CSR) in Asia: A Seven-Country Study of CSR Web Site Reporting Author: Chapple, W. and J. Moon Journal: Buisness & Society This article concludes that CSR does vary considerably among Asian countries but that this variation is not explained by development but by factors in the respective national buisness systems. It also concludes that multinational companies are more likely to adopt CSR than those operating solely in their home country but that the profile of their CSR tends to reflect the profile of the country of operation rather than the country of origin.	2005	Governance
Connected Lending: Thailand befor the Financial Crisis Author: Charumilind, C., R. Kali and Y. Wiwattanakantang Journal: Journal of Buisness This paper found that firms with connections to banks and politicans had greater access to long-term loans, and appeared to use fewer short-term loans than those without connections.	2006	Governance
Do Ownership Structure and Governance Mechanisms Have an Effect on Corporate Fraud in China's Listed Firms? Author: Chen, G., M. Firth, N. Gao and O. Rui Journal: Journal of Corporate Finance The study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. The results show that ownership and board characteristics are important in explaining fraud. The authors find that the proportion of outside directors, the number of board meetings, and the tenure of the chairman are associated with the incidence of fraud.	2006	Governance
Do Nonfinacial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized workers Author: Chen, H., M. Kacperczyk and H. Ortiz-Molina Journal: Review of Finance Firms in more unionized industries have statistically and economically significant lower bond yield spreads. The effect is even greater with firms that have weak financial conditions. Higher unionization is associated with lower likelihood that a firm is an acquisition target and unionization reduces bond yield spreads by more when firms takeover barriers are lower.	2012	Social
Breadth of Ownership and Stock Returns Author: Chen, J., H. Hong and J. Stein Journal: Journal of Financial Economics The authors develop a stock market model with differences of opinion and short-sales constraints. When breadth is low - i.e., when few investors have long positions - this signals that the short-sales constraint is binding tightly, and that prices are high relative to fundamentals. Thus reductions in breadth should forecast lower returns. The authors find that stocks whose change in breadth in the prior quarter is in the lowest decile of the sample underperform those in the top decile by 6.38 percent in the twelve months after formation. Adjusting for size, book-to-market, and momentum, the figure is 4.95 percent.	2002	Governance
Outsourcing Mutual Fund Management: Firm Boundaries, Incentives, and Performance Author: Chen, J., H. Hong, W. Jiang and J. Kubik Journal: Journal of Finance The authors investigate the effects of managerial outsourcing on the performance and incentives of mutual funds. Fund families outsource the management of a large fraction of their funds to advisory firms. These funds underperform those run internally by about 52 basis points per year. After instrumenting for a fund's outsourcing status, the estimated underperformance is three times larger. The authors find that outsourced funds face higher powered incentives; they are more likely to be closed after poor performance and excessive risk-taking.	2013	Governance
The Relationship between Pollution Control Record and Financial Indicators Revisited Author: Chen, K. and R. Metcalf Journal: Accounting Review This legal note analyzes the claims in Spicer (1978), which finds a relationship between financial indicators and corporate social responsibility. These authors find evidence that 'size' and other background factors ommitted from Spicer (1978) devalue the original results.	1980	Environmental
Agency Costs of Free Cash Flow and the Effect of Shareholder Rights on the Implied Cost of Equity Capital Author: Chen, K., Z. Chen and K. Wei Journal: Journal of Financial and Quantitative Analysis This paper examines the effect of shareholder rights on reducing the cost of equity and the impact of agency problems from free cash flow on this effect. The authors find that firms with strong shareholder rights have a significantly lower implied cost of equity after controlling for risk factors, price momentum, analysts' forecast biases, and the industry effects than do firms with weak shareholder rights. They also show that the effect of shareholder rights on reducing the cost of equity is significantly stronger for firms with more severe agency problems from free cash flows.	2009	Governance
Directors' Ownership in the U.S. Mutual Fund Industry Author: Chen, Q., I. Goldstein and W. Jiang Journal: Journal of Finance this paper empirically investigates directors' ownership in the mutual fund industry. The results show that, contrary to anecdotal evidence, a significant portion of directors hold shares in the funds they oversee. Ownership is positively and significantly correlated with most variables that are predicted to indicate greater value from directors' monitoring. The authors also show considerable heterogeneity in ownership across fund families, suggesting family-wide policies play an important role.	2008	Governance
The Senseitivity of Corporate Cash Holdings to Corporate Governance Author: Chen, Q., X. Chen, K. Schipper, Y. Xu and J. Xue Journal: Review of Financial Studies This paper shows that the average cash holdings of Chinese-listed firms decreased significantly after the split share structure reform in China, which specified a process that allowed previously nontradable shares held by controlling shareholders to be freely tradable on the exchanges. The reduction in cash holdings is greater for firms with weaker governance and firms facing more financial constraints prior to the reform. Additional analyses show that the reform affects firms' cash management policies, investment decisions, dividend payout policies, and financing choices differently in private firms than in state-owned enterprises.	2012	Governance
Do Managers Do Good with Other Peoples' Money? Author: Cheng, I., H. Hong and K. Shue Journal: Working paper The authors test the hypothesis that corporate social responsibility is due to managerial agency problems using two identification strategies. They use the 2003 Dividend Tax Cut, which increased the after-tax effective firm ownership for managers. Consistent with the agency view, they find that the tax cut led to a decline in corporate goodness. Second, the authors provide evidence in which shareholder-initiated governance proposals which narrowly passed experienced significantly slower growth in corporate goodness relative to firms in which the proposals narrowly failed.	2013	Governance
The Contractual Nature of the Firm Author: Cheung, S. Journal: Journal of Law and Economics This theoretical paper interets R.H Coase's paper "The Nature of the Firm". The auhtor examines contracts in general and the piece-rate contract in particular. The author also evaluates the influence of Coase's paper in future economic literature.	1983	Governance
The Structure of a Contract and the Theory of a Non-Exclusive Resource Author: Cheung, S. Journal: Journal of Law and Economics This theoretical paper provides analysis on contracting and discusses the problem of them divergence of private and social costs. The author concludes that the concept of 'externality' is vague and therfore not useful.	1970	Governance
CEO Compensation and Board Structure Author: Chhaochharia, V. and Y. Grinstein Journal: Journal of Finance In response to corporate scandals in 2001 and 2002, major U.S. stock exchanges issued new board requirements to enhance board oversight. The authors find a significant decrease in CEO compensation for firms that were more affected by these requirements, compared with firms that were less affected, taking into account unobservable firm effects, time-varying industry effects, size, and performance. The decrease in compensation is particularly pronounced in the subset of affected firms with no outside blockholder on the board and in affected firms with low concentration of institutional investors.	2009	Governance
Corporate Governance and Firm Value: The Impact of the 2002 Governance Rules Author: Chhaochharia, V. and Y. Grinstein Journal: Journal of Finance The 2001 to 2002 corporate scandals led to the Sarbanes-Oxley Act and to various amendments to the U.S. stock exchanges' regulations. The authors find that the announcement of these rules has a significant effect on firm value. Firms that are less compliant with the provisions of the rules earn positive abnormal returns compared to firms that are more compliant. They also find that large firms that are less compliant earn positive abnormal returns but small firms that are less compliant earn negative abnormal returns, suggesting that some provisions are detrimental to small firms.	2007	Governance
The Changing Structure of U.S. Corporate Boards: 1997-2003 Author: Chhaochharia, V. and Y. Grinstein Journal: Corporate Governance The authors find significant changes in board independence, committee independence, board size, interlocking directorships, director occupation and multiple directorships. They find weaker trends in the financial stake of independent directors and in separating CEOs from the chairman position. In 2003 many independent directors have small holdings in the firms they direct and CEOs chair around two-thirds of the boards in the sample.	2007	Governance
The Relationship between Corporate Governance and Firm Productivity: Evidence from Taiwan's Manufacturing Firms Author: Chiang, M. and J. Lin Journal: Corporate Governance This study analyzes the relationship between ownership structure and board of director composition and their influences on the total factor productivity (TFP) of Taiwan's firms. The empirical results show that the curvilinear specification is better to capture the relationship between inside ownership and firm productivity. Meanwhile, the ownership structure in a firm indeed affects differences in TFP between conglomerate firms and non-conglomerate firms, high-tech firms and non-high-tech firms, and family-owned firms and non-family-owned firms.	2007	Governance
The Value of Outside Directors: Evidence from Corporate Governance Reform in Korea Author: Choi, J., S. Park and S. Yoo Journal: Journal of Financial and Quantitative Analysis This paper examines the valuation impacts of outside independent directors in Korea, where a regulation requiring outside directors was instituted after the Asian financial crisis. In contrast to studies of U.S. firms, the effects of independent directors on firm performance are strongly positive. Foreigners also have positive impacts. The effects of indigenous institutions such as chaebol or family control are insignificant or negative.	2007	Governance
Effects "Best Practices" of Environmental Management on Cost Advantage: The Role of Complementary Assets Author: Christmann, P. Journal: Academy of Management Journal Drawing on the resource-based view of the firm, this study analyzes whether complementary assets are required in order to gain cost advantage from implementing environmental management best practices. Results indicate that the best practices of environmental management generally do not lead to cost advantage for all firms. Firms need to possess complementary assets in order to create cost advantage from the implementation of such practices. In particular, the capabilities for process innovation and implementation are complementary assets that moderate the relationship between best practices and cost advantage.	2000	Environmental
Is Cross-Listing a Commitment Mechanism? Evidence from Cross-Listings around the World Author: Chung, J., S. Korea, H. Cho and W. Kim Journal: Third International Conference on Corporate Governance in Emerging Markets This paper finds that firms are more likely to choose cross-listing destinations that are less strict on regulating self-dealing or exhibit higher block premiums relative to the origin country, and this tendaency is more pronounced after Sarbanes-Oxley in 2002. The authors also find that firm characteristics that are positively correlated with likelihood of a U.S. cross-listing, such as high tech or high Tobin's q, are also positively correlated with likelihood cross-listings in Germany or Switzerland both of which exhibit low investor protection.	2011	Governance
The Effects of Employment Protection Legislation and Financial Market Imperfections on Investment: Evidence from a Firm-Level Panel of EU Countries Author: Cingano, F., M. Leonardi, J. Messina and G. Pica Journal: Economic Policy This paper studies the joint effect of employment protection legislation (EPL) and financial market imperfections on investment, capital-labor substitution, labor productivity and job reallocation. The authors find that EPL reduces investment per worker, capital per worker and value added per worker in high reallocation sectors relative to low reallocation sectors, while increasing the average frequency at which firms adjust their capital stock.	2010	Governance
Corporate Governance and Development Author: Claessens, S. Journal: World Bank Research Observer The literature shows that good corporate governance generally pays- for firms, for markets, and for countries. Given the benefits of good corporate governance, firms and countries should voluntarily reform more. Resistance by entrenched owners and managers at the firm level and political economy factors at the level of markets and countries partly explain why they do not.	2001	Governance
Finance and Inequality: Channels and Evidence Author: Claessens, S. and E. Perotti Journal: Working paper This theoretical paper provides a framework to interpret the recent literature on financial development and inequality. Inequality affects the distribution of political influence, so financial regulation often is easily captured by established intrests in unequal countries. Capture reforms deepen rather than broaden access, as small elites obtain most of the benefits while risks are socialized.	2007	Governance
Corporate Governance in Asia: A Survey Author: Claessens, S. and J. Fan Journal: International Review of Finance This paper reviews the literature on corporate governance issues in Asia to develop region-specific and general lessons. The literature confirms the limited protection of minority rights in Asia, allowing controlling shareholders to expropriate minority shareholders. The Asian financial crisis further showed that conventional and alternative corporate governance mechanisms can have limited effectiveness in systems whith weak institutions and poor property rights.	2002	Governance
Banks and Labor as Stakeholders: Impact on Economic Performance Author: Claessens, S. and K. Ueda Journal: International Monetary Fund This paper finds that financial deregulation impacts overall state growth positively but stronger employment protection affects it ambiguously. At the state-industry level, greater employment protection hinders the growth of low-skill industries but promotes the growth of knowledge-intensive industries. The authors find that this effect stems from stronger relative bargaining powers of workers, in addition to the effects of higher absolute employment protection.	2009	Governance
Financial Development, Property Rights, and Growth Author: Claessens, S. and L. Laeven Journal: Working paper This paper analyzes how property rights affect the allocation of firms' available resources among different types of assets. The authors find that improved asset allocation due to better property rights has an effect on growth in sectoral value added equal to improved access to financing arising from greater financial development.	2002	Governance
Political Connections and Preferntial Access to Finance: The Role of Campaign Contributions Author: Claessens, S., E. Feijen and L. Laeven Journal: Journal of Financial Economics This paper shows that Brazilian firms that provided contributions to (elected) federal deputies experienced higher stock returns around the 1998 and 2002 elections. Using a firm fixed effects framework to mitigate the risk that unobserved firm characteristics distort the results, the authors find that contributing firms substantially increased their bank leverage relative to a control group after each election, indicating that access to bank finance is an important channel through which political connections operate.	2008	Governance
Financial Frictions, Investment, and Institutions Author: Claessens, S., K. Ueda and Y. Yafeh Journal: IMF Working papers This paper empirically investigates the effects of institutions on financial frictions. The authors find that improved corporate governance (e.g., less informational problems) and enhanced contractual enforcement reduce financial frictions, while stronger creditor rights (e.g., lower collateral constraints) are less important.	2010	Governance
The Seperation of Ownership and Control in East Asian Corporations Author: Claessens, S., S. Djankov and L. Lang Journal: Journal of Financial Economics This paper examines the seperation of ownership and control in nine East Asian countries. In all countries, voting rights frequently exceed cash flow rights via pyramid structures and cross-holdings. The seperation of ownership and control is most pronounced among family-controlled firms and small firms. Significant corporate wealth in East Asia is concentrated among a few families.	2000	Governance
Disentangling the Incentive and Entrenchment Effects of Large Shareholdings Author: Claessens, S., S. Djankov, J. Fan and L. Lang Journal: Journal of Finance This article disentangles the incentive and entrenchment effects of large ownership. The authors find the firm value increases with the cash-flow ownership of the largest shareholder, consistent with a positive incentive effect. But firm value falls when the control rights of the largest shareholder exceed its cash-flow ownership, consistent with an entrenchment effect.	2002	Governance
Corporate Governance and Environmental Risk management: A Quantitative Analysis of "New Paradigm" Firms Author: Clark, G. and J. Salo Journal: Pensions at Work: Social Responsible Investment of Union-Based Pension Funds, edited by J. Quwarter, I. Carmichael and S. Ryan The authors' results suggest that "new paradigm" firms- those with high relative amounts of intangibles as a part of overall firm value- tend to manage corporate governance and environmental risks more aggressively than their "classical model" peers. In addition, it is found that a firm's industry is more important than iits home nation in predicting the level of intangible assets for firm value and growth of investment in intangibles over time.	2008	Environmental
Environmental management and Firm Performance: A Case Study Author: Claver, E., M. Lopez, J. Molina and J. Tari Journal: Journal of Environmental Management A case study of the COATO farming coorperative showed that its environmental management, focused on prevention logic, has a positive net effect on its environmental performance. Also a positive correlation exists between the pioneering proactive strategy and firm performance.	2007	Environmental
Corporate Social Responsibility and Financial Performance Author: Cochran, P. and R. Wood Journal: Academy of Management Review The relationship between corporate social responsibility and financial performance is reexamined usin a new methodology, improved technique, and industry-specific control groups. Average age of corporate assets is found to be highly correlated with social reponsibility ranking. After controlling for this factor, there is still some correlation between corporate social responsibility and financial performance.	1984	Environmental, Social, Governance
Do Norms Matter? A Cross-Country Evaluation Author: Coffee, Jr., J. Journal: University of Pennsylvania Law Review This article examines the effects of nonlegal enforceable social norms in regards to corporate governance on firm market value. The author finds that when law is weak and social norms about shareholders' rights are underdeveloped, then credible signals about the corporations intentions become critical.	2001	Governance
Future as History: The Prospects for Global Convergence in Corporate Governance and Its Implications Author: Coffee, Jr., J. Journal: Northwestern University Law Review The author examines three hypotheses which attempt to explain corporate structure and shareholder behavior: political constraints, liquidity preferences, and fear of minority exploitation. This article suggest that, within the U.S. context, the critical protections for the dispersed shareholder are principally found in the federal securities laws, particularly those provisions regulating corporate control transactions.	1998	Governance
Hiring Cheerleaders: Board Appointments of "Independent" Directors Author: Cohen, L., A. Frazzini and C. Malloy Journal: Management Science By reviewing cases of sell-side analysts who are subsequently appointed to the boards of companies they previously covered, the authors provide evidence that firms appoint independent directors who are overly sympathetic to management, while still technically independent according to regulatory definitions.	2012	Governance
The Small World of Investing: Board Connections and Mutual Fund Returns Author: Cohen, L., A. Frazzini and C. Malloy Journal: Journal of Political Economy This paper uses social networks to identify information transfer in security markets. The authors find that portfolio managers place larger bets on connected firms and perform significantly better on these holdings relative to their nonconnected holdings. A replicating portfolio of connected stocks outperform nonconnected stocks by up to 7.8 percent per year.	2008	Governance
Environmental and Financial Performance: Are They Related? Author: Cohen, M., S. Fenn and J. Naimon Journal: Investor Responsibility Research Center, Environmental Information Service This study reports on a new dataset (Investor Responsibility Research Center) detailing the environmental performance of the Standard and Poor's 500 companies. The authors construct two industry-balanced portfolios and compare both accounting and market returns of the "high polluter" to the "low polluter" portfolio. Overall, they find either no "penalty" for investing in the "green" portfolio, or a positive return from green investing. This paper also examines the stock market reaction to new information on the environmental performance of individual firms, and provides a preliminary analysis of causality.	1995	Environmental
Optimal Corporate Governance in the Presence of an Activist Investor Author: Cohn, J. and U. Rajan Journal: Review of Financial Studies The authors provide a model of governance in which a board arbitrates between an activist investor and a manager facing reputational concerns. The optimal level of internal board governance depends on both the severity of the agency conflict and the strength of external governance. Internal board governance creates a certification effect, so greater intervention by the board can lead to worse managerial behavior. Internal and external governance are substitutes when external governance is weak (the board commits to an interventionist policy to induce participation from the activist) and complements with external governance is strong (the board relies to a greater extent on the activist's information).	2013	Governance
Structural Models and Endogeneity in Corporate Finance: The Link between Managerial Ownership and Corporate Performance Author: Coles, J., M. Lemmon and J. Felix Meschke Journal: Journal of Financial Economics This paper presents a parsimonious, structural model that isolates primary economic determinants of the level and dispersion of managerial ownership, firms scale, and performance and the empirical associations among them. In particular, variation across firms and through time of estimated productivity parameters for physical asstes and managerial input and corresponding variation in optimal compensation contract and firm size combine to deliver the well-known hump-shaped relation between Tobin's Q and managerial ownership.	2012	Governance
The Financial Performance of the FTSE4Good Indices Author: Collison, D., G. Cobb, D. Power and L. Stevenson Journal: Corporate Social Responsibillity and Environmental Management This paper examines the financial performance of the FTSE$Good indices; the indices include companies from different geographical areas on the basis of pre-determined social responsibility criteria: currently environmental sustainability, relationships with stakeholders, attitudes to human rights, supply chain labor standards and the countering of bribery. The results indicate that these indices outperformed their relevant benchmarks. However, most of this outperformance was due to the risk differences between the FTSE4Good indices and their benchmarks.	2008	Environmental, Social, Governance
Global Standards and Ethical stock Indexes: The Case of the Dow Jones Sustainability Stoxx Index Author: Consolandi, C., A. Jaiswal-Dale, E. Poggiani and A. Vercelli Journal: Journal of Buisness Ethics The aim of this article is twofold. First, the authors analyze the performance of the Dow Jones Sustainability Stoxx (DJSSI) compared to that of the Surrogate Complementary Index (SCI). Second, they perform an event study on the same data set to analyze whether the stock market evaluation reacts to the inclusion (deletion) in the DJSSI. In both cases, the results suggest that the evaluation of the CSR performance of a firm is a significant criterion for asset allocation activities.	2009	Environmental, Social, Governance
The Directors' and Officers' Insurance Premium: An Outside Assessment of the Quality of Corporate Governance Author: Core, J. Journal: Journal of Law, Economics, & Organization This article examines the director & officer (D&O) premium as a measure of ex ante litigation risk. The author dinds a significant association between D&O premiums and variables that proxy for the quality of firms' governance structures. This article provides confirmatory evidence that the D&O premium reflects the quality of the firm's corporate governance by showing measures of weak governance implied by the D&O premium are positively related to excess CEO compensation.	2000	Governance
Performance Consequences of Mandatory Increases in Executive Stock Ownership Author: Core, J. and D. Larcker Journal: Journal of Financial Economics The authors examine a sample of firms that adopt target ownership "plans", under which managers are required to own a minimum amount of stock. The authors find that the prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership increases significantly in the two years following plan adoption. The authors also observe that excess accounting returns and stock returns are higher after the plan is adopted.	2002	Governance
Corporate Governance, Chief Executive Officer Compensation, and Firm Performance Author: Core, J., R. Holthausen and D. Larker Journal: Journal of Financial Economics The study finds that measures of board and ownership structure explain a significant amount of cross-sectional variation in CEO compensation. After controlling for standard economic determinants of pay. The signs of the coefficients on the board and ownership structure variables suggest that CEOs earn greater compensation when governance structures are less effective. They also find that the predicted component of compensation arising from these characteristics of board and ownership structure has a statistically significant negative relation with subsequent firm operating and stock return performance.	1999	Governance
The Power of the Pen and Executive Compensation Author: Core, J., W. Guay and D. Larker Journal: Journal of Financial Economics The authors examine the press' role in monitoring and influencing executive compensation practice. Negative press coverage is more strongly related to excess annual pay than to raw annual pay, suggesting a sophisticated approach by the media in selecting CEOs to cover. However, negative coverage is also greater for CEOs with more option exercises, suggesting the press engages in some degree of "sensationalism". The authors find little evidence that firms respond to negative press coverage by decreasing excess CEO compensation or increasing CEO turnover.	2008	Governance
Price versus Non-Price Performance Measures in Optimal CEO Compensation Contracts Author: Core, J., W. Guay and R. Verrecchia Journal: Accounting Review The authors empirically examine standard agency predictions about how performance measures are optimally weighted to provide CEO incentives. They document that the relative weight on price and non-price performance measures in CEO cash pay is decreasing function of the relative variances. They document that very little of CEOs total incentives comes from cash pay. They also document that variation in the relative weight on price and non-price performance measures in CEO toal compensation is an increasing function of the relative variances.	2003	Governance
Does Weak Governance Cause Weak Stock Returns? An Examination of Fim Operating Performance and Investors' Expectations Author: Core, J., W. Guay and T. Rusticus Journal: Journal of Finance This paper investigates Gompers, Ishii, and Metrick's (2003) finding that firms with weak shareholder rights exhibit significant stock market underperformance. The authors find that firms with weak shareholder rights exhibit significant operating underperformance. However, analysts' forecast errors and earning announcement returns show no evidence that this underperformance surprises the market.	2006	Governance
Monitoring Managers: Does It Matter? Author: Cornelli, F., Z. Kominek and A. Ljungqvist Journal: Journal of Finance The authors study how well-incentivized boards monitor CEOs and whether monitoring improves performance. They find that gathering information helps boards learn about CEO ability. This paper shows that governance reforms increase the effectiveness of board monitoring and establish a casual link between forced CEO turnover and performance improvements.	2013	Governance
The Financial Crisis, Internal Corporate Governance, and the Performance of Publicly-Traded U.S. and European Funds Author: Cornett, M., J. McNutt and H. Tehranian Journal: Working paper This paper examines internal corporate governance mechanisms and the performance of publicly-traded U.S. banks before and during the financial crisis. The authors find that the largest banks see the largest losses and experience the largest changes in corporate governance. Lastly, the authors find stronger relations between corporate governance variable changes and 2008 stock market returns for large banks than for small banks.	2010	Governance
Socially Responsible Investing in the Global Market: The performance of U.S. and European Funds Author: Cortez, M., F. Silva and N. Areal Journal: International Journal of Finance & Economics This paper investigates the style and performance of U.S. and European global socially responsible funds. Most European global socially responsible funds do not show significant performance differences in relation to both conventional and socially responsible benchmarks. U.S. funds and Austrian funds show evidence of underperformance. With respect to investment style, the authors find evidence that socially responsible funds are strongly exposed to small cap and growth stocks.	2011	Environmental, Social, Governance
The Performance of European Socially Responsible Funds Author: Cortez, M., F. Silva and N. Areal Journal: Journal of Buisness Ethics This paper investigates performance of a sample of socially responsible mutual funds from seven European countries investing globally and/or in the European market. The results show that European socially responsible funds present, in general, neutral performance, either in relation to conventional or socially responsible benchmarks. The results also show that socially responsible funds are more exposed to conventional than to socially responsible indices.	2009	Environmental, Social, Governance
Do Independent Directors Enhance Target Shareholder Wealth During Tender Offers? Author: Cotter, J., A. Shivdasani and M. Zenner Journal: Journal of Financial Economics The authors examine the role of the target firm's independent outside directors during takeover attempts by tender offer. They find that when the targets board is independent, the initial tender offer premium, the big premium revision, and the target shareholder gains over the entire tender offer period are higher, and that the presence of a poison pill and takeover resistance lead to greater premiums and shareholder gains.	1997	Governance
Home Bias, Foreign Mutual Fund Holdings, and the Voluntary Adoption of International Accounting Standards Author: Covrig, V., M. Defond and M. Hung Journal: Journal of Accounting Research This paper finds that average foreign mutual fund ownership is significantly higher among International Accounting Standards (IAS) adopters. The authors also find that IAS adopter in poorer information environments annd with lower visibility have higher levels of foreign investment, consistent with firms using IAS adoption to provide more information and/or information in a more familiar form to foreign investors.	2006	Governance
An Empirical Examination of Institutional Investor Preferences for Corporate Social Performance Author: Cox, P., S. Brammer and A. Millington Journal: Journal of Buisness Ethics The study finds that long-term institutional investment is positively related to corporate social performance (CSP). Pattern of institutional investment is related to the form of CSP. Long-term investment has a stronger relationship with employee social performance than with community social performance.	2004	Environmental, Social
Managing Cultural Diversity: Implications for Organizational Competitiveness Author: Cox, T. and S. Blake Journal: Executive This article reviews arguments and research data on how managing diversity can create a competitive advantage. The authors address cost, attraction of human resources, marketing success, creativity and innovation, problem-solving quality, and organizational flexibility as six dimensions of buisness performance directly impacted by the management of cultural diversity.	1991	Social
Effects of Ethnic Group Cultural Differences on Coorperative and Competitve Behavior on a Group Task Author: Cox, T., S. Lobel and P. McLeod Journal: Academy of Management Journal This study examined whether the cultural norms of Anglo-Americans, Asians, Hispanics, and Black Americans result in different behaviors on a Prisoner's Dilemma group task. Results confirmed the hypothesis that groups composed of people from collectivist cultutural traditions.	1991	Social
Thirty years of Shareholder Rights and Firm Valuation Author: Cremers, K. and A. Ferrell Journal: Working paper This paper finds a robustly negative association between restrictions on shareholder rights (using the G-Index as a proxy) and Tobin's Q. The negative association between fewer shareholder rights and firm value only appears after the judicial approval of the poison pill and antitakeover defenses more generally in the landmark Delaware Supreme Court decision of Moran v. Household in 1985. This decision was an unanticipated, exogenous shock to shareholder rights, suggesting a casual impact of shareholder rights on firm valuation.	2011	Governance
Institutional Investors and Proxy Voting: The Impact of the 2003 Mutual Fund Voting Disclosure Regulation Author: Cremers, K. and R. Romano Journal: American Law and Economics Review This paper examines the impact on shareholder voting of the mutual fund voting disclosure regulation adopted by the SEC in 2003. The authors focus on how voting outcomes relate to institutional ownership and the voting behavior of mutual funds. While voting support for management has decreased over time, the authors find no evidence that mutual funds' support for management declined after the rule change, as expected by advocates of disclosure. In the context of management-sponsored proposals on executive incentive compensation plans, mutual funds appear to have increased their support for management after the rule change.	2011	Governance
Governance mechanisms and Equity Prices Author: Cremers, K. and V. Nair Journal: Journal of Finance This paper investigates how the market for corporate control (external governance) and shareholder activism (internal governance) interact. A portfolio that buys firms with the highest level of takeover vulnerability and shorts firms with the lowest level of takeover vulnerability generates an annualized abnormal return of 10 percent to 15 percent only when public pension fund (blockholder) ownership is high as well. A simialar portfolio created to capture the importance of internal governance generates annualized abnormal returns of 8 percent, though only in the presence of "high" vulnerability to takeovers.	2005	Governance
Does the Market for CEO Talent Explain Controversial CEO Pay Practices? Author: Cremers, K. and Y. Grinstein Journal: 3rd Annual Conference on Empirical Legal Studies Benchmarking, pay for luck, and the large compensation packages given to CEOs in recent years are three major controversial compensation practices. The authors examine the extent to which variation in the market for CEO talent explains these practices. The authors find that CEO compensation is benchmarked against other firms only in industries where CEO talent is not firm-specific, and pay for luck is more prevalent when CEO talent is more firm-specific. They also find that CEO compensation Levels do not depend on whether CEO talent is firm-specific, which seems inconsistent with the competition argument.	2011	Governance
Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry Author: Cremers, K., J.Driessen, P. Maenhout and D. Weinbaum Journal: Journal of Financial and Quantitative Analysis This paper uses a unique database on ownership stakes of equity mutual fund directors to analyze whether the directors' incentive structure is related to fund performance. Ownership of both independent and nonindependent directors plays a economically and statistically significant role. Funds in which directors have low ownership, or "skin in the game", significantly underprform.	2009	Governance
Governance Mechanisms and Bond Prices Author: Cremers, K., V. Nair and C. Wei Journal: Review of Financial Studies The authors investigate the effects of shareholder governance mechanisms on bondholders and document two new findings. In the presence of shareholder control, the difference in bond yields due to differences in takeover vulnerability can be as high as 66 basis points. Second, event risk convenants reduce the credit risk associated with strong shareholder governance.	2007	Governance
Takeover Defenses and Competition: The Role of Stakeholders Author: Cremers, K., V. Nair and U. Peyer Journal: Journal of Empirical Legal Studies This article studies between takeover defenses and competition. The authors find that firms in more competitive industries have more takeover defenses. This suggests that product market competition can be a subsitute for the market for corporate control, with more information availale in competitive markets making monitoring less costly.	2008	Governance
Stock Duration and Misvaluation Author: Cremers, M., A. Pareek and Z. Sautner Journal: Working paper The authors study whether the presence of short-term investors is related to a speculative component in stock prices using a new measure of holding duration. The authors document that the presence of short-term investors is strongly related to temporary price distortions, consistent with a speculative component in stock prices as modeled in Bolton, Scheinkman, and Xiong (2006). As short-term investors move into (out of) stocks, their prices tend to go up (down) relative to fundamentals.	2013	Governance
Large Shareholders and Corporate Policies Author: Cronqvist, H. and R. Fahlenbrach Journal: Review of Financial Studies The authors analyze the effects of heterogeneity across large shareholders. The authors find statistically significant and economically important blockholder fixed effects in investment, financial, and executive compensation policies. They also find blockholder fixed effects in firm performance measures, and differences in corporate policies are systematically related to differences in firm performance.	2009	Governance
Environmental Economics: A Survey Author: Cropper, M. and W. Oates Journal: Journal of Economic Literature This paper reviews the literature on the theory of environmental regulation with a focus on theoretical results regarding the choice among the key policy instruments for the control of externalities: effluent fees, subsidies, and marketable emission permits. Policy applications are discussed as well.	1992	Environmental
Corporate Governance and Ownership Structure in Emerging Markets: Evidence from Latin America Author: Cueto, D. Journal: Working paper In a context of low protection for minority shareholders and large ownership concentration, the paper finds that market participants impose a discount on the value of firms in which voting rights of dominant shareholders exceed the cash-flow rights. The evidence suggests that the stock market discount is lower when other corporations and family groups assume monitoring roles similar to that of creditors. Collusion between blockholders and dominant shareholders for the purpose of extracting private benefits of control, to the detriment of investors, is not evident.	2011	Governance
Corporate Social Responsibility: Domestic and International private Equity Institutional Investment Author: Cumming, D. and S. Johan Journal: Working paper This paper shows that socially responsible investment is more common among institutional investors with a greater international investment focus in Europe and the United States relative to domestic Dutch investment and investment in Asia. Socially responsible investment is also more common among larger institutional investors and those expecting relatively greater returns from such investments, and less common among fund-of-fund investments.	2006	Environmental, Social
The Vot is Cast: The Effect of Corporate Governance on Shareholder Value Author: Cuñat, V., M. Gine and M. Guadalupe Journal: Journal of Finance The authors find that passing an internal corporate governance proposal leads to significant positive abnormal returns. Adopting one governance proposal increases shareholder value by 2.8 percent. The market reaction is larger in firms with more antitakeover provisions, higher institutional ownership, and stronger investor activism for proposals sponsored by institutions. In addition, they find that acquisitions and capital expenditures decline and long-term performance improves.	2012	Governance
Ownership, Control, Valuation and Performance of Brazilian Corporations Author: da Silva, A. and R. Leal Journal: Corporate Ownership and Control This paper analyzes the ownership and control structure of Brazilian companies and the effect of cash flow and voting rights on firm valuation and performance. The authors find evidence that non-voting shares and indirect control structures are largely used to concentrate control with reduced overall investment in the company. Moreover, firm valuation and performance are relatively higher for firms with controlling shareholders when compared to firms without controlling shareholders.	2006	Governance
Endogeneity of Brazilian Corporate Governance Quality Determinants Author: da Silva, A., R. Leal, A. Carvalhal-da-Silva and L. Barros Journal: Corporate Governance This paper investigates the determinants and the evolution of voluntarily adopted firm-level corporate governance preactices in Brazil. The authors find that firm-level corporate governance practices are steadily improving but there is much room for improvement. Heterogeneity has increased. Voluntarily adhering to new stricter listing requirements is associated positively with improvements in firm-level corporate governance practices. reducing or not using non-voting shares improves corporate governance practices.	2010	Governance
Rating the Ratings: How Good Are Commercial Governance Ratings? Author: Daines, R., I. Gow and D. Larcker Journal: Journal of Financial Economics The authors examine whether commercially available corporate governance rankings provide useful information for shareholders. The results suggest that they do not. Commercial ratings do not predict governance-related outcomes with the precision or strength necessary to support the bold claims made by most of these firms. The authors find little or no relation between the governance ratings provided by RiskMetrics with either their voting recommendations or the actual votes by shareholders on proxy proposals.	2010	Governance
Corporate Social Responsibility in a General Equilibrium Stock Market Model: Solving the Financial Performance Puzzle Author: Dam, L. Journal: CCSO Centre for Economic Research This theoretical paper analyzes corporate social responsibility (CSR) in a general equilibrium stock market model with uncertainty in production. Production generates non-market costs and consumers take this into account when they construct their portfolio. The authors conclude that there is a clear and direct association between CSR and different measures of corporate financial performance.	2006	Environmental, Social, Governance
Do Pills Poison Operating Performance? Author: Danielson, M. and J. Karpoff Journal: Journal of Corporate Finance Contrary to arguments that poison pills degrade firm performance, the authors find that operating performance modestly improves during the 5-year period after pill adoption. Performance improvements are present in a wide range of firms, and are independent of adoption year and whether the firm is R&D intensive. Although recent arguments suggest that the protection offered by pills is strongest when combined with a staggered board, the performance changes also are unrelated to board structure.	2006	Governance
Socially Responsible Investing and Asset Allocation Author: D'Antonio, L., T. Johnsen and R. Hutton Journal: Journal of Investing This paper compares returns on a SR portfolio percentage of debt and equity to traditional investment vehicle returns using several methods of asset allocation. The authors find that the SR portfolio outperformed the combined S&P 500/LB index across all methods.	2000	Environmental, Social, Governance
Pollution and Capital Markets in Developing Countries Author: Dasgupta, S., B. Laplante and N. Mamingi Journal: Journal of Environmental Economics and Management This paper shows that capital markets in Argentina, Chile. Mexico, and the Philippines do not react to announcements of environmental events, such as those of superior environmental performance or citizens' complaints. A policy implication is that environmental regulators in developing countries may explicitly harness those market forces by introducing structured programs of information release pertaining to firms' environmental performance: public disclosure mechanisms in developing countries may be a useful model to consider given limited government enforcement resources.	2001	Environmental
Agents without Principles? The Spread of the Poison Pill through the Intercorporate Network Author: Davis, G. Journal: Administrative Science Quarterly This study compares the agency theory of the firm with interorganizational theory in examining the factors associated with the adoption of the poison pill-a takeover defenseissued by a firm's board of directors that can dramatically increase the cost that a hostile buyer would like to have to pay to acquire the firm. The authors' results support a social structural perspective on the market for corporate control in which the interlock network provides a social context favoring continued managerial dominance.	1991	Governance
Business Ties and Proxy Voting by Mutual Funds Author: Davis, G. and E. Kim Journal: Journal of Financial Economics The magnitude of mutual funds' buisness ties with their portfolio firms is documented and is linked to funds' proxy votes at specific firms and to overall voting practices. Aggregate votes at the fund family level indicate a positive relation between buisness ties and the propensity to vote with management. Votes at specific firms, however, reveal that funds are no more likely to vote with management of client firms than non-clients.	2007	Governance
Can a Stock Exchange Improve Corporate Behavior? Evidence from Firms' Migration to Premium Listings in Brazil Author: de Carvalho, A. and G. Pennacchi Journal: Journal of Corporate Finance This paper examines the effects of a commitment to improved corporate disclosure and governance by firms' voluntary migration to Brazil's premium listings which require more stringent shareholder protections. The authors' analysis finds that a firm's migration brings positive abnormal returns to its shareholders, particularly when its shares did not have a prior cross-listing on a U.S. exchange and also when the firm chooses a premium listing with the highest standards.	2012	Governance
The Role of Self Regulation in Corporate Governance: Evidence and Implications from the Netherlands Author: de Jong, A., D. DeJong, G. Mertens and C. Wasley Journal: Journal of Corporate Finance This paper studies The Netherlands' private sector self-regulation initiative (The Peters Committee) to improve corporate governance practices. The authors find that the intiative had no effect on corporate governance characteristics or their relationship with firm value.	2005	Governance
Corporate Governance Quality: Trends and Real Effects Author: De Nicolo, G., L. Laeven and K. Ueda Journal: Journal of Financial Intermediation This paper's investigation on corporate governance across emerging and developed economies yields three main findings. First, corporate governance quality in most countries has improved overall, although in varying degrees and with a few notable exceptions. Second, the data exhibit cross-country convergence in corporate governance quality with countries that score poorly initially catching up with countries with high governance scores. Third, the impact of improvements in corporate governance quality on traditional measures of real economic activity- GDP growth, productivity growth, and the ratio of investment to GDP- is positive, significant and quantitatively relevant, and the growth effect is particularly pronounced for industries that are most dependent on external finance.	2008	Governance
Finance and Inequality: Theory and Evidence Author: Demirguc-Kunt, A. and R. Levine Journal: Annual Review of Financial Economics In this paper, the authors critically review the literature on finance and inequality, highlighting substantive gaps in the literature. While subject to ample qualifications, the bulk of empirical research suggests that improvements in financial contracts, markets, and intermediaries expand economic opportunities and reduce inequality. Yet, there is a shortage of theoretical and empirical research on the potentially enormous impact of formal financial sector policies, such as bank regulations and securities law, on persistent inequality.	2009	Governance
International Corporate Governance Author: Denis, D. and J. McConnell Journal: Journal of Financial and Quantitative Analysis This paper surveys two generations of research on corporate governance systems around the world, concentrating on countries other than the U.S. The first generation of international corporate governance research is patterned after the U.S. research that precedes it. The second generation of international corporate governance research considers the possible impact of differing legal systems on the structure and effectiveness of corporate governance and compares sytems across countries.	2003	Governance
Socially Responsible Fixed-Income Funds Author: Derwall, J. and K. Koedijk Journal: Journal of Buisness Finance & Accounting This paper found that average SRI bond funds performed similar to conventional funds while the average SRI balanced fund outperformed its conventional peer by more than1.3 percent per year.	2009	Environmental, Social
Corporate Governance and the Cost of Equity Capital: Evidence from GMI's Governance Rating Author: Derwall, J. and P. Verwijmeren Journal: European Centre for Corporate Engagement Research Note This research not describes how the corporate governance attributes of publicly listed companies are received by financial markets. The authors first document that firms with better overall corporate governance enjoy a lower cost of equity capital. Second, they find that better governance is associated with lower systematic risk, as measured by a firm's beta. Third, they relate corporate governance to idiosyncratic (i.e., firm-specific) risk.	2007	Governance
The Eco-Efficiency Premium Puzzle Author: Derwall, J., N. Guenster, R. Bauer and K. Koedijk Journal: Financial Analysts Journal This study focused on the concept of "eco-efficiency" which can be thought of as the economic value a company creates relative to the waste it generates. The study constructed and evaluated two equity portfolios that differed in eco-efficiency. The high-ranked portfolio provided substantially higher average returns than its lower ranked counterpart.	2005	Environmental
Voluntary Non-Financial Disclosure and the Cost of Equity Capital: The case of Corporate Social Responsibility Reporting Author: Dhaliwal, D., O. Li, A. Tsang and Y. Yang Journal: Working paper The authors found that the cost of equity capital is positively associated with firms' likelihood of releasing CSR reports. However only firms with CSR performance superior to their industry enjoy a reduction in the cost of equity capital.	2009	Environmental, Social, Governance
Are Red or Blue Companies More Likely to Go Green? Politics and Corporate Social responsibility Author: Di Giuli, A. and L. Kostovetsky Journal: 29th International Conference of the French Finance Association The authors find that firms score higher on CSR when they have Democratic rather than Republican founders, CEOs, and directors, and when they are headquartered in Democratic, rather than Republican-leaning states. This paper estimates that CSR cost Democratic-leaning firms approximately $20 million more in annual SG&A expenses than Republican-leaning firms ($80 million more within the sample of S&P500 firms), representing about 10 percent of net income.	2013	Environmental, Social
Institutional Investment in the EU ETS Author: Diaz-Rainey, I., A. Finegan and A. Ibikunle Journal: Working paper This review paper explores the role of institutional investment in the EU Emissions Trading Scheme. Legislation incorporating a fiduciary obligation for institutional investors to take into account the social costs of investment as well as private returns would begin to address the climate investment gap.	2013	Environmental
Executive Compensation and the Role for Corporate Governance Regulation Author: Dicks, D. Journal: Review of Financial Studies This theoretical article establishes a role for corporate governance regulation. An externality operating through executive compensation motivates regulation. Governace lowers agency costs, allowing firms to grant less incentive pay. When a firm increases governance and lowers incentive pay, other firms can also lower executive compensation. When regulation is enforced, large firms increase value, small firms decrease in value, and all firms lower incentive pay.	2012	Governance
Does Social Screening Affect Portfolio Performance? Author: Diltz, J. Journal: Journal of Investing The authors find that SRI screening has little or no effect on portfolio returns. Environmental and charitable giving screens result in enhanced portfolio performance, while a family benefits screen results in negative performance.	1995	Environmental, Social, Governance
The Private Cost of Socially Responsible Investing Author: Diltz, J. Journal: Applied Financial Economics The authors examine twenty-eight common stock portfolios to determine whether ethical screening has an impact on portfolio performance. To the extent that any impacts are observed, the market appears to reward good environmental performance, charitable giving, and an absence of nuclear and defense work, and it appears to penalize firms that provide family-related benefits such as parental leave, job sharing, and dependent care assistance.	1995	Environmental, Social, Governance
Active Ownership Author: Dimson, E., O. Karakas and X. Li Journal: Working paper This study analyzes the impact of environmental, social, and governance engagements between asset managers and companies. On average, successful CSR engagements give rise to a positive one-year abnormal return of 4.4 percent, whereas there is no market reaction to unsuccessful CSR engagements. Positive abnormal returns are most pronounced for engagements on the themes of corporate governance and climate change.	2013	Environmental, Social, Governance
Mutual Fund Performance and Governance Structure: The Role of Portfolio Managers and Boards of Directors Author: Ding, B and R. Wermers Journal: EFA 2005 Moscow The authors show that experienced large-fund portfolio managers outperform their size, book-to-market, and momentum benchmarks, but htat experienced small-fund portfolio managers underperform their benchmarks- indicating the presence of managerial entrenchment in the mutual fund industry. The authors' evidence indicates that independent boards impact pre-expense performance much more significantly than their prior-documented impact on fund fees. They also find a role for internal governance: inside directors and large management company complexes appear to better monitor performance due to "hidden actions", as well as terminating underperforming inexperienced managers.	2013	Governance
Sticks or Carrots? Optimal CEO Compensation When Managers Are Loss Averse Author: Dittmann, I., E. Maug and O. Spalt Journal: Journal of Finance This paper analyzes optimal executive compensation contracts when managers are loss averse. The authors derive and Calibrate the general shape of the optimal contract that is increasing and convex for medium and high outcomes and that drops discontinuously to the lowest possible payout for low outcomes. They also identify the critical features of the loss-aversion model that render optimal contracts convex.	2010	Governance
Valuing Corporate Environmental Performance: Innovest's Evaluation of the Electric Utilities Industry Author: Dixon, F. and M. Whittaker Journal: Corporate Environmental Strategy Deregulation of the U.S. electric power industry has few noticeable implications for environmental performance and risk. Add to that increasing regulatory pressure and public awareness, and environmental strategy emerges as a pivotal factor underlying success- or failure- in the industry. In this article, the authors show how forward-thinking companies are turning environmental threats into buisness opportunities, with shareholders pocketing the returns.	1999	Environmental
Debt Enforcement around the World Author: Djankov, S., O. Hart, C. McLiesh and A. Shleifer Journal: Journal of Political Economy This paper asks insolvency practitioners from 88 countries to describe how debt enforcement will proceed against an identical hotel about to default on its debt. The authors use the data on time, cost, and the likely disposition of the assets (preservation as a going concern vs piecemeal sale) to construct a measure of the efficiency of debt enforcement in each country. This measure is strongly correlated with per capita income and legal origin and predicts debt market development.	2008	Governance
The Law and Economics of Self-Dealing Author: Djankov, S., R. La Porta, F. Lopez-de-Silanes and A. Shleifer Journal: Journal of Financial Economics The authors present a new measure of legal pprotection of minority shareholders against expropriation by corporate insiders: the anti-self-dealing index. Assembled with the help of Lex Mundi law firms, the index is calculated for 72 countries based on legal rules prevailing in 2003, and focuses on private enforcement mechanisms, such as disclosure, approval, and litigation, that govern a speciific self-dealing transaction. This theoretically grounded index predicts a variety of stock market outcomes, and generally works better than the previously introduced index of anti-director rights.	2008	Governance
The Regulation of Labor Author: Djankov, S., R. La Porta, F. Lopez-de-Silanes, A. Shleifer and J. Botero Journal: National Bureau of Economic Research The authors investigate the regulation of labor markets through employment laws, collective bargaining laws, and social security laws in 85 countries. They find that richer countries regulate labor less than poorer countries do, although they have more generous social security systems. Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment.	2003	Social
Does the Market Respond to an Endorsement of Social Responsibility? The Role of Institutions, Information, and Legitimacy Author: Doh, J., S. Howton, S. Howton and D. Siegel Journal: Journal of Management This paper finds that addition of firms to the Calvert social index does not stimulate a positive return. However deletions result in a significant decline in stock prices of more than 1.5 percent on average.	2010	Environmental, Social, Governance
Why Do Foreign Firms Leave U.S. Equity Markets? Author: Doidge, C., G. Karolyi and R. Stulz Journal: Journal of Finance Foreign firms terminate their Securities and Exchange Commission registration in the aftermath of the Sarbanes-oxley Act (SOX) because they no longer require outside funds to finance growth opportunities. This paper finds that foreign firms with more agency problems have worse stock-price reactions to the adoption of Rule 12h-6 in 2007, which made deregistration easier, than those firms more adversely affected by the compliance costs of SOX. Stock-price reactions to deregistration announcements are negative, but less so under Rule 12h-6, and more so for firms that raise fewer funds externally.	2010	Governance
How Has New York Become Less Competitive Than London in Global Markets? Evaluating Foreign Listing Choices over Time Author: Doidge, C., G. Karolyi and R. Stulz Journal: Journal of Financial Economics This paper studies the determinants and consequences of cross-listing on the New York and London stock exchanges from 1990 to 2005. The authors find that cross-listings have been falling on U.S. exchanges as well as on the Main Market in London. They show that after controlling for firm characteristics there is no deficit in cross-listing counts on U.S. exchanges related to SOX. This paper also finds that there is a significant premium for U.S. exchange listings every year, that the premium has not fallen significantly in recent years, and that it persists when allowing for time-invariant unobsevable firm characteristics.	2009	Governance
Why Do Countries Matter So Much for Corporate Governance? Author: Doidge, C., G. Karolyi and R. Stulz Journal: Journal of Financial Economics This paper develops and test a model of how country characteristics, such as legal protections for minority investors and the level of economic and financial development, influence firms' costs and benefits in implementing measures to improve their own governance and transparency. The authors find that country characteristics explain much more of the variance in governance ratings (ranging from 39 percent to 73 percent) than observable firm characteristics (ranging from 4 percent to 22 percent). Further, they show that firm characteristics explain almost none of the variation in governance ratings in less-developed countries and that access to global capital markets sharpens firms' incentives for better governance.	2007	Governance
Why Are Foreign Firms Listed in the U.S. Worth More? Author: Doidge, C., G. Karolyi and R. Stulz Journal: Journal of Financial Economics This paper shows that at the end of 1997, foreign companies with shares cross-listed in the U.s. had Tobin's q ratios that were 16.5 percent higher than the q ratios of non-cross-listed firms from the same country. The valuation difference is statistically significant and reaches 37 percent for those companies that list on major U.S. exchanges, even after controlling for a number of firm and country characteristics. The authors show that growth opportunities are more highly valued for firms that choose to cross-list in the U.S., particularly those from countries with poorer investor rights.	2004	Governance
Foreign and Domestic Ownership, Buisness Groups, and Firm Performance: Evidence from a Large Emerging Market Author: Douma, S., R. George and R. Kabir Journal: Strategic Management Journal This theoretical paper shows that the previously documented positive effect of foreign ownership on firm performance is substantially attributable to foreign corporations that have, on average, larger shareholding, higher commitment, and longer-term involvement. The authors document the positive influence of corporations vis-á-vis financial institutions with respect to domestic shareholdings as well. They also find an interesting dichotomy in the impact of these shareholders depending on the business group affiliation of firms.	2006	Governance
Do Corporate Global Environmental Standards Create or Destroy Market Value? Author: Dowell, G., S. Hart and B. Yeung Journal: Management Science This paper finds that firms adopting a single stringent global environmental standard have much higher market values, as measured by Tobin's q, than firms defaulting to less stringent, or poorly enforced host country standards. Results also suggest that externalities are incorporated to a significant extent in firm valuation.	2000	Environmental
Sovereign Bonds and Socially Responsible Investment Author: Drut, B. Journal: Journal of Business Ethics This paper shows that for a global rating of socially responsible performances, it is possible to build portfolios with an increased average rating without significantly harming the risk/return relationship. This result differs when considering sub-ratings related to the environment, social concerns, and public governance.	2010	Environmental, Social, Governance
When Are Outside Directors Effective? Author: Duchin, R., J. Matsusaka and O. Ozbas Journal: Journal of Financial Economics This paper uses recent regulations that have required some companies to increase the number of outside directors on their boards to generate estimates of the effect of board independence on performance that are largely free from endogeneity problems. The main finding is that the effectiveness of outside directors depends on the cost of acquiring information about the firm: when the cost of acquiring information is low, performance increases when outsiders are added to the board, and when the cost of information is high, performance worsens when outsiders are added to the board.	2010	Governance
To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation Author: Durnev, A. and E. Kim Journal: Journal of Finance This paper investigates a simple model which identifies three firm attributes related to that variation: investment opportunities, external financing, and ownership structure. Using firm-level governance and transparency data they find that all three firm attributes are related to the quality of governance and disclosure practices, and firms with higher governance and transparency rankings are valued higher in stock markets. All relations are stronger in less investor-friendly countries, demonstrating that firms adapt to poor legal environments to establish efficient governance practices.	2005	Governance
Stealing from Thieves: Expropriation Risk, firm Governance, and Performance Author: Durnev, A. and L. Fauver Journal: 2nd Annual Conference on Empirical Legal Studies The authors examine firm governance choices and firm valuation in the presence of expropriation risk. The authors show that firms in industries that are subject to greater risks of expropriation practice worse governance, disclose less information, and manage earnings more. Furthermore, a one-standard deviation increase in expropriation risk lowers firm value by approximately 4 percent directly and by 3 percent through the deterioration in firm governance.	2013	Governance
Political Partisanship and Corporate Performance Author: Durnev, A., J. Garfinkel and A. Molchanov Journal: Working paper The authors present evidence that the political orientation of the government (left vs. right) affects corporate performance. They select four policy dimensions traditionally viewed as 'leftist': stringent labor and environmental laws, higher taxes and intrest rates. The authors document that industries that are more sensitive to such policies underperform when left parties are in power.	2013	Environmental, Social
How Pervasive is Corporate Fraud? Author: Dyck, I., A. Morse and A. Zingales Journal: 2nd Annual Conference on Empirical Legal Studies The authors estimate what percentage of firms engage in fraud and the economic cost of fraud. They estimate that on average corporate fraud costs investors 22 percent of enterprise value in fraud-committing firms and 3 percent of enterprise value across all firms.	2013	Governance
The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance Author: Eccles, R., I. Ioannou and G. Serafeim Journal: National Bureau of Economic Research The authors investigate the effect of a corporate culture of sustainability on multiple facets of corprate behavior and performance outcomes. The authors find that the boards of directors of High Sustainability companies are more likely to be responsible for sustainability and top executive incentives are more likely to be a function of sustainability metrics. They also provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance.	2012	Environmental
Agency Problems in Public Firms: Evidence from Corporate Jets in Leveraged Buyouts Author: Edgerton, J. Journal: Financial Review This paper uses novel data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average 40 percent smaller fleets than observably similar public firms. Similar fleet reductions are observed within firms that undergo leveraged buyouts.	2012	Governance
Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices Author: Edmans, A. Journal: Asia Pacific Journal of Management This paper analyzes the relationship between employee satisfaction and long-run stock returns. A value-weighted portfolio of the "100 Best Companies to Work for in America" earned annual four-factor alpha of 3.5 percent from 1984 to 2009, and exhibited significantly more positive earnings surprises and announcement returns. The implication is that employee satisfaction is positively correlated with shareholder returns.	2011	Social
Governance through Trading and Intervention: A Theory of Multiple Blockholders Author: Edmans, A. and G. Manso Journal: Review of Financial Studies This article shows that, while a multiple small blockholder structure generates free-rider problems that hinder intervention, the same coordination difficulties strengthen a second governance mechanism: disciplining the manager through trading. Since multiple blockholders cannot coordinate to limit their orders and maximize combined trading profits, they trade competitively, impounding more information into prices.	2011	Governance
A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium Author: Edmans, A., X. Gabaix and A. Landier Journal: Review of Financial Studies This theoretical paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium, by embedding a moral hazard problem into a talent assignment model. First, both the CEO's low fractional ownership (the Jensen-Murphy incentives measure) and its negative relationship with firm size can be quantitatively reconciled with optimal contracting, and thus need not reflect rent extraction. Second, the dollar change in wealth for a percentage change in firm value, divided by annual pay, is independent of firm size, and therefore a desirable empirical measure of incentives. Third, incentive pay is effective at solving agency problems with mutliplcative impacts on firm value, such a strategy choice.	2009	Governance
Dynamic CEO Compensation Author: Edmans, A., X. Gabaix, T. Sadzik and Y. Sannikov Journal: Journal of Finance This theoretical paper studies optimal compensation in a dynamic framework where the CEO consumes in multiple periods, can undo the contract by privately saving, and can temporarily inflate earnings. The contracts can be implemented by escrowing the CEO's pay into a "Dynamic Incentive Account" that comprises cash and the firm's equity. The account feature state-dependent rebalancing to ensure its equity proportion is always sufficient to induce effort, and time-dependent vesting to deter short-termism.	2012	Governance
Doing Well by Doing Good? Green Office Buildings Author: Eichholtz, P., N. Kok and J. Quigley Journal: American Economic Review This study analyzes economic value of "green buildings" derived from market transactions. It also finds that buildings with a "green rating" command rental rates that are roughly three percent higher per square foot than otherwise identical buildings. Selling prices of green buildings are higher by about 16 percent. Beyond the direct effects of energy savings, further evidence suggests that the intangible effects of the label itself also play a role in determining the value of grren buildings in the marketplace.	2013	Environmental
External Govenance and Debt Agency Costs of Family Firms Author: Ellul, A., G. Levant and U. Lel Journal: Federal Reserve Discussion Paper The authors investigate the impact of family blockholders on the firm's debt agency costs under different investor protection environments. They find that family firms originating from high investor protection environments benefit from lower debt costs compared to non-family firms. The authors find no impact from non-family blockholdings.	2007	Governance
Determinants of Cross-Border Mergers and Acquisitions Author: Erel, I., R. Liao and M. Weisbach Journal: Journal of Finance This paper finds that geography, the quality of accounting disclosure, and bilateral trade increase the likelihood of mergers between two countries. Valuation appears to play a role in motivating mergers: firms in countries whose stock market has increased in value, whose currency has recently appreciated, and that have a relatively high market-to-book value tend to be purchasers, while firms from weaker-performing economies tend to be targets.	2012	Governance
Reputation Penalties for Poor Monitoring of Executive Pay: Evidence from Option Backdating Author: Ertimur, Y., F. Ferri and D. Maber Journal: Journal of Financial Economics The authors study whether outside directors are held accountable for poor monitoring of executive compensation by examining the reputation penalties to directors of firms invloved in the option backdating (BD) scandal of 2006-2007. At firms involved in BD, significant penalties accrued to compensation committe members (particularly those who served during the BD period) both in terms of votes withheld when up for election and in terms of turnover, especially in more severe cases of BD.	2012	Governance
Shareholder Activism and CEO Pay Author: Ertimur, Y., F. Ferri and V. Muslu Journal: Review of Financial Studies Shareholders favor proposals related to the executive pay-setting process (e.g., subject severance pay to shareholder approval) over proposals that micromanage pay level or structure. Activists target firms with high CEO pay (whether excessive or not), voting support is higher only at firms with excess CEO pay. Firms with excess CEO pay targeted by vote-no campaigns experience a significant reduction in CEO pay ($7.3 million).	2011	Governance
Competition and Corporate Governance in Transition Author: Estrin, S. Journal: Journal of Economic Perspectives This paper explores the elements of institutional development critical to the enhancement of company performance in transition economies. These elements include the initial conditions; the forms of privatization; the institutional and legal framework, especially the corporate governance structure; the relationship between the private sector and the state; and the competitiveness of product markets, including the impact of international trade.	2002	Governance
The Relationship between Environmental Social Governance Factors and Stock Returns Author: Evans, J. and D. Peiris Journal: Working paper This study provides evidence of a significant positive relationshi[ between particular ESG rating criteria and both return on assets and market to book value measures, supporting the stakeholder theory that Corporate Social Performance (CSP) is positive for Corporate Financial Performance (CFP). Analysis also shows that employment conditions are a more relevant influence than other stakeholder criteria and a company's involvement in more general non-stakeholder related social issues contributes negatively to both operating performance and stock return.	2010	Environmental, Social, Governance
Politically Connected Firms Author: Faccio, M. Journal: American Economic Review This paper finds that connections are particularly common in countries with higher levels of corruption, countries imposing restrictions on foreign investments by their residents, and countries with more transparent systems. The authors also find that differnt relationships between buisness people and politicians have different value. Stock prices increase significantly when a buisnessperson enters politics.	2006	Governance
The Ultimate Ownership of Western European Corporations Author: Faccio, M. and L. Lang Journal: Journal of Financial Economics The authors find that widely held firms are more important in the U.K. and Ireland, family controlled firms in continental Europe. Financial and large firms are more likely widely held, while non-financial and small firms are more likely family controlled. Dual class shares and pyramids enhance the control of the largest shareholders, but overall there are significant discrepancies between ownership and control in only a few countries.	2002	Governance
Political Connections and Corporate Bailouts Author: Faccio, M., R. Masulis and J. McConnell Journal: Journal of Finance This paper finds that politically connected firms are significantly more likely to be bailed out than similar nonconnected firms. Additionally, politically connected firms are disproportionately more likely to be bailed out when the International Monetary Fund or the World Bank provides financial assistance to the firm's home government. Further, among bailed-out firms, those that are politically connected exhibit significantly worse financial performance than their nonconnected peers at the time of and following the bailout.	2007	Governance
Bank CEO Incentives and the Credit Crisis Author: Fahlenbrach, R. and R. Stulz Journal: Journal of Financial Economics The authors investigate whether bank performance during the recent credit crisis is related to chief executive officer (CEO) incentives before the crisis. They find some evidence that banks with CEOs whose incentives were better aligned with the interests of shareholders performed worse and no evidence that they performed better. Banks with higher option compensation and a larger fraction of compensation in cash bonuses for their CEOs did not perform worse during the crisis.	2011	Governance
Why Do Firm Appoin CEOs as Outside Directors? Author: Fahlenbrach, R., A. Low and R. Stulz Journal: Journal of Financial Economics Companies actively seek to appoint outside CEOs to their boards. Consistent with the authors' matching theory of outside CEO board appointments, the authors show that such appointments have a certification benefit for the appointing firm. The first outside CEO director appointment has a higher stock-price reaction than the appointment of another outside director. Except for a decrease in operating performance following the appointment of an interlocked director, CEO directors do not affect the appointing firm's operating performance, decision-making, and CEO compensation.	2010	Governance
Classified Boards, Firm Value, and managerial Entrenchment Author: Faleye, O. Journal: Journal of Financial Economics This paper shows that classified boards destroy value by entrenching management and reducing director effectiveness. The author shows that classified boards are associated with a significant reduction in firm value and that this holds even among complex firms, although such firms are often regarded as most likely to benefit from staggered board elections. results indicate that classified boards significantly insulate management from market discipline.	2007	Governance
Labor-Friendly Corporate Practices: Is What Is Good for Employees Good for Shareholders? Author: Faleye, O. and E. Trahan Journal: Journal of Buisness Ethics Labor-friendly firms also outperform otherwise similar firms, both in terms of long-run stock market returns and operating results. This paper's analysis of excess executive compensation suggests that top management derives no pecuniary benefits from labor-friendly practices. The authors interpret their results as consistent with a genuine concern for employees translating into higher productivity and profitability, which in turn facilitate value creation.	2011	Social
Thye Cost of Intense Board Monitoring Author: Faleye, O., R. Hoitash and U. Hoitash Journal: Journal of Financial Economics The authors study the effects of the intensity of board monitoring on directors' effectiveness in performing their monitoring and advising duties. They find that monitoring quality improves when a majority of independent directors serve on at least two of the three principal monitoring committees. These firms exhibit greater sensitivity of CEO turnover to firm performance, lower excess executive compensation, and reduced earnings management. The improvement in monitoring quality comes at the significant cost of weaker strategic advising and greater managerial myopia.	2011	Governance
When Labor Has a Voice in Corporate Governance Author: Faleye, O., V. Mehrotra and R. Morck Journal: Journal of Financial and Quantitative Analysis The authors find that relative to other firms, labor-controlled publicly traded firms deviate more from value maximization, invest less in long-term assets, take fewer risks, grow more slowly, create fewer new jobs, and exhibit lower labor and total factor productivity. The authors propose that labor uses its corporate governance voice to maximize the combined value of its contractual and residual claims, and that this often pushes corporate policies away from, rather than toward, shareholder value maximization.	2006	Governance
Job Security Regulations and the Dynamic Demand for Industrial Labor in India and Zimbabwe Author: Fallon P. and R. Lucas Journal: Journal of Development Economics This paper derives dynamic labor demand equations from a CES cost minimization model for 64 manufacturing industries. Following enactment of job security labor laws in India and Zimbabwe, the data reveal a substantial reduction in demand for workers but no slowing in adjustment of number of employees.	1993	Social
Disagreement, Tastes, and Asset Prices Author: Fama, E. and K. French Journal: Journal of Financial Economics Standard asset pricing models assume that: (i) there is complete agrrement among investors about probability distributions of future payoffs on assets; and (ii) investors choose asset holdings based solely on anticipated payoffs; that is, investment assets are not also consumption goods. Both assumptions are unrealistic. The authors provide a simple framework for studying how disagreement and taste for assets as consumption goods can afect asset prices.	2007	Environmental, Social, Governance
Do External Auditor Peform a Corporate Governance Role in Emerging Markets? Evidence from East Asia Author: Fan, J. and T. Wong Journal: Journal of Accounting Research This paper examines whether external independent auditors are employed as monitors or as bonding mechanisms, or both, to alleviate agency problems in emerging markets. This paper finds that firms with agency problems embedded in the ownership structures are more likely to employ Big 5 auditors. This relation is evident among firms that raise equity capital frequently. Consistently firms hiring Big 5 auditors recieve smaller share price discounts associated with the agency conflicts. The authors find that Big 5 auditors take into consideration their clients' agency problems when making audit fee and audit report decisions.	2005	Governance
Performance of Ethical Mutual Funds in Spain: Sacrifice or Premium? Author: Fernandez-Izquierdo, A. and J. Matallin-Saez Journal: Journal of Buisness Ethics The main objective of this article is to compare the financial performance of ethical investment funds to that of other funds in the Spanish retail market. Using style analysis to compare financial performance, the authors found that their financial performance is in all cases superior or similar to that achieved by the rest of the funds. In comparing ethical and non-ethical fund subsamples by homogeneous groups, no significant differences between these two types of funds have been found.	2008	Environmental, Social
Shareholder Empowerment and Bank Bailouts Author: Ferreira, D., D. Kershaw and A. Kirchmaier Journal: Working paper The authors propose a mangement insulation index based on banks' charter and by-law provisions and on the provisions of the applicable state corporate law that make it difficult for shareholders to oust a firm's management. The authors show that management insulation is a good predictor of bank bailouts: banks in which managers are fully insulated from shareholders are roughly 19 to 26 percentage points less likely to be bailed out.	2013	Governance
Corporate Governance, Idiosyncratic Risk, and Information Flow Author: Ferreira, M. and P. Laux Journal: Journal of Finance the authors study the relationship of corporate governance policy and idiosyncratic risk. Firms with fewer antitakeover provisions display higher levels of idiosyncratic risk, trading activity, private information flow, and information about future earnings in stock prices. Trading intrest by institutions, especially those active in merger arbitrage, strengthens the relationship of governance to idiosyncratic risk.	2007	Governance
Shareholders at the gate? Institutional Investors and Cross-Border Mergers and Acquisitions Author: Ferreira, M., M. Massa and P. Matos Journal: Review of Financial Studies The authors study the role of institutional investors in cross-border mergers and acquisitions (M&As). They find that foreign institutional ownership is positively associated with the intensity of cross-border M&A activity worldwide. Foreign institutional ownership increases the probability that a merger deal is cross-border, successful, and the bidder takes full control of the target firm. This relation is stronger in countries with weaker legal institutions and in less developed markets.	2010	Governance
Shareholder Votes and Proxy Advisors: Evidence from Say on Pay Author: Ferri, F. Journal: 7th Annual Conference on Empirical Legal Studies The author investigate the economic role of proxy advisors (PA) in the context of mandatory "say on pay votes", a novel and complex item requiring significant firm specific analysis. More than half of the firms respond to the adverse shareholder vote triggered by a negative recommendation by engaging with investors and making changes to their compensation plan. however, they find no market reaction to the announcement of such changes, even when material enough to result in a favorable recommendation and vote the following year.	2013	Governance
Takeover Defenses of IPO Firms Author: Field, L. and J. Karpoff Journal: Journal of Finance The presence of a takeover defense is negatively related to subsequent acquisition likelihood, yet has no impact on take-over premium for firms that are acquired. These results suggest that managers shift the cost of takeover protection onto nonmanagerial shareholders. Thus, agency problems are important even for firms at the IPO stage.	2002	Governance
The Emergence of Corporate Governance from Wall St. To Main St.: Outside Directors, Board Diversity, Earnings Management, and Managerial Incentives to Bear Risk Author: Fields, M. and P. Keys Journal: Financial Review This paper provides a review of empirical research in four relevant areas of corporate governance. Specifically, the paper provides an overview of (a) the role that outside directors play in monitoring managers, (b) the emerging literature on the impact of board diversity, (c) the existance of and incentives for corporate executives to manage firm earnings, and (d) managerial incentives to bear risk.	2003	Governance
Corporate Governance and Performance in Publicly Listed, Family-Controlled Firms: Evidence from Taiwan Author: Filatotchev, I., Y. Lien and J. Piesse Journal: Asia Pacific Journal of Management This paper analyzes the effects of ownership structure and board characteristics on performance in large, publicly traded firms that are controlled by founding families. After taking account of possible endogeneity problems, the authors do not find that family control is associated with performance measured in terms of accounting ratios, sales per issued capital, earnings per share and market-to-book value. Howver, share ownership by institutional investors, and foreign financial institutions in particular, is associated with better performance.	2005	Governance
Fortune's Best 100 Companies to Work for in America: Do They Work for Shareholders? Author: Filbeck, G and D. Preece Journal: Journal of Buisiness Finance & Accounting this paper concludes that the stock market does value corporate concern for workers, as measured by inclusion in the Fortune 100 Best Companies to Work For list. The authors find statistically significant results on the announcement day and a run-up in the two weeks prior to the announcement, although the trend appears to partially reverse itself in the weeks following the event date.	2003	Social
The Relationship between the Environmental and Financial Performance of Public Utilities Author: Filbeck, G and R. Gorman Journal: Environmental and Resource Economics the authors do not find a positive relationship between holding period returns and an industry-adjusted measure of environmental performance nor do they find that regulatory climate and a compliance based measure of environmental performance, there is evidence of a negative relationship between financial return and a more pro-active measure of environmental performance.	2004	Environmental
Voluntary Corporate Environmental Initiatives and Shareholder Wealth Author: Fisher-Vanden, K. and K. Thorburn Journal: Journal of Environmental Economics and Management Companies announcing membership in Climate Leaders, a program related to climate change, experience significantly negative abnormal stock returns. The price decline is smaller in carbon-intensive industries, where regulatory actions are more likely, and for high book-to-market firms. Corporate commitments to reduce greenhouse gas emissions appear to conflict with shareholder value maximization.	2011	Environmental
Estimating the Value of Political Connections Author: Fisman, R. Journal: American Economic Review The author uses a string of rumors about former Indonesian President Suharto's health to infer value of political connections to Indonesian firms. The author finds that a large percentage of a politically well-connected firm's value may be derived from political connections.	2001	Governance
Lean and Green: The Move to Environmentally Conscious Manufacturing Author: Florida, R. Journal: California Management Journal The authors hypothesized that the adoption of environmentally conscious manufacturing is positively related to the adoption of advanced manufacturing systems more generally, and the results of this papers survey provide considerable support for this view. The authors findings suggest that the efforts of firms to improve manufacturing processes and increase productivity create substantial opportunities for environmental improvement.	1996	Environmental
A Note on Social Responsibility and Stock valuation Author: Fogler, H. and F. Nutt Journal: Academy of Management Journal This paper studies the investor valuations of nine paper companies after substantial publicity was released about their pollution tendencies. Cross-section valuation models were prepared for the for the four quarters beginning just prior to the publicity. This event study finds little or no effect on firms' stock value after being cited as a polluter.	1975	Environmental
The History of Corporate Ownership and Control in Germany Author: Fohlin, C. Journal: A History of Corporate Governance Around the Worls: Family Business Groups to Professional Manager, edited by R. Morck This theoretical paper reviews historical and contemporary views of German corporate governance, examining both the overall evolution of ownership structures and the development of relationship banking practices. The author finds that bank involvement in corporate ownership appears to have arisen largely out of active bank involvement with securities issues, particularly of listed firms.	2005	Governance
The Evolution of Corporate Ownership after IPO: The Impact of Investor Protection Author: Foley, C. and R. Greenwood Journal: Review of Financial Studies Recent research documents that ownership concentration is higher in countries with weak investor protection. However, the authors show this pattern does not hold for newly public firms, which tend to have concentrated ownership regardless of the level of investor protection. The study shows that firms in countries with strong investor protection are more likely to experience decreases in ownership concentration after listing, that these decreases appear in response to growth opportunities, and that they are associated with new share issuance.	2010	Governance
The Disiplinary Effects of Proxy Contests Author: Fos, V. Journal: Working paper Using a hand-collected data set of all proxy contests during 1994-2008, this paper studies the effect of potential proxy contests on corporate policies and performance. When the liklihood of a proxy contest increases, companies experience increases in leverage, dividends, and CEO turnover. In addition, companies decrease R&D, capital expenditures, and executive compensation.	2013	Governance
Emissions Trading, Electricity Restructuring, and Investment in Pollution Abatement Author: Fowlie, M. Journal: American Economic Review This paper analyzes an emissions trading program that was introduced to reduce smog-causing pollution from large stationary sources. The author finds that deregulated plants in restructured electricity markets were less likely to adopt more capital intensive environmental compliance options as compared to regulated or publicly owned plants. Second, as a consequence of heterogeneity in electricity market regulations, a larger share of permitted pollution is being emitted in states where air quality problems tend to be more severe.	2010	Environmental
External Networking and Internal Firm Governance Author: Fracassi, C. and G. Tate Journal: Journal of Finance The authors find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. They find that CEO-director ties reduce firm value, particularly in the absence of other governance mechanisms to substitute for board oversight. Moreover, firms with more CEO-director ties engage in more value-destroying acquisitions.	2010	Governance
Classified Boards and Firm Value Author: Frakes, M. Journal: Delaware Journal of Corporate Law Classified boards constitute one of the most potent takeover defenses for U.S. firms today. This article approaches the relationship between corporate governance and firm value while taking various measurees to account for unobserved sources of heterogeneity across firms. Using the instrumental variables model developed by Hausman and Taylor, the author finds evidence of a negative and statistically significant association between classified board status and firm value.	2007	Governance
The Effect of State Antitakeover Laws on the Firm's Bondholders Author: Francis, B., I. Hasan, K. John and M. Waisman Journal: Journal of Financial Economics The authors examine how state antitakeover laws affect bondholders and the cost of debt, and report four findinds. First, bonds issued by firms incorporated in takeover-friendly states have significantly higher at-issue yield spreads than bonds issued by firms in states with restrictive antitakeover laws. Second, firms in takeover friendly states have significantly higher leverage than their counterparts in restrictive law states. Third, bond issues are associated with negative average stock price reactions among firms in takeover-friendly states, but positive stock price reactions among firms in restrictive law states. Fourth, existing bond values increase, on average, upon the introduction of Buisness Combination antitakeover law.	2010	Governance
Ownership: Evolution and Regulation Author: Franks, J., C. Mayer and S. Rossi Journal: Review of Financial Studies This paper is the first study of long-run evolution of investor protection and corporate ownership in the U.K. over the 20th century. The authors assess its influence on ownership by comparing cross-sections of firms at different times in the century and the evolution of firms incorporating at different stages of the century. Investor protection had little impact on dispersion of ownership: even in the absence of investor protection, there was a high rate of dispersion of ownership, primarily associated with mergers.	2009	Governance
Pollution Disclosures, Pollution Performance and Economic Performance Author: Freedman, M. and B. Jaggi Journal: Omega This study examines the association between pollution disclosures and pollution performance and between pollution disclosures and economic performance for firms in highly polluting industries. Results confirm earlier findings that there is no association between pollution disclosures and pollution performance. As far as the association between economic performance and pollution disclosures is concerned, the results show that the subgroup of large firms with poor economic performance provides the most detailed pollution information. For smaller firms there is no association between economic performance and pollution disclosures.	1982	Environmental
Labour Market Institutions and Economic Performance Author: Freeman, R. and S. Nickell Journal: Economic Policy This paper explores whether labor market institutions in OECD countries could have caused the observed disparity in economic performance since 1970. It is argued that cross-country differences in output growth were much smaller than differences in employment growth. For given output growth, there is a clear negative relationship between employment growth and real wage growth across countries. Countries with very high or very low wage dispersion across industries have better employment performance.	1988	Social
The Value of Excess Cash and Corporate Governance: Evidence from U.S. Cross-Listings Author: FrEsard, L. and C. Salva Journal: Journal of Financial Economics The authors examine whether and how a U.S. cross-listing mitigates the risk that insiders will turn their firm's cash holdings into private benefits. They find strong evidence that the value investors attach to excess cash reserves is substantially larger for foreign firms listed on U.S. exchanges and over-the-counter than for their domestic peer. Further, they show that this excess-cash premium stems not only from the strength of U.S. legal rules and disclosure requirements, but also from the greater informal monitoring pressure that accompanies a U.S. listing.	2010	Governance
Propping and Tunneling Author: Friedman, E., S Johnson and T. mitton Journal: Journal of Comparative Economics In countries with weak legal systems, there is a great deal of tunneling by the entrepreneurs who control publicly traded firms. However, under some conditions entrepreneurs prop up their firms, i.e., they use their private funds to benefit minority shareholders. The authors suggest that issuing debt can credibly commit an entrepreneur to propping, even though creditors can never take possession of any underlying collateral. This helps to explain why emerging markets with weak institutions sometimes grow rapidly and why they are also subject to frequent economic and financial crises.	2003	Governance
Executive Compensation: A New View from a Long-Term Perspective, 1936-2005 Author: Frydman, C. and R. Saks Journal: Review of Financial Studies The authors analyze the long-run trends in executive compensation using a new dataset of top officers of large firms. The median real value of compensation was remarkably flat from the late 1940s to the 1970s, revealing a weak relationship between pay and aggregate firm growth. This historical perspective also suggests that compensation arrangements have often helped to align managerial incentives with those of shareholders because executive wealth was sensitive to firm performance for most of the sample.	2010	Governance
Corporate Equality and Equity Prices: Doing Well While Doing Good? Author: Fu, S. and L. Shan Journal: Working paper This paper tests the impact on firm value of corporate equality, which quantifies how companies treat their gay, lesbian, bisexual, and transgender employees, consumers, and investors. Firms with a higher degree of corporate equality have higher stock returns, higher market valuation, larger sales, higher profit margins, higher employees productivity, and attract more employees.	2009	Social
Are the 100 Best Better? An Empirical Investigation of the Relationship between Being a "Great Place to Work" and Firm Performance Author: Fulmer, I., B. Gerhart and K. Scott Journal: Personnel Psychology The authors argue that positive employee relations effectively serves as an intangible and enduring asset, and may, therfore, be a source of sustained competitive advantage at the firm level. The analyses suggest that companies on the 100 Best list enjoy not only stable and highly positive workforce attitudes, but also ROA and stock performance advantages over the broad market, and in some cases, over a group of matched firms.	2003	Social
Why Has CEO Pay Increased So Much? Author: Gabaix, X. and A. Landier Journal: Quarterly Journal of Economics This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO's pay depends on both the size of his firm and the aggregate firm size. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable corporate finance. The authors find a very small dispersion in CEO talent, which nonetheless justifies large pay differences.	2008	Governance
The Stocks at Stake: Return and Risk in Socially Responsible Investment Author: Galema, R., A. Plantinga and B. Scholtens Journal: Journal of Banking & Finance This paper finds that SRI results in lower book-to-market ratios and as a result, the alphas do not capture SRI effects. The researchers find that SRI (in particular portfolios that score positive on diversity, environment and product) have a significant impact on stock returns.	2008	Environmental, Social, Governance
The Cost of Socially Responsible Portfolios: Testing for Mean-Variance Spanning Author: Galema, R., B. Scholtens and A. Plantinga Journal: Working paper Investors are no worse off by excluding assets from their portfolio that are not socially responsible in case they face a short sales restriction. However, in case short sales are allowed for, investors are worse off in terms of foregone risk reduction opportunities for most dimensions of social responsibility.	2009	Environmental, Social, Governance
The Costs of Shareholder Activism: Evidence from a Sequential Decision Model Author: Gantchev, N. Journal: Journal of Financial Economics This paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism. The author finds that the estimated monitoring costs reduce activist returns on their activist holdings than on their non-activist investments.	2013	Governance
Investing in Socially Responsible Mutual Funds Author: Geczy, C., R. Stambaugh and D. Levin Journal: Working paper The authors find that the cost of SR investing depends crucially on the investor's views about asset pricing models and stock-picking skill by fund managers. To an investor who believes strongly in the CAPM and rules out managerial skill, i.e. a market-index investor, the cost of the SRI constraint is typically just a few basis point per month, measured in certainly-equivalent loss. To an investor who still disallows skill but instead believes to some degree in pricing models that associate higher returns with exposures to size, value, and momentum factors, the SRI constraint is much costlier.	2005	Environmental, Social, Governance
East Asian Finance: The Road to Robust Markets Author: Ghosh, S. Journal: World Bank Publications This volume seeks to contribute to the important discussion on the agenda for financial sector development that is now underway among policymakers and market participants in East Asia. Developments since the financial crisis of 1997, as well as some of the lessons of the crisis itself, have prompted policymakers in East Asia to take a strategic look at the role that the financial sector needs to play in the region's ambitious agenda for growth and development.	2006	Governance
Pension Reform, Ownership Structure, and Corporate Governance: Evidence from a Natural Experiment Author: Giannetti, M. and L. Laeven Journal: Review of Financial Studies The authors show that the effects of institutional investment on firm performance depend on the industry structure of pension funds. Firm valuation improves if public pension funds and large independent private pension funds increase their shareholdings. Additionally, controlling shareholders appear reluctant to relinquish control and the control premium increases if public pension funds acquire shares.	2009	Governance
Organization and Information: Firms' Governance Choices in Rational-Expectations Equilibrium Author: Gibbons, R., R. Holden and M. Powell Journal: Quarterly Journal of Economics The authors analyze a rational-expectations model of price formation in an intermediate-good market under uncertainty. There is a continuum of firms, each consisting of a party who can reduce production cost and a party who can discover information about demand. Both parties can make specific investments at private cost, and there is a machine that either party can control. As in incomplete-contracting models, different governance structures (i.e., different allocations of control of the machine) create different incentives for the parties' investments.	2012	Governance
Measuring the Social, Environmental and Ethical Performance of Pension Funds Author: Gifford, J. Journal: Journal of Australian Political Economy While there has been important progress in the reporting and rating of social, environmental and ethical (SEE) impacts of companies themselves, there has been little focus on pension funds and the responsibility they bear for the impacts of their investments. This article discusses the reporting and rating of the SEE performance of pension funds and their agents and proposes a number of ways to adress the problems associated with the current reporting frameworks.	2004	Environmental
The Performance of Socially Responsible Mutual Funds: The Role of Fees and Management Companies Author: Gil-Bazo, J., P. Ruiz-verdu and A. Santos Journal: Journal of Business Ethics This paper shows that U.S. SRI funds had beter before- and after- fee performance than conventional funds with similar characteristics. The differences, however, are driven exclusively by SRI funds run by management companies specialized in SRI. While these funds significantly ouperform simialr conventional funds, funds run by companies not specialized in SRI underperform their matched conventional funds.	2010	Environmental, Social, Governance
The Evolution of Shareholder Activism in the United States Author: Gillan, S. and L. Starks Journal: Journal of Applied Corporate Finance This is a review of the evolution of shareholder activism since the establishment of the SEC in the 1930s. This paper emphasizes three main subjects: the kinds of companies that are targeted by activists; the motives of institutional investors for activism; the effectiveness of activists in bringing about economically significant change at targeted companies.	2007	Governance
Corporate Governance, Corporate Ownership, and the Role of Institutional Investors: A Global Perspective Author: Gillan, S. and L. Starks Journal: Journal of Applied Finance The authors examine the relation between corporate governance and ownership structure, focusing on the role of institutional investors. In many countries, institutional investors have become dominant players in the financial markets. The authors examine cross-country differences in ownership structures and the implications of these differences for institutional investor involvement in corporate governance. Although there may be some convergence in governance practices across countries over time, the endogenous nature of the interrelation among governance factors suggests that variation in governance structures will persist.	2003	Governance
Corporate Governance Proposals and Shareholder Activism: The Role of Institutional Investors Author: Gillan, S. and L. Starks Journal: Journal of Financial Economics The authors study shareholder proposals across a period of substantial activity and find systematic differences both across sponsor identity and across time. This paper documents that sponsor identity, issue type, prior performance and time period are important influences on the voting outcome. The nature of the stock market reaction, while typically small, varies according to the issue and the sponsor identity.	2000	Governance
Globalizing Corporate Governance: Convergence of Form or Function Author: Gilson, R. Journal: American Journal of Comparative Law In this article the author examines the interplay of functional adaptivity on the one hand, and institutional persistence or path dependency on the other, that will influence whether such corporate governance convergence will be formal or functional. The author finds that due to the diversity of circumstances there can be no general prediction of the mode that convergence of national corporate governance institutions may take.	2001	Governance
Controlling Controlling Shareholders Author: Gilson, R. and J. Gordon Journal: University of Pennsylvania Law Review In this article, the authors examine the doctrinal limits on the private benefits of control from a particular orientation. The authors show that a controlling shareholder may extract private benefits of control in one of three ways: by taking a disproportionate amount of the corporation's ongoing earnings, by freezing out the minority, or by selling control. The authors' hypothesis is that the limits on these three methods of extraction must be determined simultaneously, or at least consistently, because they are in substantial respects substitutes.	2003	Governance
Corporate Governance, Product Market Competition, and Equity Prices Author: Giroud, X. and H. Mueller Journal: Journal of Finance This paper examines whether firms in noncompetitive industries benefit more from good governance than do firms in competitive industries. The authors find that weak governance firms have lower equity returns, worse operating performance, and lower firm value, but only in noncompetitive industries. When exploring the causes of the inefficiency, the authors find that weak governance firms have lower labor productivity and higher input costs, and make more value-destroying acquisitions, but, again, only in noncompetitive industries.	2011	Governance
Does Corporate Governance Matter in Competitive Industries? Author: Giroud, X. and H. Mueller Journal: ECGI-Finance Working paper This paper finds that while firms in non-competitive industries experience a significant drop in performance after the passage of a BC law, which weakens corporate governance, firms in competitive industries experience virtually no effect. The authors find that capital expenditures are unaffected by the passage of the BC laws, input costs, wages, and overhead costs all increase, and only so in non-competitive industries. The authors also conduct event studies around the dates of the first newspaper reports about the BC laws. They find that while firms in non-competitive industries experience a significant stock price decline, firms in competitive industries experience a small and insignificant price impact.	2007	Governance
The Relationship between Corporate Philanthropy and Shareholder Wealth: A Risk Management Perspective Author: Godfrey, P. Journal: Academy of Management Review This paper presents a theoretical model of a simple argument: good deeds earn chits. The author proposes three core assertions of the theory: (1) corporate philanthropy can generate positive moral capital among communities and stakeholders, (2) moral capital can provide shareholders with insurance-like protection for a firm's relationship-based intangible assets, and (3) this protection contributes to shareholder wealth.	2005	Social
Overconfidence, CEO Selection, and Corporate Governance Author: Goel, A. and A. Thakor Journal: Journal of Finance This theoretical paper develops a model that shows that an overconfident manager, who sometimes makes value-destroying investments, has a higher likelihood than a rational manager of being deliberately promoted to CEO under value-maximizing corporate governance. Moreover, a risk-averse CEO's overconfidence enhances firm value up to a point, but the effect is nonmonotonic and differs from that of lower risk aversion.	2008	Governance
Investing in Fortune's "100 Best Companies to Work for in America" Author: Goenner, C. Journal: Journal of Economics The authors investigate whether investment strategies that invest in the Fortune magazine 100 Best Companies to Work for in America are able to outperform the market due to superior employer-employee relations. Portfolios consisting of firms on the list offer higher risk-adjusted returns than the S&P 500.	2008	Social
Asset Prices and Corporate Behavior with Socially Responsible Investors Author: Gollier, C. and S. Pouget Journal: Working paper Being relatively more invested in pro-social firms, socially responsible investors have a lower risk-adjusted performance. Socially responsible investors can also engage in activism. A large activist investor can generate positive abnormal returns by investing in non-responsible companies and turning them into responsible. In some circumstances, a long-term horizon and a pro-social orientation raise the purely financial profit of the large investor.	2013	Environmental, Social
Extreme Governance: An Analysis of Dual-Class Firms in the United States Author: Gompers, P., J. Ishii and A. Metrick Journal: Review of Financial Studies This paper constructs a comprehensive list of dual-class firms in the United States and uses this list to analyze the relationship between insider ownership and firm value. The authors find strong evidence that firm value is increasing in insiders' cash-flow rights and decreasing in insider voting rights.	2010	Governance
Corporate Governance and Equity Prices Author: Gompers, P., J. Ishii and A. Metrick Journal: Quarterly Journal of Economics Corporate governance is strongly correlated with stock returns during the 1990s. An investment strategy that purchased shares in the lowest-G firms ("Democracy" firms with strong shareholder rights), and sold shares in the highest-G firms ("Dictatorship" firms with weak shareholder rights), earned abnormal returns of 8.5 percent per year. The results for both stock returns and firm value are economically large and are robust to many controls and other firm characteristics.	2003	Governance
Environmental Proactivity and Business Performance: An Empirical Analysis Author: Gonzalez-Benito, J and O. Gnzalez-Benito Journal: Omega This paper analyzes the relationship between environmental proactivity and business performance at 186 industrial companies in Spain using a questionnaire. Results are mixed. There is partial support for the idea that environmental management can bring about competitive opportunities for companies, but there is also evidence that some environmental practices produce negative effects. Therefore, the question of whether environmental proactivity improves business performance must be disaggregated into more specific and concrete relationships.	2005	Environmental
The Environmental Fiduciary Author: Goodman, S., J. kron and T. Little Journal: Rose Foundation for Communities & the Environment In this report, the authors show that fiduciaries who manage funds for institutional investors such as pension funds, foundations, and charitable trusts should incorporate environmental factors into their portfolio management policies. They show how a corporation's ability to profit from environmental innovations and prepare for future environmental risks and exposures can have a significant impact on corporate earnings potential, cash flow and growth opportunities. Consequently, the authors argue that fiduciaries for institutional investors should institute financially sound policies to encourage strong corporate environmental performance in the corporations held in their portfolios.	2002	Environmental
Executive Compensation and Corporate Governance in Financial Firms: The Case for Convertible Equity-Based Pay Author: Gordon, J. Journal: Working paper This paper proposes a new compensation mechanism for senior managers, convertible equity-based pay. Upon certain external triggers, such as a downgrade into a high risk category by regulators or a deterioration in a key financial ratio, such stock-based compensation should convert into subordinated debt, at a valuation discount. This will give managers an incentive to curb excessive risk-taking and in particular to steer the firm away from financial distress.	2010	Governance
An International Relations Perspective on the Convergence of Corporate Governance: German Shareholder Capitalism and the European Union, 1990-2000 Author: Gordon, J. Journal: Working paper This article tries to move the corporate governance convergence debate towards an international relations perspective. This move has two implications. First, the pace of convergence in corporate governance is understood to depend crucially on a country's, or, perhaps more importantly, on a group of countries' commitment to a project of transnational economic and political integration. Second, this transnational project may be best advanced by the spread of diffusely-held public firms on the Anglo-American model, because such ownership structures facilitate the contestability of corporate control, which, crucially, helps curb economic nationalism.	2003	Governance
Just Say Never? Poison Pills, Deadhand Pills, and Shareholder Adopted Bylaws: An Essay for Warren Buffett Author: Gordon, J. Journal: Working paper Despite increasing institutional investor activism, the realistic possibility of a hostile acquisition is a necessary ingredient to an optimal corporate governance regime for large public corporations in a stock-market centered capital system. This article argues in doctrinal terms that "just say no" is not the rule in Delaware and that, at a minimum, in the case of a firm with a staggered board the retention of a poison pill beyond the insurgent's initial electoral success is no longer reasonable.	1999	Governance
Pathways to Corporate Convergence? Two Steps on the Road to Shareholder Capitalism in Germany Author: Gordon, J. Journal: Columbia Journal of European Law This paper evaluates two particular events for the impact on German corporate governance: the privatization of Deutsche Telekom and the cross-border merger between Daimler Benz and Chrysler Corp. This paper identifies several elements, including: the change in the shareholder body through a dilution of traditional German holders and the addition of U.S. institutional investors, the pioneering of a template for subsequent cross- border mergers involving German firms, the flexibility of German corporate law to shareholder initiatives, and the likely rippling impact of governance changes at DaimlerChrysler on other major German corporations.	1999	Governance
Takeover Defense Tactics: A Comment on Two Models Author: Gordon, J. and L. Kornhauser Journal: Yale Law Journal The authors' analysis of the cases presented by Bradley and Rosenzweig and Macey and McChesney in favor of target stock buybacks makes them skeptical of the claim that such transactions will increase shareholder wealth. On the other hand, the deficiencies may conceivably lie in the models presented, rather than in the transactions themselves.	1986	Governance
Information, Ownership Structure, and Shareholder Voting: Evidence from Shareholder-Sponsored Corporate Governance Proposals Author: Gordon, L. and J. Pound Journal: Journal of Finance This paper examines how information and ownership structure affect voting outcomes on shareholder-sponsored proposals to change corporate governance structure. The authors find that the outcomes of votes vary systematically with the governance and performance records of target firms, the identity of proposal sponsors, and the type of proposal. They also find that outcomes vary significantly as a function of ownership by insiders, institutions, outside blockholders, ESOPs, and outside directors who are blockholders.	2012	Governance
Class Struggle inside the Firm: A Study of German Codetermination Author: Gorton, G. and F. Schmid Journal: Working paper Under the German corporate governance system of "codetermination," employees are legally allocated some control rights over corporate assets, in the form of board seats. This paper empirically investigates the implications of equal board representation compared with one-third employee representation and find a 26 percent stock market discount on firms with equal representation.	2002	Governance
Corporate Social Performance and Idiosyncratic Risk: A Variance Decomposition Analysis Author: Goss, A. Journal: Working paper This paper investigates the relationship between corporate social responsibility and idiosyncratic risk, and finds that higher concerns are related to higher volatility of unexpected earnings and discount rates. Higher CSR strengths are associated with lower idiosyncratic variance. Partitioning the sample into positive and negative earnings shocks, the author finds that CSR strengths decrease the variance of negative returns, but increase the variance of positive returns, consistent with the notion that investments in social responsibility provide insurance against negative earnings shocks.	2013	Environmental, Social, Governance
Corporate Social Responsibility and Financial Distress Author: Goss, A. Journal: Meeting of the Administrative Sciences Association of Canada This paper uses both multivariate regressions, simultaneous nonlinear equations and a discrete time hazard model and finds that the level of CSR in a firm is a significant determinant of financial distress. The relationship is robust to the endogeneity of CSR investments and free cash flow and suggests that there is informational value in extra financial metrics.	2009	Environmental, Social, Governance
The Impact of Corporate Social Responsibility on the Cost of Bank Loans Author: Goss, A. and G. Roberts Journal: Journal of Banking & Finance This paper finds that banks with the worst social responsiility pay up to 20 basis points more for private debt financing than the most responsible firms. However, the authors find that for the the majority of firms, the impact of CSR is not economically important. The modest premiums associated with CSR suggest that banks do not regard corporate social responsibility as significantly value enhancing or risk reducing.	2011	Social
The Impact of Pollution on Worker Productivity Author: Graff Zivin, j. and M. Neidell Journal: American Economic Review In this paper, the authors use a unique panel dataset on the productivity of agricultural workers to analyze the impact of ozone pollution on productivity. They find that ozone levels well below federal air quality standards have a significant impact on productivity: a 10 parts per billion (ppb) decrease in ozone concentrations increases worker productivity by 5.5 percent.	2012	Environmental, Social
Corporate Governance, Debt, and Investment Policy During the Great Depression Author: Graham, J., S. Hazarika and K. Narasimhan Journal: Management Science The authors document a relation between board characteristics and firm performance that varies in economically sensible ways: Complex firms (that would benefit more from board advice) exhibit a positive relation between board size and firm value; simple firms exhibit a negative relation.	2011	Governance
Effects of Race on Organizational Experience, Job Performance Evaluations, and Career Outcomes Author: Greenhaus, J., S. Parasuraman and W. Wormley Journal: Academy of Management Journal Using questionaire data, the authors showed that, compared to white managers, blacks felt less accepted in their organizations, perceived themselves as having less discretion on their jobs, received lower ratings from their supervisors on their job performance and promotability, were more likely to have reached career plateaus, and experienced lower levels of career satisfaction.	1990	Social
Investor Activism and Takeovers Author: Greenwood, R. and M. Schor Journal: Journal of Financial Economics Recent work documents large positive abnormal returns when a hedge fund announces activist intentions regarding a publicly listed firm. The authors show that these returns are largely explained by the ability of activists to force target firms into a takeover. Announcement returns and long-term abnormal returns are high for targets that are ultimately acquired, but not detectably different from zero for firms that remain independent. Firms targeted by activists are more likely than control firms to get acquired.	2009	Governance
Do Markets Value Corporate Social Responsibility? Author: Gregory, A., J. Whittaker and X. Yan Journal: Working paper This paper shows that indicators of corporate social responsibility are valued by markets. Consistent with other evidence on implied cost of capital and CSR, the authors show that there are significant differences in factor loadings between high and low CSR stocks. Also they find that CSR effects are manifested at least in part by an increased persistence in abnormal earnings.	2011	Environmental, Social, Governance
Cap-and-Trade Emission Allowances and U.S. Companies' Balance Sheets Author: Griffin, P. Journal: Sustainability Accounting and Management Policy Research This study examines the impact of the "free" climate change allowances under the proposed American Clean Energy and Security Act of 2009 on the balance sheets and income statements of companies in the S&P 500, estimated by the Congressional Budget Office to be as high as $700 billion over 2010-2019. The authors analysis suggests that U.S. companies' balance sheet and profit ratios will show a modest but variable impact. Some treatments, however, will allow companies to move the liability "off balance sheet", so that the financial impact of emission allowances could be unclear to many investors; this can raise the cost of capital and hurt share prices.	2013	Environmental
Going Green: Market Reaction to CSR Newswire Releases Author: Griffin, P. and Y. Sun Journal: Journal of Accounting and Public Policy Using voluntary disclosures made through the CSR newswire service, this paper finds that managers' disclosure decisions involving greenhouse gas emissions produce positive returns to shareholders. This response varies negatively with company size and public information availability. For small companies in a limited public information environment, mean-adjusted share price increases significantly by 2.32 percent over days -2 to 2 around the CSR newswire release date.	2013	Environmental
Strange Bedfellows? Voluntary CSR Disclosure and Politics Author: Griffin, P. and Y. Sun Journal: Accounting & Finance This paper shows a reliable association between the CSR disclosure intensity of a company and its political interests, which the authors proxy by the contributions of company individuals to political action committees and statewide voting in presidential elections. The authors also show that a portfolio strategy of investing based on company size, CSR disclosure intensity, and company individuals' political contributions produces a significant positive mean excess stock return of 4.5 percent over three months following CSR disclosure.	2013	Environmental, Social, Governance
The Relevance to Investors of Greenhouse Gas Emission Disclosures Author: Griffin, P., D. Lont and Y. Sun Journal: UC Davis Graduate School of Management Research Paper Using companies that disclose GHG emissions voluntarily through the Carbon Disclosure Project (CDP), the authors show that investors act as if they use GHG emission information to assess company value. Furthermore, an event study shows a significant stock market response when companies disclose climate change information in a 8-K filing. The results suggest that for every ton of GHG emitted by the median company in the sample at an assumed cost of $20 per ton, the stock market recognizes about 35-50 percent of that amount as an off-balance sheet liability.	2011	Environmental
Corporate Governance and Audit Fees: Evidence of Countervailing Relations Author: Griffin, P., D. Lont and Y. Sun Journal: Journal of Contemporary Accounting & Economics This study derives and tests an economic framework that explains the relation between corporate governance and the fees paid by companies for auditing. The evidence shows that auditing and governance are co-determined by two countervailing relations, namely, a fee-increasing relation because auditing services provide one means to attain better governance, and a fee-decreasing relation because auditors incorporate the benefits of better governance in pricing their services.	2008	Governance
CEO Compensation and Incentives: Evidence from M&A Bonuses Author: Grinstein, Y. and P. Hribar Journal: Journal of Financial Economics This paper investigates CEO compensation for completing M&A deals. The authors find that CEOs who have more power to influence board decisions receive significantly larger bonuses. They also find a positive relation between bonus compensation and measures of effort, but not between bonus compensation and deal performance.	2004	Governance
Competition and Ownership Structure: Substitutes or Complements Author: Grosfeld, I. and T. Tressel Journal: Economics of Transition The authors analyze the impact of product market competition and ownership structure on firm performance. Their results show that product market competition has a positive and significant impact on performance. Concerning the effect of ownership concentration, they find a U-shaped relationship with performance.	2002	Governance
Blind Investment Author: Grossman, R. Journal: HR Magazine This note discusses the value of a firm' human capital and the lack of attention from corporate financial analysts. Five quantitative measures of a firm's human capital are presented, as well as some explanations for analysts' narrow focus.	2005	Social
The Economic Value of Corporate Eco-Efficiency Author: Guenster, N., R. Bauer, J. Derwall and K. Koedijk Journal: European Financial Management Using a new database of eco-efficiency scores, the authors analyze the relation between eco-efficiency and financial performance from 1997 to 2004. They report that eco-efficiency relates positively to operating performance and firm market value. Although environmental leaders initially did not sell at a premium relative to laggards, the valuation differential increased significantly over time.	2011	Environmental
Is There a Cost to Being Socially Responsible in Investing? Author: Guerard, J. Journal: Journal of Forecasting The authors find that SRI screening and unscreened portfolios do not differ significantly. Most other literature suggests that SRI may produce higher portfolio returns, but not significantly higher.	1997	Environmental, Social, Governance
Corporate Governance and Globalization: Is there Convergence across Countries? Author: Guillen, M. Journal: Advances in International Comparative Management In this theoretical paper, the author argues against the conventional wisdom of cross-national corporate governance convergence. The author reviews three lines of criticism against the conventional wisdom. This paper presents longitudinal evidence drawn from both advanced and newly industrialized countries showing little convergence over the last twenty years.	1999	Governance
Do Stock Markets Penalize Environment-Unfriendly Behavior? Evidence from India Author: Gupta, S. and B. Goldar Journal: Ecological Economics This paper conducts an event study to examine the impact of environmental rating of large pulp and paper, auto, and chlor alkali firms on their stock prices. The authors find that the market generally penalizes environmentally unfriendly behavior in that announcement of weak environmental performance by firms leads to negative abnormal returns of up to 30 percent. A positive correlation is found between abnormal returns to a firm's stock and the level of its environmental performance.	2005	Environmental
CEO Compensation and Board Structure Revisited Author: Guthrie, K., J. Sokolowsky and K. Wan Journal: Journal of Finance Chhaochharia and Grinstein estimate that CEO pay decreases 17 percent more in firms that were not compliant with the recent NYSE/Nasdaq board independence requirement than in firms that were compliant. The authors document that 74 percent of this magnitude is attributable to two outliers of 865 sample firms. In addition, they find that the compensation committee independence requirement increases CEO total pay, particularly in the presence of effective shareholder monitoring.	2012	Governance
Corporate Governance and Firm Valuation in Colombia Author: Gutierrez, L. and C. Pombo Journal: Working paper This paper studies the separation of ownership and control, finding that voting rights are greater than cash flow rights because of indirect ownership across firms. This paper also examines the association of various ownership and control measures and separation ratios with a firm's value and performance for the sample of companies. Large blockholders were found to exert a positive influence upon a firm's valuation and performance, which validates the positive monitoring approach of large shareholders, but this relationship is not monotonic.	2007	Governance
The Political Economy of Finance Author: Haber, S. and E. Perotti Journal: Working paper This survey reviews the recent literature on the political economy of financial development. The authors' goal is to highlight the impact of political institutions on financial structure, broadly defined to include not just the size of capital markets and banking systems but also the accessibility of finance, which is to say its distribution across firms and individuals.	2008	Governance
Sustainable Value Creation among Companies in the Manufacturing Sector Author: Hahn, T., F. Figge and R. Barkemeyer Journal: International Journal of Environmental Technology and Management In this paper, the authors present empirical results of a study on the creation of Sustainable Value among European manufacturing companies. Some companies already meet or even exceed the target level with their use of environmental resources. Other companies fall short of measuring up to the targeted eco-efficiency, in some cases by factors of 30 and more.	2007	Environmental
Can Capital Markets Respond to Environmental Policy of Firms? Evidence from Greece Author: Halkos, G. and A. Sepetis Journal: Ecological Economics The authors find that improved environmental management system and environmental performance result in a reduction in a firm's beta. Specifically, this paper's empirical estimates show evidence of volatility clustering, short- and long-run persistence of shocks to the returns of the market and asymmetry in the leverage effect between negative and positive shocks to returns. Finally, the macroeconomic factors proposed and included in the analysis have no statistical significant influence on the beta estimates in almost all cases.	2007	Environmental
Why Do Some Countries Produce So Much More Output Per Worker Than Others? Author: Hall, R. and C. Jone Journal: National Bureau of Economic Research This paper explores the variability in output per worker across countries, which can be only partially explained by differences in physical capital and educational attainment, on an accounting basis. The authors document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which they call social infrastructure.	1999	Social
Institutional Investors as Minority Shareholders Author: Hamdani, A. and Y. Yafeh. Journal: Review of Finance The study finds that: (1) Institutional investors rarely vote against insider-sponsored proposals even when the law grants them special voting power; (2) Institutional investors are more likely to vote against compensation-related proposals than against other related party transactions even when minority shareholders lack the power to influence outcomes; and (3) Institutional investors with potential ownership and business-related conflicts of interest are less likely to vote against insider-sponsored proposals than stand-alone institutional investors, both when minority shareholders have power and when they do not.	2013	Governance
Pollution as News: Media and Stock-Market Reactions to the Toxics Release Inventory Data Author: Hamilton, J. Journal: Journal of Environmental Economics and Management This study finds that investors considered the pollution data released by the EPA in the June 1989 Toxics Release Inventory (TRI) to be "news". Stockholders in the firms reporting TRI pollution figures experienced negative and statistically significant abnormal returns upon the first release of information. These abnormal returns translated into an average loss of $4.1 million in stock value for TRI firms on the day the pollution figures were released.	1995	Environmental
Doing Well While Doing Good? The Investment Performance of Socially Responsible Mutual Funds Author: Hamilton, S., H. Jo and M. Statman Journal: Financial Analysts Journal "Socially responsible" investors favor certain companies over others according to criteria such as production of weapons or use of alternative energy sources. The authors finds that SRI screening funds do not earn statistically significant excess returns and that the performance of such mutual funds is not statistically different from the performance of conventional mutual funds.	1993	Environmental, Social
Decoupling CEO Wealth and Firm Performance: The Case of Acquiring CEOs Author: Harford, J. and K. Li Journal: Journal of Finance This paper explores how compensation policies following mergers affect a CEO's incentives to pursue a merger. The authors find that even in mergers where bidding shareholders are worse off, bidding CEOs are better off three quarters of the time. Following a merger, a CEO's pay and overall wealth become insensitive to negative stock performance, but a CEO's wealth rises in step with positive stock performance.	2007	Governance
Is Institutional Ownership Related to Corporate Social Responsibility? The Non-Linear Relation and Its Implication for Stock Return Volatility Author: Harjoto, M., H. Jo and A. Kim Journal: Working paper This study examines the relation between corporate social responsibility (CSR) and institutional investor ownership, and the impact of this relation on stock return volatility. The authors find that institutional ownership does not strictly increase or decrease in CSR; rather, institutional ownership is the concave function of CSR.	2013	Governance
Control of Corporate Decisions: Shareholders vs. Management Author: Harris, M. and A. Raviv Journal: Review of Financial Studies This theoretical article addresses the issue of whether shareholders would be better off with enhanced control over corporate decisions. The authors show that claims that shareholder control would reduce value because shareholders lack sufficient information to make important decisions or because they have a non-value-maximizing agenda are flawed.	2010	Governance
A Theory of Board Control and Size Author: Harris, M. and A. Raviv Journal: Review of Financial Studies This theoretical article presents a model of optimal control of corporate boards of directors. The authors determine when one would expect inside versus outside directors to control the board, when the controlling party will delegate decision-making to the other party, the extent of communication between the parties, and the number of outside directors. They show that shareholders can sometimes be better off with an insider-controlled board.	2008	Governance
Beyond Greening Author: Hart, S. Journal: Environmental Management: Readings and Cases, edited by M. Russo This note on environmental firm strategy argues that few executives realize that environmental opportunities can actually become a major source of revenue growth. The authors encourage companies to consider three stages of environmental strategy and develop a vision of sustainability.	2008	Environmental
A Natural-Resource-Based View of the Firm Author: Hart, S. Journal: Academy of Management Review This paper introduces a theory of competitive advantage based upon the firm's relationship to the natural environment. The author explains the natural-resource-based view focusing on the connection between the environmental challenge and firm resources operationalized through three interconnected strategic capabilities: pollution prevention, product stewardship, and sustainable development. Propositions are then developed that connect these strategies to key resource requirements and sustained competitive advantage.	1995	Environmental
Does It Pay to Be Green? An Empirical Examination of the Relationship between Emission Reduction and Firm Performance Author: Hart, S. and G. Ahuja Journal: Business Strategy and the Environment The relationship between emissions reduction and firm performance is examined empirically for a sample of S&P 500 firms using data drawn from the Investor Responsibility Research Center's Corporate Environmental Profile and Compustat. The results indicate that efforts to prevent pollution and reduce emissions drop to the 'bottom line' within one to two years of initiation and that those firms with the highest emission levels stand to gain the most. In particular, projects designed to reduce emissions through pollution prevention increase firm value. Operating performance (ROS, ROA) is significantly benefited in the following year, and in two years financial performance (ROE) is affected.	1996	Environmental
Creating Sustainable Value Author: Hart, S. and M. Milstein Journal: Executive The authors develop a sustainable-value framework for companies to link the challenges of global sustainability to the creation of shareholder value. Specifically, they show how the global challenges associated with sustainable development, viewed through the appropriate set of business lenses, can help to identify strategies and practices that contribute to a more sustainable world while simultaneously driving shareholder value; this they define as the creation of sustainable value by the firm.	2003	Environmental
Institutional Investors and Executive Compensation Author: Hartzell, J. and L. Starks Journal: Journal of Finance The authors find that institutional ownership concentration is positively related to the pay-for-performance sensitivity of executive compensation and negatively related to the level of compensation, even after controlling for firm size, industry, investment opportunities, and performance. The study finds that clientele effects exist among institutions for firms with certain compensation structures, suggesting that institutions also influence compensation structures through their preferences.	2003	Governance
Internal Corporate Governance, CEO Turnover, and Earnings Management Author: Hazarika, S., J. Karpoff and R. Nahata Journal: Journal of Financial Economics The likelihood and speed of forced CEO turnover — but not voluntary turnover — are positively related to a firm's earnings management. These patterns persist in tests that consider the effects of earnings restatements, regulatory enforcement actions, and the possible endogeneity of CEO turnover and earnings management. The relation between earnings management and forced turnover occurs both in firms with good and bad performance, and when the accruals work to inflate or deflate reported earnings.	2012	Governance
Optimal Executive Compensation When Firm Size Follows Geometric Brownian Motion Author: He, Z. Journal: Review of Financial Studies This theoretical paper studies a continuous-time agency model in which the agent controls the drift of the geometric Brownian motion firm size. The changing firm size generates partial incentives, analogous to awarding the agent equity shares according to her continuation payoff. The model presented in the paper generates a leverage effect on the equity returns, and implies that the agency problem is more severe for smaller firms.	2009	Governance
Global Standards and Emerging Markets: The Institutional-Investment Value Chain and the CalPERS Investment Strategy Author: Hebb, T. and D. Wojcik Journal: Environment and Planning A Convergence of countries to uniform global standards and codes (non-financial measure) is accelerated by external investors' threat of capital flight. In emerging markets, ability and willingness of countries to adopt global standards are more likely determinants of external-financial decisions, and not orgins of legal regimes.	2005	Environmental, Social, Governance
The Cost of Job Security Regulation: Evidence from Latin American Labor Markets Author: Heckman, J. Journal: National Bureau of Economic Research This paper analyzes the costs of national job security policies. The authors establish that job security labor regulations in Latin America reduce the demand for labor, increase job inequality, and increase the size of the informal job sector.	2000	Social
The Effect of Green Investment on Corporate Behavior Author: Heinkel, R., A. Kraus and J. Zechner Journal: Journal of Financial and Quantitative Analysis Investor SRI screening can lead to firms reforming (i.e a polluting firm cleaning up its activities). Study finds that more than 20 percent of the fraction of the firms funds must be controlled by green investors to induce any polluting firms to reform.	2001	Environmental
Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough? Author: Hellmann, T., K. Murdock and J. Stiglitz Journal: American Economic Review This theoretical paper examines moral hazard in banking. In a dynamic model of moral hazard, competition can undermine prudent bank behavior. Capital requirements reduce gambling incentives by putting bank equity at risk. However, they also have a perverse effect of harming banks' franchise values, thus encouraging gambling. Pareto-efficient outcomes can be achieved by adding deposit-rate controls as a regulatory instrument, since they facilitate prudent investment by increasing franchise values.	2000	Governance
Are 'Ethical' or 'Socially Responsible' Investments Socially Responsible? Author: Hellsten, S. and C. Mallin Journal: Journal of Business Ethics This article examines corporate social responsibility from a philosophical, moral and practical point of view. The authors focus on the moral dilemma of how capitalism has changed its shape in today's world, and the growth of ethical investment funds in the U.K. today. The authors discuss whether ethical investments succeed in reducing the conflict between profit-making and social responsibility or whether they use commercial rhetoric and market mechanism to merely sell consumers their own perceived values back.	2006	Environmental, Social
Information Disclosure and Corporate Governance Author: Hermalin, B. and M. Weisbach Journal: Journal of Finance This theoretical paper shows that larger firms will adopt stricter disclosure rules than smaller firms and firms with better disclosure will employ more able management. The authors show that mandated increases in disclosure could, in part, explain recent increases in both CEO compensation and CEO turnover rates.	2012	Governance
Shareholder Value, Stakeholder Management, and Social Issues: What's the Bottom Line? Author: Hillman, A. and G. Keim Journal: Strategic Management Journal This paper builds a theoretical rationale to support the claim that the creation of shareholder value from corporate social responsibility may depend on the nature or scope of the socially responsible strategy/activity. The authors' theoretical development draws upon existing literature in social performance and stakeholder management as well as the resource-based view of the firm. This paper finds evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value.	2001	Environmental, Social
Understanding the Determinants of Managerial Ownership and the Link between Ownership and Performance Author: Himmelberg, C., R. Hubbard and D. Palia Journal: Journal of Financial Economics This paper extends the cross-sectional results of Demsetz and Lehn (1985) (Journal of Political Economy,93, 1155-1177) and uses panel data to show that managerial ownership is explained by key variables in the contracting environment in ways consistent with the predictions of principal-agent models. A large fraction of the cross-sectional variation in managerial ownership is explained by observed firm heterogeneity. After controlling both for observed firm characteristics and firm fixed effects, the authors cannot conclude (econometrically) that changes in managerial ownership affect firm performance.	1999	Governance
Investor Protection, Ownership, and the Cost of Capital Author: Himmelberg, C., R. Hubbard and I. Love Journal: World Bank Policy Research Working Paper The authors investigate the cost of capital in a model with an agency conflict between inside managers and outside shareholders. Inside ownership reflects the classic tradeoff between incentives and risk diversification, and the severity of agency costs depends on a parameter representing investor protection. In equilibrium, the marginal cost of capital is a weighted average of terms reflecting both idiosyncratic and systematic risk, and weaker investor protection increases the weight on idiosyncratic risk.	2004	Governance
What Do Unions Do for Economic Performance? Author: Hirsch, B. Journal: Journal of Labor Research This paper reviews the literature on labor unions, productivity, and profitability, since the publication of "What Do Unions Do?" (Freeman & Medoff 1984). The author finds that union productivity effects vary substantially across workplaces, and that the average union productivity effect is near zero. Unions tend to be associated with lower profitability, by capturing firm quasi-rents arising from long-term capital and firm-specific advantages. Lower profits lead to reduced investment and, subsequently, lower employment and productivity growth.	2004	Social
Equilibrium Price Dynamics of Emission Permits Author: Hitzemann, S. and M. Uhrig-Homburg Journal: Working paper This paper presents a stochastic equilibrium model for emission permit prices accounting for all main regulatory rules of today's emission trading systems. The authors argue that emission permits exhibit characteristics of investment assets within the single trading periods of an emission trading system, but across different periods the very same timing option embedded in the spot asset comes into effect from storable commodities. The model makes predictions about equilibrium spot and futures price dynamics, volatility smile characteristics, and allows analyzing their dependency on important design elements and abatement measures.	2013	Environmental
How Much of the Diversification Discount Can Be Explained by Poor Corporate Governance? Author: Hoechle, D., M. Schmid, I. Walter and D. Yermack Journal: Journal of Financial Economics This paper investigates whether the diversification discount occurs partly as an artifact of poor corporate governance. The authors find that the discount narrows by 16 percent to 21 percent when governance variables are added as regression controls. They also find that the diversification discount persists even with these controls for endogeneity.	2012	Governance
Portfolio Diversification and Environmental, Social or Governance Criteria: Must Responsible Investments Really Be Poorly Diversified? Author: Hoepner, A. Journal: Working paper This paper develops a simple theoretical model based on the three main drivers of portfolio diversification (1) number of stocks, (2) correlation of stocks, (3) average specific risk of stocks) and recent robust evidence on the significantly negative relationship between a firm's ESG rating and its specific risk. The theory argues that while the inclusion of ESG criteria into investment processes likely worsens portfolio diversification via the first and second driver, it similarly likely improves portfolio diversification through a reduction of the average stock's specific risk.	2010	Environmental, Social, Governance
A Categorisation of the Responsible Investment Literature Author: Hoepner, A. Journal: Working paper This document provides a subjective categorization of the responsibe investment literature in eight main bodies of literature and twenty-three sub-literature bodies. It is based on a literature scan of twelve relevant bibliographies.	2008	Environmental, Social, Governance
Research on 'Responsible Investment': An Influential Literature Analysis Comprising a Rating, Characterisation, Categorisation and Investigation Author: Hoepner, A. and D. McMillan Journal: Working paper This paper develops Influential Literature Analysis (ILA) as a four step approach, which improves upon existing methods to synthesize research areas. Applying ILA to responsible investment, the authors find responsible investment to be under-theorized and financially successful responsible investing to likely require a specific responsible investment skill. The ILA suggests to many responsible funds the need for training and advice to realize their financial potential and to researchers a multitude of routes for future influential research.	2009	Environmental, Social, Governance
The Dark Enemy of Responsible Mutual Funds: Does the Vice Fund Offer More Financial Virtue? Author: Hoepner, A. and S. Zeume Journal: Working paper The authors pursue an in depth analysis of the financial attractiveness of responsible funds' opposite, the Vice Fund, which penalizes, instead of rewards, corporate environmental, social, or governance (ESG) performance. This paper finds the Vice Fund's abnormal return to be statistically indistinguishable from zero. Worse, the Vice Fund managers possess significantly value destructing directional trading and crisis management skills. The authors findings are robust to common (time varying) control factors and alternative benchmarks.	2009	Environmental, Social, Governance
Does Pension Funds' Fiduciary Duty Prohibit the Integration of Environmental Responsibility Criteria in Investment Processes? A Realistic Prudent Investment Test Author: Hoepner, A., M. Rezec and A. Siegl Journal: Working paper The authors develop a test of prudent integration of ESG criteria in realistic pension fund investment processed. Their results show no indication that the integration of aggregated or disaggregated corporate environmental responsibility ratings into pension fund investment processes has any detrimental financial effect.	2011	Environmental
Corporate Social Responsibility across Industries: When Can Who Do Well by Doing Good? Author: Hoepner, A., P. Yu and J. Ferguson Journal: Working paper Theoretically, the paper argues that CSR's impacts on corporate financial performance (CFP) are moderated by five factors: CSR form, firm characteristics, time, national framework and industrial characteristics. Empirically, the authors analyze CSR's value across ten industry sectors from a corporate and investor aspect, respectively. They find that CSR has substantial value for corporations in the health care, industrials, and consumer discretionary sectors but not elsewhere. They find significantly abnormal excess returns of more than 6 percent and 8.5 percent respectively, in the former two industries.	2010	Environmental, Social, Governance
Myth of Diffuse Ownership in the United States Author: Holderness, C. Journal: Review of Financial Studies This article offers evidence on the ownership concentration at a representative sample of U.S. public firms. Ninety-six percent of these firms have blockholders; these blockholders in aggregate own an average 39 percent of the common stock.	2009	Governance
The State of U.S. Corporate Governance: What's Right and What's Wrong? Author: Holmstrom, B. and S. Kaplan Journal: Journal of Applied Corporate Finance The U.S. stock market has continued to outperform other broad indices since the Enron, WorldCom, Tyco and other scandals broke. The authors interpretation of the evidence is that while parts of the U.S. corporate governance system failed under the exceptional strain of the 1990s, the overall system, which includes oversight by the public and the government, reacted quickly to address the problems.	2003	Governance
Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s Author: Holmstrom, B. and S. Kaplan Journal: Journal of Economic Perspectives This theoretical paper describes and considers explanations for changes in corporate governance and merger activity in the United States since 1980. Corporate governance in the 1980s was dominated by intense merger activity distinguished by the prevalence of leveraged buyouts (LBOs) and hostility. After a brief decline in the early 1990s, substantial merger activity resumed in the second half of the decade, while LBOs and hostility did not. Instead, internal corporate governance mechanisms appear to have played a larger role in the 1990s.	2001	Governance
Red and blue investing: Values and finance Author: Hong, H. and L. Kostovetsky Journal: Journal of Financial Economics The authors find that mutual fund managers who make campaign donations to Democrats hold less of their portfolios (relative to non-donors or Republican donors) in companies that are deemed socially irresponsible (e.g., tobacco, guns, or defense firms or companies with bad employee relations or diversity records). Although explicit socially responsible investing (SRI) funds are more likely to be managed by Democratic managers, this result holds for non-SRI funds and after controlling for other fund and manager characteristics.	2012	Environmental, Social
The Price of Sin: The Effects of Social Norms on Markets Author: Hong, H. and M. Kacperczyk Journal: Journal of Financial Economics The authors find a significant price effect on the order of 15-20 percent from large institutional investors shunning 'sin stocks'. 'Sin Stocks' are defined as publicly traded companies involved in producing alcohol, tobacco, and gaming.	2009	Environmental, Social
Financial Constraints on Corporate Goodness Author: Hong, H., J. Kubik and J. Scheinkman Journal: Working paper This theoretical paper models the firm's optimal choice of capital and goodness subject to financial constraints. Managers and shareholders derive benefits over profits and social responsibility. Goodness is costly and its marginal benefit is finite; as a result, less-constrained firms spend more on goodness. The authors show empirical evidence that less-constrained firms do indeed have higher social responsibility scores. The empirical analysis addresses identification issues that have plagued the corporate social responsibility literature, establishing the causality of this relationship using a natural experiment.	2011	Environmental, Social, Governance
Groups of Diverse Problem Solvers Can Outperform Groups of High-Ability Problem Solvers Author: Hong, L. and S. Page Journal: Proceedings of the National Academy of Sciences of the United States of America The authors provide a theoretical framework for modeling the trade-off between diversity and ability. They find that when selecting a problem-solving team from a diverse population of intelligent agents, a team of randomly selected agents outperforms a team comprised of the best-performing agents. As the initial pool of problem solvers grows, the best-performing agents become more homogeneous and their relatively greater ability is more than offset by their lack of problem-solving diversity.	2004	Social
The Effect of Mandatory CSR Disclosure on Information Asymmetry: Evidence from a Quasi-Natural Experiment in China Author: Hung, M., J. Shi and A. Wang Journal: Working paper This paper examines the effect of mandatory CSR disclosure on market information asymmetry in China, where the authors estimate information asymmetry using high-frequency trade and quote data. They find that contrary to the criticism that mandatory CSR disclosure lacks credibility and relevance in emerging markets, mandatory CSR reporting firms experience a decrease in information asymmetry subsequent to the mandate. They also find that this relation is more pronounced for firms with greater political/social risk and firms with less analyst coverage.	2013	Governance
Internal Monitoring Mechanisms and CEO Turnover: A Long-Term Perspective Author: Huson, M., R. Parrino and L. Starks Journal: Journal of Finance The authors report evidence on chief executive officer (CEO) turnover during the 1971 to 1994 period. The frequencies of forced CEO turnover and outside succession both increased over time. However, the relation between the likelihood of forced CEO turnover and firm performance did not change significantly from the beginning to the end of the period, despite substantial changes in internal governance mechanisms.	2001	Governance
Work Ethic, Employment Contracts, and Firm Value Author: Ian Carlin, B. and S. Gervais Journal: Journal of Finance This paper analyzes how managerial work ethic impacts a firm's employment contracts, riskiness, growth potential, and organizational structure. Stable, bureaucratic firms with low growth potential are more likely to gain value from managerial diligence. The model yields several novel empirical predictions that cannot be generated by a standard agency framework.	2009	Social
Corporate Tradeoff Decisions between Social Goals and Shareholder Value Maximization: The Role of Local Institutional Investors Author: Incheol, K., H. Wan, A. Wang and T. Yang Journal: Working paper Firms have come under enormous pressure to be socially and environmentally responsible in the past two decades. Using facility-level data, the authors find that the location, equity ownership and the types of institutions have a significant impact on the amount of toxic release from the facility. They find no adverse effect of corporate toxic release practices on firm performance.	2013	Environmental
What Drives Corporate Social Performance? The Role of Nation-Level Institutions Author: Ioannou, I. and G. Serafeim Journal: Working paper The study finds that political institutions, followed by legal and labor market institutions are the most important country determinants of social and environmental performance. In contrast, legal institutions, followed by political institutions are the most important country determinants of governance. Capital market institutions appear to be less important drivers of CSP.	2012	Environmental, Social, Governance
Private Equity and Executive Compensation Author: Jackson, Jr., R. Journal: UCLA Law Review This article presents the first study of how CEO pay in companies owned by private equity firms differs from CEO pay in public companies. The study finds that directors appointed by private equity firms tie CEO pay much more closely to performance by preventing CEOs from selling, or "unloading", their holdings of the company's stock. The authors' findings suggest that public company boards should also limit unloading to strengthen the CEO pay-performance link.	2008	Governance
An Empirical Investigation of Environmental Performance and the Market Value of the Firm Author: Jacobs, B., V. Singhal and R. Subramanian Journal: Journal of Operations Management This study finds no overall market reaction to firm announcement of Corporate Environmental Initiatives (CEIs) or Environmental Awards and Certifications (EACs). However, the authors do find a market reaction for sub-categories including voluntary emission reductions and ISO 14001 certification.	2010	Environmental
Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us? Author: Jaffe, A., S. Peterson, P. Portney and R. Stavins Journal: Journal of Economic Literature This paper assembles and assesses the evidence on hypothetical linkages between environmental regulation and competitiveness, specifically the effects of environmental regulation on manufacturing firms. The authors find little evidence to support the hypothesis that environmental regulations have had a large adverse effect on competitiveness.	1995	Environmental
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure Author: Jensen, M. and W. Meckling Journal: Journal of Financial Economics This paper integrates elements from the theory of agency, the theory of property rights, and the theory of finance to develop a theory of the ownership structure of the firm. The authors define the concept of agency costs, show its relationship to the 'separation and control' issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optimality of their existence.	1976	Governance
Tunneling through Intercorporate Loans: The China Experience Author: Jiang, G., C. Lee and H. Yue Journal: Journal of Financial Economics This study investigates a particularly brazen form of corporate abuse, in which controlling shareholders use intercorporate loans to siphon billions of RMB from hundreds of Chinese listed companies during the 1996-2006 period. This paper sheds light on the severity of the minority shareholder expropriation problem in China, as well as the relative efficacy of various legal and extra-legal governance mechanisms in that country.	2010	Governance
Stakeholder Welfare and Firm Value Author: Jiao, Y. Journal: Journal of Banking & Finance Using KLD data, the authors construct a stakeholder welfare score measuring the extent to which firms meet the expectation of their non-shareholder stakeholders, and find it to be associated with positive valuation effects. This is driven by firms' performance on employee relations and environmental issues.	2010	Environmental, Social
Social Preference, Product Market Competition, and Firm Value Author: Jiao, Y. and G. Shi Journal: Working paper The authors construct a unique score on firms' efforts to cater to the social preference of customers and find it to be positively related to firm value (measured by industry-adjusted Tobin's Q) in competitive industries, whereas no such value effects exist in noncompetitive industries. The authors also find that enhanced SP scores lead to improvements in operating and competition performance in competitive industries. Also, enhanced SP scores are associated with declining financial distress risk in presence of competition pressures.	2013	Governance
Socially Responsible Investment in Japanese Pensions Author: Jin, H., O. Mitchell and J. Piggott Journal: Pacific-Basin Finance Journal SRI screening performance is largely dependent upon benchmark selection. Historical SRI in Japan offers no support for the position that Japanese pension participants would benefit from being required to invest in SRI firms. The authors conclude that SRI funds can be included as an option, albeit with some cost.	2006	Environmental
Capital Structure, Shareholder Rights, and Corporate Governance Author: Jiraporn, P. and K. Gleason Journal: Journal of Financial Research The authors show how capital structure is influenced by the strength of shareholder rights. Their empirical evidence shows an inverse relation between leverage and share- holder rights, suggesting that firms adopt higher debt ratios where shareholder rights are more restricted. This is consistent with agency theory, which predicts that leverage helps alleviate agency problems. This negative relation, however, is not found in regulated firms (i.e., utilities).	2007	Governance
Corporate Governance and Firm Profitability: Evidence from Korea before the Economic Crisis Author: Joh, S. Journal: Journal of Financial Economics This study examines how ownership structure and conflicts of interest among shareholders under a poor corporate governance system affected firm performance before the crisis. This paper finds that firms with low ownership concentration show low firm profitability, controlling for firm and industry characteristics. Controlling shareholders expropriated firm resources even when their ownership concentration was small. Firms with a high disparity between control rights and ownership rights showed low profitability.	2003	Governance
Corporate Governance and Risk-Taking Author: John, K., L. Litov and B. Yeung Journal: Journal of Finance Better investor protection could lead corporations to undertake riskier but value-enhancing investments. In better investor protection environments, stakeholders, like creditors, labor groups, and the government, are less effective in reducing corporate risk-taking for their self-interest. The authors find that corporate risk-taking and firm growth rates are positively related to the quality of investor protection.	2008	Governance
Corporate Governance in the Asian Financial Crisis Author: Johnson, S., P. Boone, A. Breach and E. Friedman Journal: Journal of Financial Economics This paper examines the Asian Crisis of 1997-98. The authors find that measures of corporate governance, particularly the effectiveness of protection for minority shareholders, explain the extent of exchange rate depreciation and stock market decline better than do standard macroeconomic measures.	2000	Governance
The Investment Performance of Socially Responsible Investment Funds in Australia Author: Jones, S., S. van der Laan, G. Frost and J. Loftus Journal: Journal of Business Ethics This paper investigates the returns performance of ethical funds in Australia using a multi-factor CAPM model [Fama, E.F., and K. R. French (1996)]. This paper finds that ethical funds significantly underperform the market in Australia. Risk-adjusted returns (using Jensen's alpha) indicate that average annual underperformance is around 1.52 percent in the 2000-2005 period for the sample and .88 percent over the whole sample period.	2008	Environmental, Social
Environmental Reporting of Global Corporations: A Content Analysis Based on Website Disclosures Author: Jose, A. and S. Lee Journal: Journal of Business Ethics This paper investigates the environmental management policies and practices of the 200 largest corporations in the world by analyzing the content of corporate environmental disclosures with respect to seven areas. The authors find that an increased number of corporations are disclosing information about their environmental performance in response to stakeholder demands of environmental responsibility and accountability. In addition, 27 percent of the world's largest companies justify environmental programs based on competitive advantage reasons whereas 21 percent cite compliance reasons.	2007	Environmental
Firm Performance, Corporate Governance, and Top Executive Turnover in Japan Author: K. Kang, J. and A. Shivdasani Journal: Journal of Financial Economics The authors examine the role of corporate governance mechanisms during top executive turnover in Japanese corporations. The likelihood of nonrouting turnover is significantly related to industry-adjusted return on assets, excess stock returns, and negative operating income, but is not related to industry performance. The sensitivity of nonrouting turnover to earning performance is higher for firms with ties to a main bank than for firms without such ties.	1995	Governance
Concentrating on Governance Author: Kadyrzhanova, D. and M. Rhodes-Kropf Journal: Journal of Finance This paper develops a novel trade-off view of corporate governance. The authors identify the economic determinants of the resulting trade-offs for shareholder value. Consistent with the theory, the empirical analysis shows that provisions that allow managers to delay takeovers have significant bargaining effects and a positive relation with shareholder value in concentrated industries.	2011	Governance
Best Practices or Best Guesses? Assessing the Efficacy of Corporate Affirmative Action and Diversity Policies Author: Kalev, A., F. Dobbin and E. Kelly Journal: American Sociological Review Employers have experimented with three broad approaches to promoting diversity. Some programs are designed to establish organizational responsibility for diversity, others to moderate managerial bias through training and feedback, and still others to reduce the social isolation of women and minority workers. Efforts to establish responsibility for diversity lead to the broadest increases in managerial diversity.	2006	Social
Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges Author: Kaplan, S. Journal: Working paper In this paper, the authors consider the evidence for three common perceptions of U.S. CEO pay and corporate governance: (1) CEOs are overpaid and their pay keeps increasing; (2) CEOs are not paid for performance; and (3) boards do not penalize CEOs for poor performance.	2012	Governance
Top Executives, Turnover, and Firm Performance in Germany Author: Kaplan, S. Journal: Journal of Law, Economics, & Organization This paper examines executive turnover- both for management and supervisory boards- and its relation to firm performance in the largest companies in Germany in the 1980s. The management board turns over slowly- at a rate of 10 percent per year- implying that top executives in Germany have longer tenures than their counterparts in the U.S. and Japan. Turnover of the management board increases significantly with stock performance and particularly poor (i.e. negative) earnings, but is unrelated to sales growth and earnings growth.	1994	Governance
Environmental Management: Testing the Win-Win Model Author: Karagozoglu, N. and M. Lindell Journal: Journal of Environmental Planning and Management The authors examined the role of several variables at the core of the win-win model, such as the regulatory setting, environmental strategy and environmental innovativeness. They find positive competitive and financial impact of progressive environmental strategies contingent upon the presence of favorable external and internal conditions. From a pure profitability standpoint, it is important to seek a balance between the environmental measures and market expectations. Comprehensive superiority in relative environmental performance will not necessarily lead to environmental competitive advantage.	2000	Environmental
Why Do Companies List Shares Abroad? A Survey of the Evidence and Its Managerial Implications Author: Karolyi, G. Journal: Financial Markets, Institutions & Instruments This paper surveys the academic literature on the economic implications of the corporate decision to list shares on an overseas stock exchange. This paper offers evidence that share prices react favorably to cross-border listings in the first month after listing, post-listing trading volume increases, domestic market risk is significantly reduced, and that stringent disclosure requirements are the most important impediment to cross-border listings.	1998	Governance
A Quarter Century of Shareholder Activism: A Survey of Empirical Findings Author: Karpoff, J. and V. McWilliams Journal: Working paper This paper is preliminary and incomplete. In this paper the authors survey the empirical research on shareholder activism and conclude that, despite much disagreement, several patterns appear in the data. Regarding the type of activism, most evidence indicates that shareholder proposals can prompt changes in target firms' governance structures, but they have little impact on share values and earnings. Private negotiation with the target firm's managers, which frequently occurs in concert with shareholder proposals, is more likely to prompt significant changes in governance, value, and performance.	2013	Governance
The Reputational Penalties for Environmental Violations: Empirical Evidence Author: Karpoff, J., J. Lott and E. Wehrly Journal: Journal of Law and Economics This paper examines the sizes of the fines, damage awards, remediation costs, and market value losses imposed on companies that violate environmental regulations. The market value loss is related to the size of the legal penalty. Thus, environmental violations are disciplined largely through legal and regulatory penalties, not through reputational penalties.	2005	Environmental
Corporate Governance and Shareholder Initiatives: Empirical Evidence Author: Karpoff, J., P. Malatesta and R. Walkling Journal: Journal of Financial Economics The authors find that firms attracting shareholder-initiated proxy proposals on corporate governance issues have poor prior performance, as measured by the market-to-book ratio, operating return, and sales growth. There is little evidence that operating returns improve after proposals. The proposals also have negligible effects on company share values and top management turnover. Even proposals that receive a majority of shareholder votes typically do not engender share price increases or discernible changes in firm policies.	1996	Governance
Do Firms Do Well by Doing Good When They Do It Right? Author: Kecskes, A., S. Mansi and A. Nguyen Journal: Working paper The effect of corporate investment in stakeholder capital on shareholder value is a matter of great debate. The authors argue that long-term investors are natural monitors that can ensure that managers choose stakeholder capital investment to maximize shareholder value. They find that firms with longer investor horizons invest more in stakeholder capital, and such firms have higher stock valuations, which are not a result of higher cash flow but rather of lower cash flow risk.	2013	Environmental, Social
The Effect of Socially Responsible Investing on Portfolio Performance Author: Kempf, A. and P. Osthoff Journal: European Financial Management The study implements a simple trading strategy based on socially responsible ratings from the KLD Research & Analytics: Buy stocks with high socially responsible ratings and sell stocks with low socially responsible ratings. The authors find that this strategy leads to high abnormal returns of up to 8.7 percent per year.	2007	Environmental, Social
Business Groups in Emerging Markets: Paragons or Parasites? Author: Khanna, T. and Y. Yafeh Journal: Working paper The authors survey literature on business groups. They begin with stylized facts about groups around the world, and proceed to a critical review of the existing literature, which has focused almost entirely on groups as diversified entities and on conflicts between controlling and minority shareholders.	2005	Governance
Employee Capitalism or Corporate Socialism? Broad-Based Employee Stock Ownership Author: Kim, E. and P. Ouimet Journal: U.S. Census Bureau Center for Economic Studies This paper finds that the effect share ownership plans (ESOPs) on employee compensation and shareholder value depends upon the size of the ESOP. Small ESOPs, defined as those controlling less than 5 percent of outstanding shares, benefit both workers and shareholders, implying positive productivity gains. However, the effects of large ESOPs on worker compensation and shareholder value are more or less neutral, suggesting little productivity gains.	2009	Governance
Independence in Executive Suites and Board Independence Author: Kim, E. and Y. Lu Journal: Working paper This paper investigate how governance in executive suites is impacted by outside governance mechanisms. The authors use the independent board requirement as an exogenous shock reducing CEO influence in the boardroom. CEOs of the treated firms may attempt to recoup the loss of influence by building a team of "less independent" executives. Data show that CEOs affected by the shock fill executive suites with more of their own appointees with pre-existing network ties.	2013	Governance
CEO Ownership, External Governance, and Risk-Taking Author: Kim, E. and Y. Lu Journal: Journal of Financial Economics This paper shows the relation between CEO ownership and firm valuation hinges critically on the strength of external governance (EG). The relation is hump-shaped when EG is weak, but is insignificant when EG is strong. The authors find CEO ownership similarly exhibits a hump-shaped relation with R&D when EG is weak, but no relation when EG is strong.	2011	Governance
The Impact of Women Top Managers and Directors on Corporate Environmental Performance Author: Kimball, A., D. Palmer and A. Marquis Journal: Working paper This paper contributes to theory on the impact of leader attributes on corporate behavior by exploring the relationship between gender composition in corporate leadership and environmental performance. The authors find that firms that incorporate women in their top management team and board of directors exhibit superior environmental performance, with the impact being greater for the board. Furthermore, the addition of women to a firm's top management only impacts its environmental performance if the firm also has women on its board of directors.	2013	Environmental, Social, Governance
Are Aliens Green? Assessing Foreign Establishments' Environmental Conduct in the United States Author: King, A. and J. Shaver Journal: Strategic Management Journal The authors investigate how the conflicting forces specific to foreign-owned establishments shape their environmental conduct. Using data from the Environmental Protection Agency, the authors find that foreign-owned establishments generate more waste, yet also manage more waste, than U.S.-owned establishments. The authors also find evidence that both domestic and foreign-owned firms generate more waste if they operate multiple facilities across multiple jurisdictions in the United States.	2001	Environmental
Does It Really Pay to Be Green? An Empirical Study of Firm Environmental and Financial Performance: An Empirical Study of Firm Environmental and Financial Performance Author: King, A. and M. Lenox Journal: Journal of Industrial Ecology The authors find evidence of an association between lower pollution and higher financial valuation. However they state that a firm's fixed characteristics and strategic position might cause this association. This paper's findings suggest that "When does it pay to be green?" may be a more important question than "Does it pay to be green?"	2001	Environmental
Exploring the Locus of Profitable Pollution Reduction Author: King, A. and M. Lenox Journal: Management Science The authors propose that managers underestimate the full value of some means of pollution reduction and so under-exploit these means. They use statistical methods to test the direction and significance of the relationship between the various means of pollution reduction and profitability. The authors find strong evidence that waste prevention leads to financial gain, but find no evidence that firms profit from reducing pollution by other means, such as onsite waste treatment. The evidence shows that the benefits of waste prevention alone are responsible for the observed association between lower emissions and profitability.	2002	Environmental
Industry Self-Regulation without Sanctions: The Chemical Industry's Responsible Care Program Author: King, A. and M. Lenox Journal: Academy of Management Journal In a study of the Chemical Manufacturers Association's Responsible Care Program, the authors investigate the predictions of two contradictory perspectives on industry self-regulation. Their findings highlight the potential for opportunism to overcome the isomorphic pressures of even powerful self-regulatory institutions and suggest that effective industry self-regulation regarding environmental impact is difficult to maintain without explicit sanctions.	2000	Environmental
Corporate Governance Lessons from the Financial Crisis Author: Kirkpatrick, G. Journal: Financial Market Trends The report analyzes the impact of corporate governance failures and weaknesses on the financial crisis, including risk management systems and executive salaries. It concludes that the financial crisis can be attributed to failures and weaknesses in corporate governance arrangements which did not serve their purpose to safeguard against excessive risk taking in a number of financial services companies.	2009	Governance
The Innovation Bottom Line Author: Kiron, D., N. Kruschwitz, K. Haanaes, M. Reeves and A. Goh Journal: MIT Sloan Management Review This study presents the results of a corporate survey on sustainability, and it profiles companies that are changing their business models and finding success. The study finds that companies in developing countries change their business models as a result of sustainability at a far higher rate than those based in North America.	2013	Environmental
Corporate Governance, Investor Protection and Performance in Emerging Markets Author: Klapper, L. and I. Love Journal: Journal of Corporate Finance The authors explore the determinants of firm-level governance and find that governance is correlated with the extent of the asymmetric information and contracting imperfections that firms face. This paper also finds that better corporate governance is highly correlated with better operating performance and market valuation. The study provides evidence that firm-level corporate governance provisions matter more in countries with weak legal environments.	2004	Governance
The Impact of Environmental Management on Firm Performance Author: Klassen, R. and C. McLaughlin Journal: Management Science This paper presents a general theoretical model linking environmental management within the firm to financial performance, as measured by the stock market. The authors find significant positive returns for strong environmental management as indicated by environmental performance awards, and significant negative returns for weak environmental management as indicated by environmental crises. First-time award announcements were associated with greater increases in market valuation, although smaller increases were observed for firms in environmentally dirty industries, possibly indicative of market skepticism.	1996	Environmental
The Impact of Hedge Fund Activism on the Target Firm's Existing Bondholders Author: Klein, A. and E. Zur Journal: Review of Financial Studies In contrast to previous studies documenting positive abnormal returns to target shareholders, the authors find that hedge fund activism significantly reduces bondholders' wealth. The average excess bond return is -3.9 percent around the initial 13D filing, and is an additional -4.5 percent over the remaining year. Excess bond returns are related inversely to subsequent changes in cash and assets (loss of collateral effects) and directly to changes in total debt.	2011	Governance
Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors Author: Klein, A. and E. Zur Journal: Journal of Finance The authors examine recent confrontational activism campaigns by hedge funds and other private investors. The main parallels between the groups are a significantly positive market reaction for the target firm around the initial Schedule 13D filing date, significantly positive returns over the subsequent year, and the activist's high success rate in achieving its original objective. Two major differences are that hedge funds target more profitable firms than other activists, and hedge funds address cash flow agency costs whereas other private investors change the target's investment strategies.	2009	Governance
The Human Capital Dimensions of Sustainable Investment Author: Kochan, T., E. Appelbaum, C. Leana and J. Gittell Journal: Working paper This paper identifies a number of questions that need to be answered if the growing interest in building investment portfolios of firms that follow socially and environmentally sustainable practices is to be successful in transforming the financial institutions and analysts from a liability to an asset in expanding the number of sustainable firms in the economy. Evidence from three decades of research on "high performance workplace practices" is reviewed that identifies what is required for firms to align human capital and financial strategies.	2013	Social
Capital Markets and Corporate Environmental Performance Research in the United States Author: Koehler, D. Journal: Managing the Business Case for Sustainability by S. Schaltegger and Wagner, M. A review of empirical studies of environmental and financial performance from 1993-2001 indicates that U.S. capital markets pay attention to environmental news, but that it is a short-term reaction and will not necessarily affect long-term returns. Econometric concerns and model misspecification consistently undermine the quality of findings.	2006	Environmental
The Effect of Air Pollution Related Human Health Risks on Firm Financial Performance Author: Koehler, D., B. Stone, D. Bennett, G. Norris and J. Spengler Journal: Working paper The authors assess whether there is an association between public health impacts and financial returns, using estimates of toxic chemical cancer risk and particulate matter, 1998 air emissions are associated with premature mortality per $1 million value-added. Fifteen stock portfolios are constructed at varying levels of environmental performance to assess differences in portfolio returns for stocks traded on U.S. exchanges from 1998-2002. The authors find that the level of air pollution-related public health risk has a statistically significant negative association with stock returns.	2004	Environmental
The Diffusion of Energy Efficiency in Building Author: Kok, N., M. McGraw and J. Quigley Journal: American Economic Review In this paper, the authors analyze the spread of energy efficient technology in the built environment. Using a detailed panel of 48 metropolitan statistical areas (MSAs) observed annually during a 15-year period, the authors trace the diffusion of buildings certified for energy efficiency and sustainability across U.S. metropolitan areas.	2011	Environmental
Does the Market Value Environmental Performance? Author: Konar, S. and R. Cohen Journal: Review of Economics and Statistics The authors study the relationship between the market value of firms in the S&P 500 and objective measures of their environmental performance. They find that bad environmental performance is negatively correlated with the intangible asset value of firms. The average "intangible liability" for firms in the sample is $380 million- approximately 9 percent of the replacement value of tangible assets. The authors conclude that legally emitted toxic chemicals have a significant effect on the intangible asset value of publicly traded companies. A 10 percent reduction in emissions of toxic chemicals results in a $34 million increase in market value.	2001	Environmental
Employee Ownership, Employee Attitudes, and Firm Performance Author: Kruse, D. and J. Blasi Journal: Handbook of Resource Management This paper reviews and provides some meta-analyses on the accumulated evidence concerning the prevalence, causes, and effects of employee ownership. Attitudinal and behavioral studies tend to find higher employee commitment among employee-owners but mixed results on satisfaction, motivation, and other measures. Few studies individually find clear links between employee ownership and firm performance, meta-analyses favor an overall positive association with performance for ESOPs and for several cooperative features.	1995	Governance
Business Networks, Corporate Governance, and Contracting in the Mutual Fund Industry Author: Kuhnen, C. Journal: Journal of Finance The author analyzes two effects in the mutual fund industry and finds that fund directors and advisory firms that manage the funds hire each other preferentially based on the intensity of their past interactions. The study does not find evidence that stronger board-advisor ties correspond to better or worse outcomes for fund shareholders.	2009	Governance
Tunneling, Propping, and Expropriation: Evidence from Connected Party Transactions in Hong Kong Author: L. Cheung, Y., P. Rau and A. Stouraitis Journal: Journal of Financial Economics The authors examine a sample of connected transactions between Hong Kong listed companies and their controlling shareholders. They find that on average, firms announcing connected transactions earn significant negative excess returns, that are also significantly lower than firms announcing similar arm's length transactions. The authors find limited evidence that firms undertaking connected transactions trade at discounted valuations prior to the expropriation, suggesting that investors cannot predict expropriation and revalue firms only when expropriation does occur.	2006	Governance
Related Lending Author: La Porta, R., F. Lopez-de-Silanes and G. Zamarripa Journal: Quarterly Journal of Economics The authors examine lending of banks to firms controlled by the bank's owners. The study finds that related loans are 33 percent more likely to default and, when they do, have lower recovery rates (30 percent less) than unrelated ones. The evidence supports the view that rather than enhance information sharing, related lending is a manifestation of looting.	2003	Governance
Investor Protection and Corporate Valuation Author: La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. Vishny Journal: Journal of Finance The authors present a model of the effects of legal protection of minority shareholders and of cash-flow ownership by a controlling shareholder on the valuation of firms. Consistent with the model, the authors find evidence of higher valuation of firms in countries with better protection of minority shareholders and in firms with higher cash-flow ownership by the controlling shareholder.	2002	Governance
Investor Protection and Corporate Governance Author: La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. Vishny Journal: Journal of Financial Economics Recent research has documented large differences among countries in ownership concentration of publicly traded firms, in the breadth and depth of capital markets, in dividend policies, and in the access of firms to external finance. The authors argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems.	2000	Governance
Legal Determinants of External Finance Author: La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. Vishny Journal: Journal of Finance The authors show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.	1997	Governance
Does Judicial Efficiency Lower the Cost of Credit? Author: Laeven, L. and G. Majnoni Journal: Journal of Banking & Finance This paper investigates the effect of judicial efficiency on banks' lending spreads for a large cross-section of countries. The authors find that, after controlling for a number of other country characteristics, judicial efficiency, in addition to inflation, is the main driver of interest rate spreads across countries.	2005	Governance
Bank Governance, Regulation and Risk Taking Author: Laeven, L. and R. Levine Journal: Journal of Financial Economics This paper focuses on conflicts between bank managers and owners over risk, and documents that bank risk-taking varies positively with the comparative power of shareholders within the corporate governance structure of each bank. The authors show that the relation between bank risk and capital regulations, deposit insurance policies, and restrictions on bank activities depends critically on each bank's ownership structure, such that the actual sign of the marginal effect of regulation on risk varies with ownership concentration.	2009	Governance
Complex Ownership Structures and Corporate Valuations Author: Laeven, L. and R. Levine Journal: Review of Financial Studies The bulk of corporate governance theory examines the agency problems that arise from two extreme ownership structures: a number of small shareholders or one large, controlling owner combined with small shareholders. The relationship between corporate valuations and the distribution of cash-flow rights across multiple large owners is consistent with the predictions of recent theoretical models.	2008	Governance
The Cross-Country Incidence of the Global Crisis Author: Lane, P. and G. Milesi-Ferretti Journal: IMF Economic Review The authors examine whether the cross-country incidence and severity of the 2008-2009 global recession is systematically related to pre-crisis macroeconomic and financial factors. They find that the pre-crisis level of development, increases in the ratio of private credit to GDP, current account deficits, and openness to trade are helpful in understanding the intensity of the crisis. International risk sharing did little to shield domestic demand from the country-specific component of output declines, while those countries with large pre-crisis current account deficits saw domestic demand fall by much more than domestic output during the crisis.	2010	Governance
The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004 Author: Lane, P. and G. Milesi-Ferretti Journal: Journal of International Economics The authors document for emerging markets, an increasing importance of equity financing and an improvement in their external position, as well as a differing pace of financial integration between advanced and developing economies. They also show the existence of a global discrepancy between estimated foreign assets and liabilities and identify the asset categories that account for this discrepancy.	2007	Governance
Can Capital Markets Create Incentives for Pollution Control? Author: Lanoie, P., B. Laplante and M. Roy Journal: Ecological Economics In this paper, the authors analyze the role that capital markets may play to create pollution control incentives. Evidence drawn from American and Canadian studies indicates that capital markets react to the release of information, and that large polluters are affected more significantly by such release than smaller polluters. This result appears to be a function of the regulator's willingness to undertake strong enforcement actions as well as the possibility for capital markets to rank and compare firms with respect to their environmental performance.	1998	Environmental
The Market Reaction to Corporate Governance Regulation Author: Larcker, D., G. Ormazabal and D. Taylor Journal: Journal of Financial Economics This paper investigates the market reaction to recent legislative and regulatory actions pertaining to corporate governance. The authors find that the abnormal returns to recent events relating to corporate governance regulations are, on average, decreasing in CEO pay, decreasing in the number of large blockholders, decreasing in the ease by which small institutional investors can access the proxy process, and decreasing in the presence of a staggered board.	2011	Governance
A Win-Win Paradigm for Quality of Work Life and Business Performance Author: Lau, R. and B. May Journal: Human Resource Development Quarterly This study develops and tests hypotheses to examine empirically how the perceived image of a company's quality of work life will affect its market and financial performances (sales growth, asset growth, return on equity, and return on assets). Empirical results suggest that companies with high quality of work life can also enjoy exceptional growth and profitability.	1998	Social
Market-Value-Maximizing Ownership Structure When Investor Protection Is Weak Author: Lauterbach, B. and E. Tolkowsky Journal: Working paper This paper finds that in a country with lax corporate governance rules, Tobin's Q is maximized when controlholders' vote reaches 67 percent. This evidence is strong when ownership structure is treated as exogenous and weak when it is considered endogenous.	2005	Governance
Performance of Socially Responsible Investment Funds against an Efficient SRI Index: The Impact of Benchmark Choice When Evaluating Active Managers Author: Le Sourd, V. Journal: EDHEC-Risk Institute Publication This paper conducts a performance measurement of SRI funds and assesses the impact of changing the reference from a standard SRI index to an efficient SRI index. This paper finds that an efficient SRI index raises the bar for actively managed SRI funds. While about 62 percent of funds have a positive information ratio when compared to the cap-weighted EuroStoxx Sustainability Index, only about 36 percent of funds do so with respect to the Efficient SRI Index.	2011	Environmental, Social, Governance
Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective Author: Lee, D. and R. Faff Journal: Financial Review Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) the authors find that (1) leading sustainability firms do not underperform the market portfolio, and (2) their lagging counterparts outperform the market portfolio and the leading portfolio. The authors find that leading (lagging) corporate social performance (CSP) firms exhibit significantly lower (higher) idiosyncratic risk and that idiosyncratic risk might be priced by the broader global equity market.	2009	Environmental, Social, Governance
Socially Responsible Investment Fund Performance: The Impact of Screening Intensity Author: Lee, D., J. Humphrey, K. Benson and J. Ahn Journal: Accounting & Finance The study investigates the proposition that the number of screens employed has a linear or curvilinear relation with return. Screening intensity has no effect on unadjusted (raw) returns or idiosyncratic risk. However, the authors find a significant reduction in alpha of 70 basis points per screen using the Carhart performance model. Increased screening results in lower systematic risk - in line with managers choosing lower beta stocks to minimize overall risk.	2010	Environmental, Social, Governance
Ownership Structure and Corporate Governance in Latin America Author: Lefort, F. Journal: Revista Abante This paper provides an overview of corporate governance practices in Latin American countries, surveying the available empirical literature, reviewing the reports on the subject prepared by multinational organizations, and providing new data for ownership and control structures of companies in different Latin American economies. New empirical evidence indicates that Latin American markets penalize excessive separation between control and cash flow rights held by controlling shareholders. In addition, legislation, regulations and the judiciary power in the region are less effective in promoting and enforcing good practices than in more developed markets.	2005	Governance
Do Markets Penalize Agency Conflicts between Controlling and Minority Shareholders? Evidence from Chile Author: Lefort, F. and E. Walker Journal: Developing Economies The authors find that the market consistently values more highly those firms where controlling shareholders have higher coincidence between cash and control rights. The study checks that results are not driven by omitted variable biases, and it controls for reverse causation.	2007	Governance
Currency Hedging and Corporate Governance: A Cross-Country Analysis Author: Lel, U. Journal: Journal of Corporate Finance This paper examines the impact of the strength of governance on firms' use of currency derivatives. The authors find that strongly governed firms tend to use derivatives to hedge currency exposure and overcome costly external financing. On the other hand, weakly governed firms appear to use derivatives mostly for managerial reasons.	2011	Governance
Shareholder Protection: A Leximetric Approach Author: Lele, P. and M. Siems Journal: Journal of Corporate Law Studies The authors build a new shareholder protection index for five countries and measure the development of the laws for over three decades. The study finds that shareholder protection has been improving in the last three decades; that the protection of minority against majority shareholders is considerably stronger in "blockholder countries" as compared to the non-blockholder countries and that convergence in shareholder protection is taking place since 1993 and is increasing since 2001. Also, the examination of the legal differences between the five countries does not confirm the distinction between common law and civil law countries.	2006	Governance
Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis Author: Lemmon, M. and K. Lins Journal: Journal of Finance This paper studies the effect of ownership structure on firm value during the East Asian financial crisis that began in July 1997. This paper finds that Tobin's Q ratios of those firms in which minority shareholders are potentially most subject to expropriation decline twelve percent more than Q ratios in other firms during the crisis period. A similar result holds for stock returns- firms in which minority shareholders are most likely to experience expropriation underperform other firms by about nine percent per year during the crisis period. Further, during the pre-crisis period the authors find no evidence that firms with a separation between cash flow rights and control rights exhibit performance changes different from firms with no such separation.	2003	Governance
Why Do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC Deregistrations Author: Leuz, C., A. Triantis and T. Yue Wang Journal: Journal of Accounting and Economics This paper examines a comprehensive sample of 'going dark' deregistrations where companies cease SEC reporting, but continue to trade publicly. The authors find that firms experience large negative abnormal returns when going dark. Many firms go dark due to poor future prospects, distress and increased compliance costs after SOX. This paper also finds evidence suggesting that controlling insiders take their firms dark to protect private control benefits and decrease outside scrutiny, particularly when governance and investor protection are weak.	2008	Governance
Earnings Management and Investor Protection: An International Comparison Author: Leuz, C., D. Nanda and P. Wysocki Journal: Journal of Financial Economics This paper examines systematic differences in earnings management across 31 countries. The authors propose that insiders, in an attempt to protect their private control benefits, use earnings management to conceal firm performance from outsiders. Thus, earnings management is expected to decrease under investor protection because strong protection limits insiders' ability to acquire private control benefits, which reduces their incentives to mask firm performance.	2003	Governance
Do Foreigners Invest Less in Poorly Governed Firms? Author: Leuz, C., K. Lins and F. Warnock Journal: Review of Financial Studies This paper finds that foreigners invest less in firms that reside in countries with poor outsider protection and disclosure and have ownership structures that are conducive to governance problems. This effect is particularly pronounced when earnings are opaque, indicating that information asymmetry and monitoring costs faced by foreign investors likely drive the results.	2010	Governance
Is Doing Good Good for You? Yes, Charitable Contributions Enhance Revenue Growth Author: Lev, B. Journal: Working paper Using a large sample of charitable contributions made by public companies from 1989 through 2000, and a statistical methodology that distinguishes causation from association, the authors document that charitable contributions enhance the future revenue growth of the donors. In industries that are highly sensitive to consumer perception, corporate giving is associated with subsequent sales growth.	2006	Social
Sharpening the Intangibles Edge Author: Lev, B. Journal: Harvard Business Review The author argues that companies need to generate better information about their investments in intangible assets (a skilled workforce, patents, software, customer relationships, brands, etc.) and the benefits that flow from them- and then disclose at least some of that information to the capital markets. Doing so will both improve managerial decisions and give investors a sharper picture of the company and its performance, which will lead to more accurate valuations and lower the cost of capital.	2004	Social
The Valuation of Organization Capital Author: Lev, B. and S. Radhakrishnan Journal: Measuring Capital in the New Economy This paper develops a measure of a firm's organization capital (unique systems and processes employed in the investment, production, and sales activities of the enterprise, along with the incentives and compensation systems governing its human resources) and estimate it for a large sample of publicly traded companies. The authors show that organization capital helps explain of differences in market values of firms, and document that financial analysts fail to fully comprehend the value of firms' organization capital.	2005	Social
Diversity, Discrimination, and Performance Author: Levine, D. Journal: Working paper Employee diversity may affect business performance both as a result of customer discrimination and as a result of how members of a group work with each other in teams. The authors test for both channels and find little payoff from matching employee demographics to those of potential customers except when the customers do not speak English. Diversity of race or gender within the workplace does not predict sales or sales growth, although age diversity predicts low sales.	2004	Social
The Governance of Financial Regulation: Reform Lessons from the Recent Crisis Author: Levine, R. Journal: International Review of Finance This paper offers an analysis of issues which led to the global financial crisis. The authors then propose a new institution to improve the design, implementation and modification of financial regulations.	2011	Governance
Finance and Growth: Theory and Evidence Author: Levine, R. Journal: Handbook of Economic Growth This paper reviews, appraises, and critiques theoretical and empirical research on the connections between the operation of the financial system and economic growth. While subject to ample qualifications and countervailing views, the preponderance of evidence suggests that both financial intermediaries and markets matter for growth and that reverse causality alone is not driving this relationship. Furthermore, theory and evidence imply that better developed financial systems ease external financing constraints facing firms, which illuminates one mechanism through which financial development influences economic growth.	2005	Governance
Financial Development and Economic Growth: Views and Agenda Author: Levine, R. Journal: Journal of Economic Literature This theoretical paper argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive, first-order relationship between financial development and economic growth. The authors also provide evidence that the level of financial development is a good predictor of future rates of economic growth, capital accumulation, and technological change.	1997	Governance
Nonbinding Voting for Shareholder Proposals Author: Levit, D. and N. Malenko Journal: Journal of Finance This theoretical paper shows that, unlike binding voting, nonbinding voting generally fails to convey shareholder views when manager and shareholder interests are not aligned. Surprisingly, the presence of an activist investor who can discipline the manager may enhance the advisory role of nonbinding voting only if conflicts of interest between shareholders and the activist are substantial.	2011	Governance
Corporate Governance When Founders Are Directors Author: Li, F. and S. Srinivasan Journal: Journal of Financial Economics The authors find that founder-director firms offer a different mix of incentives to their CEOs than other firms. Pay-for-performance sensitivity for nonfounder CEOs in founder-director firms is higher and the level of pay is lower than that of other CEOs. CEO turnover sensitivity to firm performance is also significantly higher in founder-director firms compared with nonfounder firms. Stock returns around M&A announcements and board attendance are also higher in founder-director firms compared with nonfounder firms.	2011	Governance
Diversity and Performance Author: Li, F. and V. Nagar Journal: Management Science This paper measures the performance of U.S. firms initiating same sex domestic partnership benefit (SSDPB) policies. Holding these firms in a calendar portfolio upon their SSDPB initiation earns a four-factor annualized excess return (alpha) of approximately 10 percent. SSDPB adopters also show significant improvement in operating performance relative to nonadopters.	2008	Social
Product Market Competition and Corporate Governance in China: Complementary or Substitute Author: Li, W. and J. Niu Journal: IFSAM VIIIth World Congress The authors find that moderate concentrated ownership and product market competition on productivity are complementary, as are relatively disperse ownership and competition. They also notice the substitute impact between board governance and competition. Finally, the paper finds CEO duality is a substitute for competition.	2006	Governance
Cross-Listing and Corporate Governance: Bonding or Avoiding Author: Licht, A. Journal: Chicago Journal of International Law This paper questions the bonding hypothesis on cross-listing- namely, the idea that firms may list on a foreign stock market with a view to renting that market's superior corporate governance system. A critical review of the extant empirical evidence reveals that an opposite, "avoiding hypothesis" more aptly describes firms' cross-listing behavior with regard to corporate governance issues. If anything, more stringent regimes deter issuers, and there is evidence that insiders behave opportunistically with regard to the cross-listing decision.	2003	Governance
Managerial Opportunism and Foreign Listing: Some Direct Evidence Author: Licht, A. Journal: University of Pennsylvania Journal of International Economic Law This paper considers the corporate governance aspects of a regulatory program aimed at luring Israeli issuers currently listed only on U.S. markets into a dual-list on the Tel Aviv Stock Exchange. The program provides a rare opportunity to analyze the role of managerial opportunism in foreign listing transactions. The staunch resistance from the business and financial sectors to any additional disclosure under Israeli regulation is consistent with managerial reluctance to become subject to a more exacting corporate governance framework.	2001	Governance
Ownership Structure and Financial Constraints: Evidence from a Structural Estimation Author: Lin, C., Y. Ma and Y. Xuan Journal: Journal of Financial Economics The authors find that the shadow value of external funds is significantly higher for companies with a wider insider control-ownership divergence, suggesting that companies whose corporate insiders have larger excess control rights are more financially constrained. The effect of insider excess control rights on external finance constraints is more pronounced for firms with higher degrees of informational opacity and for firms with financial misreporting, and is moderated by institutional ownership.	2011	Governance
Corporate Ownership Structure and Bank Loan Syndicate Structure Author: Lin, C., Y. Ma, P. Malatesta and Y. Xuan Journal: Journal of Financial Economics The authors show that the divergence between the control rights and cash-flow rights of a borrowing firm's largest ultimate owner has a significant impact on the concentration and composition of the firm's loan syndicate. When the control-ownership divergence is large, lead arrangers form syndicates with structures that facilitate enhanced due diligence and monitoring efforts.	2012	Governance
Ownership Structure and the Cost of Corporate Borrowing Author: Lin, C., Y. Ma, P. Malatesta and Y. Xuan Journal: Journal of Financial Economics This article identifies an important channel through which excess control rights affect firm value. The authors find that the cost of debt financing is significantly higher for companies with a wider divergence between the largest ultimate owner's control rights and cash-flow rights and investigate factors that affect this relation.	2011	Governance
Effectiveness of Outside Directors as a Corporate Governance Mechanism: Theories and Evidence Author: Lin, L. Journal: Northwestern University Law Review This article contributes to the ongoing debate over the role of outside directors in two ways. First, after reviewing the law's current treatment of outside directors, the authors survey the theoretical research and empirical studies in the management science and financial economics literatures measuring the effectiveness of outside directors, in order to make those studies readily accessible to the legal community.	1995	Governance
Standardization and Discretion: Does the Environmental Standard ISO 14001 Lead to Performance Benefits? Author: Link, S. and E. Naveh Journal: IEEE Transactions on Engineering Management Making ISO 14001 requirements part of an organization's daily practices leads to better organizational environmental performance, both directly and through a positive impact on employee discretion. Analysis of survey and financial data did not reveal any support for the hypothesis that achieving improvement in environmental performance as result of ISO 14001 implementation leads to better business performance; on the other hand, business performance was not harmed.	2006	Environmental
Equity Ownership and Firm Value in Emerging Markets Author: Lins, K. Journal: Journal of Financial and Quantitative Analysis This paper investigates whether management stock ownership and large non-management blockholder share ownership are related to firm value. This paper finds that firm values are lower when a management group's control rights exceed its cash flow rights. The authors also find that large non-management control rights blockholdings are positively related to firm value. Both of these effects are significantly more pronounced in countries with low shareholder protection.	2003	Governance
A Modest Proposal for Improved Corporate Governance Author: Lipton, M. and J. Lorsch Journal: Business Lawyer This paper outlines the limits on firm board effectiveness, and then proposes changes to reduce the board's role as an effective monitor in a fashion that does not blur the distinction between the executives who manage the company and the directors who monitor its performance.	1992	Governance
Where Are the Shareholders Mansions? CEOs Home Purchases, Stock Sales, and Subsequent Company Performance Author: Liu, C. and D. Yermack Journal: Working paper This paper finds that when a CEO buys real estate, future company performance is inversely related to the CEO's liquidation of company shares and options for financing the transaction. The authors also find that, regardless of the source of finance, future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates.	2007	Governance
Can Corporate Governance Deter Management from Manipulating Earnings? Evidence from Related-Party Sales Transactions in China Author: Lo, A., R. Wong and M. Firth Journal: Journal of Corporate Finance This study finds that firms with a board that has a higher percentage of independent directors or a lower percentage of "parent" directors (i.e., directors who are representatives of the parent companies of the listed firms), or have different people occupying the chair and CEO positions, or have financial experts on their audit committees, are less likely to engage in transfer pricing manipulations.	2010	Governance
Vice vs. Virtue Investing around the World Author: Lobe, S. and C. Walkshäusl Journal: Working paper This paper empirically tests the extent to which a portfolio of socially not responsible firms screened out of a market portfolio will trade at a discount. The authors find no compelling evidence in the data that ethical and unethical screens lead to a significant difference in their financial performance.	2011	Environmental, Social
The Whole Relationship between Environmental Variables and Firm Performance: Competitive Advantage and Firm Resources as Mediator Variables Author: Lopez-Gamero, M., J. Molina-Azorin and E. Claver-CortEs Journal: Journal of Environmental Management This paper finds support that early investment timing and intensity in environmental issues impact the adoption of proactive environmental management, which in turn helps to improve environmental performance. The authors use questionnaire data to show that a firm's resources and competitive advantage act as mediator variables for a positive relationship between environmental protection and financial performance. The effect of environmental protection on firm performance is not direct and can vary depending on the sector considered.	2009	Environmental
Character, Conformity, or the Bottom Line? How and Why Downsizing Affected Corporate Reputation Author: Love, E. and M. Kraatz Journal: Academy of Management Journal This paper examines the reputational consequences of corporate downsizing. Downsizing exerted a strong, negative effect on reputation, consistent with the character explanation. However, significant moderation of this negative effect by factors such as stock market reaction and downsizing's overall prevalence, indicates the need for a multi-theoretical approach to reputational change.	2009	Social
Socially Responsible Investment in the Spanish Financial Market Author: Lozano, J., L. Albareda and M. Balaguer Journal: Journal of Business Ethics This paper presents an analysis of the impact of SRI mutual funds managed by Spanish fund managers comparing the evolution of managed assets and number of investors. The analysis shows that Spanish investors have had limited sensitivity to social issues and knowledge of SRI, as well as a lack of development of SRI investment strategies.	2006	Environmental, Social
Environmental Performance and Profits Author: Lundgren, T. and P. Marklund Journal: Working paper The study investigates how firm-level environmental performance (EP) affects firm-level economic performance measured as profit efficiency (PE) in a stochastic profit frontier setting. The results show that EP induced by environmental policy is not a determinant of PE, while voluntary or non-policy induced EP seem to have a significant (+) effect on firm PE in most sectors.	2012	Environmental
Corporate Social Responsibility, Customer Satisfaction, and Market Value Author: Luo, X. and C. Bhattacharya Journal: Journal of Marketing This study develops and tests a conceptual framework that predicts that customer satisfaction partially mediates the relationship between CSR and firm market value. The authors find empirical support for this framework.	2006	Environmental, Social
Signaling through Corporate Accountability Reporting Author: Lys, T., J. Naughton and C. Wang Journal: Working paper The authors find that CSR expenditures are not charity nor do they improve future financial performance. Rather, firms undertake CSR expenditures in the current period when they anticipate stronger future financial performance.	2013	Environmental, Social
Enjoying the Quiet Life? Corporate Governance and Managerial Preferences Author: M. Bertrand and S. Mullainathan Journal: Journal of Political Economy This paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences. The authors find that when managers are insulated from takeovers, worker wages (especially those of white-collar workers) rise. The destruction of old plants falls, but the creation of new plants also falls. Finally, overall productivity and profitability decline in response to these laws.	2003	Governance
Corporate Social Responsibility and Firm Performance: Investor Preferences and Corporate Strategies Author: Mackey, A., T. Mackey and J. Barney Journal: Academy of Management Review Investors may have interests besides wealth maximization in making investment decisions. If the demand for socially responsible investors is greater than the supply of these investment opportunities, then such investments can create economic value for a firm	2007	Environmental, Social
Investor Reaction to a Corporate Social Accounting Author: Mahapatra, S. Journal: Journal of Business Finance & Accounting This study is an empirical investigation of the long-term market response to corporate social responsibility accounting. Investors view pollution control expenditures, legal or voluntary, as a drain on resources which could have been invested profitably, and do not 'reward' the companies for socially responsible behavior. Thus, an average investor is not an 'ethical investor' and industries and investors left to themselves do not have any incentive to spend for pollution control.	1984	Environmental
The Corporate Social Performance and Corporate Financial Performance Debate: Twenty-Five Years of Incomparable Research Author: Mahon, J. and J. Griffin Journal: Business & Society This study uses four sources of corporate social responsibility ratings and five common accounting measures to demonstrate that the link between corporate social responsibility and corporate financial performance is predetermined by the choice of measures. Surprisingly, Fortune and KLD environmental indices very closely track one another, whereas TRI and corporate philanthropy differentiate between high and low social performers and do not correlate to the firm's financial performance.	1997	Environmental
Corporate Social Performance, Financial Performance and Institutional Ownership in Canadian Firms Author: Mahoney, L. and R. Roberts Journal: Accounting Forum This paper finds no significant relationship between a composite measure of each firm's corporate social performance (CSP) and financial performance (FP). However, the authors do find significant relationships between individual measures of a firm's CSP regarding environmental and international activities and its FP.	2007	Environmental, Social
Poison Pill Securities: Stockholder Wealth, Profitability, and Ownership Structure Author: Malatesta, P. and R. Walkling Journal: Journal of Financial Economics This paper tests hypotheses about the wealth effects of poison pill securities and the characteristics of firms that adopt them. The results indicate that poison pill defenses reduce stockholder wealth by a statistically significant amount. The authors also find that firms that adopt poison pill defenses are significantly less profitable than the average firm in their industry during the year prior to adoption.	1988	Governance
Effects of Board Composition and Stock Ownership on the Adoption of Poison Pills Author: Mallette, P. and K. Fowler Journal: Academy of Management Journal This research examined the relationships between board composition and stock ownership and the passage of poison pill takeover defense provisions by U.S. industrial manufacturing firms. The impact of board leadership on "poison pill" decisions depends on the proportion of independent directors on a board. Results also suggest that equity holdings significantly enter into decisions to adopt poison pills. Companies are more likely to pass such provisions the lower the equity holdings of inside directors and the higher the equity holdings of institutional investors.	1992	Governance
Do Socially Responsible Investment Indexes Outperform Conventional Indexes? Author: Managi, S., T. Okimoto and A. Matsuda Journal: Applied Financial Economics In this study, using Socially Responsible Investment (SRI) indicies and conventional stock indicies from the U.S., the U.K. and Japan, first and second moments of firm performance distributions are estimated based on the Markov Switching (MS) model. The authors find two distinct regimes (bear and bull) in the SRI markets as well as the stock markets for all three countries. These regimes occur with the same timing in both types of market. No statistical difference in means and volatilities generated from the SRI indicies and conventional indicies in either region was found.	2012	Environmental, Social, Governance
Stock Returns in Relation to Environmental, Social and Governance Performance: Mispricing or Compensation for Risk? Author: Manescu, C. Journal: Sustainable Development Using detailed data on seven environmental, social, and governance (ESG) firm attributes, the authors find that the effects of community relations, employee relations, human rights, and product safety on risk-adjusted stock returns are due to mispricing. The implication is that certain ESG attributes are value-relevant but are not efficiently incorporated into stock prices.	2011	Social
The United Shareholders Association Shareholder 1000 and Firm Performance Author: Manry, D. and D. Stangeland Journal: Journal of Corporate Finance This paper examines two measures, reported by the United Shareholders Association (U.S.), of the alignment between managers' and shareholders' interests: a shareholder rights score and a management compensation rating. The authors find evidence that the U.S. shareholder rights and management compensation scores are significantly and positively associated with measures of operating performance and investment spending. Further tests indicate that U.S. management compensation scores proxy for aspects of corporate behavior that have significant valuation implications not reflected in financial statements.	2003	Governance
Misery Loves Companies: Rethinking Social Initiatives by Business Author: Margolis, J. and J. Walsh Journal: Administrative Science Quarterly This paper examines the consequences for organizational research and theory in the 30-year quest for an empirical relationship between a corporation's social initiatives and its financial performance, as well as the development of stakeholder theory. The authors propose an alternative approach, embracing the tension between economic and broader social objectives as a starting point for systematic organizational inquiry.	2003	Environmental, Social, Governance
Does It Pay to Be Good? A Meta-Analysis and Redirection of Research on the Relationship between Corporate Social and Financial Performance Author: Margolis, J., H. Elfenbein and J. Walsh Journal: Working paper To address the empirical link between CSP and CFP, the authors conduct a comprehensive meta-analysis of 251 studies presented in 214 manuscripts. The overall effect is positive but small (mean r = .13, median r = .09, weighted r = .11).	2011	Environmental, Social, Governance
Managers' Green Investment and Related Disclosure Decisions Author: Martin, P. and D. Moser Journal: AAA 2012 Management Accounting Section In the simulation experiment, managers who are shareholders in their company make green investments even when this reduces shareholder value. Moreover, managers voluntarily disclose to potential investors that they have made such green investments and tend to focus their disclosures on the societal benefits of their investment rather than on the cost to the company. Finally, the cost of the green investment to the managers and other current shareholders is lower when the managers disclose their green investment because potential investors' standardized bids for the company are higher when managers disclose their green investments than when they do not.	2011	Environmental
Independent Director Incentives: Where Do Talented Directors Spend Their Limited Time and Energy? Author: Masulis, R. and S. Mobbs Journal: Working paper This paper studies reputation incentives in the director labor market and find that directors with multiple directorships distribute their effort unequally according to the directorship's relative prestige. When directors experience an exogenous increase in a directorship's relative ranking, their board attendance rate increases and subsequent firm performance improves. Also, directors are less willing to relinquish their relatively more prestigious directorships, even when firm performance declines.	2013	Governance
Are All inside Directors the Same? Evidence from the External Directorship Market Author: Masulis, R. and S. Mobbs Journal: Journal of Finance Agency theory and optimal contracting theory posit opposing roles and shareholder wealth effects for corporate inside directors. The authors evaluate these theories using the market for outside directorships to differentiate among inside directors. Firms with inside directors holding outside directorships have better operating performance and market-to-book ratios, especially when monitoring is more difficult. Announcements of outside board appointments improve shareholder wealth, while departure announcements reduce it.	2011	Governance
Agency Problems at Dual-Class Companies Author: Masulis, R., C. Wang and F. Xie Journal: Journal of Finance The authors examine how divergence between insider voting and cash flow rights affects managerial extraction of private benefits of control. They find that as this divergence widens, corporate cash holdings are worth less to outside shareholders, CEOs receive higher compensation, managers make shareholder value-destroying acquisitions more often, and capital expenditures contribute less to shareholder value.	2009	Governance
Corporate Governance and Acquirer Returns Author: Masulis, R., C. Wang and F. Xie Journal: Journal of Finance The authors examine whether corporate governance mechanisms, especially the market for corporate control, affect the profitability of firm acquisitions. This paper finds that acquirers with more anti-takeover provisions experience significantly lower abnormal stock returns in the announcement period. The authors also find that acquirers operating in more competitive industries or separating the positions of CEO and chairman of the board experience higher abnormal announcement returns.	2007	Governance
Carbon Emissions and Firm Value Author: Matsumura, E., R. Prakash and S. Vera-Munoz Journal: Working paper This paper studies the relationship between carbon emissions and both firm value and the cost of capital components of firm value: cost of equity capital and cost of debt. The authors find a negative association between carbon emission levels and firm value, contingent upon firms voluntarily disclosing their carbon emissions in the first place.	2011	Environmental
Green Schemes: Corporate Environmental Strategies and Their Implementation Author: Maxwell, J., S. Rothenberg, F. Briscoe and A. Marcus Journal: California Management Review This note qualitatively examines the environmental strategies and implementation schemes of three companies in different industries: Volvo, Polaroid, and Procter & Gamble. The challenges of implementation and success factors are discussed.	2002	Environmental
Behind the Scenes: The Corporate Governance Preferences of Institutional Investors Author: McCahery, J., L. Starks and Z. Sautner Journal: AFA 2011 Denver Meetings Paper The authors find that corporate governance is important to institutional investor investment decisions and the majority are willing to engage in shareholder activism. When examining institutional investors' portfolio holdings, the authors find that their investment decisions appear to be related to their revealed preferences.	2010	Governance
Corporate Social-Responsibility and Firm Financial Performance Author: McGuire, J., A. Sundgren and T. Schneeweis Journal: Academy of Management Journal This paper analyzes the relationships between perceptions of firms' corporate social responsibility and measures of their financial performance. Results show that a firm's prior performance, assessed by both stock-market returns and accounting-based measures, is more closely related to corporate social responsibility than is subsequent performance. Results also show that measures of risk are more closely associated with social responsibility than previous studies have suggested.	1988	Environmental
Corporate Social Responsibility: A Theory of the Firm Perspective Author: McWilliams, A. and D. Siegel Journal: Academy of Management Review This theoretical paper outlines a supply and demand model of corporate social responsibility (CSR). Based on this framework, the authors hypothesize that a firm's level of CSR will depend on its size, level of diversification, research and development, advertising, government sales, consumer income, labor market conditions, and stage in the industry life cycle. From these hypotheses, the paper concludes that there is an "ideal" level of CSR, which managers can determine via cost-benefit analysis, and that there is a neutral relationship between CSR and financial performance.	2001	Environmental, Social
Issues in the Use of the Event Study Methodology: A Critical Analysis of Corporate Social Responsibility Studies Author: McWilliams, A., D. Siegel and S. Teoh Journal: Organizational Research Methods This paper reviews five event based studies regarding CSR-CSP relationships. The authors demonstrate lack of robustness in event-based studies on the CSR-CSP relationship.	1999	Environmental, Social, Governance
Managerial Share Ownership and the Stock Price Effects of Antitakeover Amendment Proposals Author: McWilliams, V. Journal: Journal of Finance Studies that test for an average stock price effect due to antitakeover amendments present different results, disagreeing with respect to both the significance and the direction of the effect. This study determines whether effects can be identified when managerial share ownership and amendment type are considered. Results suggest a negative relation between managerial share ownership and the stock price reaction to all but fair price amendment proposals.	1990	Governance
Board Monitoring and Antitakeover Amendments Author: McWilliams, V. and N. Sen Journal: Journal of Financial and Quantitative Analysis This study examines the joint influence of board composition, leadership structure, and board ownership structure on the market's reaction to corporate antitakeover amendment proposals. The stock price reaction to antitakeover amendments is more negative when the board is dominated by inside and affiliated outside board members. Further, for firms in which the CEO also chairs the board, the reaction becomes increasingly negative as inside and affiliated outside board members increase their ownership stake in the firm and proportional representation on the board.	1997	Governance
Executive Compensation Structure, Ownership, and Firm Performance Author: Mehran, H. Journal: Journal of Financial Economics An examination of the executive compensation structure provides evidence supporting advocates of incentive compensation, and also suggests that the form rather than the level of compensation is what motivates managers to increase firm value. Firm performance is positively related to the percentage of equity held by managers and to the percentage of their compensation that is equity-based. Finally, firms in which a higher percentage of the shares are held by insiders or outside blockholders use less equity-based compensation.	1995	Governance
Assessing the Impact of Environmental Management Systems on Corporate and Environmental Performance Author: Melnyk, S., R. Sroufe and R. Calantone Journal: Journal of Operations Management Drawing on data provided by a survey of North American managers and their attitudes toward EMS and ISO 14001, this study assesses the relative effects of having a formal but uncertified EMS compared to having a formal, certified system. The results strongly demonstrate that firms in possession of a formal EMS perceive impacts well beyond pollution abatement and see a critical positive impact on many dimensions of operations performance that further increases with EMS certification.	2003	Environmental
Labor and the Market Value of the Firm Author: Merz, M. and E. Yashiv Journal: American Economic Review In this paper the authors investigate links between the financial market and the labor market. Toward this end, they build on the production-based model for firms' market value proposed by John H. Cochrane (1991, 1996) and insert labor and capital adjustment costs as crucial ingredients. The authors quantify the link between financial markets and labor markets by structurally estimating the model using aggregate time-series data for the U.S. corporate sector.	2003	Social
Effect of Announcements of Withdrawal from South Africa on Stockholder Wealth Author: Meznar, M., D. Nigh and C. Kwok Journal: Academy of Management Journal The authors analyzed investor reaction to corporate announcements of withdrawal from South Africa during apartheid for socially responsible reasons. The announcements were associated with a significant drop in the value of the withdrawing firms' stock, particularly for firms withdrawing earlier in the debate surrounding the issue of withdrawal.	1994	Social
Pay for Performance? CEO Compensation and Acquirer Returns in BHCs Author: Minnick, K., H. Unal and L. Yang Journal: Review of Financial Studies The authors find that higher pay-for-performance sensitivity (PPS) leads to value-enhancing acquisitions. Banks whose CEOs have higher PPS have significantly better abnormal stock returns around the time of the acquisition announcements. On average, acquirers in the high-PPS group outperform their counterparts in the low-PPS group by 1.4 percent in a three-day window around the announcement. Higher PPS helps reduce the incentives for making value-destroying acquisitions, while at the same time promotes value-enhancing acquisitions.	2011	Governance
A Cross-Firm Analysis of the Impact of Corporate Governance on the East Asian Financial Crisis Author: Mitton, T. Journal: Journal of Financial Economics This paper suggests that firm-level differences in variables related to corporate governance had a strong impact on firm performance during the East Asian financial crisis of 1997 to 1998. Significantly better stock price performance is associated with firms that had indicators of higher disclosure quality (ADRs and auditors from Big Six accounting firms), with firms that had higher outside ownership concentration, and with firms that were focused rather than diversified. The results suggest that individual firms have some power to preclude expropriation of minority shareholders if legal protection is inadequate.	2002	Governance
Business Groups and the Big Push: Meiji Japan's Mass Privatization and Subsequent Growth Author: Morck, R. and M. Nakamura Journal: Enterprise and Society The authors argue that Japan's zaibatsu, or pyramidal business groups, provide coordinated rapid growth of diverse complementary industries after the Meiji government failed at the task. They propose that pyramidal business groups are private sector mechanisms for coordinating and financing 'big push' growth, and that unique historical circumstances aided their success in prewar Japan. Specifically, Japan uniquely marginalized its feudal elite; withdrew its hand with a propitious mass privatization that rallied the private sector; marginalized an otherwise entrenched first generation of wealthy industrialists; and remained open to foreign trade and capital.	2007	Governance
The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements? Author: Morck, R., B. Yeung and W. Yu Journal: Journal of Financial Economics Stock prices move together more in poor economies than in rich economies. This finding is not due to market size and is only partially explained by higher correlation with fundamentals in low-income economies. However, measures of property rights do explain this difference. Among developed economy stock markets, higher firm-specific returns variation is associated with stronger public investor property rights	2000	Governance
Corporate Governance, Economic Entrenchment and Growth Author: Morck, R., D. Wolfenzon and B. Yeung Journal: Journal of Economic Literature Outside the U.S. and the U.K., pyramidal control structures, cross shareholding and super voting rights are common. At the firm level, these ownership structures vest dominant control rights with families who often have little real capital invested in creating agency and entrenchment problems simultaneously. At the economy level, extensive control of corporate assets by a few families distorts capital allocation and reduces the rate of innovation. Third, the paper conceives of a relationship between the distribution of corporate control and institutional development that generates and preserves economic entrenchment as one equilibrium; but not the only one.	2005	Governance
Corporate Governance and Capital Structure Dynamics Author: Morellec, E., B. Nikolov and N. Schurhoff Journal: Journal of Finance The authors develop a dynamic tradeoff model to examine the importance of manager-shareholder conflicts in capital structure choice. Using data on leverage choices and the model's predictions for different statistical moments of leverage, the authors find that agency costs of 1.5 percent of equity value on average are sufficient to resolve the low-leverage puzzle and to explain the dynamics of leverage ratios.	2012	Governance
Diversity in the Workplace Author: Morgan, J. and F. Vardy Journal: American Economic Review This paper studies diversity in the workplace when employers engage in optimal sequential search and minority workers have noisier ability signals, thus creating a tension between job security and diversity. Distortions can occur even when majority and minority populations have identical skill levels. The authors show that lower firing costs and making bankruptcy laws more liberal would improve workplace diversity.		Social
Active Investors and Performance in Private Equity Funds Author: Morse, A. Journal: Working paper The author investigates whether large, active limited partners exert influence over the portfolio decisions made by private equity (PE) fund managers to the detriment, or benefit, of smaller investors in the pool. PE funds with there deal linkages perform 2.3 percentage points worse in IRR, robust to bench mark and placebo tests. On the Flip side, the author documents that 2.2 percent of portfolio companies are bought by acquirers linked to the active investor. These exit linkages bring a positive excess IRR of 5.8 percentage points.	2013	Governance
Environmental Accounting for Pollution in the United States Economy Author: Muller, N., R. Mendelsohn and W. Nordhaus Journal: American Economic Review This study presents a framework to include environmental externalities into a system of national accounts. This paper estimates the air pollution damages for each industry in the United States. Solid waste combustion, sewage treatment, stone quarrying, marinas, and oil and coal-fired power plants have air pollution damages larger than their value added.	2011	Environmental
Finance for All? Policies and Pitfalls in Expanding Access Author: Mundial, B. Journal: World Bank Policy Research Report This report is a broad-ranging review of research work focusing on access to finance. The report presents indicators to measure financial access, analyzes its determinants, and evaluates the impact of access on growth, equity, and poverty reduction, drawing on research that uses data both at the firm and household level.	2008	Governance
Social Investing: Pension Plans Should Just Say 'No' Author: Munnell, A. and A. Sunden Journal: Pension Fund Politics This discussion paper argues that current social investing initiatives are generally not effective and, even if they were, public plans should not engage in any form of social investing, and while private plans have more leeway, they should not be sacrificing returns for social considerations.	2005	Environmental, Social, Governance
Hazardous Waste Lawsuits, Stockholder Returns, and Deterrence Author: Muoghalu, M., H. Robison and J. Glascock Journal: Southern Economic Journal This paper measures the impact of hazardous waste mismanagement lawsuits on stockholder returns, a first step in the empirical examination of the deterrent effect of hazardous waste laws. Stockholders suffer on average a statistically significant 1.2 percent loss in market value at the filing of an environmental lawsuit, with no significant abnormal returns at the disposition of the suit. The pattern of returns indicates that lawsuits impose lump-sum penalties on firms when information about the suit becomes publicly available.	1990	Environmental
Energy and Pollution Effects on Productivity: A Putty-Clay Approach Author: Myers, J. and L. Nakamura Journal: New Developments in Productivity Measurement In this paper the authors present the first stage of a project designed to measure the impact of environmental manufacturing constraints on individual industries and the derived effect on productivity. The model is dynamic and is designed to represent the succession of changes that will occur over time as an industry reacts to higher energy costs and increased penalties for pollution.	1980	Environmental
Social Capital, Intellectual Capital, and the Organizational Advantage Author: Nahapiet, J. and S. Ghoshal Journal: Academy of Management Review This paper develops the arguments that organization social capital facilitates the creation of new intellectual capital. The authors present a model that incorporates this overall argument in the form of a series of hypothesized relationships between different dimensions of social capital and the main mechanisms and processes necessary for the creation of intellectual capital.	1998	Social
Relationship between Environmental Performance and Financial Performance: An Empirical Analysis of Japanese Corporations Author: Nakao, Y., A. Amano, K. Matsumura, K. Genba and M. Nakano Journal: Business Strategy and the Environment The hypotheses that a firm's environmental performance has a positive impact on its financial performance and vice versa are statistically supported by Japanese data. However, this tendency for two-way positive interaction appears to be only a relatively recent phenomenon. It is not limited to the top-scoring firms in terms of both financial and environmental performance, but is more general. In Japan, the authors infer that information-based environmental policy measures are effective to encourage the ongoing transition toward a more sustainable market economy.	2007	Environmental
Timing and Intensity Effects of Environmental Investments Author: Nehrt, C. Journal: Strategic Management Journal This paper examines the investment timing and intensity conditions under which advantages exist for first movers in environmental investments in recent pollution-reducing manufacturing technologies. The authors measure the impact of investment timing and intensity on growth in profits. Results indicate a positive relationship between timing of investments and profit growth. There is also evidence that more intense investment patterns, lacking sufficient absorption time, may lead to lower profit growth.	1996	Environmental
Corporate Governance Patterns in OECD Economies: Is Convergence Underway? Author: Nestor, S. and J. Thompson Journal: Corporate Governance in Asia: A Comparative Perspective Convergence is taking place for reasons related to the globalization of financial and product markets, an increasing proximity of legal and institutional norms and a more open circulation of and attitude towards foreign ideas. Ownership and control arrangements are still a part of a society's core characteristics and will remain to a considerable degree idiosyncratic.	2001	Governance
Does Home Bias Affect Firm Value? Evidence from Holdings of Mutual Funds Worldwide Author: Ng, L., K. Chan and V. Covrig Journal: Journal of International Economics This study finds strong evidence that home bias affects firm valuation at both country and firm levels. Results show that, at the country level, domestic investors increasing weights in countries that they have over-weighted produces a negative impact on market valuation, while foreign investors increasing weights in countries that they have underweighted leads to enhanced market valuation. At the firm level, firm value increases as domestic and foreign investors weight local firms toward the firms' global market capitalization weights, but decreases as their weights deviate from global weights.	2009	Governance
Does the Rolodex Matter? Corporate Elite's Small World and the Effectiveness of Boards of Directors Author: Nguyen, B. Journal: Management Science This paper investigates the impact of social ties on the effectiveness of boards of directors. When the CEO belongs to the same social networks as a number of directors, the CEO is less likely to be dismissed for poor performance.	2012	Governance
A Study of the Provision of Environmental Information in Financial Analysts' Research Reports Author: Nilsson, H., G. Cunningham and L. Hassel Journal: Sustainable Development This study extends prior research by examining the inclusion of environmental information by financial analysts in their research reports on companies in the chemical and in the oil and gas industries. Results show that only 35 percent of financial analysts' reports have environmental information. Those reports that do have such information have more environmental information for North American companies than for European companies and analysts tend to report more information for companies in their regions. The chemical industry receives more attention, especially for downside information.	2008	Environmental
Creditor Control Rights, Corporate Governance, and Firm Value Author: Nini, G., D. Smith and A. Sufi Journal: Review of Financial Studies The authors document that, in any given year, between 10 percent and 20 percent of firms report to the SEC being in violation of a financial covenant in a credit agreement. This paper shows that violations are followed immediately by a decline in acquisitions and capital expenditures, a sharp reduction in leverage and shareholder payouts, and an increase in CEO turnover. The authors also show that firm operating and stock price performance improve post-violation.	2012	Governance
Tunnel-Proofing the Executive Suite: Transparency, Temptation, and the Design of Executive Compensation Author: Noe, T. Journal: Review of Financial Studies This theoretical paper considers optimal compensation for a CEO who is entrusted with administering corporate assets honestly. Optimal compensation designs maximize integrity at minimum cost. These designs are very "low powered", i.e., while specifying a lower bound for performance and increasing pay with performance, they increase compensation at a rapidly decreasing rate. Thus, integrity considerations engender optimal compensation packages that closely resemble the very pervasive 80/120 bonus plans, exactly the sort of compensation that Jensen (2003) argues should compromise integrity.	2009	Governance
Optimal Corporate Governance and Compensation in a Dynamic World Author: Noe, T. and M. Rebello Journal: Review of Financial Studies The authors model long-run firm performance, management compensation, and corporate governance in a dynamic, nonstationary world. Board passivity is positively correlated with both the value of management compensation and the firm's good fortune. Managerial opportunism tends to follow sudden reversals of good fortune. Moreover, managerial private benefits, by increasing managers' stake in the long-run viability of the firm, may actually ameliorate agency conflicts.	2012	Governance
Forced Board Changes: Evidence from Norway Author: Nygaard, K. Journal: Working paper The recently introduced gender quota on Norwegian corporate boards dramatically increased the share of female directors. The author finds that investors that anticipate the new directors to be more effective in firms with less information asymmetry between insiders of the firm and outsiders. Firms with low information asymmetry experience positive and significant cumulative abnormal returns (CAR) at the introduction of the quota, whereas firms with high information asymmetry show negative but insignificant CAR.	2011	Social, Governance
EU Emission Allowances and the stock Market: Evidence from the Electricity Industry Author: Oberndorfer, U. Journal: Ecological Economics This study conducts an econometric analysis on stock market effects of the EU Emission Trading Scheme (EU ETS). Results show that EU Emission Allowance (EUA) price changes and stock returns of the most important European electricity corporations are positively related. This effect does not work asymmetrically; stock markets do not seem to react differently to EUA appreciations in comparison to depreciations. The carbon market effect is shown to be both time- and country-specific.	2009	Environmental
Portfolio Performance and Environmental Risk Author: Olsson, R. Journal: Working paper This paper examines the performance of U.S. stock portfolios constructed and rebalanced to have different environmental (EV) risk. Portfolios with high EV risk generate higher raw returns than low EV risk portfolios, but when risk and other factors are controlled for using the three Fama-French factors and a momentum factor, the risk-adjusted returns of both high and low EV risk portfolios are not statistically different from zero. The evidence thus indicates that a portfolio of stocks with low EV risk, intended to be more responsible, neither underperform or outperform on a risk-adjusted basis.	2007	Environmental
Does Coordinated Institutional Activism Work? An Analysis of the Activities of the Council of Institutional Investors Author: Opler, T. and J. Sokobin Journal: Working paper The Council of Institutional Investors has issued a focus list of poorly performing firms for each of the last five years to its members who have the discretion to pursue activism programs. This study documents the performance of 96 firms which appeared on the Council's focus lists in 1991, 1992 and 1993 relative to several control groups. Firms on Council focus lists experience poor share price performance in the year before being included on a focus list. In the year after being listed, these firms experienced an average share price increase of 11.6 percent above the S&P 500.	1996	Governance
Corporate Social and Financial Performance: A Meta-Analysis Author: Orlitzky, M., F. Schmidt and S. Rynes Journal: Organization Studies The meta-analysis suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association. CSP appears to be more highly correlated with accounting-based measures of CFP than with market-based indicators, and CSP reputation indices are more highly correlated with CFP than are other indicators of CSP.	2003	Environmental, Social, Governance
The Political Economy of Corporate Governance Author: Pagano, M. and P. Volpin Journal: American Economic Review This paper analyzes the political determinants of investor and employment protection. The proportionality of a country's electoral voting system is significantly and negatively correlated with shareholder protection in a panel of 45 countries, and positively correlated with employment protection in a panel of 21 OECD countries. Other political variables also affect regulatory outcomes, especially for the labor market.	2005	Governance
Globalization and Similarities in Corporate Governance: A Cross-Country Analysis Author: Palepu, K., T. Khanna and J. Kogan Journal: Review of Economics and Statistics The authors find robust evidence of de jure similarity in governance across nations. Interestingly, this is not driven by convergence to U.S. standards. Rather, pairs of economically interdependent countries- especially if the countries are both economically developed- appear to adopt common corporate governance standards, even after accounting for the effects of common legal origin. In contrast to the de jure results, the authors find virtually no evidence of de facto similarity in corporate governance in a battery of estimations at the country, industry and firm levels.	2006	Governance
Gender Quotas and Female Leadership: A Review Author: Pande, R. and D. Ford Journal: World Development Report on Gender This paper reviews the evidence on the equity and efficiency impacts of gender quotas for political positions and corporate board membership. The Indian evidence demonstrates that quotas increase female leadership and influence policy outcomes. In addition, rather than create a backlash against women, quotas can reduce gender discrimination in the long-term. The board quota evidence is more mixed. While female entry on boards is correlated with changing management practices, this change appears to adversely influence short-run profits.	2011	Social
Investment, Idiosyncratic Risk, and Ownership Author: Panousi, V. and D. Papanikolaou Journal: Journal of Finance The authors empirically document that, when idiosyncratic risk rises, firm investment falls, and more so when managers own a larger fraction of the firm. This negative effect of managerial risk aversion on investment is mitigated if executives are compensated with options rather than with shares or if institutional investors form a large part of the shareholder base.	2012	Governance
Insider Ownership and Firm Value: Evidence from Indian Corporate Sector Author: Pant, M. and and M. Pattanayak Journal: Economic and Political Weekly The study investigates the relationship between insider's equity holding and firm value. This paper provides evidence that the relationship between insider shareholding and firm value is not linear in nature and documents a significant non-monotonic relationship between the two. Tobin's Q first increases, then declines and finally rises as ownership by insiders rises. It also confirms that foreign promoter/collaborator shareholding has a significant positive impact on firm value.	2007	Governance
Corporate Governance, Regulatory Changes, and Corporate Restructuring in Korea, 1993-2004 Author: Park, C. and S. Kim Journal: Journal of World Business The authors argue that the effectiveness of governance factors on firms' activities is bound to the institutional context created by government regulations. Results show that institutional ownership and regulatory changes in corporate governance had significantly influenced Korean firms' restructuring. Regulatory changes have positively moderated the relationship between business group affiliation and restructuring, and between institutional ownership and restructuring.	2008	Governance
Voting with Their Feet: Institutional Ownership Changes around Forced CEO Turnover Author: Parrino, R., R. Sias and L. Starks Journal: Journal of Financial Economics This paper investigates whether institutional investors "vote with their feet" when dissatisfied with a firm's management by examining changes in equity ownership around forced CEO turnover. The authors find that aggregate institutional ownership and the number of institutional investors decline in the year prior to forced CEO turnover. Measures of institutional ownership changes are negatively related to the likelihoods of forced CEO turnover and that an executive from outside the firm is appointed CEO.	2003	Governance
Corporate Social Responsibility, the Role of Stakeholders and Sustainable Development: A Case Study of Pakistan Author: Paryani, M. Journal: Working paper The country Pakistan is chosen as a case study on the topic "Corporate Social Responsibility (CSR), the Role of Stakeholders and Sustainable Development" because of the unique nature, social & environmental challenges facing by the corporate sector of Pakistan. This study aims to provide understanding of CSR and the status of existence, implementation and utilization of CSR in the corporate sector of Pakistan along with the details of long term financial success associated with CSR. This paper also focuses on the environmental and social externalities affecting the socio-economic and financial success and point out the difficulties for best implementation of CSR activities in Pakistan. What should be the objective of the corporate sector was also discussed before giving suggestions and conclusion.	2011	Environmental, Social, Governance
Corporate Social Responsibility and Economic Performance Author: Paul, C. and D. Siegel Journal: Journal of Productivity Analysis This paper describes some perspectives on corporate social responsibility (CSR) in order to provide a context for considering the strategic motivations and implications of CSR. Based on this framework, which is based on characterizing optimal firm decision making and underlies most existing work on CSR, the authors propose an agenda for further theoretical and empirical research on CSR.	2006	Governance
The Association between Corporate Social-Responsibility and Financial Performance: The Paradox of Social Cost Author: Pava, M. and j. Krausz Journal: Journal of Business Ethics The authors explore the relationship between CSR and traditional financial performance. They find that CSR firms generally perform at least on par with, if not better than, other conventional firms.	1996	Environmental, Social
Board monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals? Author: Peasnell, K., P. Pope and S. Young Journal: Journal of Business Finance & Accounting This paper examines whether the incidence of earnings management by U.K. firms depends on board monitoring. Results indicate that the likelihood of managers making income-increasing abnormal accruals to avoid reporting losses and earnings reductions is negatively related to the proportion of outsiders on the board. In contrast, the authors find little evidence that outside directors influence income-decreasing abnormal accruals when pre-managed earnings are high.	2005	Governance
Outside Directors and Firm Performance During Institutional Transitions Author: Peng, M. Journal: Strategic Management Journal The authors find that outside directors do make a difference in firm performance, if such performance is measured by sales growth, and that they have little impact on financial performance such as return on equity (ROE). The results also document a bandwagon effect behind the diffusion of the practice of appointing outsiders to corporate boards. This article not only highlights the need to incorporate multiple theories beyond agency theory in corporate governance research, but also generates policy implications in light of the recent trend toward having more outside directors on corporate boards in emerging economies.	2004	Governance
Institutional Activism through Litigation: An Empirical Analysis of Public Pension Fund Participation in Securities Class Actions Author: Perino, M. Journal: Journal of Empirical Legal Studies In the Private Securities Litigation Reform Act of 1995, Congress created the lead plaintiff provision in the hope that institutions would closely monitor class counsel and thereby curb the agency costs that typically plague securities class actions. This paper analyzes whether there is any correlation between the participation of one kind of institutional investor, public pension funds, and settlement outcomes, attorney effort, or attorneys' fee requests or awards. This paper finds that cases with public pension lead plaintiffs have larger settlements, recover a greater percentage of the stakes at issue in the case, have greater attorney effort, and have lower fee requests and awards than cases with other types of lead plaintiffs.	2012	Governance
An Exploration of Ethical Investment in the UK Author: Perks, R., D. Rawlinson and L. Ingram Journal: British Accounting Review This paper examines ethical investment in the U.K. with particular reference to ethical unit trusts, institutional investors (universities for example), and environmental issues. It focuses on the obstacles that limit the potential for ethical investors to influence the environmental practices of corporations, and argues that ethical investing has not been shown to be at least as financially beneficial as other investments.	1992	Environmental, Social
Financiers vs. Engineers: Should the Financial Sector Be Taxed or Subsidized? Author: Philippon, T. Journal: American Economic Journal: Macroeconomics This theoretical paper studies the allocation of human capital in an economy with production externalities, financial constraints and career choices. The author finds that when investment and education subsidies are chosen optimally, the financial sector should be taxed in exactly the same way as the non-financial sector.	2010	Social
Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross-Country Analysis Author: Pinkowitz, L., R. Stulz and R. Williamson Journal: Journal of Finance Agency theories predict that the value of corporate cash holdings is less in countries with poor investor protection because of the greater ability of controlling shareholders to extract private benefits from cash holdings in such countries. Using various specifications of the valuation regressions of Fama and French (1998), the authors find that the relation between cash holdings and firm value is much weaker in countries with poor investor protection than in other countries.	2006	Governance
Exposure to Socially Responsible Investing of Mutual Funds in the Euronext Stock Markets Author: Plantinga, A., B. Scholtens and N. Brunia Journal: journal of Performance Measurement This paper finds that sustainable investing does not result in a return distribution that significantly differs from a more conventional or regular investment strategy. Also European funds have a strong 'home bias' to investing in European SRI indices rather than American SRI indicies.	2002	Environmental, Social, Governance
Toward a New Conception of the Environment-Competitiveness Relationship Author: Porter, M. and C. Van der Linde Journal: Journal of Economic Perspectives Economists as a group are resistant to the notion that even well-designed environmental regulations might lead to improved competitiveness, but this resistance is based on an incorrect, static model. The authors of this discussion paper argue that the orientation of business should shift from pollution control to resource productivity. No lasting success can come from policies that promise that environmentalism will triumph over industry, nor from policies that promise that industry will triumph over environmentalism. Instead, success must involve innovation-based solutions that promote both environmentalism and industrial competitiveness.	1995	Environmental
Green and Competitive: Ending the Stalemate Author: Porter, M. and C. Van der Linde Journal: Harvard Business Review In this essay, the authors argue in favor of innovation-friendly regulation regarding the natural environment. Outside pressure, through the right kind of regulation, can motivate companies to innovate, and innovating in order to meet regulatory requirements can lead to better resource productivity. The authors call for a paradigm shift from fighting regulation to competing on resource productivity.	1995	Environmental
Proxy Voting and the SEC: Investor Protection versus Market Efficiency Author: Pound, J. Journal: Journal of Financial Economics This paper analyzes the SEC's proxy regulations and assesses their effects on corporate governance. The authors present evidence that since 1956, when the SEC imposed extensive disclosure requirements, the rules have significantly increased the costs of communication and coordinated action among shareholders. They have thus deterred shareholder initiatives and inhibited the development of a private market for information about voting issues.	1991	Governance
The Impact of Governance Reform on Performance and Transparency Author: Price, R., F. Roman and B. Rountree Journal: Journal of Financial Economics This study examines the influence of Mexico's efforts to improve corporate governance on firm performance and transparency. The authors document a significant increase in compliance over 2000-2004 indicating Mexican companies view non-compliance as costly. However, they find no association between the governance index and firm performance, nor is there a relation with transparency. Instead, the authors find firms with greater compliance resort to the more costly mechanism of making dividend payments (higher propensity to pay and greater yield) to reduce agency conflicts.	2011	Governance
How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans Author: Qian, J. and P. Strahan Journal: Journal of Finance Legal and institutional differences shape the ownership and terms of bank loans across the world. This paper shows that under strong creditor protection, loans have more concentrated ownership, longer maturities, and lower interest rates. In addition, the impact of creditor rights on loans depends on borrower characteristics such as the size and tangibility of assets.	2007	Governance
Do Shareholder Rights Matter? Evidence from a Quasi-Natural Experiment Author: Qian, J. and S. Zhao Journal: Working paper Using a non-uniform governance mandate on cumulative voting in China as a plausibly exogenous shock, the authors examine the effects of strengthening shareholder rights on tunneling. Overall, this paper suggests that in emerging markets characterized by entrenched controlling shareholders and weak institutions, laws and regulations aimed at improving a specific aspect of governance are not likely to be effective.	2011	Governance
Social Investment by Union-Based Pension Funds and Labour-Sponsored Investment Funds in Canada Author: Quarter, J., I. Carmichael, J. Sousa and S. Elgie Journal: Relations Industrielles The study finds that there is very little SRI among pension funds in Canada. Labour-sponsored investment funds are more likely to engage in social investment, particularly if they have a genuine sponsorship by unions.	2001	Environmental, Social, Governance
Governance of Financial Supervisors and Its Effects: A Stocktaking Exercise Author: Quintyn, M. and K. Kyprou Journal: IMF Institute This review paper takes stock of the regulatory governance debate. The authors first discuss the main premise of the paper, that regulatory governance plays a pivotal role in instilling financial sector governance, which in turn is a key source of corporate governance in the nonfinancial sector (the governance nexus). This paper then identifies the main pillars for regulatory governance-independence, accountability, transparency, and integrity.	2007	Governance
The Great Reversals: The Politics of Financial Development in the Twentieth Century Author: Rajan, R. and L. Zingales Journal: Journal of Financial Economics This theoretical paper analyzes the development of financial sectors over time. The authors propose an "interest group" theory of financial development where incumbents oppose financial development because it breeds competition. The theory predicts that incumbents' opposition will be weaker when an economy allows both cross-border trade and capital flows.	2003	Governance
Financial Dependence and Growth Author: Rajan, R. and L. Zingales Journal: American Economic Review This paper examines whether financial development reduces the costs of external finance to firms. The study finds that industrial sectors that are relatively more in need of external finance develop disproportionately faster in countries with more-developed financial markets. The authors also show that this result is unlikely to be driven by omitted variables, outliers, or reverse causality.	1998	Governance
Environmental Product Differentiation Author: Reinhardt, F. Journal: Environmental Management: Readings and Cases, edited by M. Russo This article describes three requirements for successful environmental product differentiation: 1) firms must discover or create a willingness in consumers to pay for public goods; 2) they must overcome barriers to the dissemination of credible information about the environmental attributes of their products; and 3) they must defend themselves against imitation.	2008	Environmental
Socially Responsible Investments: Institutional Aspects, Performance, and Investor Behavior Author: Renneboog, L., J. Ter Horst and C. Zhang Journal: Journal of Banking & Finance This paper offers a review of CSR-CSP literature. The authors find that although CSR are found to be associated with higher shareholder value, there is no convincing evidence on the direction of causality.	2008	Environmental, Social, Governance
The Economic Performance of European Stock Corporations: Does Sustainability Matter? Author: Rennings, K., M. Schroder and A. Ziegler Journal: Greener Management International This paper econometrically examines the effect of environmental and social performance on the average monthly stock return of European stock corporations for the period from 1996 to 2001. Higher environmental sector performance has a significantly positive influence on a firm's shareholder value. In contrast, a higher social sector performance has a negative influence on the average monthly stock returns. The variables of the corporate environmental or social activities relative to the industry average have no significant effect on the shareholder value.	2003	Environmental
Coming Clean: Corporate Disclosure of Financially Significant Environmental Risks Author: Repetto, R. and D. Austin Journal: World Resources Institute This report provides additional evidence that many publicly listed companies do not adequately disclose their financially material environmental exposures in compliance with Securities and Exchange Commission (SEC) rules. Disclosure of environmental risks is limited, despite evidence that information disclosure regarding a company's environmental exposures is considered relevant by investors and can affect the valuation of the company and its financial risks.	2000	Environmental
Pure Profit: The Financial implications of Environmental Performance Author: Repetto, R. and D. Austin Journal: World Resources Institute This paper develops a methodology for integrating environmental issues into financial analysis, and demonstrates the approach by applying it empirically to companies in the U.S. pulp and paper industry. The results show that companies within this industry face environmental risks that are of material significance and that vary widely in magnitude from firm to firm. These risks are not evident in companies' financial statements nor are they likely to be incorporated in current market valuations.	2000	Environmental
Environmental Exposures in the U.S. Electric utility Industry Author: Repetto, R. and J. Henderson Journal: Utilities Policy Quantitative analysis of 47 U.S. electric utilities' environmental exposures to impending air quality and climate policies shows potentially material and highly differentiated financial impacts. For many companies, the minimized compliance costs of a four-pollutant cap-and-trade regulatory regime would not necessarily exceed those of a three-pollutant regime that omitted controls on carbon dioxide emissions. Fragmented regulatory requirements would have the highest compliance costs.	2003	Environmental
Racial Diversity, Business Strategy, and Firm Performance: A Resource-Based View Author: Richard, O. Journal: Academy of Management Journal In this study the author examined the relationships among cultural (racial) diversity, business strategy, and firm performance in the banking industry. Racial diversity interacted with business strategy in determining firm performance measured in three different ways, as productivity, return on equity, and market performance. The results demonstrate that cultural diversity does in fact add value and, within the proper context, contributes to firm competitive advantage.	2000	Social
The Impact of Racial diversity on Intermediate and Long-Term Performance: The Moderating role of Environmental Context Author: Richard, O., B. Murthi and K. Ismail Journal: Strategic management journal The authors conduct a firm-level, 6-year longitudinal analysis on the impact that racial diversity in human resources has on financial performance. When considering short-term performance outcomes, the authors find evidence of a U-shaped relationship between racial diversity and productivity. For longer-term profitability, the authors find support for more of a positive linear relationship between diversity and performance (i.e., Tobin's q) than a nonlinear one.	2007	Social
Socially responsible Investments: Return Expectations or Social Preferences? Author: riedl, A. and P. Smeets Journal: Working paper The authors show that social preferences rather than return expectations or risk perceptions are the main drivers of investments in socially responsible (SRI) mutual funds. Most investors who hold SRI funds expect to earn lower financial returns on these funds than on other funds. Social preferences are only associated with investments in SRI funds without tax benefits, but are unrelated to investments in SRI funds with tax incentives.	2013	Governance
Does One Size Fit All?: A reexamination of the Finance and Growth relationship Author: Rioja, F. and N. Valev Journal: Journal of Development Economics The authors examine the relationship of a country's financial development on economic growth, and find support that there exist three distinct regions of financial development. In the low region (countries with very low levels of financial development), additional improvements in financial markets have an uncertain effect on growth. In the intermediate region, financial development has a large, positive effect on growth. Finally, in the high region, additional financial improvements have a positive, but smaller effect on growth.	2004	Governance
Making a Difference or Making a Statement? Finance Research and Socially responsible Investment Author: Rivoli, P. Journal: Business Ethics Quarterly Under perfect markets assumption SRI will not affect social outcomes. However given well documented imperfections in equity markets, the claim that SRI 'makes a difference' to society is a reasonable one that is consistent with current theoretical and empirical research in finance.	2003	Environmental, Social, Governance
Tunneling and Propping: A Justification for Pyramidal Ownership Author: Riyanto, Y. and L. Toolsema Journal: Journal of Banking & Finance This paper links existence of the pyramidal ownership structure to tunneling and propping. The authors show that tunneling alone cannot justify the pyramidal structure unless outside investors are myopic, since rational outside investors anticipate tunneling and adjust their willingness-to-pay for the firm's shares accordingly. With propping, however, they may be willing to be expropriated in exchange for implicit insurance against bankruptcy.	2008	Governance
Corporate Social responsibility in a Corporate Governance Framework Author: Riyanto, Y. and L. Toolsema Journal: Working paper This paper offers a theoretical model analyzing how CSR and the threat of stakeholder activism influence the effort of managers and shareholders, and describes how CSR may arise endogenously in this context. By engaging in CSR the shareholder can commit to less monitoring, increase the manager's effort, and raise profits.	2007	Governance
do Private Equity Fund Managers Earn Their Fees? Compensation, Ownership, and Cash Flow Performance Author: Robinson, D. and B. Sensoy Journal: AFA 2012 Chicago This paper studies the relation between compensation practices, incentives, and performance in private equity using new data that connects ownership structures, management contracts, and quarterly cash flows. The authors find no evidence that higher compensation or lower managerial ownership are associated with worse net-of-fee performance, in stark contrast to other asset management settings. Instead, compensation is largely unrelated to net-of-fee cash flow performance. In addition, the behavior of distributions around contractual triggers for fees and carried interest is consistent with an underlying agency conflict between investors and general partners.	2013	Governance
Public and Private Enforcement of Securities Laws: Resource-Based Evidence Author: Roe, M. and H. Jackson Journal: Working paper This paper shows that private enforcement of investor protection via disclosure is associated with financial market development, whereas private liability rules are not. Public enforcement fails to correlate with financial development. When securities regulators' resources are used as a proxy for regulatory intensity of the securities regulator, financial depth regularly, significantly, and robustly correlates with stronger public enforcement.	2009	Governance
Outside directors, Board Independence, and Shareholder Wealth Author: Rosenstein, S. and J. Wyatt Journal: Journal of Financial Economics Management plays a dominant role in selecting outside directors, inviting skepticism about outsiders' ability to make independent judgments on firm performance. The authors' examination of wealth effects surrounding outside director appointments find significantly positive share-price reactions. They find no clear evidence that outside directors of any particular occupation are more or less valuable than others.	1990	Governance
Cross-Country Determinants of Mergers and Acquisitions Author: Rossi, S. and P. Volpin Journal: Journal of Financial Economics The study finds that the volume of M&A activity is significantly larger in countries with better accounting standards and stronger shareholder protection. The probability of an all-cash bid in an acquisition decreases with the level of shareholder protection in the acquirer country. In cross-border deals targets are typically from countries with poorer investor protection than acquirers, suggesting that cross-border transactions play a governance role by improving the degree of investor protection within target firms.	2004	Governance
An Empirical Investigation of the Relationship between Change in Corporate Social Performance and Financial Performance: A stakeholder Theory Perspective Author: Ruf, B., K. Muralidhar, R. Brown, J. Janney and K. Paul Journal: Journal of Business Ethics The authors' findings provide some support for a tenet in stakeholder theory that asserts that the dominant stakeholder group, share holders, financially benefit when management meets the demands of multiple stakeholders. Specifically, change in CSP was positively associated with growth in sales for the current and subsequent year, as well as return on sales in the third year.	2001	Social
A Resource-Based Perspective on Corporate Environmental Performance and Profitability Author: Russo, M. and P. Fouts Journal: Academy of Management Journal Drawing on the resource-based view of the firm, the authors posit that environmental performance and economic performance are positively linked and that industry growth moderates the relationship, with the returns to environmental performance higher in high-growth industries. The authors tested these hypotheses using independently developed environmental ratings. Results indicate that "it pays to be green" and that this relationship strengthens with industry growth.	1997	Environmental
The Effect of Poison Pill Securities on Shareholder Wealth Author: Ryngaert, M. Journal: Journal of Financial Economics This paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth. The authors find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines. Also, the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers.	1988	Governance
Novo Mercado and Its Followers: Case Studies in Corporate Governance Reform Author: Santana, M., M. Ararat, P. Alexandru, B. Yurtoglu and M. da Cunha Journal: International Finance Corporation The basic premise guiding the creation in December 2000 of the Novo Mercado (a special segment of the Sao Paulo Stock Exchange [BOVESPA] available to companies that commit to adopting high standards of corporate governance) was that a reduction in investor perceptions of risk would have a positive effect on share values and liquidity. Studies now show that an index of Novo Mercado companies outperformed the BOVESPA index. Partly as a result, foreign investors have bought up 74 percent of shares in new listings.	2008	Governance
Environmental Shareholder Value: Economic Success with Corporate Environmental Management Author: Schaltegger, S. and F. Figge Journal: Eco-management and Auditing This paper discusses the links between environmental management and shareholder value. The authors suggest how corporate environmental management should be designed to increase the shareholder value. They argue against the claim that "more corporate environmental protection increases the economic success and the value of the company." Only a pollution prevention strategy that takes into account the effects on the drivers of shareholder value can secure economic success and improved eco-efficiency.	2000	Environmental
The Link between 'Green' and Economic Success: Environmental Management as the Crucial Trigger between Environmental and Economic Performance Author: Schaltegger, S. and T. Synnestvedt Journal: journal of Environmental management This article presents a theoretical framework to explain the coexistence of conflicting views as to whether improving a firm's environmental performance increases or decreases profitability. It is argued that not only the firm's level of environmental performance, but also the kind of environmental management employed to achieve that level, influences the economic outcome. Research and business practice should focus less on general correlations and more on causal relationships of eco-efficiency, i.e. the effect of different environmental management approaches on economic performance.	2002	Environmental
Managing Human Capital risk Author: Schmalz, M. Journal: Working paper This paper provides a model and empirical support for the idea that labor adjustment costs and firm-specificity of employees' human capital can motivate a conservative financial strategy. When firing, hiring, or training is costly, firms have an incentive to retain employees even in bad times. To be able to do so amid financial constraints risk, firms that face higher labor adjustment costs accumulate more equity-financed cash, if they can. A regression discontinuity design shows that unionization, a proxy for labor adjustment costs, indeed causes higher cash-to-asset ratios and lower leverage in financially unconstrained firms.	2013	Social
The Performance of Socially Responsible Investments: Investment Funds and Indices Author: Schroder, M. Journal: Financial Markets and Portfolio Management This paper reviews the portfolio performance literature and argues that SRI portfolios exhibit performance that is comparable to conventional funds. The authors' own analysis shows that most German, Swiss and U.S. SRI investment funds do not significantly underperform their benchmarks.	2004	Environmental, Social
Is There a Difference? The Performance Characteristics of SRI Equity Indices Author: Schroder, M. Journal: Journal of Business Finance & Accounting The study finds that SRI screens for equities do not lead to a significant performance difference. The authors also finds that SRI indicies exhibit the same performance as the conventional benchmarks and that differences in the risk-return characteristics primarily stem from risk differentials.	2007	Environmental, Social, Governance
Information Asymmetry in Environmental Information: Evidence on Size and Industry Effects on Market Value among Swedish Six 300 Companies Author: Semenova, N. Journal: Oikos foundation This study argues that financial markets price environmental performance beyond financial fundamentals differently depending on company size and the environmental risk of the industry. By using a value relevance model, the empirical results are in line with previous findings that environmental performance adds value beyond the book value of equity and earnings. The relationship is, however, moderated by company size and the environmental risk of the industry.	2011	Environmental, Governance
Industry risk Moderates the Relation between Environmental and Financial Performance Author: Semenova, N. and L. Hassel Journal: Sustainable investment and Corporate Governance Working Papers This study extends previous research on the relation between different measures of environmental and financial performance by introducing moderating effects of inherent environmental industry risk. This paper makes a distinction between the reputational benefits of environmental preparedness and the operational gains of environmental performance when studying the effects on market value. A significant direct effect of environmental preparedness on the market value of the companies is present, while the relation between environmental performance and market value is stronger in low risk industries than in high risk industries.	2008	Environmental
The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness Author: Servaes, H. and A. Tamayo Journal: Management Science This paper shows that CSR and firm value are positively related for firms with high customer awareness, as proxied by advertising expenditures, and either negative or insignificant for firms with low customer awareness. For firms with low customer awareness, the relation is either negative or insignificant. In addition, the authors find that the effect of awareness on the value-CSR relation is reversed for firms with a poor prior reputation as corporate citizens.	2012	Environmental, Social
Market Response to Environmental Information produced Outside the Firm Author: Shane, P. and B. Spicer Journal: Accounting Review This study investigates whether security price movements are associated with the release of externally produced information about companies' performances in the pollution-control area-information which has attributes of consistency and comparability not typically found in voluntarily reported, socially-oriented data. Companies that had low pollution-control performance rankings in eight reports released by the Council on Economic Priorities (CEP) were found to have significantly more negative returns than companies with high rankings.	1983	Environmental
Environmental Risk Management and the Cost of Capital Author: Sharfman, M. and C. Fernando Journal: Strategic Management Journal This paper's findings provide an alternative perspective on the environmental-economic performance relationship, which has been dominated by the view that improvements in economic performance stem from better resource utilization. Firms also benefit from improved environmental risk management through a reduction in their cost of equity capital, a shift from equity to debt financing, and higher tax benefits associated with the ability to add debt.	2008	Environmental
Investor Protection and Equity Markets Author: Shleifer, A. and D. Wolfenzon Journal: Journal of Financial Economics The authors present a simple model of an entrepreneur going public in an environment with poor legal protection of outside shareholders. The model incorporates elements of Becker's (J. Political Econ. 106 (1968) 172) "crime and punishment" framework into a corporate finance environment of Jensen and Meckling (J. Financial Econ. 3 (1976) 305). The model is consistent with a number of empirical regularities concerning the relation between investor protection and corporate finance.	2002	Governance
A Survey of Corporate Governance Author: Shleifer, A. and R. Vishny Journal: Journal of Finance In a survey of Corporate Governance literature, the authors find that successful corporate governance systems, such as those of the United States, Germany and Japan, combine significant legal protection of at least some investors with an important role for large investors. This combination separates them from governance systems in most other countries, which provide extremely limited legal protection of investors, and are stuck with family and insider-dominated firms receiving little external financing. At the same time, the authors do not believe that the available evidence informs which one of the successful governance systems is the best.	2012	Governance
Women in Management and Firm Financial Performance: An Exploratory Study Author: Shrader, C., V. Blackburn and P. Iles Journal: Journal of managerial issues Large firms with high percentages of women managers also have high ROA, ROI, ROE and ROS. Firms with a higher percentage of women in 'top' management positions do not have a disproportionately higher financial performance.	1997	Social
The Role of Corporations in Achieving Ecological Sustainability Author: Shrivastava, P. Journal: Academy of Management Review This article offers a theoretical framework for how companies can contribute to ecological sustainability. It articulates corporate ecological sustainability through the concepts of (a) total quality environmental management, (b) ecologically sustainable competitive strategies, (c) technology transfer through technology-for nature-swaps, and (d) reducing the impact of populations on ecosystems. It also examines the implications that these concepts have for organizational research.	1995	Environmental
An Empirical Analysis of the Strategic Use of Corporate Social Responsibility Author: Siegel, D. and D. Vitaliano Journal: Journal of Economics & Management Strategy This paper shows that observed patterns of corporate investment in CSR are consistent with the strategic use of CSR. Firms selling durable experience goods (e.g automobiles, software) or credence services (e.g financial services) are respectively 15 percent and 23 percent more likely to be socially responsible than are firms selling search goods (e.g. clothing), experience services (e.g. air travel), or nondurable experience goods (e.g. health and beauty products).	2007	Social
Is There a Better Commitment Mechanism Than Cross-Listings for Emerging-Economy Firms? Evidence from Mexico Author: Siegel, J. Journal: Journal of International Business Studies Weak legal institutions at the country level hinder firms in emerging economies from accessing finance and technology affordably. To attract outside resources firms may list the emerging economy firm's shares on a U.S. exchange. This paper uses a quasi-natural experiment from Mexico to examine the conditions under which forming a strategic alliance with a foreign multinational firm is actually a superior mechanism for ensuring good corporate governance.	2009	Governance
Can Foreign Firms Bond Themselves Effectively by Renting U.S. Securities Laws? Author: Siegel, J. Journal: Journal of Financial Economics The study tests the functional convergence hypothesis, which states that foreign firms can leapfrog their countries' weak legal institutions by listing equities in New York and agreeing to follow U.S. securities law. Evidence shows that the SEC and minority shareholders have not effectively enforced the law against cross-listed foreign firms. Detailed evidence from Mexico further shows that while some insiders exploited this weak legal enforcement with impunity, others that issued a cross-listing and passed through an economic downturn with a clean reputation went on to receive privileged long-term access to outside finance. As compared with legal bonding, reputational bonding better explains the success of cross-listings.	2005	Governance
A Reexamination of Tunneling and Business Groups: New Data and New Methods Author: Siegel, J. and P. Choudhury Journal: Review of Financial Studies One of the most rigorous methodologies in the corporate governance literature uses firms' reactions to industry shocks to characterize the quality of governance. This methodology can produce the wrong answer unless one considers the ways firms compete. Using the example of Indian firms, the authors show that an influential finding is reversed when these differences are considered.	2012	Governance
Egalitarianism and International Investment Author: Siegel, J., A. Licht and S. Schwartz Journal: Journal of Financial Economics This study identifies how country differences on a key cultural dimension- egalitarianism- influence the direction of different types of international investment flows. Controlling for a large set of competing explanations, the study finds a robust influence of egalitarianism distance on cross-national investment flows of bond and equity issuances, syndicated loans, and mergers and acquisitions.	2011	Governance
Do the Best Companies to Work for Provide Better Customer Satisfaction? Author: Simon, D. and J. DeVaro Journal: Managerial and Decision Economics Strong evidence suggests that firms on Fortune's '100 Best Companies to Work For' earn higher customer satisfaction ratings than firms not on the list. The result is stronger for firms in the service sector than for those in the manufacturing sector. The increase in customer satisfaction resulting from 'Best Company' status yields about a 1.6 percent increase in ROA.	2006	Social
Eco-Efficiency and Firm Value Author: Sinkin, C., C. Wright and R. Burnett Journal: Journal of Accounting and Public Policy This study empirically examines the proposition that implementation of eco-efficient business strategies is associated with higher firm value. The authors posit that, firms which adopt eco-efficient business strategies and, as a consequence, achieve reduced costs and increased profits should be more highly valued by the market than similar firms that do not adopt eco-efficient business strategies. The empirical testing supports this proposition.	2008	Environmental
Corporate Governance and the Cost of Equity Capital Author: Skaife, H., D. Collins and R. LaFond Journal: Working paper The study finds that firms reporting larger abnormal accruals and less transparent earnings have a higher cost of equity. The authors find that concentrated ownership in the form of the percentage of shares held by institutions and the number of five-percent blockholders are positively related to the cost of equity. In addition, the authors find a negative relation between the cost of equity and the independence of the board, the percentage of the board that owns stock, and managerial power, as proxied by the shareholder rights score.	2004	Governance
The Potential of Impact Investing: The Institutional Investor Context Author: Slegten, N. Journal: Working paper This study considers the potential of a new phenomenon in the financial world, Impact Investing. The author finds that even though the challenges to industry growth are substantial and the risks are perceived as high, over the next five to ten years the institutional investors intend to allocate a median of 1 - 4 percent of their investment portfolio to impact investments. The impact investments in the portfolio exhibit low volatility while generating moderate returns.	2013	Governance
Shareholder Activism by Institutional Investors: Evidence from CalPERS Author: Smith, M. Journal: Journal of Finance Firm size and level of institutional holdings are found to be positively related to the probability of being targeted, and 72 percent of firms targeted after 1988 adopt proposed changes or make changes resulting in a settlement with CalPERS. Shareholder wealth increases for firms that adopt or settle and decreases for firms that resist. No statistically significant change in operating performance is found.	2012	Governance
Do Women in Top Management Affect Firm Performance? A Panel Study of 2,500 Danish Firms Author: Smith, N., V. Smith and M. Verner Journal: International Journal of Productivity and Performance management The proportion of women in top management jobs tends to have positive effects on firm performance, even after controlling for numerous observed characteristics of the firm and for the direction of causality. The results show that the positive effects of women in top management depend on the qualifications of female top managers.	2006	Social, Governance
Corporate Governance, Family Ownership, and Firm Valuations in Emerging Markets: Evidence from Hong kong Panel Data Author: Song, F. and A. Lei Journal: Working paper This paper constructs a corporate governance (CG) index to represent Hong Kong corporate governance standards and rank listed companies. The index examines 12 variables among four governance mechanisms: board structure, executive compensation, ownership structure, and accounting standards. Results indicate that these areas significantly impact firm value and firms with better CG rating have higher firm value.	2008	Governance
Information Control, Career Concerns, and Corporate Governance Author: Song, F. and A. Thakor Journal: Journal of Finance The authors examine corporate governance effectiveness when the CEO generates project ideas and the board of directors screens these ideas for approval. The board's career concerns cause it to distort its investment recommendation procyclically, whereas the CEO's career concerns cause her to sometimes reduce the precision of the board's information.	2006	Governance
The "Antidirector Rights Index" Revisited Author: Spamann, H. Journal: Review of Financial Studies The "antidirector rights index" has been used as a measure of shareholder protection in over a hundred articles since it was introduced by La Porta et al. ("Law and Finance." 1998). A thorough reexamination of the legal data, however, leads to corrections for thirty-three of the forty-six countries analyzed. The correlation between corrected and original values is only 0.53. Consequently, the corrected index fails to support the widely influential claim that shareholder protection is higher in common than in civil law countries.	2010	Governance
The Maturing of socially Responsible Investment: A Review of the Developing Link with Corporate Social Responsibility Author: Sparkes, R. and C. Cowton Journal: Journal of Business Ethics This paper reviews the literature on socially responsible investment (SRI) over recent years and highlights the prospects for an increasingly strong connection with the practice of corporate social responsibility. As the movement matures into a mainstream investment philosophy adopted by a growing proportion of large investment institutions, it is leading to a new form of SRI shareholder pressure.	2004	Environmental, Governance
corporate Governance Ratings and Corporate Performance: An Analysis of Governance Metrics International (GMI) Ratings of U.S. Firms, 2003 to 2008 Author: Spellman, G. and R. Watson Journal: Working paper The regression analysis results indicate that the GMI ratings are statistically related to both past shareholder returns and accounting returns. A positive statistically significant relationship between the GMI ratings and future shareholder returns (both raw returns and the sector-size-relative returns) was also found. In addition, the portfolio simulation results which allocated firms on the basis of high, medium and low GMI scores indicated that both the high and medium GMI portfolios significantly outperformed the low GMI scoring portfolio over the 5 years covered by the analysis.	2009	Governance
Investors, Corporate Social Performance and Information Disclosure: An Empirical Study Author: Spicer, B. Journal: Accounting Review This paper tests the validity of the common belief that a moderate to strong association exists between the investment value of a company's common shares and its social performance. This was achieved by testing for associations between a number of economic and financial indicators of investment value (profitability, size, total and systematic risk, price/earnings ratio) and corporate performance on one key social issue (pollution control) in a sample of companies drawn from a pollution prone industry. Some statistically significant associations were found to exist although there was a reduction in the level of these associations over time.	1978	Environmental
Corporate Environmental Disclosures about the Effects of Climate Change Author: Stanny, E. and K. Ely Journal: Corporate Social Responsibility and Environmental Management Through the Carbon Disclosure Project, 315 institutional investors asked the largest public firms to respond to a questionnaire about climate change. The authors explore whether firms' disclosures directed specifically to institutional investors are related to factors that explain voluntary disclosures to investors in general, such as level of scrutiny. They find that size, previous disclosures and foreign sales are related to firms' disclosure choices.	2008	Environmental
Cross-Border mergers and Differences in Corporate Governance Author: Starks, L. and K. Wei Journal: European Finance Association Meeting Proceeding This paper examines whether corporate governance differences affect firm valuation in cross-border mergers. The authors find that takeover premiums (estimated alternatively as the abnormal returns to target firm shareholders and as the difference between offer price and preceding target firm stock price) are decreasing in the quality of the foreign bidding firm's home country governance for deals completed with stock. Correspondingly, they find that the acquiring firm stockholders' abnormal returns are increasing in the quality of the home country corporate governance.	2004	Governance
socially responsible Indexes Author: Statman, M. Journal: Journal of Portfolio Management The study examines four socially responsible indicies in comparison to the S&P 500. The authors cannot reject the hypothesis that returns of socially responsible companies are equal to those of conventional companies.	2006	Environmental, Social, Governance
Socially Responsible Mutual Funds Author: Statman, M. Journal: Financial Analysts Journal This paper reports that the Domini Social Index, an index of socially responsible stocks, did as well as the S&P 500 Index over the sample period. Socially responsible mutual funds did worse than the S&P 500 and the DSI but no worse than conventional mutual funds.	2000	Environmental, Social
The Wages of Social Responsibility Author: Statman, M. and D. Glushkov Journal: Financial Analysts Journal The study finds that investors that tilt their portfolios toward stocks of companies with high scores on social responsibility receive a higher return relative to conventional investors. However investors that screen stocks associated with tobacco, alcohol, gambling, firearms, military, and nuclear operations receive and lower return relative to conventional investors.	2009	Environmental, Social, Governance
Evaluating the Performance of socially Responsible Investment Funds: A Holding Data Analysis Author: Stenstrom, C. and J. Thorell Journal: masters thesis, Stockholm School of Economics, Stockholm This paper investigates the performance of regular mutual funds compared to Socially Responsible Investment (SRI) mutual funds. Results from the study indicate that an exclusion of companies according to norm-based screening can improve a fund's performance. However, when looking specifically at the fund management of SRI funds, the results point towards inferior performance compared to regular funds.	2010	Environmental, Social, Governance
Securities laws, Disclosure, and National Capital Markets in the Age of Financial Globalization Author: Stulz, R. Journal: Journal of Accounting Research Securities laws remain an important determinant of whether and where securities are issued, how they are valued, who owns them, and where they trade. This paper shows that mandatory disclosure through securities laws can decrease agency costs between corporate insiders and minority shareholders, but only provided the investors can act on the information disclosed and the laws cannot be weakened ex post too much through lobbying by corporate insiders.	2009	Governance
The Limits of Financial Globalization Author: Stulz, R. Journal: journal of Finance Country attributes are critical to financial decision-making because of "twin agency problems" that arise because rulers of sovereign states and corporate insiders pursue their own interests at the expense of outside investors. When these "twin agency problems" are significant, diffuse ownership is inefficient and corporate insiders must co-invest with other investors, retaining substantial equity.	2005	Governance
Globalization of Equity markets and the Cost of Capital Author: Stulz, R. Journal: Journal of Applied Corporate Finance In this theoretical paper, the author argues that the cost of equity capital decreases because of globalization for two important reasons. First, the expected return that investors require to invest in equity to compensate them for the risk they bear generally falls. Second, the agency costs which make it harder and more expensive for firms to raise funds become less important. The existing empirical evidence is consistent with the theoretical prediction that globalization decreases the cost of capital, but the documented effects are lower than theory expected.	1995	Governance
Culture, Openness, and Finance Author: Stulz, R. and R. Williamson Journal: journal of Financial Economics This paper shows that a country's principal religion predicts the cross-sectional variation in creditor rights better than a country's natural openness to international trade, its language, its income per capita, or the origin of its legal system. Catholic countries protect the rights of creditors less well than Protestant countries. A country's natural openness to international trade mitigates the influence of religion on creditor rights.	2003	Governance
The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott Author: Teoh, S., I. Welch and C. Wazzan Journal: Journal of Business The authors study the boycott of South Africa's apartheid regime. They find that corporate involvement with South Africa was so small that the announcement of legislative/shareholder pressure or voluntary corporate divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested.	1999	Governance
Socially Responsible Investments: Methodology, Risk Exposure and Performance Author: Ter Horst, J., C. Zhang and l. Renneboog Journal: ECGI-Finance Working paper This paper surveys the literature on socially responsible investments (SRI). The risk-adjusted returns of SRI funds in the U.S. and U.K. are not significantly different from those of conventional funds, whereas SRI funds in Continental Europe and Asia-Pacific strongly underperform benchmark portfolios. The volatility of money-flows is lower in SRI funds than of conventional funds, and SRI investors' decisions to invest in an SRI fund are less affected by management fees than the decisions by conventional fund investors.	2007	Environmental, Social, Governance
The Price of Ethics: Evidence from Socially Responsible Mutual Funds Author: Ter Horst, J., C. Zhang and l. Renneboog Journal: ECGI-Finance Working paper The study finds that SRI funds in many European and Asia-Pacific countries strongly underperform domestic benchmark portfolios by about 5 percent per annum, although U.K. and U.S. SRI funds do not significantly underperform their benchmarks. SRI funds do not suffer a cost of reduced selectivity nor do SRI funds managers time the market. The screening activities of SRI funds have a significant impact on funds' risk-adjusted returns and loadings on risk factors: corporate governance and social screens generate better risk-adjusted returns whereas other screens (e.g. environmental ones) yield significantly lower returns.	2007	Environmental, Social, Governance
Corporate Environmental Policy and Abnormal Stock Price Returns: An Empirical Investigation Author: Thomas, A. Journal: Business Strategy and the Environment This paper examines the correlation between the excess stock market returns and the adoption of an environmental protocol by companies. The underlying hypothesis tested is whether evidence of the adoption of environmental policy, prosecution by an environmental agency or the routinized training of staff in environmental protocols, which proxies for the willingness of managers to invest for the long term, is associated with superior economic returns to shareholders. The author finds that both the adoption of an environmental policy and prosecution for breach of environment standards have significant explanatory power in an analysis of excess returns.	2001	Environmental
Resource Use and Waste Management in Vietnam Hotel Industry Author: Trung, D. and S. Kumar Journal: Journal of Cleaner Production This paper reports the results of a study conducted to assess the resource use and management in the hotel industry in Vietnam. The energy and water use, as well as the waste generated in the various hotel categories have been estimated and compared with those in other countries. The current practices in the hotels to address these issues are highlighted, and benchmarks for efficient use of resources in Vietnamese hotels are presented.	2005	Environmental
Corporate Social Responsibility and Financial Performance Author: Tsoutsoura, M. Journal: Working paper The study explores and tests the sign of the relationship between corporate social responsibility and financial performance. The author finds a statistically significant positive relationship between corporate social responsibility and firm performance.	2004	Environmental, Social, Governance
Corporate Social Performance and Organizational Attractiveness to Prospective Employees Author: Turban, D. and D. Greening Journal: Academy of Management Journal Drawing on propositions from social identity theory and signaling theory, the authors hypothesize about CSP. Results indicate that independent ratings of CSP are related to firms' reputations and attractiveness as employers, suggesting that a firm's CSP may provide a competitive advantage in attracting applicants.	1997	Social
Banks as Coordinators of Economic Growth Author: Ueda, K. Journal: IMF Institute This theoretical paper formulates a canonical growth model with externalities as a game among consumers, firms, and banks. Each bank forms a firm group endogenously and internalizes externalities directly within a firm group and indirectly across firm groups. This unique equilibrium requires a condition that separates competition for sources and uses of funds. Banks are shown to competitively internalize production externalities and facilitate economic growth.	2006	Governance
Data in Search of a Theory: A Critical Examination of the Relationships among Social Performance, Social Disclosure, and Economic Performance of U.S. Firms Author: Ullmann, A. Journal: Academy of Management Review This review paper offers suggestions in light of inconsistent findings from studies of the relationships between social disclosure, social performance, and economic performance of U.S. corporations. The main reasons for these inconsistencies are: (a) a lack in theory, (b) inappropriate definition of key terms, and (c) deficiencies in the empirical data bases currently available.	1985	Environmental, Social, Governance
Labor Flexibility and Firm Performance Author: Valverde, M., O. Tregaskis and C. Brewster Journal: International Advances in Economic Research Although there is a strong argument that labor flexibility can lead to greater financial success through the reduction in labor costs and the ability to use labor resources more efficiently, only one measure of flexible HR practices led to increased firm performance, namely the use of temporary workers.	2000	Social
Employee Well-Being, Firm Leverage, and Bankruptcy Risk Author: Verwijmeren, P. and J. Derwall Journal: Journal of Banking & Finance Employees of liquidating firms are likely to lose income and non-pecuniary benefits of working for the firm, which makes bankruptcy costly for employees. This paper examines whether firms take these costs into account when deciding on the optimal amount of leverage. The authors find that firms with leading track records in employee well-being significantly reduce the probability of bankruptcy by operating with lower debt ratios, and they have better credit ratings.	2010	Social
How Are U.S. Family Firms Controlled? Author: Villalonga, B. and R. Amit Journal: Review of Financial Studies In large U.S. corporations, founding families are the only blockholders whose control rights on average exceed their cash-flow rights. The primary sources of the wedge (a pyramid) are dual-class stock, disproportionate board representation, and voting agreements. This papers findings suggest that the potential agency conflict between large shareholders and public shareholders in the United States is as relevant as elsewhere in the world.	2009	Governance
Governance with Poor Investor Protection: Evidence from Top Executive Turnover in Italy Author: Volpin, P. Journal: Journal of Financial Economics This paper studies the determinants of executive turnover and firm valuation as a function of ownership and control structure in Italy, a country that features low legal protection for investors, firms with controlling shareholders, and pyramidal groups. The results suggest that there is poor governance, as measured by a low sensitivity of turnover to performance and a low Q ratio, when (i) the controlling shareholders are also top executives, (ii) the control is fully in the hands of one shareholder and is not shared by a set of core shareholders, and (iii) the controlling shareholders own less than 50 percent of the firm's cash-flow rights.	2002	Governance
Principle Guided Investing: The Use of Negative Screens and Its Implications for Green Investors Author: Von Arx, U. Journal: WIF Institute of Economic Research Working Paper This paper examines how green investors can induce firms to invest in cleaner production technology by using exclusionary investment screens. SRI is more likely to be successful when abatement costs are low and if principle guided investors are numerous and have homogenous investment principles. The transformation process becomes more probable when shares of clean firms are viewed as a separate asset class by all investors. Green investors have to accept lower returns from shares of clean firms, even in the case of positive externalities.	2005	Environmental
The Corporate Social Performance - Financial Performance Link Author: Waddock, S. and S. Graves Journal: Strategic Management Journal Using a greatly improved source of data on corporate social performance (KLD), this paper reports the results of a rigorous study of the empirical linkages between financial and social performance. Corporate social performance (CSP) is found to be positively associated with prior financial performance, supporting the theory that slack resource availability and CSP are positively related. CSP is also found to be positively associated with future financial performance, supporting the theory that good management and CSP are positively related.	1997	Environmental
How to Reconcile Environmental and Economic Performance to Improve Corporate Sustainability: Corporate Environmental Strategies in the European Paper Industry Author: Wagner, M. Journal: Journal of Environmental management Empirical results in fixed effects models confirm an inversely U-shaped relationship between environmental and economic performance. This confirms hypotheses formulated in a theoretic model using an outputs-oriented environmental performance index. The positive part of the relationship was, however, found to be relatively weak. For the input-oriented environmental performance index, where the pooled models are most appropriate, no significant relationship could be detected.	2005	Environmental
Does the Market Value Corporate Environmental Responsibility? An Empirical Examination Author: Wahba, H. Journal: Corporate Social Responsibility and Environmental Management The aim of this research was to present empirical evidence regarding the influence of engaging in environmental responsibility on corporate market value in Egypt. The market compensates those firms that care for their environment, as environmental responsibility exerted a positive and significant coefficient on the firm market value measured by Tobin's q ratio. This aligns with stakeholder theory and resource-based theory arguments, and provides supporting evidence that it pays to be environmentally responsive.	2008	Environmental
The Public Fiduciary: Emerging Themes in Canadian Fiduciary Law for Pension Trustees Author: Waitzer, E. Journal: Working paper This paper reviews the efforts of the Supreme Court of Canada to develop a broader conceptual framework for fiduciary duties and consider steps that might be taken to address and mitigate liability in respect of these duties in the context of pension fund administration. The authors conclude by considering the trajectory of the law and how it appears to be positioning fiduciaries with public responsibilities and, in doing so, could alter legal and governance precepts.	2013	Governance
A Greener Company makes for Happier Employees More So Than Does a More Valuable One: A Regression Analysis of Employee Satisfaction, Perceived Environmental Performance and Firm Financial Value Author: Walsh, C. and A. Sulkowski Journal: Interdisciplinary Environmental Review This paper tests two hypotheses. The first hypothesis is that employee satisfaction is positively impacted when a company is perceived as performing well environmentally. The second hypothesis is that employee satisfaction is positively impacted by firm financial performance. The results indicate a significant positive relationship between employee satisfaction and level of perceived environmental performance. This study does not find a significant relationship between employee satisfaction and firm financial value.	2010	Environmental, Social
Corporate Governance Transfer and Synergistic Gains from Mergers and Acquisitions Author: Wang, C. and F. Xie Journal: Review of Financial Studies The authors present evidence on the benefits of changes in control from mergers and acquisitions. They find that the stronger the acquirer's shareholder rights relative to the target's, the higher the synergy created by an acquisition. They also find that the synergy effect of corporate governance is shared by target shareholders and acquiring shareholders, in that both target returns and acquirer returns increase with the shareholder-rights difference between the acquirer and the target.	2009	Governance
Ownership Structure and Environmental Disclosure: Taiwan Evidence Author: Wang, J., H. Hsiung and W. Ku Journal: International Research Journal of Finance and Economics This study investigates the correlation between the disclosure of environmental information and ownership structures. The higher the degree of discrepancy between the voting rights of controlling shareholders and the ratio of cash flow rights in an environmentally sensitive industry, the lower the level of corporate disclosure of environmental information. Companies in sensitive industries tend toward detailed disclosure of environmental information. Regarding firms in non-sensitive industries, the three corporate governance mechanisms considered have no significant impact on corporate disclosure of environmental information.	2012	Environmental
Impact of Environmental Management System Implementation on Financial Performance: A Comparison of Two Corporate Strategies Author: Watson, K., B. Klingenberg, T. Polito and T. Geurts Journal: Management of Environmental Quality This paper proposes a framework, adapted from the cost of quality literature, that allows managers to quantify environmental decisions to determine the impact of EMS on a corporation's profit/loss statement. Statistical analysis of EMS versus non-EMS adopters finds that EMS adopters do not experience superior financial performance. It can therefore be concluded that on one hand, the expected competitive advantage of EMS strategies is not yet fully exploited. On the other hand, it also indicates that the perceived cost of EMS implementation does not negatively affect financial performance.	2004	Environmental
Measuring the Impact of Socially Responsible Investing Author: Weber, O. Journal: Working paper This article presents an overview of current measurement practices from the financial world and assesses whether they are effective in capturing the real social, ecological and financial impact of SRI. The authors conclude that measuring the impact of SRI should comprise both intended and unintended positive and negative impact. It should include all stakeholders and the total investment portfolio.	2013	Environmental, Social
The Financial Performance of SRI Funds between 2002 and 2009 Author: Weber, O., M. Mansfeld and E. Schirrmann Journal: Working paper This paper finds that the sample SRI fund portfolio reached a significantly higher return than MSCI World Index. Furthermore with respect to the financial performance of SRI funds, the beta-weight of the financial rating of the funds was positive while the beta-weight of the sustainability rating was negative.	2010	Environmental, Social
Outside Directors and CEO Turnover Author: Weisbach, M. Journal: Journal of Financial Economics This paper examines the relation between the monitoring of CEOs by inside and outside directors and CEO resignations. CEO resignations are predicted using stock returns and earnings changes as measures of prior performance. There is a stronger association between prior performance and the probability of a resignation for companies with outsider-dominated boards than for companies with insider-dominated boards.	1988	Governance
Corporate Finance and Corporate Governance Author: Williamson, O. Journal: Journal of Finance A combined treatment of corporate finance and corporate governance is herein proposed. Debt and equity are treated not mainly as alternative financial instruments, but rather as alternative governance structures. The author argues that whether a project should be financed by debt or by equity depends principally on the characteristics of the assets.	1988	Governance
Endogeneity and the Dynamics of Internal Corporate Governance Author: Wintoki, M., J. Linck and J. Netter Journal: Journal of Financial Economics The authors use a well-developed dynamic panel generalized method of moments (GMM) estimator to alleviate endogeneity concerns in two aspects of corporate governance research: the effect of board structure on firm performance and the determinants of board structure. The authors re-examine the relation between board structure and performance using the GMM estimator, and find no causal relation between board structure and current firm performance.	2012	Governance
Controlling Shareholders and Corporate Value: Evidence from Thailand Author: Wiwattanakantang, Y. Journal: Pacific-Basin Finance Journal The study finds that the presence of controlling shareholders is associated with higher performance in a firm, when measured by accounting measures such as the ROA and the sales-asset ratio. The controlling shareholders' involvement in the management, however, has a negative effect on the performance. The negative effect is more pronounced when the controlling shareholder-and-manager's ownership is at 25-50 percent.	2001	Governance
Research Notes. Layoff Announcements and Stockholder Wealth Author: Worrell, D., W. Davidson and V. Sharma Journal: Academy of Management Journal This paper tested the reaction of the securities market to 194 layoff announcements prior to the Worker Adjustment and Retraining Notification Act. Investors reacted more negatively when financial reasons were cited, probably more attributable to the fact that layoffs signaled lower returns ahead than to disagreements about employee management.	1991	Social
Competitiveness through Management of Diversity: Effects on Stock Price Valuation Author: Wright, P., S. Ferris, J. Hiller and M. Kroll Journal: Academy of Management Journal Announcement of both Department of Labor awards for exemplary affirmative action programs and damage awards from the settlement of discrimination lawsuits show an effect on firms' stock returns. High-quality affirmative action programs contribute to sustaining a competitive advantage and are valued in the market place.	1995	Social
Financial Markets and the Allocation of Capital Author: Wurgler, J. Journal: Journal of Financial Economics This study finds that, across 65 countries, the efficiency of capital allocation is negatively correlated with the extent of state ownership in the economy, positively correlated with the amount of firm-specific information in domestic stock returns, and positively correlated with the legal protection of minority investors. In particular, strong minority investor rights appear to curb overinvestment in declining industries.	2000	Governance
Family Control and Corporate Governance: Evidence from Taiwan Author: Yeh, Y., T. Lee and T. Woidtke Journal: International Review of Finance The study finds that family control is even more prevalent than previously suggested and that a non-linear relationship exists between family control and relative firm performance. Family-controlled firms that have low levels of control have lower relative performance than both family-controlled firms with high levels of control and widely held firms. This paper also finds that a positive valuation effect exists when controlling families hold less than 50 percent of a firms board seats.	2001	Governance
Convergence of Corporate Governance: Critical Review and Future Directions Author: Yoshikawa, T. and A. Rasheed Journal: Corporate Governance In this theoretical paper, the researchers examine the question of convergence of corporate governance across countries. They find that despite the vigorous intellectual position of the proponents of convergence, there is only limited evidence to indicate that such convergence is actually occurring. Even when there is ostensible convergence, much of it is convergence in form rather than substance, and governance convergence is not a context-free phenomenon.	2009	Governance
Family Control and Ownership Monitoring in Family-Controlled Firms in Japan Author: Yoshikawa, T. and A. Rasheed Journal: Journal of Management Studies The researchers examined the relationships between family controlled firms, dividend payouts, and profitability in Japan. The study finds that family control was positively related to dividend payouts. Furthermore, they found that while foreign ownership interacted with family control to reduce dividend payouts and increase profitability, bank ownership did not have such an effect.	2009	Governance
The Choice of Corporate Liquidity and Corporate Governance Author: Yun, H. Journal: Review of Financial Studies The authors study how corporate governance influences firms' choices between cash and lines of credit. Stakeholders may disagree about firms' liquidity choices because they differ in the allocation of ex-post control rights for the firms' liquidity reserves. Using state-level changes in takeover protection as exogenous shocks to corporate governance, the authors find that firms increase cash relative to lines of credit when the threat of takeover weakens.	2009	Governance
Corporate Governance and Implications for Minority Shareholders in Turkey Author: Yurtoglu, B. Journal: Journal of Corporate Ownership & Control While holding companies and non-financial firms are the most frequent owners at the direct level, families ultimately own more than 80 percent of all publicly listed firms in Turkey. The authors find that using pyramids and dual class shares to separate control rights from cash flow rights results in significantly lower market to book ratios, suggesting large agency costs due to the conflict of interests between controlling families and minority shareholders.	2003	Governance
Ownership, Control and Performance of Turkish Listed Firms Author: Yurtoglu, B. Journal: Empirica Business ownership is highly concentrated in Turkey, with families being the dominant shareholders. Changes in large shareholdings do not suggest the existence of an active market for share stakes. The authors show that concentrated ownership and pyramidal structures have a negative effect on firm performance as reflected in lower return on assets, market to book ratios, and dividend payments.	2000	Governance
Are Managers Allied with Shareholders in the Treatment of Employees? Evidence from China Author: Zhong, N. Journal: Working paper This paper examines the effects of corporate governance on labor welfare in China. Strong governance is positively related to hourly wages, pension coverage, and other labor welfare measures, suggesting that shareholder control significantly improves labor welfare.	2013	Social, Governance
The Effect of Environmental and Social Performance on the Shareholder Value of European Stock Corporations Author: Ziegler, A., K. Rennings and M. Schroder Journal: Centre for European Economic Research This paper considers the effect of sustainability performance of European stock corporations on their average monthly stock return from 1996 to 2001. The sustainability performance measure is evaluated by the environmental and social risks of a corporation compared to other corporations in the same industry. The most important result of the econometric analysis is that an increasing environmental sector performance has a significantly positive influence on the shareholder value. In contrast, an increasing social sector performance has a negative influence on the average monthly stock returns.	2002	Environmental
Corporate Responses to Climate Change and Financial Performance: The Impact of Climate Policy Author: Ziegler, A., T. Busch and V. Hoffmann Journal: Working paper This papers' portfolio analysis shows a negative relationship between corporate activities to address climate change and stock performance. However the authors find that a trading strategy that bought stocks of corporations with a higher level of responses to climate change and sold stocks of corporations with a lower level, led to negative abnormal returns in regions and periods with less ambitious climate policy, but to positive abnormal returns in regions and periods with stringent climate policy.	2009	Environmental
In Search of New Foundations Author: Zingales, L. Journal: Journal of Finance In this theoretical paper, the author argues that corporate finance theory, empirical research, practical applications, and policy recommendations are deeply rooted in an underlying theory of the firm that ineffectively handles newly emerging types of firms. This paper outlines vital characteristics of a new theory and how such a theory could change corporate finance, both theoretically and empirically.	2002	Governance
Board Gender Diversity and corporate Response to Sustainability Initiatives: Evidence from the Carbon Disclosure Project Author: Ben-Amar, Walid, Millicent Chang, and Philip McIlkenny Journal: Journal of Business Ethics This paper investigates the effect of female representation on the board of directors on corporate response to stakeholders' demands for increased public reporting about climate change-related risks. We rely on the Carbon Disclosure Project as a sustainability initiative supported by institutional investors. Greenhouse gas emissions measurement and its disclosure to investors can be thought of as a first step toward addressing climate change issues and reducing the firm's carbon footprint. Based on a sample of publicly listed Canadian firms over the period 2008-2014, we find that the likelihood of voluntary climate change disclosure increases with women percentage on boards. We also find evidence that supports critical mass theory with regard to board gender diversity. These findings reinforce initiatives being undertaken around the world to promote gender diversity in corporate governance while demonstrating board effectiveness in stakeholder management.	2016	Environmental, Social, Governance
Sustainable Development and Financial Markets: Old Paths and New Avenues Author: Busch, Timo, Rob Bauer, and Marc Orlitzky Journal: Business & Society This article explores the role of financial markets for sustainable development. More specifically, the authors ask to what extent financial markets foster and facilitate more sustainable business practices. The authors highlight that their current role is rather modest and conclude that, on the old paths, a paradoxical situation exists. On one hand, financial market participants increasingly integrate environmental, social, and governance (ESG) criteria into their investment decisions, whereas on the other hand, in terms of organizational reality, there seems to be no real shift toward more sustainable business practices. The authors identify two main challenges within the field of sustainable investments that are relevant for entering new avenues that may help overcome this situation. First, a reorientation toward a long-term paradigm for sustainable investments is important. Second, ESG data must become more trustworthy. From a theoretical point of view, the authors finally highlight the potential market consequences when ESG investment criteria are used.	2016	Environmental
Climate Value at Risk' of Global Financial Assets Author: Dietz, Simon, Alex Bowen, Charlie dixon, and Philip Gradwell Journal: Nature Climate Change \| Letters Investors and financial regulators are increasingly aware of climate-change risks. So far, most of the attention has fallen on whether controls on carbon emissions will strand the assets of fossil-fuel companies. However, it is no less important to ask, what might be the impact of climate change itself on asset values? Here we show how a leading integrated assessment model can be used to estimate the impact of twenty-first-century climate change on the present market value of global financial assets. We find that the expected 'climate value at risk' (climate VaR) of global financial assets today is 1.8 percent along a business-as-usual emissions path. Taking a representative estimate of global financial assets, this amounts to US$2.5 trillion. However, much of the risk is in the tail. For example, the 99th percentile climate VaR is 16.9 percent, or US$24.2 trillion. These estimates would constitute a substantial write-down in the fundamental value of financial assets. Cutting emissions to limit warming to no more than 2 °C reduces the climate VaR by an expected 0.6 percentage points, and the 99th percentile reduction is 7.7 percentage points. Including mitigation costs, the present value of global financial assets is an expected 0.2 percent higher when warming is limited to no more than 2 °C, compared with business as usual. The 99th percentile is 9.1 percent higher. Limiting warming to no more than 2 °C makes financial sense to risk-neutral investors — and even more so to the risk averse.	2016	Environmental
Does Long-Term Orientation Create Value? Evidence from a Regression Discontinuity Author: Flammer, Caroline, and Pratima (Tima) Bansal Journal: Working paper In this paper, we theorize and empirically investigate how long-term orientation impacts firm value. To study this relationship, we exploit exogenous changes in executives' long-term incentives. Specifically, we examine shareholder proposals on long-term executive compensation that pass or fail by a small margin of votes. The passage of such "close call" proposals is akin to a random assignment of long-term incentives and hence provides a clean causal estimate. We find that the adoption of such proposals leads to i) an increase in firm value and operating performance — suggesting that long-term orientation is beneficial to companies — and ii) an increase in firms' investments in long-term strategies such as innovation and stakeholder relationships. Finally, we find that financially constrained companies are less likely to benefit from long-term orientation.	2016	Environmental, Social, Governance
The Effect of Target Difficulty on Target Completion: The Case of Reducing Carbon Emissions Author: Ioannou, Ioannis, Shelly Xin Li, and George Serafeim Journal: The Accounting Review Targets are an integral component of management control systems and play a significant role in achieving desirable performance outcomes. We focus on a key environmental performance objective-reduction of carbon emissions-as a setting in which to examine how target difficulty affects the degree of target completion in long-term nonfinancial performance. We use a novel dataset compiled by the Carbon Disclosure Project (CDP) and find that firms setting more difficult targets complete a higher percentage of such targets. We also find that this effect is negatively moderated by the provision of monetary incentives. We corroborate this evidence by showing that target difficulty is more effective for carbon reduction projects requiring more novel knowledge and in high-pollution industries. We discuss limitations and suggest avenues for future research.	2016	Environmental
Gender and Environmental Sustainability: A Longitudinal Analysis Author: Kassinis, George, Alexia Panayioutou, Andreeas Dimou, and Georgia Katsifaraki Journal: Corporate Social Responsibility and Environmental Management In this paper, we investigate the relationship between gender and environmental sustainability. Based on a sample of 296 firms, drawn from the population of US publicly traded firms over a five-year period, we empirically test whether firms that have (1) more gender diverse boards of directors and (2) more policies and practices that enable or reinforce gender diversity throughout the organization, adopted more environmentally responsible policies and practices. We find that both 'demographic' and 'structural' gender diversity are significant predictors of a firm's environmental sustainability initiatives. Our findings show gender diversity is a sustainability issue as well.	2016	Environmental, Social, Governance
Corporate Sustainability: First Evidence on Materiality Author: Khan, Mozaffar, George Serafeim, and Aaron Yoon Journal: The Accounting Review Using newly-available materiality classifications of sustainability topics, we develop a novel dataset by hand-mapping sustainability investments classified as material for each industry into firm-specific sustainability ratings. This allows us to present new evidence on the value implications of sustainability investments. Using both calendar-time portfolio stock return regressions and firm-level panel regressions we find that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues. In contrast, firms with good ratings on immaterial sustainability issues do not significantly outperform firms with poor ratings on the same issues. These results are confirmed when we analyze future changes in accounting performance. The results have implications for asset managers who have committed to the integration of sustainability factors in their capital allocation decisions.	2016	Governance
Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility During the Financial Crisis Author: Lins, Karl V., Henri servaes, and Ane Tamayo Journal: European Corporate Governance Institute (ECGI) - Finance Working Paper No. 446/2015 We study the extent to which a firm's social capital, as measured by the intensity of a firm's corporate social responsibility (CSR) activities, affects firm performance during the 2008-2009 financial crisis. We find that high-CSR firms have crisis-period stock returns that are four to seven percentage points higher than low-CSR firms, all else equal. In contrast, we find no difference in returns between high- and low-CSR firms either before or after the crisis. During the crisis, high-CSR firms also experience higher profitability, sales growth, and sales per employee relative to low-CSR firms, and they are able to raise more debt. This evidence is consistent with the view that the trust between the firm and its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.	2016	Social
Environmental Shareholder Activism: Considering Status and Reputation in Firm Responsiveness Author: Perrault, Elise, and Cynthia Clark Journal: Organization & Environment Status and reputation have recently gained traction as theoretical mechanisms that, as important parts of decision processes, influence and explain firm behavior. In this study, we examine how environmentally concerned shareholder activists vary in their status and reputation, and how these differences affect firm responsiveness to their concerns. In a sample of 420 resolutions concerning the natural environment in the period 2004 to 2008, our results indicate that firms respond positively to shareholder activists' high status (a desirable characteristic) and also to their reputation to threaten the firm (an unfavorable characteristic). As such, our study advances a promising explanation to firm responsiveness on environmental issues, rooted in their interpretation of how activists' status and reputation affect their firm.	2016	Environmental
Gender and Board Activeness: The Role of a Critical Mass Author: Schwartz-Ziv, Miriam Journal: Journal of Financial and Quantitative Analysis This study analyzes detailed minutes of board meetings of business companies in which the Israeli government holds a substantial equity interest. Boards with at least three directors of each gender are found to be at least 79 percent more active at board meetings than those without such representation. This phenomenon is driven by women directors in particular; they are more active when a critical mass of at least three women is in attendance. Gender-balanced boards are also more likely to replace underperforming CEOs and are particularly active during periods when CEOs are being replaced.	2016	Social
The Importance of Shareholder Activism: The Case of Say-on-Pay Author: Stathopoulos, konstantinos, and Georgios Voulgaris Journal: Corporate Governance: An International Review This study focuses on the role of Say-on-Pay as a mechanism that aims to promote the efficiency of corporate governance by providing an additional channel for the expression of shareholder "voice". Initially introduced in the UK, Say-on-Pay has subsequently been adopted in a large number of countries and it has recently received significant attention from regulators, media, and the general public. The purpose of this study is to review prior literature related to Say-on-Pay and its impact on firm value and corporate decision making. Research Findings/Insights: Our study highlights the interdisciplinary nature of research on Say-on-Pay. We also shed light on conceptual gaps and empirical discrepancies in prior studies, indicating that many questions linked to Say-on-Pay and its importance for the executive pay-setting process remain largely unanswered. Theoretical/Academic Implications: At a theoretical level, we highlight potential areas for development of the existing theoretical framework for Say-on-Pay, which is at present rather limited and primarily influenced by agency theory. At an empirical level, we propose a substantial number of avenues for fruitful future research on this topic. Practitioner/Policy Implications: In the light of recent proposals for extending the role of Say-on-Pay within the corporate governance framework, our findings are particularly relevant to regulators. More thought is needed about changing its nature from advisory to binding, as the degree of its effectiveness and the dynamics of the voting process are still unclear. Our study could also be informative for the media and the general public, especially given the increasing attention afforded to Say-on-Pay.	2016	Governance
How to Restore Equitable and Sustainable Economic Growth in the United States Author: Stiglitz, Joseph Journal: American Economic Review: Papers & Proceedings While we celebrate the beginning of the end of the era of zero interest rates, the US economy can hardly be called healthy. GDP is some 15 percent below what it would have been had the growth rates that prevailed between 1980 and 1998 continued. The percentage of the working-age population employed has increased only slightly since the "recovery" began, and is still lower than it was in the early 1980s, when women were entering the workforce en masse. Median real (household) income is less than 1 percent higher than it was in 1989. Real wages at the bottom are lower than 60 years ago. More than a fifth of African American youth are unemployed. All of this, eight years after the beginning of the last recession.	2016	Environmental, Social
Does the Presence of Independent and Female Directors Impact Firm Performance? A Multi-Country Study of Board Diversity Author: Terjesen, Siri, Eduardo Barbosa Couto, and Paulo Morais Francisco Journal: Journal of Management & Governance This study empirically analyzes whether gender diversity enhances boards of directors' independence and efficiency. Using data from 3,876 public firms in 47 countries and controlling for a wide set of corporate governance mechanisms, we find that firms with more female directors have higher firm performance by market (Tobin's Q) and accounting (return on assets) measures. The results also suggest that external independent directors do not contribute to firm performance unless the board is gender diversified. These results hold with respect to different estimation models and robustness tests. Overall, our findings provide evidence that the female directors enhance boards of directors' effectiveness. Finally, we find that firms that are concerned with board independence, and that firms in more complex environments are more likely to have gender-balanced boards.	2016	Social
The Effect of Alternative Accounting measurement Bases on Investors' Assessments of Managers' Stewardship Author: Anderson, spencer B., Jason L. Brown, Leslie Hodder, and Patrick E. Hopkins Journal: Accounting, Organizations and Society We conduct a laboratory experiment to examine investors' assessments of managers' stewardship. We provide evidence that investors tend to attribute external (i.e., non-manager-related) causes of firm performance to managers' performance. We predict and find that fair value information enables investors to overcome this tendency and make better stewardship decisions than investors with amortized cost information. We also find that investors presented with amortized-cost-based financial statements perform better to the extent they access fair-value-based footnote information, while investors presented with fair-value-based financial statements perform worse to the extent they access amortized-cost-based footnote information. Collectively, our results suggest that investors' stewardship decisions are improved because fair value information more transparently provides the information required to properly consider the opportunity costs associated with managers' actions and disentangle endogenous actions by managers from exogenous market forces that are outside of managers' control.	2015	Governance
Restraining Overconfident CEOs through Improved Governance: Evidence from the Sarbanes-Oxley Act Author: Banerjee, Suman, Mark Humphery-Jenner, and Vikram Nanda Journal: Review of Financial Studies The literature posits that some CEO overconfidence benefits shareholders, though high levels may not. We argue that adequate controls and independent viewpoints provided by an independent board mitigates the costs of CEO overconfidence. We use the concurrent passage of the Sarbanes-Oxley Act and changes to the NYSE/NASDAQ listing rules (collectively, SOX) as natural experiments, to examine whether board independence improves decision making by overconfident CEOs. The results are strongly supportive: after SOX, overconfident CEOs reduce investment and risk exposure, increase dividends, improve postacquisition performance, and have better operating performance and market value. Importantly, these changes are absent for overconfident-CEO firms that were compliant prior to SOX.	2015	Governance
Do Markets Erode Social Responsibility Author: Bartling, Björn, Roberto A. Weber, and Lan Yao Journal: Quarterly Journal of Economics This article studies socially responsible behavior in markets. We develop a laboratory product market in which low-cost production creates a negative externality for third parties, but where alternative production with higher costs mitigates the externality. Our first study, conducted in Switzerland, reveals a persistent preference among many consumers and firms for avoiding negative social impact in the market, reflected both in the composition of product types and in a price premium for socially responsible products. Socially responsible behavior is generally robust to varying market characteristics, such as increased seller competition and limited consumer information, and it responds to prices in a manner consistent with a model in which positive social impact is a utility-enhancing feature of a consumer product. In a second study, we investigate whether market social responsibility varies across societies by comparing market behavior in Switzerland and China. While subjects in Switzerland and China do not differ in their degree of social concern in nonmarket contexts, we find that low-cost production that creates negative externalities is significantly more prevalent in markets in China. Across both studies, consumers in markets exhibit less social concern than subjects in a comparable individual choice context.	2015	Environmental, Social, Governance
The Long-Term Effects of Hedge Fund Activism Author: Bebchuk, Lucian A., Alon Brav, and Wei Jiang Journal: Working paper We test the empirical validity of a claim that has been playing a central role in debates on corporate governance — the claim that interventions by activist hedge funds have a detrimental effect on the long-term interests of companies and their shareholders. We subject this claim to a comprehensive empirical investigation, examining a long five-year window following activist interventions, and we find that the claim is not supported by the data. We find no evidence that activist interventions, including the investment-limiting and adversarial interventions that are most resisted and criticized, are followed by short-term gains in performance that come at the expense of long-term performance. We also find no evidence that the initial positive stock-price spike accompanying activist interventions tends to be followed by negative abnormal returns in the long term; to the contrary, the evidence is consistent with the initial spike reflecting correctly the intervention's long-term consequences. Similarly, we find no evidence for pump-and-dump patterns in which the exit of an activist is followed by abnormal long-term negative returns. Our findings have significant implications for ongoing policy debates. Policymakers and institutional investors should not accept the validity of the assertions that activist interventions are costly to firms and their shareholders in the long term; such claims do not provide a valid basis for limiting the rights, powers, and involvement of shareholders.	2015	Governance
The Returns to Hedge Fund Activism Author: Becht, Marco, Julian Franks, Jeremy Grant, and Hannes F. Wagner Journal: Working paper This paper provides evidence that returns to hedge fund activism are driven by engagement outcomes. We use a sample of 1,740 activist engagements from 23 countries to estimate performance of activism across North America, Europe and Asia. Striking differences emerge across countries in outcomes of the engagements. It is these differences that explain the variation in performance of activism. Although there is evidence that activists put companies into play, frequently those takeovers are preceded by significant and profitable governance changes. While the U.S. model of activism has been copied by foreign activists, non-U.S. activists outperform U.S. activists in their domestic markets.	2015	Governance
Recent Advances in Research on Hedge Fund Activism: Value Creation and Identification Author: Brav, Alon, Wei Jiang, and Hyunseob Kim Journal: Annual Review of Financial Economics Hedge fund activism emerged as a major force of corporate governance in the 2000s. By the mid-2000s, there were between 150 and 200 activist hedge funds in action each year, advocating for changes in 200-300 publicly listed companies in the United States. In this article, we review the evolution and major characteristics of hedge fund activism, as well as the short- and long-term impacts of the performance and governance of targeted companies. Though most of the analyses here are based on a comprehensive sample of over 2,000 activism events in the United States from 1994 to 2011, hand-collected by the authors from regulatory filings and news searches, this article covers all major studies on the topic, including those on markets outside of the United States.	2015	Governance
The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes Author: Brav, Alon, Wei Jiang, and Hyunseob Kim Journal: Review of Financial Studies This paper studies the long-term effect of hedge fund activism on firm productivity using plant-level information from the U.S. Census Bureau. A typical target firm improves production efficiency in the 3 years after intervention, with stronger improvements in business strategy-oriented interventions. Plants sold after intervention improve productivity significantly under new ownership, suggesting that capital redeployment is an important channel for value creation. Employees of target firms experience stagnation in work hours and wages despite an increase in labor productivity. Additional tests refute alternative explanations attributing the improvement to mean reversion, management's voluntary reforms, industry consolidation shocks, or activists' stock-picking abilities.	2015	Governance
Global Non-Linear Effect of Temperature on Economic Production Author: Burke, Marshall, Solomon M. Hsiang, and Edward Miguel Journal: Nature \| Letters Growing evidence demonstrates that climatic conditions can have a profound impact on the functioning of modern human societies, but effects on economic activity appear inconsistent. Fundamental productive elements of modern economies, such as workers and crops, exhibit highly non-linear responses to local temperature even in wealthy countries. In contrast, aggregate macroeconomic productivity of entire wealthy countries is reported not to respond to temperature, while poor countries respond only linearly. Resolving this conflict between micro and macro observations is critical to understanding the role of wealth in coupled human-natural systems and to anticipating the global impact of climate change. Here we unify these seemingly contradictory results by accounting for non-linearity at the macro scale. We show that overall economic productivity is non-linear in temperature for all countries, with productivity peaking at an annual average temperature of 13 °C and declining strongly at higher temperatures. The relationship is globally generalizable, unchanged since 1960, and apparent for agricultural and non-agricultural activity in both rich and poor countries. These results provide the first evidence that economic activity in all regions is coupled to the global climate and establish a new empirical foundation for modelling economic loss in response to climate change, with important implications. If future adaptation mimics past adaptation, unmitigated warming is expected to reshape the global economy by reducing average global incomes roughly 23 percent by 2100 and widening global income inequality, relative to scenarios without climate change. In contrast to prior estimates, expected global losses are approximately linear in global mean temperature, with median losses many times larger than leading models indicate.	2015	Environmental
The Valuation Relevance of Greenhouse Gas Emissions under the European Union Carbon Emissions Trading Scheme Author: Clarkson, Peter M, Yue Li, Matt Pinnuck, and Gordon D. Richardson Journal: European Accounting Review This study examines the valuation relevance of greenhouse gas emissions under the European Union Carbon Emissions Trading Scheme. We posit that carbon emissions affect firm valuation only to the extent that a firm's emissions exceed its carbon allowances under a cap-and-trade system and the extent of its inability to pass on carbon-related compliance costs to consumers and end-users. We measure a firm's ability to pass on the future costs by its market power and its carbon performance relative to its industry peers. The results show that firms' carbon allowances are not associated with firm valuation but the allocation shortfalls are negatively associated. We also find that the negative association between firm values and carbon emission shortfalls is mitigated for firms with better carbon performance relative to their industry peers and for firms in less competitive industry sectors. These findings, which suggest that the valuation impact of carbon emissions is unlikely to be homogenous across firms or industrial sectors, have important implications for future research design and for the disclosure and recognition of a firm's greenhouse gas liabilities.	2015	Environmental
Hedge Fund Activism and Long-Term Firm Value Author: Cremers, Martijn, Erasmo Giambona, Simone M. Sepe, and Ye Wang Journal: Working paper This paper investigates the association of hedge fund activism and long-term firm value. We show that the positive long-term association documented in prior studies is likely affected by selection bias, as activist hedge funds tend to target poorly performing firms. Second, once we incorporate such selection bias using a matched sample approach, we find that firms targeted by activist hedge funds improve less in value after activist hedge fund campaigns than ex-ante similarly poorly performing control firms that are not subject to hedge fund activism. This suggests that hedge fund activism decreases, rather than increases, a firm's long-term value, relative to non-targeted control firms that have similar characteristics as the targeted firms. To explain our results, we explore whether the ability of activist hedge funds to substantially influence a firm's investment policy may exacerbate a firm's limited commitment problem toward long-term value creation and stable stakeholder relationships. Consistent with this hypothesis, we find that the reduction in value after hedge fund campaigns is more pronounced for firms where the limited commitment problem is more severe, namely firms that are more engaged in innovation and where stakeholder relationships are more important for long-term value creation.	2015	Governance
Gender Diversity and Securities Fraud Author: Cumming, Douglas, T. Y. Leung, and Oliver Rui Journal: Academy of Management Journal We formulate theory on the effect of board of director gender diversity on the broad spectrum of securities fraud, and generate three key insights. First, based on ethicality, risk aversion, and diversity, we hypothesize that gender diversity on boards can operate as a significant moderator for the frequency of fraud. Second, we advance that the stock market response to fraud from a more gender-diverse board is significantly less pronounced. Third, we posit that women are more effective in male-dominated industries in reducing both the frequency and severity of fraud. Results of our novel empirical tests, based on data from a large sample of Chinese firms that committed securities fraud, are largely consistent with each of these hypotheses.	2015	Social
Executives' "Off-the-Job" Behavior, Corporate Culture, and Financial Reporting Risk Author: Davidson, Robert, Aiyesha Dey, and Abbie Smith Journal: Journal of Financial Economics We study the effects on M&A outcomes of CEO network centrality, which measures the extent and strength of a CEO's personal connections. High network centrality can allow CEOs to efficiently gather and control private information, facilitating value-creating acquisition decisions. We show, however, that M&A deals initiated by high-centrality CEOs, in addition to being more frequent, carry greater value losses to both the acquirer and the combined entity than deals initiated by low-centrality CEOs. We also document that high-centrality CEOs are capable of avoiding the discipline of the markets for corporate control and the executive labor market, and that the mitigating effect of internal governance on CEO actions is limited. Our evidence suggests that corporate decisions can be influenced by a CEO's position in the social hierarchy, with high-centrality CEOs using their power and influence to increase entrenchment and reap private benefits.	2015	Social, Governance
The Benefits of Socially Responsible Investing: An Active Manager's Perspective Author: De, Indrani, and Michelle R. Clayman Journal: Journal of Investing There has been a lot of research on the predictive power of environmental, social, and governance (ESG) ratings, the relationship between ESG ratings and subsequent stock performance, and whether using ESG data in stock analysis and portfolio management was value-additive or valuedetracting. In this article, the authors examine the relationship between the ESG ratings of a company and its stock returns, volatility, and risk-adjusted returns in the post-2008 financial crisis era. They explore the negative relationship between ESG and volatility in greater depth, given the well-documented low-volatility anomaly (outperformance of low-volatility stocks). Both (high) ESG rating and (low) volatility positively impact stock returns, but the ESG effect is independent of the low-volatility effect, and ESG is a positive contributor in its own right. Given the controversy surrounding the effect of ESG-based investment restrictions, the authors test the effect of restricting the investible universe by deleting the lower tail of ESG companies on portfolio performance. Asset managers can thus actively use the association between corporate ESG ratings and stock return, volatility, and risk-adjusted return to enhance their stock-picking and portfolio-construction abilities.	2015	Environmental, Social, Governance
Do Institutional Investors Drive Corporate Social Responsibility? International Evidence Author: Dyck, I. J. Alexander, Karl V. Lins, Lukas Roth, and Hannes F. Wagner Journal: Rotman School of Management Working Paper No. 2708589 We examine whether institutional investors affect a firm's commitment to corporate social responsibility (CSR) for a large sample of firms from 41 countries over the period 2004 through 2013. We focus on environmental and social aspects of CSR, while controlling for firms' governance levels. We find that institutional ownership is positively associated with firm-level environmental and social commitments. Further, the "color" of money matters. Domestic institutional investors and non-U.S. foreign investors account for these positive associations, while U.S. institutional investors' holdings are not related to environmental and social scores. Similarly, higher scores are associated with long-term investors such as pension funds but not with hedge funds. Evidence from a quasi-natural experiment shows that institutional ownership causes improvements in environmental scores. Overall, our results suggest that institutional investors, in aggregate, use their ownership stakes to promote good CSR practices around the world.	2015	Environmental, Social
Environmental Performance and the Cost of Capital: Evidence from Commercial Mortgages and REIT Bonds Author: Eichholtz, Piet, Rogier Holtermans, Nils Kok, and Erkan Yönder Journal: Working paper There is an ongoing debate about the impact of environmental performance on a firm's cost of capital, but most academic studies are hindered by methodological challenges. The real estate sector, which is at the nexus of many environmental and energy issues, offers a laboratory to address the relationship in a direct manner. Using a sample of U.S. REITs, we investigate the spreads on commercial mortgages collateralized by real assets, some of which are environmentally certified. We also study spreads on corporate debt, both at issuance and while trading in the secondary market. The results show that environmentally certified buildings command significantly lower spreads as compared to conventional, but otherwise comparable buildings. The spread difference varies between 35 and 36 basis points, depending on the specification. At the corporate level, we document that REITs with a higher fraction of environmentally certified buildings are able to issue bonds at lower spreads, after controlling for a broad set of REIT and bond characteristics. A difference-in-difference analysis of bond spreads in the secondary market corroborates this finding. The results in this paper provide some evidence that the financial market capitalizes the environmental performance of collateral into the pricing of financial products.	2015	Environmental
Corporate Environmental Responsibility and the Cost of Capital: International Evidence Author: El Ghoul, sadok, Omrane Guedhami, Hakkon Kim, and Kwangwoo Park Journal: Working paper We examine how corporate environmental responsibility (CER) affects the cost of equity capital for manufacturing firms in 30 countries. Using several approaches to estimate firms' ex ante equity financing costs, we find in regressions that control for firm-level characteristics as well as industry, year, and country effects that the cost of equity capital is lower when firms have higher CER. This finding is robust to addressing endogeneity through instrumental variables, to using alternative specifications and proxies for the cost of equity capital, to accounting for noise in analyst forecasts, and to employing alternative samples. We conclude that investment in CER reduces firms' equity financing costs worldwide.	2015	Environmental, Social, Governance
CEO Network Centrality and Merger Performance Author: El-Khatib, Rwan, Kathy Fogel, and Tomas Jandik Journal: Journal of Financial Economics We study the effects on M&A outcomes of CEO network centrality, which measures the extent and strength of a CEO's personal connections. High network centrality can allow CEOs to efficiently gather and control private information, facilitating value-creating acquisition decisions. We show, however, that M&A deals initiated by high-centrality CEOs, in addition to being more frequent, carry greater value losses to both the acquirer and the combined entity than deals initiated by low-centrality CEOs. We also document that high-centrality CEOs are capable of avoiding the discipline of the markets for corporate control and the executive labor market, and that the mitigating effect of internal governance on CEO actions is limited. Our evidence suggests that corporate decisions can be influenced by a CEO's position in the social hierarchy, with high-centrality CEOs using their power and influence to increase entrenchment and reap private benefits.	2015	Social, Governance
Workforce Diversity and Shareholder Value: A Multi-Level Perspective Author: Ellis, Kimberly M., and Phyllis Y. Keys Journal: Review of Quantitative Finance and Accounting Our study examines the effects of the racial diversity of a firm's workforce on shareholder value. We show that the disclosure of racial diversity in firms yields significant, positive abnormal returns. We further test the effects of several indicators of both lower-level and upper-level workforce diversity in explaining variations in abnormal returns. Our results indicate that two measures of lower-level diversity, workforce heterogeneity and percent of minority new hires, and one measure of upper-level diversity, percent of minorities among the firm's top paid executives, are significantly related to shareholder value. Also, research expenditures, is an important driver of shareholder value in diverse firms. Moreover, workforce heterogeneity is more essential to creating shareholder value in service firms where there is more direct interaction with end-user customers. Thus, consistent with arguments related to the resource-based view and the innovation hypothesis, our study provides empirical support that firms benefit from developing a racially diverse workforce at multiple levels within the organization.	2015	Social
Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach Author: Flammer, Caroline Journal: Management Science This study examines the effect of shareholder proposals related to corporate social responsibility (CSR) on financial performance. Specifically, I focus on CSR proposals that pass or fail by a small margin of votes. The passage of such "close call" proposals is akin to a random assignment of CSR to companies and hence provides a quasi-experiment to study the effect of CSR on performance. I find that the adoption of close call CSR proposals leads to positive announcement returns and superior accounting performance, implying that these proposals are value enhancing. When I examine the channels through which companies benefit from CSR, I find that labor productivity and sales growth increase after the vote. Finally, I document that close call CSR proposals differ from non-close proposals along several dimensions. Accordingly, although my results imply that adopting close call CSR proposals is beneficial to companies, they do not necessarily imply that CSR proposals are beneficial in general.	2015	Environmental, Social, Governance
ESG and Financial Performance: Aggregated Evidence from more than 2000 Empirical Studies Author: Friede, Gunnar, timo Busch, and Alexander Bassen Journal: Journal of Sustainable Finance & Investment The search for a relation between environmental, social, and governance (ESG) criteria and corporate financial performance (CFP) can be traced back to the beginning of the 1970s. Scholars and investors have published more than 2000 empirical studies and several review studies on this relation since then. The largest previous review study analyzes just a fraction of existing primary studies, making findings difficult to generalize. Thus, knowledge on the financial effects of ESG criteria remains fragmented. To overcome this shortcoming, this study extracts all provided primary and secondary data of previous academic review studies. Through doing this, the study combines the findings of about 2200 individual studies. Hence, this study is by far the most exhaustive overview of academic research on this topic and allows for generalizable statements. The results show that the business case for ESG investing is empirically very well founded. Roughly 90 percent of studies find a nonnegative ESG-CFP relation. More importantly, the large majority of studies reports positive findings. We highlight that the positive ESG impact on CFP appears stable over time. Promising results are obtained when differentiating for portfolio and nonportfolio studies, regions, and young asset classes for ESG investing such as emerging markets, corporate bonds, and green real estate.	2015	Environmental, Social, Governance
Governance under the Gun: Spillover Effects of Hedge Fund Activism Author: Gantchev, Nickolay, Oleg Gredil, and Chotibhak jotikasthira Journal: Working paper Hedge fund activism is an important monitoring mechanism associated with substantial improvements in the governance and performance of targets. In this paper, we investigate whether the managers of peer firms view activism in their industry as a threat, and undertake real policy changes to mitigate that threat. We find that they do — industry peers with fundamentals similar to those of previous targets reduce agency costs and improve operating performance along the same dimensions as the targets. These effects are distinct from those of product market competition or time-varying industry conditions, and are anticipated by the market as evidenced by increased valuations. Finally, we show that these policy and valuation improvements lower the peers' ex-post probability of being targeted, suggesting that this "do-it-yourself" activism is indeed effective. Taken together, our results imply that shareholder activism, as an external governance device, reaches beyond the target firms.	2015	Governance
Climate Change and Long-Run Discount Rates: Evidence from Real Estate Author: Giglio, Stefano, Matteo Maggiori, Johannes stroebel, and Andreas Weber Journal: Working paper The optimal investment to mitigate climate change crucially depends on the discount rate used to evaluate the investment's uncertain future benefits. The appropriate discount rate is a function of the horizon over which these benefits accrue and the riskiness of the investment. In this paper, we estimate the term structure of discount rates for an important risky asset class, real estate, up to the very long horizons relevant for investments in climate change abatement. We show that this term structure is steeply downward-sloping, reaching 2.6 percent at horizons beyond 100 years. We explore the implications of these new data within both a general asset pricing framework that decomposes risks and returns by horizon and a structural model calibrated to match a variety of asset classes. Our analysis demonstrates that applying average rates of return that are observed for traded assets to investments in climate change abatement is misleading. We also show that the discount rates for investments in climate change abatement that reduce aggregate risk, as in disaster-risk models, are bounded above by our estimated term structure for risky housing, and should be below 2.6 percent for long-run benefits. This upper bound rules out many discount rates suggested in the literature and used by policymakers. Our framework also distinguishes between the various mechanisms the environmental literature has proposed for generating downward-sloping discount rates.	2015	Environmental
Science and the Stock Market: Investors' Recognition of Unburnable Carbon Author: Griffin, Paul A., Amy Myers Jaffe, David H. Lont, and Rosa Dominguez-Faus Journal: Energy Economics This paper documents the stock market's reaction to a 2009 paper in the Nature journal of science, which concluded that only a fraction of the world's existing oil, gas, and coal reserves could be emitted if global warming by 2050 were not to exceed 2 °C above pre-industrial levels. This Nature article is now one of the most cited environmental science studies in recent years. Our analysis indicates that this publication prompted an average stock price drop of 1.5 percent to 2percent for our sample of the 63 largest U.S. oil and gas firms. Later, in 2012-2013, "the press discovered" this article, writing hundreds of stories on the grim consequences of unburnable carbon for fossil fuel companies. We show only a small negative reaction to these later stories, mostly in the two weeks following their publication. This limited market response contrasts with the predictions of some analysts and commentators of a substantial decline in the shareholder value of fossil fuel companies from a carbon bubble. Our paper discusses possible reasons for this discrepancy.	2015	Environmental
Board Structure and Monitoring: New Evidence from CEO Turnovers Author: Guo, Lixiong, and Ronald W. Masulis Journal: Review of Financial Studies We use the 2003 NYSE and NASDAQ listing rules for board and committee independence as a quasinatural experiment to examine the causal relations between board structure and CEO monitoring. Noncompliant firms forced to raise board independence or adopt a fully independent nominating committee significantly increased their forced CEO turnover sensitivity to performance relative to compliant firms. Nominating committee independence is important even when firms had an independent board, and the effect is stronger when the CEO is on the committee. We conclude that greater board independence and full independence of nominating committees lead to more rigorous CEO monitoring and discipline.	2015	Governance
Board Diversity and its Long-Term Effect on Firm Financial and Non-Financial Performance Author: Gupta, Parveen P., Kevin C. K. Lam, Heibatollah Sami, and Haiyan Zhou Journal: Working paper The legislators and regulatory bodies across the globe are mandating public disclosure on diversity or initiating to impose quotas on board structure to enhance gender and ethnic diversity. In this research study, we attempt to fill the void in the literature by investigating the impact of gender and board diversity on long-term firm financial performance and nonfinancial performance which is not addressed in prior studies. Using observations from 2003-2012, we find that a more gender and ethnically diverse board may enhance a firm's performance on social, environmental and governance dimensions but increasing board diversity does not necessarily result in better financial performance for the firm. Our findings are consistent with the arguments presented in the literature that boards with higher gender and ethnic diversity will be more sensitive to stakeholders other than just shareholders, hence enhancing a firm's non-financial performance. These findings suggest that improvement in non-financial performance dimensions may bring benefits to the society, in general, and to the firm in longer term.	2015	Social
Legal vs. Normative CSR: Differential Impact on Analyst Dispersion, Stock Return Volatility, Cost of Capital, and Firm Value Author: Harjoto, Maretno A., and Hoje Jo Journal: Journal of Business Ethics This study examines how the sell-side analysts interpret firms' corporate social responsibility (CSR) activities. Specifically, we examine the differential impact of overall, legal, and normative CSR on the analysts' earnings forecast dispersion, stock return volatility, cost of equity capital, and firm value. Employing a sample of U.S. public firms during 1993-2009, we find that overall CSR intensities reduce analyst dispersion of earnings forecast, volatility of stock return and cost of capital (COC), and increase firm value. However, its impact is reduced for firms with better accounting and disclosure quality. When we disaggregate CSR into legal and normative CSR, we find that legal (normative) CSR decreases (increases) analysts' dispersion, stock return volatility, and COC, while legal (normative) CSR increases (decreases) firm value. The sell-side analysts tend to have less (greater) information asymmetry regarding the net benefits of pursuing CSR that is (not) required by laws. We find, however, that the benefit of having normative CSR realized in 1 year lag such that analyst dispersion, stock return volatility, COC decrease, respectively, and firm value increases. Furthermore, we find that the benefit of normative CSR is offset for firms with higher accounting and disclosure quality.	2015	Environmental, Social, Governance
The BP Oil Spill: Shareholder Wealth Effects and Environmental Disclosures Author: Heflin, Frank, and Dana Wallace Journal: Working paper We use the BP, PLC oil spill to provide new evidence regarding the consequences of and motivations for environmental disclosures. We find that among oil and gas firms drilling in U.S. waters, those with greater environmental disclosure suffered smaller negative shareholder wealth effects following the spill. This suggests that shareholders believed firms with more environmental disclosures were better prepared to address future environmental regulations and less likely to experience similar environmental incidents. We also document an increase in environmental disclosure, specifically disclosures of disaster readiness plans, in the year following the spill. Next, we find that firms with poorer past environmental performance were more likely to increase disclosures about disaster readiness plans. Finally, we provide some evidence, albeit descriptive, that the increased disclosure by the poor pre-spill environmental performers is not entirely window dressing, as their post-spill environmental performance improved.	2015	Environmental
Political Values, Culture, and Corporate Litigation Author: Hutton, Irena, Danling Jiang, and Alok Kumar Journal: Management Science Using one of the largest samples of litigation data available to date, we examine whether the political culture of a firm determines its propensity for corporate misconduct. We measure political culture using the political contributions of top managers, firm political action committees, and local residents. We show that firms with a Republican culture are more likely to be the subject of civil rights, labor, and environmental litigation than are Democratic firms, consistent with the Democratic ideology that emphasizes equal rights, labor rights, and environmental protection. However, firms with a Democratic culture are more likely to be the subject of litigation related to securities fraud and intellectual property rights violations than are Republican firms, whose party ideology stresses self-reliance, property rights, market discipline, and limited government regulation. Upon litigation filing, both types of firms experience similar announcement reaction, which suggests that the observed relationship between political culture and corporate misconduct is unlikely to reflect differences in expected litigation costs.	2015	Environmental, Social, Governance
Corporate Environmental Responsibility and Firm Performance in the Financial Services Sector Author: Jo, Hoje, Hakkon Kim, and Kwangwoo Park Journal: Journal of Business Ethics In this study, we examine whether corporate environmental responsibility (CER) plays a role in enhancing operating performance in the financial services sector. Because achieving success with CER investing is often a long-term process, we maintain that by effectively investing in CER, executives can decrease their firms' environmental costs, thereby enhancing operating performance. By employing a unique environmental dataset covering 29 countries, we find that the reducing of environmental costs takes at least 1 or 2 years before enhancing return on assets. We also find that reducing environmental costs has a more immediate and substantial effect on the performance of financial services firms in well-developed financial markets than in less-developed financial markets. These results are economically and statistically significant and robust even after alleviating endogeneity and using an additional performance measure. We interpret our empirical results as supporting the social impact and reputation-building hypothesis. Our findings also suggest that policy makers dealing with corporate sustainability management should pursue an environment-centered industry policy not only at the manufacturing sector but also at the financial services sector, as firms in both sectors with lower environmental costs perform better.	2015	Environmental, Governance
Employee Rights and Acquisitions Author: John, Kose, Anzhela Knyazeva, and Diana Knyazeva Journal: Journal of Financial Economics This paper examines the outcomes and characteristics of corporate acquisitions from the perspective of stakeholder-shareholder agency conflicts. Using state variation in labor protections, we find that acquirers with strong labor rights experience lower announcement returns. Combined acquirer and target announcement returns are also lower in the presence of strong labor rights. Our findings remain statistically and economically significant after we control for a range of deal, firm, industry and state characteristics and explore various channels for the labor rights effect. Overall, the evidence indicates that employee-shareholder conflicts of interest reduce shareholder gains from acquisitions.	2015	Social
Collective labor Rights and Income Inequality Author: Kerrissey, Jasmine Journal: American Sociological Review This article examines the relationship between income inequality and collective labor rights, conceptualized as workers' legal and practical ability to engage in collective activity. Although worker organization is central to explaining income inequality in industrialized democracies, worldwide comparative studies have neglected the role of class-based actors. I argue that the repression of labor rights reduces the capacity of worker organizations to effectively challenge income inequality through market and political processes in capitalist societies. Labor rights, however, are unlikely to have uniform effects across regions. This study uses unbalanced panel data for 100 developed and less developed countries from 1985 through 2002. Random- and fixed-effects models find that strong labor rights are tightly linked to lower inequality across a large range of countries, including in the Global South. Interactions between regions and labor rights suggest that the broader context in which class-based actors are embedded shapes worker organizations' ability to reduce inequality. During the period of this study, labor rights were particularly important for mitigating inequality in the West but less so in Eastern Europe.	2015	Social
Climate Change and Firm Valuation: Evidence from a Quasi-Natural Experiment Author: Krüger, Philipp Journal: Working paper In this paper, I estimate the effect of mandatory greenhouse gas (GHG) emissions disclosure on corporate value. Using the introduction of mandatory GHG emissions reporting for firms listed on the Main Market of the London Stock Exchange as a source of exogenous variation, I find that firms most heavily affected by the regulation experience significantly positive valuation effects. Increases in value are strongest for large firms and for firms from carbon intensive industries (e.g., oil and gas). Valuation increases are driven by capital market effects such as higher liquidity and lower bid — ask spreads for the most affected firms.	2015	Environmental
Corporate Goodness and Shareholder Wealth Author: Krüger, Philipp Journal: Journal of Financial Economics Using a unique data set, I study how stock markets react to positive and negative events concerned with a firm's corporate social responsibility (CSR). I show that investors respond strongly negatively to negative events and weakly negatively to positive events. I then show that investors do value "offsetting CSR," that is positive CSR news concerning firms with a history of poor stakeholder relations. In contrast, investors respond negatively to positive CSR news which is more likely to result from agency problems. Finally, I provide evidence that CSR news with stronger legal and economic information content generates a more pronounced investor reaction.	2015	Environmental, Social, Governance
Gender Diversity, Board Independence, Environmental Committee and Greenhouse Gas Disclosure Author: Liao, Lin, Le Luo, and Qingliang Tang Journal: British Accounting Review This paper examines the impact of corporate board's characteristics on the voluntary disclosure of greenhouse gas (GHG) emissions in the form of a Carbon Disclosure Project report. Using both univariate and regression models with a sample of the 329 largest companies in the United Kingdom, we find a significant positive association between gender diversity (measured as the percentage of female directors on the board) and the propensity to disclose GHG information as well as the extensiveness of that disclosure. In addition, a board with more independent directors or environmental committee show a higher tendency to be ecologic transparent. However, if the committee is not sufficiently large, independent or active, its effect seems insignificant. The results are consistent with stakeholder theory, suggesting that a diversified and independent board and the existence of a board-level environmental committee may balance a firm's financial and non-financial goals with limited resources and moderate the possible conflicting expectations of stakeholders who have disparate interests. The findings should be useful for top managers and regulators who are interested in improving corporate governance practices and climate-change strategies.	2015	Environmental, Social, Governance
Agency Problems of Corporate Philanthropy Author: Masulis, Ronald W., and Syed Walid Reza Journal: Review of Financial Studies Evaluating agency theory and optimal contracting theory views of corporate philanthropy, we find that as corporate giving increases, shareholders reduce their valuation of firm cash holdings. Dividend increases following the 2003 Tax Reform Act are associated with reduced corporate giving. Using a natural experiment, we find that corporate giving is positively (negatively) associated with CEO charity preferences (CEO shareholdings and corporate governance quality). Evidence from CEO-affiliated charity donations, market reactions to insider-affiliated donations, its relation to CEO compensation, and firm contributions to director-affiliated charities indicates that corporate donations advance CEO interests and suggests misuses of corporate resources that reduce firm value.	2015	Social
Carbon Emissions and Stock Returns: Evidence from the EU Emissions Trading Scheme Author: Oestreich, A. Marcel, and Ilias Tsiakas Journal: Working paper This paper provides an empirical investigation of the effect of the European Union's Emissions Trading Scheme on German stock returns. We find that, during the first few years of the scheme, firms that received free carbon emission allowances on average significantly outperformed firms that did not. This suggests the presence of a large and statistically significant "carbon premium," which is mainly explained by the higher cash flows due to the free allocation of carbon emission allowances. A carbon risk factor can also explain part of the cross-sectional variation of stock returns as firms with high carbon emissions have higher exposure to carbon risk and exhibit higher expected returns.	2015	Environmental
Carbon and Inequality: From Kyoto to Paris Author: Piketty, Thomas, and Lucas Chancel Journal: Report: Paris School of Economics This study present evolutions in the global distribution of CO2e emissions (CO2 and other Green House Gases) between world individuals rom 1998 and 2013 and examines different strategies to finance a global climate adaptation fund based on efforts shared among high world emitters rather than high-income countries. To this end, we combine data on historical trends in per capita country-level CO2e emissions, consumption-based CO2e emissions data, within-country income inequality and a simple income-CO2e elasticity model. We show that global CO2e emissions inequalities between individuals decreased from Kyoto to Paris, due to the rise of top and mid income groups in developing countries and the relative stagnation of incomes and emissions of the majority of the population in industrialized economies. Income and CO2e emissions inequalities however increased within countries over the period.	2015	Environmental
Women on Boards and Firm Financial Performance: A Meta-Analysis Author: Post, Corinne, and Kris Byron Journal: Academy of Management Journal Despite a large body of literature examining the relationship between women on boards and firm financial performance, the evidence is mixed. To reconcile the conflicting results, we statistically combine the results from 140 studies and examine whether these results vary by firms' legal/regulatory and socio-cultural contexts. We find that female board representation is positively related to accounting returns and that this relationship is more positive in countries with stronger shareholder protections — perhaps because shareholder protections motivate boards to use the different knowledge, experience, and values that each member brings. We also find that, although the relationship between female board representation and market performance is near zero the relationship is positive in countries with greater gender parity (and negative in countries with low gender parity) — perhaps because societal gender differences in human capital may influence investors' evaluations of the future earning potential of firms that have more female directors. Lastly, we find that female board representation is positively related to boards' two primary responsibilities: monitoring and strategy involvement. For both firm financial performance and board activities, we find mean effect sizes comparable to those found in meta-analyses of other aspects of board composition. We discuss the theoretical and practical implications of our findings.	2015	Social
Gaining Access by Doing Good: The Effect of Sociopolitical Reputation on Firm Participation in Public Policy Making Author: Werner, Timothy Journal: Management Science This paper examines the role of firms' sociopolitical reputations, as proxied by their perceived engagement in socially responsible practices, in public policy makers' decisions to grant access in the policy-making process. I argue that policy makers' dependencies, motivations, and decision-making processes lead them to evaluate firms by using sociopolitical reputation as a differentiating heuristic. I hypothesize that firms that construct stronger sociopolitical reputations will be granted greater access and that firms' existing political activity and policy makers' partisanship will moderate this relationship. I test these hypotheses using an 11-year panel on congressional testimony, reputation, and political and financial characteristics for the S&P 500 and find support for all three. These findings support the existence of a sociopolitical dimension to firms' reputations that affects how public policy makers evaluate firms, demonstrating that corporate social responsibility pays political benefits.	2015	Environmental, Social
ESG and Corporate Financial Performance: Mapping the Global landscape Author: Deutsche Asset & Wealth management Journal: Report: Deutsche Asset & Wealth Management In a new extensive study, Deutsche Asset & Wealth Management and the University of Hamburg investigate, whether integrating ESG into the invest- ment process has had a positive effect on corporate financial performance (CFP), whether the effect was stable over time, how a link between ESG and CFP differs across regions and asset classes and whether any specific sub-category of E, S or G had a dominant influence on CFP. In this white paper we highlight the main conclusions.	2015	Environmental, Social, Governance
Environmental Externalities and Cost of Capital Author: Chava, Sudheer Journal: Management Science I analyze the impact of a firm's environmental profile on its cost of equity and debt capital. Using implied cost of capital derived from analysts' earnings estimates, I find that investors demand significantly higher expected returns on stocks excluded by environmental screens (such as hazardous chemical, substantial emissions, and climate change concerns) compared to firms without such environmental concerns. Lenders also charge a significantly higher interest rate on the bank loans issued to firms with these environmental concerns. I provide evidence that the environmental profile of a firm is not simply proxying for an omitted component of its default risk. Further, firms with these environmental concerns have lower institutional ownership and fewer banks participate in their loan syndicate than firms without such environmental concerns. These results suggest that exclusionary socially responsible investing and environmentally sensitive lending can have a material impact on the cost of equity and debt capital of affected firms.	2014	Environmental
Co-opted Boards Author: Coles, Jeffrey L., Naveen D. Daniel, and Lalitha Naveen Journal: Review of Financial Studies We develop two measures of board composition to investigate whether directors appointed by the CEO have allegiance to the CEO and decrease their monitoring. Co-option is the fraction of the board comprised of directors appointed after the CEO assumed office. As Co-option increases, board monitoring decreases: turnover-performance sensitivity diminishes, pay increases (without commensurate increase in pay-performance sensitivity), and investment increases. Non-Co-opted Independence — the fraction of directors who are independent and were appointed before the CEO — has more explanatory power for monitoring effectiveness than the conventional measure of board independence. Our results suggest that not all independent directors are effective monitors.	2014	Governance
Women and Top Leadership Positions: Towards an Institutional Analysis Author: Cook, Alison, and Christy Glass Journal: Gender, Work & Organizations Women remain under-represented in top leadership positions in work organizations, a reality that reflects a variety of barriers that create a glass ceiling effect. However, some women do attain top leadership positions, leading scholars to probe under what conditions women are promoted despite seemingly intractable and well-documented barriers. Previous scholarship tends to posit individual-level explanations, suggesting either that women who attain top leadership positions are exceptional or that potential women leaders lack key qualities, such as assertiveness. Much less scholarship has explored institutional-level mechanisms that may increase women's ascension to top positions. This analysis seeks to fill this gap by testing three institutional-level theories that may shape women's access to and tenure in top positions: the glass cliff, decision-maker diversity, and the saviour effect. To test these theories we rely on a dataset that includes all CEO transitions in Fortune 500 companies over a 20-year period. Contrary to the predictions of the glass cliff, we find that diversity among decision makers — not firm performance — significantly increases women's likelihood of being promoted to top leadership positions. We also find, contrary to the predictions of the saviour effect, that diversity among decision makers increases women leaders' tenure as CEOs regardless of firm performance. By identifying contextual factors that increase women's mobility, the paper makes an important contribution to the processes that shape and reproduce gender inequality in work organizations.	2014	Social
The Impact of Corporate Sustainability on Organizational Processes and Performance Author: Eccles, Robert G., Ioannis Ioannou, and George Serafeim Journal: Management Science We investigate the effect of corporate sustainability on organizational processes and performance. Using a matched sample of 180 U.S. companies, we find that corporations that voluntarily adopted sustainability policies by 1993 — termed as high sustainability companies — exhibit by 2009 distinct organizational processes compared to a matched sample of companies that adopted almost none of these policies — termed as low sustainability companies. The boards of directors of high sustainability companies are more likely to be formally responsible for sustainability, and top executive compensation incentives are more likely to be a function of sustainability metrics. High sustainability companies are more likely to have established processes for stakeholder engagement, to be more long-term oriented, and to exhibit higher measurement and disclosure of nonfinancial information. Finally, high sustainability companies significantly outperform their counterparts over the long term, both in terms of stock market and accounting performance.	2014	Governance
The Unintended Effect of Corporate Social Responsibility Performance on Investors' Estimates of Fundamental Value Author: Elliot, W. Brooke, Kevin E. Jackson, Mark E. Peecher, and Brian J. White Journal: The Accounting Review We provide theory and experimental evidence consistent with an unintended, causal relation between Corporate Social Responsibility (CSR) performance and investors' estimates of fundamental value that can be attenuated by investors' explicit assessment of CSR performance. Consistent with "affect-as-information" theory from psychology, we find that investors who are exposed to, but do not explicitly assess, CSR performance derive higher fundamental value estimates in response to positive CSR performance, and lower fundamental value estimates in response to negative CSR performance. Explicit assessment of CSR performance, however, significantly diminishes this effect, indicating that the effect among investors who do not explicitly assess CSR performance is unintended; i.e., they unintentionally use their affective reactions to CSR performance in estimating fundamental value. Supplemental findings shed light on consequences of these fundamental value estimates: investors who do not explicitly assess CSR performance rely on their unintentionally influenced estimates of fundamental value to increase the price they are willing to pay to invest in the stock of a firm with positive CSR performance. Overall, our theory and findings contribute to the CSR and affect literatures in accounting by revealing the contingent nature of how and to what extent CSR performance influences investors' beliefs about firm value and the bids these investors are likely to make in equity markets.	2014	Governance
Shareholder Activism: A Multidisciplinary Review Author: Goranova, Maria, and Lori Verstegen Ryan Journal: Journal of Management Shareholder activism has become a dynamic institutional force, and its associated, rapidly increasing body of scholarly literature affects numerous disciplines within the organization science academy. In addition to equivocal results concerning the impact of shareholder activism on corporate outcomes, the separation of prior research into financial and social activism has left unanswered questions critical for both the scholarly discourse on shareholder activism and the normative debate on shareholder empowerment. The heterogeneity of factors in shareholder activism, such as the firm, activist, and environmental characteristics that promote or inhibit activism, along with the breadth of activism's issues, methods, and processes, provide a plethora of theoretical and methodological opportunities and challenges for activism researchers. Our multidisciplinary review incorporates the financial and social activism streams and explores shareholder activism heterogeneity and controversy, seeking to provide an impetus for more cohesive conceptual and empirical work in the field.	2014	Governance
Political Environment and Voluntary Disclosure: Evidence from the Carbon Disclosure Project Author: Hoover, Scott, and Stephan Fafatas Journal: Working paper This study investigates whether the political leaning of the state where a given firm is headquartered is related to that firm's decision to voluntarily disclose information about the firm's carbon emissions. Our study includes a sample of U.S. firms (the S&P 500) surveyed by the Carbon Disclosure Project (CDP) in an effort to compile data on corporate efforts to reduce carbon emissions. We find that a state's political leaning is strongly related to the disclosure decision, with firms headquartered in more Democratic (Republican) states being more (less) likely to disclose carbon emissions information to the CDP. Furthermore, firms in more Democratic (Republican) states are more (less) likely to permit public disclosure of their survey responses and tend to receive higher (lower) disclosure scores from the CDP. These results hold after controlling for variables such as size, leverage, industry, stock price volatility and the number of geographic segments operated by the firm. Our results are consistent with the hypothesis that political power and public political sentiment have a significant impact on the firm's willingness to voluntarily disclose information about carbon emissions.	2014	Environmental
From the Editors: Climate Change and Management Author: Howard-Grenville, Jennifer, Simon J. Buckle, Brian J. Hoskins, and Gerard George Journal: Academy of Management Journal This editorial is part of a series written by editors and co-authored with a senior executive, thought leader, or scholar from a different field. Climate change is one of the greatest challenges we confront in the 21st century. On current trends, by the end of the cnetury the warming effect of our greenhouse gas emissions will have taken us far away from pre-industrial climatic conditions. In other words, just over 200 years of human and industrial activity will have wrought fundamental change to our climate system. The rise of organizations and industrialized production has set us on this path, yet organizations are equally critical to mitigating and adapting to climate change. Understanding the science and policy of climate change, and the ways in which the associated issues are shaped by and shape the subjects of our attention, is therefore of great importance to management scholars.	2014	Environmental
Broad-Based Employee Stock Ownership: Motives and Outcomes Author: Kim, E. Han, and Paige Ouimet Journal: Journal of Finance Firms initiating broad-based employee share ownership plans often claim employee stock ownership plans (ESOPs) increase productivity by improving employee incentives. Do they? Small ESOPs comprising less than 5 percent of shares, granted by firms with moderate employee size, increase the economic pie, benefiting both employees and shareholders. The effects are weaker when there are too many employees to mitigate free-riding. Although some large ESOPs increase productivity and employee compensation, the average impacts are small because they are often implemented for nonincentive purposes such as conserving cash by substituting wages with employee shares or forming a worker-management alliance to thwart takeover bids.	2014	Governance
Birds of a Feather: Value Implications of Political Alignment between Top Management and Directors Author: Lee, Jongsub, Kwang J. Lee, and Nandu J. Nagarajan Journal: Journal of Financial Economics For 2,695 US corporations from 1996 to 2009, we find that alignment in political orientation between the chief executive officer (CEO) and independent directors is associated with lower firm valuations, lower operating profitability, and increased internal agency conflicts such as a reduced likelihood of dismissing poorly performing CEOs, a lower CEO pay-performance sensitivity, and a greater likelihood of accounting fraud. Importantly, we show that our results are driven neither by the effects associated with various measures of similarity and diversity within the board nor the effects of local director labor market and political conditions on board structure. We provide evidence that our measure of individual political orientation reflects the person's political beliefs rather than opportunistic attempts to seek political favor. Overall, our results suggest that diversity in political beliefs among corporate board members is valuable.	2014	Governance
Substitutes or Complements? A Configurational Examination of Corporate Governance Mechanisms Author: Misangyi, Vilmos F., and Abhijith G. Acharya Journal: Academy of Management Journal We conduct an exploratory qualitative comparative case analysis of the S&P 1500 firms with the aim of elaborating theory on how corporate governance mechanisms work together effectively. To do so, we integrate extant theory and research to specify the bundle of mechanisms that operate to mitigate the agency problem among publicly traded corporations and review what previous research has said about how these mechanisms combine. We then use the fuzzy-set approach to qualitative comparitive analysis (QCA) to explore the combinations of governance mechanisms that exist among the S&P 1500 firms that achieve high (and not-high) profitability. Our findings suggest that high profits result when CEO incentive alignment and monitoring mechanisms work together as complements rather than as substitutes. Furthermore, they show that high profits are obtained when both internal and external monitoring mechanisms are present. At the same time, however, monitoring mechanisms evidently combine in complex ways such that there may be simultaneity of substitution and complementarity among and across the various monitoring and control mechanisms. Our findings clearly suggest that the effectiveness of board independence and CEO non-duality — governance mechanisms widely believed to singularly resolve the agency problem — depends on how each combine with the other mechanisms in the governance bundle.	2014	Governance
Climate impacts on Economic Growth As Drivers of Uncertainty in the Social Cost of Carbon Author: Moyer, Elisabeth J., Mark D. Woolley, Michael Glotter, and David A. Weisbach Journal: Journal of Legal Studies One of the central ways that the costs of global warming are incorporated into U.S. law is in cost-benefit analysis of federal regulations. In 2010, to standardize analyses, an Interagency Working Group (IAWG) established a central estimate of the social cost of carbon (SCC) of $21/tCO2 drawn from three commonly-used models of climate change and the global economy. These models produced a relatively narrow distribution of SCC values, consistent with previous studies. We use one of the IAWG models, DICE, to explore which assumptions produce this apparent robustness. SCC values are constrained by a shared feature of model behavior: though climate damages become large as a fraction of economic output, they do not significantly alter economic trajectories. This persistent growth is inconsistent with the widely held belief that climate change may have strongly detrimental effects to human society. The discrepancy suggests that the models may not capture the full range of possible consequences of climate change. We examine one possibility untested by any previous study, that climate change may directly affect productivity, and find that even a modest impact of this type increases SCC estimates by many orders of magnitude. Our results imply that the SCC is far more uncertain than shown in previous modeling exercises and highly sensitive to assumptions. Understanding the societal impact of climate change requires understanding not only the magnitude of losses at any given time but also how those losses may affect future economic growth.	2014	Environmental
Females and Precarious Board Positions: Further Evidence of the Glass Cliff Author: Mulcahy, Mark, and Carol Linehan Journal: British Journal of Management The 'glass cliff' posits that when women achieve high profile roles, these are at firms in precarious positions. Previous research analysed appointments (male/female), estimated the precariousness of firms involved and drew inferences about the glass cliff. This study is different as it directly tests the relationship between a precarious situation and changes in board gender diversity. The sample is companies listed on the UK stock exchange reporting an initial loss in the years 2004-2006. A matched control sample is used in a difference-in-differences analysis to avoid inadvertently attributing improvements arising from societal/regulatory changes in gender diversity to the loss event. Findings suggest that when the loss is 'big' there is a difference in the increase in gender diversity versus both the control and the 'small' loss subsamples, i.e. compelling evidence of the glass cliff. In the context of ongoing political and social debates about women on boards our work (i) identifies continuing structural barriers for women ascending to board level in that women are more likely to be over-represented on boards of companies that are more precarious and (ii) sounds a note of caution about celebrating increased gender diversity on boards without considering the precariousness of the company involved.	2014	Social
Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches Author: Nordhaus, William D. Journal: Journal of the Association of Environmental and Resource Economists The social cost of carbon (SCC) is an important concept for understanding and implementing climate change policies. This term represents the economic cost caused by an additional ton of carbon dioxide emissions (or more succinctly carbon) or its equivalent. The present study describes the development of the concept, provides examples of its use in current US regulator policies, examines its analytical background, and estimates the SCC using an updated integrated assessment model, the DICE-2013R model. The study estimates that the SCC is $18.6 per ton of CO2 in 2005 US dollars and international prices for the current period (2015). For the central case, the real SCC grows at 3 percent per year over the period to 2050. The major open issues concerning the SCC continue to be the appropriate discount rate, the potential for catastrophic damages, the impact of incomplete harmonization of abatement policies, and the effects of distortionary taxes.	2014	Environmental
Diversity on Corporate Boards: How Much Difference Does Difference Make Author: Rhode, Deborah, and Amanda K. Packel Journal: Delaware Journal of Corporate Law In recent years, increasing attention has focused on the influence of gender and racial diversity on boards of directors. Sixteen countries now require quotas to increase women's representation on boards, and many more have voluntary quotas in corporate governance codes. In the United States, support for diversity has grown in principle, but progress has lagged in practice, and controversy has centered on whether and why diversity matters. The stakes in this debate are substantial. Corporate boards affect the lives of millions of employees and consumers, and the policies and practices of the global marketplace. As recent scandals demonstrate, failures in board governance can carry an enormous cost; Enron is a notorious example. Who gains access to these boards is therefore an issue of broad social importance. This article argues that increasing diversity should be a social priority, but not for the reasons often assumed. Part II begins the discussion by reviewing the underrepresentation of women and minorities on corporate boards. Part III provides a comprehensive review of the research on board diversity, financial performance, and good governance and concludes that the "business case for diversity" is less compelling than other reasons rooted in social justice, equal opportunity, and corporate reputation. Part IV turns to the barriers to achieving greater diversity, and Part V explores strategies that could address them.	2014	Social
Explaining Pay Disparities between Top Executives and Nonexecutive Employees: A Relative Bargaining Power Approach Author: Shin, Taekjin Journal: Social Forces The widening pay gap between corporate executives and rank-and-file workers has attracted much attention in the United States, but the sources of the pay gap have not been systematically examined. In this paper, I use a relative bargaining power approach to explore the sources of pay disparity between executives and nonexecutive employees in the United States. I argue that the bargaining power of labor affects executive compensation, nonexecutive compensation, and the executive-worker pay gap and that this effect is moderated by the characteristics of the chief executive officers (CEOs) who implement organizational policies. An analysis of 185 US firms provides evidence that labor's bargaining power reduces the pay gap between executives and nonexecutive employees. This effect is mainly through the unions' impact on executive compensation. The results also suggest that labor's effect of narrowing the gap becomes weaker when the CEO has a finance background or when the CEO was recruited from outside the company rather than being promoted from within. These findings shed new light on our understanding of the linkage between firm-level dynamics and the rise in income inequality.	2014	Social
Debtholder Responses to Shareholder Activism: Evidence from Hedge Fund Interventions Author: Sunder, Jayanthi, Shyam V. Sunder, and Wan Wongsunwai Journal: Review of Financial Studies We investigate the effect of shareholder activism on debtholders by examining a sample of bank loans for firms targeted by activist hedge funds. We compare loan spreads before and after intervention and show the effects of heterogeneous shareholder actions. Spreads increase when shareholder activism relies on the market for corporate control or financial restructuring. In contrast, spreads decrease when activists address managerial entrenchment. Furthermore, the effects are more pronounced when pre- existing governance mechanisms are weak. Our findings suggest that shareholder activism does not necessarily exacerbate bondholder-shareholder conflicts of interest and highlight the role of activism in aligning investors.	2014	Governance
Fat Tails and the Social Cost of Carbon Author: Weitzman, Martin L. Journal: American Economic Review At high enough greenhouse gas concentrations, climate change might conceivably cause catastrophic damages with small but non-negligible probabilities. If the bad tail of climate damages is sufficiently fat, and if the coefficient of relative risk aversion is greater than one, the catastrophe-reducing insurance aspect of mitigation investments could in theory have a strong influence on raising the social cost of carbon. In this paper I exposit the influence of fat tails on climate change economics in a simple stark formulation focused on the social cost of carbon. I then attempt to place the basic underlying issues within a balanced perspective.	2014	Environmental, Social
Does Income Inequality Harm the Environment? Empirical Evidence from the United States Author: Baek, Jungho, and Guankerwon Gweisah Journal: Energy Policy This study revisits the growth-inequality-environment nexus in the context of country-specific time series data. The short- and long-run effects of income inequality, economic growth and energy consumption on CO2 emissions in the U.S. are examined using the autoregressive distributed lag (ARDL) approach. We find that more equitable distribution of income in the U.S. results in better environmental quality in the short- and long-run. It is also found that, in both the short- and long-run, economic growth has a beneficial effect on environmental quality, whereas energy consumption has a detrimental effect on the environment.	2013	Social
Cost of Capital and Earnings Transparency Author: Barth, Mary E., Yaniv Konchitchki, and Wayne R. Landsman Journal: Journal of Accounting and Economics We provide evidence that firms with more transparent earnings enjoy a lower cost of capital. We base our earnings transparency measure on the extent to which earnings and change in earnings covary contemporaneously with returns. We find a significant negative relation between our transparency measure and subsequent excess and portfolio mean returns, and expected cost of capital, even after controlling for previously documented determinants of cost of capital.	2013	Governance
Do Gay-Friendly Corporate Policies Enhance Firm Performance? Author: Blazovich, Janell L., Kirsten A. Cook, Janet M. Huston, and William R. Strawser Journal: Working paper Prior research provides evidence that gay-friendly corporate policies (e.g., inclusion in antidiscrimination provisions, extension of benefits to same-sex domestic partners, etc.) improve employee recruitment and retention, make gay employees feel more welcome and accepted in the workplace, and enhance consumer perception. In addition, investors view the adoption of such policies positively. In this study, we examine the firm-performance mechanisms underlying this favorable stock-market reaction. Specifically, we find that (1) the presence of gay-friendly policies is associated with higher firm value and productivity, (2) firms implementing (discontinuing) these policies experience increases (decreases) in firm value, productivity, and profitability, and (3) the firm-value and profitability benefits associated with gay-friendly policies are larger for companies with demand for highly skilled labor. These results are robust to various methods of addressing endogeneity.	2013	Social
Does Corporate Board Diversity Affect Corporate Payout Policy? Author: Byoun, Soku, Kiyoung Chang, and Young sang Kim Journal: Working paper This paper investigates whether board diversity has a significant impact on corporate payout decisions. Previous studies exclusively focus on examining the relation between a measure of firm performance and board diversity. The major advantage of our study is to investigate the direct impact of board diversity on a major corporate decision — i.e., dividend payout policy. We find that firms with diverse boards are more likely to pay dividends and tend to pay larger dividends than those with non-diverse boards. After controlling for various firm characteristics and exploring alternative explanations for the positive association between board diversity and dividend payout policy, our results suggest that board diversity has a significant impact on dividend payout policy. The impact of board diversity on dividend payout policy is particularly conspicuous for firms with potentially greater agency problems of free cash flow, suggesting that diverse board helps mitigate the free cash flow problem. Our findings are consistent with the argument that board diversity enhances the monitoring function of directors for the benefit of shareholders. We also show that significantly larger portion of firms pay dividends after they added a diverse director to their boards and that firms pay significantly higher dividends after adding a diverse director for the first time. However, the change in dividend payout ratio is not significant when firms add another diverse director to their already diverse boards. Also, the benefits of board diversity are not materialized when directors share the same gender or ethnic tie with the CEO. Our findings have an important implication for policies aiming to increase the number of diverse directors in corporate boardrooms. What makes the significant difference is not the sheer number of diverse directors in the board but the diversity they bring to the board.	2013	Social
Political Ideologies of CEOs: The Influence of Executives' Values on Corporate Social Responsibility Author: Chin, M. K., Donald C. Hambrick, and Linda K. Treviño Journal: Administrative Science Quarterly This article examines the influence on organizational outcomes of CEOs' political ideology, specifically political conservatism vs. liberalism. We propose that CEOs' political ideologies will influence their firms' corporate social responsibility (CSR) practices, hypothesizing that (1) liberal CEOs will emphasize CSR more than will conservative CEOs; (2) the association between a CEO's political ideology and CSR will be amplified by a CEO's relative power; and (3) liberal CEOs will emphasize CSR even when recent financial performance is low, whereas conservative CEOs will pursue CSR initiatives only as performance allows. We test our ideas with a sample of 249 CEOs, measuring their ideologies by coding their political donations over the ten years prior to their becoming CEOs. Results indicate that the political ideologies of CEOs are manifested in their firms' CSR profiles. Compared with conservative CEOs, liberal CEOs exhibit greater advances in CSR; the influence of CEOs' political liberalism on CSR is amplified when they have more power; and liberal CEOs' CSR initiatives are less contingent on recent performance than are those of conservative CEOs. In a corroborative exploration, we find that CEOs' political ideologies are significantly related to their corporate political action committee (PAC) allocations, indicating that this largely unexplored executive attribute might be more widely consequential.	2013	Governance
How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment Author: Cohen, Alma, and Charles C. Y. Wang Journal: Journal of Financial Economics The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings — separated by several weeks and going in opposite directions — that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by presenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.	2013	Governance
Corporate Social Responsibility and Stakeholder Value Maximization: Evidence from Mergers Author: Deng, Xin, Jun-Koo kang, and Buen Sin Low Journal: Journal of Financial Economics Using a large sample of mergers in the US, we examine whether corporate social responsibility (CSR) creates value for acquiring firms' shareholders. We find that compared with low CSR acquirers, high CSR acquirers realize higher merger announcement returns, higher announcement returns on the value-weighted portfolio of the acquirer and the target, and larger increases in post-merger long-term operating performance. They also realize positive long-term stock returns, suggesting that the market does not fully value the benefits of CSR immediately. In addition, we find that mergers by high CSR acquirers take less time to complete and are less likely to fail than mergers by low CSR acquirers. These results suggest that acquirers' social performance is an important determinant of merger performance and the probability of its completion, and they support the stakeholder value maximization view of stakeholder theory.	2013	Environmental, Social, Governance
A Tale of Two Stories: Sustainability and the Quarterly Earnings Call Author: Eccles, Robert G., and George Serafeim Journal: Journal of Applied Corporate Finance One of the challenges companies claim to face in making sustainability a core part of their strategy and operations is that the market does not care about sustainability, either in general or because the time frames in which it matters are too long. The response of investors who say they care about sustainability — and their numbers are large and growing — is that companies do a poor job in providing them with the information they need to take sustainability into account in their investment decisions. Whatever the merits of each view, the fact remains that an effective conversation about sustainability requires the participation of both sides of the market. There are two main mechanisms for companies to communicate to the market as a way of starting this conversation: mandated reporting and quarterly conference calls. In this paper, the authors argue that neither companies nor investors can be seen as taking sustainability seriously unless it is integrated into the quarterly earnings call. Until that happens, the core business and sustainability are two separate worlds, each of which has its own narrator telling a different story to a different audience. The authors illustrate their argument using the case of SAP, the German software company. SAP was the first company to host an "ESG Investor Briefing", a conference call for analysts and investors held on July 30, 2013 in which the company discussed both its sustainability performance and its contribution to the firm's financial performance. The narrative of this call was very similar to the narrative of the company's first "integrated report", which was issued in 2012 and presented the company's sustainability initiatives in the context of its operating and financial performance. Nevertheless, the content and main focus of the "ESG Briefing" were very different from that of most quarterly earnings conferences, and so were the audiences. Whereas the quarterly call was attended mainly by sell side analysts — and the words "sustainability" or "sustainable" failed to receive a single mention — the ESG briefing was delivered to an investor audience made up almost entirely of the "buy side".	2013	Environmental, Social, Governance
Are U.S. CEOs Paid More? New International Evidence Author: Fernandes, Nuno, Miguel A. Ferreira, Pedro matos, and Kevin J. Murphy Journal: Review of Financial Studies This paper challenges the widely accepted stylized fact that chief executive officers (CEOs) in the United States are paid significantly more than their foreign counterparts. Using CEO pay data across fourteen countries with mandated pay disclosures, we show that the U.S. pay premium is economically modest and primarily reflects the performance-based pay demanded by institutional shareholders and independent boards. Indeed, we find no significant difference in either level of CEO pay or the use of equity-based pay between U.S. and non-U.S. firms exposed to international and U.S. capital, product, and labor markets. We also show that U.S. and non-U.S. CEO pay has largely converged in the 2000s.	2013	Governance
Corporate Social Responsibility and Shareholder Reaction: The Environmental Awareness of Investors Author: Flammer, Caroline Journal: Academy of Management Journal This study examines whether shareholders are sensitive to corporations' environmental footprint. Specifically, I conduct an event study around the announcement of corporate news related to environment for all US publicly traded companies from 1980 to 2009. In keeping with the view that environmental corporate social responsibility (CSR) generates new and competitive resources for firms, I find that companies reported to behave responsibly toward the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant decrease. Extending this view of "environment-as-a-resource," I posit that the value of environmental CSR depends on external and internal moderators. First, I argue that external pressure to behave responsibly towards the environment — which has increased dramatically over recent decades — exacerbates the punishment for eco-harmful behavior and reduces the reward for eco-friendly initiatives. This argument is supported by the data: over time, the negative stock market reaction to eco-harmful behavior has increased, while the positive reaction to eco-friendly initiatives has decreased. Second, I argue that environmental CSR is a resource with decreasing marginal returns and insurance-like features. In keeping with this view, I find that the positive (negative) stock market reaction to eco-friendly (-harmful) events is smaller for companies with higher levels of environmental CSR.	2013	Environmental
Sustainable investing: Establishing Long-Term Value and Performance Author: Fulton, Mark, Bruce m. Kahn, and Camilla Sharples Journal: Working paper The evidence is compelling: Sustainable Investing can be a clear win for investors and for companies. However, many SRI fund managers, who have tended to use exclusionary screens, have historically struggled to capture this. We believe that ESG analysis should be built into the investment processes of every serious investor, and into the corporate strategy of every company that cares about shareholder value. ESG best-in-class focused funds should be able to capture superior risk-adjusted returns if well executed. This is the key finding of our report in which we looked at more than 100 academic studies of sustainable investing around the world, and then closely examined and categorized 56 research papers, as well as 2 literature reviews and 4 meta studies — we believe this is one of the most comprehensive reviews of the literature ever undertaken. Frequently, Sustainable Investing is stated to yield "mixed results." However, by breaking down our analysis into different categories (SRI, CSR, and ESG) we have identified exactly where in the sprawling, diverse universe of so-called Sustainable Investment, value has been found. By applying what we believe to be a unique methodology, we show that "Corporate "social responsibility"" (CSR) and most importantly, "Environmental, Social and Governance" (ESG) factors are correlated with superior risk-adjusted returns at a securities level. In conducting this analysis, it became evident that CSR has essentially evolved into ESG. At the same time, we are able to show that studies of fund performance — hich have been classified "Socially Responsible Investing" (SRI) in the academic literature and have tended to rely on exclusionary screens — show SRI adds little upside, although it does not underperform either. Exclusion, in many senses, is essentially a values-based or ethical consideration for investors. We were surprised by the clarity of the results we uncovered: 100 percent of the academic studies agree that companies with high ratings for CSR and ESG factors have a lower cost of capital in terms of debt (loans and bonds) and equity. In effect, the market recognizes that these companies are lower risk than other companies and rewards them accordingly. This finding alone should put the issue of Sustainability squarely into the office of the Chief Financial Officer, if not the board, of every company. 89 percent of the studies we examined show that companies with high ratings for ESG factors exhibit market-based outperformance, while 85 percent of the studies show these types of company's exhibit accounting-based outperformance. Here again, the market is showing correlation between financial performance of companies and what it perceives as advantageous ESG strategies, at least over the medium (3-5 years) to long term (5-10 years). The single most important of these factors, and the most looked at by academics to date, is Governance (G), with 20 studies focusing in on this component of ESG (relative to 10 studies focusing on E and 8 studies on S). In other words, any company that thinks it does not need to bother with improving its systems of corporate governance is, in effect, thumbing its nose at the market and hurting its own performance all at the same time. In the hierarchy of factors that count with investors and the markets in general, Environment is the next most important, followed closely by Social factors. Most importantly, when we turn to fund returns, it is notable that these are all clustered into the SRI category. Here, 88 percent of studies of actual SRI fund returns show neutral or mixed results. Looking at the compositions of the fund universes included in the academic studies we see a lot of exclusionary screens being used. However, that is not to say that SRI funds have generally underperformed. In other words, we have found that SRI fund managers have struggled to capture outperformance in the broad SRI category but they have, at least, not lost money in the attempt.	2013	Environmental, Social, Governance
Local Overweighting and Underperformance: Evidence from Limited Partner Private Equity Investments Author: Hochberg, Yael V., and Joshua D. Rauh Journal: Review of Financial Studies Institutional investors exhibit substantial home-state bias in private equity. This effect is particularly pronounced for public pension funds, where overweighting amounts to 9.8 percent of aggregate private-equity investments and 16.5 percent for the average limited partner. Public pension funds' in-state investments achieve performance that is lower by two to four percentage points than both their own similar out-of- state investments and similar investments in their state by out-of-state investors. Overweighting in home- state investments by public pension funds is greater in venture capital and real estate than in buyout funds. States with political climates characterized by more self-dealing invest a larger share of their portfolio in local investments, although a given local investment performs only as poorly in these states as in other states. Relative to the performance of the rest of the private equity universe, overweighting and underperformance in local investments reduce public pension fund resources by $1.2 billion per year.	2013	Governance
The Supply of Corporate Directors and Board Independence Author: Knyazeva, Anzhela, Diana Knyazeva, and Ronald W. Masulis Journal: Review of Financial Studies Empirical evidence on the relations between board independence and board decisions and firm performance is generally confounded by serious endogeneity issues. We circumvent these endogeneity problems by demonstrating the strong impact of the local director labor market on board composition. Specifically, we show that proximity to larger pools of local director talent leads to more independent boards for all but the largest quartile of S&P 1500. Using local director pools as an instrument for board independence, we document that board independence has a positive effect on firm value, operating performance, fraction of CEO incentive-based pay, and CEO turnover.	2013	Governance
Can Strong Boards and Trading Their Own Firm's Stock Help CEOs Make Better Decisions? Evidence from Acquisitions by Overconfident CEOs Author: Kolasinski, Adam C., and Xu Li Journal: Journal of Financial and Quantitative Analysis Little evidence exists on whether boards help managers make better decisions. We provide evidence that strong and independent boards help overconfident chief executive officers (CEOs) avoid honest mistakes when they seek to acquire other companies. In addition, we find that once-overconfident CEOs make better acquisition decisions after they experience personal stock trading losses, providing evidence that a manager's recent personal experience, and not just educational and early career experience, influences firm investment policy. Finally, we develop and validate a new CEO overconfidence measure that is easily constructed from machine-readable insider trading data, unlike previously used measures.	2013	Governance
Boardroom Centrality and Firm Performance Author: Larcker, David F., Eric C. So, and Charles C. Y. Wang Journal: Journal of Accounting and Economics Firms with central boards of directors earn superior risk-adjusted stock returns. A long (short) position in the most (least) central firms earns average annual returns of 4.68 percent. Firms with central boards also experience higher future return-on-assets growth and more positive analyst forecast errors. Return prediction, return-on-assets growth, and analyst errors are concentrated among high growth opportunity firms or firms confronting adverse circumstances, consistent with boardroom connections mattering most for firms standing to benefit most from information and resources exchanged through boardroom networks. Overall, our results suggest that director networks provide economic benefits that are not immediately reflected in stock prices.	2013	Governance
Financialization and U.S. Income Inequality, 1970-2008 Author: Lin, Ken-Hou, and Donald Tomaskovic-Devey Journal: American Journal of Sociology Focusing on U.S. nonfinance industries, we examine the connection between financialization and rising income inequality. We argue that the increasing reliance on earnings realized through financial channels decoupled the generation of surplus from production, strengthening owners' and elite workers' negotiating power relative to other workers. The result was an incremental exclusion of the general workforce from revenue-generating and compensation-setting processes. Using time-series cross-section data at the industry level, we find that increasing dependence on financial income, in the long run, is associated with reducing labor's share of income, increasing top executives' share of compensation, and increasing earnings dispersion among workers. Net of conventional explanations such as deunionization, globalization, technological change, and capital investment, the effects of financialization on all three dimensions of income inequality are substantial. Our counterfactual analysis suggests that financialization could account for more than half of the decline in labor's share of income, 9.6 percent of the growth in officers' share of compensation, and 10.2 percent of the growth in earnings dispersion between 1970 and 2008.	2013	Social
Executive Networks and Firm Policies: Evidence from the Random Assignment of MBA Peers Author: Shue, Kelly Journal: Review of Financial Studies Using the historical random assignment of MBA students to sections at Harvard Business School (HBS), I explore how executive peer networks can affect managerial decision making. Within an HBS class, firm outcomes are significantly more similar among graduates from the same section than among graduates from different sections, with the strongest effects in executive compensation and acquisitions strategy. I demonstrate the role of ongoing social interactions by showing that peer effects are more than twice as strong in the year following staggered alumni reunions. Supplementary tests suggest that peer influence can operate in ways that do not contribute to firm productivity.	2013	Governance
Stakeholder Pressure on MNEs and the Transfer of Socially Irresponsible Practices to Subsidiaries Author: Surroca, Jordi, Josep A. Tribo, and Shaker A. Zahra Journal: Academy of Management Journal In this study, we explain how multinational enterprises (MNEs) respond to pressure to conform to their stakeholders' expectations for greater attention to corporate social responsibility (CSR). We invoke institutional theory to propose that mounting stakeholder pressure in an MNE's home country leads to the transfer of socially irresponsible practices from its headquarters to its overseas subsidiaries. This transfer is more pronounced when a subsidiary is apparently unconnected to an MNE, yet is controlled by an MNE's headquarters through the appointment of the subsidiary's board members; the institutional environment of the MNE's home country enforces compliance; and the degree of institutional enforcement, vigilance, and sanctions for noncompliance in the subsidiary's host country is low. Our hypotheses are empirically supported using panel data on 269 subsidiaries in 27 countries belonging to 110 MNEs from 22 countries. Results are robust to alternative measures, explanations, and sample.	2013	Governance
Tail-Hedge Discounting and the Social Cost of Carbon Author: Weitzman, Martin L. Journal: Journal of Economic Literature The choice of an overall discount rate for climate change investments depends critically on how different components of investment payoffs are discounted at differing rates reflecting their underlying risk characteristics. Such underlying rates can vary enormously, from ≈1 percent for idiosyncratic diversifiable risk to ≈7 percent for systematic nondiversifiable risk. Which risk-adjusted rate is chosen can have a huge impact on cost-benefit analysis. In this expository paper, I attempt to set forth in accessible language with a simple linear model what I think are some of the basic issues involved in discounting climate risks. The paper introduces a new concept that may be relevant for climate-change discounting: the degree to which an investment hedges against the bad tail of catastrophic damages by insuring positive expected payoffs even under the worst circumstances. The prototype application is calculating the social cost of carbon.	2013	Environmental
Climate Risks and Carbon Prices: Revising the Social Cost of Carbon Author: Ackerman, Frank, and Elizabeth Stanton Journal: Economics The social cost of carbon — or marginal damage caused by an additional ton of carbon dioxide emissions — has been estimated by a U.S. government working group at $21/tCO2 in 2010. That calculation, however, omits many of the biggest risks associated with climate change, and downplays the impact of current emissions on future generations. Our reanalysis explores the effects of uncertainty about climate sensitivity, the shape of the damage function, and the discount rate. We show that the social cost of carbon is uncertain across a broad range, and could be much higher than $21/tCO2. In our case combining high climate sensitivity, high damages, and a low discount rate, the social cost of carbon could be almost $900/tCO2 in 2010, rising to $1,500/tCO2 in 2050. The most ambitious scenarios for eliminating carbon dioxide emissions as rapidly as technologically feasible (reaching zero or negative net global emissions by the end of this century) require spending up to $150 to $500 per ton of reductions of carbon dioxide emissions by 2050. Using a reasonable set of alternative assumptions, therefore, the damages from a ton of carbon dioxide emissions in 2050 could exceed the cost of reducing emissions at the maximum technically feasible rate. Once this is the case, the exact value of the social cost of carbon loses importance: the clear policy prescription is to reduce emissions as rapidly as possible, and cost-effectiveness analysis offers better insights for climate policy than cost-benefit analysis.	2012	Environmental
The Effect of Hedge Fund Activism on Corporate Tax Avoidance Author: Cheng, C. S. Agnes, Henry He Huang, Yinghua Li, and Jason Journal: The Accounting Review This paper examines the impact of hedge fund activism on corporate tax avoidance. We find that relative to matched control firms, businesses targeted by hedge fund activists exhibit lower tax avoidance levels prior to hedge fund intervention, but experience increases in tax avoidance after the intervention. Moreover, findings suggest that the increase in tax avoidance is greater when activists have a successful track record of implementing tax changes and possess tax interest or knowledge as indicated by their Securities and Exchange Commission (SEC) 13D filings. We also find that these greater tax savings do not appear to result from an increased use of high-risk and potentially illegal tax strategies, such as sheltering. Taken together, the results suggest that shareholder monitoring of firms, in the form of hedge fund activism, improves tax efficiency.	2012	Governance
Pricing the Planet's Future: The Economics of Discounting in an Uncertain World Author: Gollier, Christian Journal: Book Our path of economic development has generated a growing list of environmental problems including the disposal of nuclear waste, exhaustion of natural resources, loss of biodiversity, climate change, and polluted land, air, and water. All these environmental problems raise the crucial challenge of determining what we should and should not do for future generations. It is also central to other policy debates, including, for example, the appropriate level of public debt, investment in public infrastructure, investment in education, and the level of funding for pension benefits and for research and development. Today, the judge, the citizen, the politician, and the entrepreneur are concerned with the sustainability of our development. The objective of Pricing the Planet's Future is to provide a simple framework to organize the debate on what we should do for the future. A key element of analysis by economists is the discount rate — the minimum rate of return required from an investment project to make it desirable to implement. Christian Gollier outlines the basic theory of the discount rate and the various arguments that favor using a smaller discount rate for more distant cash flows.	2012	Environmental
Inequality and Growth: Evidence from Panel Cointegration Author: Herzer, Dierk, and Sebastian Vollmer Journal: Journal of Economic Inequality This paper uses heterogeneous panel cointegration techniques to estimate the long-run effect of income inequality on per-capita income for 46 countries over the period 1970-1995. We find that inequality has a negative long-run effect on income, both for the sample as a whole and for important sub-groups within the sample (developed countries, developing countries, democracies, and non-democracies). The effect is economically important, with a magnitude about half as high as the magnitude of an increase in the investment share.	2012	Social
Social movements, Risk Perceptions, and Economic Outcomes: The Effect of Primary and Secondary Stakeholder Activism on Firms' Perceived Environmental Risk and Financial Performance Author: Vasi, Ion Bogdan, and Brayden G. King Journal: American Sociological Review Although risk assessments are critical inputs to economic and organizational decision-making, we lack a good understanding of the social and political causes of shifts in risk perceptions and the consequences of those changes. This article uses social movement theory to explain the effect of environmental activism on corporations' perceived environmental risk and actual financial performance. We define environmental risk as audiences' perceptions that a firm's practices or policies will lead to greater potential for an environmental failure or crisis that would expose it to financial decline. Using data on environmental activism targeting U.S. firms between 2004 and 2008, we examine variation in the effectiveness of secondary and primary stakeholder activism in shaping perceptions about environmental risk. Our empirical analysis demonstrates that primary stakeholder activism against a firm affects its perceived environmental risk, which subsequently has a negative effect on the firm's financial performance.	2012	Governance
Corporate Governance and Hedge Fund Activism Author: Boyson, Nicole M., and Robert Mooradian Journal: Review of Derivatives Research Recently, the mainstream media have paid considerable attention to hedge funds behaving as agents of corporate change. We study this phenomenon using a unique dataset of hedge fund activism for the period 1994-2005, and find evidence that hedge fund activists improve both short-term stock performance and long-term operating performance of their targets. The most dramatic changes in performance accrue to targets where activists seek corporate governance changes and reductions in excess cash. Additionally, hedge funds themselves benefit from activism: the risk-adjusted annual performance of hedge funds seeking changes in corporate governance is about 7-11 percent higher than for non-activist hedge funds and hedge funds pursuing less aggressive activism. These results imply that hedge funds can facilitate long-lasting changes in corporate governance, cash flows, and operating performance that benefit target firm shareholders and hedge fund investors alike.	2011	Governance
Shareholders' Say on Pay: Does it Create Value? Author: Cai, Jie, and Ralph A. Walkling Journal: Journal of Financial and Quantitative Analysis Congress and activists recently proposed giving shareholders a say (vote) on executive pay. We find that when the House passed the Say-on-Pay Bill, the market reaction was significantly positive for firms with high abnormal chief executive officer (CEO) compensation, with low pay-for-performance sensitivity, and responsive to shareholder pressure. However, activist-sponsored say-on-pay proposals target large firms, not those with excessive CEO pay, poor governance, or poor performance. The market reacts negatively to labor-sponsored proposal announcements and positively when these proposals are defeated. Our findings suggest that say-on-pay creates value for companies with inefficient compensation but can destroy value for others.	2011	Governance
Does it Really pay to be Green? Determinants and Consequences of Proactive Environmental Strategies Author: Clarkson, Peter m., Yue Li, Gordon D. Richardson, and Florin P. Vasvari Journal: Journal of Accounting and Public Policy This study examines what factors affect firms' decisions to adopt a proactive environmental strategy and whether pursuing proactive environmental strategies leads to improved financial performance. Using longitudinal data from 1990 to 2003 for the four most polluting industries in the US (Pulp & Paper, Chemical, Oil & Gas, and Metals & Mining), this research empirically models the causal relations between firms' environmental performance and their financial resources and management capability. Our results show that positive (negative) changes in firms' financial resources in the prior periods are followed by significant improvements (declines) in firm's relative environmental performance in the subsequent periods. In addition, we also find that significant improvements (declines) in environmental performance in the prior periods can lead to improvements (declines) in financial performance in the subsequent periods after controlling for the impact of Granger causality. Finally, 3SLS analysis suggests that the positive association between environmental performance and financial performance is robust. Overall, our results are consistent with predictions of the resource-based view of the firm and indicate that although becoming "green" is associated with improvement in firm performance, such a strategy cannot be easily mimicked by all firms.	2011	Environmental
Unions, Norms, and the Rise in U.S. Wage Inequality Author: Western, Bruce, and Jake Rosenfeld Journal: American Sociological Review From 1973 to 2007, private sector union membership in the United States declined from 34 to 8 percent for men and from 16 to 6 percent for women. During this period, inequality in hourly wages increased by over 40 percent. We report a decomposition, relating rising inequality to the union wage distribution's shrinking weight. We argue that unions helped institutionalize norms of equity, reducing the dispersion of nonunion wages in highly unionized regions and industries. Accounting for unions' effect on union and nonunion wages suggests that the decline of organized labor explains a fifth to a third of the growth in inequality — an effect comparable to the growing stratification of wages by education.	2011	Social
The Impact of Environmental Performance on Firm Performance: Static and Dynamic Panel Data Evidence Author: Elsayed, Khaled, and David Paton Journal: Economics of Corporate Social Responsibility There is a long-standing debate on the impact of environmental performance on firm performance. Although previous studies have reported mixed results, many of these papers suffer from model misspecification and/or limited data. A conspicuous gap in the literature is the inability of authors to control for firm heterogeneity and dynamic effects. In this paper, we conduct static and dynamic panel data analysis of the impact of environmental performance on financial performance. Our evidence implies that environmental performance has a neutral impact on firm performance. This finding is consistent with theoretical work suggesting that firms invest in environmental initiatives until the point where the marginal cost of such investments equals the marginal benefit.	2005	Environmental
Corporate philanthropy, Employees and Misconduct Author: Bereskin, Fred, Terry Campbell, and Simi Kedia Journal: Working paper This paper examines whether sustained philanthropic activities of firms are likely to engender a prosocial ethic and culture that affects misconduct. Philanthropic activities are a manifestation of a culture in which firm reputation is important and is likely to discourage wrongdoing that tarnishes reputation. Further, corporate charitable programs might help attract and retain employees, directors and executives with prosocial ethics who are less likely to tolerate misconduct. Consistent with this notion, we find that employees at philanthropic firms are significantly more likely to whistle blow upon discovery of misconduct. Moreover, directors at giving firms are more likely to fire a CEO after misconduct is revealed. Finally, our paper finds that the decision to engage in philanthropic activities and the amount of giving are negatively associated with subsequent corporate misconduct. The results persist after the Sarbanes-Oxley Act, are robust to differing approaches for defining misconduct and culture, and are robust to our controls for potential endogeneity. Our findings highlight the many channels through which corporate culture mitigates misconduct.	2016	Governance
Simultaneous Board and CEO Diversity: Does it Increase Firm Value? Author: Borghesi, Richard, Kiyoung Chang, and Jamshid Mehran Journal: Applied Economics Letters There remain open questions regarding whether board of director ethnic and gender diversity increases or decreases firm value. Additionally, prior research has yet to examine the value effects of a diverse board in the presence of a gender/ethnic minority CEO. Using the KLD social ratings database, we examine 13,000 firm-years and provide robust evidence that board diversity increases firm value. However, we also show that any value added via board diversity is nullified when a diverse board operates in the presence of a female and/or minority CEO. Results suggest that a significant portion of the value in board diversity may come from gender/ethnic differences between the board members and the CEO. One implication of our study is that when hiring a CEO or electing directors relative gender/ethnic make-up is important.	2016	Social
Investing With Brain or Heart? A Field Experiment on Responsible Investment Author: Døskeland, Trond, and Lars Jacob Tynes Pedersen Journal: Management Science Socially responsible investment is increasingly prevalent in financial markets and is characterized by the integration of financial and nonfinancial objectives. This paper investigates the influence of wealth concerns and moral concerns on individual investors' decisions to invest responsibly. We conduct a unique natural field experiment of investors in an online banking context, wherein we frame responsible investment with regard to either wealth or morality and study investors' subsequent behavior. We find that wealth framing is more effective than moral framing for both information search and investment behavior. Our study contributes to the literature by providing real-life insight into how prosocial decision making in financial markets can be promoted.	2016	Environmental, Social, Governance
Does Wage Rigidity make Firms Riskier? Evidence from Long-Horizon Return Predictability Author: Favilukis, Jack, and Xiaoji Lin Journal: Journal of Monetary Economics The relationship between sticky wages and risk has important asset pricing implications. Like operating leverage, sticky wages are a source of risk for the firm. Firms, industries, regions, or times with especially high or rigid wages are especially risky. If wages are sticky, then wage growth should negatively forecast future stock returns because falling wages are associated with even bigger falls in output, and increases in operating leverage. Indeed, this is the case in aggregate, industry, and U.S. state level data. Furthermore, this relation is stronger in industries and U.S. states with higher wage rigidity.	2016	Social
The Risk of Knowledge Spillovers and Corporate Social Responsibility: Evidence from the Inevitable Disclosure Doctrine Author: Flammer, Caroline, and Aleksandra Kacperczyk Journal: Working paper In this study, we theorize and empirically examine whether companies' social responsible practices can help retain employees with valuable skills and knowledge, and thereby mitigate the threat of knowledge spillovers. To obtain exogenous variation in the threat of knowledge spillovers, we exploit a natural experiment provided by the rejection of the inevitable disclosure doctrine (IDD) by several U.S. states between 1991 and 2013. Since the doctrine prevents employees with valuable know-how from working for a competitor in the immediate future, the doctrine's rejection facilitates knowledge appropriation by rivals. Using a difference-in-differences methodology, we find that companies react to the increased threat of knowledge spillovers by increasing their CSR-related activities. We further provide evidence that the increase in CSR is stronger for companies that are located closer to innovation hubs as well as companies operating in industries that are i) more R&D intensive, ii) more competitive, and iii) have more attractive investment opportunities. Overall, these results are consistent with the notion that CSR serves as a strategic tool to retain knowledge workers and mitigate the risk of knowledge spillovers.	2016	Environmental, Social, Governance
Gender Diversity and Firm Performance: Evidence from Dutch and Danish Boardrooms Author: Marinova, Joana, Janneke Plantenga, and Chantal Remery Journal: International Journal of Human Resource Management Drawing on the business case for gender diversity, this article examines whether board gender diversity has a positive effect on firm performance, based on evidence from the Netherlands and Denmark. We use empirical data on 186 listed firms observed in 2007. Almost 40 percent have at least one woman in the boardroom. Within boards, the average share of women is only 5.4 percent. To investigate the impact of board gender diversity, two-stage least-squares estimation is applied, using Tobin's Q as a measure of performance. Our findings indicate that on the basis of this data-set, there is no relation between board diversity and firm performance.	2016	Social
Beyond the Business Case: The Need for Both Utility and Justice Rationales for Increasing the Share of Women on Boards Author: Seierstad, Catherine Journal: Corporate Governance: An International Review In the context of the recent introduction of gender representation regulations (quotas) for boards in public limited companies (PLCs) in Norway, this article explores how gender quotas designed to increase the share of women in senior positions are rationalized and/or justified by those who benefit, and asks: what arguments do the beneficiaries of quotas tend to use when discussing their usefulness? Research Findings/Insights: Drawing on qualitative interview data from 19 female non-executive board members, the article illustrates how women draw on utility, mainly the "business case", and individual justice arguments both in support of quotas and to justify their use in helping women attain board positions. Further, it highlights how issues of merit and of gender are entangled with these arguments in often contradictory ways. In so doing, the article challenges and complicates some of the key critiques of gender quotas often found in the public and academic debates. Theoretical/Academic Implications: This article advances theory around the intersection of justice and utility arguments in relation to the use of quotas to increase diversity on boards. Moreover, this article provides empirical support by demonstrating how the "first wave" of women affected by quotas are legitimizing their role on boards in a context in which their role is in question. In addition, this article advances the literature regarding women on boards by demonstrating the need for a discourse about political strategies, such as quotas on boards, that goes beyond the narrow understanding of the business case that has until now dominated public, political, and academic debates. In particular, this article argues for the need to build on both utility and justice logic when making a case for increasing the share of women on boards. Practical Implications: With the current focus on how to increase diversity and the share of women on boards, this study highlights the importance of regulation as well as the importance of reframing the debate using utility and justice lines of arguments rationalized by merit arguments.	2016	Social
Hard Marriage With Heavy Burdens: Labor Unions As Takeover Deterrents Author: Tian, Xuan, and Wenyu Wang Journal: Working paper We examine the effect of unionization on a firm's takeover exposure and merger gains. To establish causality, we use a regression discontinuity design that relies on "locally" exogenous variation generated by union elections that pass or fail by a small margin of votes. Barely passing a union election leads to a significant reduction in a firm's probability of receiving a takeover bid. A barely unionized target also enjoys a lower announcement return, receives a lower offer premium, and experiences longer bid duration. The negative effect of unions on targets' takeover exposure and merger gains is more pronounced when the union elections are held in states without right-to-work legislation, in states with more union-friendly successor statutes, when the mergers are horizontal, and when the unions are large. Bidders of unionized targets have more experience in making merger deals, possess higher bargaining power, and face less union threat by themselves. Our paper provides new insights into the real effects of unionization in terms of the market for corporate control.	2016	Social
A Theory of Income Smoothing When Insiders Know More Than Outsiders Author: Acharya, Viral V., and Bart M. Lambrecht Journal: Review of Financial Studies We develop a theory of income and payout smoothing by firms when insiders know more about income than outside shareholders, but property rights ensure that outsiders can enforce a fair payout. Insiders set payout to meet outsiders' expectations and underproduce to manage future expectations downward. The observed income and payout process are smooth and adjust partially and over time in response to economic shocks. The smaller the inside ownership, the more severe underproduction is, resulting in an "outside equity Laffer curve."	2015	Governance
CEO Tenure and Earnings Management Author: Ali, Ashiq, and Weining Zhang Journal: Journal of Accounting and Economics This study examines changes in CEOs' incentive to manage their firms' reported earnings during their tenure. Earnings overstatement is greater in the early years than in the later years of CEOs' service, and this relation is less pronounced for firms with greater external and internal monitoring. These results suggest that new CEOs try to favorably influence the market's perception of their ability in their early years of service, when the market is more uncertain. Also, consistent with the horizon problem, earnings overstatement is greater in the CEOs' final year, but this result obtains only after controlling for earnings overstatement in their early years of service.	2015	Governance
The Economic Consequences of Financial Restatements: Evidence from the Market for Corporate Control Author: Amel-Zadeh, Amir, and Yuan Zhang Journal: The Accounting Review This paper investigates whether and how financial restatements affect the market for corporate control. We show that firms that recently filed financial restatements are significantly less likely to become takeover targets than a propensity score matched sample of non-restating firms. For those restating firms that do receive takeover bids, the bids are more likely to be withdrawn or take longer to complete than those made to non-restating firms. Finally, there is some evidence that deal value multiples are significantly lower for restating targets than for non-restating targets. Our analyses suggest that the information risk associated with restating firms is the main driver of these results. Overall, this study finds that financial restatements have profound consequences for the allocation of economic resources in the market for corporate control.	2015	Governance
How Board Diversity Affects Firm Performance in Emerging Markets: Evidence on Channels in Controlled Firms Author: Ararat, Melsa, Mine Aksu, and Ayse Tansel Cetin Journal: Corporate Governance: An International Review We investigate the indirect effect of a board's demographic diversity on firm performance via board monitoring in a context where boards are relatively homogeneous with respect to structural diversity, using data from Turkey. We contextualize our investigation by exploring the influence of ownership configurations on the effect of diversity. Research Findings/Insights: We find a positive and non-linear relationship between demographic diversity and performance, mediated by the board's monitoring efforts. The effect of monitoring is found to be contingent upon (moderated by) the controlling shareholders' propensity to expropriate, measured by the deviation of control rights from cash flow rights, i.e. the wedge. We report that demographic diversity enhances firm performance by mitigating the negative effect of the wedge on board monitoring. Theoretical/Academic Implications: Our results provide empirical support for the importance of contextual factors in the relationship between diversity and performance. Our framework and the compound diversity and board-monitoring indices we construct may prove useful to researchers. Practitioner/Policy Implications: Regulators can use our findings in formulating recommendations or regulations related to desirable characteristics of boards. Our results are also instructive for investors and proxy advisors and indicate that the mere existence of monitoring vehicles may be insufficient to prevent expropriation by dominant shareholders, but diverse boards may mitigate the propensity to expropriate. Board members and shareholders should also benefit from the findings in creating boards that are more diligent monitors.	2015	Social
The Local Roots of Corporate Social Responsibility Author: Attig, Najah, and Paul Brockton Journal: Journal of Business Ethics We provide new evidence that the prosocial attitudes of local residents play a significant role in determining a firm's corporate social responsibility (CSR) engagement. We show that firms are more likely to engage in CSR initiatives when they are headquartered in areas with large senior citizen populations and where a large fraction of the population makes charitable donations. In contrast, we find that firms are less likely to engage in CSR initiatives when they are headquartered in areas with large religiously affiliated groups. After establishing the local demographic roots of CSR demand, we then examine the relationship between the firm's CSR activities and its market valuation. Our results suggest that CSR initiatives create value when they are properly aligned with local residents' prosocial attitudes. Overall, our study stresses the role of local residents' CSR preferences in mediating the relationship between CSR and market valuations.	2015	Environmental, Social, Governance
Managerial Practices and Corporate Social Responsibility Author: Attig, Najah, and Sean Cleary. Journal: Journal of Business Ethics A unique dataset is exploited to provide insight into the impact of management quality practices (MQPs) on corporate social responsibility (CSR) for a sample of US manufacturing firms. Our results suggest that MQPs are positively and significantly related to a firm's CSR rating. This confirms that intangible assets affect corporate outcomes. We also show that superior MQPs matter more in explaining the CSR dimensions that are related directly to the firm's primary stakeholders.	2015	Environmental, Social, Governance
Collective Organizational Engagement: Linking Motivational Antecedents, Strategic Implementation, and Firm Performance Author: Barrick, Murray R., Gary R. Thurgood, Troy A. Smith, and Stephen H. Courtright Journal: Academy of Management Journal We present a comprehensive theory of collective organizational engagement, integrating engagement theory with the resource management model. We propose that engagement can be considered an organization-level construct influenced by motivationally focused organizational practices that represent firm-level resources. Specifically, we evaluate three distinct organizational practices as resources — motivating work design, human resource management practices, and CEO transformational leadership — that can facilitate perceptions that members of the organization are as a whole physically, cognitively, and emotionally invested at work. Our theory is grounded in the notion that, when used jointly, these organizational resources maximize each of the three underlying psychological conditions necessary for full engagement; namely, psychological meaningfulness, safety, and availability. The resource management model also underscores the value of top management team members implementing and monitoring progress on the firm's strategy as a means to enhance the effects of organizational resources on collective organizational engagement. We empirically test this theory in a sample of 83 firms, and provide evidence that collective organizational engagement mediates the relationship between the three organizational resources and firm performance. Furthermore, we find that strategic implementation positively moderates the relationship between the three organizational resources and collective organizational engagement. Implications for theory, research, and practice are discussed.	2015	Governance
Human and Financial Capital for Microenterprise Development: Evidence from a Field and Lab Experiment Author: Berge, Lars Ivar Oppedal, Kjetil Bjorvatn, and Bertil Tungodden Journal: Management Science Microenterprises constitute an important source of employment, and developing such enterprises is a key policy concern in most countries. But what is the most efficient tool for microenterprise development? We study this question in a developing country context (Tanzania), where microenterprises are the source of employment for more than half of the labor force, and we report from a field experiment that jointly investigated the importance of a human capital intervention (business training) and a financial capital intervention (business grant). Using data from three survey rounds, a lab experiment, and administrative records of the microfinance institution, we present evidence on business performance, management practices, happiness, business knowledge, and noncognitive abilities. Our study demonstrates strong effects of the combination of the two interventions on male entrepreneurs, while the effects on female entrepreneurs are much more muted. The results suggest that long-term finance is an important constraint for microfinance entrepreneurs, but that business training is essential to transform financial capital into productive investments. Our study also points to the need for more comprehensive measures to promote the businesses of female entrepreneurs.	2015	Governance
Strategic Silence, Insider Selling, and Litigation Risk Author: Billings, Mary Brooke, and Matthew C. Cedergren Journal: Journal of Accounting and Economics Prior work finds that managers beneficially time their purchases, but not sales, prior to forecasts. Focusing on if (as opposed to when) a forecast is given, we link insider selling to silence in advance of earnings disappointments. This raises the question of whether the absence of incriminating trading drives reductions in litigation risk potentially attributed to warnings. We find that the absence of a warning combined with the presence of selling exacerbates the consequences associated with the individual behaviors. Yet, selling prior to a warning typically does not offset all of the warning's benefit. In so doing, we supply the first robust evidence of a litigation benefit associated with warning.	2015	Governance
The Effect of Institutional Ownership on Firm Transparency and Information Production Author: Boone, Audra L., and Joshua T. White Journal: Journal of Financial Economics We examine the effects of institutional ownership on firms' information and trading environments using the annual Russell 1000/2000 index reconstitution. Characteristics of firms near the index cutoffs are similar, except that firms in the top of the Russell 2000 have discontinuously higher proportional institutional ownership than firms in the bottom of the Russell 1000 primarily due to indexing and benchmarking strategies. We find that higher institutional ownership is associated with greater management disclosure, analyst following, and liquidity, resulting in lower information asymmetry. Overall, indexing institutions' predilection for lower information asymmetries facilitates information production, which enhances monitoring and decreases trading costs.	2015	Governance
The Impact of Advice on Women's and Men's Selection into Competition Author: Brandts, Jordi, Valeska Groenert, and Christina Rott Journal: Management Science We conduct a laboratory experiment to study how advice by a more experienced and better-informed person affects an individual's entry into a real-effort tournament and the gender gap. Our experiment is motivated by the concerns raised by approaching the gender gap through affirmative action policies. Overall, advice improves the entry decision of subjects, in that forgone earnings due to wrong entry decisions go significantly down. The improvements are mainly driven by increased entry of strong-performing women, who also become more confident, and reduced entry of weak-performing men. We find that the overall gender gap persists even though it disappears among low and strong performers. The persistence is due to an emerging gender gap among intermediate performers driven by women (men) following more the advice to stay out of (enter) the tournament in this performance group.	2015	Social
The Risk Preferences of US Executives Author: Brenner, Steffen Journal: Management Science In this paper, I elicit risk attitudes of U.S. executives by calibrating a subjective option valuation model for option exercising data (1996 to 2008), yielding approximately 65,000 values of relative risk aversion (RRA) for almost 7,000 executives. The observed behavior is generally consistent with moderate risk aversion and a median (mean) RRA close to one (three). Values are validated for chief executive officers (CEOs) by testing theory-based predictions on the influence of individual characteristics on risk preferences such as gender, marital status, religiosity, and intelligence. Senior managers such as CEOs, presidents, and chairpersons of the boards of directors are significantly less risk averse than non-senior executives. RRA heterogeneity is strongly correlated with sector membership and firm-level variables such as size, performance, and capital structure. Alternative factors influencing option exercises are tested for their influence on RRA values.	2015	Governance
The Consequences of Hiring Lower-Wage Workers in an Incomplete-Contract Environment Author: Brown, Jason L., Patrick R. Martin, Donald V. Moser, and Roberto A. Weber Journal: The Accounting Review Firms frequently attempt to increase profits by replacing some existing workers with new lower-wage workers. However, this strategy may be ineffective in an incomplete-contract environment because the new workers may provide lower effort in response to their lower wages, and hiring new lower-wage workers may damage the remaining original workers' reciprocal relationship with the firm. We conduct an experiment to examine this issue and find that when new lower-wage workers become available, firms hire them to replace original higher-wage workers and pay the new workers lower wages. However, these lower wages do not improve firm profit because the decision to hire new lower-wage workers causes both the new and remaining workers to provide lower effort. Moreover, hiring lower-wage workers reduces new workers' payoffs and, thus, decreases social welfare. These unintended consequences suggest that firms should consider both the wage savings and the potential costs when deciding whether to replace some workers with new lower-wage workers. We discuss the implications of our findings for contract design, hiring practices, and managerial accountants.	2015	Social
Company Reputation and the Cost of Equity Capital Author: Cao, Ying, James N. Myers, Linda A. Myers, and Thomas C. Omer Journal: Review of Accounting Studies We investigate whether companies with better reputations enjoy a lower cost of equity financing. Using a sample of 9,276 large US companies from 1987 to 2011 and the reputation rankings from Fortune's "America's Most Admired Companies" list, we find strong evidence that companies with higher reputation scores enjoy a lower cost of equity capital even after controlling for other factors that determine the cost of equity. In addition, we find that the effect of reputation on the cost of equity increases with the degree of information asymmetry, consistent with the reputation rankings providing information about company quality. We also find that changes in reputation are associated with subsequent changes in the company's investor base, consistent with reputation rankings affecting investor recognition and improving risk sharing. We contribute to the cost of capital literature by identifying a unique determinant of the cost of equity and to the reputation literature by demonstrating an important benefit that derives from creating and maintaining a high reputation.	2015	Governance
A Flying Start? Maternity Leave Benefits and Long-Run Outcomes of Children Author: Carneiro, Pedro, Katrine V. Løken, and Kjell G. Salvanes Journal: Journal of Political Economy We study a change in maternity leave entitlements in Norway. Mothers giving birth before July 1,1977, were eligible for 12 weeks of unpaid leave, while those giving birth after that date were entitled to 4 months of paid leave and 12 months of unpaid leave. The increased time spent with the child led to a 2 percentage point decline in high school dropout rates and a 5 percent increase in wages at age 30. These effects were larger for the children of mothers who, in the absence of the reform, would have taken very low levels of unpaid leave.	2015	Social
Substitution between Real and Accruals-Based Earnings Management after Voluntary Adoption of Compensation Clawback Provisions Author: Chan, Lilian H., Kevin C. W. Chen, Yai Yuan Chen, and Yangxin Yu Journal: The Accounting Review To deter financial misstatements, many companies have recently adopted compensation recovery policies — commonly known as "clawbacks" — that authorize the board to recoup compensation paid to executives based on misstated financial reports. Clawbacks have been shown to reduce financial misstatements and increase investors' confidence on earnings information. We show that the benefits come with an unintended consequence of certain firms substituting for accruals management with real transactions management (e.g., reduce research and development [R&D] expenditures), especially firms with strong incentives to achieve short-term earnings targets, such as firms with high growth or high transient institutional ownership. As such, the total amount of earnings management does not decrease subsequent to clawback adoption. We further show that although real transactions management temporarily boosts those clawback adopters' short-term profitability and stock performance, this trend reverses after three years. In summary, "clawbacks" may have unexpected effects for a subset of firms whose managers are under greater pressure to meet earnings goals.	2015	Governance
The Effects of Forecast Type and Performance-Based Incentives on the Quality of Management Forecasts Author: Chen, Clara Xiaoling, Kristina M. Rennekamp, and Flora H. Zhou Journal: Accounting, Organizations and Society Understanding forecasts is important because of their pervasiveness in business decisions such as budgeting, production, and financial reporting. In this study we use an abstract experiment to examine how the preparation of disaggregated forecasts interacts with performance-based incentives to influence the accuracy and optimism of forecasts. We manipulate two factors between subjects at two levels each: forecast type (disaggregated or aggregated) and performance-based incentives (present or absent). Consistent with our predictions, we find that (1) preparing disaggregated forecasts leads to greater improvements in forecast accuracy (compared to preparing aggregated forecasts) in the absence of performance-based incentives than in the presence of performance-based incentives, and (2) preparing disaggregated forecasts leads to greater increases in forecast optimism (compared to preparing aggregated forecasts) in the presence of performance-based incentives than in the absence of performance-based incentives. Our study contributes to our understanding of unintentional biases in the forecasting process. Our results have important practical implications for designers of management control systems who elicit internal forecasts from managers. Finally, our results also have important practical implications for those who either prepare or use external management forecasts.	2015	Governance
The Value and Credit Relevance of Multiemployer Pension Plan Obligations Author: Chen, Ting, Xiumin Martin, Christina A. Mashruwala, and Shamin D. Mashruwala Journal: The Accounting Review We investigate whether multiemployer defined-benefit pension plan (MEPP) underfunding is priced by shareholders and creditors. Prior to the FASB's new MEPP standard (effective December 2011), when the disclosures on such plans were sparse, we find evidence (some evidence) that our estimate of a firm's share of MEPP underfunding is credit (value) relevant. We also find some evidence that a proxy for the funded status of a firm's MEPPs is incrementally value relevant over and above the firm's cash contributions, but no evidence that it is credit relevant. Furthermore, an estimate of MEPP underfunding that incorporates the additional disclosures required under the new MEPP standard is value and credit relevant, both individually and incrementally, over and above our old estimate. Overall, our findings suggest that shareholders and creditors view MEPP underfunding as a debt-like obligation and that the additional MEPP disclosures under the new standard are useful to market participants.	2015	Governance
Executive Equity Risk-Taking Incentives and Audit Pricing Author: Chen, Yangyang, Ferdinand A. Gul, Madhu Veeraraghavan, and Leon Zolotoy Journal: The Accounting Review Using a large sample of U.S. firms spanning the period 2000-2010, we document a strong positive association between the sensitivity of CEO compensation portfolio to stock return volatility (vega) and audit fees. We also show that the positive association between vega and audit fees is weaker in the post-Sarbanes-Oxley Act (SOX) period. In supplementary tests, we show that the relation between vega and audit fees is stronger for firms with older CEOs and in firms where the CEO is also chairman of the board. Collectively, our results suggest that audit firms incorporate executive risk-taking incentives in the fees they charge for their services.	2015	Governance
Incentivizing Impact Investing Author: Chowdhry, Bhagwan, Shaun William Davies, and Brian Waters Journal: Working paper Impact investing is gaining popularity. However, it is not well understood which financial securities provide managerial incentives to pursue social projects efficiently. We derive optimal securities when social projects are funded jointly between agents that value social good and traditional for-profit investors that do not. If the impact investment is a public works opportunity, the security features a pay-for-success structure, rationalizing the use of Social Impact Bonds in practice. If the opportunity is in the private sector, the security features a pay-forfailure structure. We coin this security design a Social Impact Guarantee (SIG).	2015	Environmental, Social, Governance
Fair Wages and Effort Provision: Combining Evidence from a Choice Experiment and a Field Experiment Author: Cohn, Alain, Ernst Fehr, and Lorenz Goette Journal: Management Science The presence of workers who reciprocate higher wages with greater effort can have important consequences for firms and labor markets. Knowledge about the extent and determinants of reciprocal effort choices is, however, incomplete. We investigate the role of fairness perceptions and social preferences in a field experiment in which workers were hired for a one-time job. We show that workers who perceive being underpaid at the base wage increase their performance if the hourly wage increases, whereas those who feel adequately paid or overpaid at the base wage do not change their performance. Moreover, we find that only the workers who display reciprocity in a choice experiment show reciprocal effort responses in the field. The workers who lack reciprocity in the choice experiment do not respond to the wage increase, even if they feel underpaid at the base wage. Our findings suggest that fairness perceptions and social preferences are key in workers' performance response to wage increases. In our study, the wage increase affects effort mainly through the removal of perceived unfairness, i.e., the elimination of negative reciprocity toward the firm, rather than positive reciprocity. These results are the first direct evidence of the fair-wage effort hypothesis in the field and also help interpret previous contradictory findings in the literature.	2015	Governance
Newsflash: Al Gore Invents SRI! (Not) Author: Cummings, Jim Journal: The Resilient Investor Blog This month's big feature on Al Gore's investment firm is pretty heavy on hyperbole, starting with the title: The Planet-Saving, Capitalism-Subverting, Surprisingly Lucrative Investment Secrets of Al Gore. Fallows' intent with the article is mostly to get "sustainable capitalism" onto the wider public radar, and we're all for that. Still, most of what is presented here as groundbreaking is, to our quarter-century-in-SRI eyes, old news.	2015	Environmental
Environmental Health Risks and Housing Values: Evidence from 1,600 Toxic Plant Openings and Closings Author: Currie, Janet, Lucas Davis, Michael Greenstone, and Reed Walker Journal: American Economic Review Regulatory oversight of toxic emissions from industrial plants and understanding about these emissions' impacts are in their infancy. Applying a research design based on the openings and closings of 1,600 industrial plants to rich data on housing markets and infant health, we find that: toxic air emissions affect air quality only within 1 mile of the plant; plant openings lead to 11 percent declines in housing values within 0.5 mile or a loss of about $4.25 million for these households; and a plant's operation is associated with a roughly 3 percent increase in the probability of low birthweight within 1 mile.	2015	Environmental
The Governance Effect of the Media's News Dissemination Role: Evidence from Insider Trading Author: Dai, Lili, Jerry T. Parwada, and Bohui Zhang Journal: Journal of Accounting Research We investigate whether the media plays a role in corporate governance by disseminating news. Using a comprehensive data set of corporate and insider news coverage for the 2001-2012 period, we show that the media reduces insiders' future trading profits by disseminating news on prior insiders' trades available from regulatory filings. We find support for three economic mechanisms underlying the disciplining effect of news dissemination: the reduction of information asymmetry, concerns regarding litigation risk, and the impact on insiders' personal wealth and reputation. Our findings provide new insights into the real effect of news dissemination.	2015	Governance
The Wall Street Walk when Blockholders Compete for Flows Author: Dasgupta, Amil, and Giorgia Piacentino Journal: Journal of Finance Effective monitoring by equity blockholders is important for good corporate governance. A prominent theoretical literature argues that the threat of block sale ("exit") can be an effective governance mechanism. Many blockholders are money managers. We show that, when money managers compete for investor capital, the threat of exit loses credibility, weakening its governance role. Money managers with more skin in the game will govern more successfully using exit. Allowing funds to engage in activist measures ("voice") does not alter our qualitative results. Our results link widely prevalent incentives in the ever-expanding money management industry to the nature of corporate governance.	2015	Governance
The Effect of Cross-Listing on the Environmental, Social, and Governance Performance of Firms Author: Del Bosco, Barbara, and Nicola misani Journal: Academy of Management Proceedings In this paper we study the relationship between cross-listing and the ESG (environment, social, and governance) performance of firms. We propose that cross-listing is associated with higher ESG ratings, because cross-listed firms have to respond to a higher number of stakeholders with heterogeneous expectations and they need to improve their ESG performance to overcome the liability of foreignness. We test our hypotheses on the firms included in the S&P Global 1200 index, observed over the 2008-2012 period, using information taken from the Asset4 dataset. We find that cross-listed firms have actually higher ESG performance than non-cross-listed firms, after controlling for firm, industry, and country heterogeneity. Our findings support the view that CSR help firms in their internationalization efforts. The effect is moderated by the investor protection regime in the listing country: higher protection is associated with better corporate governance and with lower environmental and social performance. This suggests that a focus on shareholder value can limit managerial discretion to adopt a long- term stakeholder view. We also find that single stock exchanges can have specific effects on the cross-listed firms, even when the investor protection regime is similar, indicating that informal pressures complement enforceable regulation in shaping firm ESG performance.	2015	Environmental, Social, Governance
Under Pressure: The Causal Effect of Financial Analyst Coverage on Long-Term Capital Investment Author: DesJardine, Mark Journal: Academy of Management Proceedings This study examines whether coverage from financial analysts causes corporate short-termism by affecting the horizons of firms' capital investments. Financial analysts evaluate the performance of firms in order to develop and distribute opinions about a firm's stock. I hypothesize and empirically illustrate that greater analyst coverage leads to more pressure on firms to perform in the short-term, which biases firms away from making longer-term investments. To establish causality, I use a difference-in-differences technique that exploits a series of quasi-natural experiments provided by 52 brokerage closures and brokerage mergers that occurred between 1994 and 2008. I find that firms that lose a covering analyst from a brokerage disappearance extend their attention further into the distant future and invest more in longer-term capital, compared to similar firms that do not lose an analyst.	2015	Environmental, Social, Governance
CEO Opportunism? Option Grants and Stock Trades Around Stock Splits Author: Devos, Erik, William B. Elliott, and Richard S. Warr Journal: Journal of Accounting and Economics Decades of research confirm that, on average, stock split announcements generate positive abnormal returns. In our sample, 80 percent of CEO stock option grants are timed to occur on or before the split announcement date. With the average market-adjusted announcement return of 3.1 percent, awarding the grant before the split announcement results in an average gain per CEO-grant of $451,748. We find additional evidence consistent with timing of CEO stock trading around the split announcement. In the case of CEO stock sales, about two-thirds occur after the split announcement, resulting in an average gain of $345,613.	2015	Governance
Ownership Structure, Voting, and Risk Author: Dhillon, Amrita, and Silvia Rossetto Journal: Review of Financial Studies We analyze the determinants of a firm's ownership structure when decisions over risk are taken by majority vote of risk-averse shareholders. We show that when a fraction of small, diversified shareholders abstains from voting, mid-sized blockholders may emerge to mitigate the conflict of interests between one large shareholder, who prefers less risky investments, and these small, non-voting shareholders. The paper offers a novel explanation for the puzzling observation that many firms have multiple blockholders. The paper develops numerous empirical implications, for example on the link between ownership structure and risk choices and on the relative size of blocks.	2015	Governance
How Disclosure Features of Corporate Social Responsibility Reports Interact With Investor Numeracy to Influence Investor Judgments Author: Elliott, W. Brooke, Stephanie M. Grant, and Kristina M. Rennekamp Journal: Working paper Firms' Corporate Social Responsibility (CSR) reports typically frame their strategies in terms of either community or global efforts (i.e., "strategy frame"). Further, the style used to depict CSR performance in reports often highlights either pictures or words (i.e., "presentation style"). These two prominent disclosure features of CSR reports promote a natural fit or misfit in the focus (relatively low-level or high-level) investors adopt when thinking about the firm and its CSR efforts. Further, these disclosure features likely have different effects on investors depending on their numeracy or, in other words, the way that they naturally process numerical information. In this study we predict and find that a fit between the strategy frame and the presentation style of a firm's CSR report causes less numerate investors to be more willing to invest than when a fit is not present. Specifically, we find that a fit leads less numerate investors to experience subjective feelings of processing fluency and, in turn, positive affect that serves as a cue that the positive CSR performance information can be relied upon, which positively influences willingness to invest. Our results have implications for both CSR reports as well as other types of firm disclosures that increasingly vary along similar disclosure characteristics. Our results also contribute to both the growing literature on presentation effects in accounting, as well as the broader business literature on CSR reporting.	2015	Environmental, Social, Governance
Al Gore at the Washington Ideas Forum Author: Fallows, James Journal: The Atlantic The former vice president announces a surprising business achievement, and both cautionary and encouraging political and environmental views. Over the past decade, Gore and his colleagues have developed and applied an unusual approach to investing in global stock markets, with a heavy emphasis on environmental sustainability. Ten years into this approach, they have results to report, and those results make them, startlingly, among the very, very most profitable asset managers anywhere in the world.	2015	Environmental
Al Gore's Plan to Save Capitalism: Does it Make Sense? Author: Fallows, James Journal: The Atlantic Below are Atlantic notes, from James Fallows and others, in response to his November 2015 article on Al Gore's campaign to make capitalism more sustainable and profitable.	2015	Environmental
The Planet-Saving, Capitalism-Subverting, Surprisingly Lucrative Investment Secrets of Al Gore Author: Fallows, James Journal: The Atlantic I asked him how he divided his time among the projects. "Probably a little more than half on Climate Reality," and then half on some other commitments. "And then probably another half on Generation." The object of this final "half" is Generation Investment Management, a company that is rarely mentioned in press coverage of Gore but that he says is as ambitious as his other efforts. The most sweeping way to describe this undertaking is as a demonstration of a new version of capitalism, one that will shift the incentives of financial and business operations to reduce the environmental, social, political, and long-term economic damage being caused by unsustainable commercial excesses. What this means in practical terms is that Gore and his Generation colleagues have done the theoretically impossible: Over the past decade, they have made more money, in the Darwinian competition of international finance, by applying an environmentally conscious model of "sustainable" investing than have most fund managers who were guided by a straight-ahead pursuit of profit at any environmental or social price.	2015	Environmental
Corporate Transparency and the Impact of Investor Sentiment on Stock Prices Author: Firth, Michael, Kailong Wang, and Sonia ML Wong Journal: Management Science Using China's stock market as the testing venue, this study examines how corporate transparency helps explain the sensitivity of stock prices to general investor sentiment. We find that firms with low corporate transparency, measured by a battery of proxies including state ownership, the prevalence of related party transactions, accrual-based earnings management, audit opinions, and the quality of audit firms, are more affected by investor sentiment than are firms with high corporate transparency. Overall, our findings highlight the importance of corporate transparency in mitigating the effects of investor sentiment on stock prices.	2015	Governance
Does Product Market Competition Foster Corporate Social Responsibility? Evidence from Trade liberalization Author: Flammer, Caroline Journal: Strategic Management Journal This study examines whether product market competition affects corporate social responsibility (CSR). To obtain exogenous variation in product market competition, I exploit a quasi-natural experiment provided by large import tariff reductions that occurred between 1992 and 2005 in the U.S. manufacturing sector. Using a difference-in-differences methodology, I find that domestic companies respond to tariff reductions by increasing their engagement in CSR. This finding supports the view of "CSR as a competitive strategy" that allows companies to differentiate themselves from their foreign rivals. Overall, my results highlight that trade liberalization is an important factor that shapes CSR practices.	2015	Environmental, Social, Governance
The Dog That Didn't Bark: Long-Term Strategies in Times of Recession Author: Flammer, Caroline, and Ioannis Ioannou Journal: Working paper We investigate how U.S. companies adjusted their investments in key strategic resources ( i.e., human capital, tangible, and intangible resources) during the Great Recession of 2007-2009. To obtain exogenous variation in the severity of the recession, we exploit the differential intensity of the house price collapse across U.S. regions, instrumenting changes in house prices with Saiz' (2010) topological measure of housing supply elasticity. Our findings indicate that companies significantly laid off employees and curtailed capital expenditures. Importantly though, they did not reduce investments in R&D and corporate social responsibility (CSR). We further document that firms that sustained their R&D and CSR performed better once the economy recovered. These findings confirm our theoretical arguments suggesting that intangible strategic resources such as innovation capability and stakeholder relations are instrumental in sustaining a competitive advantage during (and beyond) times of crisis.	2015	Environmental, Social, Governance
Business and Peace in the Buffer Condition Author: Forrer, John J., and John E. Katsos Journal: Academy of Management Perspectives Over the past 15 years, researchers and practitioners have explored the connections between business practices and peace. In this paper, we explore how research from other disciplines can inform our understanding of business practices and peace. One result would be guidance that is less general and more applicable to areas experiencing conflict than those currently supported by the business and peace literature. Based on literature reviews in political science, economics, and peace and conflict studies, we find support for an alternative conceptualization to the conflict/post-conflict classification that we term the "buffer condition". We suggest that existing research supports the proposition that the private sector is the most effective actor in promoting peace in areas experiencing the buffer condition. And we encourage researchers to investigate the most effective ways for business to promote peace under such a condition.	2015	Social
Gender Differences in Financial Reporting Decision Making: Evidence from Accounting Conservatism Author: Francis, Bill, Iftekhar Hasan, Jong Chool Park, and Qiang Wu Journal: Contemporary Accounting Research This paper investigates the effect of CFO gender on corporate financial reporting decision making. Focusing on firms that experience changes of CFO from male to female, the paper compares the firms' degree of accounting conservatism between pre- and post-transition periods. We find that female CFOs are more conservative in their financial reporting. In addition, we find that the relation between CFO gender and conservatism varies with the level of various firm risks, including litigation risk, default risk, systematic risk, and CFO-specific risk such as job security risk. We further find that the risk aversion of female CFOs is associated with less equity-based compensation, lower firm risk, a higher tangibility level, and a lower dividend payout level. Overall, the study provides strong support for the notion that female CFOs are more risk averse than male CFOs, which leads female CFOs to adopt more conservative financial reporting policies.	2015	Social
Capital and Labor Reallocation Within Firms Author: Giroud, Xavier, and Holger M. Meuller Journal: Journal of Finance We document how a positive shock to investment opportunities at one plant "(treated plant") spills over to other plants within the same firm, but only if the firm is financially constrained. To provide the treated plant with resources, the firm's headquarters withdraws capital and labor from other plants, especially plants that are relatively less productive, not part of the firm's core industries, and located far away from headquarters. As a result of the resource reallocation, aggregate firm-wide productivity increases. We do not find evidence of capital or labor spillovers among plants of financially unconstrained firms.	2015	Governance
Creativity from Constraint? How the Political Correctness Norm Influences Creativity in Mixed-sex Work Groups Author: Goncalo, Jack A., Jennifer A. Chatman, Michelle M. Duguid, and Jessica A. Kennedy Journal: Administrative Science Quarterly As work organizations become increasingly gender diverse, existing theoretical models have failed to explain why such diversity can have a negative impact on idea generation. Using evidence from two group experiments, this paper tests theory on the effects of imposing a political correctness (PC) norm, one that sets clear expectations for how men and women should interact, on reducing interaction uncertainty and boosting creativity in mixed-sex groups. Our research shows that men and women both experience uncertainty when asked to generate ideas as members of a mixed-sex work group: men because they may fear offending the women in the group and women because they may fear having their ideas devalued or rejected. Most group creativity research begins with the assumption that creativity is unleashed by removing normative constraints, but our results show that the PC norm promotes rather than suppresses the free expression of ideas by reducing the uncertainty experienced by both sexes in mixed-sex work groups and signaling that the group is predictable enough to risk sharing more — and more-novel — ideas. Our results demonstrate that the PC norm, which is often maligned as a threat to free speech, may play an important role in promoting gender parity at work by allowing demographically heterogeneous work groups to more freely exchange creative ideas.	2015	Governance
Selection Benefits of Stock-Based Compensation for the Rank-and-File Author: Hales, Jeffrey, Laura W. Wang, and Michael G. Williamson Journal: The Accounting Review We investigate a potential selection benefit of stock-based compensation for rank-and-file employees, whose pay under this compensation form is insensitive to their individual efforts. We use a laboratory experiment to demonstrate that individuals with higher levels of dispositional optimism are more likely to choose compensation that is contingent on a company's future stock price than to choose fixed pay, even after controlling for the individual's risk preferences. Furthermore, compared to participants selecting fixed pay, those selecting stock-based compensation also perform better on a challenging problem-solving task, a result that we show is due to their higher levels of dispositional optimism. Collectively, we demonstrate that stock-based compensation can have productivity-enhancing effects, even if stock prices are completely insensitive to individual efforts. In doing so, we provide a partial explanation for the puzzling prevalence of stock-based compensation plans at the rank-and-file level and contribute to the broader contract-selection literature.	2015	Governance
The "Science" and "Art" of High Quality Investing Author: Hanson, Dan, and Rohan Dhanuka Journal: Journal of Applied Corporate Finance There is a long tradition of investing in "quality" companies, but despite the length of its pedigree and the respect commanded by its most successful practitioners, neither the academic literature nor investors have reached agreement on a clear definition of quality. Definitions are wide-ranging and, in some cases, even contradictory. In this paper we explor the concpet of "high quality investing". First, we review the "science" of approaching quality via financial statement and market performance measures. We review some widely known measures. We note many of those widely known measures have been studied from an academic rather than practitioner perspective. Secondly, we further examine those widely used measures from the perspective of this long-term investor in today's market. We test for the persistence, and long-term performance implications, of these "scientific" measures. Thirdly, we review the "art" of approaching quality via qualitative measures including culture and ESG metrics. Finally, we propose that a combination of "science" and "art" is a promising approach for practitioners and researchers alike.	2015	Environmental, Social, Governance
How Much do Corporate Defendants Really Lose? A New Verdict on the Reputation Loss Induced by Corporate Litigation Author: Haslem, Bruce, Aimee Hoffman, and Irena Hutton Journal: Working paper Using a comprehensive sample of 83,260 corporate lawsuits filed in U.S. Federal District courts, we extend the results of prior studies investigating market value and reputational losses due to corporate misconduct. This larger sample allows us to examine several alternative explanations for the loss in market value, such as the impact of media coverage, the expectation of procedural expenses and subsequent litigation, and the defendant's willingness to settle, as well as previously documented factors, such as anticipated penalties and cross-sectional firm characteristics. Our results suggest that, with the exception of securities litigation, this loss in market value can be attributed to these alternative explanations rather than to reputational consequences. We confirm this finding using indirect measures of reputation loss, such as declines in financial performance, changes in the outside directorships held by the defendant firm's CEO, reductions in institutional ownership, CEO and CFO turnover, and improvements in corporate governance. These indirect measures also provide evidence of reputational penalties imposed upon firms accused of environmental misconduct, although this evidence is weaker and unsupported by the results of our market value loss analysis.	2015	Governance
Accounting Conservatism and Street Earnings Author: Helfin, Frank, Charles Hsu, and Qinglu Jin Journal: Review of Accounting Studies This paper provides evidence that conditional conservatism reduces the usefulness of GAAP earnings for valuation by investors. We find that conditional conservatism reduces GAAP earnings persistence and informativeness, makes income smoothing more difficult, and makes forecasting GAAP earnings more difficult for analysts. We also find that analysts forecast Street earnings numbers with less conditional conservatism. The decrease in conditional conservatism from adjusting GAAP earnings to Street earnings leads to improvements in persistence, smoothing, and informativeness and reduces analysts' forecast errors and dispersion. Furthermore, as GAAP conditional conservatism increases, (1) Street earnings more likely differ from GAAP, and (2) the magnitude of the difference between Street and GAAP earnings increases. Finally, we find that exclusions (from GAAP to Street) are of higher quality for firms with higher GAAP conditional conservatism. Our results suggest that, as the conditional conservatism of GAAP earnings increases, analysts' exclusions make Street earnings more useful to investors.	2015	Governance
Largest U.S. Pensions Divided on Activism Author: Hoffman, Liz, and Timothy W. Martin Journal: The Wall Street Journal The California State Teachers' Retirement System, No. 2 in the U.S. by assets, supported an effort by activist investor Nelson Peltz to break up the industrial giant and take four board seats. Roughly a mile away in Sacramento, Calif., the largest U.S. pension, the California Public Employees' Retirement System, decided instead to side with DuPont management, which was able to defeat the push by Mr. Peltz and his firm Trian Fund Management LP.	2015	Governance
CEO Turnover and Relative Performance Evaluation Author: Jenter, Dirk, and Fadi Kanaan Journal: Journal of Finance This paper shows that CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks from firm performance before deciding on CEO retention. Using a hand-collected sample of 3,365 CEO turnovers from 1993 to 2009, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry and, to a lesser extent, after bad market performance. A decline in industry performance from the 90th to the 10th percentile doubles the probability of a forced CEO turnover.	2015	Governance
Shareholder Value and Workforce Downsizing, 1981-2006 Author: Jung, Jiwook Journal: Social Forces This paper develops a theoretical account of the reconstruction of workforce downsizing as a shareholder-value strategy since the 1980s. This account has two components. First, building on resource-dependence theory, I suggest that growing corporate dependence on institutional investors makes firms susceptible to their demand for greater returns, especially when these institutional investors are blockholders and resistant to counter-pressure from managers. Second, building on Fligstein's theory of conceptions of control, I suggest that the rise of shareholder value reorients managerial behavior, by changing the decision context in a way that induces managers to maximize shareholder value. Crucial to constructing this new decision context are a set of agency-theory prescriptions for reforming corporate governance. My analysis of downsizing announcements, drawing on a sample of 714 US firms between 1981 and 2006, shows that both the pressure from institutional investors and the new decision context encourage firms to downsize more frequently. By demonstrating how both pressure from investors and changed managerial decision contexts have contributed to the prevalence of workforce downsizing, this paper makes a strong case for the financialization of the American corporation, and contributes to the sociological research on growing job insecurity and income inequality over the past three decades.	2015	Social
Executive Compensation, Fat Cats, and Best Athletes Author: Kim, Jerry W., Bruce Kogut, and Jae-Suk Yang Journal: American Sociological Review Income gains in the top 1 percent are the primary cause for the rapid growth in U.S. inequality since the late 1970s. Managers and executives of firms account for a large proportion of these top earners. Chief executive officers (CEOs), in particular, have seen their compensation increase faster than the growth in firm size. We propose that changes in the macro patterns of the distribution of CEO compensation resulted from a process of diffusion within localized networks, propagating higher pay among corporate executives. We compare three possible explanations for diffusion: director board interlocks, peer groups, and educational networks. The statistical results indicate that corporate director networks facilitate social comparisons that generate the observed pay patterns. Peer and education network effects do not survive a novel endogeneity test that we execute. A key implication is that local diffusion through executive network structures partially explains the changes in macro patterns of income distribution found in the inequality data.	2015	Governance
management Control System Design, Ownership, and Performance in Professional Service Organisations Author: King, Robyn, and Peter Clarkson Journal: Accounting, Organizations and Society The objective of this study is to investigate the implications for organisational performance of the interplay between ownership and management control system design in professional service organisations. Based on transaction cost economic (TCE) theory, we expect that low ownership by professionals working in a professional services organisation will be more efficiently managed with a boundary MCS archetype and high ownership by an exploratory MCS archetype. Of direct relevance, we predict that a failure to conform to these optimal archetypes will manifest in relatively poorer performance. The study was conducted based on a survey of 120 practice managers of primary healthcare organisations in Australia. These results provide empirical support for the stated prediction.	2015	Governance
The Role of Social Media in the Capital Market: Evidence from Consumer Product Recalls Author: Lee, Lian Fen, Amy P. Hutton, and Susan Shu Journal: Journal of Accounting Research We examine how corporate social media affects the capital market consequences of firms' disclosure in the context of consumer product recalls. Product recalls constitute a "product crisis" exposing the firm to reputational damage, loss of future sales, and legal liability. During such a crisis it is crucial for the firm to quickly and directly communicate its intended message to a wide network of stakeholders, which, in turn, renders corporate social media a potentially useful channel of disclosure. While we document that corporate social media, on average, attenuates the negative price reaction to recall announcements, the attenuation benefits of corporate social media vary with the level of control the firm has over its social media content. In particular, with the arrival of Facebook and Twitter, firms relinquished complete control over their social media content, and the attenuation benefits of corporate social media, while still significant, lessened. Detailed Twitter analysis confirms that the moderating effect of social media varies with the level of firm involvement and with the amount of control exerted by other users: the negative price reaction to a recall is attenuated by the frequency of tweets by the firm, while exacerbated by the frequency of tweets by other users.	2015	Governance
The Value Relevance of Firms' Integral Environmental Performance: Evidence from Russia Author: Middleton, Alexandra Journal: Journal of Accounting and Public Policy We examine the value relevance of environmental disclosures using a unique firms' integral environmental performance (IEP) measure in Russia. IEP is constructed based on data provided by the Russian Independent Ecological Rating Agency (NERA). The specific exposures of Russian companies to environmental liabilities and the IEP generate unique insight into the environmental accounting research. Using price (market to book ratio) model, we demonstrate that the coefficient on IEP is positive and significant (marginally significant), suggesting that environmental performance measures are value relevant to investors in Russia.	2015	Environmental
Numerical Formats Within Risk Disclosures and the Moderating Effect of Investors' Concerns About Management Discretion Author: Nelson, Mark W., and Kathy K. Rupar Journal: The Accounting Review We report the results of two experiments that provide evidence that investors' risk judgments are affected by the numerical format used to describe outcomes within accounting disclosures. Consistent with prior research in psychology, investors assess higher risk in response to dollar-formatted disclosures than to equivalent percentage- formatted disclosures. Consistent with the Persuasion Knowledge Model (Friestad and Wright 1994), this effect is moderated when investors have both (1) awareness that management has discretion over format, and (2) sufficient cognitive capacity to consider its implications. Our results provide insight about the effects of current disclosure formats and suggest implications for managers who choose formats, investors who interpret formatted information, and regulators who consider whether to further prescribe the formats that are used in financial disclosures.	2015	Governance
Bonus Payments and Reference Point Violations Author: Ockenfels, Axel, Dirk Sliwka, and Peter Werner Journal: Management Science We investigate how bonus payments affect the satisfaction and performance of managers in a large multinational company. We find that falling behind a natural reference standard for a fair bonus payment (a "reference point violation") reduces satisfaction and subsequent performance. The effects are mitigated if information about one's relative standing toward the reference point is withheld. A model and a laboratory experiment provide complementary insights and additional robustness checks.	2015	Governance
More than Money: Exploring the Role of Investment Advisors for Sustainable Investing Author: Paetzold, Falko, Timo Busch, and Marc Chesney Journal: Annals in Social Responsibility Purpose: Investment advisors play a significant role in financial markets, yet the determinants of their behavior have not been explored in detail. The purpose of this paper is to explore the determinants of how actively advisors communicate about sustainable investing with their clients, and differences in the preferences of advisors compared to investors. Design/methodology/approach: Based on a survey with 296 retail and private banking investment advisors, this study employs an ordinary least squares regression model to explore the determinants of advisors activity in communicating about sustainable investing (SI) with their clients, differences in the aspects that matter to advisors and investors, and the role of the complexity of sustainability. Findings: Advisors activity in communicating about SI relates to their expectation of SI regarding financial return, real-world impact, and the fuzziness and trustworthiness of SI. Advisors appear not to be influenced by expected risk and their personal values, which runs against prior research findings and the interest of investors. Research limitations/implications: Future research should assess cultural differences and explore asymmetries between advisors and investors in regard to the role of volatility, values, impact measurement, and complexity. Practical implications: Investment advisors underweighting aspects related to risk and self-transcendent values relative to their clients might limit the suitability of clients' portfolios, skew capital allocation, and depress the role of SI in financial markets. Generalized to salespeople this behavior might depress the market success of products related to sustainability at large. Social implications: The findings and their generalization indicate that salespeople might systematically deviate from their clients' interests in regard to social responsibility. Advisors and salespeople in their mediating role might be an important barrier to sustainable development. Originality/value: This is the first quantitative study that explores the decision-making by investment advisors in the context of SI, and as such answers to specific calls in literature to explore the micro-foundations of decision making in regard to SI and social responsibility, and on the relationship between private investors and investment advisors. This study is based on unique and original empirical data on advisors that work with retail and wealthy private investors.	2015	Environmental, Social, Governance
Learning About CEO Ability and Stock Return Volatility Author: Pan, Yihui, Tracy Yue Wang, and Michael S. Weisbach Journal: Review of Financial Studies Consistent with predictions from a stylized Bayesian learning model stock return volatility declines with CEO tenure in a convex manner, even for CEOs whose appointments occur for exogenous reasons. The decline is faster when there is higher uncertainty about the CEO's ability when there is more transparency about the firm's prospects, and when CEO ability is more important in value creation. We quantify the importance of uncertainty about CEO ability relative to the firm's fundamental cash flow uncertainty in contributing to stock return volatility, highlighting the importance of management in creating value.	2015	Governance
Cleaning House: The Impact of Information Technology Monitoring on Employee Theft and Productivity Author: Pierce, Lamar, Daniel C. Snow, and Andrew McAfee Journal: Management Science This paper examines how firm investments in technology-based employee monitoring impact both misconduct and productivity. We use unique and detailed theft and sales data from 392 restaurant locations from five firms that adopt a theft monitoring information technology (IT) product. We use difference-in-differences models with staggered adoption dates to estimate the treatment effect of IT monitoring on theft and productivity. We find significant treatment effects in reduced theft and improved productivity that appear to be primarily driven by changed worker behavior rather than worker turnover. We examine four mechanisms that may drive this productivity result: economic and cognitive multitasking, fairness-based motivation, and perceived increases of general oversight. The observed productivity results represent substantial financial benefits to both firms and the legitimate tip-based earnings of workers. Our results suggest that employee misconduct is not solely a function of individual differences in ethics or morality, but can also be influenced by managerial policies that can benefit both firms and employees.	2015	Governance
Discussion of "Managers' Discretionary Adjustments: The Influence of Uncontrollable Events and Compensation Interdependence" Author: Rinsum, Marcel van Journal: Contemporary Accounting Research In this discussion of Bol, Hecht and Smith (this issue; BHS), I examine their theory and experimental setting with the purposes of investigating how their study generalizes and identifying further research possibilities. First, I discuss the uncontrollable events the study addresses, which are influenceable and require innovative effort to prevent adverse effects. What follows next is an analysis of experimental design choices and their implications. In particular, results could be specific to the manipulation of event likelihood, as well as to the properties of the objective bonus system and form of subjectivity. This illustrates how evaluation system design properties can create diverse reference points and affect perceived fairness and discretionary adjustments. Together, these points indicate wherein the contribution of BHS lies, and provide an outline for future research opportunities by suggesting alternative research choices.	2015	Governance
Does Brand Licensing Increase a Licensor's Shareholder Value? Author: Robinson, Adina Barbulescu, Kapil R. Tuli, and Ajay K. Kohli Journal: Management Science This study examines 171 brand licensing announcements and subsequent changes in the licensor firms' shareholder values using the event study method. We find that although brand licensing announcements lead to positive abnormal returns on average, nearly 44 percent of the announcements in our sample are followed by negative abnormal returns. We argue that investors react more favorably to a brand licensing announcement when they believe (i) the brand has greater ability to stimulate licensee product sales (and thus generate higher royalties for the licensor) and (ii) the licensor firm has greater ability to limit licensee opportunism (and thus limit brand dilution and its adverse effect on sales of other products marketed under the brand name). In line with our hypotheses related to a brand's ability to stimulate licensee product sales, the study's findings suggest that investors react more favorably to announcements involving brands with greater brand fit and greater brand breadth. However, investors appear to react less favorably to announcements involving brands with higher advertising investments. In line with our hypotheses related to a licensor firm's ability to limit licensee opportunism, the study's findings suggest that investors react more favorably to announcements involving larger licensors; however, investors' reactions do not appear to be influenced by licensor firms' licensing experience.	2015	Governance
Are Good-Looking People More Employable? Author: Ruffle, Bradley J., and Ze'ev Shtudiner Journal: Management Science We investigate the role of physical attractiveness in the hiring process. We sent 5,312 curricula vitae (CVs) in pairs to 2,656 advertised job openings. In each pair, one CV was without a picture, whereas the second, otherwise almost identical CV contained a picture of either an attractive male or female or a plain-looking male or female. Employer callbacks to attractive men are significantly higher than to men with no picture and to plain-looking men, nearly doubling the latter group. Strikingly, attractive women do not enjoy the same beauty premium. In fact, women with no picture have a significantly higher rate of callback than attractive or plain-looking women. We explore a number of explanations for this discrimination against attractive women and provide evidence that female jealousy and envy are likely reasons.	2015	Governance
Equity-Based Compensation of Outside Directors and Corporate Disclosure Quality Author: Sengupta, partha, and Suning Zhang Journal: Contemporary Accounting Research We examine the relationship between a firm's disclosure quality and equity-based compensation of independent members of the board of directors. The dimensions of disclosure quality we focus on are management's earnings guidance and information flow through financial analysts. Using both levels and changes specifications, we find the average ratio of equity-based pay to total pay of independent board members to be positively related to a firm's disclosure quality. Our findings are robust to the inclusion of management's equity-based compensation, other governance measures, and financial controls, and robust to instrumental variable tests of endogeneity. Furthermore, we find directors' equity-based compensation to be negatively associated with the firm's cost of equity capital. Our results are consistent with equity-based compensation providing incentives to independent directors to push for better disclosure quality.	2015	Governance
Integrated Reporting and Investors Clientele Author: Serafeim, George Journal: Journal of Applied Corporate Finance Integrated reporting (IR) is a relatively new phenomenon in the world of corporate reporting that has gained significant momentum in the last ten years. The International Integrated Reporting Council (IIRC) has defined IR as "a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation." Such integrated reports contain, along with traditional GAAP-based financial statements, considerable information about a company's environmental and social record as well as information related to intangibe assets in the form of social or intellectual capital, including data on variables such as employee turnover and satisfaction, product quality metrics, and water and energy consumption. But unlike the sustainability reports that most of the world's largest companies have been producing for a decade or more, the information provided by integrated reports is expected to be relevant and linked to long-run corporate profitability and value. In the words of the IIRC, an integrated report is expected to provide "a concise communication about how an organization's strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term." While more companies are practicing some form of IR and more investors are starting to use the reported data, we still have a very limited understanding of the effects of IR. In this article, I present the findings of my recent study that investigates the relation between IR and the composition of a company's investor base. More specifically, my study tested the hypothesis that companies that practice IR tend to attract long-term shareholders while possibly discouraging short-term shareholders and, as a result, create a more long-term oriented investor base. The main finding of my analysis is that companies that produce integrated reports show a clear tendency to have more long-term, "dedicated" holders and fewer transient investors. Moreover, through the use of firm-fixed effects and lead-lag analysis, my study provides evidence that suggests a causal relationship between the corporate practice of IR and an investor base with longer- term shareholders. In support of such a causal relationship, my study shows that the relation between IR and investor base is stronger for companies with high growth opportunities, with no (or very limited) ownership by the founding family, for "sin" companies (those subjected to strong social criticism), and for companies with a consistent IR practice.	2015	Environmental, Social, Governance
Carrot and Stick? The Role of Financial Market Intermediaries in Corporate Social Performance Author: Slager, Rieneke, and Wendy Chapple Journal: Business & Society This article examines the role of intermediaries in financial markets in fostering corporate sustainability. Responsible investment (RI) indices have been primarily identified as intermediaries that provide information regarding corporate social performance (CSP) for investors and other stakeholders. The authors argue that the role of these intermediaries is not confined solely to information provision, but they may also incentivize high levels of CSP through mechanisms such as exclusion threats, signaling, and engagement. The authors rely on unique access to the archives of the FTSE4Good Index to examine the effects of these mechanisms on CSP. The study shows that companies facing exclusion threats and signaling are more likely to comply with the intermediary's criteria, and medium levels of engagement leads to higher levels of CSP. The authors contribute to the study of sustainability in financial markets by explicating the mechanisms that intermediaries and other financial actors could employ to foster greater corporate sustainability.	2015	Environmental, Social, Governance
Does the Political Power of Non-Financial Stakeholders Affect Firm Values? Evidence from Labor unions Author: Stanfield, Jared R., and Robert Tumarkin Journal: Working paper While corporate political connections are known to enhance firm values, we demonstrate that union political activity can have the opposite effect. We examine the consequences of a recent state law in Australia that restricts union political activity, but does not change collective bargaining rights. In the wake of this law, the values of affected unionized firms significantly increase and, consistent with this market reaction, these firms are subsequently able to negotiate more favorable labor contracts than their unionized peers in other states. The evidence strongly suggests that unions use political activism to extract rents from corporations and benefit their members.	2015	Social
Corporate Governance 2.0 Author: Subramanian, Guhan Journal: Harvard Business Review The article cites several examples of questionable corporate governance including those involving retailer J. C. Penney, bank J. P. Morgan Chase & Co., and drug company Allergan, and discusses principles the author believes would lead to better governance. He maintains corporate boards should focus on long-term results, and to that end should no longer offer quarterly earnings guidance. He also considers how firms can improve the quality of board directors and provide shareholders with an outlet for expressing their views in an orderly manner.	2015	Governance
Climate change and Choosing Where to Invest Author: Sullivan, Paul Journal: The New York Times Climate change has finally gotten the attention of world leaders, who convened in Paris this week for a conference on how to combat global warming. But investors, it seems, continue to struggle with connecting their desire for a better planet with their need for investment returns — or even to understand how climate change could affect their portfolios. Even among those who say they are worried about the problems that climate change poses, few have acted.	2015	Environmental
Gender Differences in the Willingness to Compete Emerge Early in Life and Persist Author: Sutter, Matthias, and Daniela Glätzle-Rützler Journal: Management Science Gender differences in the willingness to compete have been identified as one important factor in explaining gender differences in labor markets and within organizations. We present three experiments with a total of 1,570 subjects, ages three to 18 years, to investigate the origins of this gender gap. In a between-subjects design we find that boys are more likely to compete than girls as early as kindergarten and that this gap prevails throughout adolescence. Re-examining the behavior of 316 subjects in a within-subjects design two years later, we show that these gender differences also largely persist over a longer time period and can thus be considered stable. Controlling for subjects' abilities in the different tasks, their risk attitudes, and expected performance, the gender gap in the willingness to compete is estimated in the range of 10-20 percentage points. We discuss the implications of our findings for policy interventions and organizational management.	2015	Social
The Bright Side of Corporate Diversification: Evidence from Internal Labor Markets Author: Tate, Geoffrey, and Liu Yang Journal: Review of Financial Studies We document differences in human-capital deployment between diversified and focused firms. We find that diversified firms have higher labor productivity and that they redeploy labor to industries with better prospects in response to changing opportunities. The opportunities and incentives provided in internal labor markets in turn affect the development of workers' human capital. We find that workers more frequently transition to other industries in which their diversified firms operate and with smaller wage losses compared with workers in the open market, even when they leave their original firms. Overall, internal labor markets provide a bright side to corporate diversification.	2015	Governance
Does Real-Time Reporting Deter Strategic Disclosures by Management? The Impact of Real-Time Reporting and Event Controllability on Disclosure Bunching Author: Tian, Xiaoli (Shaolee) Journal: The Accounting Review The SEC is moving toward requiring real-time reporting. Proponents have predicted that disclosing a news event immediately after it arises could reduce information aggregation and disclosure bunching. But evidence from the theoretical literature suggests that the effect depends on whether managers can time the underlying required reporting event. Managers, for example, can time regular poison pill adoptions, but have limited ability to time in-play pill adoptions. Thus, I test whether real-time reporting deters disclosure bunching around the disclosures of regular and in-play poison pill adoptions to examine whether managers' ability to time events affects whether real-time reporting deters strategic disclosure. I find that real-time reporting does not deter disclosure bunching for regular poison pills, but does deter it for in-play pills. These results suggest that real-time reporting will reduce disclosure bunching only if managers cannot time the underlying event.	2015	Governance
Did Financialization reduce Economic Growth? Author: Tomaskovic-Devey, Donald, Ken-Hou Lin, and Nathan Meyers Journal: Socio-Economic Review We explore the consequences of increased financial investment by non-financial firms, finding consistent evidence that financialization in the non-finance sector reduced economic growth in that sector. Employing an expanded conceptualization of value added which identifies internal (capital, labour) and external (creditors, government, charities) stakeholders with claims on the value generated in production and exchange, we find that the declining value added produced by financialization was born most strikingly by labour and the state, while increasing value was channelled to corporate debt and equity holders. Corporate charities also had a net gain associated with increased financial investments by the non-financial firms.	2015	Governance
Enhancing the Concept of Corporate Diplomacy: Encompassing Political Corporate Social Responsibility, International Relations, and Peace Through Commerce Author: Westermann-Behaylo, Michelle K., Kathleen Rehbein, and Timothy Fort Journal: Academy of Management Perspectives Corporate diplomacy is an emerging concept within the management literature. It describes corporate conduct in the international arena, particularly in challenging political and social environments. Management scholarship and practitioner literature have focused on the communication processes and instrumental benefits associated with corporate diplomacy, exploring and explaining how managers negotiate stakeholder relationships to achieve a firm's profit-oriented goals. We enrich the current understanding of corporate diplomacy by viewing it as an umbrella concept that encompasses scholarship from political corporate social responsibility, international relations, diplomacy, and peace studies. We also suggest that corporate diplomacy includes the political role that multinational enterprises play in addressing social issues and governance gaps affecting less developed and potentially conflict-prone host countries where they operate. Based on this approach, the concept of corporate diplomacy builds on the premise that multinationals have an expanded role and responsibilities in terms of global governance and that the practice of corporate diplomacy can play a role in resolving social or political conflicts, leading to wider societal benefits beyond corporate profits. To illustrate our concept of corporate diplomacy, we focus on the governance gaps addressed in the literature on peace through commerce, discussing instances where firms implement corporate diplomacy through peacemaking or peacebuilding to accomplish both private and public goals in conflict-prone regions. We conclude with the practical implications of corporate diplomacy as well as suggestions for research to further develop a richer understanding of corporate diplomacy.	2015	Governance
Asymmetric Learning Capabilities and Stock Market Returns Author: Yang, Haibin, Yanfeng Zheng, and Akbar Zaheer Journal: Academy of Management Journal Drawing on the alliance learning literature, we propose that a firm's relative capability to learn partner-specific know-how holds the key to understanding the learning race phenomenon and its performance consequences. Specifically, we argue that a firm with higher specific learning capability relative to its partner's will be rewarded with superior stock performance. We also contend that equity alliance governance and market similarity between partners moderate this relationship in opposite directions. Equity alliance governance motivates firms to suppress competitive learning and thus reduces the positive impact of the specific learning capability gap on abnormal stock returns, while market similarity between partners aggravates the learning race and strengthens the positive impact of the specific learning capability gap. Results of an event study of 610 R&D alliances in the U.S. computing and biopharmaceutical industries in the period 1984-2003 support our hypotheses. Our study contributes to a better understanding of the learning race, its contingencies, and its performance implications.	2015	Governance
Green Bonds Attract Private Sector Climate Finance Author: The World Bank Journal: Report: The World Bank Green bonds are fixed income, liquid financial instruments that are used to raise funds dedicated to climate-mitigation, adaptation, and other environment-friendly projects. Since 2008, the World Bank has issued about $8.5 billion in green bonds in 18 currencies, and the International Finance Corporation has issued $3.7 billion in green bonds. The World Bank and IFC have helped pioneer the green bond market and raise awareness about the opportunities in climate-friendly investment.	2015	Environmental
The Great Decoupling Author: Amy Bernstein and Anand Raman Journal: Harvard Business Review Today's digital innovations are doing for brainpower what the steam engine, and related, technologies did for muscle power during the Industrial Revolution. They're allowing us to rapidly overcome limitations and open up new frontiers, say Erik Brynjolfsson and Andrew McAfee, who have studied the impact of technologies on economies for years. The two MIT professors believe this transformation will create abundance. But they warn that there may be a dark side: Though the pie will get bigger, not everyone will benefit equally. As computers get more powerful, companies have less need for some kinds of workers. That shift is contributing to a phenomenon the two academics call the Great Decoupling: For decades, per capita GDP, productivity, private employment, and median family income rose in almost perfect lockstep. But in the 1980s, growth in income began to sputter and then began to drop. Adjusting for inflation, the median U.S. household today earns less than the median in 1998 did. Job growth has also slowed. Similar trends are emerging in most developed countries. In this interview, Brynjolfsson and McAfee explore the implications: who will win (workers with tech and creative skills), who will lose (the middle class), and how business should respond to the coming tech surge (develop ways to race with machines, not against them).	2015	Social
Who Writes the News? Corporate Press Releases During Merger Negotiations Author: Ahern, Kenneth R., and Denis Sosyura Journal: Journal of Finance Firms have an incentive to manage media coverage to influence their stock prices during important corporate events. Using comprehensive data on media coverage and merger negotiations, we find that bidders in stock mergers originate substantially more news stories after the start of merger negotiations, but before the public announcement. This strategy generates a short-lived run-up in bidders' stock prices during the period when the stock exchange ratio is determined, which substantially impacts the takeover price. Our results demonstrate that the timing and content of financial media coverage may be biased by firms seeking to manipulate their stock price.	2014	Governance
Optimal Hiring and Retention Policies for Heterogeneous Workers Who Learn Author: Arlotto, Alessandro, Stephen E. Chick, and Noah Gans Journal: Management Science We study the hiring and retention of heterogeneous workers who learn over time. We show that the problem can be analyzed as an infinite-armed bandit with switching costs, and we apply results from Bergemann and Välimäki [Bergemann D, Välimäki J (2001) Stationary multi-choice bandit problems. J. Econom. Dynam. Control 25(10):1585-1594] to characterize the optimal hiring and retention policy. For problems with Gaussian data, we develop approximations that allow the efficient implementation of the optimal policy and the evaluation of its performance. Our numerical examples demonstrate that the value of active monitoring and screening of employees can be substantial.	2014	Governance
Do Independent Directors Cause Improvements in Firm Transparency? Author: Armstrong, Christopher S., John E. Core, and Wayne R. Guay Journal: Journal of Financial Economics Although recent research documents a positive relation between corporate transparency and the proportion of independent directors, the direction of causality is unclear. We examine a regulatory shock that substantially increased board independence for some firms, and find that information asymmetry, and to some extent management disclosure and financial intermediation, changed at firms affected by this shock. We also examine whether these effects vary as a function of management entrenchment, information processing costs, and required changes to audit committee independence. Our results suggest that firms can alter their corporate transparency to suit the informational demands of a particular board structure.	2014	Governance
Forward-Looking Voluntary Disclosure in Proxy Contests Author: Baginski, Stephen P., Sarah B. Clinton, and Sean T. Mcguire Journal: Contemporary Accounting Research When discussing the forces that shape managers' disclosure decisions, Healy and Palepu (2001) state boards of directors and investors hold managers accountable for current stock performance. They argue that this evidence motivates a corporate control contest hypothesis — "given the risk of job loss accompanying poor stock and earnings performance, managers use corporate disclosures to reduce the likelihood of undervaluation and to explain away poor earnings performance" (421). However, they note there is limited evidence to support the corporate control hypothesis and call for research that investigates the influence of managers' career concerns on their diclosure policies. Our objective is to provide unique empirical evidence to address this void in our understanding of voluntary disclosure behavior. We provide empirical evidence on whether proxy contests are associated with changes in managers' forward-looking voluntary disclosure practices.	2014	Governance
Environmental Risk and Buyer-Supplier Relationships Author: Banerjee, Shantanu, Simba Chang, Kangkang Fu, and George Wong Journal: Working paper We provide empirical evidence on the adverse effects of supplier firms' environmental risk exposure on their relationship with principal customers. We document that supplier firms with high environmental risk are less likely to have principal customers. From principal customers' perspective, a higher level of environmental risk lowers a supplier firm's probability of being chosen relative to its industry peers by its potential customer. Conditional on an ongoing relationship with principal customers, supplier firms with high environmental risk have lower sales to principal customers and shorter relationship durations. These results are more pronounced when customers' environmental risk is low. Collectively, our findings suggest an important channel through which firms can benefit from being environmentally responsible.	2014	Environmental
Information Asymmetry and the Ex Ante Impact of Public Disclosure Quality on Price Efficiency and the Cost of Capital: Evidence from a Laboratory market Author: Barron, Orie E., and Hong Qu Journal: The Accounting Review This paper examines the ex ante effects of public information quality on market prices and how such effects vary with information asymmetry among traders in a two-period experimental market. We vary public information quality by changing its precision and information asymmetry among traders by varying the distribution of private signals. We find high-quality public disclosure leads to increased price efficiency and decreased cost of capital in the pre-announcement period when information asymmetry is high. The impending high-quality public information increases the competition among informed traders, which leads prices to impound more private information and alleviates the adverse selection problems facing uninformed traders. Our study suggests building a high-quality public information environment (e.g., by adopting high-quality accounting standards or committing to transparent disclosure policies) would likely provide ex ante benefits for firms with significant adverse selection among traders.	2014	Governance
Focusing Capital on the Long Term Author: Barton, Dominic, and Mark Wiseman Journal: Harvard Business Review Since the financial crisis of 2008, there has been widespread agreement on the need for public companies to build value for the long term. Nonetheless, because of pressure from financial markets, a detrimental focus on short-term performance persists. Reversing this trend, the authors say, depends on the leadership of major asset owners such as pension funds, insurance firms, and mutual funds. They should act by taking four practical, proven steps: Define long-term objectives and risk appetite, and invest accordingly. Major asset owners should set a multiyear time frame for creating value, decide how much underperformance they can tolerate in the short term, and then align their investments with this agenda. Practice engagement and active ownership. Big investors should cultivate ongoing relationships with the companies they invest in, collaborating with management to optimize corporate strategy and governance. Demand long-term metrics from companies to improve investment decision making. Rather than focusing on quarterly financial statements, investors should seek to obtain and analyze data that indicate a company's long-term health. Structure institutional governance to support a long-term approach. Big investors must have competent board members committed to investing for the long term, as well as policies and mechanisms to translate this philosophy into action.	2014	Governance
Signaling in Secret: Pay for Performance and the Incentive and Sorting Effects of Pay Secrecy Author: Belogolovsky, Elena, and Peter A. Bamberger Journal: Academy of Management Journal Although the vast majority of U.S. firms follow a policy of pay secrecy, research provides a limited understanding of its overall utility to organizations. Building on signaling theory, we develop and test a model of the incentive and sorting effects of pay secrecy — a pay communication policy that limits employees' access to pay-related information and discourages the discussion of pay issues — under varying pay-for-performance (PFP) system characteristics. Results of a multiround laboratory simulation largely support the proposed moderated-mediation model. They indicate that pay secrecy has an adverse impact on individual task performance that is mediated by PFP perceptions, amplified when pay determination criteria are relative (as opposed to absolute), and attenuated when performance assessment is objective (as opposed to subjective). Results also indicate that pay secrecy has a similar adverse effect on participant continuation intentions (mediated through PFP perceptions, amplified when pay determination criteria are relative, and attenuated when performance assessment is objective), particularly among high performers. These findings suggest that weak signals associated with a particular managerial practice may become salient when interpreted in the context of other practice-based signals and that, under such conditions, even weak signals may drive negative-oriented inferences, having important behavioral implications.	2014	Governance
Spotlight on Age-Diversity Climate: The Impact of Age-Inclusive HR Practices on Firm-Level Outcomes Author: Boehm, Stephan A., Florian Kunze, and Keike Bruch Journal: Personnel Psychology This study investigates the emergence and the performance effects of an age-diversity climate at the organizational level of analysis. Building upon Kopelman and colleagues' climate model of firm productivity as well as Cox's interactional model of cultural diversity, we hypothesize a positive influence of age-inclusive HR practices on the development of an organization-wide age-diversity climate, which in turn should be directly related to collective perceptions of social exchange and indirectly to firm performance and employees' collective turnover intentions. The assumed relationships are tested in a sample of 93 German small and medium-sized companies with 14,260 employees participating. To circumvent common source problems, information for the various constructs was gathered from 6 different sources. To test our assumed relationships, we applied structural equation modeling and executed bootstrapping procedures to test the significance of the indirect effects. We received support for all assumed relationships. The paper concludes with practical recommendations on how to establish and make use of a positive age-diversity climate.	2014	Social
CEO Ideology As an Element of the Corporate Opportunity Structure for Social Activists Author: Briscoe, Forrest, M. K. chin, and Donald C. Hambrick Journal: Academy of Management Journal In an effort to comprehend activism toward corporations, scholars have proposed the concept of corporate opportunity structure, or the attributes of individual firms that make them more (or less) attractive as activist targets. We theorize that the personal values of the firm's elite decision makers constitute a key element of this corporate opportunity structure. We specifically consider the political ideology — conservatism versus liberalism — of the company's CEO as a signal for employees who are considering the merits of engaging in activism. To test of our theory, we examine the formation of lesbian, gay, bisexual, and transgender employee groups in major companies in the period 1985-2004, when the formation of such groups was generally perceived to be risky for participants. Using CEOs' records of political donations to measure their personal ideologies, we find strong evidence that the political liberalism of CEOs influences the likelihood of activism. We also find that CEOs' ideologies influence activism more strongly when CEOs are more powerful, when they oversee more conservative (i.e., less liberal) workplaces, and when the social movement is in the early phase of development. We identify theoretical and practical implications, as well as future research opportunities.	2014	Social
With or Without You: When Does managerial Exit Matter for the Dissolution of Dyadic Market Ties? Author: Broschak, Joseph P., and Emily S. Block Journal: Academy of Management Journal This paper investigates the relationship between managerial exit from advertising agencies and advertisers and the dissolution of dyadic market ties. We examine how the amount and locus (advertiser vs. agency) of managerial exit and the hierarchical level from which exit occurs (executives vs. exchange managers) influence the likelihood that dyadic market ties will dissolve. We theorize that managerial exit disrupts dyadic market ties through its effect on three mechanisms of social capital: investments in relationship-specific assets; formal control over market ties; and the intensity of interaction with exchange partners. We consider how market tie fragility, the financial performance of advertisers, and the duration of market ties condition the effects of managerial exit on market tie dissolution. In short, we theorize about which managerial roles matter more to market tie dissolution, why they matter and when they matter. Using longitudinal data on 232 dyadic ties between advertisers and New York City advertising agencies, we find that the number of executives and exchange managers who exit on both sides of market ties affects tie dissolution. However, these effects are neither symmetrical between exchange partners nor uniform across the hierarchical levels from which exit occurs, and vary with the strength of market ties.	2014	Governance
Advantageous Comparison and Rationalization of Earnings Management Author: Brown, Timothy J. Journal: Journal of Accounting Research This paper proposes that psychological factors can change managers' beliefs about earnings management when they choose to engage in it. I show that, under certain circumstances, engaging in a small amount of earnings management alters a manager's beliefs about the appropriateness of the act, which may increase the likelihood of further earnings management. Specifically, I predict and find in two experiments that participants who initially choose to manage earnings are motivated to rationalize their behavior. Participants who are exposed to an egregious example of earnings management (commonly the focus of enforcement actions and press reports) have the opportunity to rationalize their behavior through a mechanism called "advantageous comparison," where participants compare their behavior against the egregious example and conclude that what they did was relatively innocuous and appropriate. My analysis also indicates that presenting participants with an example of earnings management that is similar to the initial decision they made mitigates advantageous comparison. These results have implications for academics interested in how earnings management, and perhaps fraud, can accrete over time and for regulators and practitioners who are interested in preventing it.	2014	Governance
The Real impact of Improved Access to Finance: Evidence from Mexico Author: Bruhn, Miriam, and Inessa Love Journal: Journal of Finance This paper provides new evidence on the impact of access to finance on poverty. It highlights an important channel through which access affects poverty — the labor market. The paper exploits the opening of Banco Azteca in Mexico, a unique "natural experiment" in which over 800 bank branches opened almost simultaneously in preexisting Elektra stores. Importantly, the bank has focused on previously underserved low-income clients. Our key finding is a sizeable effect of access to finance on labor market activity and income levels, especially among low-income individuals and those located in areas with lower preexisting bank penetration.	2014	Social
Retail store Density and the Cost of Greenhouse Gas Emissions Author: Cachon, Gérard P. Journal: Management Science The density, size, and location of stores in a retailer's network influences both the retailer's and the consumers' costs. With stores few and far between, consumers must travel a long distance to shop, whereas shopping trips are shorter with a dense network of stores. The layout of the retail supply chain is of interest to retailers who have emission reduction targets and urban planners concerned with sprawl. Are small local shops preferred over large, "big-box" retailers? A model of the retail supply chain is presented that includes operating costs (such as fuel and rent for floor space) as well as a cost for environmental externalities associated with carbon emissions. A focus on exclusively minimizing operating costs may substantially increase emissions (by 67 percent in one scenario) relative to the minimum level of emissions. A price on carbon is an ineffective mechanism for reducing emissions. The most attractive option is to improve consumer fuel efficiency — doubling the fuel efficiency of cars reduces long-run emissions by about one-third, whereas an improvement in truck fuel efficiency has a marginal impact on total emissions.	2014	Environmental
The Information Content of Mandatory Risk Factor Disclosures in Corporate Filings Author: Campbell, John L., Hsinchun Chen, Dan S. Dhaliwal, Hsin-min Lu, and Logan B. Steele Journal: Review of Accounting Studies Beginning in 2005, the Securities and Exchange Commission (SEC) mandated firms to include a "risk factor" section in their Form 10-K to discuss "the most significant factors that make the company speculative or risky." In this study, we examine the information content of this newly created section and offer two main results. First, we find that firms facing greater risk disclose more risk factors, and that the type of risk the firm faces determines whether it devotes a greater portion of its disclosures towards describing that risk type. That is, managers provide risk factor disclosures that meaningfully reflect the risks they face. Second, we find that the information conveyed by risk factor disclosures is reflected in systematic risk, idiosyncratic risk, information asymmetry, and firm value. Overall, our evidence supports the SEC's decision to mandate risk factor disclosures, as the disclosures appear to be firm-specific and useful to investors.	2014	Governance
Accounting and Litigation Risk: Evidence from Directors' and Officers' Insurance Pricing Author: Cao, Zhiyan, and Ganapathi S. Narayanamoorthy Journal: Review of Accounting Studies We study whether and how financial reporting concerns are priced by insurers that sell Directors' and Officers' (D&O) insurance to public firms. As D&O insurers typically assume the liabilities arising from shareholder litigation, the premiums they charge for D&O coverage reflect their assessment of a company's litigation risk. Using a sample of public firms in the 2001-2004 Tillinghast D&O insurance surveys, we document that firms with lower earnings quality or prior accounting restatements pay higher premiums after controlling for other factors impacting litigation risk. In addition, insurers' concerns about financial reporting are most evident for firms with restatements that are not revenue or expense related, are greater in the period following the passage of the Sarbanes-Oxley Act of 2002, and are greater for firms with financial reporting problems that linger. Our results are consistent with past restatements being viewed as evidence of chronic problems with a firm's financial statements. By analyzing archival data, we can also quantify the effects of other determinants of D&O premiums (such as business risk, corporate governance, etc.) identified by Baker and Griffith (Univ Chic Law Rev 74(2):487-544, 2007a) through interviews regarding the D&O underwriting process.	2014	Governance
Investment performance of 'Environmentally-Friendly' Firms and their Initial Public Offers and Seasoned Equity Offers Author: Chan, Pak To, and Terry Walter Journal: Journal of Banking & Finance We employ a sample of 748 environmentally-friendly (or "green") firms listed on U.S. stock exchanges to extend studies of the effects of socially responsible investment (SRI) on stock investment returns and the performance of initial public offerings (IPOs) and seasoned equity offerings (SEOs). Our empirical tests document positive and statistically significant excess returns for our environmentally-friendly firms and their IPOs and SEOs, in contrast to our control IPO and SEO samples which underperform. In summary, a "green" equity premium is evident in returns calculated from a variety of benchmarks.	2014	Environmental, Social, Governance
The Dark Side of Competition for Status Author: Charness, Gary, David Masclet, and Marie Claire Villeval Journal: Management Science Unethical behavior within organizations is not rare. We investigate experimentally the role of status-seeking behavior in sabotage and cheating activities aiming at improving one's performance ranking in a flat-wage environment. We find that average effort is higher when individuals are informed about their relative performance. However, ranking feedback also favors disreputable behavior. Some individuals do not hesitate to incur a cost to improve their rank by sabotaging others' work or by increasing artificially their own performance. Introducing sabotage opportunities has a strong detrimental effect on performance. Therefore, ranking incentives should be used with care. Inducing group identity discourages sabotage among peers but increases in-group rivalry.	2014	Governance
Changes in Cash: Persistence and Pricing Implications Author: Chen, Jeff Zeyun, and Philip B. Shane Journal: Journal of Accounting Research This paper decomposes the cash component of earnings and analyzes persistence characteristics and pricing implications of various subcomponents, with particular attention to changes in cash. Changes in underlying fundamentals might dictate changes in cash to new optimal levels. Alternatively, suboptimal changes in cash might result from agency costs allowing managers' actions to diverge from the best interests of shareholders. We predict and find that both suboptimal increases and decreases in cash bode poorly for future earnings. In fact, we find that suboptimal increases (decreases) in cash have less (greater) persistence than any of the earnings components we study, including accruals and net distributions to both shareholders and debt holders. Market efficiency tests indicate that the market severely punishes firms with suboptimal decreases in cash, but we find no evidence to support the hubris hypothesis that the market overreacts to the earnings implications of unwarranted increases in cash.	2014	Governance
Ethnic Diversity and Firm Financial Performance: Evidence From Malaysia Author: Cheong, Calvin W. H., and Jothee Sinnakkannu Journal: Journal of Asia-Pacific Business The authors investigate the relationship between board ethnic diversity, ethnicity and market, and book measures of firm financial performance using Malaysian data. This represents a departure from prior studies that focused on White countries whose people remain culturally indistinct. Ethnic diversity is measured by the Herfindahl-Hirschman Index; ethnicity is the largest representation of a single race. Controlling for firm- and board-specific attributes, the authors find a significant positive relationship between ethnic diversity and firm financial performance and that financial performance of companies differ between ethnicities. The results suggest that despite modernization and homogenization, corporate Malaysia is still divided along racial lines.	2014	Social
Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility Author: Chetty, Raj, Nathaniel hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner Journal: American Economic Review We present new evidence on trends in intergenerational mobility in the U.S. using administrative earnings records. We find that percentile rank-based measures of intergenerational mobility have remained extremely stable for the 1971-1993 birth cohorts. For children born between 1971 and 1986, we measure intergenerational mobility based on the correlation between parent and child income percentile ranks. For more recent cohorts, we measure mobility as the correlation between a child's probability of attending college and her parents' income rank. We also calculate transition probabilities, such as a child's chances of reaching the top quintile of the income distribution starting from the bottom quintile. Based on all of these measures, we find that children entering the labor market today have the same chances of moving up in the income distribution (relative to their parents) as children born in the 1970s. However, because inequality has risen, the consequences of the "birth lottery" — the parents to whom a child is born — are larger today than in the past.	2014	Social
Information Acquisition and Opportunistic Behavior in Managerial Reporting Author: Church, Bryan K., R. Lynn Hannan, and Xi (Jason) Kuang Journal: Contemporary Accounting Research This study investigates whether discretion in information acquisition affects managerial reporting, enabling opportunistic self-interested behavior, which may erode firm value. Information acquisition, including gathering, screening, and editing information, is an important aspect of the functioning of accounting systems. Organizations often delegate responsibility for information acquisition to local managers because, in today's industrialized environments, the effective acquisition of important information requires specialized knowledge and expertise of the local manager. Such delegation also allows the manager to participate in the development and implementation of information systems, which may increase the manager's satisfaction and perceptions of procedural justice. While there are benefits to discretion, we investigate a potential cost, specifically whether allowing managerial discretion results in more opportunistic reporting by managers.	2014	Governance
Measuring the Effect of Government ESG Performance on Sovereign Borrowing Cost Author: Crifo, Patricia, Marc-Arthur Diaye, and Rim Oueghlissi Journal: Working paper This article examines whether the extra-financial performance of countries on environmental, social and governance (ESG) factors matter for sovereign bonds markets. We propose an econometric analysis of the relationship between ESG performances and government bond spreads of 23 OECD countries over the 2007-2012 period. Our results reveal that ESG ratings significantly decrease government bond spreads and this finding is robust for a wide range of model setups. We also find that the impact of ESG ratings on the cost of sovereign borrowing is more pronounced in bonds of shorter maturities. Finally, we show that extra-financial performance plays an important role in assessing risk in the financial system. In particular, the informational content of ESG ratings goes beyond the set of quantitative variables traditionally used as determinant of a country's extra-financial rating such as CO2 emissions, the share of protected areas, social expenditure and health expenditure per GDP, or the quality of institutions, and offers an additional evaluation of governments' ESG performance that matters for government bond spreads.	2014	Environmental, Social, Governance
CEO Career Variety: Effects on Firm-Level Strategic and Social Novelty Author: Crossland, Craig, Jinyong Zyung, Nathan J. Hiller, and Donald C. Hambrick Journal: Academy of Management Journal We introduce the concept of "CEO career variety" — defined as the array of distinct professional and institutional experiences an executive has had prior to becoming CEO. Using a longitudinal sample of Fortune 250 CEOs, we hypothesize, and find strong evidence for the assertion, that "CEO career variety" is positively associated with firm-level strategic novelty — manifested in strategic dynamism (period-on-period change) and strategic distinctiveness (deviance from industry central tendencies). We also find mixed evidence that "CEO career variety" is positively associated with social novelty — manifested in top management team turnover and heterogeneity.	2014	Governance
Private Equity, Jobs, and Productivity Author: Davis, Steven J., John C. Haltiwanger, Kyle handley, Ron S. Jarmin, Josh Lerner, and Javier Miranda Journal: American Economic Review Private equity critics claim that leveraged buyouts bring huge job losses and few gains in operating performance. To evaluate these claims, we construct and analyze a new dataset that covers US buyouts from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing to controls defined by industry, size, age, and prior growth. Buyouts lead to modest net job losses but large increases in gross job creation and destruction. Buyouts also bring TFP gains at target firms, mainly through accelerated exit of less productive establishments and greater entry of highly productive ones.	2014	Governance
Portfolio Concentration and Firm Performance Author: Ekholm, Anders, and Benjamin Maury Journal: Journal of Financial and Quantitative Analysis This paper investigates the relation between shareholders' portfolio concentration and firm performance. Using data on more than 1.3 million unique shareholders, we create an index that measures how concentrated shareholder portfolios are in each firm. We posit that portfolio concentration will affect incentives when shareholders are resource constrained. We find that average shareholder portfolio concentration is positively related to future operational performance and valuation. We also find that portfolio concentration is positively correlated with abnormal stock returns. Our findings suggest that shareholders with concentrated portfolios are more informed and play a governance role through the stock market.	2014	Governance
The Effect of Performance-Based Incentive Contracts on System 1 and System 2 Processing in Affective Decision Contexts: fMRI and Behavioral Evidence Author: Farrell, Anne M., Joshua O. Goh, and Brian J. White Journal: The Accounting Review Managers may rely on emotional reactions to a setting to the detriment of economic considerations ("System 1 processing"), resulting in decisions that are costly for firms. While economic theory prescribes performance-based incentives to align goals and induce effort, psychology theory suggests that the salience of emotions is difficult to overcome without also inducing more deliberate consideration of both emotional and economic factors ("System 2 processing"). We link these perspectives by investigating whether performance-based incentives mitigate the costly influence of emotion by inducing more System 2 processing. Using functional magnetic resonance imaging and traditional experiments, we investigate managers' brain activity and choices under fixed wage and performance-based contracts. Under both, brain regions associated with "System 1 processing" are more active when emotion is present. Relative to fixed wage contracts, performance-based contracts induce System 2 processing in emotional contexts beyond that observed absent emotion, and decrease the proportion of economically costly choices.	2014	Governance
Financial Literacy, Financial Education, and Downstream Financial Behaviors Author: Fernandes, Daniel, John G. Lynch Jr, and Richard G. Netemeyer Journal: Management Science Policy makers have embraced financial education as a necessary antidote to the increasing complexity of consumers' financial decisions over the last generation. We conduct a meta-analysis of the relationship of financial literacy and of financial education to financial behaviors in 168 papers covering 201 prior studies. We find that interventions to improve financial literacy explain only 0.1 percent of the variance in financial behaviors studied, with weaker effects in low-income samples. Like other education, financial education decays over time; even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention. Correlational studies that measure financial literacy find stronger associations with financial behaviors. We conduct three empirical studies, and we find that the partial effects of financial literacy diminish dramatically when one controls for psychological traits that have been omitted in prior research or when one uses an instrument for financial literacy to control for omitted variables. Financial education as studied to date has serious limitations that have been masked by the apparently larger effects in correlational studies. We envisage a reduced role for financial education that is not elaborated or acted upon soon afterward. We suggest a real but narrower role for "just-in-time" financial education tied to specific behaviors it intends to help. We conclude with a discussion of the characteristics of behaviors that might affect the policy maker's mix of financial education, choice architecture, and regulation as tools to help consumer financial behavior.	2014	Governance
Making the Most of Where You Are: Geography, Networks, and Innovation in Organizations Author: Funk, Russell J. Journal: Academy of Management Journal Drawing on insights from macro- and microlevel research, I develop and test a theory of how the makeup of firms' local environments influences their ability to generate innovations. I propose that although geographic proximity to industry peers can enhance performance, such effects are moderated by intraorganizational network structures. Data on collaborations among inventors and the geographic locations of 454 US companies active in nanotechnology R&D between 1990 and 2004 are used to show that as proximity to industry peers decreases — and knowledge spillovers become less common — inefficient networks are beneficial because they create and sustain diversity internally. For firms with high proximity, more cohesive network structures that facilitate information processing are desirable.	2014	Governance
CEO Pay and Firm Size: An Update After the Crisis Author: Gabaix, Xavier, Augustin Landier, and Julien Sauvagnat Journal: Economic Journal In the 'size of stakes' view quantitatively formalised in Gabaix and Landier (Quarterly Journal of Economics, 121(1):49-100, 2008), CEO compensation reflects the size of firms affected by talent in a competitive market. The years 2004-11 were not part of the initial study and offer a laboratory to examine the theory with new positive and negative shocks. Executive compensation (measured ex ante) did closely track the evolution of average firm value, supporting the 'size of stakes' view out of sample. During 2007-9, firm value decreased by 17 percent, and CEO pay by 28 percent. During 2009-11, firm value increased by 19 percent and CEO pay by 22 percent.	2014	Governance
Hedge Fund Activists: Do They Take Cues from Institutional Exit? Author: Gantchev, Nickolay, and Chotibhak jotikasthira Journal: Working paper This paper investigates the role of institutional trading in the emergence of hedge fund activism — an important corporate governance device. We find that institutional selling volume raises a firm's probability of becoming an activist target. Institutional sales appear to accelerate the timing of a campaign at firms whose potential benefits from monitoring have already been recognized by activists rather than bring attention to firms that are outside the activists' radar screen. Further, we study the hedge funds' accumulation of target shares at the daily frequency and find that: (i) institutional selling volume increases hedge fund buying volume, and (ii) this effect is significantly stronger for firms with lower expected benefits from activism. For identification, we exploit each individual institution's funding circumstances as an exogenous determinant of institutional trading volume. Taken together, our results provide empirical support to theoretical predictions that expected gains from trading with uninformed investors supplement expected gains from monitoring in determining the activist's targeting decision.	2014	Governance
A Grand Gender Convergence: Its Last Chapter Author: Goldin, Claudia Journal: American Economic Review The converging roles of men and women are among the grandest advances in society and the economy in the last century. These aspects of the grand gender convergence are figurative chapters in a history of gender roles. But what must the "last" chapter contain for there to be equality in the labor market? The answer may come as a surprise. The solution does not (necessarily) have to involve government intervention and it need not make men more responsible in the home (although that wouldn't hurt). But it must involve changes in the labor market, especially how jobs are structured and remunerated to enhance temporal flexibility. The gender gap in pay would be considerably reduced and might vanish altogether if firms did not have an incentive to disproportionately reward individuals who labored long hours and worked particular hours. Such change has taken off in various sectors, such as technology, science, and health, but is less apparent in the corporate, financial, and legal worlds.	2014	Governance
The Washing Machine: Investment Strategies and Corporate Behavior With Socially Responsible Investors Author: Gollier, Christian, and Sébastien Pouget Journal: Working paper This paper studies shareholder engagement in companies' strategic decisions. Differences of objective among shareholders arise in our model due to the presence of socially responsible investors. These investors take externalities into account when valuing their portfolio while conventional investors do not. Shareholders may affect corporate behavior via two mechanisms. They can vote with their feet: responsible investors may shy away from firms producing negative externalities, thereby raising their cost of capital. Investors can also engage in activism. Our main contribution is to show that a large activist investor can generate positive abnormal returns by investing in non-responsible companies and turning them into responsible. We call this strategy the "Washing Machine" and show that its successful implementation relies on a long-term horizon and a credible pro-social orientation.	2014	Environmental, Social, Governance
Optimal Taxes on Fossil Fuel in General Equilibrium Author: Golosov, Mikhail, John Hassler, Per Krusell, and Aleh Tsyvinski Journal: Econometrica We analyze a dynamic stochastic general-equilibrium (DSGE) model with an externality — through climate change — from using fossil energy. Our central result is a simple formula for the marginal externality damage of emissions (or, equivalently, for the optimal carbon tax). This formula, which holds under quite plausible assumptions, reveals that the damage is proportional to current GDP, with the proportion depending only on three factors: (i) discounting, (ii) the expected damage elasticity (how many percent of the output flow is lost from an extra unit of carbon in the atmosphere), and (iii) the structure of carbon depreciation in the atmosphere. Thus, the stochastic values of future output, consumption, and the atmospheric CO2 concentration, as well as the paths of technology (whether endogenous or exogenous) and population, and so on, all disappear from the formula. We find that the optimal tax should be a bit higher than the median, or most well-known, estimates in the literature. We also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change. We find coal — rather than oil — to be the main threat to economic welfare, largely due to its abundance. We also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress.	2014	Environmental
Strategic Ignorance and the Robustness of Social Preferences Author: Grossman, Zachary Journal: Management Science Participants in dictator games frequently avoid learning whether their choice to maximize their own earnings will help or hurt the recipient and then choose selfishly, exploiting the "moral wiggle room" provided by their ignorance. However, this is found in an environment in which the dictator must actively learn the true payoffs, so inaction means ignorance. Does this effect persist when one must actively choose either to be ignorant or to be informed or when one must actively choose to remain ignorant? In fact, whereas 45 percent of dictators remain ignorant when one must click to become informed, this drops to 25 percent when one must click in either case and to 3 percent when one must click to remain ignorant. Although the exploitation of "moral wiggle room" is not merely an artifact, it is, much like social behavior itself, subject to environmental and psychological factors that may reinforce or undermine its impact.	2014	Governance
Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management Author: Guadalupe, Maria, Hongyi Li, and Julie Wulf Journal: Management Science Top management structures in large U.S. firms have changed significantly since the mid-1980s. The size of the executive team — the group of managers reporting directly to the CEO — doubled during this period. This growth was driven primarily by an increase in functional managers rather than general managers, a phenomenon we term "functional centralization." Using panel data on senior management positions, we show that changes in the structure of the executive team are tightly linked to changes in firm diversification and information technology investments. These relationships depend crucially on the function involved; those closer to the product ("product" functions, e.g., marketing and R&D) behave differently from functions further from the product ("administrative" functions, e.g., finance, law, and human resources). We argue that this distinction is driven by differences in the information-processing activities associated with each function and apply this insight to refine and extend existing theories of centralization. We also discuss the implications of our results for organizational forms beyond the executive team.	2014	Governance
Auditor Choice in Politically Connected Firms Author: Guedhami, Omrane, Jeffrey A. Pittman, and Walid Saffar Journal: Journal of Accounting Research We extend recent research on the links between political connections and financial reporting by examining the role of auditor choice. Our evidence that public firms with political connections are more likely to appoint a Big 4 auditor supports the intuition that insiders in these firms are eager to improve accounting transparency to convince outside investors that they refrain from exploiting their connections to divert corporate resources. In evidence consistent with another prediction, we find that this link is stronger for connected firms with ownership structures conducive to insiders seizing private benefits at the expense of minority investors. We also find that the relation between political connections and auditor choice is stronger for firms operating in countries with relatively poor institutional infrastructure, implying that tough external monitoring by Big 4 auditors becomes more valuable for preventing diversion in these situations. Finally, we report that connected firms with Big 4 auditors exhibit less earnings management and enjoy greater transparency, higher valuations, and cheaper equity financing.	2014	Governance
Nothing Succeeds Like Moderation: A Social Self-Regulation Perspective on Cultural Dissimilarity and Performance Author: Guillaume, Yves R. F., Daan van Knippenberg, and Felix C. Brodbeck Journal: Academy of Management Journal Addressing inconsistencies in relational demography research, we examine the relationship between cultural dissimilarity and individual performance through the lens of social self-regulation theory, which extends the social identity perspective in relational demography with the analysis of social self-regulation. We propose that social self-regulation in culturally diverse teams manifests itself as performance monitoring (i.e., individuals' actions to meet team performance standards and peer expectations). Contingent on the status associated with individuals' cultural background, performance monitoring is proposed to have a curvilinear relationship with individual performance and to mediate between cultural dissimilarity and performance. Multilevel moderated mediation analyses of time-lagged data from 316 members of 69 teams confirmed these hypotheses. Cultural dissimilarity had a negative relationship with performance monitoring for high cultural-status members, and a positive relationship for low cultural- status members. Performance monitoring had a curvilinear relationship with individual performance that became decreasingly positive. Cultural dissimilarity thus was increasingly negatively associated with performance for high cultural-status members, and decreasingly positively for low cultural-status members. These findings suggest that cultural dissimilarity to the team is not unconditionally negative for the individual but, in moderation, may in fact have positive motivational effects.	2014	Social
Market Competition, Earnings Management, and Persistence in Accounting Profitability Around the World Author: Healy, Paul, George Serafeim, Suraj Srinivasan, and Gwen Yu Journal: Review of Accounting Studies We examine how cross-country differences in product, capital, and labor market competition, as well as earnings management affect mean reversion in accounting return on assets. Using a sample of 48,465 unique firms from 49 countries, we find that accounting returns mean revert faster in countries where there is more product and capital market competition, as predicted by economic theory. Country differences in labor market competition and earnings management are also related to mean reversion in accounting returns — but the relation varies with firm performance. Country labor competition increases mean reversion when unexpected returns are positive but slows it when unexpected returns are negative. Accounting returns in countries with higher earnings management mean revert more slowly for profitable firms and more rapidly for loss firms. Thus earnings management incentives to slow or speed up mean reversion in accounting returns are accentuated in countries where there is a high propensity for earnings management. Overall, these findings suggest that country factors explain mean reversion in accounting returns and are therefore relevant for firm valuation.	2014	Governance
Political Connections and the Cost of Bank Loans Author: Houston, Joel F., Liangliang jiang, Chen lin, and Yue Ma Journal: Journal of Accounting Research This paper analyzes whether the political connections of listed firms in the United States affect the cost and terms of loan contracts. Using a hand-collected data set of the political connections of S&P 500 companies over the 2003-2008 time period, we find that the cost of bank loans is significantly lower for companies that have board members with political ties. We consider two possible explanations for these findings: a Borrower Channel in which lenders charge lower rates because they recognize that connections enhance the borrower's credit worthiness and a Bank Channel in which banks assign greater value to connected loans to enhance their own relationships with key politicians. After employing a series of tests to distinguish between these two channels, we find strong support for the Borrower Channel but no direct evidence supporting the Bank Channel. Finally, we demonstrate that political connections reduce the likelihood of a capital expenditure restriction or liquidity requirement commanded by banks at the origination of the loan. Taken together, our results suggest that political connections increase the value of U.S. companies and reduce monitoring costs and credit risk faced by banks, which, in turn, reduces the borrower's cost of debt.	2014	Governance
Corporate Policies of Republican Managers Author: Hutton, Irena, Danling Jiang, and Alok Kumar Journal: Journal of Financial and Quantitative Analysis We demonstrate that personal political preferences of corporate managers influence corporate policies. Specifically, Republican managers who are likely to have conservative personal ideologies adopt and maintain more conservative corporate policies. Those firms have lower levels of corporate debt, lower capital and research and development (R&D) expenditures, less risky investments, but higher profitability. Using the 9/11 terrorist attacks and Sept. 2008 Lehman Brothers bankruptcy as natural experiments, we demonstrate that investment policies of Republican managers became more conservative following these exogenous uncertainty-increasing events. Furthermore, around chief executive officer (CEO) turnovers, including CEO deaths, firm leverage policy becomes more conservative when managerial conservatism increases.	2014	Governance
From Support to Mutiny: shifting legitimacy Judgments and Emotional Reactions Impacting the Implementation of Radical Change Author: Huy, Quy Nguyen, Kevin G. Corley, and Matthew S. Kraatz Journal: Academy of Management Journal Based on a three-year inductive study of one organization's implementation of radical organizational change, we examine the critical role played by middle managers' judgments of the legitimacy of their top managers as change agents. Our analysis revealed middle managers' shifting judgments of the change agents' legitimacy that arose with their emotional reactions and produced rising resistance to the change effort. Our inductive model illustrates the dynamic, relational, and iterative relationships among change recipients' legitimacy judgments of change agents and arising emotional reactions in various phases of planned change, which explain recipients' emergent resistance to the change effort. Our model allows us to contribute to theory on radical organizational change, resistance to change, and legitimacy judgments.	2014	Governance
Uninvited U.S. Investors? Economic Consequences of Involuntary Cross-Listings Author: Iliev, Peter, Darius P. Miller, and Lukas Roth Journal: Journal of Accounting Research We study the economic consequences of a recent Securities and Exchange Commission securities regulation change that grants foreign firms trading on the U.S. over-the-counter (OTC) market an automatic exemption from the reporting requirements of the 1934 Securities Act. We document that the number of voluntary (sponsored) OTC cross-listings did not increase following the regulation change, suggesting that it did not achieve its intended purpose of increasing voluntary OTC cross-listings through a reduction in compliance costs. We do find that the design of the regulation allowed financial intermediaries to create an unprecedented number of involuntary (unsponsored) OTC ADRs: 1,700 unsponsored ADR programs for 920 firms were created for companies that had previously chosen not to cross-list in the United States. Our difference-in-differences analysis based on a matched sample approach documents that foreign firms forced into the U.S. capital markets experience a significant decrease in firm value, and we further show that the decrease in firm value is related to an increase in U.S. litigation risk. We also find that depositary banks' propensity to involuntarily cross-list firms is positively related to banks' expected fee revenue, and that banks chose firms that incur high costs when involuntarily cross-listed. Our results provide evidence that securities regulation can be exploited for private gain and result in costly unintended consequences.	2014	Governance
Union Strength, Neoliberalism, and Inequality: Contingent Political Analyses of U.S. Income Differences since 1950 Author: Jacobs, David, and Lindsey Myers Journal: American Sociological Review Do historically contingent political accounts help explain the growth in family income inequality in the United States? We use time-series regressions based on 60 years to detect such relationships by assessing interactive associations between the neoliberal departure coincident with Ronald Reagan's election and the acceleration in inequality that began soon after Reagan took office. We find evidence for this and for a second contingent relationship: stronger unions could successfully resist policies that enhanced economic inequality only before Reagan's presidency and before the neoliberal anti-union administrations from both parties that followed Reagan. Politically inspired reductions in union membership, and labor's diminished political opportunities during and after Reagan's presidency, meant unions no longer could slow the growth in U.S. inequality. Coefficients on these two historically contingent interactions remain significant after many additional determinants are held constant. These findings indicate that political determinants should not be neglected when researchers investigate the determinants of U.S. inequality.	2014	Social
Unionization, Market Structure and Economic Growth Author: Ji, Lei, Juin-Jen Chang, and Chienyu Huang Journal: Working paper This paper investigates the macroeconomic effects of unionization in a Schumpeterian growth model with an endogenous product market structure and a unionized labor market. The endogeneity of the market structure and the trade unionism of the labor market interact and jointly determine the equilibrium unemployment, firm size, number of firms, economic growth, and distribution of income between workers and firms. We show that unionization governs the distribution of income between workers and firms and the unemployment rate, but it does not create any growth effect on the economy. The distributional effect indicates that intensive unionism tends to increase the labor income share, but decrease the firms' profit share. The unemployment effect refers to an unfavorable effect of unionization. Besides, unionization discourages potential entrants and hence decreases the equilibrium number of firms. These results echo the empirical observation in the sense that unionization raises unemployment and alters the distribution of income between workers and firms, but it does not give rise to a significant, real impact on the firms' investment and the economy-wide growth.	2016	Social
Why Are Job Seekers Attracted by Corporate Social Performance? Experimental and Field Tests of Three Signal-Based Mechanisms Author: Jones, David A., Chelsea R. Willness, and Sarah Madey Journal: Academy of Management Journal Research on employee recruitment has shown that an organization's corporate social performance (CSP) affects its attractiveness as an employer, but the underlying mechanisms and processes through which this occurs are poorly understood. We propose that job seekers receive signals from CSP that inform three signal-based mechanisms that ultimately affect organizational attractiveness: job seekers' anticipated pride from being affiliated with the organization, their perceived value fit with the organization, and their expectations about how the organization treats its employees. We hypothesized that these signal-based mechanisms mediate the relationships between CSP and organizational attractiveness, focusing on two aspects of CSP: an organization's community involvement and pro-environmental practices. In an experiment (n = 180), we manipulated CSP via a company's web pages. In a field study (n = 171), we measured CSP content in the recruitment materials used by organizations at a job fair and job seekers' perceptions of the organizations' CSP. Results provided support for the signal-based mechanisms, and we discuss the implications for theory, future research, and practice.	2014	Environmental
Financial Reporting Quality and labor Investment Efficiency Author: Jung, Boochun, Woo-Jong Lee, and David P. Weber Journal: Contemporary Accounting Research A large literature in finance provides evidence that agency conflicts and information asymmetry between managers and outsiders lead firms to undertake suboptimal levels of investment. Recent accounting research builds on this notion in arguing that high-quality financial reporting can serve to mitigate such market imperfections and improve investment efficiency. Consistent with this argument, a growing body of empirical evidence suggests that high-quality accounting is associated with more efficient capital investments. We extend this line of research by examining investments in labor, an important factor in production that has been largely overlooked by previous literature. We posit high-quality financial reporting leads to more efficient investments in labor by mitigating market frictions that stem from information asymmetry between managers and outside capital suppliers.	2014	Governance
The Impact of Media on Corporate Social Responsibility Author: Kang, Jingoo, and Y. Han (Andy) Kim Journal: Working paper Should a firm invest more in corporate social responsibility (CSR), such as philanthropic contributions (PC, hereafter), in response to negative public opinion about the company? Using textual analysis of one million news articles about the largest 100 firms in the US in terms of PC over 2000-2010, we find that firms strengthen their CSR performance and spend more on PC when the public opinion about their CSR is more negative with intensive media coverage. Moreover, the firms with higher ownership by long term oriented institutional investors (Bushee, 1998) spend more on PC. In further analysis, we find that negative tone in CSR news about the firm reduces its product market share.	2014	Environmental, Social, Governance
Is There a Gold Social Seal? The Financial Effects of Additions to and Deletions from Social Stock Indices Author: Kappa, Konstantina, and Ioannis oikonomou Journal: Journal of Business Ethics This study investigates the financial effects of additions to and deletions from the most well-known social stock index: the MSCI KLD 400. Our study makes use of the unique setting that index reconstitution provides and allows us to bypass possible issues of endogeneity that commonly plague empirical studies of the link between corporate social and financial performance. By examining not only short-term returns but also trading activity, earnings per share, and long-term performance of stocks that are involved in these events, we bring forward evidence of a 'social index effect' where unethical transgressions are penalized more heavily than responsibility is rewarded. We find that the addition of a stock to the index does not lead to material changes in its market price, whereas deletions are accompanied by negative cumulative abnormal returns. Trading volumes for deleted stocks are significantly increased on the event date, while the operational performances of the respective firms deteriorate after their deletion from the social index.	2014	Environmental, Social, Governance
Global Entrepreneurship Monitor Women's Entrepreneurship Report Author: Kelley, Donna, Candida Brush, Patricia Greene, Mike Herrington, Abdul Ali, and Penny Kew Journal: Global Entrepreneurship Monitor Report In order to continue to inform the global discussion on the scale, scope, practice and impact of women's entrepreneurship, this special report presents a comprehensive overview of women's entrepreneurship, drawing on current and longitudinal data captured through the work of the Global Entrepreneurship Monitor research consortium. This report covers 83 economies: 73 economies that participated in the 2014 GEM cycle, and 10 economies included in the survey of 2013 but not of 2014. Therefore, this report covers all economies participating in GEM since the last report, which was based on the 2012 cycle. It offers an in-depth view of women who start and run businesses around the world. It provides a broadly global and comprehensively detailed foundation to guide future research, policy decision-making and the design of initiatives and programs to enhance awarenss and participation in women's entrepreneurship.	2014	Social
The Consequences of Entrepreneurial Finance: Evidence from Angel Financings Author: Kerr, William R., Josh lerner, and Antoinette Schoar Journal: Review of Financial Studies This article documents the fact that ventures funded by two successful angel groups experience superior outcomes to rejected ventures: They have improved survival, exits, employment, patenting, Web traffic, and financing. We use strong discontinuities in angel-funding behavior over small changes in their collective interest levels to implement a regression discontinuity approach. We confirm the positive effects for venture operations, with qualitative support for a higher likelihood of successful exits. On the other hand, there is no difference in access to additional financing around the discontinuity. This might suggest that financing is not a central input of angel groups.	2014	Governance
Year-End Tax Planning of Top Management: Evidence from High-Frequency Payroll Data Author: Kreiner, Claus Thustrup, Søren Leth-Petersen, and Peer Ebbesen Skov Journal: American Economic Review Using Danish high-frequency payroll data and tax reform variation, we detect year-end tax avoidance among top managers. Five to seven percent of top managers exploit year-end tax planning strategies to save taxes. Around 30 percent of the top managers engaging in year-end tax avoidance do so by retiming bonus payments while the rest shift regular wage income. However, bonus timing is most tax-sensitive. When considering all of the top managers receiving a December bonus, we find that more than one-quarter retime the bonus payment, whereas only 5 percent of those not receiving a bonus shift regular wage income.	2014	Social
Profits Without Prosperity Author: Lazonick, William Journal: Harvard Business Review Though corporate profits are high, and the stock market is booming, most Americans are not sharing in the economic recovery. While the top 0.1 percent of income recipients reap almost all the income gains, good jobs keep disappearing, and new ones tend to be insecure and underpaid. One of the major causes: Instead of investing their profits in growth opportunities, corporations are using them for stock repurchases. Take the 449 firms in the S&P 500 that were publicly listed from 2003 through 2012. During that period, they used 54 percent of their earnings — a total of $2.4 trillion — to buy back their own stock. Dividends absorbed an extra 37 percent of their earnings. That left little to fund productive capabilities or better incomes for workers. Why are such massive resources dedicated to stock buybacks? Because stock-based instruments make up the majority of executives' pay, and buybacks drive up short-term stock prices. Buybacks contribute to runaway executive compensation and economic inequality in a major way. Because they extract value rather than create it, their overuse undermines the economy's health. To restore true prosperity to the country, government and business leaders must take steps to rein them in.	2014	Social
Do Chinese Government Subsidies Affect Firm Value? Author: Lee, Edward, Martin Walker, and Cheng Zeng Journal: Accounting, Organizations and Society Consistent with the prevailing socio-political ideology of China, the Chinese government offers financial assistance to firms, including many listed companies. Government subsidies are provided for several reasons including support for investment, support to enable firms to pursue social objectives, and support to prop up ailing firms in order to protect jobs. We examine the value relevance of government subsidies for Chinese listed companies and structure our study around three questions. First, whether the subsidies received by Chinese listed companies are value relevant consistent with their time-series properties. Second, whether the value relevance of subsidies depends on the purpose for which they are used. Third, whether the value relevance of subsidies depends on the channel through which they are granted. We motivate these research questions through interviews of accountants, managers, academics, government officials and financial analysts. Through large sample analyses, we confirm that subsidies are positively related to firm value, but less so for distressed firms and subsidies granted through non-tax channels. Our study contributes to improved understanding of Chinese-style capitalism.	2014	Governance
Women's Entrepreneurship in the 21st Century: An International Multi-level Research Analysis Author: Lewis, Kate V., Colette Hanry, Elizabeth J. Gatewood, and John Watson Journal: Book Women's Entrepreneurship in the 21st Century is the fourth in the series of books emanating from the Diana International Research Network. The volume takes a multi-dimensional approach to coalesce a series of chapters around the central theme: gender and entrepreneurship today and in the future. The chapters span a diverse range of countries, methodologies, and levels of analysis - however, they all seek to contribute to an advancing understanding of women and their engagement with entrepreneurial endeavours.	2014	Social
By the Numbers: A Discussion of Risk Management and Quantitative Investing With Robert B. Litterman, PhD Author: Litterman, Bob Journal: Journal of Investment Consulting A recognized expert in risk management and quantitative investment strategies, Robert B. Litterman, PhD, can point to a career that spans the theoretical to the practical, anchored at one end by his work in academia and at the other by his twenty-three-year tenure with Goldman Sachs & Co. Along the way, he worked with renowned economist Fischer Black, PhD, to develop a key asset allocation tool and published a number of groundbreaking papers on asset allocation and risk management. Today, Dr. Litterman serves as senior partner and chairman of the risk committee at Kepos Capital LP, a global macro investment management firm based in New York. In December 2013, Dr. Litterman spoke with members of the Journal of Investment Consulting Editorial Advisory Board about risk management and some of the lessons of the financial crisis, the development and uses of the Black-Litterman model, and quantitative investing after the quant crisis.	2014	Governance
Industry Compensation Under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme Author: Martin, Ralf, Mirabelle Muûls, Laure B. De Preux, and Ulrich J. Wagner Journal: American Economic Review When regulated firms are offered compensation to prevent them from relocating, efficiency requires that payments be distributed across firms so as to equalize marginal relocation probabilities, weighted by the damage caused by relocation. We formalize this fundamental economic logic and apply it to analyzing compensation rules proposed under the EU Emissions Trading Scheme, where emission permits are allocated free of charge to carbon intensive and trade exposed industries. We show that this practice results in substantial overcompensation for given carbon leakage risk. Efficient permit allocation reduces the aggregate risk of job loss by more than half without increasing aggregate compensation.	2014	Environmental, Social
Resource Allocation Within Firms and Financial Market Dislocation: Evidence from Diversified Conglomerates Author: Matvos, Gregor, and Amit Seru Journal: Review of Financial Studies We argue and demonstrate that resource allocation within firms' internal capital markets provides an important force countervailing financial market dislocation. We estimate a structural model of internal capital markets to separately identify and quantify the forces driving the reallocation decision and illustrate how these forces interact with external capital market stress. The weaker (stronger) division obtains too much (little) capital, as though it is 12 percent (9 percent) more (less) productive than it really is. Out-of- sample simulated data are consistent with the actual data showing that internal capital markets offset financial market stress during the recent financial crisis by 16 percent - 30 percent.	2014	Governance
The Impact of Authority on Reporting Behavior, Rationalization and Affect Author: Mayhew, Brian W., and Pamela R. Murphy Journal: Contemporary Accounting Research We conduct an experiment to examine reporting choices, rationalizations, and emotional responses when an authority figure directs participants to misreport. Several accounting scandals reportedly involved an authority figure instructing subordinates to perpetrate fraudulent financial reporting. While prior research using the theory of moral disengagment examines mechanisms individuals use to rationalize, or morally disengage from, performing an unethical act, we utilize a fraud triange in our research setting to connect the theory of moral disengagement to the rationalization leg of the triangle. The fraud triangle suggests three elements are necessary for fraud to occur: opportunity, motivation, and attitude/rationalization. Our research addresses calls to understand better the role of rationalizations in fraudulent reporting and lay the groundwork necessary to explore interventions that reduce fraudulent financial reporting.	2014	Governance
Dual Class Ownership and Tax Avoidance Author: McGuire, Sean T., and Dechun Wang Journal: The Accounting Review This study investigates whether the agency conflicts inherent in a dual class ownership structure are associated with the level of firms' tax avoidance. Dual class ownership presents a unique agency problem because insiders control a majority of the votes of a firm despite having claims to a minority of the firm's cash flows. We examine the level of tax avoidance for a sample of dual class firms and find that the extent of tax avoidance declines as the difference between voting rights and cash flow rights increases. We also compare the level of tax avoidance of dual class firms to a sample of propensity matched single class firms and find that dual class firms engage in less tax avoidance as the wedge between insiders' voting rights and cash flow rights increases. These findings are consistent with dual class ownership entrenching managers and allowing them to perform at a suboptimal level.	2014	Governance
A Theory of Collective Empathy in Corporate Philanthropy Decisions Author: Muller, Alan R., Michael D. Pfarrer, and Laura M. Little Journal: Academy of Management Review Prevailing perspectives on corporate philanthropy are predominantly rational and limit decision making to the executive suite. Recently, however, recognition has grown that employees are also important drivers of corporate philanthropy efforts and that their motives may be more empathic in nature. Integrating arguments from affective events theory, intergroup emotions theory, and affect infusion theory, we develop a framework in which organization members' collective empathy in response to the needs of unknown others infuses executives' decisions, thereby affecting the likelihood, scale, and form of corporate philanthropy. Our theory has implications for research on emotions in organizations, as well as for our understanding of the role of organizations in society.	2014	Governance
The Nexus between Labor Diversity and Firm's Innovation Author: Parrotta, Pierpaolo, Dario Pozzoli, and Mariola Pytikova Journal: Journal of Population Economics In this paper, we investigate the nexus between firm labor diversity and innovation by using data on patent applications filed by firms at the European Patent Office and a linked employer-employee database from Denmark. Exploiting the information retrieved from these comprehensive data sets and implementing proper instrumental variable strategies, we estimate the contribution of workers' diversity in cultural background, education and demographic characteristics to valuable firm's innovation activity. Specifically, we find evidence supporting the hypothesis that ethnic diversity may facilitate firms' patenting activity in several ways by (a) increasing the propensity to (apply for a) patent, (b) increasing the overall number of patent applications, and (c) by enlarging the breadth of patenting technological fields, conditional on patenting. Several robustness checks corroborate the main findings.	2014	Social
Labor Diversity and Firm Productivity Author: Parrotta, Pierpaolo, Dario Pozzoli, and Mariola Pytikova Journal: European Economic Review Using a matched employer-employee data-set, we analyze how workforce diversity associates with the productivity of firms in Denmark, following two main econometric routes. In the first one, we estimate a standard Cobb-Douglas function, calculate the implied total factor productivity and relate the latter to diversity statistics in a second stage. This reduced-form approach allows us to identify which types of labor heterogeneity appear to descriptively matter. In the second approach, we move toward a richer production function specification, which takes different types of labor as inputs and that allows for flexible substitution patterns, and possible quality differences between types. Both methods show that workforce diversity in ethnicity is negatively associated with firm productivity. The evidence regarding diversity in education is mixed.	2014	Social
Reputation and Decision Making Under Ambiguity: A Study of U.S. Venture Capital Firms' Investments in the Emerging Clean Energy Sector Author: Petkova, Antoaneta P., Anu Wadhwa, Xin Yao, and Sanjay Jain Journal: Academy of Management Journal This study examines the role of reputation on decision making under ambiguity. Drawing on social cognition and behavioral theories, we propose that a firm's reputation exerts dual pressures on its decision making under ambiguity. On the one hand, a firm's reputation increases its aspirations for future performance and promotes its engagement in risky strategies to achieve them. On the other hand, preserving the already established reputation requires a firm to deliver consistent performance over time, which promotes greater use of risk reduction strategies. Our analyses of the U.S. venture capital firms' investments in the clean energy sector from 1990 to 2008 demonstrate that while reputable firms are more likely to invest in the emerging sector, they also employ risk reduction strategies more extensively. The sector's legitimation further influences these firms' investment decisions both directly and through its interaction with firm reputation.	2014	Governance
Incentives, Wages, Employment, and the Division of Labor in Teams Author: Rauh, Michael T. Journal: RAND Journal of Economics We develop a theory of incentives, wages, and employment in the context of team production. A central insight is that specialization and division of labor not only improve productivity but also increase effort and the sensitivity of effort to incentives under moral hazard. We show that employment and incentives are complements for the principal when the positive effects of specialization and division of labor outweigh the increase in risk associated with additional employment and are substitutes otherwise. We provide new characterizations of the partnership, the firm, and the role of the budget-breaker that are quite different from the classical literature.	2014	Governance
Marriage and Managers' Attitudes to Risk Author: Roussanov, Nikolai, and Pavel Savor Journal: Management Science Marital status can both reflect and affect individual preferences. We explore the impact of marriage on corporate chief executive officers (CEOs) and find that firms run by single CEOs exhibit higher stock return volatility, pursue more aggressive investment policies, and do not respond to changes in idiosyncratic risk. These effects are weaker for older CEOs. Our findings continue to hold when we use variation in divorce laws across states to instrument for CEO marital status, which supports the hypothesis that marriage itself drives choices rather than it just reflecting innate heterogeneity in preferences. We explore various potential explanations for why single CEOs may be less risk averse.	2014	Governance
The Tragedy of the Commons in a Violent World Author: Sekeris, Petros G. Journal: RAND Journal of Economics Earlier research has shown that the tragedy of the commons may be resolved by Folk theorems for dynamic games. In this article, we graft on a standard natural-resource exploitation game the possibility to appropriate the resource through violent means. Because conflict emerges endogenously as resources get depleted, the threat supporting the cooperative outcome is no longer subgame perfect, and thus credible. The unique equilibrium is such that players exploit noncooperatively the resource when it is abundant, and they revert to conflict when it becomes scarce. The players' utility is shown to be lower even if conflict wastes no resources.	2014	Environmental
Turning a Profit While Doing Good: Aligning Sustainability With Corporate Performance Author: Serafeim, George Journal: Brookings Institute: Governance Studies, The Initiative on 21st Century Capitalism When a company focuses on improving its environmental or social good performance, what happens to that company's financial performance and shareholder returns? Harvard Business School professor George Serafeim answers this question with new research that reveals that companies that undertake true sustainable efforts outperform competitors who don't. Investing $1 in 1993 grows to $28 in 2013 by investing in a portfolio of firms with good performance on material sustainability issues, Serafeim finds. In contrast, investing in a portfolio of firms with poor performance on material sustainability issues would return just over $14 during the same time period. Unlike all previous research in this area, Serafeim's model breaks out future financial performance into four key sectors: health care, financial, technology and communication, and nonrenewable resources. Understanding the materiality of the different sustainability issues for different companies (and their respective sectors) seems to be an important factor for understanding the financial impact of these issues, he writes. This means that companies can create economic value or just waste shareholders' money by trying to "do good." Which one of the two happens depends on whether the company is trying to improve performance on an underlying topic that is important for the industry that is in, Serafeim argues. Identifying what is material for a company, and how to improve performance on that issue in a way that is synergistic to financial performance requires hard work from the part of the company, he writes.	2014	Environmental, Social, Governance
Governmentality in Accounting and Accountability: A Case Study of Embedding Sustainability in a Supply Chain Author: Spence, Laura J., and Leonardo Rinaldi Journal: Accounting, Organizations and Society This paper examines how the introduction of sustainability accounting has been used by an organization as a means to seek to govern social, economic and environmental issues relating to suppliers. The concept of governmentality and four analytics of government are proposed as a means to examine systematic ways of exercising power and authority. This theoretical framework illuminates the specific rationales and practices of government that enable particular aspirations of reform — such as sustainability — to be constituted. The analysis is informed by the discussion of the implementation of sustainability-orientated regimes of practice in the context of a single supply chain within a major supermarket chain in the UK against the theoretical analytics of government. The paper provides novel empirical insights into how sustainability accounting shaped forms of power, rationales and practices in a supply chain. It explores the extent to which senior decision-takers frame and use sustainability accounting to foster disciplinary effects based ostensibly upon social and environmental goals. These are found in practice to be reformulated primarily according to an economic (rather than social or environmental) regime of practice.	2014	Governance
Analyzing Climate Risk: Why Mandatory Reporting Matters Author: Stausboll, Anne Journal: Institutional Investor Climate change is an important issue for the California Public Employees' Retirement System. Rising temperatures and increasingly volatile weather events pose significant and growing risks to our $300 billion portfolio. To manage these risks, CalPERS has long included climate as a key topic for corporate engagements, whether with electric power providers, agriculture companies or oil and gas producers. We are also ramping up efforts to integrate sustainability issues, including climate risks and opportunities, in investment decision making across all our asset classes. On all these fronts, consistent and comparable corporate disclosure of material climate issues is critical.	2014	Environmental
Friendships and Search Behavior in Labor Markets Author: Sterling, Adina D. Journal: Management Science This paper examines how organizations use employee networks to contend with job seekers' search behavior. According to prior research, in markets where job seekers engage in nonsequential job search, organizations respond with tactics such as exploding offers and recruiting candidates earlier. In this paper, I posit that organizations have a social structural response. I argue that in an attempt to avoid problems related to candidates' job search, organizations are more likely to provide job offers to candidates with friends in the hiring organization than to those without friends. I test and find support for this hypothesis in a study of entry-level professionals in business and law. After a period of trial employment, candidates were more likely to receive job offers from organizations if they had a friend employed there than if they did not. The implications of this study for research on labor markets, networks, and inequality are discussed.	2014	Governance
Gender and Ethnic Diversity on Boards and Corporate Information Environment Author: Upadhyay, Arun, and Hongchao Zeng Journal: Journal of Business Research Prior studies argue that demographic diversity on a firm's board impacts its information environment, yet there is limited empirical evidence regarding the relation between board diversity and corporate opacity. We extend this line of research by examining whether gender and ethnic diversity of directors impacts corporate opacity. Using a Herfindahl Index based on directors' gender and ethnicities to measure board diversity, and an opacity index based on analyst following, analyst forecast error, bid-ask spread, and share turnover to measure corporate opacity, we find that board diversity is negatively associated with corporate opacity. Our results are robust to alternative measures of board diversity and the various tests we employ to address potential endogeneity concerns.	2014	Social
Managers and Analysts: An Examination of Mutual Influence Author: Washburn, Mark, and Philip Bromiley Journal: Academy of Management Journal Securities analysts' predictions of firms' earnings per share constitute important performance targets for those firms. Firm managers attempt to both influence analysts' targets and achieve the targets. We draw on the impression management literature to offer hypotheses regarding how a firm's performance relative to prior targets influences the impression management activities of issuing forecast guidance, having conference calls with analysts, and issuing press releases. We also consider the influence of these impression management activities on subsequent analysts' targets. We test this dyadic representation of impression management activities using a longitudinal panel of large firms. Findings suggest managers take a variety of actions that vary with firm performance, and that some of those actions influence subsequent analyst targets under some conditions.	2014	Governance
Means versus Ends in Opaque Institutional Fields: Trading Off Compliance and Achievement in Sustainability Standard Adoption Author: Wijen, Frank Journal: Academy of Management Review The long-standing discussion on decoupling has recently moved from adopters not implementing the agreed-upon policies to compliant adopters not achieving the goals intended by institutional entrepreneurs. This "means-ends decoupling" prevails especially in highly opaque fields, where practices, causality, and performance are hard to understand and chart. I conceptualize the conditions under which the adoption of institutions in relatively opaque fields leads to the achievement of the envisaged goals. Voluntary sustainability standards governing socioenvironmental issues illustrate these arguments. I argue that the lack of field transparency drives institutional entrepreneurs to create and maintain concrete and uniform rules, apply strong incentives, and disseminate "best practices" to ensure substantive adopter compliance. However, such rigid institutions are ill-equipped to deal with the causal complexity and practice multiplicity underlying opacity while they smother adopter agency. The ensuing tension between substantive compliance and goal achievement leads to an inherent trade-off: institutional entrepreneurs who remedy the policy-practice decoupling may enhance the disparity between means and ends, and vice versa. While sustainability standards and other institutions in highly opaque fields can, therefore, not fully achieve the envisaged goals, the trade-off can be reduced through systemically designed institutions that promote goal internalization and contain niche institutions.	2014	Governance
Portfolios of Political Ties and Business Group Strategy in Emerging Economies: Evidence from Taiwan Author: Zhu, Hongjin, and Chi-Nien Chung Journal: Administrative Science Quarterly Using data on 290 business groups, this study examines how ties with rival political parties maintained by Taiwanese firms from 1998 through 2006 affected business strategies, specifically the unrelated diversification into new industries. Taiwan's recent democratization and emerging economy provide an ideal setting for studying the economic impact of firms' ties with rival political parties. By focusing on a firm's entire portfolio of ties instead of strictly dyadic business-government ties, we offer a novel model that demonstrates how the interplay of various ties affects a firm's strategy differently under different forms of government. Our analysis shows that under a united government, ties to the ruling party facilitate entries of business groups into unrelated industries, while ties to the opposition parties inhibit such moves. Portfolios of ties to both the ruling and opposition parties impose additional obstacles to market entry. Under a divided government, however, ties to the ruling party are conducive to market entry, and portfolios of ties to both the ruling party and the opposition party with legislative authority offer a further boost. Regardless of type of government, the effect of having a portfolio of political ties tends to be mitigated by a firm-s internal resources and capabilities: a firm with sufficient resources and market entry experience has a better chance of achieving its goals even when a dominant political party withholds its support. Our study highlights the tradeoffs that politically connected firms confront in emerging economies with underdeveloped political and market institutions.	2013	Governance
Shoot for the Stars? Predicting the Recruitment of Prestigious Directors at Newly Public Firms Author: Acharya, Abhijith G., and Timothy G. Pollock Journal: Academy of Management Journal This study explores how CEOs' and outside directors' desires for the benefits of signaling and "homophily" intertwine with their concerns over maintaining power and preserving local status hierarchies to affect the likelihood a firm recruits prestigious outside directors to its board. Using pooled cross-sectional data on the five years following the initial public offerings (IPOs) of 210 firms that went public between 2001 and 2004, we found that prestigious CEOs and directors viewed the recruitment of prestigious new directors differently and that these perceptions were moderated by factors that increase the salience of risk of potential losses to CEOs and existing board members.	2013	Governance
Epstein-Zin Utility in Dice: Is Risk Aversion Irrelevant to Climate Policy? Author: Ackerman, Frank, Elizabeth A. Stanton, and Ramon Bueno Journal: Environmental and Resource Economics Climate change involves uncertain probabilities of catastrophic risks, and very longterm consequences of current actions. Climate economics, therefore, is centrally concerned with the treatment of risk and time. Yet conventional assumptions about utility and optimal economic growth create a perverse connection between risk aversion and time preference, such that more aversion to current risks implies less concern for future outcomes, and vice versa. The same conflation of risk aversion and time preference leads to the equity premium puzzle in finance. A promising response to the equity premium puzzle, the recursive utility of Epstein and Zin, allows separation of risk aversion and time preference — at the cost of considerable analytic complexity. We introduce an accessible implementation of Epstein-Zin utility into the DICE model of climate economics, creating a hybrid "EZ-DICE" model. Using Epstein-Zin parameters from the finance literature and climate uncertainty parameters from the science literature, we find that the optimal climate policy in "EZ-DICE" calls for rapid abatement of carbon emissions; it is similar to standard DICE results with the discount rate set to equal the risk-free rate of return. "EZ-DICE" solutions are sensitive to the intertemporal elasticity of substitution, but remarkably insensitive to risk aversion. Insensitivity to risk aversion may reflect the difficulty of modeling catastrophic risks within DICE. Implicit in DICE are strong assumptions about the cost of climate stabilization and the certainty and speed of success; under these assumptions, risk aversion would in fact be unimportant. A more realistic analysis will require a subtler treatment of catastrophic climate risk.	2013	Environmental
Managerial Overconfidence and Accounting Conservatism Author: Ahmed, Anwer S., and Scott Duellman Journal: Journal of Accounting Research Overconfident managers overestimate future returns from their firms' investments. Thus, we predict that overconfident managers will tend to delay loss recognition and generally use less conservative accounting. Furthermore, we test whether external monitoring helps to mitigate this effect. Using measures of both conditional and unconditional conservatism respectively, we find robust evidence of a negative relation between CEO overconfidence and accounting conservatism. We further find that external monitoring does not appear to mitigate this effect. Our findings add to the growing literature on overconfidence and complement the findings by Schrand and Zechman [2011] that overconfidence affects financial reporting behavior.	2013	Governance
Do Overvaluation-Driven Stock Acquisitions Really Benefit Acquirer Shareholders? Author: Akbulut, Mehmet E. Journal: Journal of Financial and Quantitative Analysis I study the effects of overvalued equity on acquisition activity and shareholder wealth, using managers' insider trades to measure overvaluation. I find that overvalued equity drives managers to make stock acquisitions, and such acquisitions destroy value for acquirer shareholders. Overvalued stock acquirers earn negative and lower returns in the short run and substantially underperform similarly overvalued nonacquirer firms in the long run. My results do not support the idea that managers can benefit shareholders by converting overvalued equity into real assets through stock acquisitions.	2013	Governance
The Uncertainty About the Social Cost of Carbon: A Decomposition Analysis Using Fund Author: Anthoff, David, and Richard S. J. Tol Journal: Climatic Change We report the results of an uncertainty decomposition analysis of the social cost of carbon as estimated by FUND, a model that has a more detailed representation of the economic impact of climate change than any other model. Some of the parameters particularly influence impacts in the short run whereas other parameters are important in the long run. Some parameters are influential in some regions only. Some parameters are known reasonably well, but others are not. Ethical values, such as the pure rate of time preference and the rate of risk aversion, therefore affect not only the social cost of carbon, but also the importance of the parameters that determine its value. Some parameters, however, are consistently important: cooling energy demand, migration, climate sensitivity, and agriculture. The last two are subject to a large research effort, but the first two are not.	2013	Environmental
Discussion of "CEO Compensation and Corporate Risk: Evidence from a Natural Experiment" Author: Armstrong, Christopher S. Journal: Journal of Accounting and Economics Gormley, Matsa, and Milbourn (in this issue) examine the design and causal effects of CEOs' equity portfolio incentives on firm risk in a novel research setting in which certain firms experience a large exogenous shock that increases their left-tail risk and reduces their investment opportunities. Gormley et al. find that boards and CEOs both make adjustments to CEOs' equity portfolios following the shock. They also find that CEOs with more convex equity portfolios (i.e., Vega) prior to the shock reduce risk less following the shock. Despite certain measurement and identification concerns, Gormley et al. is an innovative attempt to address an important and challenging research question. Partial identification and sensitivity analysis an important class of techniques that are well-suited for providing causal inferences about Gormley et al.'s and other important research questions that are impeded by endogeneity concerns.	2013	Governance
The Relation between Equity Incentives and Misreporting: The Role of Risk-Taking Incentives Author: Armstrong, Christopher S., David F. Larcker, Gaizka Ormazabal, and Daniel J. Taylor Journal: Journal of Financial Economics Prior research argues that a manager whose wealth is more sensitive to changes in the firm's stock price has a greater incentive to misreport. However, if the manager is risk-averse and misreporting increases both equity values and equity risk, the sensitivity of the manager's wealth to changes in stock price (portfolio delta) will have two countervailing incentive effects: a positive "reward effect" and a negative "risk effect". In contrast, the sensitivity of the manager's wealth to changes in risk (portfolio vega) will have an unambiguously positive incentive effect. We show that jointly considering the incentive effects of both portfolio delta and portfolio vega substantially alters inferences reported in prior literature. Using both regression and matching designs, and measuring misreporting using discretionary accruals, restatements, and enforcement actions, we find strong evidence of a positive relation between vega and misreporting and that the incentives provided by vega subsume those of delta. Collectively, our results suggest that equity portfolios provide managers with incentives to misreport when they make managers less averse to equity risk.	2013	Governance
International Diversification and Corporate Social Responsibility Author: Attig, Najah, Narjess Boubakri, Sadok El Ghoul, and Omrane Guedhamid Journal: Working paper Using a large sample of 3,040 U.S. firms and 16,606 firm-year observations over the 1991-2010 period, we find strong evidence that firm internationalization is positively related to the firm's corporate social responsibility (CSR) rating. This finding persists when we use alternative estimation methods, samples, and proxies for internationalization and when we address endogeneity concerns. Next, we find that firm characteristics such as size, profitability, growth opportunities, R&D, and advertising expenses condition the link between internationalization and CSR. We finally provide novel evidence that firms with extensive foreign subsidiaries in countries with well-functioning political and legal institutions have better CSR ratings.	2013	Environmental, Social, Governance
Income Inequality, Mobility, and Turnover at the Top in the US, 1987-2010 Author: Auten, Gerald, Geoffrey Gee, and Nicholas Turner Journal: American Economic Review While cross-sectional data show increasing income inequality in the United States, it is also important to examine how incomes change over time. Using income tax data, this paper provides new evidence on long-term and intergenerational mobility, and persistence at the top of the income distribution. Half of those aged 35-40 in the top or bottom quintile in 1987 remain there in 2007; the others have moved up or down. While 30 percent of dependents aged 15-18 from bottom quintile households are themselves in the bottom quintile after 20 years, most have moved up. Persistence is lower in the highest income groups.	2013	Social
Overcoming Resistance to Organizational Change: Strong Ties and Affective Cooptation Author: Battilana, Julie, and Tiziana Casciaro Journal: Management Science We propose a relational theory of how change agents in organizations use the strength of ties in their network to overcome resistance to change. We argue that strong ties to potentially influential organization members who are ambivalent about a change (fence-sitters) provide the change agent with an affective basis to coopt them. This cooptation increases the probability that the organization will adopt the change. By contrast, strong ties to potentially influential organization members who disapprove of a change outright (resistors) are an effective means of affective cooptation only when a change diverges little from institutionalized practices. With more divergent changes, the advantages of strong ties to resistors accruing to the change agent are weaker, and may turn into liabilities that reduce the likelihood of change adoption. Analyses of longitudinal data from 68 multimethod case studies of organizational change initiatives conducted at the National Health Service in the United Kingdom support these predictions and advance a relational view of organizational change in which social networks operate as tools of political influence through affective mechanisms.	2013	Governance
The Network Secrets of Great Change Agents Author: Battilana, Julie, and Tiziana Casciaro Journal: Harvard Business Review Change is hard, especially in a large organization. Yet some leaders succeed-often spectacularly-at transforming their workplaces. What makes them able to exert this sort of influence when the vast majority can't? The authors tracked 68 change initiatives in the UK's National Health Service, an organization whose size, complexity, and tradition can make reform difficult. They discovered several predictors of change agents' success-all of which emphasize the importance of networks of personal relationships: Change agents who were central in the organization's informal network had a clear advantage, regardless of their position in the formal hierarchy. People who bridged disconnected groups or individuals were more effective at implementing dramatic reforms. The resisters in their networks did not necessarily know one another and so were unlikely to form a coalition. Change agents with cohesive networks, in which all individuals were connected, were better at instituting minor changes. Their contacts rallied around the initiative and helped convince others of its importance. Being close to people who were ambivalent about a change was always beneficial. In the end, fence-sitters were reluctant to disappoint a friend. But close relationships with resisters were a double-edged sword: Such ties helped push through minor initiatives but were a hindrance when attempting major change.	2013	Governance
Short-Selling Bans Around the World: Evidence from the 2007-09 Crisis Author: Beber, Alessandro, and Marco Pagano Journal: Journal of Finance Most regulators around the world reacted to the 2007-09 crisis by imposing bans on short selling. These were imposed and lifted at different dates in different countries, often targeted different sets of stocks, and featured varying degrees of stringency. We exploit this variation in short-sales regimes to identify their effects on liquidity, price discovery, and stock prices. Using panel and matching techniques, we find that bans (i) were detrimental for liquidity, especially for stocks with small capitalization and no listed options; (ii) slowed price discvoery, especially in bear markets; and (iii) failed to support prices, except possible for U.S. financial stocks.	2013	Governance
Corporate Social Responsibility and Earnings Forecasting Unbiasedness Author: Becchetti, Leonardo, Rocco Ciciretti, and Alessandro Giovannelli Journal: Journal of Banking & Finance We investigate the relationship between corporate social responsibility (CSR) and I/B/E/S analysts' earnings per share (EPS) forecasts using a large sample of US firms for 1992-2011. Based on literature findings, we decompose the CSR effect into four factors: accounting opacity, corporate governance, stakeholder risk, and overinvestment. We find that all of them significantly affect both the absolute forecast error on EPS and its standard deviation controlling for forecast horizon; number of analysts and forecasts; and year, industry, and broker house effects. Consistently with our ex ante hypotheses, overinvestment, stakeholder risk, and accounting opacity have a positive effect, increasing both dependent variables, while corporate governance quality has a negative effect. A crucial aspect of our findings is that high CSR quality in terms of the four factors (i.e., accounting transparency, high corporate governance quality, stakeholder risk mitigation, and absence of overinvestment) contributes to making earnings forecasts unbiased as unbiasedness is generally met in the subsample of the Top CSR quality companies and markedly violated in the subsample of the Bottom CSR companies. We also document that overinvestment and stakeholder risk are sufficient to produce this effect.	2013	Environmental, Social, Governance
Customer-Driven Misconduct: How Competition Corrupts Business Practices Author: Bennett, Victor Manuel, Lamar Pierce, Jason A. Snyder, and Michael W. Toffel Journal: Management Science Competition among firms yields many benefits but can also encourage firms to engage in corrupt or unethical activities. We argue that competition can lead organizations to provide services that customers demand but that violate government regulations, especially when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, we show that increased competition is associated with greater inspection leniency, a service quality attribute that customers value but is illegal and socially costly. Firms with more competitors pass customer vehicles at higher rates and are more likely to lose customers whom they fail, suggesting that competition intensifies pressure on facilities to provide illegal leniency. We also show that, at least in markets in which pricing is restricted, firms use corrupt and unethical practices as an entry strategy.	2013	Governance
Performance Appraisals and the Impact of Forced Distribution: An Experimental Investigation Author: Berger, Johannes, Christine Harbring, and Dirk Sliwka Journal: Management Science A real-effort experiment is investigated in which supervisors have to rate the performance of individual workers who in turn receive a bonus payment based on these ratings. We compare a baseline treatment in which supervisors are not restricted in their rating behavior to a forced distribution system in which they have to assign differentiated grades. We find that productivity is significantly higher under a forced distribution by about 6 percent to 12 percent. However, the productivity effects are less clear cut when participants have prior experience with the baseline condition. Moreover, a forced distribution becomes detrimental when workers have access to a simple option to sabotage each other.	2013	Governance
Socially Responsible Investing: An Investor Perspective Author: Berry, Thomas C., and Joan C. Junkus Journal: Journal of Business Ethics Given the growing importance of Socially Responsible Investing (SRI), it is surprising that there is no consensus of what the term SRI means to an investor. Further, most studies of this question rely solely on the views of investors who already invest in SRI funds. Our study surveys a unique pool of approximately 5,000 investors that contains both investors who have used SRI criteria in investment decisions and those who have not, and involves a broad array of criteria associated with SR investing. Our findings offer new insight into the SRI debate. For both sets of investors, environmental and sustainability issues dominate as the major category associated with SR investing. We find strong agreement in the ranking of the relative importance of various SRI factors despite differences between these two groups in their opinion of their overall importance. We also find that investors prefer to consider the SRI question in more holistic terms rather than using the exclusionary format favored by most SRI funds. Investors seem to prefer to reward firms who display overall positive social behavior rather than to exclude firms on the basis of certain products or practices. These findings can help providers of SR investment vehicles to improve the SRI products that they offer to the general investor, thus both encouraging the initial adoption of SR criteria by investors and increasing overall investment in SR choices.	2013	Environmental, Social, Governance
Investment in Corporate Social Responsibility: A Cross-Country Analysis Author: Cai, Ye, Carrie H. Pan, and Meir Statman Journal: Working paper We find that differences in levels of investment in corporate social responsibility (CSR) of companies across countries are associated with differences in levels of economic and social development and differences in culture. Low income-per-capita, high levels of corruption, and low levels of civil liberties and political rights are associated with low CSR levels. High levels of power distance and low levels of harmony, egalitarianism, autonomy, and individualism are also associated with low CSR levels. Altogether, variation in country-level measures explains 55.2 percent of variation in countries' CSR levels.	2016	Environmental, Social, Governance
Does Performance-Based Compensation Boost Economic Growth or Lead to More Income Inequality? Author: Chang, Juin-jen, Chia-ying Liu, and Hsiao-wen Hung Journal: Economic Record Recent observations suggest that as performance-related pay has been increasingly used, (i) compensation has grown with labour productivity, and (ii) there has been a rise in income inequality. This study is a theoretical attempt to provide a convincing explanation of these observations. We develop an endogenous growth framework comprising a profit/revenue-sharing scheme that simultaneously governs income inequality and economic growth. Therefore, we show that a share-based scheme can cause the workers to engage in performance pay seeking and, as a result, boost economic growth. Nonetheless, the intensive use of performance pay also results in higher income inequality. Because of the increased use of performance pay, there exists a positive relationship between economic growth and income inequality. While this result contradicts the traditional notion, it is supported by recent empirical studies. Our welfare analysis indicates that a more intensive sharing scheme does not necessarily raise the level of social welfare, even though it is favourable to economic growth.	2013	Social
Insider Trading, Litigation Concerns, and Auditor Going-Concern Opinions Author: Chen, Chen, Martin Xiumin, and Xin Wang Journal: The Accounting Review We investigate whether insider selling affects the likelihood of firms receiving auditor going-concern opinions. Prior studies document significant negative market reactions to the issuance of going-concern opinions, indicating that such opinions convey bad news to investors. Insider sales followed by negative news are likely to attract regulators' scrutiny and investor class-action lawsuits. Therefore, we predict that, to reduce the risk of litigation, managers have incentives to avoid receiving going-concern opinions after their insider sales by pressuring auditors for clean audit opinions. We evaluate this prediction empirically and find that the probability of receiving a going-concern opinion is negatively associated with the level of insider selling. Further analysis indicates that this negative relation is more pronounced for firms that are economically significant to their auditors but less pronounced when (1) auditors have concerns about litigation exposure and reputation loss and (2) audit committees are more independent. Finally, the negative relation between going-concern opinions and insider sales is significantly weakened after SOX.	2013	Governance
Strategy Selection, Surrogation, and Strategic Performance Measurement Systems Author: Choi, Jongwoon (Willie), Cary W. Hecht, and William B. Tayler Journal: Journal of Accounting Research Strategic performance measurement systems operationalize firm strategy with a set of performance measures. A consequence of such alignment is the tendency for managers to lose sight of the strategic construct(s) the measures are intended to represent, and subsequently act as though the measures are the constructs of interest, a phenomenon referred to as surrogation. We investigate how involvement in strategy selection affects managers' propensity to exhibit surrogation. We predict and find that strategy selection reduces surrogation. Surprisingly, we do not find that engaging in strategy deliberation, a key process underlying strategy selection, reduces surrogation. Thus, managers' involvement in the actual choice of strategy appears to be both a necessary and sufficient condition to mitigate surrogation. Our paper broadens understanding of factors that influence surrogation, such as the effects of different aspects of managers' strategic involvement and buy-in. Further, by documenting how managers behave within (as opposed to simply with) strategic performance measurement systems, we highlight the potential for managers to endogenously influence the effectiveness of such systems.	2013	Governance
Labor Unions and Investment Efficiency Author: Chung, Richard, Woo-Jong Lee, Byungcherl Charlie Sohn, and Bryan Byung-Hee Lee Journal: Working paper We examine the relation between labor union strength and investment efficiency using comprehensive firm-level data of Korean listed companies. We find that labor unions can mitigate the firm's overinvestment problem, and the relation is more pronounced among firms with higher foreign ownership or public debt, but is weakened in Chaebol firms. We also find that labor union can reduce the firm's underinvestment problem, and the relation is more prominent in firms with greater ownership concentration. Finally, we find that the relation between investment and firm value becomes more positive in firms with stronger labor unions. We conclude that labor unions play a value-increasing role in affecting firms' investment policy, and that foreign investors and public debt holders lend their power to labor unions to constrain managers' overinvestment, but that the role of labor unions is weaker in firms affiliated with business conglomerates.	2013	Social
Labor Unions and Tax Aggressiveness Author: Chyz, James A., Winnie Siu Ching Leung, Oliver Zhen Li, and Oliver Meng Rui Journal: Journal of Financial Economics We examine the impact of unionization on firms' tax aggressiveness. We find a negative association between firms' tax aggressiveness and union power and a decrease in tax aggressiveness after labor union election wins. This relation is consistent with labor unions influencing managers' in one, or both, of two ways: (1) constraining managers' ability to invest in tax aggressiveness through increased monitoring; or (2) decreasing returns to tax aggressiveness that arise from unions' rent seeking behavior. We also find preliminary evidence that the market expects these reductions around union elections and discounts firms that likely add shareholder value via aggressive tax strategies.	2013	Social
Corporate Governance Reform and Executive Incentives: Implications for Investments and Risk Taking Author: Cohen, Daniel A., Aiyesha Dey, and Thomas Z. Lys Journal: Contemporary Accounting Research We investigate the mechanism through which the Sarbanes Oxley Act (SOX) was associated with changes in corporate investment strategies. We document that the passage of the governance regulations in SOX was followed by a significant decline in pay-performance sensitivity (Delta) and incentives to take risk (Vega) in CEOs' compensation contracts. These changes in compensation contracts are related to a decline in investments, including research and development expenditures, capital investments and acquisitions. Moreover, consistent with the rules in SOX directly affecting CEOs' incentives to take risk, we document that the decline in investments exceeds the amount that would be expected from changes in compensation packages alone. Finally, we also find evidence that the changes in investments are related to lower operating performances of firms, suggesting that these changes were costly to investors. Our evidence speaks to the debate on how corporate governance regulation interacts with firms' and managers' incentives, and ultimately affects corporate operating and investment strategies. Our study suggests that one indirect cost of such regulations in SOX is the significant reductions in corporate risk-taking activities in the post-SOX period. The changes in investments were in part due to changes in executive compensation contracts and in part related to increased executives' personal costs of engaging in risky activities.	2013	Governance
Whose Jobs Are These? The Impact of the Proportion of Female Managers on the Number of New Management Jobs Filled by Women versus Men Author: Cohen, Lisa E., and Joseph P. Broschak Journal: Administrative Science Quarterly In this paper, we examine the relationship between an organization's proportion of female managers and the number of new management jobs initially filled by women versus men. We draw on theories of job differentiation, job change, and organizational demography to develop theory and predictions about this relationship and whether the relationship differs for jobs filled by female and male managers. Using data on a sample of New York City advertising agencies over a 13-year period, we find that the number of newly created jobs first filled by women increases with an agency's proportion of female managers. In contrast, the effect of the proportion of female managers on the number of new management jobs filled by men is positive initially but plateaus and turns negative. In showing these influences on job creation, we highlight the dynamic and socially influenced nature of jobs themselves: new jobs are created regularly in firms and not merely as a response to technical and administrative imperatives. The results also point to another job-related process that differs between women and men and that could potentially aggravate, mitigate, or alleviate inequality: the creation of jobs. Thus this research contributes to literatures on demography, the organization of work, and inequality.	2013	Governance
Glass Cliffs and Organizational Saviors: Barriers to Minority Leadership in Work Organizations? Author: Cook, Alison, and Christy Glass Journal: Social Problems Racial/ethnic minorities remain underrepresented in positions of authority. While ample scholarship has identified barriers to mobility, much less scholarship has explored the conditions under which minorities are promoted to leadership positions. Relying on a unique data set that includes all transitions among NCAA men's basketball head coaches over a 30-year period, we analyze the promotion probability and post-promotion trajectory of minority coaches. First, we find that minority coaches are more likely to be appointed in historically black colleges and universities (HBCU) due to bottom-up ascription. Second, minorities are more likely than whites to be promoted to losing teams, a phenomenon termed the glass cliff. And third, when minority coaches are unable to generate winning records they are replaced by white coaches, a phenomenon we term the savior effect. By testing mechanisms related to the mobility chances of minorities, this analysis advances our understanding of the processes that shape racial/ethnic hierarchies in organizations.	2013	Social
Generalists versus Specialists: Lifetime Work Experience and Chief Executive Officer Pay Author: Custódio, Cláudia, Miguel A. Ferreira, and Pedro Matos Journal: Journal of Financial Economics We show that pay is higher for chief executive officers (CEOs) with general managerial skills gathered during lifetime work experience. We use CEOs' resumes of Standard and Poor's 1,500 firms from 1993 through 2007 to construct an index of general skills that are transferable across firms and industries. We estimate an annual pay premium for generalist CEOs (those with an index value above the median) of 19 percent relative to specialist CEOs, which represents nearly a million dollars per year. This relation is robust to the inclusion of firm- and CEO-level controls, including fixed effects. CEO pay increases the most when firms externally hire a new CEO and switch from a specialist to a generalist CEO. Furthermore, the pay premium is higher when CEOs are hired to perform complex tasks such as restructurings and acquisitions. Our findings provide direct evidence of the increased importance of general managerial skills over firm-specific human capital in the market for CEOs in the last decades.	2013	Governance
Does Financial Constraint Affect the Relation between Shareholder Taxes and the Cost of Equity Capital? Author: Dai, Zhonglan, Douglas A. Shackelford, Harold H. Zhang, and Chongyang Chen Journal: The Accounting Review We argue that reductions in shareholder taxes should lower the cost of equity capital more for financially constrained firms than for other companies. Consistent with this prediction, we find that, following the 1997 (TRA) and the 2003 (JGTRRA) cuts in U.S. individual shareholder taxes, financially constrained firms enjoyed larger reductions in their cost of equity capital than did other firms. The results are consistent with the incidence of the tax reductions falling mostly on firms with both pressing needs for capital and disproportionate ownership by individuals, the only shareholders who benefited from the legislations. The paper provides a partial explanation for the seemingly puzzling finding that, following the unprecedented 2003 reduction in dividend tax rates, non-dividend-paying firms outperformed dividend-paying firms. The results suggest that it was not dividend status that mattered, but financial constraint, a common attribute of non-dividend-paying companies.	2013	Governance
Adopting a Label: Heterogeneity in the Economic Consequences Around IAS/IFRS Adoptions Author: Daske, Holger, Luzi Hail, Christian Leuz, and Rodrigo Verdi Journal: Journal of Accounting Research This study examines liquidity and cost of capital effects around voluntary and mandatory IAS/IFRS adoptions. In contrast to prior work, we focus on the firm-level heterogeneity in the economic consequences, recognizing that firms have considerable discretion in how they implement the new standards. Some firms may make very few changes and adopt IAS/IFRS more in name, while for others the change in standards could be part of a strategy to increase their commitment to transparency. To test these predictions, we classify firms into "label" and "serious" adopters using firm-level changes in reporting incentives, actual reporting behavior, and the external reporting environment around the switch to IAS/IFRS. We analyze whether capital-market effects are different across "serious" and "label" firms. While on average liquidity and cost of capital often do not change around voluntary IAS/IFRS adoptions, we find considerable heterogeneity: "Serious" adoptions are associated with an increase in liquidity and a decline in cost of capital, whereas "label" adoptions are not. We obtain similar results when classifying firms around mandatory IFRS adoption. Our findings imply that we have to exercise caution when interpreting capital-market effects around IAS/IFRS adoption as they also reflect changes in reporting incentives or in firms' broader reporting strategies, and not just the standards.	2013	Governance
Taxes and Corporate Sustainability Reporting: Is Paying Taxes Viewed As Socially Responsible? Author: Davis, Angela K., David A. Guenther, Linda K. Krull, and Brian M. Williams Journal: Working paper Current corporate accountability (CA) reporting guidelines view a firm's corporate tax payments as having a positive impact on social welfare. However, a detailed investigation of actual CA reports indicates that, while some firms view paying corporate taxes as socially responsible, many firms argue they enhance social welfare by lobbying for lower corporate taxes, and a third set of firms omit any mention of corporate taxes from their CA reports. This diversity in how corporate taxes are addressed in CA reports raises the question of whether managers and other stakeholders view the relation between corporate taxes and CA reporting in a manner consistent with that of the organizations that establish CA reporting guidelines. We examine the relation between the importance of CA reporting to a firm and the amount of corporate taxes the firm pays. We find that the importance of CA reporting is negatively related to five-year cash effective tax rates. Our evidence suggests that managers and other stakeholders of firms for which CA reporting is important do not view the payment of corporate taxes as socially responsible.	2013	Governance
Nonmonetary Benefits, Quality of Life, and Executive Compensation Author: Deng, Xin, and Huasheng Gao Journal: Journal of Financial and Quantitative Analysis We examine the effects of nonmonetary benefits on overall executive compensation from the perspective of the living environment at the firm headquarters. Companies in polluted, high crime rate, or otherwise unpleasant locations pay higher compensation to their chief executive officers (CEOs) than companies located in more livable locations. This premium in pay for quality of life is stronger when firms face tougher competition in the managerial labor market, when the CEO is hired from outside, and when the CEO has short-term career concerns. Overall, the geographic desirability of the corporate headquarters is an effective substitute for CEO monetary pay.	2013	Governance
Relative Performance Evaluation and Peer-Performance Summarization Errors Author: Dikolli, Shane S., Christian Hofmann, and Thomas Pfeiffer Journal: Review of Accounting Studies In tests of the relative performance evaluation (RPE) hypothesis, empiricists rarely aggregate peer performance in the same way as a firm's board of directors. Framed as a standard errors-in-variables problem, a commonly held view is that such aggregation errors attenuate the regression coefficient on systematic firm performance towards zero, which creates a bias in favor of the strong-form RPE hypothesis. In contrast, we analytically demonstrate that aggregation differences generate more complicated summarization errors, which create a bias against finding support for strong-form RPE (potentially inducing a Type-II error). Using simulation methods, we demonstrate the sensitivity of empirical inferences to the bias by showing how an empiricist can conclude erroneously that boards, on average, do not apply RPE, simply by selecting more, fewer, or different peers than the board does. We also show that when the board does not apply RPE, empiricists will not find support for RPE (that is, precluding a Type-I error).	2013	Governance
Responsible Investment and the Norwegian Government Pension Fund Global Author: Dimson, Elroy, Idar Kreutzer, Rob Lake, Hege Sjo, and Laura Starks Journal: Main Report to Strategy Council for the Norwegian Government Pension Fund Global We provide analysis and advice to the Norwegian Ministry of Finance on the responsible investment strategy for the Norwegian Government Pension Fund Global. Based on a detailed review of the literature and extensive consultations with investment professionals, we present a broad overview of the motives for responsible investment, of relevant research evidence, of how this relates to the Fund, and what comparator funds are doing in this area. We present three groups of recommendations for the Fund, focusing on the objectives and strategy for investing responsibly, on measures related to transparency and accountability, and on changes to the Fund's governance structure that will facilitate a more integrated approach to responsible investing. The Executive Summary provides a longer synopsis.	2013	Environmental, Social, Governance
The Economics of Green Building Author: Eichholtz, Piet, Nils Kok, and John M. Quigley Journal: Review of Economics and Statistics We analyze the economics of green building, finding that recent increases in the supply of green buildings and the volatility in property markets have not affected the returns to green buildings. We then analyze a large cross-section of office buildings, demonstrating that economic returns to energy-efficient buildings are substantial. Finally, we relate the economic premiums for green buildings to their relative efficiency in energy use —the attributes rated for thermal efficiency, as well as sustainability, contribute to premiums in rents and asset values. Among green buildings, increased energy efficiency is fully capitalized into rents and asset values.	2013	Environmental
Resisting Hybridisation between Modes of Clinical Risk Management: Contradiction, Contest, and the Production of Intractable Conflict Author: Fischer, Michael Daniel, and Ewan Ferlie Journal: Accounting, Organizations and Society This article explores and explains escalating contradictions between two modes of clinical risk management which resisted hybridisation. Drawing on a Foucauldian perspective, these two modes — ethics-orientated and rules-based — are firstly characterised in an original heuristic we develop to analyse clinical risk management systems. Some recent sociologically orientated accounting literature is introduced, exploring interactions between accountability and risk management regimes in corporate and organisational settings; much of this literature suggests these systems are complementary or may easily form hybrids. This theoretical literature is then moved into the related domain of clinical risk management systems, which has been under-explored from this analytic perspective. We note the rise of rules-based clinical risk management in UK mental health services as a distinct logic from ethics-orientated clinical self-regulation. Longitudinal case study data is presented, showing contradiction and escalating contest between ethics-orientated and rules-based systems in a high-commitment mental health setting, triggering a crisis and organisational closure. We explore theoretically why perverse contradictions emerged, rather than complementarity and hybridisation suggested by existing literature. Interactions between local conditions of strong ideological loading, high emotional and personal involvement, and rising rules-based risk management are seen as producing this contest and its dynamics of escalating and intractable conflict. The article contributes to the general literature on interactions between different risk management regimes, and reveals specific aspects arising in clinically based forms of risk management. It concludes by considering some strengths and weaknesses of this Foucauldian framing.	2013	Governance
The Cost of Contract Renegotiation: Evidence from the Local Public Sector Author: Gagnepain, Philippe, Marc Ivaldi, and David Martimort Journal: American Economic Review Contract theory claims that renegotiation prevents attainment of the efficient solution that could be obtained under full commitment. Assessing the cost of renegotiation remains an open issue from an empirical viewpoint. We fit a structural principal-agent model with renegotiation on a set of contracts for urban transport services. The model captures two important features of the industry as only two types of contracts are used (fixed price and cost-plus) and subsidies are greater following a cost-plus contract than following a fixed price one. We conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators.	2013	Governance
License to Cheat: Voluntary Regulation and Ethical Behavior Author: Gino, Francesca, Erin L. Krupka, and Roberto A. Weber Journal: Management Science Although monitoring and regulation can be used to combat socially costly unethical conduct, their intended targets can often avoid regulation or hide their behavior. This surrenders at least part of the effectiveness of regulatory policies to firms' and individuals' decisions to voluntarily submit to regulation. We study individuals' decisions to avoid monitoring or regulation and thus enhance their ability to engage in unethical conduct. We conduct a laboratory experiment in which participants engage in a competitive task and can decide between having the opportunity to misreport their performance or having their performance verified by an external monitor. To study the effect of social factors on the willingness to be subject to monitoring, we vary whether participants make this decision simultaneously with others or sequentially, as well as whether the decision is private or public. Our results show that the opportunity to avoid being submitted to regulation produces more unethical conduct than situations in which regulation is either exogenously imposed or entirely absent.	2013	Governance
Taxation and Redistribution of Residual Income Inequality Author: Golosov, Mikhail, Pricila Maziero, and Guido Menzio Journal: Journal of Political Economy This paper studies the optimal redistribution of income inequality caused by the presence of search and matching frictions in the labor market. We study this problem in the context of a directed search model of the labor market populated by homogeneous workers and heterogeneous firms. The optimal redistribution can be attained using a positive unemployment benefit and an increasing and regressive labor income tax. The positive unemployment benefit serves the purpose of lowering the search risk faced by workers. The increasing and regressive labor tax serves the purpose of aligning the cost to the firm of attracting an additional applicant with the value of an application to society.	2013	Social
To Paraphrase Mark Twain: The Cost of Fossil Fuel Divestment Has Been Greatly Exaggerated Author: Goodridge, Julie, and Christine Jantz Journal: Report: Northstar Asset Management, Inc Recently there has been a lot of talk about the role of fossil fuels and divestment of these types of investment holdings. At NorthStar, our contemplations on these issues led us to a paper by Mark Kritzman and Tim Adler that uses mathematical simulations "to quantify the expected cost of divestment." Kritzman and Adler's analysis showed that in certain circumstances the "financial cost of excluding investments based on criteria other than expected performance can be substantial, potentially amounting to hundreds of millions of dollars." So divestment is wildly costly then, right? After a careful review of this figure, we were able to determine that the actual cost of eliminating the energy sector translates to a real cost to the investor of about 0.3 percent 2 per year.	2013	Environmental, Social, Governance
Encountering Social Class Differences at Work: How "Class Work" Perpetuates Inequality Author: Gray, Barbara, and Jennifer J. Kish-Gephart Journal: Academy of Management Review Using a microsociological lens, we develop a theoretical framework that explains how social class distinctions are sustained within organizations. In particular, we introduce the concept of class work and explicate the cognitions and practices that members of different classes engage in when they come in contact with each other in cross-class encounters. We also elucidate how "class work" perpetuates inequality, as well as the consequences of class work on organizations and those at the lower end of the organizational hierarchy. By examining microlevel interactions and how they become institutionalized within organizations as prevailing rules and practices, we contribute to both institutional theory and the sociology of social class differences. We encourage future research on social class and discuss some of the challenges inherent in conducting it.	2013	Social, Governance
Voluntary Corporate Social Responsibility Disclosure and Religion Author: Griffin, Paul A., and Yuan Sun Journal: Working paper This study documents a link between religion and voluntary CSR disclosure. Based on a comprehensive data set from the CSRwire news service, we find that companies disclose less in locations with strong religious beliefs (high adherence) but disclose more in locations with more non-evangelicals (high affiliation). When we further categorize disclosures into environmental versus social groups, we find that environmental disclosure varies positively with adherence and affiliation. We attribute this to differences in beliefs regarding the importance of environmental versus social factors. In addition, regressions show that the strength and denomination of local religious beliefs associate positively with investors' returns around CSR disclosures; and portfolios constructed on the basis of religious attributes generate significant net excess returns over one to three months following such disclosures. Collectively, these results suggest that religious organizations might promote corporate disclosure as a feasible pathway for changing company individuals' norms and attitudes about environmental and social welfare. Our results suggest that stock investors should also benefit from efforts to promote CSR disclosure.	2013	Environmental, Social, Governance
Social License to Acquire Author: Hawn, Olga Journal: Working paper I examine the impact of information on corporate social responsibility (CSR) in international expansion of emerging market multinationals (EMMs). When attempting to enter a potential host country, EMMs are more likely to encounter local resistance in comparison to developed-country multinationals because their home countries are perceived as illegitimate by relevant stakeholders. I argue that they can overcome or exacerbate this resistance by generating support or opposition from relevant stakeholders in host countries through media coverage of their CSR activities. A quantitative analysis of 4,130 cross-border M&A announcements from 1990 to 2011 by firms from BRICS shows that positive (negative) news about CSR in their home countries help overcome (exacerbate) low home country legitimacy, leading to greater (lower) likelihood of and faster (slower) M&A deal completion.	2013	Environmental, Social, Governance
How Financial Market Legitimacy Conditions Changes in Social Legitimacy: The Impact of Additions and Deletions by the Dow Jones Sustainability Index Author: Hawn, Olga, Aaron Chatterji, and Will Mitchell Journal: Working paper This study considers the interplay between two dimensions of organizational legitimacy: financial market legitimacy arising from a firm's alignment with the norms and values of financial market actors and social legitimacy stemming from the firm's alignment with the norms and values of nonmarket actors. Using a large-scale financial event study of additions and deletions by Dow Jones Sustainability Index, we demonstrate that firms with higher financial market legitimacy benefit less from increased social legitimacy and lose less from decreased social legitimacy. We contribute to the neoinstitutional literature by highlighting that different dimensions of legitimacy, stemming from different organizational audiences, may substitute for each other in influencing organizational outcomes.	2013	Environmental, Social, Governance
Does Mandatory Adoption of International Financial Reporting Standards Decrease the Voting Premium for Dual-Class Shares Author: Hong, Hyun A. Journal: The Accounting Review I examine whether voting premiums are reduced following mandatory International Financial Reporting Standards (IFRS) adoption for firms that have a dual-class share structure. I find that mandatory adopters' voting premiums decrease, on average, by 8 percent subsequent to mandatory IFRS adoption. This effect is statistically significant relative to the corresponding effect for non-IFRS adopters. Further, I find that this effect is more pronounced in countries with strong legal enforcement and for mandatory adopters that experience an increase in the transparency and comparability of reported information under the new accounting regime. Taken together, these results support the view that mandatory IFRS adoption benefits minority shareholders by providing an effective mechanism to constrain the private benefits of control. However, one should interpret these results with caution as concurrent efforts to strengthen corporate governance regimes and the enforcement of corporate and securities laws may also contribute to the decrease in voting premiums documented in this paper.	2013	Governance
Research on Women Entrepreneurs: Challenges to (and from) the Broader Entrepreneurship Literature? Author: Jennings, Jennifer E., and Candida G. Brush Journal: The Academy of Management Annals This paper has three overarching objectives. The first is to document the development of the body of work known as women's entrepreneurship research. The second is to assess the contributions of this work, specifically vis-á-vis the broader entrepreneurship literature. The third is to discuss how this broader literature poses challenges (both difficulties as well as opportunities) for scholarship on female entrepreneurs. We approach these objectives from the standpoint of informed pluralism, seeking to explore whether and how women's entrepreneurship research offers extensions to — and can be extended by — general research on entrepreneurs and their ventures.	2013	Social
The Socially Responsible Quant Author: Jussa, Javed, Rochester Cahan, Miguel-A Alvarez, Sheng Wang, Yin Luo, and Zongye Chen Journal: Report: Deutsche Bank Markets Research In this report, we take readers on a journey into the world of Socially Responsible Investing (SRI). Initially, we discuss the latest trends within the broader SRI industry and examine the amount AUM, investor base, and investor demand associated with SRI. Next, we introduce an interesting company-specific ESG dataset and perform an in-depth analysis. We show how to create various stock selection strategies based on this ESG data. Lastly, we backtest the performance of ESG tilted portfolios within the US and global markets. We also show the performance results of long only, optimized ESG strategies.	2013	Environmental, Social, Governance
Do Earnings Targets and Managerial Incentives Affect Sticky Costs? Author: Kama, Itay, and Dan Weiss Journal: Journal of Accounting Research This study explores motivations underlying managers' resource adjustments. We focus on the impact of incentives to meet earnings targets on resource adjustments and the ensuing cost structures. We find that, when managers face incentives to avoid losses or earnings decreases, or to meet financial analysts' earnings forecasts, they expedite downward adjustment of slack resources for sales decreases. These deliberate decisions lessen the degree of cost stickiness rather than induce cost stickiness. The results suggest that efforts to understand determinants of firms' cost structures should be made in light of the managers' motivations, particularly agency-driven incentives underlying resource adjustment decisions.	2013	Governance
Family, Education, and Sources of Wealth Among the Richest Americans, 1982-2012 Author: Kaplan, Steven N., and Joshua D. Rauh Journal: American Economic Review We examine characteristics of the 400 wealthiest individuals in the United States over the past three decades as tabulated by Forbes Magazine, and analyze which theories of increasing inequality are most consistent with these data. The people of the Forbes 400 in recent years did not grow up as advantaged as in decades past. They are more likely to have started their businesses and to have grown up upper-middle class, not wealthy. Today's Forbes 400 were able to access education while young, and apply their skills to the most scalable industries: technology, finance, and mass retail. Most of the change occurred by 2001.	2013	Social
The Effects of Stock Lending on Security Prices: An Experiment Author: Kaplan, Steven N., Tobias J. Moskowitz, and Berk A. Sensoy Journal: Journal of Finance We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large, anonymous money manager, we create an exogenous and sizeable shock to the supply of lendable shares by taking high loan fee stocks in the manager's portfolio and randomly making available and withholding stocks from the lending market. The experiment ran in two independent phases: the first, from September 5 to 18,2008, with over $580 million of securities lent, and the second, from June 5 to September 30,2009, with over $250 million of securities lent. While the supply shocks significantly reduce market lending fees and raise quantities, we find no evidence that returns, volatility, skewness, or bid—ask spreads are affected. The results provide novel evidence on the impact of shorting supply and do not indicate any adverse effects on stock prices from securities lending.	2013	Governance
Mitigating Principal-Agent Problems in Base-of-the-Pyramid Markets: An Identity Spillover Perspective Author: Kistruck, Geoffrey M., Christopher J. Sutter, Robert B. Lount Jr., and Brett R. Smith Journal: Academy of Management Journal The potential for profitably distributing products to previously underserved "base-of-the-pyramid" (BOP) markets as a means of poverty alleviation has received growing interest within the management field. However, such business models often struggle with the agency costs that arise between the firm and local sales agents as the institutions and infrastructure in BOP markets make traditional contractual and monitoring mechanisms difficult and expensive to employ. We present the results of two complementary studies which were both conducted with salespeople in rural Guatemala. The first study employed a quasi-experimental field-study combined with in-depth interviews, while the second study was a laboratory experiment. The results of the studies suggest that identity-based mechanisms can potentially mitigate agency costs through a positive identity spillover effect in multiproduct settings.	2013	Social
The Role of the Media in Corporate Governance: Do the Media Influence Managers' Capital Allocation Decisions? Author: Liu, Baixiao, and John J. McConnell Journal: Journal of Financial Economics Using 636 large acquisition attempts that are accompanied by a negative stock price reaction at their announcement ("value-reducing acquisition attempts") from 1990 to 2010, we find that, in deciding whether to abandon a value-reducing acquisition attempt, managers' sensitivity to the firm's stock price reaction at the announcement is influenced by the level and the tone of media attention to the proposed transaction. We interpret the results to imply that managers have reputational capital at risk in making corporate capital allocation decisions and that the level and tone of media attention heighten the impact of a value-reducing acquisition on the managers' reputational capital. To the extent that "value-reducing acquisition attempts" are more likely to be abandoned, the media can play a role in aligning managers' and shareholders' interests.	2013	Governance
Power Source Mismatch and the Effectiveness of Interorganizational Relations: The Case of Venture Capital Syndication Author: Ma, Dali, Mooweon Rhee, and Daegyu Yang Journal: Academy of Management Journal This study explores the impact of the mismatch between two sources of power, ownership and status, on the effectiveness of interorganizational relations. We characterize three types of dyadic ownership-status relationships and examine their relative mixes at the group level: (1) power source match (A's ownership and status are both higher than those of B); (2) ownership-dominated power source mismatch (A's ownership advantage over B is greater than B's status advantage over A); and (3) status-dominated power source mismatch (A's ownership advantage over B is less than B's status advantage over A). We found that power source match enhanced the effectiveness of venture capital (VC) syndication, and that ownership-dominated power source mismatch strengthened the positive effect of power source match because the syndicate could maintain legitimate ownership order and benefit from diverse inputs. By contrast, status-dominated power source mismatch weakened the positive effect of power source match, because it may have created disorderly interaction. Moreover, familiarity between participating VC firms diminished the negative moderating effect of status-dominated mismatch, because mutual trust helped organize group interaction, and entrepreneurial performance fulfilled a similar function, as the autonomy of entrepreneurs from the VC syndicate buffered turbulences caused by interaction problems among VC investors.	2013	Governance
The Kind of Capitalist You Want to Be Author: Mackey, John Journal: Harvard Business Review Photograph. Abstract: The author, a co-founder and co-chief executive of the Whole Foods supermarket chain, describes his philosophy of running a business in a way that benefits investors but also benefits other stakeholders, including employees and suppliers, a philosophy he terms "conscious capitalism." He encourages other business leaders to adopt this approach, saying it represents a middle path between anti-capitalism and traditional capitalists focused only on shareholder value.	2013	Governance
Politicizing the Expertise of the Accounting Industry in the Realm of Corporate Social Responsibility Author: Malsch, Bertrand Journal: Accounting, Organizations and Society The accounting industry plays an important role in the production and implementation of accountability mechanisms surrounding corporate social responsibility practices. Operating as both politicians and implementers of knowledge (Gendron, Cooper, & Townley, 2007), the expert activities of accountants are never purely technical. This paper focuses on the mediating role of accounting firms and professional bodies in aligning the socially responsible practices of organizations with the rational morality of the market. I show that the construction of the market as a moral marker of socially responsible action is the result of a major effort of rationalization aimed at justifying the emergence of a social and moral conscience in business, not in the name of subjective feelings or human values, but in the name of an economic and depoliticized logic of profitability. Drawing on the political analysis of Latour (2004) [Politics of Nature: How to Bring the Sciences into Democracy] and his metaphor of the 'modern constitution', I view the economicization of corporate social responsibility as symptomatic of the power imbalance between the world of humans and the world of objects governing the political structure of contemporary society and weakening democratic activity.	2013	Governance
Against the Rules: Synthesizing Types and Processes of Bureaucratic Rule-Breaking Author: Martin, Andrew W., Steven H. Lopez, Vincent J. Roscigno, and Randy Hodson Journal: Academy of Management Review Organizational scandals have become all too commonplace; from investment firms' financial improprieties to sexual abuse cover-ups, rule-breaking has become a "normal" feature of organizational life. Although there is considerable scholarly work on rule-breaking, efforts to explain it remain theoretically fragmented. Here we identify two fundamental dimensions of bureaucratic rule-breaking and develop a coherent theoretical conception of it as a structurally patterned and interactionally mediated sociological fact. First, rule-breaking may be permitted or contested by those charged with rule enforcement. Manifestations of rule-breaking take on a routine character only where it is unofficially allowed; where it is not, conflict ensues. Second, the hierarchical structure of bureaucracy is mirrored by an organizational hierarchy of rule-breaking. Rule-breaking can be undertaken by individuals acting alone, it can be coordinated by workgroups, or it can be organized by top management as a matter of unofficial policy. Considering how these two dimensions of rule-breaking interact provides insight into how such actions vary with respect to the full range of organizational cross-pressures. Finally, the framework we develop offers an important corrective to the overreliance on the formal aspects of Weber's theorizing about bureaucracy and has considerable utility for generating hypotheses across an array of institutional arenas.	2013	Governance
Executive Stock Options As Mixed Gambles: Revisiting the Behavior Agency Model Author: Martin, Geoffrey P., Luis R. Gomez-Mejia, and Robert M. Wiseman Journal: Academy of Management Journal Conceiving of stock options as providing CEOs with cues for the possibility of both greater prospective wealth and losses to current wealth, we revisit predictions of the behavioral effects of equity-based pay using the behavioral agency model (BAM). We refine the BAM's original formulation and provide an explanation for previous conflicting empirical results by theorizing that the anticipation of prospective wealth attenuates the negative effect of accumulated current equity wealth upon CEO strategic risk taking. In doing so, we offer an advancement of the dialectic between: (1) classical agency scholars, arguing that equity-based pay leads to more risk taking, and (2) behavioral scholars, arguing that equity wealth creates risk bearing, leading to less risk taking. We also suggest that the influences of prospective wealth and current wealth on strategic risk taking depend on the extent to which agents can manage the risk inherent in their compensation package and agent vulnerability to losses. Formal hypotheses to test these expectations are made by focusing on equity- based compensation. Our findings offer strong support for these theoretical expectations.	2013	Governance
Taxes, Theft, and Firm Performance Author: Mironov, Maxim Journal: Journal of Finance This paper examines the interaction between income diversion and firm performance. Using unique Russian banking transaction data, I identify 42,483 spacemen, fly-by-night firms created specifically for income diversion. Next, I build a direct measure of income diversion for 45,429 companies and show that it is negatively related to firm performance. I identify the main reason for the observed effect as managerial diversion rather than tax evasion per se. I further show that stricter tax enforcement can improve firm performance: a one standard deviation increase in tax enforcement corresponds to an increase in the annual revenue growth rate of 2.6 percent.	2013	Governance
Options Trading and the Cost of Equity Capital Author: Naiker, Vic, Farshid Navissi, and Cameron Truong Journal: The Accounting Review This study examines how options trading affects the rate of return expected by investors, i.e., the implied cost of equity capital. Our cross-sectional analysis suggests that firms with listed options have lower implied cost of equity capital than firms without listed options, while the results from our temporal difference-in-differences analysis suggest that firms with listed options experience a significant decrease in their implied cost of equity capital relative to a matched sample of firms without listed options following an options listing. Moreover, we find that within firms that have listed options, firms with higher options trading volume are associated with lower implied cost of equity capital. These findings, which are robust to a wide range of additional tests, are consistent with the view that options trading improves the precision of information and reduces information asymmetry problems, resulting in lower expected return on equity.	2013	Governance
How Costly is Diversity? Affirmative Action in Light of Gender Differences in Competitiveness Author: Niederle, Muriel, Carmit Segal, and Lise Vesterlund Journal: Management Science Affirmative action is often criticized for causing reverse discrimination and lowering the qualifications of those hired under the policy. However, the magnitude of such adverse effects depends on whether the best suited candidate is hired absent the policy. Indeed affirmative action may compensate for the distortion discrimination imposes on the selection of candidates. This paper asks whether affirmative action can have a similar corrective impact when qualified individuals fail to apply for a job. We evaluate the effect of introducing a gender quota in an environment where highperforming women fail to enter competitions they can win. We show that guaranteeing women equal representation among winners increases their entry. The response exceeds that predicted by the change in probability of winning and is in part driven by women being more willing to compete against other women. The consequences are substantial as the boost in supply essentially eliminates the anticipated costs of the policy.	2013	Governance
The Climate Casino: Risk, Uncertainty, and Economics for a Warming World Author: Nordhaus, William D. Journal: Book Climate change is profoundly altering our world in ways that pose major risks to human societies and natural systems. We have entered the Climate Casino and are rolling the global-warming dice, warns economist William Nordhaus. But there is still time to turn around and walk back out of the casino, and in this essential book the author explains how. Bringing together all the important issues surrounding the climate debate, Nordhaus describes the science, economics, and politics involved — and the steps necessary to reduce the perils of global warming. Using language accessible to any concerned citizen and taking care to present different points of view fairly, he discusses the problem from start to finish: from the beginning, where warming originates in our personal energy use, to the end, where societies employ regulations or taxes or subsidies to slow the emissions of gases responsible for climate change. Nordhaus offers a new analysis of why earlier policies, such as the Kyoto Protocol, failed to slow carbon dioxide emissions, how new approaches can succeed, and which policy tools will most effectively reduce emissions. In short, he clarifies a defining problem of our times and lays out the next critical steps for slowing the trajectory of global warming.	2013	Environmental
Does the Stock Market Value the Inclusion in a Sustainability Stock Index? An Event Study Analysis for German Firms Author: Oberndorfer, Ulrich, Peter Schmidt, Marcus Wagner, and Andreas Ziegler Journal: Journal of Environmental Economics and Management This paper empirically analyzes the effect of the inclusion of German corporations in the Dow Jones STOXX Sustainability Index (DJSI STOXX) and the Dow Jones Sustainability World Index (DJSI World) on stock performance. In order to receive robust estimation results, we apply an (short-term) event study approach that is based on both a modern asset pricing model, namely the three-factor model according to Fama and French [24], and additionally a t-GARCH(1,1) model. Our empirical results suggest that stock markets may penalize the inclusion of a firm in sustainability stock indexes. This finding is mainly driven by a strongly negative effect of the inclusion in the DJSI World. In contrast, we do not find significant average cumulative abnormal returns for the inclusion in the DJSI STOXX. This suggests that the inclusion in a more visible sustainability stock index may have larger negative impacts.	2013	Environmental, Social, Governance
Climate Change Impacts: Accounting for the Human Response Author: Oppenheimer, Michael Journal: Climatic Change The assessment of potential impacts of climate change is progressing from taxonomies and enumeration of the magnitude of potential direct effects on individuals, societies, species, and ecosystems according to a limited number of metrics toward a more integrated approach that also encompasses the vast range of human response to experience and risk. Recent advances are both conceptual and methodological, and include analysis of some consequences of climate change that were heretofore intractable. In this article, I review a selection of these developments and represent them through a handful of illustrative cases. A key characteristic of the emerging areas of interest is a focus on understanding how human responses to direct impacts of climate change may cause important indirect and sometimes distant impacts. This realization underscores the need to develop integrated approaches for assessing and modeling impacts in an evolving socioeconomic and policy context.	2013	Environmental
Risk Management and Firm Value: Evidence from Weather Derivatives Author: Perez-Gonzalez, Francisco, and Hayong Yun Journal: Journal of Finance This paper shows that active risk management policies lead to an increase in firm value. To identify the effect of hedging and to overcome endogeneity concerns, we exploit the introduction of weather derivatives as an exogenous shock to firms' ability to hedge weather risks. This innovation disproportionately benefits weather-sensitive firms, irrespective of their future investment opportunities. Using this natural experiment and data from energy firms, we find that derivatives lead to higher valuations, investments, and leverage. Overall, our results demonstrate that risk management has real consequences on firm outcomes.	2013	Governance
Pricing Carbon When We Don't Know the Right Price Author: Pindyck, Robert S. Journal: Regulation Magazine Some would argue that any increases in global temperatures will be moderate, will occur in the far distant future, and will have only a small impact on the economies of most countries. If that's all true, it would imply that the SCC is small, perhaps only around $10 per ton of CO2, which would justify a very small (almost negligible) tax on carbon emissions, e.g., something like 10 cents per gallon of gasoline. Others would argue that without an immediate and stringent GHG abatement policy, there is a reasonable possibility that substantial temperature increases will occur and might have a catastrophic effect. That would suggest the SCC is large, perhaps $100 or $200 per ton of CO2, which would imply a substantial tax on carbon, e.g., as much as $2 per gallon of gas. So who is right, and why is there such wide disagreement? Should we aim for a relatively small tax on carbon, at least initially? Or should we push for a substantial tax that would lead to a large reduction in emissions on the grounds that we need an "insurance policy" against a possible catastrophic outcome?	2013	Environmental
Compliant Sinners, Obstinate Saints: How Power and Self-Focus Determine the Effectiveness of Social Influences in Ethical Decision Making Author: Pitesa, Marko, and Stefan Thau Journal: Academy of Management Journal In this research, we examine when and why organizational environments influence how employees respond to moral issues. Past research has proposed that social influences in organizations affect employees' ethical decision making, but has not explained when and why some individuals are affected by an organizational environment and some disregard it. To address this problem, we drew on research on power to propose that power makes people more self-focused, which, in turn, makes them more likely to act upon their preferences and ignore (un)ethical social influences. Using both experimental and field methods, we tested our model across the three main paradigms of social influence: informational influence (Studies 1 and 2), normative influence (Study 3), and compliance (Study 4). Results offer converging evidence for our theory.	2013	Governance
The Impact of Racial and Gender Diversity in Management on Financial Performance: How Participative Strategy Making Features Can Unleash a Diversity Advantage Author: Richard, Orlando C., Susan L. Kirby, and Ken Chadwick Journal: International Journal of Human Resource Management How does racial and gender diversity in the management ranks affect the bottom line? Our findings indicate that participative strategy making (PSM) positively moderates the relationship between both racial and gender diversity in management and firm performance measured as return on assets. Specifically, PSM strengthens the positive relationship that exists between racial diversity in management and firm performance. Although no main effect is observed for gender diversity in management, our results reveal that gender diversity in management is positively related to performance when PSM is high. However, we find that gender diversity in management is negatively related to performance when PSM is low, while gender homogeneous management experience superior performance. We offer implications for diversity research to embrace and consider the role of PSM and "inclusiveness".	2013	Social
Financial Development, Economics Growth, Income Inequality Nexus: A Case Study of Pakistan Author: Shahbaz, Muhammad Journal: International Journal of Economics and Empirical Research The purpose of this study is to examine the interrelationship between financial development, economic growth and income inequality in case of Pakistan. The study has been divided into three linkages; one linkage is between financial development, financial instability and economic growth; second is between financial development, financial instability and income distribution or income inequality, and the last one is between financial development, financial instability and poverty via economic growth. The ARDL bounds testing approach to cointegration has been applied. Our results indicate that the variables are cointegrated for long run. Furthermore, a positive relationship exists between financial development and economic growth. Financial instability not only retards economic growth directly but also weakens finance-growth nexus. The impact of financial development on income inequality is negative. It shows that a rise in financial development improves income distribution or declines income inequality. Financial development improves the incomes of poor segment of population. This empirical evidence confirms the existence of McKinnon Conduit Effect (MCE) in Pakistan. The present study suggests suitable policy options to policy makers in declining income inequality by using financial sector as a policy tool in Pakistan.	2013	Social
Insiders' Sales Under Rule 10b5-1 Plans and Meeting or Beating Earnings Expectations Author: Shon, John, and Stanley Veliotis Journal: Management Science We find that firms with insider sales executed under Rule 10b5-1 plans exhibit a higher likelihood of meeting or beating analysts' earnings expectations (MBE). This relation between MBE and plan sales is more pronounced for the plan sales of chief executive officers (CEOs) and chief financial officers (CFOs) and is nonexistent for other key insiders. The market reactions to firms that successfully meet or beat expectations are relatively positive compared with their peers that fail to do so. One interpretation of our results is that CEOs and CFOs who sell under these plans may be more likely to engage in strategic behavior to meet or beat expectations in an effort to maximize their proceeds from plan sales. However, readers should exercise caution in making inferences, because the potential presence of limit order transactions makes it difficult to unambiguously determine the direction of causality of the relation we document.	2013	Governance
Voluntary Disclosures of Emissions by US Firms Author: Stanny, Elizabeth Journal: Business Strategy and the Environment This paper examines voluntary disclosures about greenhouse gas emissions by the US S&P 500 firms to the Carbon Disclosure Project (CDP). Trends in three disclosures (answering the questionnaire, disclosing emissions and disclosing accounting methodology for emissions) are examined from 2006 to 2008. The frequencies of all three disclosures increased over this period. The finding that many firms answer the questionnaire, but do not disclose their emission amounts or how they account for them, is consistent with a prediction from the legitimacy theory literature that firms will disclose the minimum to avoid scrutiny. Disclosure patterns are routine since previous disclosures are the most significant variable in explaining subsequent ones. The research contributes to the understanding of emission disclosures, in particular, and voluntary disclosures, in general, by highlighting the importance of considering previous disclosures in understanding subsequent ones.	2013	Environmental
Private and Public Relative Performance Information Under Different Compensation Contracts Author: Tafkov, Ivo D. Journal: The Accounting Review This study investigates the conditions under which providing relative performance information to employees has a positive effect on performance when compensation is not tied to peer performance. Specifically, I investigate, via an experiment, the effect of relative performance information (present or absent) on performance under two compensation contracts (flat-wage or individual performance-based). Given the presence of relative performance information, I examine the effect of the type of relative performance information (private or public) on performance. Using theory from psychology, I predict and find that relative performance information positively affects performance under the two compensation contracts and that this positive effect is greater under an individual performance-based contract than under a flat-wage contract. I also predict and find that, although both public and private relative performance information have a positive effect on performance, the effect is greater when relative performance information is public.	2013	Governance
Industry Structure, Executive Pay, and Short-Termism Author: Thanassoulis, John Journal: Management Science This study outlines a new theory linking industry structure to optimal employment contracts and executive short-termism. Firms hire their executives using optimal contracts derived within a competitive labour market. To motivate effort, firms must use some variable remuneration. Such remuneration introduces a myopia problem: an executive would wish to inflate early expected earnings at some risk to future profits. To manage this short-termism, some bonus pay is deferred. Convergence in size among firms makes the cost of managing the myopia problem grow faster than the cost of managing the effort problem. Eventually, the optimal contract jumps from one deterring myopia to one tolerating myopia. Under some conditions, the industry partitions: the largest firms hire executives on contracts tolerant of myopia; smaller firms ensure myopia is ruled out.	2013	Governance
Financialization and Income Inequality in the United States, 1967-2010 Author: Van Arnum, Bradford M., and Michele I. Naples Journal: American Journal of Economics and Sociology This article presents a historical overview of the late 20th-century advent of financialization, that is, the unprecedented growth of the financial sector. We summarize its origins and consequences, particularly greater income inequality. An econometric model quantifies the relationship. We conclude that along with higher unemployment and an eroding minimum wage, the growth of the U.S. financial sector has contributed to the exacerbation of inequality in recent decades.	2013	Social
The Effects of Guidance Frequency and Guidance Goal on Managerial Decisions Author: Wang, Elaine Ying, and Hun-Tong Tan Journal: Journal of Accounting Research We conduct an experiment to examine the effects of guidance frequency (frequent vs. infrequent) and guidance goal (accuracy vs. meet/beat vs. truthful) on managers' operating decisions. We find that frequent guiders sacrifice total earnings for quarterly earnings predictability irrespective of their guidance goals. Furthermore, when guidance is infrequent, guiders with accuracy goals opt for quarterly earnings predictability over total earnings more often than do guiders with either meet/beat goals or truthful goals. These findings have implications for regulators and investors in terms of the unintended consequences of requesting frequent earnings guidance. Further, while managers may perceive that accuracy goals can help their firms establish forecasting and reporting reputations, we show that accuracy goals may result in dysfunctional internal managerial decisions, particularly when guidance is issued infrequently.	2013	Governance
Productivity-Target Difficulty, Target-Based Pay, and Outside-the-Box Thinking Author: Webb, R. Alan, Michael G. Williamson, and Yue (May) Zhang Journal: The Accounting Review In an environment where individual productivity can be increased through efforts directed at a conventional task approach and more efficient task approaches that can be identified by thinking outside-the-box, we examine the effects of productivity-target difficulty and pay contingent on meeting and beating this target (i.e., target-based pay). We argue that while challenging targets and target-based pay can hinder the discovery of production efficiencies, they can motivate high productive effort whereby individuals work harder and more productively using either the conventional task approach or more efficient task approaches when discovered. Results of a laboratory experiment support our predictions. Individuals assigned an easy productivity target and paid a fixed wage identify a greater number of production efficiencies than those with either challenging targets or target-based pay. However, individuals with challenging targets and/or target-based pay have higher productivity per production efficiency discovered, suggesting these control tools better motivate productive effort. Collectively, our results suggest that the ultimate effectiveness of these control tools will likely hinge on the importance of promoting the discovery of production efficiencies relative to motivating productive effort. In doing so, our results provide a better understanding of conflicting prescriptions from the practitioner literature and business press.	2013	Governance
Long CEO Tenure Can Hurt Performance Author: Xueming, Luo, Vamsi K. Kanuri, and Michelle Andrews Journal: Harvard Business Review The article discusses the effects of long tenure held by chief executive officers (CEO) on the financial performance of a firm. Topics include research which suggests the impact of CEO tenure on employees, customers, and stakeholders; the risk-averse attitudes of CEOs with long tenure; and an estimation of the optimal tenure length based on the strength of the firm's relationship with customers and employees.	2013	Governance
Is Pay a Matter of Values? Author: Adams, Renee B., and Mariassunta Giannetti Journal: International Review of Finance Public outrage over executive compensation reached an all-time high during the financial crisis. Around the world, many argued that CEOs and boards were immoral in setting their pay and pressured governments to impose restrictions on executive pay. Using a unique sample of data on human values for CEOs, we show that CEOs and directors have different values than general members of the population. CEOs and directors place more emphasis on power and achievement values than members of the population, and they emphasize self-direction values more. However, values appear to have little explanatory power for pay, in contrast to economic variables. While some CEOs may be unethical in setting their pay, our results suggest that pay is not a matter of values on average.	2012	Governance
Integrating Sustainability Reports into Financial Statements: An Experimental Study Author: Arnold, Markus, Alexander Bassen, and Ralf Frank Journal: Working paper In recent years, sustainability has increasingly attracted the attention of capital market participants. While event studies have established that stock prices react to news about environmental, social, and governance (ESG) performance, further empirical evidence raises the question of whether market participants always rationally process ESG information included in a standalone sustainability report. In an experiment with investment professionals, this study investigates whether a disconnect between financial statements and sustainability reports leads to an anchoring effect in the assessment of ESG information. Results show that users of standalone sustainability reports fully adjust their valuations to the level of integrated (financial and sustainability) report users following information about bad ESG performance. However, none of the standalone reports users adjust their valuations following information about good ESG performance. Thus, financial statement users asymmetrically anchor on their financial value judgments when assessing ESG information provided in a standalone report.	2012	Environmental
The Role of Border Carbon Adjustment in Unilateral Climate Policy: Overview of an Energy Modeling Forum Study (EMF 29) Author: Bohringer, Christoph, Edward J. Balistreri, and Thomas F. Rutherford Journal: Energy Economics Issues of emission leakage and competitiveness are at the fore of the climate policy debate in all the major economies implementing or proposing to implement substantial emission cap-and-trade programs. Unilateral climate policy cannot directly impose emission prices on foreign sources, but it can complement domestic emission pricing with border carbon adjustment to reduce leakage and increase global cost-effectiveness. While border carbon adjustment has a theoretical efficiency rationale, its practical implementation is subject to serious caveats. This article summarizes the results of an Energy Modeling Forum study (EMF 29) on the efficiency and distributional impacts of border carbon adjustment. We find that border carbon adjustment can effectively reduce leakage and ameliorate adverse impacts on energy-intensive and trade-exposed industries of unilaterally abating countries. However, the scope for global cost savings is small. The main effect of border carbon adjustment is to shift the economic burden of emission reduction to non-abating countries through implicit changes in international prices.	2012	Environmental
Unilateral Climate Policy Design: Efficiency and Equity Implications of Alternative Instruments to Reduce Carbon Leakage Author: Bohringer, Christoph, Jared C. Carbone, and Thomas F. Rutherford Journal: Energy Economics Global cost-effectiveness of unilateral emission abatement can be seriously hampered by carbon leakage. We assess three widely discussed proposals for leakage reduction: carbon-motivated border tax adjustments, industry exemptions from carbon regulation, and output-based allocation of emission allowances. We find that none of these measures amounts to a "magic bullet" when both efficiency and equity criteria matter. Compared to unilateral emission pricing alone, border carbon adjustments are most effective in leakage reduction and promotion of global cost-effectiveness but can markedly exacerbate regional inequality; exemptions and output-based allocation tend to avoid distributional pitfalls but are less effective in leakage reduction and global cost savings; exemptions may even decrease global cost-effectiveness of unilateral emission abatement.	2012	Environmental
Trends in the Literature on Socially Responsible Investment: Looking for the Keys Under the Lamppost Author: Capelle-Blancard, Gunther, and Stéphanie Monjon Journal: Business Ethics: A European Review In this paper, we use online search engines and archive collections to examine the popularity of socially responsible investing (SRI) in newspapers and academic journals. A simple content analysis suggests that most of the papers on SRI focus on financial performance. This profusion of research is somewhat puzzling as most of the studies used roughly the same methodology and obtained very similar results. So, why are there so many studies on SRI financial performance? We argue that the academic literature on SRI is mostly data driven: the famous 'looking for the keys under the lamppost' syndrome. The question of the financial performance of the SRI funds is certainly relevant but maybe too much attention has been paid to this issue, whereas more research is needed on a conceptual and theoretical ground, in particular the aspirations of SRI investors, the relationship between regulation and SRI as well as the assessment of extra-financial performances.	2012	Environmental, Social, Governance
The Business Case for Offering Domestic Partner Benefits Author: Cordes, Cynthia L. Journal: Compensation Benefits Review The lesbian, gay, bisexual, transgender population represents a large, talented group of potential employees. The dilemma for many employers is how this population should be recognized or accommodated, if at all. This article examines the issue of domestic partnerships and benefit parity. The decision regarding whether to offer domestic partner benefits hinges on an assessment of the costs and benefits of offering them, plus consideration of which package of benefits to offer, how taxes must be handled and whether domestic partner benefits will be extended to all domestic partners or only to same-sex partners. Legislative constraints are also examined.	2012	Social
Safety First Portfolio Choice Based on Financial and Sustainability Returns Author: Dorfleitner, Gregor, and Sebastian Utz Journal: European Journal of Operational Research The aim of this paper is to expand the methodological spectrum of socially responsible investing by introducing stochastic sustainability returns into safety first models for portfolio choice. We provide a foundation of the notion of sustainability in portfolio theory and establish a general model for generalized safety first portfolio management with probabilistic constraints and three specifications of it. Moreover, we prove theorems about conditions for unique optimal solutions and for the constraints of one model being more restrictive than those of another. In an empirical part, we calculate the costs of investing according to our approach in terms of less financial return.	2012	Environmental, Social, Governance
Portfolio Greenness and the Financial Performance of REITs Author: Eichholtz, Piet, Nils Kok, and Erkan Yonder Journal: Journal of International Money and Finance This paper investigates the effects of the energy efficiency and sustainability of commercial properties on the operating and stock performance of a sample of US REITs, providing insight into the net benefits of green buildings. We match data on LEED- and Energy Star-certified buildings with detailed information on REIT portfolios and calculate the share of green properties for each REIT over the 2000-2011 period. We estimate a two-stage regression model and document that the greenness of REITs is positively related to three measures of operating performance — return on assets, return on equity and the ratio of funds from operations to total revenue. We also document that there is no significant relationship between the greenness of property portfolios and abnormal stock returns, suggesting that stock prices already reflect the higher cash flows deriving from investments in more efficient properties. However, REITs with a higher fraction of green properties display significantly lower market betas.	2012	Environmental
Revenge of the Managers: Labor Cost-Cutting and the Paradoxical Resurgence of Managerialism in the Shareholder Value Era, 1984 to 2001 Author: Goldstein, Adam Journal: American Sociological Review Institutional changes associated with the rise of shareholder value capitalism have had seemingly contradictory effects on managers and managerialism in the United States economy. Financial critiques of inefficient corporate bureaucracies and the resulting wave of downsizing, mergers, and computerization subjected managers to unprecedented layoffs during the 1980s and 1990s as firms sought to become lean and mean. Yet the proportion of managers and their average compensation continued to increase during this period. How did the rise of anti-managerial investor ideologies and strategies oriented toward reducing companies' labor costs coincide with increasing numbers of ever more highly paid managerial employees? This article examines the paradoxical relationship between shareholder value and managerialism by analyzing the effects of shareholder value strategies on the growth of managerial employment and managerial earnings in 59 major industries in the U.S. private sector from 1984 to 2001. Results from industry-level dynamic panel models show that layoffs, mergers, computerization, deunionization, and the increasing predominance of publicly traded firms all contributed to broad-based increases in the number of managerial positions and the valuation of managerial labor. Results are generally consistent with David Gordon's (1996) fat and mean thesis.	2012	Governance
Global Women's Entrepreneurship Research: Diverse Settings, Questions and Approaches Author: Hughes, Karen D., and Jennifer E. Jennings Journal: Book Global Women's Entrepreneurship Research responds to recent calls from academic researchers and policy analysts alike to pay greater attention to the diversity and heterogeneity among women entrepreneurs. Drawing together studies by 26 researchers affiliated with the DIANA International Research Network, this collection contributes to a richer and more robust understanding of the field.	2012	Social
Optimal Responsible Investment Author: Jessen, Pernille Journal: Applied Financial Economics The article examines responsible investment portfolio allocation. The analysis defines an investor-specific measure of portfolio responsibility and incorporates this measure into two different conventional investment approaches. First, investor utility theory describes preferences for portfolio responsibility. The utility setup is intuitive; however, any implementation would require information on investor trade-offs between portfolio risk, expected return and responsibility. Second, mean-variance analysis captures portfolio responsibility with an additional restriction on the investment problem. This approach yields analytical solutions for the optimal responsible investment problem and provides a sensitivity analysis of the required portfolio responsibility. An example concerning index investment corroborates the results.	2012	Environmental, Social, Governance
Global Entrepreneurship Monitor Women's Entrepreneurship Report Author: Kelley, Donna, Candida Brush, Patricia Greene, and Yana Litovsky Journal: Global Entrepreneurship Monitor Report In 2012, an estimated 126 million women were starting or running new businesses in 67 economies around the world. In addition, an estimated 98 million were running established businesses. These women are not only creating jobs for themselves and their co-founders, but they also employ others. A projected 48 million female entrepreneurs and 64 million female business owners currently employ one or more people in their businesses. In addition, these women plan to grow their businesses. A predicted seven million female entrepreneurs and five million female established business owners plan to grow their businesses by at least six employees over the next five years.	2012	Social
Uncertain Outcomes and Climate Change Policy Author: Pindyck, Robert S. Journal: Journal of Environmental Economics and Management I incorporate distributions for temperature change and its economic impact in an analysis of climate change policy. As a measure of willingness to pay (WTP), I estimate the fraction of consumption that society would be willing to sacrifice to ensure that any increase in temperature at a future point is limited to T. Using information on distributions for temperature change and economic impact from recent studies assembled by the IPCC and others, I fit displaced gamma distributions for these variables. These fitted distributions, which roughly reflect the "state of knowledge" regarding warming and its impact, generally yield values of W(T) below 2%, even for small values of T, consistent with moderate abatement policies. I also calculate WTP for shifts in the mean and standard deviation of the temperature distribution, and show how WTP, and thus the demand for abatement, are driven more by outcome uncertainty than expected outcomes.	2012	Environmental
Global Warming Under Old and New Scenarios Using IPCC Climate Sensitivity Range Estimates Author: Rogelj, Joeri, Malte Meinshausen, and Reto Knutti Journal: Nature Climate Change Climate projections for the fourth assessment report (AR4) of the Intergovernmental Panel on Climate Change (IPCC) were based on scenarios from the Special Report on Emissions Scenarios (SRES) and simulations of the third phase of the Coupled Model Intercomparison Project (CMIP3). Since then, a new set of four scenarios (the representative concentration pathways or RCPs) was designed4. Climate projections in the IPCC fifth assessment report (AR5) will be based on the fifth phase of the Coupled Model Intercomparison Project5 (CMIP5), which incorporates the latest versions of climate models and focuses on RCPs. This implies that by AR5 both models and scenarios will have changed, making a comparison with earlier literature challenging. To facilitate this comparison, we provide probabilistic climate projections of both SRES scenarios and RCPs in a single consistent framework. These estimates are based on a model set-up that probabilistically takes into account the overall consensus understanding of climate sensitivity uncertainty, synthesizes the understanding of climate system and carbon-cycle behaviour, and is at the same time constrained by the observed historical warming.	2012	Environmental
On the Uncertainty About the Total Economic Impact of Climate Change Author: Tol, Richard S. J. Journal: Environmental and Resource Economics This paper uses a vote-counting procedure to estimate the probability density function of the total economic impact as a parabolic function of global warming. There is a wide range of uncertainty about the impact of climate change up to 3°C, and the information becomes progressively more diffuse beyond that. Warming greater than 3°C most likely has net negative impacts, and warming greater than 7°C may lead to a total welfare loss. The expected value of the social cost of carbon is about $29/tC in 2015 and rises at roughly 2 percent per year.	2012	Environmental
The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness? Author: Ambec, Stefan, Mark A. Cohen, Stewart Elgie, and Paul Lanoie Journal: Working paper Twenty years ago, Harvard Business School economist and strategy professor Michael Porter stood conventional wisdom about the impact of environmental regulation on business on its head by declaring that well-designed regulation could actually enhance competitiveness. The traditional view of environmental regulation held by virtually all economists until that time was that requiring firms to reduce an externality like pollution necessarily restricted their options and thus by definition reduced their profits. After all, if profitable opportunities existed to reduce pollution, profit-maximizing firms would already be taking advantage of those opportunities. Over the past 20 years, much has been written about what has since become known simply as the Porter Hypothesis (PH). Yet even today, we find conflicting evidence and alternative theories that might explain the PH, and oftentimes a misunderstanding of what the PH does and does not say. This paper provides an overview of the key theoretical and empirical insights into the PH to date, draws policy implications from these insights, and sketches out major research themes going forward.	2011	Environmental
Executive Compensation and Risk Taking Author: Bolton, Patrick, Hamid Mehran, and Joel D. Shapiro Journal: Working paper This paper studies the connection between risk taking and executive compensation in financial institutions. A theoretical model of shareholders, debtholders, depositors, and an executive suggests that 1) in principle, excessive risk taking (in the form of risk shifting) may be addressed by basing compensation on both stock price and the price of debt (proxied by the credit default swap spread), but 2) shareholders may be unable to commit to designing compensation contracts in this way and indeed may not want to because of distortions introduced by either deposit insurance or naive debtholders. The paper then provides an empirical analysis that suggests that debt-like compensation for executives is believed by the market to reduce risk for financial institutions.	2011	Governance
Drivers of Corporate Social Responsibility Attitudes: The Demography of Socially Responsible Investors Author: Chea, Eng-Tuck, Dima Jamali, Johnnie E.V. Johnson, and Ming-Chien Sung Journal: British Journal of Management Demographic characteristics of socially responsible investors (SRIs) are likely to play a significant role in shaping their perceptions and behaviour concerning corporate social responsibility (CSR). This paper identifies demographic characteristics of SRIs and explores the relationship of these characteristics with their CSR attitudes. We analyse, using generalized ordered logistic regression, the questionnaire responses of 2464 SRIs from 20 countries. The results demonstrate that younger and female SRIs are more likely to believe that a company's social and environmental performance is as important as its financial performance. Female SRIs and those with high incomes are the most likely to believe that companies should be as responsible to their shareholders as to the broader society. In addition, younger SRIs, those with high incomes and those who have attained higher education levels regard socially responsible companies as at least as profitable as other companies. The benefits which companies can derive from understanding the demographic profile of SRIs are examined, including a potentially lower cost of capital, improved CSR rankings and business policy formulation and communication consistent with CSR views held by specific groups of SRIs.	2011	Environmental, Social, Governance
A Natural Resource-Based View of the Firm: Fifteen Years After Author: Hart, Stuart L., and Glen Dowell Journal: Journal of Management The authors revisit Hart's natural-resource-based view (NRBV) of the firm and summarize progress that has been made in testing elements of that theory and reevaluate the NRBV in light of a number of important developments that have emerged in recent years in both the resource-based view literature and in research on sustainable enterprise. First, the authors consider how the NRBV can both benefit from recent work in dynamic capabilities and can itself inform such work. Second, they review recent research in the areas of clean technology and business at the base of the pyramid and suggest how the NRBV can help inform research on the resources and capabilities needed to enter and succeed in these domains.	2011	Environmental
Are Sin Stocks Paying the Price for their Accounting Sins? Author: Kim, Irene, and Mohan Venkatachalam Journal: Journal of Accounting, Auditing & Finance Recent empirical evidence suggests that sin stocks — publicly traded stocks in the gaming, tobacco, alcohol, and adult entertainment industries — are neglected by stock market participants because of social norms, regulatory scrutiny, and litigation risk. Consequently, these firms experience low institutional ownership, low analyst following, and higher expected returns. This paper examines whether higher information risk in the form of poor financial reporting quality offers an explanation for the higher expected returns of sin firms. Inconsistent with this explanation, we find that the financial reporting quality of sin firms is superior relative to a variety of control groups along two dimensions: predictability of earnings for future cash flows and timely loss recognition. These results imply that, despite superior returns and higher financial reporting quality, investors are willing to neglect sin stocks and instead bear a financial cost in order to comply with societal norms and reflect non-financial tastes in their portfolio.	2011	Environmental, Social, Governance
Morality in the Financial Market? A Look at Religiously Affiliated Mutual Funds in the USA Author: Peifer, Jared L. Journal: Socio-Economic Review Socially responsible investing (SRI) mutual funds are becoming a popular investment option for investors. Stemming from religious origins, these funds deliberately inject moral concerns into financial decision making. Focusing on religiously affiliated mutual funds, I garner empirical evidence to investigate whether the moral orientation of investors impacts their financial market behaviour. I partition mutual funds into religious SRI, religious non-SRI, secular SRI and conventional funds and look for differences in levels of fund asset stability using data from the Center for Research in Security Prices (CRSP) from 1991 to 2007. This stability refers to the extent to which investors hold on to their fund shares with little regard to past return performance and over all fund flow volatility. Religious SRI assets are found to be the most stable fund category and I adjudicate whether the structural characteristics of religious groups or the moral orientation of religious investors best explains this empirical finding.	2011	Environmental, Social, Governance
BP's Failure to Debias: Underscoring the Importance of Behavioral Corporate Finance Author: Shefrin, Hersh, and Enrico Maria Cervellati Journal: Quarterly Journal of Finance This paper provides a behavioral analysis of BP, whose capital budgeting decisions in the last decade have resulted in a series of high-profile accidents, including the worst environmental disaster in US history. This analysis uses BP as a vehicle to discuss the application of business processes and psychological pitfalls to analyze corporate culture. The paper identifies weaknesses and vulnerabilities in BP's culture, makes comparisons with the corporate financial practices at other firms, and offers suggestions about how BP can engage in debiasing. Notably, the paper also suggests that insufficient knowledge of behavioral decision making resulted in analysts, investors, and regulators attaching insufficient emphasis to the risks in BP's operations. The paper calls for more attention to the psychological aspects of corporate behavior by analysts, regulators, corporate managers, and academics.	2011	Governance
Social Values and Mutual Fund Clienteles Author: Bauer, Rob, and Paul Smeets Journal: Working paper We study socially responsible investor (SRI) clienteles by using a large and unique individual-investor data set. Our purpose is to relax the implicit assumption of many previous studies that socially responsible investors are a homogeneous group. We conduct a comprehensive segmentation analysis based on the proportion of SRI mutual funds in the portfolio of investors and the utility function of investors. The first segmentation shows that investors who are male, wealthy, risk tolerant, have extensive financial knowledge and have a professional financial advisor, invest significantly less in SRI mutual funds. We use a conjoint analysis to estimate the multi-attribute utility function of investors, which includes pecuniary and non-pecuniary utility. Segmenting individuals on their utility function yields different groups of socially responsible investors. The segments differ significantly in their loyalty towards SRI mutual funds and the attention they pay to past performance and fees. First, we identify a very loyal segment that obtains many non-pecuniary benefits by investing in SRI mutual funds and which largely ignores past performance and fees. Remarkably, instead of focusing on non-pecuniary benefits from SRI, the largest subset of the SRI clientele predominantly chases past returns. Another segment focuses primarily on fees, again suggesting a financial mindset among many of the socially responsible investors. Our finding on the heterogeneity among responsible investors offers new insights into the way mutual fund families can enhance product differentiation, advertising, and the selection of distribution channels.	2010	Environmental, Social, Governance
Women Entrepreneurs and the Global Environment for Growth: A Research Perspective Author: Brush, Candida G., Anne de Bruin, Elizabeth J. Gatewood, and Colette Henry Journal: Book Women's entrepreneurship research and the understanding of factors influencing the growth of women-owned business have advanced significantly over the last decade. Yet, challenges remain. Women Entrepreneurs and the Global Environment for Growth provides wide-ranging insights on the challenges that women entrepreneurs face growing their businesses and how these may be addressed. This volume is rooted in research and considers growth challenges, provoking thought and enriching the current literature on gender and entrepreneurship. Part I highlights how contextual factors, and especially social and familial settings of entrepreneurs, have a differential impact on men and women. Part II examines strategies, constraints and enablers of growth and performance. The authors aptly demonstrate that a well-focused gender lens is necessary to better explain the phenomenon of women's entrepreneurship. Extending previous studies about women's entrepreneurship, this volume is unique in its application of research from the Diana Project, a path-breaking initiative dating from 1999 to study female entrepreneurial success. Contributions from an international cast of authors make this a comprehensive and broadly appealing reference work	2010	Social
Equity Risk, Credit Risk, Default Correlation and Corporate Sustainability Author: diBartolomeo, Dan Journal: Journal of Investing Financial researchers have long understood the theoretical links between equity risk and credit risk. Although structural models of credit risk, such Moody's KMV, have been available for some time, the author develops a new approach to the use of such models. The author derives the market-implied expected life of a firm based on the firm's stock price, balance sheet leverage, and the equity risk forecast from his models. The first step is to translate the equity risk forecast into a forecast of the volatility of a firm's assets. An option framework is then used to derive an expectation of the market-implied expiration date of the option, which is a proxy for the expected life of the firm. Two methods for improving estimates of default correlation are provided. The article also shows empirical uses of the technique at both the firm level as a measure of credit risk and the market level as a metric for systemic risk. Finally, brief evidence is presented that the concept of corporate "sustainability" as broadly used by socially responsible investors appears to be supported, with purportedly sustainable firms having average expected lives that are longer than those of non-sustainable firms to a statistically significant degree.	2010	Environmental, Social, Governance
Sustainable Development and Entrepreneurship: Past Contributions and Future Directions Author: Hall, Jeremy K., Gregory A. Naneke, and Michael J. Lenox Journal: Journal of Business Venturing This article discusses the emerging research concerned with sustainable development and entrepreneurship, which is the focus of this special issue of the Journal of Business Venturing. Entrepreneurship has been recognized as a major conduit for sustainable products and processes, and new ventures are being held up as a panacea for many social and environmental concerns. However, there remains considerable uncertainty regarding the nature of entrepreneurship's role and how it may unfold. We begin with an overview of sustainable development and the role of entrepreneurship and outline recent contributions exploring this role. We then summarize the papers presented in this special issue and conclude with suggestions for further research.	2010	Environmental
It's a Matter of Principle: The Role of Personal Values in Investment Decisions Author: Pasewark, William R., and Mark E. Riley Journal: Journal of Business Ethics We investigate the role of personal values in an investment decision in a controlled experimental setting. Participants were asked to choose an investment in a bond issued by a tobacco company or a bond issued by a non-tobacco company that offered an equal or sometimes lower yield. We then surveyed the participants regarding their feelings toward tobacco use to determine whether these values influenced their investment decision. Using factor analysis, we identified investment- and tobacco-related dimensions on which participants' responses tended to load. Two of these factors, relating to the societal impact of investment decisions and the health effects of tobacco, were highly significant in determining whether participants selected a tobacco or non-tobacco related investment. More importantly, we found that when the rate of return on a tobacco-related investment exceeds the rate of return on an investment not involving tobacco by 1 percent, the intensity of participant concerns about the societal effects of their investment decisions was especially important in determining investment choices. This finding indicates that traditional wealth-maximization approaches, which do not consider the personal values of the investor, omit an important factor that affects investment decisions.	2010	Environmental, Social, Governance
Gaining Ground: Integrating Environmental, Social and Governance (ESG) Factors into Investment Processes in Emerging Markets Author: Birgden, Helga, Danyelle Guyatt, and Xinting Jia Journal: Report: International Finance Corporation While asset managers in developed markets are often credited with being a step ahead in factoring environmental, social, and corporate governance (ESG) issues into investment decisions, this latest research from Mercer and sponsored by IFC reveals that emerging market asset managers are increasingly considering ESG factors in their investment decisions. In fact, it suggests that sustainable investment assets under management in emerging markets have grown to over $300 billion — or nearly 10 percent of total investment in emerging markets in 2008. As part of this effort, IFC and Mercer produced the first rating on ESG practices of fund managers in China, India, South Korea and Brazil and identified best-practice ESG examples to pre-empt potential risks and enhance returns.	2009	Governance
A Gender-Aware Framework for Women's Entrepreneurship Author: Brush, Candida G., Anne de Bruin, and Friederike Welter Journal: International Journal of Gender and Entrepreneurship The purpose of this paper is to offer a new gender-aware framework to provide a springboard for furthering a holistic understanding of women's entrepreneurship. The paper builds on an existing framework articulating the "3Ms" (markets, money and management) required for entrepreneurs to launch and grow ventures. Drawing on institutional theory, it is argued that this "3M" framework needs further development and "motherhood" and "meso/macro environment" are added to extend and mediate the "3Ms" and construct a "5M" framework to enable the study of women's entrepreneurship in its own right. It was found that "Motherhood" is a metaphor representing the household and family context of female entrepreneurs, which might have a larger impact on women than men. The meso/macro environment captures considerations beyond the market, such as expectations of society and cultural norms (macro), and intermediate structures and institutions (meso).	2009	Social
CSR, Rationality and the Ethical Preferences of Investors in a Laboratory Experiment Author: Consolandi, Costanza, Alessandro Innocenti, and Alessandro Vermicelli Journal: Research in Economics This experimental study aims to clarify to what extent and in which direction investors react to CSR (Corporate Social Responsibility) initiatives meant to upgrade the ethical standards of firms beyond the minimal requirements of law. Subjects in the laboratory were invited to invest their endowment in a portfolio of financial assets. We provided information on the expected returns of each stock and on its inclusion in an ethical index, or exclusion from it. Our findings show that subjects' behavior appears to be a function not only of their individual pay-offs but also of the information on the ethical standards of the firms issuing stocks. Most of them, however, did not show a fully irrational behavior as they consistently correlated the share of stocks with their expected returns. We may conclude that the sizeable reaction of our investors to the inclusion of a stock in the ethical index, or its exclusion from it, is the fruit of a deliberate choice.	2009	Environmental, Social, Governance
Modelling CO2 Emission Allowance Prices and Derivatives: Evidence from the European Trading Scheme Author: Daskalakis, George, Dimitris Psychoyios, and Raphael N. Markellos Journal: Journal of Banking & Finance This paper studies the three main markets for emission allowances within the European Union Emissions Trading Scheme (EU ETS): Powernext, Nord Pool and European Climate Exchange (ECX). The analysis suggests that the prohibition of banking of emission allowances between distinct phases of the EU ETS has significant implications in terms of futures pricing. Motivated by these findings, we develop an empirically and theoretically valid framework for the pricing and hedging of intra-phase and inter-phase futures and options on futures, respectively.	2009	Environmental
Diana: A Symbol of Women Entrepreneurs' Hunt for Knowledge, Money, and the Rewards of Entrepreneurship Author: Gatewood, Elizabeth J., Candida G. Brush, Nancy M. Cater, Patricia G. Greene, and Myra M. Hart Journal: Small Business Economics This article discusses the questions and issues that prompted the founding of the Diana Project, a multi-university research program aimed at identifying factors that support and enable high growth in women-led ventures. Despite the fact that women business owners comprise a significant portion of the economy, women face challenges in acquiring the resources needed to expand their businesses. This article details both the myths and realities associated with women's entrepreneurship in their quest for growth. In particular, we examine the strategies that women entrepreneurs use to position their firms for growth, especially those strategies related to growth capital. Our results show that women seeking venture capital (VC) have degrees, graduate degrees, and experience that should not preclude them from obtaining financing. We also found that even though women-led businesses are frequently clustered in industries less attractive to financiers, women seeking equity funding are in the appropriate industries. Further, women spend a considerable amount of time using both formal and informal networks in their search for capital and in seeking capital. Because of the importance of the VC industry as a provider of growth capital and its reliance on its network for investment referrals, we also examined the participation and role of women as decision-makers in industry. Women's participation in the VC industry has not kept pace with industry growth, and women have exited the industry at a faster rate than men, thus creating a significant barrier for women entrepreneurs in that it is less likely that their networks will overlap with the financial supplier networks, despite any effort they may expend networking and seeking capital.	2009	Social
Future Proof? Embedding Environmental Social and Governance Issues in Investment Markets - Outcomes of the Who Cares Wins Initiative 2004-2008 Author: Knoepfel, Ivo, and Gordon Hagart Journal: Report: IRC, Global Compact This report summarizes the strategic outcomes of the Who Cares Wins Initiative, a series of working conferences and financial industry consultations that took place between 2004 and 2008. On January 28,2009, IFC released the final report of the Who Cares Wins initiative. The Who Cares Wins 2008 report details the progress that has been made to increase the volume of capital that uses environmental, social and governance (ESG) analysis as a key part of investment decisions. It also provides recommendations to scale up ESG integration for widespread implementation to occur throughout the financial industry.	2009	Governance
Stakeholder Information and Shareholder Value Author: Krüger, Philipp Journal: Working paper This paper examines the relationship between incidents of positive and negative social responsibility and shareholder value in an event study setting. I find significant negative abnormal returns when third parties (e.g. newspapers, non- governmental organizations or regulatory authorities) publicly report about negative social responsibility. Negative returns are particularly strong for information concerning product safety and the firm's impact on communities or the wellbeing of employees. In contrast, positive news does not generate a systematic reaction. Analyzing positive events in greater detail, I nonetheless identify two causal mechanisms relating positive social responsibility and shareholder value. On the one hand, events containing signals about past and likely future economic performance bring about positive abnormal returns. As such, charitable donations to communities, profit distribution to employees and the appointment of women or members of minority groups to senior executive positions are rewarded by investors. On the other hand, positive events indicative of higher company expenses due to the use of alternative energy or (non)-monetary benefits to employees generate a significantly negative reaction.	2009	Environmental, Social, Governance
Developing an International Assurance Standard on Greenhouse Gas Statements Author: Simnett, Roger, Michael Nugent, and Anna L. Huggins Journal: Accounting Horizons Worldwide public concern over climate change and the need to limit greenhouse gas (hereafter, GHG) emissions has increasingly motivated public officials to consider more stringent environmental regulation and standards. The authors argue that the development of a new international assurance standard on GHG disclosures is an appropriate response by the auditing and assurance profession to meet these challenges. At its December 2007 meeting, the International Auditing and Assurance Standards Board (hereafter, IAASB) approved a project to consider the development of such a standard aimed at promoting trust and confidence in disclosures of GHG emissions, including disclosures required under emissions trading schemes. The authors assess the types of disclosures that can be assured, and outline the issues involved in developing an international assurance standard on GHG emissions disclosures. The discussion synthesizes the insights gained from four international roundtables on the proposed IAASB assurance standard held in Asia-Pacific, North America, and Europe during 2008, and an IAASB meeting addressing this topic in December 2008.	2009	Environmental
The Diana Project: Women Business Owners and Equity Capital: The Myths Dispelled Author: Brush, Candida G., Nancy M. Carter, Elizabeth J. Gatewood, Patricia G. Greene, and Myra M. Hart Journal: Diana Project Report This report from the Diana Project explores the extent of equity investments in women-owned businesses. Surveyed were 1,700 applicants to the 2000 Springboard forums to examine the current state of venture capital for women entrepreneurs interested in, and capable of, high growth venturing, in hopes of debunking myths about women and venture capital. Eight myths about women and equity capital are identified: (1) women don't want to own high growth businesses; (2) women don't have the right educational backgrounds to build large ventures; (3) women don't have the right types of experience to build large ventures; (4) women aren't in the network and lack the social contacts to build a credible venture; (5) women don't have the financial savvy or resources to start high growth businesses; (6) women don't submit business plans to equity providers; (7) women-owned ventures are in industries unattractive to venture capitalists; and (8) women are not a force in the venture capital industry. Each of these myths is examined, and many are shown to be false or undergoing change. Nonetheless, a disparity exists between men- and women-owned ventures and their access to funding. Six recommendations to ensure equity investment in all entrepreneurial ventures are offered.	2008	Social
Revisiting the Relation between Environmental Performance and Environmental Disclosure: An Empirical Analysis Author: Clarkson, Peter M., Yue Li, Gordon D. Richardson, and Florin P. Vasvari Journal: Accounting, Organizations and Society Previous empirical evidence provides mixed results on the relationship between corporate environmental performance and the level of environmental disclosures. We revisit this relation by testing competing predictions from economics based and socio-political theories of voluntary disclosure using a more rigorous research design. In particular, we improve on the prior literature by focusing on purely discretionary environmental disclosures and by developing a content analysis index based on the Global Reporting Initiative sustainability reporting guidelines to assess the extent of discretionary disclosures in environmental and social responsibility reports. This index better captures firm disclosures related to its commitment to protect the environment than the indices employed by prior studies. Using a sample of 191 firms from the five most polluting industries in the US, we find a positive association between environmental performance and the level of discretionary environmental disclosures. The result is consistent with the predictions of the economics disclosure theory but inconsistent with the negative association predicted by socio-political theories. Nevertheless, we show that socio-political theories explain patterns in the data ("legitimization") that cannot be explained by economics disclosure theories.	2008	Environmental
European Emission Trading Scheme and Competitiveness: A Case Study on the Iron and Steel Industry Author: Demailly, Damien, and Philippe Quirion Journal: Energy Economics We quantify the impact of the European Emission Trading Scheme (ETS) on the two dimensions of competitiveness — production and profitability — for the iron and steel industry. Among those covered by the scheme, this sector is one of the most exposed, since it is both highly CO2-intensive and relatively open to international trade. We also examine the robustness of these results to various assumptions: marginal abatement cost curve, trade and demand elasticities, as well as pass-through rates and updating of allocation rules, of which the latter two are scarcely debated. We conclude that for this sector, competitiveness losses are small. We prove this conclusion to be robust. Hence arguments against tightening the environmental stringency of the ETS in Phase II are not justified on grounds of competitiveness loss. Our systematic sensitivity analysis allows us to identify the important assumptions for each output variable. It turns out that pass-through rates and updating rules are significant, despite being often implicit and least debated in existing analyses.	2008	Environmental
Sin Stock Returns Author: Fabozzi, Frank J., and Becky J. Oliphant Journal: Journal of Portfolio Management In this article, the authors examine the issue of how social values affect economic values. Based on a small subset of the stock universe that has been generally associated with sin-seeking activities, such as alcohol consumption, adult services, gaming, tobacco, weapons, and biotech alterations, the authors find that a sin portfolio produced an annual return of 19 percent over the study period, unambiguously outperforming common benchmarks in terms of both magnitude and frequency. Several likely reasons for the positive excess returns in sin stocks are identified. The authors argue that trustees or fiduciaries who develop institutional investment policy statements should fully understand the economic consequences of screening out stocks of companies that produce a product inconsistent with their value systems. In addition, institutional investors should question if the cost to uphold common social standards is worthwhile.	2008	Environmental, Social, Governance
Corporate Social Responsibility and the Cost of Debt Financing Author: Goss, Allen, and Gordon S. Roberts Journal: Working paper This study examines the link between corporate social responsibility and bank debt. Our focus on banks exploits their specialized role as quasi-insider delegated monitors. We find that firms with the worst social responsibility scores pay higher spreads (16 bps) but firms with average or good social scores benefit very little from increasing them further. The modest premium charged the worst firms together with the absence of a payoff for the best firms suggest that banks do not regard corporate social responsibility as significantly value enhancing or risk reducing.	2008	Environmental, Social, Governance
Impact of Carbon Price Policies on U.S. Industry Author: Ho, Mun S., Richard D. Morgenstern, and Jhih-Shyang Shih Journal: Working paper This paper informs the discussion of carbon price policies by examining the potential for adverse impacts on domestic industries, with a focus on detailed sector-level analysis. The assumed policy scenario involves a unilateral economy-wide $10/ton CO2 charge without accompanying border tax adjustments or other complementary policies. Four modeling approaches are developed as a proxy for the different time horizons over which firms can pass through added costs, change input mix, adopt new technologies, and reallocate capital. Overall, we find that a readily identifiable set of industries experience particularly adverse impacts as measured by reduced output and that the relative burdens on different industries are remarkably consistent across the four time horizons. Output rebounds considerably over longer time horizons, and the adverse impacts on profits diminish even more rapidly in most cases. Over the short term employment losses mirror output declines, while gains in other industries fully offset the losses over the longer horizons. At the same time, leakage abroad is considerable in some sectors, particularly when reductions in exports are considered.	2008	Environmental
The Value Relevance of Greenhouse Gas Emissions Allowances: An Exploratory Study in the Related United States SO2 Market Author: Johnston, Derek M., Stephan E. Sefcik, and Naomi S. Soderstrom Journal: European Accounting Review This paper examines the valuation implications of greenhouse gas (GHG) emissions allowances. We posit that the value of a firm's bank of emission allowances has two components that are likely to be positively valued by the capital market: (1) an asset value component; and (2) a real option value component. Since the necessary data to examine this research hypothesis in the setting of GHG emission allowances is not yet available, we test our conjecture by examining the value relevance of sulfur dioxide (SO2) emission allowances held by US electric utilities. Empirical results reveal that the capital market assigns a positive price to a firm's bank of SO2 emission allowances, consistent with the argument that emission allowances have, at least, an asset value component that is assigned a positive price by the market. We also find weak evidence consistent with the market assigning a real option value to the allowance banks.	2008	Environmental
Assessing the Ethical Content of Alternative Investments Author: Tomlinson, Andrew Journal: Journal of Investing Values-based investors (like other investors) have been advised to consider alternative investments as a source of uncorrelated returns, but we lack a framework within which to assess the "values" content of such investments. The types of relationships that may exist between an investor, the instrument, and related parties are analyzed. Using this analysis, a preliminary framework is constructed to assess and rank the ethical content of traditional and nontraditional investments in the form of an ethical scoring matrix	2008	Environmental, Social, Governance
Mutual Fund Attributes and Investor Behavior Author: Bollen, Nicolas P. B. Journal: Journal of Financial and Quantitative Analysis I study the dynamics of investor cash flows in socially responsible mutual funds. Consistent with anecdotal evidence of loyalty, the monthly volatility of investor cash flows is lower in socially responsible funds than in conventional funds. I find strong evidence that cash flows into socially responsible funds are more sensitive to lagged positive returns than cash flows into conventional funds, and weaker evidence that cash outflows from socially responsible funds are less sensitive to lagged negative returns. These results indicate that investors derive utility from the socially responsible attribute, especially when returns are positive.	2007	Environmental, Social, Governance
How Do Shareholders Respond to Downsizing? A Meta-Analysis Author: Capelle-Blancard, Gunther, and Nicholas Couderc Journal: Working paper Massive layoffs announcements often attract extensive media coverage. Beyond the newsworthiness of such events, is such a decision in any way correlated to the company's stock market performance? Do some firms resort to massive layoffs simply to please shareholders? In this paper, we offer a thorough review of the literature in an attempt to answer these questions. The core of the paper is a meta-analysis. We show that layoffs announcements have an overall negative effect on stock market prices, and this remains true whatever the country, the period of time or the type of firm considered. However, some factors may ease as well as worsen the stock market's reaction to such announcements. The reason for the layoff decision is among the most decisive factors and the market sanction will be more severe in the case of defensive layoffs (taken by firms facing difficulties) than for offensive layoffs (when they are part of a more general reorganization strategy).	2007	Social
Deregulation and Evironmental Differentiation in the Electric Utility Industry Author: Delmas, Magali, Michael V. Russo, and Maria J. Montes-Sancho Journal: Strategic Management Journal This paper analyzes how economic deregulation impacts firm strategies and environmental quality in the electric utility industry. We find evidence that the deregulation introduced to this historically staid industry has stimulated environmental differentiation. Differentiation is most likely to appear where its point of uniqueness is valued by customers, and we confirm this relationship in our sample. Specifically, utilities that served customers who exhibited higher levels of environmental sensitivity generated more 'green' power. The tendency for firms to differentiate in this way is lessened if they are relatively more dependent on coal-fired generation or relatively more efficient. Thus, there is evidence that firms sort themselves into either differentiation or low-cost strategies as the competitive realities of a deregulated world unfold. Deregulation and the ensuing environmental differentiation illustrate how utilities exploited formerly unmet customer demand for green power. The result has been greater levels of renewable generation and, hence, a cleaner environment.	2007	Environmental
The Emergence of CSR and Sustainability Indexes Author: Finch, Nigel Journal: Working paper The aim of sustainability performance indices is to provide a benchmark for financial products and to measure the financial performance of companies that lead their industry in terms of sustainability. This paper examines sustainability performance indices on global financial markets and determines the extent of Australian representation within these global indices. The paper outlines the emergence of nine major market indices designed to track the performance of a variety of listed companies that are seen to have desirable sustainability practices. These indices include: ARESE Sustainable Performance Indices; Dow Jones Sustainability Index; FTSE4Good Indices; Calavert, Domini Social Index; E. Capital Partners Ethical Index; Ethibel Sustainability Index; Humanix Ethical Index; and Jantzi Social Index. Following a brief description of each of these indices, this paper catalogues each index according to: (a) their launch date; (b) the markets they cover; and (c) their Australian weighting. This section concludes by identifying that Australian listed companies are not well represented among these major indices.	2007	Environmental, Social, Governance
Emerging Markets Investments: Do Environmental, Social and Governance Issues Matter? Author: Hagart, Gordon, and Ivo Knoepfel Journal: Report: MISTRA Foundation for Strategic Environmental Research This report summarises the outcomes of a workshop held in Stockholm on 17 October 2007 by Mistra, The Foundation for Strategic Environmental Research, on the integration of environmental, social and governance (ESG) issues into emerging markets (EM) investments. The goals of the workshop were to challenge the received wisdom regarding the role of ESG issues in emerging markets investments, to provide actionable ideas for industry practitioners, and to suggest priority research issues for the academic community. The key questions posed by the half-day workshop were as follows: Which are the key ESG issues at the country-level and at the level of individual companies? Which ESG issues may reveal downside risks and which may lead to financial opportunities? What are priority areas for engagement with companies and collaboration with other investors? How can academic research support the work of financial practitioners in this field?	2007	Environmental, Social, Governance
The Determinants of Sin Stock Returns: Evidence on the European Market Author: Salaber, Julie Journal: Working paper This article deals with the time-series variation in average sin stock returns — returns on publicly-traded companies involved in producing tobacco, alcohol, and gaming. Next to nothing has been written about this class of stocks, especially on the European stock market. The hypothesis I explore in this paper is that sin stock returns depend on legal and cultural characteristics such as religious preferences, the level of excise taxation, and the degree of litigation risk. Using data on 18 European countries over the period 1975-2006, my results show evidence that Protestants are more "sin averse" than Catholics, and require a significant premium on sin stocks. Moreover, sin stocks have higher risk-adjusted returns when they are located in a country with high excise taxation; and sin stocks outperform other stocks when the litigation risk is higher, even after controlling for well-known risk factors such as market capitalization and book-to-market ratio. These findings suggest that sin stock returns depend on both legal and religious environments of each country.	2007	Environmental, Social, Governance
Some Determinants of the Socially Responsible Investment Decision: A Cross Country Study Author: Williams, Geoffrey Journal: Journal of Behavioral Finance This paper develops a general model of investor choice to analyze socially responsible investment (SRI). Drawing on data from a large survey of investors across five countries, we show that SRI may be driven more by investor attitudes toward the social aims of firms rather than by financial returns. We also show that investors who are concerned about social issues as consumers appear to extend this behavior into their portfolio strategies. We find little evidence that demographic factors affect SRI, but some indirect evidence that market context in terms of institutional ownership and the regulatory environment may play a role.	2007	Environmental, Social, Governance
The Use of Bootstrapping by Women Entrepreneurs in Positioning for Growth Author: Brush, Candida G., Nancy M. Carter, Elizabeth J. Gatewood, Patricia G. Greene, and Myra M. Hart Journal: Venture Capital: An International Journal of Entrepreneurial Finance The number of women entrepreneurs is rising rapidly and many are creating substantial businesses. For most women-led ventures, growth is funded by personal investment and debt, although a small percentage draw on private equity investment to fuel high growth. Of those that seek growth, not only do they face higher obstacles in obtaining capital, but little is known about ways they position ventures for growth. This paper addresses the question: 'How do women develop financing strategies to prove the business concept, meet early stage milestones, and demonstrate to external investors the value and potential of their businesses?' Data are drawn from phone interviews with 88 US female entrepreneurs seeking an equity investment to grow their businesses. The analysis examines the correspondence between bootstrapping and stage of business development. Results show significant differences in the use of bootstrap options utilized by women-led ventures depending on stage of business development. Companies that have not achieved sales were more likely to emphasize bootstrapping to reduce labour, while those companies with greater sales were more likely to minimize cost of operations. Implications for future research and education are suggested.	2006	Social
Corporate Social Responsibility and Resource-Based Perspectives Author: Castelo Branco, Manuel, and Lucia Lima Rodrigues Journal: Journal of Business Ethics Firms engage in corporate social responsibility (CSR) because they consider that some kind of competitive advantage accrues to them. We contend that resource-based perspectives (RBP) are useful to understand why firms engage in CSR activities and disclosure. From a resource-based perspective CSR is seen as providing internal or external benefits, or both. Investments in socially responsible activities may have internal benefits by helping a firm to develop new resources and capabilities which are related namely to know-how and corporate culture. In effect, investing in social responsibility activities and disclosure has important consequences on the creation or depletion of fundamental intangible resources, namely those associated with employees. The external benefits of CSR are related to its effect on corporate reputation. Corporate reputation can be understood as a fundamental intangible resource which can be created or depleted as a consequence of the decisions to engage or not in social responsibility activities and disclosure. Firms with good social responsibility reputation may improve relations with external actors. They may also attract better employees or increase current employees' motivation, morale, commitment and loyalty to the firm. This article contributes to the understanding of why CSR may be seen as having strategic value for firms and how RBP can be used in such endeavour.	2006	Governance
A Model of Corporate Philanthropy Author: Fisman, Ray, Heal, Geoffrey, and Vinay Nair Journal: Working paper We present a signaling model of corporate philanthropy. We argue that CSR may serve as a means of vertical differentiation in a market where quality is difficult to observe, so that a firm must signal its aversion to sacrificing quality (i.e., generate trust with the consumer). Our separating equilibrium is built on the assumption that entrepreneurs can be of two types — they are either purely profit motivated or they care about both profits and the externalities they impose. This difference in entrepreneurs' preferences makes corporate philanthropy more expensive for profit-maximizing entrepreneurs than it is for 'socially-minded' entrepreneurs, who gain some warm glow from charity. In contrast to earlier work, our model does require any complementarities between production and CSR provision, and is not subject to the Friedman critique that it is more efficient for firms to return earnings to shareholders to make their own social expenditures. Preliminary empirical tests support our framework: corporate philanthropy and profits are positively related only in industries with high advertising intensity and high competition.	2006	Environmental, Social, Governance
Socially Enhanced Indexing: Applying Enhanced Indexing Techniques to Socially Responsible Investment Author: Jennings, William W., and Gregory W. Martin Journal: Journal of Investing While socially responsible investing (SRI) is large and growing, current SRI offerings have shortcomings—including style biases, excessive expenses, tracking error and an incomplete menu of screens. We propose using factor-based models in SRI-screened investment universes to create "socially enhanced indexing" or SRI enhanced indexing. Using commercial software and readily available portfolio screens, "socially enhanced indexing" offers mass customization of values-based investment programs on the cheap.	2006	Environmental, Social, Governance
The Impact of CO2 Emissions Trading on Firm Profits and Market Prices Author: Smale, Robin, Murray Hartley, Cameron Hepburn, John Ward, and Michael Grubb Journal: Climate Policy The introduction of mandatory controls and a trading scheme covering approximately half of all carbon dioxide emissions across Europe has triggered a debate about the impact of emissions trading on the competitiveness of European industry. Economic theory suggests that, in many sectors, businesses will pass on costs to customers and make net profits due to the impact on product prices combined with the extensive free allocations of allowances. This study applies the Cournot representation of an oligopoly market to five energy-intensive sectors: cement, newsprint, steel, aluminium and petroleum. By populating the model with empirical data, the results are shown for three future emissions price scenarios. The results encompass the extent of cost pass-through to customers, changes in output, changes in UK market share, and changes in firm profits. The results suggest that most participating sectors would be expected to profit in general, although with a modest loss of market share in the case of steel and cement, and closure in the case of aluminium.	2006	Environmental
Broadening Horizons for Responsible Investment: An Analysis of 50 Major Emerging Market Companies Author: Tozer, David Journal: Report: Ethical Investment Research Services (EIRiS) EIRIS conducted a study of 50 major emerging market companies to assess what opportunities exist for responsible investors. It found that the overwhelming majority of companies in the study have shown evidence of addressing at least some environmental, social and governance issues in their public disclosures, with some significantly so.	2006	Governance
Sustinability Management and Reporting: Benefits for Financial Institutions in Developing and Emerging Economies Author: UNEP Finance Initiative Journal: Report: UNEP Finance Initiative Sustainability Management and Reporting Project This report is remarkable for its wealth of fifteen case studies on financial institutions and their experience with sustainability management and reporting. As a summary, the report points out that the take up of Sustainability Management and Reporting (SMR) by financial institutions especially in developing and emerging economies is still low whilst the financial sector plays an important role in sustainable development as intermediaries to the allocation of capital (pg 2). The report assumes lack of awareness and capacity as the two main barriers hindering many financial institutions to implement SMR (Id). The report identifies four primary ways in which implementing SMR can provide benefits to financial institutions: revenue growth, risk management, access to capital, and cost savings and efficiency (Id). As for revenue growth, SMR may be used as a framework to develop new products and services and drive revenue growth through i) early market entry into new socio-environmental business opportunities, ii) enhancing reputational advantage in a new and growing market and iii) by SMR displaying the institution's commitment towards sustainability. As for risk management, in a world where new regulations and expectations of the social responsibility of financial institutions are growing, SMR assists in appropriately assessing these risks within the institution's overall credit risk analysis and other financial decision-makings. As for access to capital, many financial institutions especially in developing and emerging economies also have found that SMR improves its access to both public and private capital and in assisting the organization in meeting its stock exchange listing requirements. As for cost savings and efficiency: if an SMR is installed systematically and is consequently embraced across all company divisions it should lead to a better-managed organization.	2006	Environmental
Components of CEO Transformational Leadership and Corporate Social Responsibility Author: Waldman, David A., Donald Siegel, and Mansour Javidian Journal: Journal of Management Studies We use transformational leadership theory to explore the role of CEOs in determining the extent to which their firms engage in corporate social responsibility (CSR). We test this theory using data from 56 US and Canadian firms. CEO intellectual stimulation (but not CEO charismatic leadership) is found to be significantly associated with the propensity of the firm to engage in 'strategic' CSR, or those CSR activities that are most likely to be related to the firm's corporate and business-level strategies. Thus, studies that ignore the role of leadership in CSR may yield imprecise conclusions regarding the antecedents and consequences of these activities. We also critique transformational leadership theory, in terms of its overemphasis on charismatic forms of leadership. This leads to a reconceptualization of transformational leadership, which emphasizes the intellectual stimulation component in the context of CSR.	2006	Environmental, Social, Governance
Evolving Sustainably: A Longitudinal Study of Corporate Sustainable Development Author: Bansal, Pratima Journal: Strategic Management Journal This study operationalizes corporate sustainable development and examines its organizational determinants. Data for this project pertain to Canadian firms in the oil and gas, mining, and forestry industries from 1986 to 1995. I find that both resource-based and institutional factors influence corporate sustainable development. By exploring time-related effects, I also find that media pressures were important in early periods and resource-based opportunities endured over time. This finding challenges the assumption that firms first adopt innovations in response to technical rewards which are later institutionalized. These counter-intuitive results may be attributable to the unique characteristics of the dependent variable, corporate sustainable development. They raise important questions and directions for future research.	2005	Environmental
Why Do We Invest Ethically? Author: Beal, Diana, Michelle Goyen, and Peter Philips Journal: Journal of Investing Analysis of three potential motives for ethical investment-financial returns, non-wealth returns, and social change-indicates that these motives are neither exhaustive nor exclusive; one single motive will not explain the behavior of all ethical investors. There may be a trade-off between financial and psychic returns for some investors. The trade-off for consumption-investors is expected to be close to zero (total utility is maximized at low levels of ethical investment in the fun of participation model) and is expected to vary with the ethical intensity of investment-investors, as shown when ethical intensity is included in the investor's utility function. Psychic return can also be viewed as an increase in happiness, an approach that lends itself to empirical testing to improve our understanding of why we invest ethically.	2005	Environmental, Social, Governance
Socially Responsible Investment (SRI): An Assessment of the Quality of Existing Products/Services Author: MISTRA, The Foundation for Strategic Environmental Research Journal: Report: MISTRA Foundation for Strategic Environmental Research This report includes a summary of SRI-market developments and key characteristics of best practice. It also briefly presents identified best-practice examples based on MISTRA's key requirements. The assessment of existing products/services has therefore focused on products/services that specifically consider company strategies, organization and management systems and also benchmark the companies' environmental performance (pg 5).	2005	Governance
Mainstreaming Responsible Investment Author: Zadek, Simon, Mira Merme, and Richard Samans Journal: Report: World Economic Forum Global Corporate Citizenship Initiative The report starts on the premise that: "today, beneficial owners — those who will ultimately benefit from share ownership of large corporations — are no longer the wealthy privileged few. And that increasingly on a global basis, the beneficial owners are now the huge majority of working people who have their pensions and other life savings invested in shares of the world's largest companies (pp 7)." Funds have an ever-larger proportion of their equity invested internationally and constitute majority ownership of our corporate world. Each pensioner owns a tiny interest in vast numbers of companies. Most individual participants in pension plans, mutual funds, and insurance companies are investing to provide for their retirement or other long-term financial needs. Social and environmental factors can be quite significant drivers of longer term financial performance, particularly through their influence on the enabling environment for business operations and investment. In the long run, the vitality of markets is influenced greatly by prevailing legal, regulatory and macroeconomic conditions, which ultimately reflect policy.	2005	Governance
Pension Funds and Emerging Markets Author: Chan-Lau, Jorge A. Journal: Working paper This paper focuses on the investment behavior of pension funds in developed and emerging market countries. First, it analyzes the main determinants of the emerging market asset allocation of pension funds in developed countries. Second, it assesses how pension funds in emerging markets have contributed to the development of local securities markets. Third, it analyzes the determinants of pension funds' investment performance. The paper concludes with a discussion of why the emerging market asset allocation of pension funds in developed countries is likely to increase and what the challenges faced by pension funds in emerging markets are.	2004	Governance
Stakeholders and Environmental Management Practices: An Institutional Framework Author: Delmas, Magali, and Michael W. Toffel Journal: Business Strategy and the Environment Despite burgeoning research on companies' environmental strategies and environmental management practices, it remains unclear why some firms adopt environmental management practices beyond regulatory compliance. This paper leverages institutional theory by proposing that stakeholders — including governments, regulators, customers, competitors, community and environmental interest groups, and industry associations — impose coercive and normative pressures on firms. However, the way in which managers perceive and act upon these pressures at the plant level depends upon plant- and parent-company-specific factors, including their track record of environmental performance, the competitive position of the parent company and the organizational structure of the plant. Beyond providing a framework of how institutional pressures influence plants' environmental management practices, various measures are proposed to quantify institutional pressures, key plant-level and parent-company-level characteristics and plant-level environmental management practices. Copyright ©2004 John Wiley & Sons, Ltd and ERP Environment.	2004	Environmental
The Performance of Sustainability Indexes Author: Maux, Julien Le, and Erwan Le Saout Journal: Finance India In recent years, we have seen a very important growth in "socially responsible investment" over the world. This is no more a niche. The aim of this paper is to analyze the performance of sustainability indexes. We show that investment does not lead to an under-performance of the market. We offer some explanations for the apparent absence of social cost in investing in this kind of investment. One frequently levelled criticism towards socially responsible investment is that they entail a systematic deterioration of the return/risk trade-off for the investor. indeed, restricting the investment universe does shift down the efficient frontier compared to the unrestricted case. Looking at the results, the socially responsible investment style apparently performs particularly well in rising markets.	2004	Environmental, Social, Governance
Cleaning a Passive Index: How to Use Portfolio Optimization to Satisfy CSR Constraints Author: Milevsky, Moshe A., Andrew Aziz, Al Goss, Jane Thomson, and David Wheeler Journal: Working paper The emotionally charged debate regarding the broader role of corporations within society has landed squarely in the lap of pension fund and endowment trustees, many of whom are being pressured by their stakeholders to divest themselves of companies that lack so-called social responsibility. Some researchers claim that these companies are destined to mediocre financial performance given their irresponsible behavior and should rightfully be divested. A more traditional group argues that any attempt to second-guess the market by constraining the investible universe is itself destined to mediocrity. In this paper we take neither side of the debate. Rather, we illustrate how portfolio optimization can be used to locate statistical portfolio substitutes for investments and companies that fail a corporate social responsibility (CSR) screen. And, while the mathematics behind constrained portfolio optimization was developed more than 50 years ago, we find that the economic penalty for eliminating a small group of undesirable stocks - whether justified or not - is economically insignificant when the remaining investments are properly realigned. We illustrate the feasibility of this procedure with a cleansing process for the Canadian S&P/TSX 60 index, based on an employee practice CSR screen developed by Thompson and Wheeler (2004).	2004	Environmental, Social, Governance
Selling to Socially Responsible Consumers: Competition and the Private Provision of Public Goods Author: Bagnoli, Marc, and Susan Watts Journal: Journal of Economics & Management Strategy We model firms as competing for socially responsible consumers by linking the provision of a public good (environmentally friendly or socially responsible activities) to sales of their private goods. In many cases, too little of the public good is provided, but under certain conditions, competition leads to excessive provision. Further, there is generally a trade-off between more efficient provision of the private and the public good. Our results indicate that the level of private provision of the public good varies inversely with the competitiveness of the private-good market and that the types of public goods provided are biased toward those for which consumers have high participation value.	2003	Environmental, Social, Governance
Venture Capital Access in the New Economy: Is Gender an Issue? Author: Brush, Candida G., Nancy M. Carter, Elizabeth J. Gatewood, Patricia G. Greene, and Myra M. Hart Journal: In The Emergence of Entrepreneurship Policy: Governance, Start-Ups and Growth in the Knowledge Economy, edited by David M. Hart Why is the equity investment in women-led ventures so tiny? What explains the apparent disparity between the numbers and contributions of women-owned firms and the small amount of venture capital investments they receive? To investigate the apparent disconnect between opportunities and resources in equity funding for high-growth women-owned businesses, the "Diana Project" was formed. Funded by the Kauffman Center for Entrepreneurial Leadership, the U.S. Small Business Administration, and the National Women's Business Council, principal investigators representing five universities proposed to investigate supply and demand for equity capital and to compare growth models in male and female-led businesses. A theoretical model was developed that encompassed the structure of the industry and actions of three key players in the process.	2003	Social
Women Entrepreneurs Who Break Through to Equity Financing: The Influence of Human, Social and Financial Capital Author: Carter, Nancy, Candida Brush, Patricia Greene, Elizabeth Gatewood, and Myra Hart Journal: Venture Capital: An International Journal of Entrepreneurial Finance This is one of the first efforts to systematically study attributes of women business owners and their equity financing strategies. The study explored the factors associated with the use of equity capital in women led firms. Hypotheses examined the influence of human and social capital on the likelihood of seeking equity funding, access to funding sources, bootstrapping techniques and development of financial strategies. Data for this study came from a survey of 235 US women business owners conducted by the National Foundation for Women Business Owners from a sample identified by Dun and Bradstreet. Results showed only graduate education significantly influenced the odds of using outside equity financing. Social capital had no direct effect on increasing likelihood of using equity but influenced the use of bootstrapping techniques. Network diversity was positively related to the use of personal sources of funding, while professional advisor relationships were negatively related to personal sources of financing. Our research suggests women obtaining higher levels of education may increase their likelihood of obtaining funding. Further, during the bootstrap phase, utilizing social capital is an asset.	2003	Social
CSR: Rebuilding Trust in Business, 'A Perspective on Corporate Social Responsibility in the 21st Century' Author: Fitzgerald, Niall Journal: Report: London Business School This article is based on a speech given by given by Niall Fitzgerald, Chairman of Unilever at London Business School in October 2003. Mr. Fitzgerald shares a business challenge Unilever encountered in India. He highlights the social implications of the challenge and shows how evaluating business decision based on social criteria is a subjective endeavour. He believes that business has a very important and central role in society. It also has a responsibility towards the general wellbeing of stakeholders.	2003	Governance
The 'Ethics' of Ethical Investing Author: Schwartz, Mark Journal: Journal of Business Ethics There appears to be an implicit assumption by those connected with the ethical investment movement (e.g., ethical investment firms, individual investors, social investment organizations, academia, and the media), that ethical investment is in fact ethical. This paper will attempt to challenge the notion that the ethical mutual fund industry, as currently taking place, is acting in an ethical manner. Ethical issues such as the transparency of the funds and advertising are discussed. Ethical mutual fund screens such as tobacco, alcohol, gambling, and the military are preliminarily examined to better determine whether they can actually be defined as "ethical" screens as opposed to merely social, political, or religious screens. A code of ethics for ethical investment is constructed by which ethical mutual fund firms can be audited for ethical compliance.	2003	Environmental, Social, Governance
The Role of Social Capital and Gender in Linking Financial Suppliers and Entrepreneurial Firms: A Framework for Future Research Author: Brush, Candida G., Nancy M. Carter, Elizabeth J. Gatewood, Patricia G. Greene, and Myra M. Hart Journal: Venture Capital: An International Journal of Entrepreneurial Finance Equity capital fuels growth companies and yields high returns for investors. The process of equity investment and ultimate harvesting of innovative companies has created significant wealth among fund investors, venture capitalists, angels and new entrepreneurs. Extensive research investigates all phases of the venture capital investment process, industry characteristics and returns to investors. Surprisingly absent from current research are studies including women, on both the supply (equity provider) and demand (equity seeker) sides. Women make significant contributions to the US economy in the workforce and as business owners, yet research about women as recipients of equity capital and providers of equity is extremely scarce. This raises a question--are women being left out of the wealth creation process? Our paper addresses this question by exploring women's role in supply and demand of equity capital. We utilize a social capital perspective to develop a conceptual framework and focus our analysis on early stage and angel investment. The paper concludes with directions for future research.	2002	Social
Risking Shareholder Value? ExxonMobil and Climate Change Author: Mansley, Mark Journal: Working paper This study is the beginning of a new corporate era. In recent years, it has been widely recognized that shareholder activism creates value. Concerned shareholders are becoming dissatisfied with identifying and declining to invest in companies with small sensitivity for societal concern. There is convergence between social and activist investors. All shareholders want their company to be run with respect for long-term societal values. They are convinced that only such commitment will create long-term investment value. I have developed a simulation in aid of this proposition, which you can find at http://www.ragm.com - BRIGHTLINE. Increasingly, owners worldwide are taking on responsibility for the functioning of their company. There is possibly no single area where corporate functioning impinges more importantly on human existence than with respect to climate change. Author Mark Mansley has framed his report as an evenhanded question to the directors of ExxonMobil. This is not a report that says — "You are wrong, we are right". Rather it addresses the underlying issues and asks whether present corporate policies needlessly create risks and, thereby, threaten long-term value. Mansley has had substantial experience in this field, most recently as the author of the respected study commissioned by one of the largest pension funds in the United Kingdom — the Universities Superannuation Scheme. There, he provides a thorough consideration of the history and the science essential for an understanding of the present status of climate change discussions. Here, Mansley examines the implications of climate change at one company. His findings are challenging and unexpected in many areas — not least in the impact of ExxonMobil's stance on its competitors or the potential for ExxonMobil to use climate policy to add value. The report suggests that ExxonMobil has little to fear, and much to gain, from a significantly more constructive approach to climate change.	2002	Environmental
Risk Control Techniques for Social Investing Author: Troutman, Michael Journal: Journal of Investing Plan sponsors can use industry standard risk management tools to achieve more consistent and competitive results in their socially constrained mandates. Multiple-factor risk models and portfolio optimization tools are especially valuable in the management of portfolios with social constraints. Plan sponsors can apply risk management tools and concepts in at least three different ways. They can use portfolio risk models to help construct the lists of socially excluded securities; identify portfolio managers who can use optimization models and risk measurement tools to offset, at least partially, the gaps created by the exclusion of particular securities; and use manager optimization tools to build a team of managers who will have the opportunity to achieve targeted levels of value-added and active risk similar to unconstrained mandates.	2001	Environmental, Social, Governance
Why Companies Go Green: A Model of Ecological Responsiveness Author: Bansal, Pratima, and Kendall Roth Journal: Academy of Management Journal The authors conducted a qualitative study of the motivations and contextual factors that induce corporate ecological responsiveness. Analytic induction applied to data collected from 53 firms in the United Kingdom and Japan revealed three motivations: competitiveness, legitimation, and ecological responsibility. These motivations were influenced by three contextual conditions: field cohesion, issue salience, and individual concern. In this article, the authors also identify the conditions that likely lead to high corporate ecological responsiveness.	2000	Environmental
The Effects of Downsizing on Operating Performance Author: Espahbodi, Reza, Teresa A. John, and Gopala Vasudevan Journal: Review of Quantitative Finance and Accounting We examine the performance of 118 firms that downsized between 1989-1993. We find that downsizing firms experience declines in operating performance prior to the downsizing announcement. Operating performance improves significantly following the downsizing. These firms are able to reduce the cost of sales, labor cost, capital expenditures and R&D expenditures. We also find that firms that perform poorly in their industries prior to the downsizing and have increases in assets following the downsizing have larger improvements in performance. There is some evidence that the improvements are greater for firms that increase their focus.	2000	Social
The Rise of Fiduciary Capitalism: How Institutional Investors Can Make Corporate American More Democratic Author: Hawley, James P., and Andrew T. Williams Journal: Book At the beginning of the twenty-first century, the structure of corporate ownership is undergoing major change. The Rise of Fiduciary Capitalism chronicles the rise of fiduciary institutions — primarily public and private pension funds — which now own almost 50 percent of the equity of American corporations. In turn, approximately 50 percent of Americans either own stock individually or, more typically, have an ownership or retirement interest in these fiduciary institutions. James P. Hawley and Andrew T. Williams argue that, because of their extensive diversification of ownership, fiduciary institutions have become "niversal owners" with a significant stake in a broad cross-section of the largest publicly traded firms in the economy. Forced to evaluate portfolio-wide effects of individual firm actions, these institutions have a quasipublic policy interest in the long-term health and wellbeing of the whole society. As universal owners, fiduciary institutions are in a unique position to develop and pursue policies of virtuous efficiency, minimizing negative externalities and encouraging positive outcomes by the firms in their portfolios. In this way, they have the potential to make the firms in which they own stock more responsive to the needs of the Americans to whom they are responsible and thereby make those firms more democratic. The Rise of Fiduciary Capitalism investigates the nature of property and ownership in the modern corporate setting, the effects of the decline of traditional, personally held property in equity form, and the governance implications of the developing new form of corporate ownership.	2000	Governance
Wall Street Likes its Women: An Examination of Women in the Top Management Teams of Initial Public Offerings Author: Welbourne, Theresa M. Journal: Working paper As part of an overall research project exploring the determinants of initial public offering (IPO) firm success, I examine the effect of having women on the top management teams of IPO firms on the organizations' short and long-term financial performance. Looking at three different samples, I found that trend data indicate IPO firms are gaining in the number of women they employ in their top management teams (where top management team is defined as those listed in the firm's prospectus). The results of the study reported in this paper suggest one reason why the trend is growing; women appear to have a positive effect on the firms' short-term performance (Tobin's Q, which is market price to book value per share), three-year stock price growth, and growth in earnings per share.	1999	Social
Just Say No? The Investment Implications of Tobacco Divestiture Author: Kahn, Ronald N., Claes Lekander, and Tom Leimkuhler Journal: Journal of Investing Governments are banning smoking wherever the public congregates. The Food and Drug Administration is considering regulating cigarettes as a drug. Candidates accuse each other of accepting tobacco money. Smokers are suing cigarette makers. Across the country, tobacco is underfire. In the investment arena, calls for divesting city and state pension funds of tobacco stocks are increasing. Do these efforts, and many others, constitute social responsibility investing or active management by the legislature? Either way, what costs and investment implications follow from tobacco divestiture? Review the general investment issues concerning divestiture and present a detailed analysis of the implications of this decision.	1997	Environmental, Social, Governance
Ecologically Sustainable Organizations: An Institutional Approach Author: Jennings, P. Devereaux, and Paul A. Zandbergen Journal: Academy of Management Review Our main objective in this article is to join the growing group of "green" organization theorists by demonstrating the usefulness of institutional theory as an approach to ecologically sustainable organizations. Institutional theory helps to understand how consensus is built around the meaning of sustainability and how concepts or practices associated with sustainability are developed and diffused among organizations. We extend institutional theory by offering hypotheses in four different areas: (a) the incorporation of values into organizational sustainability, (b) the study of institutions as distinct elements within systems, (c) the study of institutions as distinct spheres, and (d) the construction of paradigms that support organizational sustainability. We then offer possible modifications to institutional theory that are suggested by the extension to a new area of study. Among them are the consideration of natural constraints on sense making and paradigm construction, the study of regional networks, and the recognition of the role of individual actors. Finally, we discuss possible avenues for future research by drawing on research that we are currently conducting.	1995	Environmental
Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm? Author: Palmer, Karen, Wallace E. Oates, and Paul R. Portney Journal: Journal of Economic Perspectives This paper takes issue with the Porter-van der Linde claim that traditional benefit-cost analysis is a fundamental misrepresentation of the environmental problem. They contend that stringent environmental measures induce innovative efforts leading to improvements in abatement and production technologies that offset the costs of the regulations. Drawing both on basic economic theory and existing data on control costs, the authors argue that such offsets are special cases. The data indicate offsets are minuscule relative to control costs. There is no free lunch here: environmental programs must justify their costs by the benefits that improved environmental quality provides to society.	1995	Environmental
The Impact of Layoff Announcements on Shareholders Author: Ursel, N., and M. Armstrong-Stassen Journal: Relations Industrielles / Industrial Relations This study explores the reactions of shareholders to layoff announcements. We examine shareholders' reactions to 137 layoff announcements by 57 Canadian firms over the period January 1989 to August 1992. Shareholders are found to react negatively to announcements of a layoff in their company. Shareholders have a greater negative reaction to a company's first layoff than to subsequent layoff announcements. Moreover, shareholders respond more negatively to large-scale layoffs than to those involving small percentages of the workforce. The implications of these findings for human resource management are discussed.	1995	Social
The Effect of Advanced Notice of Plant Closings on Firm Value Author: Clinebell, S., and J. Clinebell Journal: Journal of Management The issue of workers displaced because of plant closings gained prominence in the 1980's because of their growing numbers. With the increased attention focused on plant closings, the topic of advance notice has also gained prominence. This paper examines the issue of advance notice for plant closings and its effect on firm value. The findings of this study indicate that longer periods of advance notice have significant negative effects on firm value.	1994	Social
Costing the Earth Author: Cairncross, Frances Journal: Book This book is intended to encourage the intelligent use of markets. Its first half looks at the challenges that environmental policy poses for government. It examines what might be called the 'political economy of environmental mismanagement' and the policies that make good sense environmentally and politically. Many of those policies involve the sensible application of economic ideas. An underlying belief is that sound economics and sound environmental policies go hand in hand. Inflation, subsidies, and a failure to charge people the true costs of their activities all breed weak economies; they also breed environmental damage. Similarly, sound economics dictates that policies should put as little burden as possible on society to achieve their goal. Environmental policies that harness market forces meet that test. The second half of the book goes beyond the requirements of policy to look at the implications for companies. It explores the incentives for companies to introduce greener products and greener ways of making them. Only by enlisting the help of companies, it argues, can governments hope to combine economic growth with good environmental stewardship. Electors will not welcome greener policies if those deliver what they perceive to be a lower standard of living. Government will be able to pursue better environmental policies only if companies find ways to give people the level of comfort to which they have become accustomed, in less environmentally damaging ways. Companies are more likely to help politicians if politicians take their proper responsibilities seriously. Government must establish environmental priorities and determine what information (as a minimum) needs to be put before the public. It needs to set clear rules and work out how true environmental costs are to be reflected in costs of production. These are not responsibilities for companies. Their role is to respond to the framework that government sets out. The better that framework is designed, and the more imaginatively companies use it, the more electors will support environmental policies.	1993	Environmental, Social, Governance
Financial Implications of South Africa Divestment Author: Grossman, Blake, and William Sharpe Journal: Financial Analysts Journal The minimum financial costs associated with divesting a portfolio of stocks of companies doing business in South Africa include both direct and indirect costs of buying and selling securities plus effects on risk and expected return. The magnitude of these costs depends materially on the divestment strategy chosen. Divesting only the stocks of companies not complying with the Sullivan Principles results in the exclusion of a relatively small portion of an investment universe and has little effect on portfolio characteristics and returns. A complete divestment policy--selling all South Africa-related stocks--has more meaningful consequences. The divested South Africa-free (SAF) universe consists of companies whose market capitalizations are significantly smaller than those of the total universe. The SAF universe is also relatively underweighted in technological capital goods and consumer growth stocks and overweighted in finance and utility stocks. Analysis of a representative divestment strategy based on buying and holding a value-weighted portfolio of all the SAF stocks in the NYSE suggests that initial transaction costs for a $1 billion portfolio can be as low as 0.41 percent of the overall portfolio value (assuming trades are not liquidity or information-motivated). Reinvestment of dividends and investment of additional funds after divestment should not substantially exceed those associated with an undivested portfolio. Historical returns since 1959 indicate, further, that the SAF portfolio, diluted with Treasury bills to bring its risk in line with the NYSE, would have outperformed the NYSE by 0.187 per cent annually. Analysis of the factors contributing to the SAF portfolio's returns indicates that the exclusion of South Africa-related stocks hurt portfolio performance, on average, while the small stock bias of the SAF strategy greatly increased portfolio return.	1986	Environmental, Social, Governance
Does Having Women on Boards Create Value? The Impact of Societal Perceptions and Corporate Governance in Emerging Markets Author: Abdullah, Shamsul N., Ku Nor Izah Ku Ismail, and Lilac Nachum Journal: Strategic Management Journal Many governments seek to impose gender equality on boards, but the consequences of doing so are not clear and could harm firms and economies. We shed light on this topic by conceptualizing the relationships as firm — and board — specific and embedded within specific contexts. The theory is developed with reference to emerging markets, and tested on Malaysian firms. We find that female directors create value for some firms and decrease it for others. The impact varies across different performance indicators, firms' ownership, and boards' structure. The findings call for nuanced responses in relation to women's nominations from both governments and firms.	2016	Social
The Relationships between Corporate Social Responsibility Author: A'an, Yavuz, Cemil Kuzey, Mehmet Fatih Acar, and Atif Aç'kgöz Journal: Journal of Cleaner Production This research is intended to deepen our understanding of environmental supplier development (ESD), which is the development of suppliers to manufacturers for the purpose of environmental performance. Corporate social responsibility (CSR) is examined as the precedent of ESD. The impact of ESD on firm performance is examined as well. Using the survey method, 314 responses were collected from Turkish manufacturing plants with more than 250 employees. A partial least square structural equation model (PLS SEM) was constructed to test both the reliability and validity of measurement and the structural model. The results indicate that CSR is positively related to ESD and that ESD has a positive influence on the financial performance and competitive advantage of the participating firms. The effects of size and sector were analyzed. It was discovered that while larger firms are slightly more sensitive to CSR, all the links are significant in both group 1 (250-400) and group 2 (>400). However the relationship between CSR and ESD was not significant in heavy industries as compared to the sectors of consumer products, textiles, and chemicals. It is possible that heavy industries (i.e., metal casting) that are somewhat away from the public eye put little emphasis on CSR, or that they may have other reasons as they develop their suppliers. Firms can be encouraged to practice CSR and ESD by being exposed to the performance benefits. To the best of our knowledge, this study is the first to test these specific relationships.	2016	Environmental
The Real Effects of Share Repurchases Author: Almeida, Heitor, Vyacheslav Fos, and Mathias Kronlund Journal: Journal of Financial Economics We employ a regression discontinuity design to identify the real effects of share repurchases on other firm outcomes. The probability of share repurchases that increase earnings per share (EPS) is sharply higher for firms that would have just missed the EPS forecast in the absence of the repurchase, when compared with firms that just "beat" the EPS forecast. We use this discontinuity to show that EPS-motivated repurchases are associated with reductions in employment and investment and a decrease in cash holdings. Our evidence suggests that managers are willing to trade off investments and employment for stock repurchases that allow them to meet analyst EPS	2016	Governance
Corporate Acquisitions, Diversification, and the Firm's Life Cycle Author: Arikan, Asli M., and Rene M. Stulz Journal: Journal of Finance Agency theories predict that older firms make value-destroying acquisitions to benefit managers. Neoclassical theories predict instead that such firms make wealth-increasing acquisitions to exploit underutilized assets. Using IPO cohorts, we establish that, while younger firms make more related and diversifying acquisitions than mature firms, the acquisition rate follows a U-shape over firms' life cycle. Consistent with neoclassical theories, we show that acquiring firms have better performance and growth opportunities and create wealth through acquisitions of nonpublic firms throughout their life. Consistent with agency theories, older firms experience negative stock price reactions for acquisitions of public firms.	2016	Governance
Clustered Shareholder Activism Author: Artiga González, T., and P. Calluzzo Journal: Working paper We study multiple shareholder activists simultaneously targeting the same firm. We document that activists prefer to target firms which other activists are already targeting. This phenomenon is not explained by firm specific characteristics, and is more prevalent among activists who are geographically proximate and who pursue similar activism strategies. Furthermore, our results show that these campaigns produce elevated profitability and abnormal market returns which are significantly higher than campaigns which feature a single activist. These results suggest that activists deliberately pursue a clustered strategy.	2016	Governance
The Product Market Effects of Hedge Fund Activism Author: Aslan, Hadiye, and Praveen Kumar Journal: Journal of Financial Economics We examine the product market spillover effects of hedge fund activism (HFA) on the industry rivals of target firms. HFA has negative real and stockholder wealth effects on the average rival firm. The effects on rivals' product market performance is commensurate with post-activism improvements in target's productivity, cost and capital allocation efficiency, and product differentiation. Financially constrained rivals accommodate these improvements but those facing high intervention threat respond effectively to them. The spillover effects are strengthened in less concentrated and low entry barrier industries. The results are robust to the alternative hypothesis of strategic target selection by hedge funds.	2016	Governance
Corporate Social Responsibility and Firm Debt Maturity Author: Benlemlih, Mohammed Journal: Journal of Business Ethics In this article, we extend the streams of research on the capital structure of socially responsible firms by investigating the impact of corporate social responsibility (CSR) on firm debt maturity. Using a large sample of US firms, we provide evidence that high CSR firms significantly reduce their debt maturity. In particular, our results suggest that diversity and community are the dimensions that matter the most in explaining debt maturity. In additional analyses that use a seemingly unrelated regression approach, our results show that CSR decreases the extent to which investments are financed with long-term debt and increases the extent to which investments are financed with short-term debt and shareholders' equity. Overall, these findings support the view that high CSR firms use debt maturity to manage CSR overinvestment problems and to signal their high quality and their access to the debt market.	2016	Environmental, Social, Governance
Corporate Social Responsibility and Investment Efficiency Author: Benlemlih, Mohammed, and Mohammad Bitar Journal: Journal of Business Ethics Using a sample of 21,030 US firm-year observations that represents more than 3000 individual firms over the 1998-2012 period, we investigate the relationship between Corporate Social Responsibility (CSR) and investment efficiency. We provide strong and robust evidence that high CSR involvement decreases investment inefficiency and consequently increases investment efficiency. This result is consistent with our expectations that high CSR firms enjoy low information asymmetry and high stakeholder solidarity (stakeholder theory). Moreover, our findings suggest that CSR components that are directly related to firms' primary stakeholders (e.g. employee relations, product characteristics, environment, and diversity) are more relevant in reducing investment inefficiency compared with those related to secondary stakeholders (e.g. human rights and community involvement). Finally, additional results show that the effect of CSR on investment efficiency is more pronounced during the subprime crisis. Taken together, our results highlight the important role that CSR plays in shaping firms' investment behaviour and efficiency.	2016	Environmental, Social, Governance
Board Diversity, Firm Risk, and Corporate Policies Author: Bernile, Gennaro, Vineet Bhagwat, and Scott E. Yonker Journal: Working paper We examine the impact of director diversity on corporate policies and risk. Using a multi-dimensional diversity index, we find that board diversity leads to significantly lower realized return volatility. This is largely due to diverse boards adopting less risky financial policies. However, consistent with diversity fostering more efficient (real) risk-taking, firms with greater board diversity invest more in R&D and produce more and better innovation. Although diversity is associated with higher board frictions, performance tests indicate that the gains from diversity outweigh the costs. Instrumental variable tests that exploit exogenous variation in firm access to the supply of diverse nonlocal directors indicate that these relations are causal.	2016	Social
The Strategic Value of Carbon Tariffs Author: Bohringer, Christoph, Jared C. Carbone, and Thomas F. Rutherford Journal: American Economic Journal: Economic Policy We ask whether the threat of carbon tariffs might lower the cost of reductions in world carbon emissions by inducing unregulated regions to adopt emission controls. We use a numerical model to generate payoffs of a game in which a coalition regulates emissions and chooses whether to employ carbon tariffs against unregulated regions. Unregulated regions respond by abating, retaliating, or ignoring the tariffs. In the Nash equilibrium, the use of tariffs is a credible and effective threat. It induces cooperation from noncoalition regions that lowers the cost of global abatement substantially relative to the case where the coalition acts alone.	2016	Environmental
The Cost of Supermajority Target Shareholder Approval: Mergers versus Tender Offers Author: Boone, Audra, Brian Broughman, and Antonio J. Macias Journal: Working paper Using a 2013 Delaware law that reduces the authorization threshold for two-step tender-offers from 90 percent to 50 percent, we investigate whether variation in the required level of shareholder support affects acquisition outcomes. We find that lower authorization requirements increase the use of tender offers relative to mergers for Delaware targets. Though the new law removes target shareholders' right to vote on certain deals, they do not appear to be harmed by the change. Indeed, Delaware targets received greater acquisition premiums and target cumulative abnormal returns after the passage of the new law relative to target firms incorporated in another state. Our results suggest that the supply of equity is not perfectly elastic and caution that supermajority approval requirements can increase the risk of shareholder holdup and lead to inefficient choice of deal structure.	2016	Governance
Obstructing Shareholder Coordination in Hedge Fund Activism Author: Boyson, Nicole M., and Pegaret Pichler Journal: Working paper Recent theoretical work argues that shareholder coordination can contribute to success in hedge fund activism. We examine the actions that target firms take to limit coordination among shareholders, thus obstructing the ability to coordinate. Targets most often obstruct coordination when the potential for incumbent shareholder coordination is highest and when the target firm stock experiences abnormal turnover just before the activism announcement. Firms that obstruct coordination suffer worse long-term stock and operating performance and a lower probability of mergers, payouts, asset sales, and management changes following activism. Our results are robust to propensity score matching and an instrumental variables analysis.	2016	Governance
The Influence of Political Bias in State Pension Funds Author: Bradley, Daniel, Christos Pantzalis, and Xiaojing Yuan Journal: Journal of Financial Economics Using a sample of state pension funds' equity holdings, we find evidence of not only local bias, but also bias towards politically-connected stocks. Political bias is detrimental to fund performance. State pension funds have longer holding durations of politically-connected local firms and display disposition behavior in these positions. Political bias is positively related to the percentage of politically-affiliated trustees on the board and Congressional connections. The more politically-affiliated trustees on the board, the more the fund shifts toward risky asset allocations. Overall, our results imply that political bias is likely costly to taxpayers and pension beneficiaries.	2016	Governance
How Does Hedge Fund Activism Reshape Corporate Innovation? Author: Brav, Alon, Wei Jiang, Song Ma, and Xuan Tian Journal: Working paper This paper studies how hedge fund activism reshapes corporate innovation. We find that firms targeted by hedge fund activists experience an improvement in innovation efficiency after intervention. Despite reduction in R&D expenditures, target firms experience increases in innovation output (measured by both patent counts and citations), with stronger effects seen among firms starting with more diversified innovation portfolios. We further show that the reallocation of innovative resources and the redeployment of human capital contribute to the refocusing of the scope of innovation and lead to gains in efficiency. Finally, we establish that the link between hedge fund interventions and improvements in innovation efficiency is a by-product of asset reallocations triggered by activist interventions at the target firms.	2016	Governance
The Association Between Gender-Diverse Compensation Committees and CEO Compensation Author: Bugeja, Martin, Zoltan Matolcsy, and Helen Spiropoulos Journal: Journal of Business Ethics We examine the association between gender-diverse compensation committees and CEO pay and find that CEO compensation levels are negatively associated with gender-diversity of the compensation committee, but not gender-diversity of the board. Furthermore, we find that excess CEO compensation is negatively related to subsequent return on assets for firms with an all-male compensation committee but not for firms with a gender-diverse compensation committee. These results suggest that CEOs do receive some level of excess compensation which can be mitigated by having one or more females on the compensation committee.	2016	Social
Corporate Environmental Responsibility and Firm Risk Author: Cai, Li, Jinhua Cui, and Hoje Jo Journal: Journal of Business Ethics In this study, we examine the relation between corporate environmental responsibility (CER) and risk in U.S. public firms. We develop and test the risk-reduction, resource-constraint, and cross-industry variation hypotheses. Using an extensive U.S. sample during the 1991-2012 period, we find that for U.S. industries as a whole, CER engagement inversely affects firm risk after controlling for various firm characteristics. The result remains robust when we use firm fixed effect or an alternative measure of CER using principal component analysis or downside risk measures. To address the concern of endogeneity bias, we use a system equations approach and dynamic system generalized methods of moment regressions, and continue to find that environmentally responsible firms experience lower risk. These findings support the risk-reduction hypothesis, but not the resource-constraint hypothesis, along with the notion that the top management in U.S. firms is generally risk averse and that their CER engagement facilitates their risk management efforts. Our cross-industry analysis further reveals that the inverse CER-risk association mainly comes from the manufacturing sector, whereas in the service sector, CER tends to increase firm risk.	2016	Environmental
The Real Effects of Mandatory Dissemination of Non-Financial Information through Financial Reports Author: Christensen, Hans B., Eric Floyd, Lisa Yao Liu, and Mark Maffett Journal: Working paper We examine the real effects of mandatory, non-financial disclosures, introduced into securities regulation under the Dodd-Frank Act, which require firms to disclose their mine-safety records in their financial reports. Most, if not all, of the information included in these disclosures was already publicly available, which allows us to examine the incremental effects of including the information in financial reports. Comparing mines owned by SEC-registered issuers to those mines that are not, we document that the disclosures are associated with an approximately 11 percent decrease in both mining-related citations and injuries. We also find suggestive evidence that productivity declines. Using short-window return tests around disclosures of citations, we show that markets price mine-safety information and that financial statement disclosure appears to incrementally increase investors' awareness of safety issues. Overall, our results suggest that there are real effects of disclosing non-financial information in financial statements — even if this information is publicly available elsewhere.	2016	Governance
CEO Severance Agreements: A Theoretical Examination and Research Agenda Author: Cowen, Amanda P., Adelaide Wilcox King, and Jeremy J. Marcel Journal: Academy of Management Review CEO severance has captured the attention of a wide array of audiences, yet it remains largely unexplored by management scholars. In this article we offer a rigorous theoretical examination of CEO severance with the goal of developing a foundation for a systematic research agenda. In particular, we consider if, and how, severance agreements can be effective in serving the interests of both CEOs and shareholders. We argue that severance agreements have potential value as both an executive recruitment and a governance tool but that the way they are conventionally structured undermines the value shareholders realize from them. The implications of structure have been almost entirely overlooked by scholars, perhaps because the influence of compensation consultants has left little variance in how severance agreements are implemented across firms. We address this gap by theorizing about how severance agreements could be structured to effectively generate value for executives and shareholders. To do this, we introduce a categorization of key dimensions of CEO severance agreements and consider how each of these dimensions can be structured to facilitate CEO recruitment while simultaneously mitigating future governance problems. Our propositions offer new opportunities for governance and compensation scholars to link CEO severance agreements to important organizational outcomes.	2016	Governance
Does Corporate Social Responsibility Affect Information Asymmetry? Author: Cui, Jinhua, Hoje Jo, and Haejung Na Journal: Journal of Business Ethics In this study, we examine the empirical association between corporate social responsibility (CSR) and information asymmetry by investigating their simultaneous and endogenous effects. Employing an extensive U.S. sample, we find an inverse association between CSR engagement and the proxies of information asymmetry after controlling for various firm characteristics. The results hold using 2SLS considering the reverse side of information asymmetry influencing CSR activities. The results also hold after mitigating endogeneity based on the dynamic panel system generalized method of moment. Furthermore, the CSR-information asymmetry relation is amplified in high-risk firms due to managers' efforts to build a good reputation. Last, we find that CSR engagement is inversely associated with reputational risk measure and lower predicted value of reputational risk is positively associated with lower information asymmetry measures. We interpret these results as supporting the stakeholder theory-based, reputation-building explanation that considers CSR engagement as a vehicle to build and maintain firm reputation thereby enhancing the information environment.	2016	Environmental, Social, Governance
Corporate Social Responsibility As an Employee Governance Tool: Evidence from a Quasi-Experiment Author: Flammer, Caroline, and Jiao Luo Journal: Strategic Management Journal This study examines whether companies employ corporate social responsibility (CSR) to improve employee engagement and mitigate adverse behavior at the workplace (e.g., shirking, absenteeism). We exploit plausibly exogenous changes in state unemployment insurance (UI) benefits from 1991 to 2013. Higher UI benefits reduce the cost of being unemployed and hence increase employees' incentives to engage in adverse behavior. We find that higher UI benefits are associated with higher engagement in employee-related CSR. This finding suggests that companies use CSR as a strategic management tool — specifically, an employee governance tool — to increase employee engagement and counter the possibility of adverse behavior. We further examine plausible mechanisms underlying this relationship.	2016	Environmental, Social, Governance
Searching for Women on Boards: An Analysis from the Supply and Demand Perspective Author: Gabaldon, Patricia, Celia de Anca, Ruth Mateos de Cabo, and Ricardo Gimeno Journal: Corporate Governance: An International Review This paper seeks to provide a systematic review of the multidisciplinary theoretical approaches to women on boards in order to understand the factors that hinder and facilitate the access of women to boards, to show the instruments that can be used to promote women to senior corporate positions, and to outline a research agenda suggesting gaps that still need to be filled. Research Finding/Results: Women's access to boards appears to be fragmented in research silos from a variety of areas, lacking a comprehensive view that provides instruments to overcome the barriers hindering the access of women to corporate boards. More in particular, this paper has found very little scientific analysis to understand what instruments can be the most efficient in eliminating barriers for women to reach boardrooms given different cultural environments. Theoretical Implications: This paper aims to create a comprehensive framework for understanding the presence of women on boards and for indicating existing gaps to be filled by new research in the future. This framework will help future researchers in analyzing specific instruments and to measure their efficiency in eliminating gender imbalance. Depending on the approach taken for research, the theoretical backgrounds used vary. While on the supply side the predominant theories are gender role theory, gender self-schema, and work-family conflict, the demand side is based on gender discrimination, human and social capital theory, resource dependence theory, and institutional environment theory. Practical Implications: This research provides suggestions to typify causes and provide nuanced policy tools to promote women into leadership positions. Future lines of research are proposed to fill the gaps in understanding female representation in top management positions.	2016	Social
When Does it Pay to be Good? Moderators and Mediators in the Corporate Sustainability—Corporate Financial Performance Relationship: A Critical Review Author: Grewatsch, Sylvia, and Ingo Kleindienst Journal: Journal of Business Ethics In this paper, we review the literature on moderators and mediators in the corporate sustainability (CS)-corporate financial performance (CFP) relationship. We provide some clarity on what has been learned so far by taking a contingency perspective on this much-researched relationship. Overall, we find that this research has made some progress in the past. However, we also find this research stream to be characterized by three major shortcomings, namely low degree of novelty, missing investment in theory building, and a lack of research design and measurement options. To address these shortcomings, we suggest avenues for future research. Beyond that we also argue for a stronger emphasis on the strategic perspective of CS. In particular, we propose future research to take a step back and aim for an integration of the CS-CFP relationship into the strategic management literature.	2016	Environmental, Social, Governance
Does the Market Understand Rating Shopping? Predicting MBS Losses With Initial Yields Author: He, Jie (Jack), Jun (Q. J.) Qian, and Philip E. Strahan Journal: Review of Financial Studies We study rating shopping on the MBS market. Outside of AAA, losses are higher on single-rated tranches than on multi-rated ones, and yields predict future losses for single-rated tranches, but not for multi-rated ones. Conversely, ratings have less explanatory power for single-rated tranches. These results suggest that single-rated tranches have been "shopped", whereby pessimistic ratings never reach the market. For AAA-rated MBS, by contrast, 93 percent receive two or three such ratings, and those ratings agree 97 percent of the time. This ratings convergence suggests that agencies "cater" to investors, who cannot purchase a tranche unless it has multiple AAA ratings.	2016	Governance
An Analysis of Firms' Self-Reported Anticorruption Efforts Author: Healy, Paul M., and George Serafeim Journal: The Accounting Review We use Transparency International's ratings of self-reported anticorruption efforts to analyze factors underlying the ratings. Our tests examine whether these disclosures reflect firms' real efforts to combat corruption or are cheap talk. We find that the ratings are related to enforcement and monitoring, country and industry corruption risk, and governance variables. Controlling for these effects and other ratings determinants, we find that firms with lower residual ratings have higher subsequent citations in corruption news events. They also report higher future sales growth and show a negative relation between profitability change and sales growth in high corruption geographic segments, but not in low corruption segments. The net effect on valuation from sales growth and changes in profitability is close to zero. The findings are robust to a number of sensitivity tests, including analysis of disclosures for a larger sample over multiple years. We conclude that, on average, firms' disclosures signal real efforts to combat corruption.	2016	Governance
Corporate Governance and Executive Compensation for Corporate Social Responsibility Author: Hong, Bryan, Frank Li, and Dylan Minor Journal: Journal of Business Ethics We link the corporate governance literature in financial economics to the agency cost perspective of corporate social responsibility (CSR) to derive theoretical predictions about the relationship between corporate governance and the existence of executive compensation incentives for CSR. We test our predictions using novel executive compensation contract data, and find that firms with more shareholder-friendly corporate governance are more likely to provide compensation to executives linked to firm social performance outcomes. Also, providing executives with direct incentives for CSR is an effective tool to increase firm social performance. The findings provide evidence identifying corporate governance as a determinant of managerial incentives for social performance, and suggest that CSR activities are more likely to be beneficial to shareholders, as opposed to an agency cost.	2016	Environmental, Social, Governance
Does Slow Growth Lead to Rising Inequality? Some Theoretical Reflections and Numerical Simulations Author: Jackson, Tim, and Peter A. Victor Journal: Ecological Economics This paper explores the hypothesis (most notably made by French economist Thomas Piketty) that slow growth rates lead to rising inequality. If true, this hypothesis would pose serious challenges to achieving 'prosperity without growth' or meeting the ambitions of those who call for an intentional slowing down of growth on ecological grounds. It would also create problems of social justice in the context of a 'secular stagnation'. The paper describes a closed, demand-driven, stock-flow consistent model of Savings, Inequality and Growth in a Macroeconomic framework (SIGMA) with exogenous growth and savings rates. SIGMA is used to examine the evolution of inequality in the context of declining economic growth. Contrary to the general hypothesis, we find that inequality does not necessarily increase as growth slows down. In fact, there are certain conditions under which inequality can be reduced significantly, or even eliminated entirely, as growth declines. The paper discusses the implications of this finding for questions of employment, government fiscal policy and the politics of de-growth.	2016	Social
Corporate Social Responsibility and Stakeholder Governance Around the World Author: Jo, Hoje, Moon H. Song, and Albert Tsang Journal: Global Finance Journal This paper examines the impact of stakeholder governance on corporate social responsibility (CSR) to determine whether CSR is employed as a mechanism to mitigate conflicts of interest between managers and diverse stakeholders, or used as managerial perquisites. To examine this relation properly, we not only employ an extensive sample of international firms, but also mitigate endogeneity by using various econometric methods. We find that stakeholder governance positively influences firms' CSR engagement with a greater magnitude than board governance after controlling for confounding factors. Stakeholders' influence in CSR engagement is more pronounced when investor protections and board governance are relatively weak.	2016	Environmental, Social, Governance
The Influence of Competing CSR Reporting Models on Managers' Capital Allocation Decisions Author: Johnson, Joseph Journal: Working paper This study examines how the reporting model a firm uses to guide its corporate social responsibility (CSR) disclosures can influence managers' capital allocations. Two key features that differ among available reporting models are the intended audience of the disclosures and the disclosure location. Drawing on psychology theory, I predict and find that differences in these two features of CSR reporting models interact to affect how accountable managers feel for financial and social performance which significantly influences their capital allocations. I also find evidence that the influence of the CSR disclosure location is contingent on the perceived uniformity of the disclosure audience's preferences. These insights help firms and also standard setters and regulators better understand the consequences of competing CSR reporting models by highlighting the potential effects of CSR disclosure standards on managerial decision-making.	2016	Environmental, Social, Governance
Who Should Pay for Credit Ratings and How? Author: Kashyap, Anil K., and Natalia Kovrijnykh Journal: Review of Accounting Studies We analyze a model where investors use a credit rating to decide whether to finance a firm. The rating quality depends on unobservable effort exerted by a credit rating agency (CRA). We study optimal compensation schemes for the CRA when a planner, the firm, or investors order the rating. Rating errors are larger when the firm orders it than when investors do (and both produce larger errors than is socially optimal). Investors overuse ratings relative to the firm or planner. A trade-off in providing time- consistent incentives embedded in the optimal compensation structure makes the CRA slow to acknowledge mistakes.	2016	Governance
Does Corporate Investment in Stakeholders Create Value for Shareholders? The Importance of Long-Term Investors Author: Kecskés, Ambrus, Sattar Mansi, and Phuong-Anh Nguyen Journal: Working paper The effect of corporate social responsibility on shareholder value is a matter of debate. We argue that long-term investors are natural monitors that can ensure that managers choose corporate social responsibility to maximize shareholder value. We find that long-term investors increase the value to shareholders of corporate social responsibility, not as a result of higher cash flow but rather of lower cash flow risk. Numerous recent papers show empirically that indexing by investors has a causal effect on corporate outcomes. We follow this identification strategy to establish causality for long-term investors. Also following prior work, we use the staggered adoption of state laws on stakeholder orientation for identification. Our findings suggest that firms can create shareholder value by investing in corporate social responsibility as long as managers are properly monitored by long-term investors.	2016	Environmental, Social, Governance
A Theory of Shareholder Approval and Proposal Rights Author: Matsusaka, John G., and Oguzhan Ozbas Journal: Working paper This paper develops a theory of corporate decision making to study the benefits and costs of shareholder empowerment. We show how permitting shareholders to propose directors or policies can cause value-maximizing managers to take value-reducing actions to accommodate activist investors with non-value-maximizing goals. The model identifies an important distinction between the right to approve and the right to propose. The right to approve is weak; the right to propose is impactful but can help as well as hurt shareholders. We identify implications for current policy discussions concerning director elections, proxy access, bylaw amendments, and shareholder voting in general.	2016	Governance
Corporate Social Responsibility and Shareholder Wealth: The Role of Marketing Capability Author: Mishra, Saurabh, and Sachin B. Modi Journal: Journal of Marketing Despite the positive societal implications of corporate social responsibility (CSR), there remains an extensive debate regarding its consequences for firm shareholders. This study posits that marketing capability plays a complementary role in the CSR-shareholder wealth relationship. It further argues that the influence of marketing capability will be higher for CSR types with verifiable benefits to firm stakeholders (i.e., consumers, employees, channel partners, and regulators). An analysis utilizing secondary information for a large sample of 1,725 firms for the years 2000-2009 indicates that the effects of overall CSR efforts on stock returns and idiosyncratic risk are not significant on their own but only become so in the presence of marketing capability. Furthermore, the results reveal that although marketing capability has positive interaction effects with verifiable CSR efforts — environment (e.g., using clean energy), products (e.g., providing to economically disadvantaged), diversity (e.g., pursuing diversity in top management), corporate governance (e.g., limiting board compensation), and employees (e.g., supporting unions) — on stock returns (and negative interaction effects with these CSR efforts on idiosyncratic risk), it has no significant interaction effect with community-based efforts (e.g., charitable giving).	2016	Environmental, Social, Governance
Within-Firm Pay Inequality Author: Mueller, Holger M., Paige Parker Ouimet, and Elena Simintzi Journal: Working paper Financial regulators and investors alike have expressed concerns about high pay inequality within firms. This study examines how within-firm pay inequality varies across firms, how it relates to firms' operating performance and valuations, and whether it is priced by the market. Using a proprietary data set of public and private firms in the UK, we find that pay disparities between top-level jobs — those where managerial skills and responsibility are most important — and bottom-level jobs are increasing in firm size. By contrast, pay differentials between jobs involving either no or only little managerial responsibility are invariant to firm size. Moreover, firms with higher within-firm pay inequality have better operating performance, higher Tobin's Q, and higher equity returns. Our results support the notion that high pay disparities within firms are a reflection of better managerial talent.	2016	Governance
How Do CEOs See their Roles? Management Philosophies and Styles in Family and Non-Family Firms Author: Mullins, William, and Antoinette Schoar Journal: Journal of Financial Economics Using a survey of 800 Chief Executive Officers (CEOs) in 22 emerging economies, we show that CEOs' management styles and philosophies vary with the ownership and governance structure of their firms. Founders and CEOs of firms with greater family involvement display a greater stakeholder focus, and feel more accountable to employees and banks than to shareholders. They also have a more hierarchical management approach, and see their role as maintaining the status quo rather than bringing about change. In contrast, CEOs of non-family firms emphasize shareholder-value-maximization. Finally, firm-level variation in ownership is as important in explaining management philosophies as cross-country or industry-level differences.	2016	Governance
The Long-Term Benefits of Organizational Resilience Through Sustainable Business Practices Author: Ortiz-de-Mandojana, Natalia, and Pratima Bansal Journal: Strategic Management Journal Research summary: Prior work on the benefits of business sustainability often applies short-term causal logic and data analysis. In this article, we argue that the social and the environmental practices (SEPs) associated with business sustainability not only contribute to short-term outcomes, but also to organizational resilience, which we define as the firm's ability to sense and correct maladaptive tendencies and cope positively with unexpected situations. Because organizational resilience is a latent, path-dependent construct, we assess it through the long-term outcomes, including improved financial volatility, sales growth, and survival rates. We tested these hypotheses with data from 121 U.S.-based matched-pairs (242 individual firms) over a 15-year period. We also tested, but did not find support for, the relationship between SEPs and short-term financial performance. Managerial summary: Most managers look for short-term financial benefits to justify socially responsible or sustainable practices. In this article, we argue that such practices also help firms become more resilient, which helps them avoid crises and bounce back from shocks. However, it is difficult to measure the avoidance of shocks, so we analyzed long-term outcomes. We show that firms that adopt responsible social and environmental practices, relative to a carefully matched control group, have lower financial volatility, higher sales growth, and higher chances of survival over a 15-year period; yet, we were unable to find any differences in short-term profits. We hope this research provides good reasons for firms to practice sustainability beyond the pursuit of short-term profits.	2016	Environmental, Social, Governance
Board Composition and Corporate Social Responsibility: The Role of Diversity, Gender, Strategy and Decision Making Author: Rao, Kathyayini, and Carol Tilt Journal: Journal of Business Ethics This paper aims to critically review the existing literature on the relationship between corporate governance, in particular board diversity, and both corporate social responsibility (CSR) and corporate social responsibility reporting (CSRR) and to suggest some important avenues for future research in this field. Assuming that both CSR and CSRR are outcomes of boards' decisions, this paper proposes that examining boards' decision making processes with regard to CSR would provide more insight into the link between board diversity and CSR. Particularly, the paper stresses the importance of studies linking gender diversity and CSR decision making processes, which is quite rare in the existing literature. It also highlights the importance of more qualitative methods and longitudinal studies for the development of understanding of the diversity–CSR relationship.	2016	Social
Getting on Top of the Glass Cliff: Reviewing a Decade of Evidence, Explanations, and Impact Author: Ryan, Michelle K., S. Alexander Haslam, Thekla Morgenroth, Floor Rink, Janka Stoker, and Kim Peters Journal: Leadership Quarterly The glass cliff refers to the tendency for women to be more likely than men to be appointed to leadership positions that are risky and precarious. This paper reviews the first decade of research into the phenomenon and has three key aims: (a) to summarize and integrate evidence of the glass cliff, (b) to clarify the processes that have been shown to underlie the glass cliff, and (c) to explore the factors that may moderate the glass cliff phenomenon. We show that the glass cliff has had a significant impact on public discourse around women and leadership but is a complex, contextual, and multiply determined phenomenon.	2016	Social
An Integrated Approach to Climate Change, Income Distribution, Employment, and Economic Growth Author: Taylor, Lance, Armon Rezai, and Duncan K. Foley Journal: Ecological Economics A demand-driven growth model involving capital accumulation and the dynamics of greenhouse gas (GHG) concentration is set up to examine macroeconomic issues raised by global warming, e.g. effects on output and employment of rising levels of GHG; offsets by mitigation; relationships among energy use and labor productivity, income distribution, and growth; the economic significance of the Jevons and other paradoxes; sustainable consumption and possible reductions in employment; and sources of instability and cyclicality implicit in the two-dimensional dynamical system. The emphasis is on the combination of biophysical limits and Post-Keynesian growth theory and the qualitative patterns of system adjustment and the dynamics that emerge.	2016	Social
Market Reactions to the First-Time Disclosure of Corporate Social Responsibility Reports: Evidence from China Author: Wang, Kun Tracy, and Dejia Li Journal: Journal of Business Ethics We examine whether investors value the disclosure of first-time standalone corporate social responsibility (CSR) reports, and whether market valuations differ between government-controlled and privately controlled firms. Using a matched sample of Chinese publicly listed firms, we find that CSR initiators have higher market valuations than matched CSR non-initiators, and CSR initiators controlled by the central and local governments have lower market valuations than CSR non-initiators and CSR initiators controlled by private shareholders. Additional analyses demonstrate that CSR initiators with high CSR reporting quality and perceived credibility have higher market valuations than CSR initiators with low CSR reporting quality and medium or low perceived credibility of CSR reporting. We do not find convincing evidence that CSR mandate, litigation risk, and prior stock returns affect market reactions to CSR reporting. Overall, we find that the market values standalone CSR reports, and that CSR reporting quality and perceived credibility are important factors in market valuation.	2016	Environmental, Social, Governance
Impact of Environmental Performance on Firm Value for Sustainable Investment: Evidence from Large US Firms Author: Yadav, Prayag Lal, Seung Hun Han, and Jae Jeung Rho Journal: Business Strategy and the Environment This research examines the impact of environmental performance on firm value, applying the event study methodology to Newsweek's 'Green Rankings' announcement of 2012 for large US firms. Specifically, it analyzes the impact of the absolute green score and green rank of firms on their performance in the stock market. We found that investors perceive the announcement as positive news, leading to significant positive standardized cumulative abnormal returns (SCARs). After controlling for industry- and firm-specific effects, we observed that firms with repeated green rankings for enhancing environmental performance showed significantly higher SCARs than those with either reduced or unchanged environmental performance. In addition, the environmental impact score measuring environmental damage from a firm's operational activities was found to be the most influential factor in improving the firm's value. Our findings are beneficial to managers in allocating resources to different types of environmental initiative, and provide valuable insight for sustainable environmental investment.	2016	Environmental
The Influence of CEO Power on Compensation Contract Design Author: Abernethy, Margaret A., Yu Flora Kuang, and Bo Qin Journal: The Accounting Review We investigate whether CEO power influences a firm's decision to change its compensation system in response to regulatory and public pressure. In particular, we assess whether CEO power influences the choice of performance measures as a form of camouflage to minimize the impact of these reforms on their wealth. We examine one component of CEO pay, namely, the use of performance–vested stock option (PVSO) plans, and find that firms with powerful CEOs attach less challenging targets in the initial PVSOs granted to their CEOs. Such firms also appear to adopt PVSO plans early, and are more likely to do so when faced with public outrage over executive compensation. Our results suggest that powerful CEOs attempt to appease public outrage by quickly adopting PVSOs, but that adopting PVSOs early does not appear to be an optimal strategy for increasing shareholder value. Regulators intended that implementation of PVSOs would be beneficial to shareholders by improving the link between CEO pay and firm performance. However, our results indicate that powerful CEOs can negate some of the beneficial effect of PVSOs through their influence on adoption and choice of performance targets.	2015	Governance
Myths and Facts About Female Directors Author: Adams, Renee B. Journal: International Finance Corporation (IFC) Corporate Governance Knowledge Publication Women in the workforce are key to healthy economies, but this does not mean that adding more women to the board will necessarily increase shareholder value or that the financial crisis would not have happened if Lehman Brothers had been Lehman Sisters. Negative stereotypes may be one reason women are underrepresented in management and on the boards. But are women better served if we promote them on the basis of positive stereotypes? In this paper, Renée Adams draws on current research to debunk popular myths about boardroom gender diversity.	2015	Social
Women on Boards: The Superheroes of Tomorrow? Author: Adams, Renee B. Journal: Working paper Can female directors help save economies and the firms on whose boards they sit? Policy makers seem to think so. Numerous countries have implemented boardroom gender policies because of business case arguments. While women may be the key to healthy economies, I argue that more research needs to be done to understand the benefits of board diversity. The literature faces three main challenges: data limitations, selection and causal inference. Recognizing and dealing with these challenges is important for developing informed research and policy. Negative stereotypes may be one reason women are underrepresented in management. It is not clear that promoting them on the basis of positive stereotypes does them, or society, a service.	2015	Social
Women on Boards in Finance and STEM Industries Author: Adams, Renee B., and Tom Kirchmaier Journal: Working paper We document that women are less represented on corporate boards in Finance and more traditional STEM industry sectors. Even after controlling for differences in firm and country characteristics, average diversity in these sectors is 24 percent lower than the mean. Our findings suggest that well-documented gender differences in STEM university enrolments and occupations have long-term consequences for female business leadership. The leadership gap in Finance and STEM may be difficult to eliminate using blanket boardroom diversity policies. Diversity policies are also likely to have a different impact on firms in these sectors than in non-STEM sectors.	2015	Social
Board Diversity: Moving the Field Forward (Editorial) Author: Adams, Renee B., Jakob de Haan, Siri Terjesen, and Hans van Ees Journal: Corporate Governance: An International Review Board diversity represents both challenges and opportunities for board practice and research. It is possible to distinguish between task-related diversity, such as educational or functional background, non-task-related diversity, such as gender, age, race, or nationality, as well as structural diversity, i.e., board independence and CEO non-duality. Diversity can have both benefits and costs. Regardless of its effects, diversity has been the subject of active policy making which makes it even more important to understand the role it plays.	2015	Social
Lost in Translation? The Effect of Cultural Values on Mergers Around the World Author: Ahern, Kenneth R., Daniele Daminelli, and Cesare Fracassi Journal: Journal of Financial Economics We find strong evidence that three key dimensions of national culture (trust, hierarchy, and individualism) affect merger volume and synergy gains. The volume of cross-border mergers is lower when countries are more culturally distant. In addition, greater cultural distance in trust and individualism leads to lower combined announcement returns. These findings are robust to year and country-level fixed effects, time-varying country-pair and deal-level variables, as well as instrumental variables for cultural differences based on genetic and somatic differences. The results are the first large-scale evidence that cultural differences have substantial impacts on multiple aspects of cross-border mergers.	2015	Governance
Valuing Changes in Political Networks: Evidence from Campaign Contributions to Close Congressional Elections Author: Akey, Pat Journal: Review of Financial Studies This paper investigates the value of firm political connections using a regression discontinuity design in a sample of close, off-cycle U.S. congressional elections. I compare firms donating to winning candidates and firms donating to losing candidates and find that postelection abnormal equity returns are 3 percent higher for firms donating to winning candidates. Connections to politicians serving on powerful congressional committees, such as appropriations and taxation, are especially valuable and impact contributing firms sales. Firms' campaign contributions are correlated with other political activities such as lobbying and hiring former government employees, suggesting that firms take coordinated actions to build political networks.	2015	Social
The Value of Control and the Costs of Illiquidity Author: Albuquerque, Rui, and Enrique Schroth Journal: Journal of Finance We develop a search model of block trades that values the illiquidity of controlling stakes. The model considers several dimensions of illiquidity. First, following a liquidity shock, the controlling blockholder is forced to sell, possibly to a less efficient acquirer. Second, this sale may occur at a fire sale price. Third, absent a liquidity shock, a trade occurs only if a potential buyer arrives. Using a structural estimation approach and U.S. data on trades of controlling blocks of public corporations, we estimate the value of control, blockholders' marketability discount, and dispersed shareholders' illiquidity-spillover discount.	2015	Governance
The Impact of Corporate Environmental Disclosures and Audit Committees on Environmental Reputation Author: Al-Shaer, Habiba, Aly Salama, and Steve Toms Journal: Working paper We examine the impact of the volume and quality of environmental disclosures in corporate annual reports on the creation and sustenance of firms' reputation for environmental responsibility, and the extent to which these effects are enhanced by the quality of audit committees. Using a sample of UK FTSE350 companies from 2007-2011, we find evidence that firms enhance reputations by the quality of their environmental disclosures and by virtue of the quality of audit committees. Higher disclosure volume alone does not lead to increased reputation. Audit committees that comply with Smith (2003) recommendations, complement higher quality, difficult to replicate disclosures, in promoting reputation.	2015	Environmental
Hedging Climate Risk Author: Andersson, Mats, Patrick Bolton, and Frederic Samama Journal: Working paper We develop a simple dynamic investment strategy that allows long-term passive investors to hedge climate risk without sacrificing financial returns. Our proposed hedging strategy goes beyond a simple divestment of high carbon footprint or stranded assets stocks. This is just the first step. The second step is to optimize the composition of the low carbon portfolio so as to minimize the tracking error with the reference benchmark index. We show that tracking error can be almost eliminated even for a low carbon index that has 50 percent less carbon footprint. The low carbon portfolios in existence that have been constructed in this way have so far matched or outperformed their benchmark. And the low carbon indices that have not yet been launched have similar performance based on back testing. By investing in such an index investors are holding, in effect, a "free option on carbon": as long as the introduction of significant limits on CO2 emissions is postponed they are essentially able to obtain the same returns as on a benchmark index, but the day when CO2 emissions are priced the low carbon index will outperform the benchmark.	2015	Environmental
Passive Investors, Not Passive Owners Author: Appel, Ian R., Todd A. Gormley, and Donald B. Keim Journal: Working paper Passive institutional investors are an increasingly important component of U.S. stock ownership. To examine whether and by which mechanisms passive investors influence firms' governance, we exploit variation in ownership by passive mutual funds associated with stock assignments to the Russell 1000 and 2000 indexes. Our findings suggest that passive mutual funds influence firms' governance choices, resulting in more independent directors, removal of takeover defenses, and more equal voting rights. Passive investors appear to exert influence through their large voting blocs, and consistent with the observed governance differences increasing firm value, passive ownership is associated with improvements in firms' longer-term performance.	2015	Governance
Fund Managers Under Pressure: Rationale and Determinants of Secondary Buyouts Author: Arcot, Sridhar, Zsuzsanna Fluck, José-Miguel Gaspar, and Ulrich Hege Journal: Journal of Financial Economics The fastest growing segment of private equity (PE) deals is secondary buyouts (SBOs)—sales from one PE fund to another. Using a comprehensive sample of leveraged buyouts, we investigate whether SBOs are value-maximizing, or reflect opportunistic behavior. To proxy for adverse incentives, we develop buy and sell pressure indexes based on how close PE funds are to the end of their investment period or lifetime, their unused capital, reputation, deal activity, and fundraising frequency. We report that funds under pressure engage more in SBOs. Pressured buyers pay higher multiples, use less leverage, and syndicate less suggesting that their motive is to spend equity. Pressured sellers exit at lower multiples and have shorter holding periods. When pressured counterparties meet, deal multiples depend on differential bargaining power. Moreover, funds that invested under pressure underperform.	2015	Governance
Corporate Governance, Incentives, and Tax Avoidance Author: Armstrong, Christopher S., Jennifer L. Blouin, Alan D. Jagolinzer, and David F. Larcker Journal: Journal of Accounting and Economics We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over- and under-investment by managers.	2015	Governance
Corporate Investment and Stock Market Listing: A Puzzle? Author: Asker, John, Joan Farre-Mensa, and Alexander Ljungqvist Journal: Review of Financial Studies We investigate whether short-termism distorts the investment decisions of stock market-listed firms. To do so, we compare the investment behavior of observably similar public and private firms, using a new data source on private U.S. firms and assuming for identification that closely held private firms are subject to fewer short-termist pressures. Our results show that compared with private firms, public firms invest substantially less and are less responsive to changes in investment opportunities, especially in industries in which stock prices are most sensitive to earnings news. These findings are consistent with the notion that short-termist pressures distort investment decisions.	2015	Governance
Income Inequality and Economic Growth: A Panel Var Approach Author: Atems, Bebonchu, and Jason Jones Journal: Empirical Economics The paper uses a new and improved comprehensive dataset on inequality to examine the effects of inequality on per capita income and the effects of per capita income on income inequality. The use of such a comprehensive cross-state panel allows for the estimation of the dynamic responses of inequality and per capita income using panel vector autoregressive (VAR) models. Cumulative impulse responses from a baseline bivariate VAR model indicate that shocks to the Gini index of inequality significantly decrease the level of per capita income. This finding is robust to changes in the measures of inequality used, as well as to the estimation of a three-variable model. We also find that the relationship between inequality and per capita income varies over time and is sensitive to particular episodes in history.	2015	Social
Capital Taxation in the Twenty-First Century Author: Auerbach, Alan J., and Kevin Hassett Journal: American Economic Review In his influential book, Capital in the Twenty-First Century, Thomas Piketty argues forcefully that rising wealth and wealth inequality is an inherent characteristic of capitalist economies and calls for strong policy responses, in particular a substantial wealth tax implemented globally. This paper takes issue with the facts, logic, and policy conclusions in Piketty's book, suggesting that the factors needed to support the inexorable rise in capital's share and concentration are lacking and that among tax policy reforms aimed at dealing with economic inequality a wealth tax finds little support either in Piketty's own work or elsewhere in the literature.	2015	Social
External Corporate Governance and Misreporting Author: Barber, William R., Sok-Hyon Kang, Lihong Liang, and Zinan Zhu Journal: Contemporary Accounting Research This study investigates how external corporate governance provisions, specifically statutory and corporate charter provisions that limit direct shareholder participation in the governance process, affect the likelihood of an accounting restatement. The analysis indicates that strong external governance (fewer restrictions on shareholder participation) is associated with a relatively low incidence of accounting restatements. The effect of external governance is incremental to that of internal governance, which is considered as provisions that foster effective board oversight of management. Such evidence supports the premise that shareholder participation improves financial reporting quality.	2015	Governance
Environmental Protection, Rare Disasters and Discount Rates Author: Barro, Robert J. Journal: Economica The Stern Review's evaluation of environmental protection stresses low discount rates and uncertainty about environmental effects. An appropriate model for analysing this uncertainty and the associated discount rates requires sufficient risk aversion and fat-tailed uncertainty to account for the observed equity premium. Calibrations based on Epstein-Zin preferences and existing analyses of rare macroeconomic disasters suggest that optimal environmental investment can be a significant share of GDP even with reasonable rates of time preference. Optimal environmental investment increases with risk aversion and the probability and typical size of environmental disasters, but decreases with uncertainty about policy effectiveness.	2015	Environmental
Where Boards Fall Short Author: Barton, Dominic, and Mark Wiseman Journal: Harvard Business Review The article looks at the role and performance of corporate boards of directors. It presents information from surveys of corporate directors and high-level executives on questions including how well directors understand the firm's strategy and whether directors or managers are more responsible for the emphasis on short-term financial results versus long-term performance. It offers recommendations for strengthening boards in areas including the selection of directors, relationships with institutional investors, and directors' compensation.	2015	Governance
Corporate Social Responsibility, Stakeholder Risk, and Idiosyncratic Volatility Author: Becchetti, Leonardo, Rocco Ciciretti, and Iftekhar Hasan Journal: Journal of Corporate Finance Idiosyncratic volatility (IV) is a measure of firm specific information that is correlated with lower stock returns. We explore the nexus between IV and corporate social responsibility (CSR) and document that IV is positively correlated with aggregate CSR and is negatively correlated with a CSR-specific (stakeholder) risk factor. Our findings are consistent with the view that CSR reduces flexibility in responding to productive shocks via the reduction of stakeholder well-being, thereby producing the combined effect of making earnings less predictable and reducing exposure to risk of conflicts with stakeholders.	2015	Environmental, Social, Governance
Paying the Price? The Impact of Controversial Governance Practices on Managerial Reputation Author: Bednar, Michael K., E. Geoffrey Love, and Matthew Kraatz Journal: Academy of Management Journal This study directly examines the reputational penalties that managers pay when they engage in controversial governance practices that raise questions about managerial self-interest. These penalties should deter questionable behavior and enable reputation to serve a social control function, yet we know little about how and when these penalties are actually imposed. Unlike prior research in this vein, we account for the fact that reputational penalties associated with such practices may differ across audiences because of differences in interpretations of the practice and differences in causal attributions about its use. Specifically, we develop theory to explain how and when stock analysts and peer executives applied reputational penalties to managers when firms used a poison pill, a prominent anti-takeover device. We find that the reputational penalties associated with poison pills differed substantially between these two groups and that these groups applied different penalties depending on the media coverage that the poison pill received, the performance of the firm, and the extent to which the practice had already been adopted. The findings suggest that reputational penalties for questionable behaviors may be more contingent and harder to sustain than previously thought.	2015	Governance
CEO Incentives and the Health of Defined Benefit Pension Plans Author: Begley, Joy, Sandra Chamberlain, Shuo Yang, and Jenny Li Zhang Journal: Review of Accounting Studies We examine the relation between CEO pay-related wealth and the funding levels, and freezing decisions, of defined benefit pension plans. Results show that higher funding levels occur when CEOs are most endowed in employee pension plans, but that spillover endowments in supplemental executive plans coincide with the lowest funding levels. CEO equity-wealth correlates with funding health in between the extremes. Further, "hard freezes" of employee plans are less likely, the larger the CEO's total pension interest (in executive and employee plans together). This suggests that CEOs fear repercussions to their own pension plan when employee plans are frozen.	2015	Governance
Incentive Contracts, Market Risk, and Cost of Capital Author: Bertomeu, Jeremy Journal: Contemporary Accounting Research Should incentive contracts expose the agent to market-wide shocks? Counterintuitively, I show that market risk cannot be filtered out from the compensation and managed independently by the agent. Under plausible risk preferences, the principal should offer a contract in which performance pay increases following a favorable market shock. In the aggregate, however, the effect of market risk on individual contracts diversifies away and the agency problem does not directly affect the cost of capital. The analysis suggests caution in interpreting changes in cost of capital in terms of the stewardship role of accounting information.	2015	Governance
The Return to Hedge Fund Activism in Germany Author: Bessler, Wolfgang, Wolfgan Drobetz, and Julian Holler Journal: European Financial Management Recent regulatory changes in the German financial system shifted corporate control activities from universal banks to other capital market participants. Particularly hedge funds took advantage of the resulting control vacuum by acquiring stakes in weakly governed and less profitable firms. We document that, on average, hedge funds increased shareholder value in the short- and long-run. However, more aggressive hedge funds generated only initially higher returns and their outperformance quickly reversed, whereas non-aggressive hedge funds ultimately outperformed their aggressive peers. These findings suggest that aggressive hedge funds attempt to expropriate the target firm's shareholders by exiting at temporarily increased share prices.	2015	Governance
SRI Funds: Investor Demand, Exogenous Shocks and ESG Profiles Author: Bialkowski, Jedrzej, and Laura T. Starks Journal: Working Paper We provide evidence that not only have flows to socially responsible or sustainable and responsible (SRI) mutual funds shown greater growth, more persistence and less performance sensitivity than flows to conventional funds, but also that these attributes appear to result from investors' nonfinancial considerations. Using a differences-in-differences approach, we find that the greater flows to SRI funds arise from exogenous events expected to heighten investors' considerations of such funds. We also find a high level of persistence in SRI funds' ESG profiles, which are generally different from those of conventional funds, consistent with their charters.	2015	Governance
Suspect CEOs, Unethical Culture, and Corporate Misbehavior Author: Biggerstaff, Lee, David C. Cicero, and Andy Puckett Journal: Journal of Financial Economics We show that firms with Chief Executive Officers (CEOs) who personally benefit from options backdating are more likely to engage in other corporate misbehaviors, suggestive of an unethical corporate culture. These firms are more likely to commit financial fraud to overstate earnings. They acquire more private companies, which could perpetuate their frauds, and their acquisitions are met with lower market responses. These misbehaviors are concentrated in firms with externally hired suspect CEOs, consistent with outside CEOs having greater discretion to shape firm culture. The costs of these misbehaviors are reflected in larger stock price declines during a market correction and increased CEO replacement.	2015	Governance
Do Private Equity Owned Firms Have Better Management Practices? Author: Bloom, Nicholas, Raffaella Sadun, and John Van Reenen Journal: American Economic Review Using an innovative survey measure of management practices on over 15,000 firms, we find private equity firms are better managed than government, family, and privately owned firms, and have similar management to publicly listed firms. This is true both in developed and developing countries. Looking at management practices in detail we find that private equity owned firms have strong people management practices (hiring, firing, pay, and promotions), but even stronger monitoring management practices (lean manufacturing, continuous improvement, and monitoring). Plant managers working in private equity owned firms also report greater autonomy from headquarters over sales, marketing, and new product introduction.	2015	Governance
Performance Target Revisions in Incentive Contracts: Do Information and Trust Reduce Ratcheting and the Ratchet Effect? Author: Bol, Jasmijn C., and Jeremy B. Lill Journal: The Accounting Review In this study, we examine a setting where principals use past performance to annually revise performance targets, but do not fully incorporate the past performance information in their target revisions. We argue that this situation is driven by some principals and agents having an implicit agreement where the principal "allows" the agent to receive economic rents from positive performance-target deviations that are the result of superior effort or transitory gains by not revising targets upward, while the agent "accepts' target revisions" by not restricting output when these revisions are the result of structural changes in the operation's true economic capacity. Although both the principal and the agent can benefit from an implicit agreement, we argue that for the implicit agreement to be maintainable, the principal either needs information on the cause of the performance-target deviation or there needs to be trust between the principal and the agent. Using archival data across multiple years and independent bank units, we find a pattern of ratchet attenuation and output restriction that is consistent with the existence of implicit agreements for those principal-agent dyads where information asymmetry is sufficiently reduced or mutual trust exists.	2015	Governance
Managers' Discretionary Adjustments: The Influence of Uncontrollable Events and Compensation Interdependence Author: Bol, Jasmijn C., Gary Hecht, and Steven D. Smith Journal: Contemporary Accounting Research Discretionary bonus adjustments allow managers to restore the alignment of employee effort and compensation when bonus amounts are based on noisy objective performance measures. The implications of discretionary adjustments for employees' future efforts and fairness perceptions present important trade-offs for managers to consider. Adjustments may be used to motivate different types of effort in future periods, but may also create perceptions of unfairness among employees who are not affected by negative events. This study examines the joint influence of the likelihood of future negative uncontrollable events and compensation interdependence (i.e., the extent to which one employee's compensation influences others' compensation) on managers' willingness to make adjustments for the effect of a negative uncontrollable event on a single employee. In our experiment, we manipulate the likelihood of future uncontrollable events and whether bonuses are determined individually or are drawn from a shared bonus pool. Results show that managers are less willing to adjust when the likelihood of future events is high to avoid setting a precedent, thereby motivating employees to adapt to changing conditions. We also find that managers are less willing to adjust, regardless of event likelihood, when compensation interdependence is high, to avoid demotivating unaffected employees. Finally, we find that participants' general attitudes toward compensation significantly influence their adjustment decisions beyond the effects of our independent variables. Our results highlight the unique nature of discretionary adjustments, help explain findings from previous research, and demonstrate important considerations managers must make when using the flexibility provided to them in pay-for-performance contracts.	2015	Governance
Do Social Factors Influence Investment Behavior and Performance? Evidence from Mutual Fund Holdings Author: Borgers, Arian C. T., Jeroen Derwall, Kees C. G. Koedijk, and Jenke Ter Horst Journal: Journal of Banking & Finance We study the economic significance of social dimensions in investment decisions by analyzing the holdings of U.S. equity mutual funds over the period 2004-2012. Using these holdings, we measure funds' exposures to socially sensitive stocks in order to answer two questions. What explains cross-sectional variation in mutual funds' exposure to controversial companies? Does exposure to controversial stocks drive fund returns? We find that exposures to socially sensitive stocks are weaker for funds that aim to attract socially conscious and institutional investor clientele, and they relate to local political and religious factors. The financial payoff associated with greater "sin" stock exposure is positive and statistically significant, but becomes non-significant with broader definitions of socially sensitive investments. Despite the positive relation between mutual fund return and sin stock exposure, the annualized risk-adjusted return spread between a portfolio of funds with highest sin stock exposure and its lowest-ranked counterpart is statistically not significant. The results suggest that fund managers do not tilt heavily towards controversial stocks because of social considerations and practical constraints.	2015	Environmental, Social, Governance
Non-Executive Employee Ownership and Corporate Risk Author: Bova, Francesco, Kalin Kolev, Jacob K. Thomas, and X. Frank Zhang Journal: The Accounting Review Prior research documents a negative link between risk and executive holding of stock, but a corresponding positive link for options. We find a similar negative relation for non-executive holding of stock. Our finding is consistent with the view that non-executives not only face significant incentives to reduce risk when they hold stock, but they are also able to affect corporate risk. While endogeneity cannot be ruled out fully, the results of a battery of tests suggest that it plays a limited role. A second robust result is that the documented relation becomes more negative as option-based executive compensation increases. Overall, corporate risk is related to the incentives created by stock and options held by both executives and non-executives, as well as interactions among those incentives.	2015	Governance
Employee Ownership and Firm Disclosure Author: Bova, Francesco, Yiwei Dou, and Ole-Kristian Hope Journal: Contemporary Accounting Research The pros and cons of employee ownership have inspired much debate in recent years. On the one hand, advocates of employee ownership cite evidence that suggests it leads to increasing employee-manager goal alignment and productivity gains that are ultimately reflected in higher shareholder returns. On the other hand, contrasting empirical evidence suggests that giving nonmanager employees too much ownership in the company can erode shareholder value. Our study adds to this debate by assessing the role of employee ownership in shaping management's incentive to disclose information to the market. Our results illustrate a positive link between employee ownership and voluntary disclosure when employees have bargaining power. More broadly, it suggests employee ownership may play a role in improving a firm's corporate governance by improving transparency with investors and other stakeholders.	2015	Governance
Acquisitions, Productivity, and Profitability: Evidence from the Japanese Cotton Spinning Industry Author: Braguinsky, Serguey, Atsushi Ohyama, Tetsuji Okazaki, and Chad Syverson Journal: American Economic Review Using detailed data from the Japanese cotton spinning industry at the turn of the last century, we find that acquired firms' production facilities were not on average less physically productive than the plants of the acquiring firms before acquisition. They were much less profitable, however, due to higher inventory levels and lower capacity utilization — differences that reflected problems in managing the uncertainties of demand. After acquisitions, less profitable acquired plants saw drops in inventories and gains in capacity utilization that raised both their productivity and profitability levels.	2015	Governance
Beyond Divestment: Using Low Carbon Indexes Author: Briand, Remy, Linda-Eling Lee, Sébastien Lieblich, Véronique Menou, and Anurag Singh Journal: Report: MSCI ESG Research Inc. Climate change presents one of the biggest economic and political challenges of the 21st century. While world leaders have struggled to arrive at a consensus on how to respond to issues posed by the increase in the Earth's temperature, institutional investors are exploring the potential impact of these changes on financial assets. In particular, investors are probing the long-term portfolio implications of "carbon stranded assets" — assets that may lose economic value before the end of their expected life primarily driven by changes in regulation and technological innovation. Companies' carbon exposure consists of two dimensions: current emissions and fossil-fuel reserves (representing potential future emissions). In the MSCI ACWI Index, Utilities, Materials and Energy companies accounted for more than four-fifths of the total current carbon emissions. Not surprisingly, Energy companies represent more than 80% of total fossil fuel reserves. Up until now, much of the pressure to manage "carbon stranded assets" risks has focused on divesting from companies in the fossil fuel sectors. This approach effectively communicates to various stakeholders an investor's concerns about climate change. But, from a financial perspective, the strategy is not optimal as it can create significant short-term risk by potentially deviating sharply from market risk and returns. In addition, such an approach largely ignores fixed assets from non-Energy sectors in the portfolio that are at risk of being stranded due to their dependence on burning fossil fuel reserves, such as coal-based power plants. The shortcomings of the divestment approach have led major asset owners to seek more financially practical solutions to managing carbon risk. Instead, investors are starting to turn to strategies that re-weight the market-capitalization portfolio to effectively minimize broad carbon exposure while using optimization to reduce tracking error. These approaches take into consideration both current emissions and fossil-fuel reserves, thus aiming to capture a broader exposure to carbon-intensive companies while seeking to minimize short-term risk. MSCI offers indexes designed to reflect divestment and re-weighting strategies to reduce carbon exposure. These approaches are summarized below.	2015	Environmental
Optimal Information Asymmetry, Control Environment, and Investment in Firm-Specific Human Capital Author: Brisley, Neil, and Alan V. Douglas Journal: The Accounting Review When future operations are expected to provide information rents, managers concerned with being replaced can entrench themselves with value-increasing firm-specific human capital (SHC). In motivating SHC investment, the firm trades off the incentive effects of an ex ante commitment to asymmetric information against the costs of compensation rents and private benefits. Firm value, therefore, is affected by (1) the accuracy with which the board observes and interprets information, and (2) the strength of the control environment restricting the manager's ability to benefit from concealing and diverting firm value. It is optimal to maintain a partially informed board to the mutual benefit of shareholders and managers, and for firms in a stricter control environment to maintain a more informed board. Due to the indirect effect on SHC, regulations that strengthen control adversely affect firm value unless the information and control environments are sufficiently biased toward managerial preferences.	2015	Governance
Speaking of the Short-Term: Disclosure Horizon and Managerial Myopia Author: Brochet, Francois, Maria Loumioti, and George Serafeim Journal: Review of Accounting Studies We study conference calls as a voluntary disclosure channel and create a proxy for the time horizon that senior executives emphasize in their communications. We find that our measure of disclosure time horizon is associated with capital market pressures and executives' short-term monetary incentives. Consistent with the language emphasized during conference calls partially capturing short-termism, we show that our proxy is associated with earnings and real activities management. Overall, the results show that the time horizon of conference call narratives can be informative about managers' myopic behavior.	2015	Governance
Inequality and Risk Premia Author: Brogaard, Jonathan, Andrew L. Detzel, and Phong T. H. Ngo Journal: Working paper Controlling for the dividend-price ratio, higher income inequality, measured by the Gini coefficient, predicts a significantly higher equity risk premium as well as risk premia on long-term government and corporate bonds. A one-standard deviation increase in Gini is associated with a 8.05 percent increase in expected excess log returns. The inclusion of Gini to a one-year stock-return forecasting regression with the dividend-price ratio increases the adjusted R-squared from 5.6 percent to 14.8 percent. These findings are robust to using alternative measures of inequality as well as controlling for common financial and real-business cycle predictors of returns. This is novel evidence of an important asset pricing role for inequality.	2015	Social
Ex Ante Severance Agreements and Earnings Management Author: Brown, Kareen E. Journal: Contemporary Accounting Research This research studies whether severance agreements may reduce fraudulent earnings management, and whether severance pay mitigates executives' career concerns. In a sample of large U.S. firms, those with higher severance pay are less likely to be subject to accounting and auditing enforcement releases (AAERs) by the U.S. Securities and Exchange Commission (SEC). Among S&P 500 firms in the post-SOX period with premanaged earnings below analyst forecasts, firms with higher severance pay are less likely to meet/beat the analyst forecast using abnormal accruals. Overall, these results suggest that fear of losing a lucrative severance package, and/or the insurance offered by such a package curbs earnings management.	2015	Governance
Corporate Environmental Responsibility and Equity Prices Author: Cai, Li, and Chaohua He Journal: Journal of Business Ethics This paper uses an innovative way to screen stocks and analyzes the relationship between corporate environmental responsibility and long-run stock returns. By our definition, an environmentally responsible (green) company gives no environmental concern and shows environmental strength(s). Using 20 years' data of 1992-2011, we find evidence that environmentally responsible company outperforms, in the 4th to 7th year after the screening year. An equal-weighted environmentally responsible portfolio earned an annual four-factor alpha of 4.06 percent in the 4th year, 3.00 percent above industry benchmarks, and 3.87 percent above characteristic benchmarks. The results are robust to alternative portfolio weighting methodologies, controlling for firm characteristics, and the removal of outliers. Testing using industry-adjusted Tobin's Q, we find consistent evidence that environmental strength creates firm value. We argue that environmental responsibility is an intangible asset, likely to be undervalued by the market, especially in the long horizon, thereby causing environmentally responsible companies to exhibit long-horizon excess returns.	2015	Environmental
Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions Author: Campello, Murillo, Daniel Ferres, and Gaizka Ormazabal Journal: Working paper Stock market reactions to news of cartel prosecutions are muted when indicted firms have a high pro- portion of independent directors serving on their boards. This finding is robust to self-selection and is pronounced when independent directors hold more outside directorships and fewer stock options — when directors have fewer economic ties to indicted firms. Results are stronger when independent directors' appointments were attributable to SOX, preceded their CEO's own appointment, or followed class action suits — when directors have fewer ties to indicted CEOs. Independent directors serving on indicted firms are penalized by losing board seats and vote support in other firms. Firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs. They are also more likely to dismiss scandal-laden CEOs after public indictments. Our results show that cartel prosecution imposes significant personal costs onto independent directors and that they take actions to mitigate those costs. We argue that understanding these incentive-compatible dynamics is key in designing strategies for cartel detection and prosecution.	2015	Governance
Family- versus Lone-Founder-Controlled Public Corporations: Social Identity Theory and Boards of Directors Author: Cannella Jr., Albert A., Carla D. Jones, and Michael C. Withers Journal: Academy of Management Journal We distinguish between "family companies," involving multiple family members as owners and/or managers, and "lone-founder companies," involving only the founder and no other family members. We apply social identity theory and organizational identification to elucidate the differences between these two types of firms, and how their differing organizational identities reflect unique desires for control and influence. We then consider how these differences are reflected in a firm's board structure (i.e., directorship interlocks, director experiences, and director tenures). Specifically, we predict that family firms are more likely to interlock with other family firms, select directors with more experience in family firms, and keep directors on their boards longer. Correspondingly, we posit that family firms are less likely to interlock with lone-founder firms or to select directors with experience in lone-founder-controlled firms. Lone-founder firms follow a similar pattern. We also consider the consequences of family and lone-founder ownership and board structures on the investment behavior of three classes of institutional investors. We test our hypotheses with a sample of publicly traded corporations between 1991 and 2006, and report strong support for most of our predictions.	2015	Governance
Peer Effects of Corporate Social Responsibility: Peer Effects of an RDD Author: Cao, Jie, Hao Liang, and Xintong Zhan Journal: Working paper We investigate how firms react to their peers' adoption of corporate social responsibility (CSR) by using a regression discontinuity design that relies on "locally" exogenous variations of CSR generated by shareholder proposals that pass or fail by a small margin of votes. Specifically, we find that peers of a voting firm who passed a close-call CSR proposal experience lower announcement returns and higher following-year CSR scores compared to those of a voting firm that marginally failed a CSR proposal. Such effects are stronger in peer firms with higher competitive pressure, better CSR performance relative to the voting firm, and a more transparent information environment. We find a more pronounced negative cumulative abnormal returns and a smaller CSR improvement in peer firms with higher financial constraints. Taken together, our empirical results show that peer effects play an important role in shaping firms' CSR performance and further confirm the argument that CSR has strategic value.	2015	Environmental, Social, Governance
Are All Independent Directors Equally Informed? Evidence Based on their Trading Returns and Social Networks Author: Cao, Ying, Dan Dhaliwal, Zengquan Li, and Yong George Yang Journal: Management Science We study the impact of social networks on the ability of independent directors to obtain private information from their firms' executives. We find that independent directors socially connected to their firms' senior executives earn significantly higher returns than unconnected independent directors in stock sales transactions. The network effect on independent directors' trading profitability is stronger in firms with higher information asymmetry and with more powerful executives. In addition, the trading returns of independent directors previously unconnected with firm executives increase after the arrival of a connected executive and drop after the connected executive leaves the firm. Moreover, the net stock sales by connected directors predict future negative news for up to three quarters. As a comparison, the trading returns of connected and unconnected independent directors do not differ significantly in stock purchases. Taken together, our results suggest that social connections help independent directors gain access to private bad news information from firms' senior executives.	2015	Governance
Revealed Preference, Rational Inattention, and Costly Information Acquisition Author: Caplin, Andrew, and Mark Dean Journal: American Economic Review Apparently mistaken decisions are ubiquitous. To what extent does this reflect irrationality, as opposed to a rational trade-off between the costs of information acquisition and the expected benefits of learning? We develop a revealed preference test that characterizes all patterns of choice "mistakes" consistent with a general model of optimal costly information acquisition and identify the extent to which information costs can be recovered from choice data.	2015	Governance
Think Twice Before Going for Incentives: Social Norms and the Principal's Decision on Compensation Contracts Author: Cardinaels, Eddy, and Huaxiang Yin Journal: Journal of Accounting Research Principals make decisions on various issues, ranging from contract design to control system implementation. Few studies examine the principal's active role in these decisions. We experimentally investigate this role by studying how a principal's choice of an incentive contract that may discourage misrepresentation, compared to a fixed-salary contract, affects the honesty of his or her agents' cost reporting. Results show that, besides an incentive effect and a principal trust effect, the active choice for incentives produces a negative "information leakage" effect. When principals use incentives, their choices not only incentivize truthful reporting and signal distrust, but they also leak important information about the social norm, namely, that other agents are likely to report dishonestly. Agents conform to this social norm by misrepresenting cost information more. Our results have important practical implications. Managers must recognize that their decisions can leak information to their agents, which may produce unanticipated consequences for the social norms of the organization.	2015	Governance
Disclosure Transparency About Activity in Valuation Allowance and Reserve Accounts and Accruals-Based Earnings Management Author: Cassell, Cory A., Linda A. Myers, and Timothy A. Seidel Journal: Accounting, Organizations and Society We examine the relation between the transparency of disclosures about activity in valuation allowance and reserve accounts and accruals-based earnings management. We classify disclosures as being transparent if they provide detailed information about activity in the allowance and reserve accounts during the fiscal period. We find strong evidence that the extent of accruals-based earnings management is lower among companies with transparent disclosures than among companies without transparent disclosures. We also investigate whether the extent of accruals-based earnings management is lower for companies that provide transparent disclosures in one comprehensive schedule (i.e., the Schedule II) relative to those that provide transparent disclosures spread throughout the notes to the financial statements. Although regulators have expressed concern that the omission of a Schedule II could indicate a greater likelihood of earnings management, our results indicate that it is the omission of transparent disclosures rather than the omission of a comprehensive schedule outlining activity in the allowance and reserve accounts that affects earnings management. Our findings suggest that regulators, auditors, and investors should consider subjecting companies that fail to provide transparent disclosures to additional scrutiny.	2015	Governance
When Less is More: The Benefits of Limits on Executive Pay Author: Cebon, Peter, and Benjamin E. Hermalin Journal: Review of Financial Studies We derive conditions under which limits on executive compensation can enhance efficiency and benefit shareholders (but not executives). Having its hands tied in the future allows a board of directors to credibly enter into relational contracts with executives that are more efficient than performance- contingent contracts. This has implications for the ideal composition of the board. The analysis also offers insights into the political economy of executive-compensation reform.	2015	Governance
Managerial Entrenchment and Firm Value: A Dynamic Perspective Author: Chang, Xin, and Hong Feng Zhang Journal: Journal of Financial and Quantitative Analysis We examine the impact of managerial entrenchment on firm value using a dynamic model with firm fixed effects. To estimate the model, we employ the long-difference technique, which is shown by our simulation to deliver the least biased estimates. Based on a large sample of U.S. companies, we document a significantly negative and causal effect of managerial entrenchment on firm value after taking into account omitted variables, reverse causality, and highly persistent endogenous variables. Additional analysis suggests that the causality running from managerial entrenchment to firm value is more pronounced than that for reverse causality.	2015	Governance
Non-Executive Employee Stock Options and Corporate Innovation Author: Chang, Xin, Kangkang Fu, Angie Low, and Wenrui Zhang Journal: Journal of Financial Economics We provide empirical evidence on the positive effect of non-executive employee stock options on corporate innovation. The positive effect is more pronounced when employees are more important for innovation, when free-riding among employees is weaker, when options are granted broadly to most employees, when the average expiration period of options is longer, and when employee stock ownership is lower. Further analysis reveals that employee stock options foster innovation mainly through the risk-taking incentive, rather than the performance-based incentive created by stock options.	2015	Governance
The Effect of Competition Intensity and Competition Type on the Use of Customer Satisfaction Measures in Executive Annual Bonus Contracts Author: Chen, Clara Xiaoling, Ella Mae Matsumura, Jae Yong Shin, and Steve Yu-Ching Wu Journal: The Accounting Review This paper empirically examines the interactive effect of competition intensity and competition type on the use of customer satisfaction measures in executives' annual bonus contracts. Specifically, we predict a stronger association between competition intensity in an industry and the use of customer satisfaction measures in executives' annual bonus contracts when the competition is non-price-based than when the competition is price-based. Using hand-collected data from Standard & Poor's (S&P) 1500 firms' disclosures of the use of customer satisfaction measures in executive bonus contracts in 2006 and 2010 proxy statements, we find results consistent with our prediction. Our results are robust to alternative measures of competition type and competition intensity. We also find similar results when we use the weight on customer satisfaction measures in executive bonus contracts as the dependent variable. Our study extends the literature on the effect of competition on the design of managerial incentives by distinguishing between competition intensity and competition type, and providing the first large-sample empirical evidence on the joint effect of these two dimensions of competition on the incentive use of an important nonfinancial performance measure.	2015	Governance
Passing Probation: Earnings Management by Interim CEOs and its Effect on their Promotion Prospects Author: Chen, Guoli, Shuqing Luo, Yi Tang, and Jamie Y. Tong Journal: Academy of Management Journal Drawing on chief executive officer (CEO) succession research and the impression management literature, we examine earnings management by interim CEOs, its impact on interim CEOs' promotion prospects, and the moderating effect of governance mechanisms on the relationship between the two. Based on a sample of 145 interim CEO succession events in U.S. public firms from 2004 to 2008, we find that (a) an interim CEO is more likely than a noninterim CEO to engage in earnings management to improve firm earnings performance ("income-increasing earnings management"), (b) the greater the "income-increasing earnings management", the more likely it is that the interim CEO will be promoted to the permanent position, and (c) the relationship between earnings management and the likelihood of interim CEO promotion is weakened when effective internal and external governance mechanisms are in place.	2015	Governance
Do Analysts Matter for Governance? Evidence from Natural Experiments Author: Chen, Tao, Jarrad Harford, and Chen Lin Journal: Journal of Financial Economics Building on two sources of exogenous shocks to analyst coverage (broker closures and mergers), we explore the causal effects of analyst coverage on mitigating managerial expropriation of outside shareholders. We find that as a firm experiences an exogenous decrease in analyst coverage, shareholders value internal cash holdings less, its CEO receives higher excess compensation, its management is more likely to make value-destroying acquisitions, and its managers are more likely to engage in earnings management activities. Importantly, we find that most of these effects are mainly driven by the firms with smaller initial analyst coverage and less product market competition. We further find that after exogenous brokerage exits, a CEO's total and excess compensation become less sensitive to firm performance in firms with low initial analyst coverage. These findings are consistent with the monitoring hypothesis, specifically that financial analysts play an important governance role in scrutinizing management behavior, and the market is pricing an increase in expected agency problems after the loss in analyst coverage.	2015	Governance
CEO Contractual Protection and Managerial Short-Termism Author: Chen, Xia, Qiang Cheng, Alvis K. Lo, and Xin Wang Journal: The Accounting Review How to address managerial short-termism is an important issue for companies, regulators, and researchers. We examine the effect of CEO contractual protection, in the form of employment agreements and severance pay agreements, on managerial short-termism. We find that firms with CEO contractual protection are less likely to cut R&D expenditures to avoid earnings decreases and are less likely to engage in real earnings management. The effect of CEO contractual protection is both statistically and economically significant. We further find that this effect increases with the duration and monetary strength of CEO contractual protection. The cross-sectional analyses indicate that the effect is stronger for firms in more homogeneous industries and for firms with higher transient institutional ownership, as protection is particularly important for CEOs in these firms, and is stronger when there are weaker alternative monitoring mechanisms.	2015	Governance
Does Increased Board Independence Reduce Earnings Management? Evidence from Recent Regulatory Reforms Author: Chen, Xia, Qiang Cheng, and Xin Wang Journal: Review of Accounting Studies We examine whether recent regulatory reforms requiring majority board independence reduce the extent of earnings management. Firms that did not have a majority of independent directors before the reforms (referred to as noncompliant firms) are required to increase their board independence. We find that, while noncompliant firms on average do not experience a significant decrease in earnings management after the reforms compared to other firms, noncompliant firms with low information acquisition cost experience a significant reduction in earnings management. The results are similar when we examine audit committee independence and when we use alternative proxies for information acquisition cost and earnings management. These findings indicate that independent directors' monitoring is more effective in a richer information environment.	2015	Governance
Yesterday's Heroes: Compensation and Risk at Financial Firms Author: Cheng, Ing-Haw, Harrison Hong, and Jose A. Scheinkman Journal: Journal of Finance Many believe that compensation, misaligned from shareholders' value due to managerial entrenchment, caused financial firms to take risks before the financial crisis of 2008. We argue that, even in a classical principal-agent setting without entrenchment and with exogenous firm risk, riskier firms may offer higher total pay as compensation for the extra risk in equity stakes borne by risk-averse managers. Using long lags of stock price risk to capture exogenous firm risk, we confirm our conjecture and show that riskier firms are also more productive and more likely to be held by institutional investors, who are most able to influence compensation.	2015	Governance
Bonus-Driven Repurchases Author: Cheng, Yingmei, Jarrad Harford, and Tianming (Tim) Zhang Journal: Journal of Financial and Quantitative Analysis Using a large hand-collected database of chief executive officer (CEO) bonus structures, we find that when a CEO's bonus is directly tied to earnings per share (EPS), his company is more likely to conduct a buyback. This effect is especially pronounced when a company's EPS is right below the threshold for a bonus award. Share repurchasing increases the probability the CEO receives a bonus and the magnitude of that bonus, but only when bonus pay is EPS based. Bonus-driven repurchasing firms do not exhibit positive long-run abnormal returns.	2015	Governance
Estimating Oil Risk Factors Using Information from Equity and Derivatives Markets Author: Chiang, I-Hsuan Ethan, W. Keener Hughen, and Jacob S. Sagi Journal: Journal of Finance We introduce a novel approach to estimating latent oil risk factors and establish their significance in pricing nonoil securities. Our model, which features four factors with simple economic interpretations, is estimated using both derivative prices and oil-related equity returns. The fit is excellent in and out of sample. The extracted oil factors carry significant risk premia, and are significantly related to macroeconomic variables as well as portfolio returns sorted on characteristics and industry. The average nonoil portfolio exhibits a sensitivity to the oil factors amounting to a sixth (in magnitude) of that of the oil industry itself.	2015	Environmental
Segment Disclosure Transparency and Internal Capital Market Efficiency: Evidence from SFAS No. 131 Author: Cho, Young Jun Journal: Journal of Accounting Research Using the adoption of SFAS 131, I examine the effect of segment disclosure transparency on internal capital market efficiency. SFAS 131 requires firms to define segments as internally viewed by managers, thereby improving the transparency of managerial actions in internal capital allocation. I find that diversified firms that improved segment disclosure transparency by changing segment definitions upon adoption of SFAS 131 experienced an improvement in capital allocation efficiency in internal capital markets after the adoption of SFAS 131. In addition, I find that the improvement in internal capital market efficiency was greater for firms that suffered more severe agency problems before the adoption of SFAS 131 and also for firms whose managers faced stronger incentives to improve efficiency after the adoption of SFAS 131. My results suggest that more transparent segment information can help resolve agency conflicts in the internal capital markets of diversified firms, thus improving investment efficiency.	2015	Governance
Cracking but not Breaking: Joint Effects of Faultline Strength and Diversity Climate on Loyal Behavior Author: Chung, Yunhyung, Hui Liao, Susan E. Jackson, Mahesh Subramony, Saba Colakoglu, and Yuan Jiang Journal: Academy of Management Journal This study examines the joint effects of diversity composition (as manifested in faultline strength) and diversity management (as manifested in diversity climate) on loyal behavior. Using data gathered from a sample of 1,652 managerial employees in 76 work units, we assess the cross-level effects of unit-level relationship- and task-related faultline strength and diversity climate on individual-level loyal behavior of managerial employees. We find a negative relationship between gender faultline strength and loyal behavior, and a positive relationship between diversity climate and loyal behavior. In addition, we find that work unit diversity climate moderates the relationships between the strength of gender and function faultlines and loyal behavior; specifically, a supportive diversity climate reduces the negative consequences associated with relationship- related faultlines and increases the positive consequences associated with task-related faultlines. The results highlight the value of simultaneously considering faultlines and diversity climate in understanding and managing workforce diversity.	2015	Social
The Wolf at the Door: The Impact of Hedge Fund Activism on Corporate Governance Author: Coffee Jr., John C., and Darius Palia Journal: Working paper Hedge fund activism has increased almost hyperbolically. Although some view this trend optimistically as a means for bridging the separation of ownership and control, we review the evidence and find it far more mixed. In particular, engagements by activist hedge funds appear to be producing a significant externality: severe cut-backs in long-term investment (and particularly a reduction in investment in research and development) by both the targeted firms and other firms not targeted but still deterred from making such investments. We begin by surveying the regulatory and institutional developments that have reduced the costs and increased the expected payoff from activism for activist investors. We give particular attention to new tactics (including the formation of "wolf packs" — loose associations of activist funds that do not constitute a "group" under the Williams Act) and new institutional structures (such as the alliance between an activist hedge fund and a strategic bidder struck in the recent Allergan takeover battle). Then, we survey the empirical evidence on how the investment horizons of firms are changing. Next, we review prior studies on the impact of activism, looking successively at (1) who are the targets of activism?; (2) does hedge fund activism create real value?; (3) what are the sources of gains from activism?; and (4) do the targets of activism experience post-intervention changes in real variables? We find the evidence decidedly mixed on most questions. Finally, we examine the policy levers that could encourage or curb hedge fund activism and consider the feasibility of reforms (including with respect to the law on insider trading). In particular, we consider possible private ordering responses, including new defensive tactics. Our policy preference is to find the least restrictive alternative.	2015	Governance
Firm Characteristics, Industry Context, and Investor Reactions to Environmental CSR: A Stakeholder Theory Approach Author: Cordeiro, James J., and Manish Tewari Journal: Journal of Business Ethics We use an event study to capture the investor reaction to the first Newsweek Green Rankings in September 2009, a notable, multi-dimensional recent development in the rating of corporate environmental CSR performance. Drawing on stakeholder theory, we develop hypotheses about (a) market investor reaction to the disclosure of new, relevant corporate environmental performance in both the short and longer (6-12-month) term, (b) whether market investors' reaction reflects industry context, and (c) whether firm-level contextual variables representing firm size, and market legitimacy significantly impacts the investor reaction. We find that, for the sample of the largest 500 US firms ranked by Newsweek, investors react positively both to the raw and within-industry rankings of green performance in terms of both short-term and longer-term (up to 12 months) returns. Moreover, the investor reaction is significantly influenced by contextual variables such as firm size and firm market legitimacy. Our results are compatible with the inference that rating agencies like Newsweek serve a valuable information dissemination function such that investors in better ranked firms anticipate larger future cash flows due to more positive reactions from key stakeholders such as environmentally-conscious customers, employees, NGOs, regulators, and thus reward these firms with stock price increases. Finally, larger, more visible firms benefit more, while firms which have more market legitimacy (represented by past financial performance) benefit less. We believe these findings will be of considerable interest to scholars of environmental corporate social responsibility.	2015	Environmental, Social, Governance
Greed or Good Deeds: An Examination of the Relation between Corporate Social Responsibility and the Financial Performance of US Commercial Banks Around the Financial Crisis Author: Cornett, Marcia Millon, Otgontsetseg Erhemjamts, and Hassan Tehranian Journal: Working paper We examine the relation between corporate social responsibility (CSR) for banks and bank financial performance in a context of the recent financial crisis. The largest banks see a steep increase in CSR strengths and a steep drop in CSR concerns after 2009. Banks that are profitable, have higher capital ratios, charge lower fees, are more involved in low income communities, have more female and minority directors, a separate CEO and board chair, and shorter tenured directors have significantly higher CSR scores. After the worst of the crisis has passed, the corporate governance variables are no longer significant. Finally, the largest banks appear to be rewarded for their social responsibility after the crisis, as financial performance is positively and significantly related to CSR scores.	2015	Environmental, Social, Governance
Shaped by their Daughters: Executives, Female Socialization, and Corporate Social Responsibility Author: Cronqvist, Henrik, and Frank Yu Journal: Working paper We find that corporate executives managing some of the largest public companies in the U.S. are shaped by their daughters. When a firm's CEO has a daughter, the corporate social responsibility rating is about 11.9 percent higher, compared to a median firm. The results are robust to confronting several sources of endogeneity, e.g., examining first-born CEO daughters, CEO changes, and Trivers- Willard effects. The relation is strongest for diversity, but significant also for broader pro-social practices related to the environment and employee relations. Such stakeholder dividends are not found to be associated with significant benefits to shareholders. The study contributes to research on female socialization, heterogeneity in CSR policies, and exogenous determinants of CEOs' styles.	2015	Governance
Corporate Social Responsibility and Insider Trading Author: Cui, Jinhua, Hoje Jo, and Yan Li Journal: Journal of Business Ethics This study examines the impact of corporate social responsibility (CSR) activities on insider trading. While opponents of insider trading claim that the buying or selling of a security by insiders who have access to non-public information is illegal, proponents argue that insider trading improves economic efficiency and fairness when corporate insiders buy and sell stock in their own companies. Based on extensive U.S. data of insider trading and CSR engagement, we find that both the number of insider transactions and the volume of insider trading are positively associated with CSR activities.We also find that legal insider transactions are positively related to CSR engagement even after controlling for potential endogeneitybias and various firm characteristics. Furthermore, our evidence suggests that firms perceive adjustment to CSR dimension of product as being efficient, while adjustment to diversity and environmental CSR as being inefficient. Our results of bad and illegal insider trading proxies are consistent with the interpretation that firms with high CSR ratings do not attempt to engage in unethical or bad insider trading in a significant fashion. Combined together, we consider our empirical evidence supportive of the fairness and efficiency explanation, but not the unfairness and inefficiency hypothesis.	2015	Environmental, Social, Governance
Rising Inequality, Demand, and Growth in the US Economy Author: Cynamon, Barry Z., and Steven M. Fazzari Journal: Working Paper We use consumption and balance sheet data disaggregated between the top 5 percent and the bottom 95 percent of US households by income to show that the bottom 95 percent went deeply into debt to mitigate the impact of their stagnant incomes on their consumption. We use micro data to calibrate an intrinsic Keynesian growth model and show that over a range of plausible parameter values, the rise in US household income inequality increased enough between the early 1980s and 2000s to cause the entire magnitude of the Great Recession and can explain the slow and prolonged recovery.	2015	Social
Overconfident Investors, Predictable Returns, and Excessive Trading Author: Daniel, Kent D., and David Hirshleifer Journal: Journal of Economic Perspectives The last several decades have witnessed a shift away from a fully rational paradigm of financial markets toward one in which investor behavior is influenced by psychological biases. Two principal factors have contributed to this evolution: a body of evidence showing how psychological bias affects the behavior of economic actors; and an accumulation of evidence that is hard to reconcile with fully rational models of security market trading volumes and returns. In particular, asset markets exhibit trading volumes that are high, with individuals and asset managers trading aggressively, even when such trading results in high risk and low net returns. Moreover, asset prices display patterns of predictability that are difficult to reconcile with rational-expectations-based theories of price formation. In this paper, we discuss the role of overconfidence as an explanation for these patterns.	2015	Governance
Applying Asset Pricing Theory to Calibrate the Price of Climate Risk Author: Daniel, Kent D., Robert Litterman, and Gernot Wagner Journal: Working paper Pricing greenhouse gas emissions is a risk management problem. It involves making trade-offs between consumption today and unknown and potentially catastrophic damages in the (distant) future. The optimal price is necessarily based on society's willingness to substitute consumption across time and across uncertain states of nature. A large body of work in macroeconomics and finance has attempted to infer societal preferences using the observed behavior of asset prices, and has concluded that the standard preference specifications are inconsistent with observed asset valuations. This literature has developed a richer set of preferences that are more consistent with asset price behavior. The climate-economy literature by and large has not adopted this richer set of preferences. In this paper, we explore the implications of these richer preference specifications for the optimal pricing of carbon emissions. We develop a simple discrete-time model with Epstein-Zin utility in which uncertainty about the effect of carbon emissions on global temperature and on eventual damages is gradually resolved over time. We embed a number of features including tail risk, the potential for technological change and backstop technologies. When coupled with the potential for low- probability, high-impact outcomes, our calibration to historical real interest rates and the equity risk premium suggests a high price for carbon emissions today which is then expected to decline over time. This is in contrast to most modeled carbon price paths, which tend to start low and rise steadily over time.	2015	Environmental
Dynamics of Environmental and Financial Performance: The Case of Greenhouse Gas Emissions Author: Delmas, Magali A., Nicholas Nairn-Birch, and Jinghui Lim Journal: Organization & Environment While corporate sustainability has been defined as an approach that creates long-term value with minimum environmental damage, there is still little understanding of the time horizon over which improved environmental performance leads to improved financial performance. We investigate the relationship between environmental and financial performance under increasing likelihood of environmental regulation. We leverage longitudinal data for 1,095 U.S. corporations from 2004 to 2008, a period of increasing activity for climate change legislation, in order to estimate the effect of greenhouse gas emissions on short- and long-term measures of financial performance. We find that during this period, improving corporate environmental performance causes a decline in an indicator of short-term financial performance, return on assets. Nonetheless, investors see the potential long-term value of improved environmental performance, manifested by an increase in Tobin's q. These results suggest that limited uptake of proactive strategies may in part be attributable to short-term financial performance targets that guide managerial decision making.	2015	Environmental
Thirty Years of Shareholder Activism: A Survey of Empirical Research Author: Denes, Matthew R., Jonathan M. Karpoff, and Victoria B. McWilliams Journal: Working paper We summarize and synthesize the results from 67 studies that examine the consequences of shareholder activism for targeted firms, and draw two primary conclusions. First, activism that adopts some characteristics of corporate takeovers, especially significant stockholdings, is associated with improvements in share values and firm operations. Activism that is not associated with the formation of ownership blocks is associated with insignificant or very small changes in target firm value. Second, shareholder activism has become more value increasing over time. Research based on shareholder activism from the 1980s and 1990s generally finds few consequential effects, while activism in more recent years is more frequently associated with increased share values and operating performance. These results are consistent with Alchian and Demsetz' (1972) argument that managerial agency problems are controlled in part by dynamic changes in ownership, and with Alchian's (1950) observation that business practices adapt over time to mimic successful strategies.	2015	Governance
CEO Assessment and the Structure of Newly Formed Boards Author: Denis, David J., Diane K. Denis, and Mark D. Walker Journal: Review of Financial Studies Following corporate spinoffs, unit boards are formed from scratch. We find that these "de novo" boards are smaller, more independent, include more outside directors with relevant industry expertise, and derive more industry expertise from outsiders than do industry- and size-matched peers. These differences are observed only when the unit CEO was not the CEO or a director of the pre-spinoff parent firm—that is, when there is a greater need to assess the CEO's ability and match with the firm. We conclude that the need for CEO assessment is an important element of the structure of newly formed boards.	2015	Governance
Financial Sector Pay and Labour Income Inequality: Evidence from Europe Author: Denk, Oliver Journal: OECD Economics Department Working Paper Public questioning about the role of finance has been fuelled by the perception that financial sector pay is an important factor behind high economic inequalities. This paper is the first to provide a comprehensive look at the level of earnings in finance and the implications for labour income inequality for European countries. Financial sector workers are shown to make up 19 percent among the top 1 percent earners, although the overall employment share of finance is only 4 percent. Nonetheless, the relatively small size of the sector limits the contribution that financial sector pay has on income inequality to a small, but noticeable amount. Simulations indicate that most of this contribution is explained by financial institutions paying salaries and bonuses which are above what employees with similar profiles get in other sectors. Estimations that allow for heterogeneity across workers reveal that this wage premium is more than twice as high for financial sector workers at the top of the distribution than at the bottom. The labour market in finance displays other symptoms of imperfection, with, for example, male financial sector workers earning a large wage premium over female financial sector workers, again especially at the top.	2015	Social
Failing to Meet Analysts' Expectations: How Financial Markets Contribute to Corporate Short-Termism Author: DesJardine, Mark, and Tima Bansal Journal: Working paper Managers and the media regularly blame financial markets for contributing to corporate short-termism; however, corporations are often short term even when investors are not. By drawing on the behavioral theory of the firm and prospect theory, we argue that the mechanism to corporate short-termism is through the performance expectations of financial analysts. We argue that organizational time horizons shorten when firms fail to meet analysts' performance expectations, and lengthen when they exceed analysts' performance expectations. However, this effect is asymmetric — underperformance has a more potent effect than over-performance on organizational time horizons. To test these and other hypotheses, we analyze 3,136 quarterly earnings conference call transcripts of 98 firms in extractives industries between 2006 and 2013.	2015	Environmental, Social, Governance
Do Analysts Matter for Corporate Social Responsibility? Evidence from Natural Experiments Author: Dong, Hui, Chen Lin, and Zintong Zhan Journal: Working paper We examine the causal impact of financial analysts on firms' socially responsible activities. Relying on brokerage closures and mergers as natural experiments which generate exogenous changes in analyst coverage, our Difference-in-Differences estimator indicates that a reduction in analyst coverage causes firms to engage more aggressively in irresponsible behavior, especially in the dimensions of environmental issues and product quality and safety concerns. The effects of analyst coverage on irresponsible activities are more pronounced in firms with lower initial analyst coverage, weaker corporate governance and higher financial constraints. Our paper identifies the deterrent effect of financial analysts as an important determinant in firms' CSR choice, and sheds light on the impact of financial analysts on non-financial stakeholders.	2015	Environmental, Social, Governance
Urban Vibrancy and Corporate Growth Author: Dougal, Casey, Cristopher A. Parsons, and Sheridan Titman Journal: Journal of Finance We find that a firm's investment is highly sensitive to the investments of other firms headquartered nearby, even those in very different industries. A firm's investment also responds to fluctuations in the cash flows and stock prices (q) of local firms outside its sector. These patterns do not appear to reflect exogenous area shocks such as local shocks to labor or real estate values, but rather suggest that local agglomeration economies are important determinants of firm investment and growth.	2015	Governance
Do Board Gender Quotas Reduce Firm Value? Author: Eckbo, B. Espen, Knut Nygaard, and Karin S. Thorburn Journal: Working paper In 2005, Norway, as the first country in Europe, mandated gender-balanced boards, requiring each gender to have 40 percent representation on the boards of both listed and non-listed public companies. Using this natural experiment, we make several contributions to the debate over the effect of director independence in general, and to the likely valuation impact of a board gender quota in particular. First, we revisit the surprising conclusion of Ahern and Dittmar (2012) that the quota law resulted in a large and persistent loss of market value of firms listed on the Oslo Stock Exchange (OSE). Moreover, in our study of quota-related news events, we find no statistically significant difference in the market reaction to domestic and foreign OSE-listed firms, although only the former firms are subject to the quota law. We also show that the number of firms listed on the OSE increased somewhat after 2005, contradicting the notion that the gender quota deterred firms from remaining public. Last, but not least, we document the rise of female director network power in the post-quota era using network centrality measures and a new and uniquely comprehensive director data set. Interestingly, our female director power index comes close to reaching that of male directors by 2009. This gives tentative support to the notion that the quota law and the director election process jointly restrict the supply of qualified directors to the point where a small set of "golden shirts" have been forced to share power with another small set of "golden skirts".	2015	Social
Thar SHE Blows? Gender, Competition, and Bubbles in Experimental Asset Markets Author: Eckel, Catherine C., and Sascha C. Füllbrunn Journal: American Economic Review Do women and men behave differently in financial asset markets? Our results from an asset market experiment show a marked gender difference in producing speculative price bubbles. Mixed markets show intermediate values, and a meta-analysis of 35 markets from different studies confirms the inverse relationship between the magnitude of price bubbles and the frequency of female traders in the market. Women's price forecasts also are significantly lower, even in the first period. Implications for financial markets and experimental methodology are discussed.	2015	Social
Does Internal Audit Function Quality Deter Management Misconduct? Author: Ege, Matthew S. Journal: The Accounting Review Standard-setters believe high-quality internal audit functions (IAFs) serve as a key resource to audit committees for monitoring senior management. However, regulators do not enforce IAF quality or require disclosures relating to IAF quality, which is in stark contrast to regulatory requirements placed on boards, audit committees, and external auditors. Using proprietary data, I find that a composite measure of IAF quality is negatively associated with the likelihood of management misconduct even after controlling for board, audit committee, and external auditor quality. This result is robust to a variety of other specifications, including controlling for internal control quality and separate estimation during the pre- and post-SOX time periods. A difference-in-differences analysis indicates that misconduct firms have low IAF quality and competence during misconduct years and improve IAF quality and competence in the post-misconduct years. These findings suggest that regulators, audit committees, and other stakeholders should consider ways to improve IAF quality.	2015	Governance
Country-Level Institutions, Firm Value, and the Role of Corporate Social Responsibility Initiatives Author: El Ghoul, Sadok, Omrane Guedhami, and Yongtae Kim Journal: Working paper Drawing on transaction cost theories and the resource-based view of a firm, we posit that the value of corporate social responsibility (CSR) initiatives is greater in countries where an absence of market-supporting institutions increases transaction costs and limits access to resources. Using a large sample of 11,672 firm-year observations representing 2,445 unique firms from 53 countries during 2003-2010 and controlling for firm-level unobservable heterogeneity, we find supportive evidence that CSR is more positively related to firm value in countries with weaker market institutions. We also provide evidence on the channels through which CSR initiatives reduce transaction costs. We find that CSR is associated with improved access to financing in countries with weaker equity and credit markets, greater investment and lower default risk in countries with more limited business freedom, and longer trade credit period and higher future sales growth in countries with weaker legal institutions. Our findings provide new insights on non-market mechanisms such as CSR through which firms can compensate for institutional voids.	2015	Environmental, Social, Governance
Discussion of "The Effect of Alternative Accounting Measurement Bases on Investors' Assessments of Managers' Stewardship" Author: Emett, Scott A., and Mark W. Nelson Journal: Accounting, Organizations and Society Anderson, Brown, Hodder, and Hopkins (ABHH, in press) provide experimental evidence that investors are better able to assess management stewardship and firm value when financial statements highlight fair-value information rather than amortized-cost information. We focus our discussion on five methodological choices that the authors make. We consider how those choices affect the generality of ABHH's results, consider an alternative theoretical explanation for those results, and suggest opportunities for future research that build on ABHH's work.	2015	Governance
Does the Director Election System Matter? Evidence from Majority Voting Author: Ertimur, Yonca, Fabrizio Ferri, and David Oesch Journal: Review of Accounting Studies We examine the effect of a change in the director election system — the switch from a plurality voting standard to a more stringent standard known as majority voting (MV). Using a regression discontinuity design, we document abnormal returns of 1.43-1.60 percent around annual meeting dates where shareholder proposals to adopt MV are voted upon, suggesting that shareholders perceive the adoption of MV as value-enhancing. We document an increase in boards' responsiveness to shareholders at MV firms. In particular, relative to a propensity score-matched control sample, firms adopting MV exhibit an increase in the rate of implementation of shareholder proposals supported by a majority vote and in the responsiveness to votes withheld from directors up for election. We do not find a relation between votes withheld and subsequent director turnover, regardless of the election standard. Overall, it appears that, rather than a channel to remove specific directors, director elections are viewed by shareholders as a means to obtain specific governance changes and that, in this respect, their ability to obtain such changes is stronger under a MV standard.	2015	Governance
Which Skills Matter in the Market for CEOs? Evidence from Pay for CEO Credentials Author: Falato, Antonio, Dan Li, and Todd Milbourn Journal: Management Science Market-based theories predict that differences in CEO skills lead to potentially large differences in pay, but it is challenging to quantify the CEO skill premium in pay. In a first step toward overcoming this empirical challenge, we code detailed biographical information for a large sample of CEOs for a panel of S&P 1500 firms between 1993 and 2005 to identify specific reputational, career, and educational credentials that are indicative of skills. Newly appointed CEOs earn up to a 5 percent or $280,000 total pay premium per credential decile, which is concentrated among CEOs with better reputational and career credentials, those with the very best credentials, and those who run large firms. Consistent with the unique economic mechanism of market-based theories, CEO credentials have a positive impact on firm performance. The performance differential for newly appointed CEOs is up to 0.5 percent per credential decile and is also concentrated among CEOs with better reputational and career credentials and those at large firms. Credentials are positively correlated with unobserved CEO heterogeneity in pay and performance, which further validates our hypothesis that boards use them as publicly observable signals of otherwise hard-to-gauge CEO skills. In all, our results offer direct evidence in support of market-based explanations of the overall rise in CEO pay.	2015	Governance
Does Ineffective Internal Control over Financial Reporting affect a Firm's Operations? Evidence from Firms' Inventory Management Author: Feng, Mei, Chan Li, Sarah E. McVay, and Hollis Skaife Journal: The Accounting Review We investigate whether ineffective internal control over financial reporting has implications for firm operations by examining the association between inventory-related material weaknesses in internal control over financial reporting and firms' inventory management. We find that firms with inventory-related material weaknesses have systematically lower inventory turnover ratios and are more likely to report inventory impairments relative to firms with effective internal control over financial reporting. We also find that inventory turnover rates increase for firms that remediate material weaknesses related to inventory tracking. Remediating firms also experience increases in sales, gross profit, and operating cash flows. Finally, we assess the generalizability of our findings by examining all material weaknesses in internal control over financial reporting, regardless of type, and provide evidence that firms' returns on assets are associated with both their existence and remediation. Collectively, our findings support the general hypothesis that internal control over financial reporting has an economically significant effect on firm operations.	2015	Governance
Motivated Monitors: The Importance of Institutional Investors? Portfolio Weights Author: Fich, Eliezer M., Jarrad Harford, and Anh L. Tran Journal: Journal of Financial Economics Studies of institutional monitoring focus on the fraction of the firm held by institutions. We focus on the fraction of the institution's portfolio represented by the firm. In the context of acquisitions, we hypothesize that institutional monitoring will be greatest when the target firm represents a significant allocation of funds in the institution's portfolio. We show that this measure is important in reconciling mixed findings for total institutional ownership in the prior literature. The results indicate that our measure of institutional holdings leads to greater bid completion rates, higher premiums, and lower acquirer returns. This empirical evidence provides support for theories predicting a beneficial effect of blockholders in monitoring the firm in general and in enhancing the gains to takeover targets in particular.	2015	Governance
Shareholder Activism in the UK: Types of Activists, Forms of Activism, and their Impact on a Target's Performance Author: Filatotchev, Igor, and Oksana Dotsenko Journal: Journal of Management & Governance Considering the recent rapid expansion of shareholder activism phenomenon in the United Kingdom (UK) and the vast amount of resources committed to it by corporations, government and investors, its effectiveness has become a crucial subject for investigation. This article analyzes organizational outcomes of shareholder activism in the UK. This research is based on a unique comprehensive database of shareholder activism events during the period of 1998-2008. We provide a detailed account of different types of activists, activism strategies and shareholder demands associated with the events of activism. Our findings show that the effectiveness of shareholder activism in terms of abnormal stock-market returns varies dramatically depending on its form, type of investor and the nature of investor proposals.	2015	Governance
Corporate Social Responsibility and the Allocation of Procurement Contracts: Evidence from a Natural Experiment Author: Flammer, Caroline Journal: Working paper This study examines whether corporate social responsibility (CSR) influences the allocation of government procurement contracts. To obtain exogenous variation in firms' social engagement, I exploit a quasi-natural experiment provided by the enactment of state-level constituency statutes, which allow directors to consider stakeholders' interests when making business decisions. Using constituency statutes as instrumental variable (IV) for CSR, I find that companies with higher CSR receive more procurement contracts. The effect is stronger for more complex contracts and in the early years of the government-company relationship, suggesting that CSR helps mitigate information asymmetries by signaling non-opportunistic behavior and trustworthiness. In addition, I find that the effect is stronger in competitive industries, indicating that CSR can serve as a differentiation strategy to compete against other bidders.	2015	Environmental, Social, Governance
Do Direct Elections Matter? Author: Fos, Vyacheslav, Kai Li, and Margarita Tsoutsoura Journal: Working paper Using a hand-collected sample of election nominations for more than 30,000 directors over the period 2001-2010, we construct a novel firm-level measure of director proximity to elections — Years-to-election. Since directors often serve on multiple boards, the measure varies not only with director's nomination status in a given firm, but also with her nomination status on other boards. We find that the closer members of a board are to their next director elections, the higher is CEO turnover-performance sensitivity. The results are driven by board members who are likely to influence CEO turnover decisions, such as chairmen and nomination committee members. A series of further tests — including tests that exploit variation in Years-to-election that comes from other boards — support a causal interpretation. Cross-sectional tests further show that, when other governance mechanisms are in place, CEO turnover-performance sensitivity is less affected by board Years-to-election. We conclude that director elections have important governance implications.	2015	Governance
Climate Sensitivity Uncertainty: When is Good News Bad? Author: Freeman, Mark C., Gernot Wagner, and Richard J. Zeckhauser Journal: National Bureau of Economic Research Working paper Climate change is real and dangerous. Exactly how bad it will get, however, is uncertain. Uncertainty is particularly relevant for estimates of one of the key parameters: equilibrium climate sensitivity — how eventual temperatures will react as atmospheric carbon dioxide concentrations double. Despite significant advances in climate science and increased confidence in the accuracy of the range itself, the "likely" range has been 1.5-4.5°C for over three decades. In 2007, the Intergovernmental Panel on Climate Change (IPCC) narrowed it to 2-4.5°C, only to reverse its decision in 2013, reinstating the prior range. In addition, the 2013 IPCC report removed prior mention of 3°C as the "best estimate." We interpret the implications of the 2013 IPCC decision to lower the bottom of the range and excise a best estimate. Intuitively, it might seem that a lower bottom would be good news. Here we ask: When might apparently good news about climate sensitivity in fact be bad news? The lowered bottom value also implies higher uncertainty about the temperature increase, a definite bad. Under reasonable assumptions, both the lowering of the lower bound and the removal of the "best estimate" may well be bad news.	2015	Environmental
The Financial Rewards of Sustainability: A Global Performance Study of Real Estate Investment Trusts Author: Fuerst, Franz Journal: Working paper This study shows for the first time, that investing comprehensively in sustainability as measured by the GRESB rating) pays off for REITs by enhancing operational performance and lowering risk exposure and volatility. Analyzing a sample of REITs from North America, Asia and Europe for the 2011-14 time period, it also appears that there is a great deal of untapped potential, particularly in the REIT community, to improve the sustainability performance of corporate real-estate portfolios. For real estate assets to maintain their competitive positioning, it is critical that their owners invest in measures that improve their sustainability.	2015	Environmental, Social, Governance
The Importance of the Internal Information Environment for Tax Avoidance Author: Gallemore, John, and Eva Labro Journal: Journal of Accounting and Economics We show that firms' ability to avoid taxes is affected by the quality of their internal information environment, with lower effective tax rates (ETRs) for firms that have high internal information quality. The effect of internal information quality on tax avoidance is stronger for firms in which information is likely to play a more important role. For example, firms with greater coordination needs because of a dispersed geographical presence benefit more from high internal information quality. Similarly, firms operating in a more uncertain environment benefit more from the quality of their internal information in helping them to reduce ETRs. In addition, we provide evidence that high internal information quality allows firms to achieve lower ETRs without increasing the risk of their tax strategies (as measured by ETR volatility). Overall, our study contributes to the literature on tax avoidance by providing evidence that the internal information environment of the firm is important for understanding its tax avoidance outcomes.	2015	Governance
Motivated to Acquire? The Impact of CEO Regulatory Focus on Firm Acquisitions Author: Gamache, Daniel L., Gerry McNamara, Michael J. Mannor, and Russell E. Johnson Journal: Academy of Management Journal Regulatory focus theory proposes that decision making and goal pursuit occur via either a promotion focus (a sensitivity to gains and a desire for advancement and growth) or a prevention focus (a sensitivity to losses and a desire for stability and security). Recent theorizing in strategic management research suggests that there may be important firm-level outcomes influenced by the regulatory focus of top executives. We expand research on regulatory focus theory by testing whether chief executive officers' (CEOs') regulatory focus impacts the proclivity of firms to undertake acquisitions. Furthermore, regulatory focus theory suggests that the effects of people's promotion and prevention foci are magnified when their regulatory focus is congruent with salient situational characteristics, a phenomenon known as regulatory fit. As a test of this idea, we demonstrate how the effects of CEO promotion and prevention foci are differentially impacted by one such characteristic, namely incentive compensation. Our findings indicate that CEO regulatory focus impacts both the quantity and scale of acquisitions undertaken by a firm. We also find some support for our arguments that these relationships are moderated by stock option pay.	2015	Governance
Effects of Managerial Labor Market on Executive Compensation Author: Gao, Huasheng, Juan Luo, and Tilan Tang Journal: Journal of Accounting and Economics We find that companies dramatically raise their incumbent executives' pay, especially equity-based pay, after losing executives to other firms. The pay raise is larger when incumbent executives have greater employment mobility in the labor market, when companies lose senior executives, and when job-hopping executives receive favorable job offers in their new firms. A company's subsequent pay raise to incumbent executives after losing an executive diminishes its deficiency in executive compensation relative to its industry peer firms, and is effective at retaining its incumbent executives. Overall, our evidence suggests that executive job-hopping activity has significant effects on firms' compensation policies.	2015	Governance
Markowitz Revisited: Social Portfolio Engineering Author: Gasser, Stephan M., Thomas Kremser, Margare Rammerstorfer, and Karl Weinmayer Journal: Working paper In recent years socially responsible investing has become an increasingly more popular subject with both private and institutional investors. At the same time, a number of scientific papers have been published on socially responsible investments (SRIs), covering a broad range of topics, from what actually defines SRIs to the financial performance of SRI funds in contrast to non-SRI funds. In this paper, we revisit Markowitz' Portfolio Selection Theory and propose a modification allowing to incorporate not only asset-specific return and risk expectations but also a social responsibility measure into the investment decision making process. Together with a risk-free asset, this results in a three-dimensional capital allocation plane that allows investors to custom-tailor their asset-allocations and incorporate all personal preferences regarding risk, return and social responsibility. We apply the model on a set of over 9000 international stocks and find that investors opting to maximize the social impact of their investments do indeed face a statistically significant decrease in expected returns. However, the social responsibility/risk-optimal portfolio yields a statistically significant higher social responsibility rating than the return/risk-optimal portfolio.	2015	Environmental, Social, Governance
Promotion, Turnover, and Compensation in the Executive Labor Market Author: Gayle, George-Levi, Limor Golan, and Robert A. Miller Journal: Econometrica This paper develops a generalized Roy model with human capital accumulation, moral hazard, and career concerns. We identify and estimate the model with a large panel that matches data on publicly listed firms to information on their executives. The structural estimates obtained are used to decompose the firm-size pay gap. We find that although total compensation and incentive pay increase with firm size, certainty-equivalent pay decreases with firm size. In larger firms, and for more highly ranked executives, weaker signal quality about effort results in higher risk premiums. This risk premium accounts for roughly 80 percent of the firm-size gap in total compensation. Larger firms are also willing to pay more than smaller ones to attract executives. Finally, the estimated coefficients on human capital accumulation from formal education and experience gained from different firms are individually significant, but their collective effect on firm-size pay differentials nets out.	2015	Governance
The Management of Natural Resources: An Overview and Research Agenda (From the Editors) Author: George, Gerard, Simon J. D. Schillebeeckx, and Teng Lit Liak Journal: Academy of Management Journal Natural resources underpin the foundation of human activity. Individuals and organizations consume vast amounts of natural resources as a matter of routine with out much cognizance of their continued availability in the future or the true cost of a depleting natural resource. Over the past decades of industrial activity, organizations, communities, and nations have acted to protect their interests by investing in and securing their supplies of natural resources that support economic growth. An industrial complex, now variously termed as extractive industries, supplies crucial non-renewable natural resources such as oil and coal for energy or iron and aluminum for construction. Our societal reliance on the consumption of natural resources grows unabated such that the discussion of sustainability of natural resources has taken primacy in policy and executive concerns. However, while scholarly research on business and the environment has been growing (Berchicci & King, 2007), our understanding of the management and the organization of natural resources remains limited, especially regarding its industrial ecosystem of use and trade and its implications for individual behavior, organizational performance, and quality of life.	2015	Environmental
The Brain Gain of Corporate Boards: Evidence from China Author: Giannetti, Mariassunta, Guanmin Liao, and Xiaoyun Yu Journal: Journal of Finance We study the impact of directors with foreign experience on firm performance in emerging markets. Using a unique data set from China, we exploit the introduction of policies to attract talented emigrants and increase the supply of individuals with foreign experience in different provinces at different times. We document that performance increases after firms hire directors with foreign experience and identify the channels through which the emigration of talent may lead to a brain gain. Our findings provide evidence on how directors transmit knowledge about management practices and corporate governance to firms in emerging markets.	2015	Governance
Contractual vs. Actual Separation Pay Following CEO Turnover Author: Goldman, Eitan Moshe, and Peggy Peiju Huang Journal: Management Science Using hand-collected data, we document the details of the ex ante severance contracts and the ex post separation pay given to S&P 500 chief executive officers (CEOs) upon departing from their companies. We analyze what determines whether or not a CEO receives separation pay in excess of the amount specified in the severance contract. We find that discretionary separation pay is given to about 40 percent of departing CEOs and is, on average, $8 million, which amounts to close to 242 percent of a CEO's annual compensation. We investigate the determinants of discretionary separation pay and find, for example, that discretionary separation pay positively correlates with weak internal governance in cases of voluntary CEO turnover but not when the CEO is forced out. We also find that discretionary pay is higher when the CEO has a noncompete clause in her ex ante severance contract. Event study analysis suggests that shareholders benefit from discretionary separation pay in forced turnovers but not in voluntary ones. Our overall results help to shed light on the complex role of discretionary separation pay in the bargaining game between boards and departing executives.	2015	Governance
Sorting Effects of Performance Pay Author: Goldmanis, Maris, and Korok Ray Journal: Management Science Compensation not only provides incentives to an existing manager but also affects the type of manager attracted to the firm. This paper examines the dual incentive and sorting effects of performance pay in a simple contracting model of endogenous participation. Unless the manager is highly risk averse, sorting dampens optimal pay-performance sensitivity (PPS) because PPS beyond a nominal amount transfers unnecessary (information) rent to the manager. This helps explain why empirical estimates of PPS are much lower than predictions from models of moral hazard alone. The model also predicts that sorting under asymmetric information causes the firm to turn away more candidates than would be efficient; PPS increases in the cost of hiring the manager and in the manager's outside option, but decreases in output risk, information risk, and managerial risk aversion; and the firm becomes more selective in hiring as either the manager's outside option, the cost of hiring, risk aversion, output risk, or information risk increases.	2015	Governance
Playing it Safe? Managerial Preferences, Risk, and Agency Conflicts Author: Gormley, Todd A., and David A. Masta Journal: Working paper This paper examines managers' incentive to "play it safe." We find that, after managers are insulated by the adoption of an antitakeover law, managers take value-destroying actions that reduce their firms' stock volatility and risk of distress. To illustrate one such action, we show that managers undertake diversifying acquisitions that target firms likely to reduce risk, have negative announcement returns, and are concentrated among firms whose managers gain the most from reducing risk. Our findings suggest that instruments typically used to motivate managers, like greater financial leverage and larger ownership stakes, exacerbate risk-related agency challenges.	2015	Governance
Capital Allocation and Delegation of Decision-Making Authority Within Firms Author: Graham, John R., Campbell R. Harvey, and Manju Puri Journal: Journal of Financial Economics We use a unique data set that contains information on more than 1,000 Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) around the world to investigate the degree to which executives delegate financial decisions and the circumstances that drive variation in delegation. Delegation does not appear to be monolithic; instead, our results show that it varies across corporate policies and also varies with the personal characteristics of the CEO. We find that CEOs delegate financial decisions for which they need the most input, when they are overloaded, and when they are distracted by recent acquisitions. CEOs delegate less when they are knowledgeable (long-tenured or with a finance background). Capital is allocated based on "gut feel" and the personal reputation of the manager running a given division. Finally, corporate politics and corporate socialism affect capital allocation in European and Asian firms.	2015	Governance
The Value of Corporate Culture Author: Guiso, Luigi, Paola Sapienza, and Luigi Zingales Journal: Journal of Financial Economics We study which dimensions of corporate culture are related to a firm's performance and why. We find that proclaimed values appear irrelevant. Yet, when employees perceive top managers as trustworthy and ethical, a firm's performance is stronger. We then study how different governance structures impact the ability to sustain integrity as a corporate value. We find that publicly traded firms are less able to sustain it. Traditional measures of corporate governance do not seem to have much of an impact.	2015	Social
Organizations, Climate Change, and Transparency: Reviewing the Literature on Carbon Disclosure Author: Hahn, Rudiger, Daniel Reimsbach, and Frank Schiemann Journal: Organization & Environment The debate surrounding climate change often centers on companies' contributions to global warming, which has led to an increase in the importance of carbon disclosure. We evaluate the current state of related research and identify its trends, coherences, and caveats via a systematic literature review. Sociopolitical theories of disclosure, economic theories of disclosure, and institutional theory serve as the main theoretical anchors for our exploration. The existing research emphasizes the determinants and, to a lesser extent, effects of carbon disclosure, as well as the associated regulatory issues such as voluntary versus mandatory disclosure. Additionally, we discuss related topics, such as assurance and risks. We find that a large portion of scholarly work provides no link to theory, despite the fact that such links can be identified, for example, from the financial disclosure literature. Finally, we report on the established knowledge and examine the need for additional research.	2015	Environmental
The Quad Model for Identifying a Corporate Director's Potential for Effective Monitoring: Toward a New Theory of Board Sufficiency Author: Hambrick, Donald C., Vilmos F. Misangyi, and Chuljin A. Park Journal: Academy of Management Review We introduce a new theoretical perspective for predicting effective monitoring, which involves a two-stage logic. First, we focus on individual directors, arguing that effective monitoring is highly likely when a given director possesses certain qualities. Based on prior research not previously coalesced, we set forth this baseline proposition: a director's likelihood of being an effective monitor in any given domain (say, financial matters) is greatly increased when he or she has all four of the following qualities: independence, expertise in that domain, bandwidth, and motivation. Second, we extend this quadrilateral model — r quad model — to make propositions at the board level. We argue that it is not sufficient for these four qualities to be distributed among all directors on a given board, since this makes it likely there will be no directors who can rise to the challenging task of monitoring. We propose that having just one quad-qualified director will be more predictive of board efficacy than will be any customary board descriptors. And we posit that if a board has two or more quad-qualified directors who can bolster and amplify each other, the company's likelihood of governance failures will be especially reduced. We discuss theoretical and practical implications and lay out a research agenda.	2015	Governance
Making Sense of One Dollar CEO Salaries Author: Hamm, Sophia J. W., Michael J. Jung, and Clare Wang Journal: Contemporary Accounting Research We examine the determinants and outcomes of Chief Executive Officers (CEOs) accepting a $1 salary, a compensation practice that occurs relatively frequently in high-profile firms and is debated by regulators, investors, and the media. Using a hand-collected sample of 93 CEOs from 91 firms between 1993 and 2011, we examine the triggers preceding the $1 salary decision, the factors associated with the decision, subsequent stock returns, and the outcomes for the CEOs. Our evidence is consistent with two explanations for the phenomenon: (i) it is a gesture of sacrifice by CEOs of firms in crisis, and (ii) it is a signal of better future performance by CEOs of growing firms. Our analyses highlight the two different circumstances and shed light on an interesting debate that has thus far been supported only by anecdotal evidence.	2015	Governance
Board Diversity and Corporate Social Responsibility Author: Harjoto, Maretno, Indrarini Laksmana, and Robert Lee Journal: Journal of Business Ethics This study examines the impact of board diversity on firms' corporate social responsibility (CSR) performance. Using seven different measures of board diversity across 1,489 U.S. firms from 1999 to 2011, the study finds that board diversity is positively associated with CSR performance. Board diversity is associated with a greater number of areas in which CSR is strong and a fewer number of areas in which CSR is a concern. These findings support the stakeholder theory and are consistent with the view that board diversity enhances firms' ability to satisfy the needs of their broader groups of stakeholders. We find that gender, tenure, and expertise diversities seem to be the driving factors of firms' CSR activities. Furthermore, we find that board diversity significantly increases CSR performance by increasing CSR strengths and reducing CSR concerns for firms producing consumer-oriented products and firms operating in more competitive industries. Our results remain robust using different measures of CSR performance, different estimation methods, and different samples.	2015	Social
Demographic Diversity and Firm Value: A Review on Large Companies Using Panel Data Approach Author: Hassan, R., M. Marimuthu, and S. K. Johl Journal: Working Paper This paper examines the demographic diversity at top-level management and its impact on firm performance. The paper focuses on Upper-echelon theory, which explains board characteristics and firm performance. Theoretical framework is specially designed using concepts, measures and models. Relevant hypotheses are developed to test diversity impact with the use of appropriate variables and measures. A total sample of large 60 top listed companies are considered based on their market capitalization. This empirical work uses BODs attributes and financial data, which are gathered over the period 2009 to 2013. This study incorporates econometrics methodology on panel data analysis, which is used rigorously for hypothesis testing. The results indicate that demographic diversity at board level does have a relationship with market value.	2015	Social
Do Personal Traits Matter? CEOs' and Directors' Risk-Taking and Environmental Firm Performance Author: Hassel, Lars G., Juha-Pekka Kallunki, and Henrik Nilsson Journal: In CEO Branding: Theory and Practice, edited by Marc Fetscherin We investigate how the past unethical risk behaviour (PURB) of board members and top executives relates to the environmental performance and the quality of environmental reporting of Swedish listed firms. By focusing on past criminal convictions, suspected crimes, non-payment records and bankruptcy histories, we create a composite measure of ethical and risk preferences of these important company officials. Besides behavioural aspects, our empirical analysis also addresses how their investments in the firm, relative to their total wealth, influence environmental performance. The goal is to improve our understanding of the importance of the character of board members and the CEO for the environmental strategy of the firm. The results show a negative relation between board members' PURB and the environmental performance of the firm. Boards with a higher proportion of risk-prone, unethical members seem to focus less on the environmental concerns of their businesses. The relation between board ownership and environmental performance is also negative. The result is consistent with board members with a large stake of their total wealth invested in the company considering environmental performance as costly in the short term. In accordance with prior research, we also document a positive relation between the proportion of women on the board and the environmental performance of the firm. Finally, our findings show that board members are more important than the CEO for the environmental performance of the firm, consistent with the board's central role of developing the firm's environmental strategy. Overall, the paper demonstrates the importance of diverse board members for the sustainability of the firm.	2015	Environmental, Social, Governance
The Effect of CEO Inside Debt Holdings on Financial Reporting Quality Author: He, Guanming Journal: Review of Accounting Studies This study investigates the effect of CEO inside debt holdings on financial reporting quality. I find that higher CEO inside debt holdings are associated with lower abnormal accruals, higher accruals quality, a lower likelihood of an earnings misstatement, and a lower incidence of earnings benchmark beating, suggesting that CEO inside debt promotes high financial reporting quality. Additional analyses reveal that (1) CEO inside debt holdings reduce firm-specific stock price crash risk, and that (2) auditors are less likely to report a material internal control weakness for firms that have large CEO inside debt.	2015	Governance
Why Do Firms Have "Purpose"? The Firm's Role As a Carrier of Identity and Reputation Author: Henderson, Rebecca, and Eric Van den Steen Journal: American Economic Review This article develops a theory in which a firm's adoption of a prosocial purpose canincrease profitability by strengthening employees' reputation and identity — leading to higher effort and lower wages — as long as implementing purpose is costly with respect to direct monetary payoffs. Employees who value prosocial action will select into firms with a social purpose, which then become a visible carrier for these employees' identity and reputation.	2015	Governance
The Effect of Social Screening on Bond Mutual Fund Performance Author: Henke, Hans-Martin, and Thomas Maehlmann Journal: Working paper This study measures the financial impact of screening for environmental, social and govern- ance (ESG) criteria on corporate bond portfolios. Specifically, risk-adjusted financial performance of 103 US and Eurozone socially responsible bond funds is compared with a matched sample of conventional funds. During the period 2001-2014 socially responsible bond funds outperform by half a percent annually. An evaluation of fund holdings and a performance attribution analysis suggest that this outperformance is directly related to the exclusion of cor- porate bond issuers with poor corporate social responsibility (CSR) activities. A separation of crisis and non-crisis periods further indicates that the outperformance occurs especially during recessions or bear market periods. We confirm this crisis related return effect out of sample among socially screened bond indices. Moreover, results are robust to alternative definitions of sustainability, survivorship-bias, fund characteristics and stable in the US and Eurozone sub-samples.	2015	Governance
Welfare Impacts of Climate Change Author: Hof, Andries F. Journal: Nature Climate Change Climate change can affect well-being in poor economies more than previously shown if its effect on economic growth, and not only on current production, is considered. But this result does not necessarily suggest greater mitigation efforts are required.	2015	Environmental
Choosing to be 'Good': How Managers Determine their Impact on Financial and Social Performance Author: Hong, Bryan, and Dylan Minor Journal: Working paper We investigate the relationship between a manager's influence on firm financial and social performance. To examine the mechanism governing the relationship between a manager's investment decisions along both dimensions of performance, we use a formal agency theory model to develop testable implications. In our empirical results, we find that a manager's influence on firm CSR activities is negatively related to their influence on financial performance. Also, as suggested by the implications of the model, we find that managers who operate in industries with more volatile financial performance and receive a lower share of compensation from incentive-based pay are more likely to have a positive influence on firm social performance.	2015	Governance
Crime, Punishment and the Halo Effect of Corporate Social Responsibility Author: Hong, Harrison G., and Inessa Liskovich Journal: Working paper Using enforcements of the Foreign Corrupt Practices Act, we find that prosecutors are more lenient toward socially responsible firms. A one standard deviation increase in corporate social responsibility (CSR) is associated with 5 million dollars less in fines, or 25 percent lower than the mean. Yet, CSR is not a mitigating factor in sentencing guidelines. It is also uncorrelated with bribe attributes, which should entirely determine sanctions following Becker (1974). Consistent with the halo effect from psychology, this prosecutorial bias is larger for firms that are more widely recognized by the general public; and more responsible firms also receive less negative prosecutorial press releases and experience better subsequent stock returns.	2015	Environmental, Social, Governance
Are CEOs and CFOs Rewarded for Disclosure Quality? Author: Hui, Kai Wai, and Steven R. Matsunaga Journal: The Accounting Review This study provides evidence regarding the importance that boards of directors place on effective communication with the investor community by examining whether CEO and CFO compensation are related to the quality of the firm's financial disclosures. Using an index derived from analyst forecast characteristics and management forecast accuracy to measure disclosure quality, we find changes in the annual bonus for both the CEO and CFO to be positively associated with changes in disclosure quality. We also find that the relation is stronger for high-growth firms, firms that have stronger governance structures, and for executives with lower equity incentives. Overall, our findings provide insight into the importance that boards place on effective communication with investors as a responsibility of the CEO and CFO and, therefore, provide them with contractual incentives to address the moral hazard problem associated with voluntary disclosures.	2015	Governance
Investor Tastes, Corporate Behavior and Stock Returns: An Analysis of Corporate Social Responsibility Author: Hwang, Chuan-Yang, Sheridan Titman, and Ying Wang Journal: Working paper We classify institutions into socially responsible institutions (SRI) and non-socially-responsible institutions (NSRI) based on the value weighted Corporate Social Responsibility (CSR) scores of their portfolio holdings. Controlling for CSR scores, stocks that experience an increase in NSRI ownership realize positive excess returns the following quarter. The positive relation between excess returns and NSRI ownership is stronger for stocks with higher CSR scores. We also find that CSR scores tend to increase more for stocks with lower NSRI holdings. These results, which are consistent with the existence of excess CSR expenditures that reduce firm values, suggest that the mix of institutional investors influences CSR choices.	2015	Environmental, Social, Governance
Shareholder Voting and Corporate Governance Around the World Author: Iliev, Peter, Karl V. Lins, Darius P. Miller, and Lukas Roth Journal: Review of Financial Studies Using a sample of non-U.S. firms from 43 countries, we investigate whether laws and regulations as well as votes cast by U.S. institutional investors are consistent with an effective shareholder voting process. We find that laws and regulations allow for meaningful votes to be cast, as shareholder voting is both mandatory and binding for important elections. For votes cast, we find there is greater dissent voting when investors fear expropriation. Further, greater dissent voting is associated with higher director turnover and more M&A withdrawals. Our results suggest that shareholder voting is an effective mechanism for exercising governance around the world.	2015	Governance
The Effects of Women on Corporate Boards on Firm Value, Financial Performance, and Ethical and Social Compliance Author: Isidro, Helena, and Marcia Sobral Journal: Journal of Business Ethics The European Commission has recently proposed the introduction of legally binding quotas for women on corporate boards of European companies. This proposal has put the spotlight on the question of whether increasing female representation on the board brings economic benefits to the firm. In order to shed light on the issue, this study investigates the direct and indirect effects of women on the board on firm value. We use a simultaneous equation model to estimate the effects of women on the board on firm value, financial performance, and compliance with ethical and social principles adopted by the firm. We find no evidence that a higher female representation on the board directly affects firm's value. However, we find indirect effects. Women on the board are positively related with financial performance (measured in terms of return on assets and return on sales) and with ethical and social compliance, which in turn are positively related with firm value. The findings in this study suggest that greater female representation on corporate boards of large European firms can increase firm value indirectly. Further, part of the indirect effect comes from stronger compliance with ethical principles, something that is not captured by accounting-based financial performance.	2015	Social
CEO Equity Incentives and Financial Misreporting: The Role of Auditor Expertise Author: Jayaraman, Sudarshan, and Todd Milbourn Journal: The Accounting Review Prior studies find inconsistent evidence regarding the effect of CEO equity incentives on financial misreporting. We argue that this inconsistency stems from not considering detection mechanisms that mitigate the effect of equity incentives on misreporting by limiting the ability of managers to carry out such manipulative activities. Using auditor industry expertise as one such detection mechanism, we document that CEO equity incentives are positively associated with misreporting only in subsamples where auditor expertise is low, but not where expertise is high. The implication of these results is that auditor expertise lowers the cost of granting equity-based incentives and that firms audited by an industry expert grant their CEOs greater equity incentives. We find strong evidence in favor of this implication. Controlling for previously identified determinants of CEO equity incentives, we find that firms audited by an industry expert grant their CEOs 14 percent more equity incentives than firms audited by a non-expert. To address endogeneity concerns, we use the collapse of Arthur Andersen as a quasi-natural experiment and find analogous evidence. Overall, our study documents the critical role of detection mechanisms in the link between CEO contracting and financial misreporting.	2015	Governance
CEO Preferences and Acquisitions Author: Jenter, Dirk, and Katharina Lewellen Journal: Journal of Finance This paper explores the impact of target CEOs' retirement preferences on takeovers. Using retirement age as a proxy for CEOs' private merger costs, we find strong evidence that target CEOs' preferences affect merger activity. The likelihood of receiving a successful takeover bid is sharply higher when target CEOs are close to age 65. Takeover premiums and target announcement returns are similar for retirement-age and younger CEOs, implying that retirement-age CEOs increase firm sales without sacrificing premiums. Better corporate governance is associated with more acquisitions of firms led by young CEOs, and with a smaller increase in deals at retirement age.	2015	Governance
Reputation and Hedge Fund Activism Author: Johnson, Travis L., and Nathan Swem Journal: Working paper We model activist hedge fund reputation as managers' belief about the activist's willingness to initiate a proxy fight. Our model predicts two channels through which reputation improves activism's effectiveness: activists more-frequently incur the cost of proxy fights as an investment in their reputation, and managers accommodate demands from high reputation activists without a proxy fight. Our empirical evidence supports these predictions: costs often exceed short-term benefits for activists in proxy fights and target companies accommodate high reputation activists by increasing payouts. Our model and empirical evidence also indicate activist stake size is not an effective alternative to reputation.	2015	Governance
The Bonding Hypothesis of Takeover Defenses: Evidence from IPO Firms Author: Johnson, William C., Jonathan M. Karpoff, and Sangho Yi Journal: Journal of Financial Economics We propose and test an efficiency explanation for why firms deploy takeover defenses using initial public offering (IPO) firm data. We hypothesize that takeover defenses bond the firm's commitments by reducing the likelihood that an outside takeover will change the firm's operating strategy and impose costs on its business partners. Consistent with this hypothesis, we find that IPO firms deploy more takeover defenses when they have important business relationships to protect. An IPO firm's use of takeover defenses is positively related to the longevity of its business relationships. IPO firms' use of takeover defenses creates positive spillovers for their large customers. And IPO firms' valuation and subsequent operating performance are positively related to their use of takeover defenses when they have important business relationships.	2015	Governance
An Overview of Five Decades of Empirical Research and Calls to Action: Thematic Issue on Gender in Management Research (From the Editors) Author: Joshi, Aparna, Brett Neely, Cynthia Emrich, Dorothy Griffiths, and Gerard George Journal: Academy of Management Journal Fifteen years into the 21st century, gender equality appears to be at the forefront of the global humanitarian agenda. There has been progress. In many developing coun- tries, such as India, Indonesia, the Philippines, Liberia, Argentina, and Sri Lanka, women have long held key political offices, but, in the past three years, a record number of women have also stood for and voted in elections even at the grassroots level (UN Women, 2014). Within the United States, too, more women than ever before were sworn in to the 114th Congress and Senate, and the country's presidential election of 2016 may likely feature more than one female presidential candidate. There has been a record increase in the number of women rising to CEO positions, a majority of women and mothers are now employed, and women outnumber men across many graduate and under- graduate programs (Pew Research Center, 2015). However, we also note several sobering trends. Violence against women and girls remains a global epidemic. In many parts of the developing world, such as Africa or South Asia, women also bear the brunt of natural disasters or civil strife, which severely restricts their opportunities to access a decent livelihood (e.g., George, Kotha, Parikh, Alnuaimi, & Bahaj, 2015). The disproportionate burden of unpaid care work is still borne by women who also face persistent barriers in accessing education and paid work due to lack of basic infrastructure such as running water or electricity (e.g., Parikh, Fu, Parikh, McRobie, & George, 2015). Women also continue to receive significantly lower pay than men in comparable jobs, and are under-represented at the highest levels in organizations (Catalyst, 2011; UN Women, 2014). Sexism both overt and subtle remains pervasive in many professional domains, including academia where a number of disciplines continue to be highly male dominated (Bornmann, Mutz, & Daniel, 2007; Moss-Racusin, Dovido, Brescoll, Graham, & Handelman, 2012). Taken together, these developments — both promising and problematic — raise the question of whether the movement toward gender equality has plateaued, or if there are signs of a renaissance?	2015	Social
When Can Women Close the Gap? A Meta-Analytic Test of Sex Differences in Performance and Rewards Author: Joshi, Aparna, Jooyeon Son, and Hyuntak Roh Journal: Academy of Management Journal Drawing on macro and micro domains in gender research, we meta- analytically test whether occupation-, industry-, and job-level factors mitigate or exacerbate differences in performance evaluations (k = 93; n = 95,882) and rewards (k = 97; n = 378,850) between men and women. Based on studies conducted across a variety of work settings and spanning nearly 30 years, we found that the sex differences in rewards (d = .56) (including salary, bonuses, and promotions) were 14 times larger than sex differences in performance evaluations (d = .04), and that differences in performance evaluations did not explain reward differences between men and women. The percentage of men in an occupation and the complexity of jobs performed by employees enhanced the male-female gap in performance and rewards. In highly prestigious occupations, women performed equally, but were rewarded significantly lower than men. Only a higher representation of female executives at the industry level enabled women to reverse the gender gap in rewards and performance evaluations. Our configurational analysis also revealed that some occupation-, industry-, and job-level attributes of the work context jointly contributed to differences in rewards and performance evaluations.	2015	Social
The Cost of Corporate Social Responsibility after a Catastrophe Author: Kayser, Susan A. Journal: Working paper Previous research has found that CSR initiatives can preserve firm-value after an adverse event, or that CSR has "insurance-like" properties. Catastrophic events, however, can increase scrutiny and pressure upon an entire industry. To improve the industry's damaged reputation and lessen external pressure, some members of the industry will often engage in self-regulation. I posit that firms with substantive corporate social responsibility (CSR) initiatives will actually lose more firm-value after a catastrophe, because they will be expected to engage in costly self-regulation after the event. I also argue that due to strategic activist targeting, firms subject to greater past activism will lose more firm-value. Using an event-study, I examine the apparel industry after the collapse of Rana Plaza.	2015	Environmental, Social, Governance
The Job Rating Game: The Effects of Revolving Doors on Analyst Incentives Author: Kempf, Elisabeth Journal: Working paper Investment banks frequently hire credit rating analysts from the major rating agencies. A widely held view is that this "revolving door" undermines analysts' incentives to issue accurate ratings. Using a hand-collected dataset of the performance and career paths of 229 credit rating analysts between 2000 and 2010, I provide new evidence on the effects of revolving doors on analyst incentives. For the large majority of securities they rate, analysts who eventually move to investment banks are significantly more accurate than other analysts rating similar securities at the same point in time. A notable exception is the small fraction of securities underwritten by their future employers, where revolving analysts do not outperform. My empirical design ensures that the results are not driven by selection of smart individuals into investment banking jobs, or by endogenous matching of revolving analysts to securities. My findings suggest that the revolving door on average strengthens rather than distorts analyst incentives, which may explain why revolving doors have remained open in many professions, despite the public criticism they have attracted.	2015	Social
CEO Connectedness and Corporate Fraud Author: Khanna, Vikramaditya, E. Han Kim, and Yao Lu Journal: Journal of Finance We find that connections CEOs develop with top executives and directors through their appointment decisions increase the risk of corporate fraud. Appointment-based CEO connectedness in executive suites and boardrooms increases the likelihood of committing fraud and decreases the likelihood of detection. Additionally, it decreases the expected costs of fraud by helping conceal fraudulent activity, making CEO dismissal less likely upon discovery, and lowering the coordination costs of carrying out illegal activity. Connections based on network ties through past employment, education, or social organization memberships have insignificant effects on fraud. Appointment-based CEO connectedness warrants attention from regulators, investors, and corporate governance specialists.	2015	Governance
Institutional Investors and Corporate Environmental, Social, and Governance Policies: Evidence from Toxic Release Data Author: Kim, Incheol, Hong Wan, Bin Wang, and Tina Yang Journal: Working paper This paper studies whether institutional investors influence corporate environmental, social, and governance (ESG) policies and the impact of such influence on firm performance. We use facility-level toxic release data to proxy for a firm's ESG policies. We use geographic distance and the size of equity ownership to proxy for institutions' interests and preferences. We find robust evidence that local institutional ownership reduces the amount of toxic chemicals released by a nearby facility into the environment. Pollution abatement policies implemented in the presence of high levels of local institutional ownership enhance firm performance. The overall evidence suggests that ESG appeals to a diverse set of institutional investors. There is no evidence that pollution abatement policies are detrimental to firm value. Our results support Jensen (2001)'s theory of enlightened value maximization that firm value is maximized in the long run when the interests of shareholders and other stakeholders are aligned.	2015	Environmental
You Don't Forget Your Roots: The Influence of CEO Social Class Background on Strategic Risk Taking Author: Kish-Gephart, Jennifer J., and Joanna Tochman Campbell Journal: Academy of Management Journal Social class is increasingly recognized as a powerful force in people's lives. Yet despite the long and extensive stream of research on the upper echelons of organizations, we know little about how executives' formative childhood experiences with social class influence their strategic choices. In this study, we investigate the influence of chief executive officers' (CEOs') perceived social class origins on firm risk taking. We also explore the moderating influences of other important career experiences, in the form of elite education and diverse functional backgrounds. Our theory and findings highlight that an executive's social class origins have a lasting and varying impact on his or her preferences, affecting his or her tendency to take risks. By examining this novel managerial characteristic, we offer important implications for theorizing about social class and upper echelons.	2015	Governance
Political Capital and Moral Hazard Author: Kostovetsky, Leonard Journal: Journal of Financial Economics This paper examines how political connections affect risk exposure of financial institutions. Using a geography-based measure, I find that politically connected firms have higher leverage and their stocks have higher volatility and beta. Furthermore, prior to the 2008 financial crisis, politically-connected financial firms had higher leverage and were more likely to increase their leverage during the housing bubble in response to local growth in median housing prices. During the crisis, higher leverage was associated with worse performance but being in a state with a US Senator on the Banking Committee was correlated with weakly improved stock returns and reduced bankruptcy probability, highlighting the value of political connections for financial firms.	2015	Governance
Top Hedge Funds: The Importance of Reputation in Shareholder Activism Author: Krishnan, C.N.V., Frank Partnoy, and Randall S. Thomas Journal: Working paper We examine how hedge fund characteristics matters for announcement period returns. Using a large dataset of hand-collected information on post-financial-crisis activist interventions through mid-2014, we find that recent activism generates high and persistent announcement period returns: an average of more than 7 percent over the 21-day event window. These returns have persisted even as both the number of activists and their interventions have increased. But, intervening with large investments in large targets is significantly and positively related to announcement period returns, whereas intervening more frequently is negatively associated with announcement period returns. We develop a hedge fund reputation measure that is based on the size of investments in the recent past. The most reputed hedge funds have more assets under management, a longer track record of activism, a history of obtaining board seats, and invest in targets with the intent of making board changes. Top activists' reputations prove to have been deserved: their targets enjoy superior operating performance post intervention.	2015	Governance
Inequality, Leverage, and Crises Author: Kumhof, Michael, Romain Rancière, and Pablo Winant Journal: American Economic Review The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to income ratio and crisis risk for the three decades preceding the Great Recession.	2015	Social
Asset Pricing With Concentrated Ownership of Capital and Distribution Shocks Author: Lansing, Kevin J. Journal: American Economic Journal: Macroeconomics This paper develops a production-based asset pricing model with two types of agents and concentrated ownership of physical capital. A temporary but persistent "distribution shock" causes the income share of capital owners to fluctuate in a procyclical manner, consis- tent with US data. The concentrated ownership model significantly magnifies the equity risk premium relative to a representative-agent model because the capital owners' consumption is more-strongly linked to volatile dividends from equity. With a steady-state risk aversion coefficient around 4, the model delivers an unlevered equity premium of 3.9 percent relative to short-term bonds and a premium of 1.2 percent relative to long-term bonds.	2015	Governance
Capital Account Opening and Wage Inequality Author: Larrain, Mauricio Journal: Review of Financial Studies Opening the capital account allows financially constrained firms to raise capital from abroad. Since capital and skilled labor are relative complements, this increases the relative demand for skilled labor versus unskilled labor, leading to higher wage inequality. Using aggregate data and exploiting variation in the timing of capital account openings across 20 mainly European countries, I find that opening the capital account increases aggregate wage inequality. In order to identify the mechanism, I use sectoral data and exploit variation in external financial dependence and capital-skill complementarity across industries. I find that capital account opening increases sectoral wage inequality, particularly in industries with both high financial needs and strong complementarity.	2015	Social
Discrimination in Selection Decisions: Integrating Stereotype Fit and Interdependence Theories Author: Lee, Sun Young, Marko Pitesa, Stefan Thau, and Madan M. Pillutla Journal: Academy of Management Journal We integrate stereotype fit and interdependence theories to propose a model that explains how and why decision makers discriminate in selection decisions. Our model suggests that decision makers draw on stereotypes about members of different social groups to infer the degree to which candidates possess the specific ability required for the task. Decision makers perceive candidates that have a greater ability required for the task as less (more) instrumental to their personal outcomes if they expect to compete (cooperate) with the candidate, and they discriminate in favor of candidates that are perceived as more instrumental to them. We tested our theory in the context of racial (Studies 1-3) and age (Study 4) discrimination in selection decisions with all-male samples and found evidence consistent with our predictions. By explaining when and why decision makers discriminate in favor of, but also against, members of their own social group, this research may help to explain the mixed support for the dominant view that decision makers exhibit favoritism toward candidates that belong to the same social group. In addition, our research demonstrates the importance of considering the largely overlooked role of interdependent relationships within the organization in order to understand discrimination in organizations.	2015	Social
Market Responses to Firms' Voluntary Climate Change Information Disclosure and Carbon Communication Author: Lee, Su-Yol, Yun-Seon Park, and Robert D. Klassen Journal: Corporate Social Responsibility and Environmental Management Despite the importance of the Carbon Disclosure Project (CDP), the question of how firms' voluntary carbon disclosure influences capital markets and shareholder value remains unanswered. Using the event study methodology with a sample of firms from the CDP Korea 2008 and 2009, this paper investigates market responses to firms' voluntary carbon information disclosure. The results suggest that the market is likely to respond negatively to firms' carbon disclosure, implying that investors tend to perceive carbon disclosure as bad news and thus are concerned about potential costs facing firms for addressing global warming. In addition, the study examines the moderating effect of frequent carbon communication on the relationship between carbon disclosure and shareholder value. The results suggest that a firm can mitigate negative market shocks from its carbon disclosure by releasing its carbon news periodically through the media in advance of its carbon disclosure.	2015	Environmental
Do Women Avoid Salary Negotiations? Evidence from a Large-Scale Natural Field Experiment Author: Leibbrandt, Andreas, and John A. List Journal: Management Science One explanation advanced for the persistent gender pay differences in labor markets is that women avoid salary negotiations. By using a natural field experiment that randomizes nearly 2,500 job seekers into jobs that vary important details of the labor contract, we are able to observe both the extent of salary negotiations and the nature of sorting. We find that when there is no explicit statement that wages are negotiable, men are more likely to negotiate for a higher wage, whereas women are more likely to signal their willingness to work for a lower wage. However, when we explicitly mention the possibility that wages are negotiable, these differences disappear completely. In terms of sorting, we find that men, in contrast to women, prefer job environments where the "rules of wage determination" are ambiguous. This leads to the gender gap being much more pronounced in jobs that leave negotiation of wage ambiguous.	2015	Social
Does Takeover Activity Cause Managerial Discipline? Evidence from International M&A Laws Author: Lel, Ugur, and Darius P. Miller Journal: Review of Financial Studies This paper exploits the staggered initiation of takeover laws across countries to examine whether the threat of takeover enhances managerial discipline. We show that following the passage of takeover laws, poorly performing firms experience more frequent takeovers; the propensity to replace poorly performing CEOs increases, especially in countries with weak investor protection; and directors of targeted firms are more likely to lose board seats following corporate-control events. Our findings suggest that the threat of takeover causes managerial discipline through the incentives that the market for corporate control provides to boards to monitor managers.	2015	Governance
Do Temporary Increases in Information Asymmetry Affect the Cost of Equity? Author: Levi, Shai, and Xiao-Jun Zhang Journal: Management Science Prior literature finds that long-lasting changes in firms' disclosure policies and information environment affect the cost of equity. Information asymmetry, however, also changes during the fiscal quarter. Firms disclose information periodically, and in between disclosure dates, traders can obtain private information, and adverse-selection risk increases. Such temporary increases in information asymmetry are usually considered to be diversifiable or too small to impact expected stock returns. In addition, investors may postpone trades or sell other assets in their portfolio on high information asymmetry days. We, however, find that returns increase significantly on days during the fiscal quarter when adverse-selection risk is high and liquidity low. Consistent with theory, we show that temporary asymmetry affects returns when investors demand liquidity and market makers bear risk for carrying capacity and providing it.	2015	Governance
Outside Blockholders' Monitoring of Management and Debt Financing Author: Liao, Scott Journal: Contemporary Accounting Research Corporate governance mechanisms designed to alleviate manager-shareholder agency conflicts can worsen shareholder-bondholder conflicts. This study examines how one such corporate governance mechanism, monitoring by large outside shareholders, influences the choice between public and private debt. I conjecture and find that firms with higher outside blockholdings are inclined to choose bank loans over public debt when they borrow, consistent with the notion that banks are better monitors than public debt markets. I also find that bank loans carry less price protection than corporate bonds against increased agency risk associated with outside blocks. Corroborating the monitoring story, I document that bank loans contain more accounting-based covenants and dividend restriction provisions for firms with higher outside blockholdings than for those with lower blockholdings. I find no such relation for public debt covenants. This supports that banks' monitoring of their loans counters the agency risk caused by blockholders. This study extends prior research that associates governance mechanisms with agency costs of debt, by incorporating lenders' differential monitoring mechanisms in the overall corporate governance system.	2015	Governance
Welfare-Enhancing Fraudulent Behavior Author: Lin, Haijin, and David E. M. Sappington Journal: Review of Accounting Studies We demonstrate that an increased likelihood of fraud within an organization can benefit both the organization and its auditor. This is the case even though undetected fraud always harms both the organization and the auditor. The increased likelihood of fraud can induce the auditor to increase his auditing effort, which reduces the equilibrium incidence of undetected fraud and thereby benefits both the organization and the selected auditor.	2015	Governance
Professional Image Maintenance: How Women Navigate Pregnancy in the Workplace Author: Little, Laura M., Virginia Smith Major, Amanda S. Hinojosa, and Debra L. Nelson Journal: Academy of Management Journal Women now constitute a significant portion of the workforce, making the effects of pregnancy on professional image (others' perceptions of competence and character at work) more salient. While opinions regarding how pregnant women should manage others' impressions and the consequences of doing so abound (Noveck, 2012) research to substantiate or disconfirm these opinions has lagged. In this paper, we present three studies that develop and test a model of social identity-based impression management (SIM) techniques used by pregnant workers. In Study 1 (n = 35), we utilized qualitative methods to identify the motives and strategies used by pregnant women to manage their professional images. In the second study, we collected two samples (n = 199 and n = 133) to develop and validate two scales based on the motives and strategies identified in Study 1. In Study 3 (n = 200), we employed a time-lagged design to examine how SIM motives and strategies affect important workplace outcomes: perceived discrimination, burnout, and returning to one's job after maternity leave. Our findings demonstrate both positive and negative outcomes of the motives and strategies women use to manage their images at work when pregnant.	2015	Social
Agency Conflicts, Dividend Payout, and the Direct Benefits of Conservative Financial Reporting to Equity-Holders Author: Louis, Henock, and Oktay Urcan Journal: Contemporary Accounting Research We examine the role of accounting conservatism in mitigating the agency problem between managers and shareholders by analyzing the association between conservatism and dividend payouts. Prior studies suggest that conservative reporting practices limit divident payments by reducing the earnings and unrestricted retained earnings used in debt covenants to constrain divident payments (Watts 2003). Because accounting conservatism lowers current earnings, all else equal, the amount of dividends a firm can distribute to its shareholders in a given year is likely to be lower when the firm's reporting practices are conservative than when they are not. Accordingly, it is often suggested that conservative financial reporting policies protect debholders against expropriation by shareholders by constraining corporate payouts, and hend reduce the agency cost of debt. We posit there is a more fundamental reason for the potential effect of conservatism on payouts, which transcends the traditional debt covenant restriction argument. More specifically, we argue that accounting conservatism can mitigate the agency problem between managers and shareholders, and hence reduce the need for dividend payouts and the associated costs.	2015	Governance
Green Disclosures? Social Media and Prosocial Behavior Author: Lu, Hai, and Barbara Su Journal: Working paper This study investigates how social media reveals individuals' demand for the disclosure of corporate prosocial behavior and whether the disclosures benefit the firms involved in such behavior (green firms). Our paper is motivated by (1) previous researchers' call to be open to the possibility that corporate responsibility activities and related disclosures are driven by both shareholders and non-shareholder constituents (Moser and Martin 2012) and by (2) a growing interest in how recent changes in technology affects disclosure (Miller and Skinner 2015). We find that green firms are more likely to join Twitter early and have more tweets about their prosocial behavior. Accordingly, green firms attract more followers on Twitter and experience a significant increase in individual investor holdings after joining Twitter. However, the significant increase of liquidity for green firms after the adoption of Twitter is accompanied by the increase in stock return volatility. The findings suggest that disclosures of prosocial behavior on social media generate unexpected costs to the firms due to the unique profile of social media followers.	2015	Environmental
Corporate Cultural Spillover and Synergistic Gains: Evidence from Mergers and Acquisitions Author: Lu, Weijie Journal: Working paper Recent research has documented that firms' social performances have huge impacts on mergers and acquisitions (M&A) outcomes. Using a large sample of U.S public firm data, I test several theories of whether and how the cultural differences measured by adjusted corporate social responsibility (CSR) scores of the acquirer and the target affect short- and long-term post-M&A performances. Consistent with the stakeholder value maximization view, I find that a firm's shareholders react positively to the deals that involve high CSR acquirers buying targets with low CSR scores and targets without CSR ratings. These "cultural spillover" deals improve firms' immediate announcement returns (CARs), post-M&A operating performances as well as long-term abnormal stock returns. Nonetheless, there is little evidence of positive reactions from investors for "cultural learning" deals consisted of low/no CSR acquirers and high CSR targets. These results suggest that acquirer-target cultural spillover measured by firms' social responsibility scores is an important determinant of M&A performance, thus rejecting the alternative hypothesis that the cultural differences affect their immediate as well as the long-term abnormal returns. The paper also finds that deals with CSR-rated acquirers realize higher M&A announcement returns compared to the deals with non-rated acquirers, suggesting that CSR ratings produce valuable information to financial market. Additionally, the results of univariate tests on daily stock market trading volume reveal that investors tend to react more favorably to acquirers' "responsible" news like being rated with CSR scores.	2015	Environmental, Social, Governance
Corporate Social Responsibility and Firm Risk: Implications from Employee Satisfaction Author: Lu, Weijie Journal: Working paper The paper addresses the issue of whether employee satisfaction influences employee turnovers, firms' operating performances and financial risk. Consistent with human relations theories of the firm, results show that firms' corporate social responsibility (CSR) scores are positively related to employee satisfaction measured by Fortune reputation scores. Specifically, higher CSR scores of overall attributes, attributes in employee relations and employee related lead to lower employee turnovers through the channel of employee satisfaction. Moreover, higher CSR scores in the aforementioned attributes also lead to lower systematic risk and better operating performances. In my empirical tests, I address potential endogeneity concerns by instrumenting CSR using data on the political affiliation of the firm's headquartered county. Overall, this CSR study contributes to the literature by identifying an important mechanism that higher corporate social performance reduces firm risk and leads to stronger corporate performances through the channel of employee satisfaction.	2015	Environmental, Social, Governance
Social Screens and Systematic Boycott Risk Author: Luo, Arthur (Hao), and Ronald J. Balvers Journal: Working paper We consider the pricing implications of screens adopted by socially responsible investors. A model including such investors reconciles the empirically observed risk-adjusted sin-stock abnormal return with a systematic "boycott risk premium" which has a substantial financial impact that is, however, not limited to the targeted firms. The boycott effect cannot be displaced by litigation risk, a neglect effect, and liquidity considerations, or by industry momentum and concentration. The boycott risk factor is valuable in explaining cross-sectional differences in mean returns across industries and its premium varies directly with the relative wealth of socially responsible investors and with the business cycle.	2015	Environmental, Social, Governance
Corporate Social Performance, Analyst Stock Recommendations, and Firm Future Returns Author: Luo, Xueming, Heli Wang, Sascha Raithel, and Qinqin Zheng Journal: Strategic Management Journal This study posits that security analysts heed corporate social performance information and factor it into their recommendations to general investors. In particular, as corporate social performance is often uncertain and ambiguous to general investors, analysts may serve as the informational pathway connecting corporate social performance to firm stock returns. Thus, we argue that analyst recommendations mediate the relationship between corporate social performance and firm stock returns. On the basis of not only a qualitative study with literature searches and interviews of stock analysts but also a quantitative study with two longitudinal samples of large firms, we find support for these arguments. Our findings uncover an information-based underlying mechanism for the link between corporate social performance and financial performance.	2015	Environmental, Social, Governance
How Effective is the Minimum Wage at Supporting the Poor? Author: MaCurdy, Thomas Journal: Journal of Political Economy This study investigates the antipoverty efficacy of minimum wage policies. Proponents of these policies contend that employment impacts are negligible and suggest that consumers pay for higher labor costs through imperceptible increases in goods prices. Adopting this empirical scenario, the analysis demonstrates that an increase in the national minimum wage produces a value-added tax effect on consumer prices that is more regressive than a typical state sales tax and allocates benefits as higher earnings nearly evenly across the income distribution. These income-transfer outcomes sharply contradict portraying an increase in the minimum wage as an antipoverty initiative.	2015	Social
A Theory of the Stakeholder Corporation Author: Magill, Michael, Martine Quinzil, and Jean-Charles Rochet Journal: Econometrica There is a widely held view within the general public that large corporations should act in the interests of a broader group of agents than just their shareholders (the stakeholder view). This paper presents a framework where this idea can be justified. The point of departure is the observation that a large firm typically faces endogenous risks that may have a significant impact on the workers it employs and the consumers it serves. These risks generate externalities on these stakeholders which are not internalized by shareholders. As a result, in the competitive equilibrium, there is under-investment in the prevention of these risks. We suggest that this under-investment problem can be alleviated if firms are instructed to maximize the total welfare of their stakeholders rather than shareholder value alone (stakeholder equilibrium). The stakeholder equilibrium can be implemented by introducing new property rights (employee rights and consumer rights) and instructing managers to maximize the total value of the firm (the value of these rights plus shareholder value). If there is only one firm, the stakeholder equilibrium is Pareto optimal. However, this is not true with more than one firm and/or heterogeneous agents, which illustrates some of the limits of the stakeholder model.	2015	Governance
Yes, r > g. So What? Author: Mankiw, N. Gregory Journal: American Economic Review Piketty argues that r > g is the "the central contradiction of capitalism" and that it will lead to an "endless inegalitarian spiral." As a result, he argues for a new global tax on capital. In this brief essay, I explain why I am not persuaded by either his prediction or his prescription.	2015	Social
Carbon Footprint Taxes Author: McAusland, Carol, and Nouri Najjar Journal: Environmental and Resource Economics We analyze whether a carbon consumption tax is logistically feasible. We consider a carbon footprint tax (CFT), which would be modeled after a credit-method value added tax. The basis for the tax would be a product's carbon footprint, which includes all of the emissions released during production of the good and its inputs as well as any greenhouse gases latent in the product. Our analysis suggests that a pure CFT, requiring the calculation of the carbon footprint of every individual product, may be prohibitively costly. However a hybrid CFT seems economically feasible. The hybrid CFT would give firms the option to either calculate the carbon footprint of their outputs — and have their products taxed based on those footprints — or use product-class specific default carbon footprints as the tax basis, thereby saving on calculation costs. Because the CFT would be levied on all goods consumed domestically, the CFT would keep domestic firms on an even footing with those producing in countries without active climate policy, protecting competitiveness and reducing leakage.	2015	Environmental
The Rich, the Affluent and the Top Incomes Author: Medeiros, Marcelo, and Pedro H. G. Ferreira de Souza Journal: Current Sociology The article reviews the literature on the rich, the affluent and the top income earners focusing on the determinants of affluence or richness. The review surveys empirical results about the composition of the income and wealth of the rich and its direct determinants, such as individual characteristics, the state and the structure of production. The article covers literature beginning with the early twentieth century but pays special attention to research conducted after the 2000s. It attempts to cover studies from all regions of the world, despite the concentration of current research on developed countries. The main conclusion is that factors not related to productivity are a key determinant of affluence and that this has not changed much over the last century.	2015	Social
Should One Hire a Corrupt CEO in a Corrupt Country? Author: Mironov, Maxim Journal: Journal of Financial Economics This paper examines the interaction between the propensity to corrupt (PTC) and firm performance. Using a unique data set of Moscow traffic violations, I construct the PTC of every Muscovite with a driver's license. Next, I determine the PTC for the top management of 58,157 privately held firms. I find that a 1 standard deviation increase in management PTC corresponds to a 3.6 percent increase in income diversion and that firms with corrupt management significantly outperform their counterparts. This study contributes to the literature that characterizes corruption using objective (instead of perception-based) measures and provides evidence regarding the positive aspects of corruption at the firm level.	2015	Governance
The Impact of Corporate Environmental Performance on Market Risk: The Australian Industry Case Author: Muhammad, Noor, Frank Scrimgeour, Krishna Reddy, and Sazali Abidin Journal: Journal of Business Ethics Prior research suggests that Corporate Environmental Performance (CEP) enables businesses to build strong corporate image and reputation, thus leading to improved firm financial performance. However, studies relating to the relationship between CEP and firm risk are scarce. This research intends to bridge the gap in the literature by examining whether CEP helps firms to reduce their financial risk. Results of the Ordinary Least Squares regression with fixed effects provide strong evidence that environmental performance is negatively associated with firm volatility and firm downside risk. The results are robust after controlling for moderating effects such as financial, institutional and environmental management.	2015	Environmental
Public Pension Accounting Rules and Economic Outcomes Author: Naughton, James, Reining Petacchi, and Joseph Weber Journal: Journal of Accounting and Economics We find a negative association between a state's fiscal condition and the use of discretion in applying Governmental Accounting Standards Board (GASB) rules to understate pension funding gaps. We also find that the use of discretion is negatively associated with states' decisions to increase taxes and cut spending. In addition, we find that the funding gap understatement is positively associated with higher future labor costs. Importantly, this association is primarily attributable to the GASB methodology, which systematically understates the funding gap. This suggests that the GASB approach is associated with policy choices that have the potential to exacerbate fiscal stress.	2015	Governance
Of Age, Sex, and Money: Insights from Corporate Officer Compensation on the Wage Inequality Between Genders Author: Newton, David, and Mikhail Simutin Journal: Management Science This paper shows that the gender and age of the wage setter are crucial determinants of the disparity in wages between sexes. We document our findings using a data set on compensation of corporate officers that is uniquely suited for this analysis because officer wages are set by chief executive officers (CEOs). We show that CEOs pay officers of the opposite gender less than officers of their own gender, even when controlling for job characteristics. Older and male CEOs exhibit the greatest propensity to differentiate on the basis of sex. Female officers receive smaller raises if the firm is headed by a man. Our results suggest that CEO gender and age are economically more important determinants of officer compensation than are firm stock performance, stock volatility, or return on assets.	2015	Social, Governance
Managerial Performance Evaluation for Capacity Investments Author: Nezlobin, Alexander, Stefan Reichelstein, and Yanrou Wang Journal: Review of Accounting Studies This paper examines the design of managerial performance measures based on accounting information. The owners of the firm seek to create goal congruence for a better informed manager who is to decide on capacity investments and subsequent production levels. Managerial incentives are shaped by the performance metric and the depreciation schedule for capacity assets. Earlier literature has made the distinction between capacity assets whose degradation is primarily usage-driven as opposed to time-driven. Our analysis also distinguishes between two plausible scenarios in which an inherent lumpiness in the efficient scale of investments necessitates one upfront investment as opposed to a sequence of incremental capacity additions over time. For each of the four resulting scenarios, we obtain a complete characterization of the entire class of goal congruent performance metrics and depreciation schedules. The final part of our analysis also explores goal congruence in settings where the decline of asset productivity is a function of both time and usage.	2015	Governance
Outside Blockholders' Monitoring of Management and Debt Financing: An Alternative Perspective Author: Nikolaev, Valeri V. Journal: Contemporary Accounting Research Liao (2015) argues that the monitoring by large outside shareholders (blockholders) exacerbates the conflict between debt and equity and in turn affects the choice and structure of debt financing. The study contends that private debt is more immune to the increase in debt-equity conflict. Consistent with this argument, companies with outside blockholders are inclined to issue private debt over public debt. Further, private debt exhibits less price protection but relies on more protective covenants than does public debt. The findings are interesting and intuitive. I evaluate the economic arguments in the paper and discuss some of the challenges that the study faces. My conclusion is that the interpretation of the results is more complex than the one the study presents. I offer a broader framework that can be used to shed light on why the governance structure combines equity blockholders and private debt issuance. I also discuss several questions to be addressed by future research.	2015	Governance
Climate Clubs: Overcoming Free-Riding in International Climate Policy Author: Nordhaus, William Journal: American Economic Review Notwithstanding great progress in scientific and economic understanding of climate change, it has proven difficult to forge international agreements because of free-riding, as seen in the defunct Kyoto Protocol. This study examines the club as a model for international climate policy. Based on economic theory and empirical modeling, it finds that without sanctions against non-participants there are no stable coalitions other than those with minimal abatement. By contrast, a regime with small trade penalties on nonparticipants, a Climate Club, can induce a large stable coalition with high levels of abatement.	2015	Environmental
Liquidity and Shareholder Activism Author: Norli, Oyvind, Charlotte Ostergaard, and Ibolya Schindele Journal: Review of Financial Studies Blockholders' incentives to intervene in corporate governance are weakened by free-rider problems and high costs of activism. Theory suggests activists may recoup expenses through informed trading of target firms' stock when stocks are liquid. We show that stock liquidity increases the probability of activism but does less so for potentially overvalued firms for which privately informed blockholders may have greater incentives to sell their stake than to intervene. We also document that activists accumulate more stocks in targets when stock is more liquid. We conclude that liquidity helps overcome the free-rider problem and induces activism via preactivism accumulation of target firms' shares.	2015	Governance
Board Diversity and Organizational Valuation: Unravelling the Effects of Ethnicity and Gender Author: Ntim, Collins G. Journal: Journal of Management & Governance Organizational boards of directors are one of the most important subgroups within most modern organizations, performing critical advisory, monitoring and resource dependence roles. This paper investigates the crucial question of whether the stock market values ethnic and gender diversity within organizational boards. We find that board diversity is positively associated with market valuation. We distinctively demonstrate further that ethnic diversity is valued more highly by the stock market than gender diversity. By contrast, we do not find any evidence of a significant non-linear link between board diversity and market valuation. Our findings are robust across a number of econometric models that deal with different types of endogeneities and market valuation measures. Overall, our results are consistent with agency and resource dependence theoretical predictions.	2015	Social
Environmental Regulations and Corruption: Automobile Emissions in Mexico City Author: Oliva, Paulina Journal: Journal of Political Economy Emission regulations become more prevalent in developing countries, but they may be compromised by corruption. This paper documents the prevalence of corruption and the effectiveness of vehicle emission regulations in Mexico City. I develop a statistical test for identifying a specific type of cheating that involves bribing center technicians. I also estimate a structural model of car owner retesting and cheating decisions. Results suggest that 9.6 percent of car owners paid US$20 to circumvent the regulation. Eliminating cheating and increasing the cost of retests would reduce emissions by 3,708 tons at a high cost for vehicle owners.	2015	Environmental, Social
The Moderating Effect of Relative Performance Evaluation on the Risk Incentive Properties of Executives' Equity Portfolios Author: Park, Hyungshin, and Dimitris Vrettos Journal: Journal of Accounting Research We offer evidence that the use of relative performance evaluation (RPE) in CEOs' incentive contracts influences the effect of risk-taking incentives on both the magnitude and composition of firm risk. We find that, when the incentive design lacks RPE features, the incentive portfolio vega motivates CEOs to increase total risk through the systematic component because it can be hedged. In contrast, when the incentive design includes RPE features, CEOs prefer idiosyncratic risk because RPE filters out the systematic component of firm performance. We also document that the use of RPE reinforces the incentive portfolio vega's effect on the total risk.	2015	Governance
U.S. Hedge Fund Activism Author: Partnoy, Frank Journal: Working paper Notwithstanding the focus on hedge fund activism, fundamental questions remain. How much does hedge fund activism really matter? What has academic study contributed to the understanding of hedge fund activism? And what, if anything, does research on hedge fund activism illuminate about the viability of regulation in the area? This chapter for the Research Handbook on Shareholder Power (edited by Randall Thomas and Jennifer Hill) addresses these questions from three perspectives. First, it assesses the historical development of scholarship on hedge fund activism, from the first attempts to define "hedge funds" and "activists", and to gather data about both. Second, it examines and critiques one of the "hot issues" that has emerged from the debate about hedge fund activism — the potential separation of voting and economic interests — and offers a new way of conceptualizing that issue, derived in part from tax regulation. Third, it compares regulatory approaches to hedge fund activism in the U.S. with approaches elsewhere. It closes with a discussion of one recent and controversial incident of hedge fund activism in Canada, involving shares of the Telus Corporation, and examines the role of academic research in assessing that incident.	2015	Governance
Investor Perceptions of Financial Misconduct: The Heterogeneous Contamination of Bystander Firms Author: Paruchuri, Srikanth, and Vilmos Fr. Misangyi Journal: Academy of Management Journal We suggest that, when one firm reveals financial misconduct, others in the industry suffer lower valuations, but do so heterogeneously. To understand this heterogeneity, we conceptualize such contamination as a generalization-instantiation process: investors generalize the culpability to the industry category and perceive the instantiation of generalized culpability within the industry bystander firms. This theoretical separation allows us to hypothesize the factors that affect the degree to which both of these elements of the contamination process occurs. Specifically, we predict that characteristics of the misconduct firm or event — factors that lend to investors' familiarity with the misconduct firms, or that prompt attributions of blame for the misconduct — affect the potency of the generalization of culpability to the industry, while characteristics of the industry bystander firms — investors' familiarity with such firms, or factors that lend to investors' perceptions that they have strong governance — affect the firms' vulnerability to being perceived as instantiating the generalized culpability. We tested our hypotheses on a sample of 725 firms across 84 financial misconduct events, and the results of our event analyses broadly support our predictions. Our study thus has implications for future research on the social view of financial markets, organizational misconduct, and corporate governance.	2015	Governance
Why Does Board Gender Diversity Matter and How Do We Get There? The Role of Shareholder Activism in Deinstitutionalizing Old Boys' Networks Author: Perrault, Elise Journal: Journal of Business Ethics This essay bridges together social network and institutional perspectives to examine how women on boards, by breaking up directors' homophilous (e.g., all-male) networks, contribute to board effectiveness. It proposes that through real and symbolic representations, women enhance perceptions of the board's instrumental, relational, and moral legitimacy, leading to increased perceptions of the board's trustworthiness which in turn fosters shareholders' trust in the firm. Envisioning the gender diversification of boards as an event of institutional change, this article considers the critical role of shareholder activists and legislative support from the SEC in the deinstitutionalization of old boys' networks and the reinstitutionalization of gender diverse boards. This work is substantiated with evidence obtained through 34 semi-structured interviews, archival and documentary evidence.	2015	Social
About Capital in the Twenty-First Century Author: Piketty, Thomas Journal: American Economic Review In this article, I present three key facts about income and wealth inequality in the long run emerging from my book, Capital in the Twenty-First Century, and seek to sharpen and refocus the discussion about those trends. In particular, I clarify the role played by r > g in my analysis of wealth inequality. I also discuss some of the implications for optimal taxation, and the relation between capital-income ratios and capital shares.	2015	Social
Putting Distribution Back at the Center of Economics: Reflections on Capital in the Twenty-First Century Author: Piketty, Thomas Journal: Journal of Economic Perspectives In this essay, I will return to some of the themes of my book and seek to clarify and refocus the discussion concerning those themes. For example, I do not view r>g as the only or even the primary tool for considering changes in income and wealth in the 20th century, or for forecasting the path of income and wealth inequality in the 21st century. Institutional changes and political shocks — which can be viewed as largely endogenous to the inequality and development process itself — played a major role in the past, and will probably continue to do so in the future. In addition, I certainly do not believe that r > g is a useful tool for the discussion of rising inequality of labor income: other mechanisms and policies are much more relevant here, for example, the supply and demand of skills and education. One of my main conclusions is that there is substantial uncertainty about how far income and wealth inequality might rise in the 21st century and that we need more transparency and better information about income and wealth dynamics so that we can adapt our policies and institutions to a changing environment.	2015	Social
The Glass Ceiling: What Have We Learned 20 Years On? Author: Powell, Gary N., and D. Anthony Butterfield Journal: Journal of Organizational Effectiveness: People and Performance Purpose: The purpose of this paper is to consider the current status of women in management and explanations offered for this status in light of a rare empirical field study of the "glass ceiling" phenomenon the authors conducted about 20 years ago. Design/methodology/approach: The authors review the study's key arguments, unexpected results, and implications for organizational effectiveness (which have been largely ignored). The authors then review what has transpired and what has been learned about the glass ceiling phenomenon since. Findings: The nature of glass ceilings has remained essentially stable over a 20-year period, although further explanations for them have flourished. Research limitations/implications: More scholarly examinations of ways to shatter glass ceilings and thereby enhance organizational effectiveness are recommended. Practical implications: Organizations, human resources directors, and internal decision makers need to adopt practices that foster "debiasing" of decisions about promotions to top management. Social implications: Societies need to encourage organizations to adopt ways to shatter glass ceilings that continue to disadvantage women. Originality/value: A systematic review and analysis of the present-day implications of an early study of the glass ceiling phenomenon has not previously been conducted.	2015	Social
The Effects of Economic Growth on Income Inequality in the US Author: Rubin, Amir, and Dan Segal Journal: Journal of Macroeconomics The paper analyzes the relation between growth and income inequality in the US during the post-war years (1953-2008). We show that the income of the top income groups is more sensitive to growth, defined broadly as current growth and changes in expectations of future growth, compared to the income of the lower income groups. We provide evidence that this increased sensitivity arises for two reasons: (a) the top income groups receive a large portion of their income from wealth, which is more sensitive to growth than labor income and (b) the top income groups receive a large portion of their labor income in the form of pay-for-performance (equity compensation), which is also sensitive to growth. Consequently, we conclude that growth and income inequality are positively associated.	2015	Social
From Glass Ceiling to Glass Cliff: Women in Senior Executive Service Author: Sabharwal, Meghna Journal: Journal of Public Administration Research and Theory The dominant paradigm that frames the challenges women face in attaining upward mobility has been the glass ceiling metaphor. However, over the last decades women have made steady progress and are moving to positions of leadership. Women in leadership positions continue to face an uphill battle; they often are placed in precarious positions setting them up for failure and pushing them over the edge — a phenomenon recently termed as "glass cliff". Using data from the 2010 Federal Employee Viewpoint Survey, this research examines the challenges women face in Senior Executive Service (SES) in various US federal government agencies (distributive, redistributive, regulatory, and constituent policy). The study is based on three widely discussed theories in the field of social psychology — think-manager-think-male, social role theory, and role incongruity theory. The study findings indicate that SES women in distributive and constituent policy agencies are most likely to face glass cliffs. The odds of women falling off the cliff are less when women have influence over policymaking decisions, perceive empowerment, and experience organizational equities.	2015	Social
How Does Corporate Social Responsibility Contribute to Firm Financial Performance? The Mediating Role of Competitive Advantage, Reputation, and Customer Satisfaction Author: Saeidi, Sayedeh Parastoo, Saudah Sofian, Parvaneh Saeidi, Sayyedeh Parisa Saeidi, and Seyyed Alireza Saaeidi Journal: Journal of Business Research Direct relationship between corporate social responsibility (CSR) and firm performance has been examined by many scholars, but this direct test seems to be spurious and imprecise. This is because many factors indirectly influence this relation. Therefore, this study considers sustainable competitive advantage, reputation, and customer satisfaction as three probable mediators in the relationship between CSR and firm performance. The findings from 205 Iranian manufacturing and consumer product firms reveal that the link between CSR and firm performance is a fully mediated relationship. The positive effect of CSR on firm performance is due to the positive effect CSR has on competitive advantage, reputation, and customer satisfaction. The final findings show that only reputation and competitive advantage mediate the relationship between CSR and firm performance. Taken together, these findings suggest a role for CSR in indirectly promoting firm performance through enhancing reputation and competitive advantage while improving the level of customer satisfaction.	2015	Environmental, Social, Governance
Costs and Benefits of Friendly Boards During Mergers and Acquisitions Author: Schmidt, Breno Journal: Journal of Financial Economics Finance theory predicts that board independence is not always in the shareholders' interest. in situations in which board advice is more important than monitoring, independence can decrease firm value. I test this prediction by examining the connection between takeover returns and board friendliness, using social ties between the CEO and board members as a proxy for less independent boards. I find that social ties are associated with higher bidder announcement returns when the potential value of board advice is high, but with lower returns when monitoring needs are high. The evidence suggests that friendly boards can have both costs and benefits, depending on the company's specific needs.	2015	Governance
Corporate Social Performance, Firm Size, and Organizational Visibility: Distinct and Joint Effects on Voluntary Sustainability Reporting Author: Schreck, Philipp, and Sascha Raithel Journal: Business & Society This study investigates the distinct and joint effects of corporate social performance (CSP), firm size, and visibility on a company's decision to disclose sustainability-related information through sustainability reports. It seeks to provide more nuanced explanations for why certain companies tend to extensively report on their sustainability performance. First, while prior studies have predominantly focused on environmental reporting, the current analysis considers comprehensive sustainability reports that include both environmental and social issues. Second, the article argues that the effects of two important antecedents of legitimacy pressure — firm size and organizational visibility — should be analyzed separately rather than restricting the analysis on the effects of legitimacy pressure per se. Third, it argues that the hypothesized effects are nonlinear because the marginal costs and benefits of sustainability reporting vary with a company's CSP level, its size, and its visibility in the public. Finally, although there is a strong link between CSP and sustainability reporting, the strength of this link depends on its size and visibility. The study of 280 companies in environmentally and socially sensitive industries provides considerable support for these hypotheses, including evidence that size and visibility independently affect sustainability reporting and that the shape of the CSP/sustainability reporting link is contingent upon firm size and visibility.	2015	Governance
Stocking Up: Executive Optimism, Option Exercise, and Share Retention Author: Sen, Rik, and Robert Tumarkin Journal: Journal of Financial Economics We show that an executive is optimistic about her company's prospects if and only if she retains some of the shares received whenever she exercises company stock options. Empirically, an indicator of optimism based on this idea matches the expected relations between optimism and corporate decision-making better than commonly used indicators based on the timing of option exercise. This makes sense, as our model of an executive's optimal option exercise and portfolio choice demonstrates that the timing of option exercise depends just as much on stock and other executive characteristics as it does on optimism.	2015	Governance
Labor Protection and Leverage Author: Simintzi, Elena, Vikrant Vig, and Paolo Volpin Journal: Review of Financial Studies This paper exploits intertemporal variations in employment protection across countries and finds that rigidities in labor markets are an important determinant of firms' capital structure decisions. Over the 1985-2007 period, we find that reforms increasing employment protection are associated with a 187 basis point reduction in leverage. We interpret this finding to suggest that employment protection increases operating leverage, crowding out financial leverage. This result does not appear to be due to pretreatment differences between treated and control firms, omitted variables, unobserved changes in regional economic conditions, and reverse causality. Heterogeneous treatment effects are consistent with our economic intuition.	2015	Social
Does Corporate Philanthropy Increase Firm Value? The Moderating Role of Corporate Governance Author: Su, Weichieh, and Steve Sauerwald Journal: Business & Society The link between corporate philanthropy and firm value has been controversial. On one hand, corporate philanthropy is often criticized as an agency cost because it may serve narrow managerial self-interests. On the other hand, corporate philanthropy may enhance firm value because it improves the relationships between firms and their stakeholders. In this study, we argue that this controversy is contingent upon whether corporate governance mechanisms can stimulate the financial benefit of corporate philanthropy. Based on a sample of U.S. firms from 1996 to 2003, we find that CEO long-term pay positively moderates the relationship between corporate philanthropy and firm value while multiboard outside directors negatively moderate this relationship. Contrary to our expectations, we find that the relationship between corporate philanthropy and firm value enhances as CEO tenure increases. Our findings show that corporate governance plays an important moderating role in the relationship between corporate philanthropy and firm value.	2015	Governance
Female Leadership and Gender Equity: Evidence from Plant Closure Author: Tate, Geoffrey, and Liu Yang Journal: Journal of Financial Economics We use unique worker-plant matched panel data to measure differences in wage changes experienced by workers displaced from closing plants. We observe larger losses among women than men, comparing workers who move from the same closing plant to the same new firm. However, we find a significantly smaller gap in hiring firms with female leadership. The results are strongest among women who are displaced from male-led plants and from less competitive industries. Our results suggest an important externality to having women in leadership positions: They cultivate more female-friendly cultures inside their firms.	2015	Social
Perspectives on ESG Integration in Equity Investing: An Opportunity to Enhance Long-Term, Risk-Adjusted Investment Performance Author: Trunow, Natalie, and Josh Lindner Journal: Report: Calvert Investments There is growing acknowledgement within the investment community that environmental, social, and governance (ESG) factors have the potential to materially impact corporate financial performance and security prices. Rather than risking shocks to their business models or discord from key stakeholders, companies are increasingly trying to mitigate potential ESG risks as a way to protect their brand value and ensure stable demand for their products. Companies are also responding to a wide range of global sustainability challenges with new business solutions that could boost financial performance and provide long-term competitive advantages. For investors who recognize the importance of considering non-financial information when making investment decisions, there is an opportunity to generate excess returns and better manage risk in investment portfolios by using ESG factors. This paper uses comprehensive historical analysis over various time periods from June 2000 to December 2014 to evaluate different methods for introducing ESG factors into the investment process. We first assess the impact of exclusionary ESG screens on investment performance after accounting for sector and style biases implicit in the screened universe. Next, we examine if ESG factors can add value as stand-alone inputs in stock selection, and whether results are consistent across geographic regions. Our third approach considers whether combining traditional financial factors with ESG information produces better investment performance. We find empirical evidence across each of these approaches that incorporating ESG factors into investment decisions improves the investment selection process and enhances riskadjusted returns.	2015	Environmental, Social, Governance
Climate Shock: The Economics Consequences of a Hotter Planet Author: Wagner, Gernot, and Martin L. Weitzman Journal: Book In Climate Shock, Gernot Wagner and Martin Weitzman explore in lively, clear terms the likely repercussions of a hotter planet, drawing on and expanding from work previously unavailable to general audiences. They show that the longer we wait to act, the more likely an extreme event will happen. A city might go underwater. A rogue nation might shoot particles into the Earth's atmosphere, geoengineering cooler temperatures. Zeroing in on the unknown extreme risks that may yet dwarf all else, the authors look at how economic forces that make sensible climate policies difficult to enact, make radical would-be fixes like geoengineering all the more probable. What we know about climate change is alarming enough. What we don't know about the extreme risks could be far more dangerous. Wagner and Weitzman help readers understand that we need to think about climate change in the same way that we think about insurance--as a risk management problem, only here on a global scale.	2015	Environmental
Industry Expertise of Independent Directors and Board Monitoring Author: Wang, Cong, Fei Xie, and Min Zhu Journal: Journal of Financial and Quantitative Analysis We examine whether the industry expertise of independent directors affects board monitoring effectiveness. We find that the presence of independent directors with industry experience on a firm's audit committee significantly curtails firms' earnings management. In addition, a greater representation of independent directors with industry expertise on a firm's compensation committee reduces chief executive officer (CEO) excess compensation, and a greater presence of such directors on the full board increases the CEO turnover-performance sensitivity and improves acquirer returns from diversifying acquisitions. Overall, the evidence is consistent with the hypothesis that having relevant industry expertise enhances independent directors' ability to perform their monitoring function.	2015	Governance
Capital and Wealth in the Twenty-First Century Author: Weil, David N. Journal: American Economic Review In Capital in the Twenty-First Century, Thomas Piketty uses the market value of tradable assets to measure both productive capital and wealth. As a measure of wealth this is problematic because it ignores the value of human capital and transfer wealth, which have grown enormously over the last 300 years. Thus the constancy of the wealth/income ratio as portrayed in his data is an illusion. Further, the types of wealth that he does not measure are more equally distributed than tradable assets. The approach also incorrectly identifies capital gains due to reduced discount rates as increases in the capital stock.	2015	Social
CEO Narcissism and the Impact of Prior Board Experience on Corporate Strategy Author: Zhu, David H., and Guoli Chen Journal: Administrative Science Quarterly We examine how chief executive officer (CEO) narcissism influences the interorganizational imitation of corporate strategy. We theorize that narcissistic CEOs are influenced more by the corporate strategies they experienced on other boards and less by the corporate strategies experienced by other directors. These effects are strengthened if the other firms to which the CEO has interlock ties have high status and if the CEO is powerful. Through longitudinal analyses of Fortune 500 companies' decisions (from 1997 to 2006) related to the acquisition emphasis of a firm's growth strategy and the firm's level of international diversification, we show that narcissistic CEOs are influenced by corporate strategies that they witnessed at other firms much more than other CEOs. In addition, relatively narcissistic CEOs not only strongly resist the influence of other directors' prior experience but also tend to demonstrate their superiority by adopting corporate strategies that are the opposite of what fellow directors' prior experience would suggest. Our theory and results highlight how CEO narcissism limits directors' influence over corporate strategy and influences CEOs' learning and information processing in making strategic decisions.	2015	Governance
Presidential Address: Does Finance Benefit Society? Author: Zingales, Luigi Journal: Journal of Finance Academics' view of the benefits of finance vastly exceeds societal perception. This dissonance is at least partly explained by an underappreciation by academia of how, without proper rules, finance can easily degenerate into a rent-seeking activity. I outline what finance academics can do, from a research point of view and from an educational point of view, to promote good finance and minimize the bad.	2015	Social
The Intra-Industry Effect of Corporate Environmental Violation: An Exploratory Study Author: Zou, H. L., S. X. Zeng, X. L. Zhang, H. Lin, and Jonathan J. Shi Journal: Journal of Cleaner Production Regenerative sustainability at firm level is a matter of "proactive corporate environmental strategy" to prevent firms from committing environmental misconducts, which not only do harm to the ecological environment but also arouse negative reactions from stakeholders. Drawing on signaling theory, this study explores the intra-industry effect of corporate environmental violations of Chinese listed companies. We propose that the environmental violation announcement carries predominantly negative information regarding rival firms and thus the stock market reacts negatively not only to the firms who commit environmental violations but also to rival firms. Empirical results corroborate the intra-industry contagion effect for rival firms whose cash flow characteristics are similar to those of the violating firm, and also reveal that official disclosure of environmental violations committed by a state-owned enterprise (SOE) inflicts an additional adverse effect on rival SOEs to some extent. Additionally, the intra-industry effect is shown to be more profound in non-environmentally sensitive industries. Finally, the stock market is found to be more sensitive to environmental violations occurring within final goods industries than intermediate goods industries.	2015	Environmental
Financial Performance and Reviews of Corporate Social Responsibility Reports Author: Akisik, Orhan, and Graham Gal Journal: Journal of Management Control The purpose of this study is to examine the relationship between financial performance and reviews — self, Global Reporting Initiative (GRI), and third party — of corporate social responsibility (CSR) reports provided by North American firms over the period from 2006 to 2012. Using data obtained from the Compustat North America and the GRI websites, the results indicate that reviews of CSR reports are significantly related to certain short and long-term measures of financial performance. In addition, for firms in particular industries; mining, chemical, and petroleum, third party review is significantly related to financial performance. Moreover, we find that the effect of sales, leverage, and growth on financial performance is influenced by CSR reviews. Conclusions drawn from this study indicate that there is a relationship between financial performance and reviews of CSR reports.	2014	Environmental, Social, Governance
Does the Location of Directors Matter? Information Acquisition and Board Decisions Author: Alam, Zinat S., Mark A. Chen, Conrad S. Ciccotello, and Harley E. Ryan Jr. Journal: Journal of Financial and Quantitative Analysis Using data on over 4,000 individual residential addresses, we find that geographic distance between directors and corporate headquarters is related to information acquisition and board decisions. The fraction of a board's unaffiliated directors who live near headquarters is higher when information-gathering needs are greater. When the fraction of unaffiliated directors living near headquarters is lower, nonroutine chief executive officer (CEO) turnover is more sensitive to stock performance. Also, the level, intensity, and sensitivity of CEO equity-based pay increase with board distance. Overall, our results suggest that geographic location is an important dimension of board structure that influences directors' costs of gathering information.	2014	Governance
Do Growth-Option Firms Use Less Relative Performance Evaluation? Author: Albuquerque, Ana Maria Journal: The Accounting Review The use of relative performance evaluation (RPE) in compensation contracts for CEOs at growth-option (GO) firms that operate in more volatile environments can provide insurance against common exogenous shocks and thus reduce the amount of risk that CEOs face. However, the implementation of RPE for high-GO firms can be impaired by these firms' inability to find a peer group that captures common risk exposure. This paper studies GO firms' reliance on RPE and finds that the use of RPE in CEO compensation contracts varies negatively with a firm's level of growth options. The tests use three proxies for growth options: the market-to-book value of assets, research and development expenses scaled by assets, and a factor obtained from a principal component analysis. The results are robust to controlling for the impact of other firm characteristics on pay-for-performance sensitivities.	2014	Governance
Board Age and Gender Diversity: A Test of Competing Linear and Curvilinear Predictions Author: Ali, Muhammad, Yin Lu Ng, and Carol T. Kulik Journal: Journal of Business Ethics The inconsistent findings of past board diversity research demand a test of competing linear and curvilinear diversity-performance predictions. This research focuses on board age and gender diversity, and presents a positive linear prediction based on resource dependence theory, a negative linear prediction based on social identity theory, and an inverted U-shaped curvilinear prediction based on the integration of resource dependence theory with social identity theory. The predictions were tested using archival data on 288 large organizations listed on the Australian Securities Exchange, with a 1-year time lag between diversity (age and gender) and performance (employee productivity and return on assets). The results indicate a positive linear relationship between gender diversity and employee productivity, a negative linear relationship between age diversity and return on assets, and an inverted U-shaped curvilinear relationship between age diversity and return on assets. The findings provide additional evidence on the business case for board gender diversity and refine the business case for board age diversity.	2014	Social
Gender Interactions Within the Family Firm Author: Amore, Mario Daniele, Orsola Garofalo, and Alessandro Minichilli Journal: Management Science We analyze whether gender interactions at the top of the corporate hierarchy affect corporate performance. Using a comprehensive data set of family-controlled firms in Italy, we find that female directors significantly improve the operating profitability of female-led companies. To mitigate endogeneity concerns, we assess executive transitions using a triple-difference approach complemented by propensity score matching and instrumental variables. Finally, we show that the positive effect of female interactions on profitability is reduced when the firm is located in geographic areas characterized by gender prejudices and when the firm is large.	2014	Governance
Do Corporations Manage Earnings to Meet/Exceed Analyst Forecasts? Evidence from Pension Plan Assumption Changes Author: An, Heng, Yul W. Lee, and Ting Zhang Journal: Review of Accounting Studies A significantly larger number of firms increase the expected rate of return on pension plan assets (ERR) to make their reported earnings meet/exceed analyst forecasts than would be expected by chance. In the short run, the stock market reacts positively to these firms' earnings announcements, suggesting that investors fail to recognize that earnings benchmarks are achieved through ERR manipulation. In the long run, however, firms that employ this earnings management strategy significantly underperform control firms in both stock returns and operating performance.	2014	Governance
Inside Debt and the Design of Corporate Debt Contracts Author: Anantharaman, Divya, Vivian W. Fang, and Guojin Gong Journal: Management Science Theory posits that managerial holdings of debt ("inside debt") align managers' incentives with those of outside debtholders. Executive pensions, consisting of rank-and-file (RAF) plans and supplemental executive retirement plans (SERPs), and other deferred compensation (ODC) have debt-like payoffs, and could therefore function as inside debt. However, whereas SERPs are often unfunded and unsecured, RAF plans are funded and secured to some extent, and ODC may be invested in equity and withdrawn flexibly before retirement. Special arrangements in executive debt-like compensation could hence weaken or even nullify any incentive-alignment effect. We find that higher CEO debt-like compensation leads to lower promised yield and fewer covenants in a sample of loans originated in 2006-2008. This effect is driven entirely by benefits accrued under SERPs, consistent with SERPs more closely resembling risky corporate debt; balances accrued under RAF and ODC plans do not provide similar effects. Furthermore, promised yields are lower when debt-like compensation claims can be withdrawn only after outside debt claims are expected to settle. Our findings persist after accounting for endogeneity using state personal income tax rates as an instrument for CEOs' willingness to defer compensation. Overall, the evidence suggests that executive debt-like compensation is only effective at resolving stockholder-debtholder conflicts when its payoffs are truly debt-like and that lenders' perceptions are affected not only by the magnitude of debt-like compensation but also by its seniority.	2014	Governance
Racial Diversity and Firm Performance the Mediating Role of Competitive Intensity Author: Andrevski, Goce, Orlando C. Richard, Jason D. Shaw, and Walter J. Ferrier Journal: Journal of Management The authors examine the mediating role of competitive intensity in the relationship between managerial racial diversity and firm performance (i.e., market share gain and average stock return). Racial diversity relates to firm performance via firms' capacity to compete intensively (i.e., to introduce new competitive actions frequently). An analysis reveals that environmental munificence moderates competitive intensity's mediating effect: Racially diverse management groups compete more intensively and perform better when they compete in munificent environments. The authors also find support for a moderated mediation model that simultaneously tests all components of their framework.	2014	Environmental
Does Wealth Inequality Matter for Growth? The Effect of Billionaire Wealth, Income Distribution, and Poverty Author: Bagchi, Sutirtha, and Jan Svejnar Journal: Discussion Paper: Centre for Economic Policy Research A fundamental question in social sciences relates to the effect of wealth inequality on economic growth. Yet, in tackling the question, researchers have had to use income as a proxy for wealth. We derive a global measure of wealth inequality from Forbes magazine's listing of billionaires and compare its effect on growth to the effects of income inequality and poverty. We find that wealth inequality reduces economic growth, but when we control for the fact that some billionaires acquired wealth through political connections, the effect of politically connected wealth inequality is negative, while politically unconnected wealth inequality, income inequality, and initial poverty have no significant effect.	2014	Social
Shaping Liquidity: On the Causal Effects of Voluntary Disclosure Author: Balakrishnan, Karthik, Mary Brooke Billings, Bryan Kelly, and Alexander Ljungqvist Journal: Journal of Finance Can managers influence the liquidity of their firms' shares? We use plausibly exogenous variation in the supply of public information to show that firms actively shape their information environments by voluntarily disclosing more information than regulations mandate and that such efforts improve liquidity. Firms respond to an exogenous loss of public information by providing more timely and informative earnings guidance. Responses appear motivated by a desire to reduce information asymmetries between retail and institutional investors. Liquidity improves as a result and in turn increases firm value. This suggests that managers can causally influence their cost of capital via voluntary disclosure.	2014	Governance
Board Composition and CEO Power Author: Baldenius, Tim, Nahum Melumad, and Xiaojing Meng Journal: Journal of Financial Economics We study the optimal composition of corporate boards. Directors can be either monitoring or advisory types. Monitoring constrains the empire-building tendency of chief executive officers (CEOs). If shareholders control the board nomination process, a non-monotonic relation ensues between agency problems and board composition. To preempt CEO entrenchment, shareholders may assemble an adviser-heavy board. If a powerful CEO influences the nomination process, this may result in a more monitor-heavy board. Regulations strengthening the monitoring role of boards can be harmful in precisely those cases in which agency problems are severe or in which CEO entrenchment is a threat to corporate governance.	2014	Governance
Equity Incentives and Internal Control Weaknesses Author: Balsam, Steven, Wei Jiang, and Bo Lu Journal: Contemporary Accounting Research Academics have investigated the relation between executive compensation/equity incentives and firm valuation, earnings management, accounting restatements, and fraud. Separately, several recent studies have documented a linkage between the quality of internal control and accruals and earnings quality. In this paper we examine the intersection of the two literatures by examining the association between equity incentives and material weaknesses (MEs) in internal control under Section 404 of the Sarbanes-Oxley Act of 2002 (SOX). The empirical question we address is whether the monetary incentives associated iwth equity ownership induce managers to maintain strong internal controls.	2014	Governance
What Happens in Nevada? Self-Selecting into Lax Law Author: Barzuza, Michal, and David D. Smith Journal: Review of Financial Studies We find that Nevada, the second most popular state for out-of-state incorporations and a state with lax corporate law, attracts firms that are 30-40 percent more likely to report financial results that later require restatement than firms incorporated in other states, including Delaware. Our results suggest that firms favoring protections for insiders select Nevada as a corporate home, and these firms are prone to financial reporting failures. We provide some evidence that Nevada law also has a causal impact by increasing a Nevada firm's propensity to misreport financials after the firm has incorporated in Nevada.	2014	Governance
The Geography of Shareholder Engagement: Evidence from a Large British Institutional Investor Author: Bauer, R., G. L. Clark, and M. Viehs Journal: Working paper We study the global corporate engagement activities of a large UK-based asset manager from 2006 to 2011. Using proprietary data on these activities, we find that corporate engagements "behind-the-scenes" are frequently used to change corporate behavior. We show that geography is an important determinant for the occurrence of such engagements: UK firms receive significantly more engagements than their foreign counterparts. This finding gives rise to a "home bias" in corporate engagement. We also document that the extent of successful corporate engagements is significantly higher for U.S. firms than for domestic, UK firms.	2014	Governance
Relational Pluralism in De Novo Organizations: Boards of Directors As Bridges or Barriers to Diverse Alliance Portfolios Author: Beckman, Christine M., Claudia Bird Schoonhoven, Renee M. Rottner, and Sang-Joon Kim Journal: Academy of Management Journal This paper develops relational pluralism as a collective construct whose dimensions are heterogeneity, multiplexity, and asymmetry. Relational pluralism is instantiated in the board of directors, whose network of relationships influence a new venture's ability to establish external links beyond the networks of the founding team. We argue that relational pluralism speeds the establishment of a diverse alliance portfolio, which, in turn, speeds the attainment of major revenue milestones in a new firm. We examine these ideas in a population of de novo semiconductor firms and find that diverse alliance portfolios emerge faster when a board includes members with heterogeneous, multiplex relationships, as well as central network positions. However, the asymmetric influence of outside board members can have both positive and negative effects: the alliance formation process is aided by outsiders in central network positions, but impeded when central investors dominate the board. We discuss implications for our understanding of relational pluralism as a collective construct.	2014	Governance
Chief Financial Officers As Inside Directors Author: Bedard, Jean C., Rani Hoitash, and Udi Hoitash Journal: Contemporary Accounting Research Considerable prior research investigates whether the extent of insider presence on corporate boards is detrimental. However, the majority of past research treats all inside directors as a homogenous group. This study considers that issue in the context of chief financial officers (CFO) serving on their own company's board. Our research is important because individuals in different executive roles bring different skills and knowledge to board interactions, highlighting the potential for differential contributions. As prior research does not specifically distinguish CFOs from other board insiders, the potential benefits of knowledge sharing due to increased communication with other board members may have been masked. Specifically, the CFO is directly responsible for the quality of the financial reporting process and can therefore be associated with specific outcome measures. Our results show that the percentage of CFOs serving on their own boards is not large, likely due to the perspective (consistent with agency theory and reflected in independence guidelines) that company insiders on boards could promote their own best interest at the expense of shareholders. Contrary to this perception, we find that companies whose CFO has a seat on the board are associated with higher financial reporting quality (i.e., a lower likelihood of reporting a material weaknesses in internal controls or having a financial restatement, and better accruals quality). Yet, we also find potential drawbacks in that CFOs with a board seat tend to have higher excess compensation and lower likelihood of termination following poor performance, signaling greater entrenchment. While our results provide information to companies considering appointing the CFO to the board, both costs and benefits are demonstrated, and thus we conclude that each board should consider this decision based on its own circumstances and composition.	2014	Governance
Corporate Governance and Investors' Perceptions of Foreign IPO Value: An Institutional Perspective Author: Bell, R. Greg, Igor Filatotchev, and Ruth V. Aguilera Journal: Academy of Management Journal This article investigates stock market responses to different constellations of firm-level corporate governance mechanisms by focusing on foreign initial public offerings (IPOs) in the United States. We build on sociology- grounded research on financial market behavior and use a "nested" legitimacy framework to explore US investor perceptions of foreign IPO value. Using a fuzzy set theoretic methodology, we demonstrate how different combinations of monitoring and incentive-based corporate governance mechanisms lead to the same level of investor valuation of firms. Moreover, institutional factors related to the strength of minority shareholder protection in a foreign IPO's home country represent a boundary condition that affects the number of governance mechanisms required to achieve high value perceptions among US investors. Our findings contribute to the sociological perspective on comparative corporate governance and the dependencies between organizations and institutions.	2014	Governance
Why Do Socially Responsible Firms Pay More Dividends? Author: Benlemlih, Mohammed Journal: Working paper Using a sample of 22,839 US firm-year observations over the period 1991-2012, we find that high CSR firms pay more dividends than low CSR firms. This is consistent with our expectation that socially responsible firms may use dividend policy to manage the agency problems related to overinvestment in CSR. The analysis of individual components of CSR provides strong support for this main finding: five of the six dimensions used in the analysis are also associated with high dividend payout, namely, corporate governance, community, diversity, employee relations, and the environment. Furthermore, by analyzing the stability of dividend payout, we find that socially irresponsible firms adjust dividends quicker than socially responsible firms: dividend payout is more stable in high CSR firms than in low CSR firms. Additional results show that firms involved in two controversial activities — the military and alcohol — are associated with low dividend payouts, which is likely to be due to the high cost of external funding for these firms as highlighted by Goss and Roberts (2011). Our findings are robust to alternative assumptions and model specifications, alternative measures of dividend payout, additional control variables, and several approaches to address endogeneity and selection bias issues.	2014	Governance
What's the Effect of Pro-LGBT Policies on Stock Price? Author: Berger, Eric, and Nicole Douillet Journal: Harvard Business Review The business rationale is clear enough: The LGBT community in the United States represents almost $800 billion in buying power. But what about the employer rationale? Does the establishment of policies and practices that attract and embrace LGBT staff bolster corporate performance? Do voluntary outlays for LGBT employees (such as health coverage for domestic partners) have an impact on financial performance? These are questions with historically few answers — and one that we and several colleagues at Credit Suisse have been exploring for three years.	2014	Social
Optimal Contracts With Performance Manipulation Author: Beyer, Anne, Ilan Guttman, and Ivan Marinovic Journal: Journal of Accounting Research We study optimal compensation contracts that (1) are designed to address a joint moral hazard and adverse selection problem and that (2) are based on performance measures, which may be manipulated by the agent at a cost. In the model, a manager is privately informed about his productivity prior to being hired by a firm. In order to incentivize the manager to exert productive effort, the firm designs a compensation contract that is based on reported earnings, which can be manipulated by the manager. Our model predicts that (1) the optimal compensation contract is convex in reported earnings; (2) the optimal contract is less sensitive to reported earnings than it would be absent the manager's ability to manipulate earnings; and (3) higher costs of manipulating reported earnings (e.g., due to higher governance quality) are associated with higher firm value, lower expected level of earnings management, and higher output.	2014	Governance
Do Going-Private Transactions Affect Plant Efficiency and Investment? Author: Bharath, Sreedhar T., Amy Dittmar, and Jagadeesh Sivadasan Journal: Review of Financial Studies We examine whether constraints on public firms affect firms' efficiency by testing if going private improves plant-level productivity relative to peer control groups. We find that, despite increases in productivity after going private, there is little evidence of efficiency gains relative to peer groups of plants constructed to control for industry, age, size, past productivity, and the endogeneity of the going- private decision. Going-private firms do extensively restructure their portfolio of plants, selling and closing plants more quickly than others. Our findings cast doubt on the view that public markets cause listed firms to operate plants less efficiently due to overinvestment but indicate that going private increases restructuring activity.	2014	Governance
CEO Pay-for-Complexity and the Risk of Managerial Diversion from Multinational Diversification Author: Black, Dirk E., Shane S. Dikolli, and Scott D. Dyreng Journal: Contemporary Accounting Research This study investigates whether a chief executive officer (CEO) pay premium for managing complex enterprises systematically varies in settings where complexity increases the risk of managerial diversion. Prior work documents that a significant determinant of the level of CEO pay is the extent to which an enterprise is diversified across multiple industrial segments. Intuitively, more complex enterprises are matched with higher-ability CEOs, and to attract such CEOs, the enterprise must pay them relatively more. It is unclear, however, whether the specific setting of multinational diversification introduces sources of complexity that demand a pay premium over and above the pay premium for complexity implied by industrial diversification.	2014	Governance
Embodied Carbon Tariffs Author: Bohringer, Christoph, Jared C. Carbone, and Thomas F. Rutherford Journal: Working Paper Embodied carbon tariffs tax the direct and indirect carbon emissions embodied in trade — an idea popularized by countries seeking to extend the reach of domestic carbon regulations. We investigate their effectiveness using simulations from an applied general equilibrium model of global trade and energy use. We find that the tariffs do reduce foreign emissions, but their ability to improve the global cost-effectiveness of climate policy is limited. Their main welfare effect is to shift the burden of developed-world climate policies to the developing world.	2014	Environmental
The Labor Market for Bankers and Regulators Author: Bond, Philip, and Vincent Glode Journal: Review of Financial Studies We propose a labor market model in which agents with heterogenous ability levels choose to work as bankers or as financial regulators. When workers extract intrinsic benefits from working in regulation (such as public-sector motivation or human capital accumulation), our model jointly predicts that bankers are, on average, more skilled than regulators and their compensation is more sensitive to performance. During financial booms, banks draw the best workers away from the regulatory sector and misbehavior increases. In a dynamic extension of our model, young regulators accumulate human capital and the best ones switch to banking in mid-career.	2014	Governance
The Impact of Issuer-Pay on Corporate Bond Rating Properties: Evidence from Moody's and S&P's Initial Adoptions Author: Bonsall IV, Samuel B. Journal: Journal of Accounting and Economics This study examines whether and how the properties of corporate bond ratings change following Moody's and S&P's adoptions of the issuer-pay business model in the early 1970s. Regulators and debt market observers have criticized the issuer-pay model for creating an independence problem. However, the issuer-pay model allows for economic bonding between rating agencies and issuers through explicit contractual arrangements, which should improve the flow of nonpublic information. Using a difference-in-difference research design, I find that more optimistic ratings by issuer-pay rating agencies predict greater future profitability, differences between the ratings of issuer-pay and investor-pay rating agencies are associated with narrower secondary bond market bid-ask spreads, and that issuer-pay rating agencies become relatively more accurate and timely predictors of default compared to investor-pay agencies after the adoption of issuer-pay. These results reinterpret the recent findings of optimistic ratings by Jiang et al. (2012) as consistent with more informative bond ratings.	2014	Governance
The Link between Corporate Environmental Performance and Corporate Value: A Literature Review Author: Brouwers, Roel, Frederiek Schoubben, Cynthia Van Hulle, and Steve Van Uytbergen Journal: Review of Business and Economic Literature There is a long-standing debate regarding the link between corporate environmental performance and financial firm performance. Up to the present, this debate has been an important trigger for empirical research. It is often argued, however, that the large body of research concerning this topic has not led to conclusive findings. Mixed results invite a literature study that can clarify the debate and allows for the drawing of conclusions. We focus on studies that examine the impact of corporate pollution as well as corporate initiatives to reduce pollution, and this both within a regulated and a voluntary framework. The literature review reveals that regulation does not enhance the relationship between environmental and financial performance. Legislative actions by governmental bodies merely help in generating environmental awareness among stakeholders as well as in creating a benchmark against which good and bad environmental performance can be defined. It is the stakeholders, enforced by increasing environmental corporate disclosure, who truly force firms to adopt more sustainable business models.	2014	Environmental
The Effect of Rankings on Honesty in Budget Reporting Author: Brown, Jason L., Joseph G. Fisher, Matthew Sooy, and Geoffrey B. Sprinkle Journal: Accounting, Organizations and Society We conduct an experiment to investigate the effect of rankings, which are pervasive in practice, on the honesty of managers' budget reports, which is important for sound decision making in organizations. Participants in our experiment are ranked in one of four ways: (1) firm profit, (2) own compensation, (3) both firm profit and own compensation, and (4) randomly, which serves as our baseline condition. None of the rankings affect participants' remuneration. Compared to our baseline (random rankings) setting, where participants indeed exhibit honesty concerns, we find that rankings based on firm profit significantly increase honesty and that rankings based on own compensation significantly decrease honesty. Participants who received both rankings were significantly more honest than participants in the own compensation rankings condition. We did not, however, find significant differences in honesty between the both rankings and firm profit rankings conditions. As such, participants in the both rankings condition seemed to focus more on the firm profit metric than on the financially congruent own compensation metric. We also find that our results are stable across periods, suggesting that the effects of rankings neither increased nor dissipated over time. We discuss the contributions of our study and concomitant findings to accounting research and practice.	2014	Governance
The Role of Corporate Social Responsibility (CSR) Assurance in Investors' Judgments When Managerial Pay is Explicitly Tied to CSR Performance Author: Brown-Liburd, Helen, and Valentina L. Zamora Journal: Auditing: A Journal of Practice & Theory While corporate social responsibility (CSR) reports are intended to faithfully represent CSR performance, voluntarily disclosed CSR information tends to be positive, and demand is rising for both independent assurance and integrated reporting of CSR. However, the supply of CSR assurance is not widespread in the United States, and CSR performance information remains largely separated from supporting and governance information. We thus examine the role of CSR assurance when information on CSR investment level is integrated with information on whether managerial pay is explicitly tied to sustainability. While a firm may report a high level of CSR investment to indicate an authentic commitment to CSR, investors may become skeptical of reported information if managerial pay is explicitly tied to CSR performance. Such pay-for-CSR-performance provides managers with greater incentives to overinvest in CSR and thereby report strong CSR performance. In turn, investors will seek CSR assurance as a disclosure credibility signal. Accordingly, we find that, in the presence of pay-for-CSR-performance and high CSR investment level, investors' stock price assessments are greater only when CSR assurance is also present. Our findings highlight the importance of examining CSR disclosure factor interaction effects, and provide support for the expansion of CSR assurance and integrated reporting.	2014	Environmental, Social, Governance
Beyond the Glass Ceiling: The Glass Cliff and its Lessons for Organizational Policy Author: Bruckmuller, Susanne, Michelle K. Ryan, Floor Rink, and S. Alexander Haslam Journal: Social Issues and Policy Review It has been almost 30 years since the metaphor of the "glass ceiling" was coined to describe the often subtle, but very real, barriers that women face as they try to climb the organizational hierarchy. Here we review evidence for a relatively new form of gender discrimination — captured by the metaphor of the glass cliff — that women face when they obtain positions of leadership. Such positions often prove to be more risky and precarious than those of their male counterparts. We summarize evidence demonstrating the existence of glass cliffs in business and politics as well as experimental work that identifies a number of factors contributing to the phenomenon. We then discuss implications for policy and practice, highlighting the importance of understanding women's and men's experiences in the workplace rather than treating gender diversity as merely "a numbers game."	2014	Social
Women on the Board and Executive Duration - Evidence for European Listed Firms Author: Buchwald, Achim, and Hanna Hottenrott Journal: ZEW - Centre for European Economic Research Discussion Paper 15-016 The participation of women in top-level corporate boards (or rather the lack of it) is subject to intense public debate. Several countries are considering legally binding quotas to increase the share of women on boards. Indeed, research on board diversity suggests positive effects of gender diverse boards on corporate governance and even firm performance. The mechanism through which these benefits materialize remain however mostly speculative. We study boards of directors in a large sample of listed companies in 15 European countries over the period 2003-2011 and find that female representation on firms' non-executive boards is associated with reduced turnover and an increase in tenure of executive board members. An increase in the performance-turnover sensitivity of executives suggests that this effect may be explained by better monitoring practices rather than by less effective control or a "taste for continuity".	2014	Social
Legal Investor Protection and Takeovers Author: Burkart, Mike, Denis Gromb, Holger M. Mueller, and Fausto Panunzi Journal: Journal of Finance This paper examines the role of legal investor protection for the efficiency of the market for corporate control when bidders are financially constrained. In the model, stronger legal investor protection increases bidders' outside funding capacity. However, absent effective bidding competition, this does not improve efficiency, as the bid price, and thus bidder' need for funds, increases one-for-one with the pledgeable income. In contrast, under effective competition for the target, the increased outside funding capacity improves efficiency by making it less likely that more efficient but less wealthy bidders are outbid by less efficient but wealthier rivals.	2014	Governance
Institutional Investor Preferences for Corporate Governance Mechanisms Author: Bushee, Brian J., Mary Ellen Carter, and Joseph Gerakos Journal: Journal of Management Accounting Research We examine institutional investors' preferences for corporate governance mechanisms. We find little evidence of an association between total institutional ownership and governance mechanisms. However, using revealed preferences, we identify a small group of "governance-sensitive" institutions that exhibit persistent associations between their ownership levels and firms' governance mechanisms. We also find that firms with a high level of ownership by institutions sensitive to shareholder rights have significant future improvements in shareholder rights, consistent with shareholder activism. Further, we find that factors describing the characteristics of institutions' portfolios are correlated with governance preferences. Large institutions, those holding a large number of portfolio stocks, and those with preferences for growth firms are more likely to be sensitive to corporate governance mechanisms, suggesting those mechanisms may be a means for decreasing monitoring costs and may be more essential for firms with a high level of growth opportunities. Finally, our results suggest that common proxies for governance sensitivity by investors (e.g., legal type, blockholding) do not cleanly measure governance preferences.	2014	Governance
Investor Horizon and CEO Horizon Incentives Author: Cadman, Brian, and Jayanthi Sunder Journal: The Accounting Review We examine the relation between shareholder investment horizon and chief executive officer (CEO) horizon incentives derived from compensation contracts. We find that influential incumbent shareholders provide managers with short-horizon incentives to maximize current firm value when these shareholders plan to sell their stock. Specifically, we use the initial public offering (IPO) setting in which venture capitalists (VCs) represent short-horizon, controlling investors with strong selling incentives after the IPO. We predict and find that VCs' short-term incentives influence CEO's annual horizon incentives following the IPO. At the same time, institutional monitoring limits the influence of VCs on annual, short-horizon incentives. To preempt this disciplining by market participants, VCs grant equity prior to the IPO that correspond with their short- horizons and result in shorter portfolio horizon incentives for the CEO after the IPO. We also document a positive relation between long-run abnormal stock returns and horizon incentives, consistent with horizon incentives influencing management actions.	2014	Governance
Board Interlocks and the Diffusion of Disclosure Policy Author: Cai, Ye, Dan S. Dhaliwal, and Yongtae Kim Journal: Review of Accounting Studies We examine whether board connections through shared directors influence firm disclosure policies. To overcome endogeneity challenges, we focus on an event that represents a significant change in firm disclosure policy: the cessation of quarterly earnings guidance. Our research design allows us to exploit the timing of director interlocks and therefore differentiate the director interlock effect on disclosure policy contagion from alternative explanations, such as endogenous director-firm matching or strategic board stacking. We find that firms are more likely to stop providing quarterly earnings guidance if they share directors with previous guidance stoppers. We also find that director-specific experience from prior guidance cessations matters for disclosure policy contagion. The positive effect of interlocked directors on the likelihood of quarterly earnings guidance cessation is particularly strong for firms with interlocked directors who experienced positive outcomes from prior guidance cessation decisions. Overall, our evidence is consistent with interlocked directors serving as conduits for information sharing that leads to the spread of corporate disclosure policies.	2014	Governance
Exotic Beta Revisited Author: Carhart, Mark, Ui-Wing Cheah, Giorgio De Santis, Harry Farrell, and Robert Litterman Journal: Financial Analysts Journal The authors propose portfolios comprising simple and intuitive risk premiums (exotic betas) that are transparent and cost effective, perform well in different market environments, and are uncorrelated with equities. They are an alternative to traditional portfolios that are defined by their asset class allocations. The authors show that exotic beta investing offers a better risk-return profile than risk parity and hedge fund replication and that adjusting exposures to capture variation in risk premiums further improves performance.	2014	Governance
Agglomeration, Inequality and Economic Growth Author: Castells-Quintana, David, and Vicente Royuela Journal: Annals of Regional Science Agglomeration and income inequality at country level can be both understood as concentration of physical and human capital in the process of economic development. As such, it seems pertinent to analyse their impact on economic growth considering both phenomena together. By estimating a dynamic panel specification at country level, this paper analyses how agglomeration and inequality (both their levels and their evolution) influence long-run economic growth. In line with previous findings, our results suggest that while high-inequality levels are a limiting factor for long-run growth, agglomeration processes can be associated with economic growth, at least in countries at early stages of development. Moreover, we find that the growth-enhancing benefits from agglomeration processes depend not only on the country's level of development, but also on its initial income distribution (something, to the best of our knowledge, not considered before). In fact, probably suggesting a social dimension to congestion diseconomies, increasing agglomeration is associated with lower growth when income distribution is particularly unequal.	2014	Social
Venture Capitalists on Boards of Mature Public Firms Author: Celikyurt, Ugur, Merih Sevilir, and Anil Shivdasani Journal: Review of Financial Studies Venture capitalists (VCs) often serve on the board of mature public firms long after their initial public offering (IPO), even for companies that were not VC-backed at the IPO. Board appointments of VC directors are followed by increases in research and development intensity, innovation output, and greater deal activity with other VC-backed firms. VC director appointments are associated with positive announcement returns and are followed by an improvement in operating performance. Firms experience higher announcement returns from acquisitions of VC-backed targets following the appointment of a VC director to the board. Hence, in addition to providing finance, monitoring and advice for small private firms, VCs play a significant role in mature public firms and have a broader influence in promoting innovation than has been established in the literature.	2014	Governance
Corporate Governance Quality and CSR Disclosures Author: Chan, MuiChing Carina, John Watson, and David Woodliff Journal: Journal of Business Ethics Given the increasing importance attached to both corporate social responsibility (CSR) and corporate governance, this study investigates the association between these two complimentary mechanisms used by companies to enhance relations with stakeholders. Consistent with both legitimacy and stakeholder theory and controlling for industry profile, firm size, stockholder power/dispersion, creditor power/leverage, and economic performance, our analysis of the annual reports for a sample of 222 listed companies suggests that firms providing more CSR information: have better corporate governance ratings; are larger; belong to higher profile industries; and are more highly leveraged. Our findings support the limited prior research suggesting a link between corporate governance quality and CSR disclosure in company annual reports and suggest that, rather than mandating specific disclosures, regulators might be better served focussing on corporate governance quality as a way of increasing CSR disclosures.	2014	Environmental, Social, Governance
The Heterogeneous Impact of Corporate Social Responsibility Activities That Target Different Stakeholders Author: Chang, Kiyoung, Incheol Kim, and Ying Li Journal: Journal of Business Ethics We aggregate different dimensions of corporate social responsibility (CSR) activities following the stakeholder framework proposed in Clarkson (Acad Manag Rev 20(1), 92-117, 1995) and present consistent evidence that CSR strengths targeting different stakeholders have their unique impact on firm risk and financial performance. Institutional CSR activities that target secondary stakeholders are negatively associated with firm risk, measured by total risk and systematic risk. Technical CSR that target primary stakeholders are positively associated with firm financial performance, measured by Tobin's Q, ROA, and cash flow returns. Our results, based on a sample of S&P 500 component firms over the period of 1995-2009, are consistent with the risk management view of "altruistic" CSR activities and with the stakeholder salience theory. We also show that the impact of CSR activities on risk varies with the ethical climate, as proved in our subsample analyses on pre- and post-Sarbanes-Oxley periods. Our empirical analyses mitigate possible omitted variables and endogeneity concerns that are often overlooked in previous research. Our findings are robust to alternative CSR measures, to alternative risk and performance measures, and to alternative estimation methods.	2014	Environmental, Social, Governance
Does Board Gender Diversity Have a Financial Impact? Evidence Using Stock Portfolio Performance Author: Chapple, Larelle, and Jacquelyn E. Humphrey Journal: Journal of Business Ethics There is growing regulatory pressure on firms worldwide to address the under-representation of women in senior positions. Regulators have taken a variety of approaches to the issue. We investigate a jurisdiction that has issued recommendations and disclosure requirements, rather than implementing quotas. Much of the rhetoric surrounding gender diversity centres on whether diversity has a financial impact. In this paper we take an aggregate (market-level) approach and compare the performance of portfolios of firms with gender diverse boards to those without. We also investigate whether having multiple women on the board is linked to performance, and if there is a within-industry effect. Overall, we do not find evidence of an association between diversity and performance. We find some weak evidence of a negative correlation between having multiple women on the board and performance, but that in some industries diversity is positively correlated with performance.	2014	Social
Corporate Social Responsibility and Access to Finance Author: Cheng, Beiting, Ioannis Ioannou, and George Serafeim Journal: Strategic Management Journal We investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to (1) reduced agency costs due to enhanced stakeholder engagement and (2) reduced informational asymmetry due to increased transparency. Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints. We provide evidence that both better stakeholder engagement and transparency around CSR performance are important in reducing capital constraints. The results are further confirmed using several alternative measures of capital constraints, a paired analysis based on a ratings shock to CSR performance, an instrumental variables approach, and a simultaneous equations approach. Finally, we show that the relation is driven by both the social and environmental dimension of CSR.	2014	Environmental, Social, Governance
Managed Distribution Policies in Closed-End Funds and Shareholder Activism Author: Cherkes, Martin, Jacob S. Sangi, and Z. Jay Wang Journal: Journal of Financial and Quantitative Analysis In closed-end funds, a managed distribution policy (MDP) is a dividend commitment potentially requiring the liquidation of assets. We argue that MDPs lower managerial claims on fund assets and, when the fund is at a discount, increase shareholder value. This transfer of wealth can be rationalized by managers wishing to deter a challenge from activist shareholders through a costly proxy vote. We find strong empirical evidence that managers respond to the presence of activists using MDPs, that MDPs constitute an effective wealth transfer to shareholders, and that activists are less likely to challenge management when an MDP is in place.	2014	Governance
Can Offering a Signing Bonus Motivate Effort? Experimental Evidence of the Moderating Effects of Labor Market Competition Author: Choi, Jongwoon (Willie) Journal: The Accounting Review Employers often rely on informal controls such as trust to motivate organizationally desirable behaviors from their workers by appealing to the latter's reciprocity. Notably, trust and reciprocity can promote a "gift exchange" between employers and workers. Using an experiment, I investigate whether labor market competition moderates the emergence of a "gift exchange" in labor markets in which signing bonus offers serve as a potential signal of trust and the duration of the employment relationship is endogenously determined. I find that offering a signing bonus more positively affects both workers' beliefs about the employer's trust in them and their effort when there is an excess supply of workers than when there is an excess demand for workers. I also find that the initial effects of signing bonuses may not persist over time. Additional analyses suggest that both employers' and workers' expectations may affect whether and how trust and reciprocity develop over time.	2014	Governance
Trends in Income Inequality and its Impact on Economic Growth Author: Cingano, Federico Journal: Working paper In most OECD countries, the gap between rich and poor is at its highest level since 30 years. Today, the richest 10 percent of the population in the OECD area earn 9.5 times the income of the poorest 10 percent; in the 1980s this ratio stood at 7:1 and has been rising continuously ever since. However, the rise in overall income inequality is not (only) about surging top income shares: often, incomes at the bottom grew much slower during the prosperous years and fell during downturns, putting relative (and in some countries, absolute) income poverty on the radar of policy concerns. This paper explores whether such developments may have an impact on economic performance.Drawing on harmonised data covering the OECD countries over the past 30 years, the econometric analysis suggests that income inequality has a negative and statistically significant impact on subsequent growth. In particular, what matters most is the gap between low income households and the rest of the population. In contrast, no evidence is found that those with high incomes pulling away from the rest of the population harms growth. The paper also evaluates the "human capital accumulation theory" finding evidence for human capital as a channel through which inequality may affect growth. Analysis based on micro data from the Adult Skills Survey (PIAAC) shows that increased income disparities depress skills development among individuals with poorer parental education background, both in terms of the quantity of education attained (e.g. years of schooling), and in terms of its quality (i.e. skill proficiency). Educational outcomes of individuals from richer backgrounds, however, are not affected by inequality. It follows that policies to reduce income inequalities should not only be pursued to improve social outcomes but also to sustain long-term growth. Redistribution policies via taxes and transfers are a key tool to ensure the benefits of growth are more broadly distributed and the results suggest they need not be expected to undermine growth. But it is also important to promote equality of opportunity in access to and quality of education. This implies a focus on families with children and youths — as this is when decisions about human capital accumulation are made — promoting employment for disadvantaged groups through active labour market policies, childcare supports and in-work benefits.	2014	Social
The Nominating Committee Process: A Qualitative Examination of Board Independence and Formalization Author: Clune, Richard, Dana R. Hermanson, James G. Tompkins, and Zhongxia (Shelly) Ye Journal: Contemporary Accounting Research The nominating committee (NC) of the board identifies and nominates individuals for board service, thus establishing the board's composition. Despite this important role, relatively little is known about the NC process, including NC members' actions and thought processes. Based on interviews of 20 U.S. public company NC members, including 16 chairs, we focus on two primary questions: (1) what is the extent of influence that the Chief Executive Officer (CEO) has over committee processes, and (2) to what extent are committee processes formalized (i.e., framed and acted upon in a mechanistic way)? We find that there is continuing recognition of CEO influence in the director nomination process, the level of which varies widely by company. Also, there is considerable variability in the formalization of the director nomination process (e.g., some NCs use search firms and a matrix/grid approach to assessing director skill sets across the board, while others do not). Finally, we find that many interviewees have professional or personal ties to the CEO and that nearly all of the NCs focus on "chemistry" and comfort in the director nomination process, where the often-stated goal is to enhance the board's ability to function effectively and to reduce risk in the director nomination process. The overall message of the interviews perhaps is best captured by one interviewee, who described a "strange little dance". Throughout the interviews, we find evidence that the NC must "dance" through a complex decision landscape.	2014	Governance
Corporate Social Responsibility and its Impact on Financial Performance: Investigation of U.S. Commercial Banks Author: Cornett, Marcia Millon, Otgontsetseg Erhemjamts, and Hassan Tehranian Journal: Working paper This paper analyzes corporate social responsibility (CSR) for banks and its impact on bank financial performance in a context of the recent financial crisis. The largest banks consistently have higher CSR strengths and CSR concerns during the sample period. However, this group sees a steep increase in CSR strengths and a steep drop in CSR concerns after 2009. Banks that are profitable, have higher capital ratios, charge lower fees to deposits, and with more female and minority directors have significantly higher CSR strengths scores. For banks with low involvement in low income communities, it is the smallest banks that show many significant relations between corporate social responsibility and bank characteristics. Yet, for banks with high involvement in low income communities, it is the largest banks that show many significant relations. Finally, we find that the largest banks appear to be rewarded for their social responsibility, as both size adjusted ROA and ROE are positively and significantly related to CSR scores.	2014	Governance
Political Connections and SEC Enforcement Author: Correia, Maria M. Journal: Journal of Accounting and Economics In this study, I examine whether firms and executives with long-term political connections through contributions and lobbying incur lower costs from the enforcement actions by the Securities and Exchange Commission (SEC). I find that politically connected firms on average are less likely to be involved in SEC enforcement actions and face lower penalties if they are prosecuted by the SEC. Contributions to politicians in a strong position to put pressure on the SEC are more effective than others at reducing the probability of enforcement and penalties imposed by an enforcement action. Moreover, the amounts paid to lobbyists with prior employment links to the SEC, and the amounts spent on lobbying the SEC directly, are more effective than other lobbying expenditures at reducing enforcement costs faced by firms.	2014	Governance
Say Pays! Shareholder Voice and Firm Performance Author: Cunat, Vicente, Mireia Gine, and Maria Guadalupe Journal: Working paper This paper estimates the effects of Say-on-Pay (SoP); a policy that increases shareholder "voice" by providing shareholders with a regular vote on executive pay. We apply a regression discontinuity design to the votes on shareholder-sponsored SoP proposals. Adopting SoP leads to large increases in market value (4 percent) and to improvements in longterm performance: profitability and labor productivity increase, while overheads and investment fall. In contrast, we find limited effects on pay levels and structure. This suggests that SoP serves as a regular vote of confidence on the CEO, that leads to higher efficiency and market value.	2014	Governance
Executive Pay-Performance Sensitivity and Litigation Author: Dai, Zhonglan, Li Jin, and Weining Zhang Journal: Contemporary Accounting Research The public outcry over executive compensation, especially the substantial bonuses paid to top executives at some financial institutions during the most recent financial crisis, highlights the still-considerable confoundedness about compensation practice, notwithstanding some 30 years of studies on the subject. In seems reasonable to questions how well we understand compensation practices and how descriptive our compensation theories are with repsect to, for example, the relation between pay-performance sensitivity (PPS) and firm risk. In this study, we employ an event study approach to address this particular question.	2014	Governance
Board Expertise: Do Directors from Related Industries Help Bridge the Information Gap? Author: Dass, Nishant, Omesh Kini, Vikram Nanda, Bunyamin Onal, and Jun Wang Journal: Review of Financial Studies We analyze the role of "directors from related industries" (DRIs) on a firm's board. DRIs are officers and/or directors of companies in the upstream/downstream industries of the firm. DRIs are more likely when the information gap vis-a'-vis related industries is more severe or the firm has greater market power. DRIs have a significant impact on firm value/performance, especially when information problems are worse. Furthermore, DRIs help firms handle industry shocks and shorten their cash conversion cycles. Overall, our evidence suggests that firms choose DRIs when the adverse effects due to conflicts of interest are dominated by the benefits due to DRIs' information and expertise.	2014	Governance
Stock Market Reactions to Environmental News in the Food Industry Author: Deák, Zsuzsanna, and Berna Karali Journal: Journal of Agricultural and Applied Economics Few studies to date have addressed the relationship between the food industry's environmental and financial performances although the industry is one of the biggest contributors of greenhouse gas emissions. We analyze the impact of environmental news about selected food companies on their stock prices. Results show that positive (negative) events that are the result of direct internal company actions lead to higher (lower) predicted returns, whereas events related to third-party opinions lead to smaller changes in predicted returns in short event windows. This study highlights the importance of conducting the analysis on a disaggregated basis by incorporating firm-level variables.	2014	Environmental
Corporate Governance and Corporate Social Performance Author: Desender, Kurt, and Mircea Epure Journal: Academy of Management Proceedings By integrating the agency and stakeholder perspectives, this study aims to provide a systematic understanding of the firm- and institutional-level corporate governance factors that affect corporate social performance (CSP). We analyze a large global panel dataset and reveal that CSP is positively associated with board independence, but negatively with ownership concentration. These results underscore the idea that the benefits of CSP do not flow to shareholders to the same extent as the costs and that the allocation of resources to CSP is lower when shareholders are powerful. Furthermore, these findings indicate that independent directors should be understood as agents in their own right, not only focused on defending shareholder interests. We also find that CSP is negatively related to investor protection and shareholder-oriented environments, while it is positively related to egalitarian environments. Finally, we jointly analyze firm-level drivers and institutional contexts.	2014	Environmental, Social, Governance
Toward an Input-Based Perspective on Categorization: Investor Reactions to Chemical Accidents Author: Diestre, Luis, and Nandini Rajagopalan Journal: Academy of Management Journal We build on the literature on categorization to develop and test a model of input-level spillover effects. Our model predicts that, when one firm suffers an accident with a particular input, investors will punish other users of that input by discounting their stocks, and that the magnitude of this negative spillover can be predicted by the nonresponsible firm's level of input usage. We also hypothesize that the magnitude of the punishment will be moderated by intermediaries' assessments of the input: Ex ante regulatory sanctions on the input will amplify negative spillovers, while the presence of input-level associations will weaken these effects. Finally, we predict that similarity between the responsible and nonresponsible firm in terms of two peripheral attributes — input portfolio and geographic location — will amplify the negative effect of input usage. We find strong support for our predictions in an event study that examines the stock market valuations of 270 nonresponsible manufacturing firms triggered by 78 industrial accidents involving a toxic chemical. We highlight our study's theoretical and empirical contributions to the categorization and spillover literatures.	2014	Environmental
CEO Tenure and the Performance-Turnover Relation Author: Dikolli, Shane S., William J. Mayew, and Dhananjay Nanda Journal: Review of Accounting Studies In a broad cross-section of US firms, we document that the likelihood of a CEO's performance-related dismissal declines in his tenure. This finding is consistent with both firm performance revealing information about a CEO's uncertain executive ability and CEO tenure reflecting weak firm governance choices that reduce the likelihood of performance-related dismissal. In a sample of CEOs who begin their appointment during our sample period, we find evidence more broadly in favor of the former explanation. Specifically, we find that (1) CEO survival is associated with superior firm performance, (2) this relation is unaffected by firm governance choices, (3) the intensity with which a firm monitors its CEO declines over his tenure, and (4) firms' monitoring intensity increases following CEO turnover. Collectively, our results suggest that periodic performance reports increasingly resolve uncertainty regarding executive ability, thereby lowering firm owners' demand for monitoring their CEO over his tenure.	2014	Governance
Assurance on Environmental Performance and Investor Judgments: The Impact of Environmental Attitudes Author: Dilla, William N., Diane Joyce Janvrin, Jon D. Perkins, and Robyn Raschke Journal: Working paper This study extends prior research by investigating and finding that nonprofessional investors' attitudes regarding environmental sustainability affect their views on the relative importance of environmental versus financial performance and whether environmental performance affects firm investment returns. It also investigates how these views moderate the influence of environmental performance and assurance information on investor judgments. Environmental performance has a positive effect on the investment desirability and amount judgments of nonprofessional investors who find environmental performance relatively more important, and assurance has a positive effect on the investment desirability judgments of this same group of investors. However, neither environmental performance nor assurance affects the investment judgments of nonprofessional investors who believe that environmentally responsible companies yield higher returns. The results suggest that investors' environmental attitudes are important in influencing the effects of environmental performance information on investment judgments.	2014	Environmental
Does it Pay to Outclass? Corporate Social Responsibility and its Impact on Firm Value Author: Ding, David, Christine Ferreira, and Udomsak Wongchoti Journal: Working paper We show that conventional aggregation of corporate social responsibility (CSR) raw scores and its interpreted impact on firm value is less than reliable. Instead, the value impact of CSR activities relies heavily on the industry-specific relative position of the firm. Firms that distinguish themselves over their peers are associated with an increased value. This finding is robust and holds for both responsible and irresponsible behavior. Information concerns and portfolio construction allude to a possible CSR clientele, suggesting the existence of an optimal CSR level. Our peer-effect results are robust to unobserved heterogeneity.	2014	Environmental, Social, Governance
When Does a Stock Boycott Work? Evidence from a Clinical Study of the Sudan Divestment Campaign Author: Ding, Ning, Jerry T. Parwada, and Jianfeng Shen Journal: Working paper The concept of a stock divestment campaign, a common strategy used by social activists to pressure corporations to abandon undesirable practices, contradicts traditional finance theory that regards a stock's ownership structure to be irrelevant to its risk and return. In this paper we examine the effectiveness of an international stock boycott by studying a large sample of institutional investor transactions in four emerging market stocks targeted by the Sudan divestment campaign from 2001 to 2012. We find evidence of a negative relationship between the intensity of the campaign and the ownership breadth of the stocks. However, selling by institutional investors is only observed in the U.S., where the campaign operates from. Further, higher campaign intensity is associated with depressed stock prices and thus higher future returns. In sum, our results support the effectiveness of the stock boycott.	2014	Environmental, Social, Governance
Labor Mobility: Implications for Asset Pricing Author: Donangelo, Andres Journal: Journal of Finance Labor mobility is the flexibility of workers to walk away from an industry in response to better opportunities. I develop a model in which labor flows make bad times worse for shareholders who are left with capital that is less productive. The model shows that firms face greater operating leverage by providing flexibility to mobile workers. I construct an empirical measure of labor mobility consistent with the model and document an economically significant cross-sectional relation between mobility, operating leverage, and stock returns. I find that firms in mobile industries earn returns over 5 percent higher than those in less mobile industries.	2014	Governance
Corporate Environmental Responsibility in Polluting Industries: Does Religion Matter? Author: Du, Xingqiang, Wei Jian, Quan Zeng, and Yingjie Du Journal: Journal of Business Ethics Using a sample of Chinese listed firms in polluting industries for the period of 2008-2010, we empirically investigate whether and how Buddhism, China's most influential religion, affects corporate environmental responsibility (CER). In this study, we measure Buddhist variables as the number of Buddhist monasteries within a certain radius around Chinese listed firms' registered addresses. In addition, we hand-collect corporate environmental disclosure scores based on the Global Reporting Initiative (GRI) sustainability reporting guidelines. Using hand-collected Buddhism data and corporate environmental disclosure scores, we provide strong and robust evidence that Buddhism is significantly positively associated with CER. This finding is consistent with the following view: Buddhism can serve as social norms to evoke the consciousness of social responsibility, and thereof strengthen CER. Our findings also reveal that the positive association between Buddhism and CER is attenuated for firms with higher law enforcement index. The results are robust to various measures of Buddhism and a variety of sensitivity tests.	2014	Environmental
The Judgment of Garbage: End-of-Pipe Treatment and Waste Reduction Author: Dutt, Nilanjana, and Andrew A. King Journal: Management Science Many scholars have argued that systems for treating waste impede organizations from preventing waste in the first place. They theorize that end-of-pipe (EOP) treatment diminishes the incentive to avoid creating waste in the production process and obscures the information necessary to devise prevention techniques. This prediction has been widely accepted, influencing both policy and practice, despite both a lack of supporting empirical evidence and the existence of a counterprediction. In this paper, we use data describing U.S. manufacturing establishments from 1991 to 2005 to test the connection between EOP treatment and waste reduction. Our findings show that EOP treatment is associated with an initial jump in reported waste, followed by ongoing reduction. We analyze these results by exploring mechanisms that may drive this relationship. For practitioners, our paper provides critical guidance about strategies for reducing waste. For scholars of environmental management, our paper provides new insight on when facilities accomplish "source reduction" of process waste. For broader management theories of operations and organizational design, our analysis provides new insight on boundary conditions for extrapolation from existing theories. Finally, our paper provides new guidance for the formulation of effective regulatory policy.	2014	Governance
Equilibrium Earnings Management and Managerial Compensation in a Multiperiod Agency Setting Author: Dutta, Sunil, and Qintao Fan Journal: Review of Accounting Studies To investigate how the possibility of earnings manipulation affects managerial compensation contracts, we study a two-period agency setting in which a firm's manager can engage in window-dressing activities to manipulate reported accounting earnings. Earnings manipulation boosts the reported earnings in one period at the expense of the reported earnings in the other period. We find that the optimal pay-performance sensitivity may increase and expected managerial compensation may decrease as the manager's cost of earnings management decreases. When the manager is privately informed about the payoff of an investment project to the firm, we identify plausible conditions under which prohibiting earnings management can result in a less efficient investment decision for the firm and more rents for the manager.	2014	Governance
CEO Turnover, Financial Distress, and Contractual Innovations Author: Evans III, John Harry, Shuqing Luo, and Nandu j. Nagarajan Journal: The Accounting Review The design of CEO incentives is particularly important for firms in financial distress. We compare the resolution of CEO incentive problems in distressed firms between the 1980s versus the 1990s, focusing on how changes in contractual provisions, as well as in the executive labor market, resulted in a shift to a new equilibrium. Our analyses provide evidence that the increased bargaining power of creditors, together with changes in the use of contractual provisions in the 1990s, enabled creditors to more effectively retain highly skilled CEOs with firm-specific knowledge and provide them with incentives to improve firm performance.	2014	Governance
Distracted Directors: Does Board Busyness Hurt Shareholder Value? Author: Falato, Antonio, Dalida Kadyrzhanova, and Ugur Lel Journal: Journal of Financial Economics We use the deaths of directors and chief executive officers as a natural experiment to generate exogenous variation in the time and resources available to independent directors at interlocked firms. The loss of such key co-employees is an attention shock because it increases the board committee workload only for some interlocked directors — the 'treatment group'. There is a negative stock market reaction to attention shocks only for treated director-interlocked firms. Interlocking directors' busyness, the importance of their board roles, and their degree of independence magnify the treatment effect. Overall, directors' busyness is detrimental to board monitoring quality and shareholder value.	2014	Governance
Do Better-Connected CEOs Innovate More? Author: Faleye, Olubunmi, Tunde Kovacs, and Anand Vekateswaran Journal: Journal of Financial and Quantitative Analysis We present evidence suggesting that chief executive officer (CEO) connections facilitate investments in corporate innovation. We find that firms with better-connected CEOs invest more in research and development and receive more and higher quality patents. Further tests suggest that this effect stems from two characteristics of personal networks that alleviate CEO risk aversion in investment decisions. First, personal connections increase the CEO's access to relevant network information, which encourages innovation by helping to identify, evaluate, and exploit innovative ideas. Second, personal connections provide the CEO with labor market insurance that facilitates investments in risky innovation by mitigating the career concerns inherent in such investments.	2014	Governance
Women on Boards: Do They Affect Sustainability Reporting? Author: Fernandez-Feijoo, Belen, Silvia Romero, and Silvia Ruiz-Blanco Journal: Corporate Social Responsibility and Environmental Management Sustainable reports are the basic tool used to reflect and communicate stakeholder dialogue. Therefore, sustainability reporting has become a key element for strategic management. Companies' strategies are defined and developed by their boards of directors. This study explores the relationship between sustainability reporting and the existence of at least three women on the board of directors. Our results show that in countries with a higher proportion of boards of directors with at least three women, the levels of CSR reporting are higher. We also find that countries with higher gender equality have more companies with boards of directors with at least three women. We control for other variables that affect differences among countries and differences in CSR reporting as found in previous studies: cultural differences, law enforcement, GDP, industry and regulation. Our paper contributes to the literature by studying the relationship between board gender composition and CSR reporting. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment.	2014	Environmental, Social, Governance
Socially Responsible Firms Author: Ferrell, Allen, Hao Liang, and Luc Renneboog Journal: Working paper: Moskovitz Prize Winner 2014 In the corporate finance tradition starting with Berle & Means (1923), corporations should generally be run so as to maximize shareholder value. The agency view of corporate social responsibility (CSR) generally considers CSR as a managerial agency problem and a waste of corporate resources, since corporate insiders do good with other people's money. We evaluate this agency view using large-scale datasets with global coverage (59 countries) on firm-level corporate engagement and compliance with respect to environmental, social, and governance issues. Using an instrumental variable approach, we document that CSR ratings are higher for companies with fewer agency problems (using standard proxies such as having lower levels of free cash flow and higher dividend payout and leverage ratios). Moreover, certain aspects of CSR (e.g., environmental, labor and social protection) are associated with increased executive pay-for-performance sensitivity and the maximization of shareholder value.	2014	Environmental, Social, Governance
CEO Deal-Making Activities and Compensation Author: Fich, Eliezer M., Laura T. Starks, and Adam S. Yore Journal: Journal of Financial Economics Using transactions generally overlooked in the compensation literature — joint ventures, strategic alliances, seasoned equity offerings (SEOs), and spin-offs — we find that, beyond compensation for increases in firm size or complexity, chief executive officers (CEOs) are rewarded for their deal-making activities. Boards pay CEOs for the core motivation of the deal, as well as for deal volume. We find that compensating for volume instead of core value creation occurs under weak board monitoring and that in deal-making firms, neither CEO turnover nor pay-for-performance responds to underperformance. We introduce an input monitoring explanation for these results: boards compensate for deal volume because of their inability to perfectly monitor outputs.	2014	Governance
Governance and CEO Turnover: Do Something or Do the Right Thing? Author: Fisman, Raymond J., Rakesh Khurana, Matthew Rhodes-Kropf, and Soojin Yim Journal: Management Science We study how corporate governance affects firm value through the decision of whether to fire or retain the chief executive officer (CEO). We present a model in which weak governance — which prevents shareholders from controlling the board — protects inferior CEOs from dismissal, while at the same time insulates the board from pressures by biased or uninformed shareholders. Whether stronger governance improves retain/replace decisions depends on which of these effects dominates. We use our theoretical framework to assess the effect of governance on the quality of firing and hiring decisions using data on the CEO dismissals of large U.S. corporations during 1994-2007. Our findings are most consistent with a beneficent effect of weak governance on CEO dismissal decisions, suggesting that insulation from shareholder pressure may allow for better long-term decision making.	2014	Governance
Options in Compensation: Promises and Pitfalls Author: Flor, Christian Riis, Hans Frimor, and Claus Munk Journal: Journal of Accounting Research We derive the optimal compensation contract in a principal-agent setting in which outcome is used to provide incentives for both effort and risky investments. To motivate investment, optimal compensation entails rewards for high as well as low outcomes, and it is increasing at the mean outcome to motivate effort. If rewarding low outcomes is infeasible, compensation consisting of stocks and options is a near-efficient means of overcoming the manager's induced aversion to undertaking risky investments, whereas stock compensation is not. However, stock plus option compensation may induce excessively risky investments, and capping pay can be important in curbing such behavior.	2014	Governance
CEO Pay in UK FTSE 100: Pay Inequality, Board Size and Performance Author: Forbes, William Patrick, Michael Pogue, and Lynn Hodgkinson Journal: European Journal of Finance In this paper we examine the costs of seemingly excessive pay awards to CEOs within the UK FTSE 100 in the last decade and the consequent growth in executive pay inequality. In presenting this evidence we describe variations in the whole distribution of executive pay, rather than invoking some arbitrary cut-off point, to determine how changes in shareholder value match with concurrent changes in the distribution of executive pay. We ask whether the impact of executive pay inequality is a function of board size, rendering the CEO pay slice measure problematic in this context? We then question whether the interaction of board size and corporate performance, as measured by shareholder returns, explain variations in the sensitivity of the pay-performance relationship for UK FTSE 100 executives. We advance the Gini coefficient as a preferable measure of executive pay inequality in order to capture the impact of perceived inequality upon corporate performance.	2014	Governance
Shareholder Democracy in Play: Career Consequences of Proxy Contests Author: Fos, Vyacheslav, and Margarita Tsoutsoura Journal: Journal of Financial Economics This paper shows that proxy contests have a significant adverse effect on careers of incumbent directors. Following a proxy contest, directors experience a significant decline in the number of directorships not only in the targeted company, but also in other nontargeted companies. The results are established using the universe of all proxy contests during 1996-2010. To isolate the effect of the proxy contest, our empirical strategy uses within-firm variation in directors' exposure to the possibility of being voted out and exploits the predetermined schedule of staggered boards that allows only a fraction of directors to be nominated for election every year. We find that nominated directors relative to non-nominated ones lose 58 percent more seats on other boards. The evidence suggests the proxy-contest mechanism imposes a significant career cost on incumbent directors.	2014	Governance
Implications of Power: When the CEO Can Pressure the CFO to Bias Reports Author: Friedman, Henry L. Journal: Journal of Accounting and Economics Building on archival, anecdotal, and survey evidence on managers' roles in accounting manipulations, I develop an agency model to examine the effects of a CEOs power to pressure a CFO to bias a performance measure, like earnings. This power has implications for incentive compensation, reporting quality, firm value, and information rents. Predictions from the model provide potential explanations for the differing results from recent empirical studies on the impact of regulatory interventions like SOX and the extent to which the CEO's or CFO's incentives significantly impact on earnings management. The model also identifies conditions under which either a powerful or a non-powerful CEO can extract rents, which can help explain mixed empirical results on the association between CEO power and "excessive" compensation.	2014	Governance
The Economics of Solicited and Unsolicited Credit Ratings Author: Fulghieri, Paolo, Gunter Strobl, and Han Xia Journal: Review of Financial Studies This paper develops a dynamic rational expectations model of the credit rating process, incorporating three critical elements of this industry: (1) the rating agencies' ability to misreport the issuer's credit quality, (2) their ability to issue unsolicited ratings, and (3) their reputational concerns. We analyze the incentives of credit rating agencies to issue unsolicited credit ratings and the effects of this practice on the agencies' rating strategies. We find that issuance of unfavorable unsolicited credit ratings enables rating agencies to extract higher fees from issuers by credibly threatening to punish those that refuse to acquire a rating. Also, issuing unfavorable unsolicited ratings increases the rating agencies reputation by demonstrating to investors that they resist the temptation to issue inflated ratings. In equilibrium, unsolicited credit ratings are lower than solicited ratings, because all favorable ratings are solicited; however, they do not have a downward bias. We show that, under certain conditions, a credit rating system that incorporates unsolicited ratings leads to more stringent rating standards.	2014	Governance
CEO After-Tax Compensation Incentives and Corporate Tax Avoidance Author: Gaertner, Fabio B. Journal: Contemporary Accounting Research Several recent academic studies explore the determinants of corporate tax avoidance, while a subset of these studies examines whether management incentives help explain the tax avoidance profile of the firm. So far, the results are mixed. I add to this stream of literature by extending Phillips (2003) and reexamining whether the use of after-tax accounting earnings in CEO bonus compensation leads to greater corporate tax avoidance.	2014	Governance
The Reputational Costs of Tax Avoidance Author: Gallemore, John, Edward L. Maydew, and Jacob R. Thornock Journal: Contemporary Accounting Research The study investigates whether firms and their top executives bear reputational costs from engaging in aggressive tax avoidance activities. At least two decades of empirical tax research has shown that firms engage in a wide range of strategies for tax avoidance purposes. Recent studies suggest that for many firms, tax avoidance appears to be highly effective at reducing the firms' tax payments and increasing their after-tax earnings. For example, Dyreng, Hanlon, and Maydew (2008) find that more than a quarter of publicly traded US firms are able to reduce their taxes to less than 20 percent of their pre-tax earnings, and are able to sustain such low rates of taxation over periods as long as ten years. Tax avoidance strategies are abundant and include a wide variety of activities such as shifting income into tax havens, using complex hybrid securities, and engaging in other tax shelters.	2014	Governance
Commitment to Social Good and Insider Trading Author: Gao, Feng, Ling Lei Lisic, and Ivy Xiying Zhang Journal: Journal of Accounting and Economics A firm's investment in corporate social responsibility (CSR) builds a positive image of caring for social good and imposes additional costs on executives' informed trading, which is widely perceived self-serving. We thus expect executives of CSR-conscious firms to be more likely to refrain from informed trading. We find that executives of CSR-conscious firms profit significantly less from insider trades and are less likely to trade prior to future news than executives of non-CSR-conscious firms. The negative association between CSR and insider trading profits is more pronounced when executives' personal interests are more aligned with the interests of the firm.	2014	Governance
How Frequent Financial Reporting Can Cause Managerial Short-Termism: An Analysis of the Costs and Benefits of Increasing Reporting Frequency Author: Gigler, Frank, Chandra Kanodia, Haresh Sapra, and Raghu Venugopalan Journal: Journal of Accounting Research We develop a cost-benefit tradeoff that provides new insights into the frequency with which firms should be required to report the results of their operations to the capital market. The benefit to increasing the frequency of financial reporting is that it causes market prices to better deter investments in negative net present value projects. The cost of increased frequency is that it increases the probability of inducing managerial short-termism. We analyze the tradeoff between these costs and benefits and develop conditions under which greater reporting frequency is desirable and conditions under which it is not.	2014	Governance
How Firms Respond to Financial Restatment: CEO Successors and External Reactions Author: Gomulya, David, and Warren Boeker Journal: Academy of Management Journal Although past studies have paid considerable attention to firms' reputations, few have investigated the actions that firms take following a reputation-damaging event. We identify firms involved in financial earnings restatements and examine whether naming a successor CEO with specific qualities serves to signal the seriousness of a firm's efforts to restore its reputation. Using theories of market signaling, we argue that attributes of successor CEOs significantly influence the reactions of key external constituencies. In particular, firms with more severe restatement tend to name successors who have prior CEO or turnaround experience and a more elite education. The naming of such successors results in more positive reactions from the stock market, financial analysts, and mass media. We argue that these attributes send messages to stakeholders and the broader public about the CEO's credibility and the firm's efforts.	2014	Governance
Can Socially Responsible Firms Survive Competition? An Analysis of Corporate Employee Matching Grants Author: Gong, Ning, and Bruce D. Grundy Journal: Working paper Fifty-five percent of S&P 500 firms have employee matching grant schemes. Matching grants act as a coordination mechanism which reduces free-riding by socially-conscious employee-donors who value a public good but prefer that someone else pay for it. The popularity of matching schemes demonstrates that socially-responsible firms can survive market competition. Our model shows that when socially-conscious employees are either more productive or value working together, matching schemes can enhance the welfare of these employees and raise more for charities without reducing profits for investors in competitive labor and capital markets. We document that labor productivity is higher at firms with matching schemes and that these firms are also more likely to be ranked as one of the "100 Best Companies to Work for."	2014	Social
Management Forecast Quality and Capital Investment Decisions Author: Goodman, Theodore H., Monica Neamtiu, Nemit Shroff, and Hal D. White Journal: The Accounting Review Corporate investment decisions require managers to forecast expected future cash flows from potential investments. Although these forecasts are a critical component of successful investing, they are not directly observable by external stakeholders. In this study, we investigate whether the quality of managers' externally reported earnings forecasts can be used to infer the quality of their corporate investment decisions. Relying on the intuition that managers draw on similar skills when generating external earnings forecasts and internal payoff forecasts for their investment decisions, we predict that managers with higher quality external earnings forecasts make better investment decisions. Consistent with our prediction, we find that forecasting quality is positively associated with the quality of both acquisition and capital expenditure decisions. Our evidence suggests that externally observed forecasting quality can be used to infer the quality of capital budgeting decisions within firms.	2014	Governance
Duration of Executive Compensation Author: Gopalan, Radhakrishnan, Todd Milbourn, Fenghua Song, and Anjan V. Thakor Journal: Journal of Finance Extensive discussions on the inefficiencies of "short-termism" in executive compensation notwithstanding, little is known empirically about the extent of such short-termism. We develop a novel measure of executive pay duration that reflects the vesting periods of different pay components, thereby quantifying the extent to which compensation is short-term. We calculate pay duration in various industries and document its correlation with firm characteristics. Pay duration is longer in firms with more growth opportunities, more long-term assets, greater R&D intensity, lower risk, and better recent stock performance. Longer CEO pay duration is negatively related to the extent of earnings-increasing accruals.	2014	Governance
Origins of Stock Market Fluctuations Author: Greenwald, Daniel L., Martin Lettau, and Sydney C. Ludvigson Journal: Working paper Three mutually uncorrelated economic disturbances that we measure empirically explain 85 percent of the quarterly variation in real stock market wealth since 1952. A model is employed to interpret these disturbances in terms of three latent primitive shocks. In the short run, shocks that affect the willingness to bear risk independently of macroeconomic fundamentals explain most of the variation in the market. In the long run, the market is profoundly affected by shocks that reallocate the rewards of a given level of production between workers and shareholders. Productivity shocks play a small role in historical stock market fluctuations at all horizons.	2014	Governance
Corporate Social Responsibility and Firm Value: Disaggregating the Effects on Cash Flow, Risk and Growth Author: Gregory, Alan, Rajesh Tharyan, and Julie Whittaker Journal: Journal of Business Ethics This paper investigates the effect of corporate social responsibility (CSR) on firm value and seeks to identify the source of that value, by disaggregating the effects on forecasted profitability, long-term growth and the cost of capital. The study explores the possible risk (reducing) effects of CSR and their implications for financial measures of performance. For individual dimensions of CSR, in general strengths are positively valued and concerns are negatively valued, although the effect is not universal across all dimensions of CSR. We show that these valuation effects are principally driven by CSR performance associated with better long run growth prospects, with an additional minor contribution made by a lower cost of equity capital.	2014	Environmental, Social, Governance
Cognitive Frames in Corporate Sustainability: Managerial Sensemaking With Paradoxical and Business Case Frames Author: Hahn, Tobias, Lutz Preuss, Jonatan Pinkse, and Frank Figge Journal: Academy of Management Review Corporate sustainability confronts managers with tensions between complex economic, environmental, and social issues. Drawing on the literature on managerial cognition, corporate sustainability, and strategic paradoxes, we develop a cognitive framing perspective on corporate sustainability. We propose two cognitive frames — a business case frame and a paradoxical frame — and explore how differences between them in cognitive content and structure influence the three stages of the sensemaking process — that is, managerial scanning, interpreting, and responding with regard to sustainability issues. We explain how the two frames lead to differences in the breadth and depth of scanning, differences in issue interpretations in terms of sense of control and issue valence, and different types of responses that managers consider with regard to sustainability issues. By considering alternative cognitive frames, our argument contributes to a better understanding of managerial decision making regarding ambiguous sustainability issues, and it develops the underlying cognitive determinants of the stance that managers adopt on sustainability issues. This argument offers a cognitive explanation for why managers rarely push for radical change when faced with complex and ambiguous issues, such as sustainability, that are characterized by conflicting yet interrelated aspects.	2014	Governance
Dividend Payouts and Information Shocks Author: Hail, Luzi, Ahmed Tahoun, and Clare Wang Journal: Journal of Accounting Research We examine changes in firms' dividend payouts following an exogenous shock to the information asymmetry problem between managers and investors. Agency theories predict a decrease in dividend payments to the extent that improved public information lowers managers' need to convey their commitment to avoid overinvestment via costly dividend payouts. Conversely, dividends could increase if minority investors are in a better position to extract cash dividends. We test these predictions by analyzing the dividend payment behavior of a global sample of firms around the mandatory adoption of IFRS and the initial enforcement of new insider trading laws. Both events serve as proxies for a general improvement of the information environment and, hence, the corporate governance structure in the economy. We find that, following the two events, firms are less likely to pay (increase) dividends, but more likely to cut (stop) such payments. The changes occur around the time of the informational shock, and only in countries and for firms subject to the regulatory change. They are more pronounced when the inherent agency issues or the informational shocks are stronger. We further find that the information content of dividends decreases after the events. The results highlight the importance of the agency costs of free cash flows (and changes therein) for shaping firms' payout policies.	2014	Governance
Inequality and Growth: The Neglected Time Dimension Author: Halter, Daniel, Manuel Oechslin, and Josef Zweimuller Journal: Journal of Economic Growth Inequality affects economic performance through many mechanisms, both beneficial and harmful. Moreover, some of these mechanisms tend to set in fast while others are rather slow. The present paper (i) introduces a simple theoretical model to study how changes in inequality affect economic growth over different time horizons; (ii) empirically investigates the inequality-growth relationship, thereby relying on specifications derived from the theory. Our empirical findings are in line with the theoretical predictions: Higher inequality helps economic performance in the short term but reduces the growth rate of GDP per capita farther in the future. The long-run (or total) effect of higher inequality tends to be negative.	2014	Social
Do Private Equity Returns Result from Wealth Transfers and Short-Termism? Evidence from a Comprehensive Sample of Large Buyouts Author: Harford, Jarrad, and Adam Kolasinski Journal: Management Science We test whether the well-documented high returns of private equity sponsors result from wealth transfers from other financial claimants and counterparties and from a focus on short-term profits at the expense of long-term value. Debt investors who finance buyouts, as well as buyers of private equity portfolio companies, represent the two potential sources of wealth transfers. However, we find that, on average, public companies benefit when they buy financial sponsors' portfolio companies, experiencing positive abnormal returns upon the announcement of the acquisition and long-run posttransaction abnormal returns indistinguishable from zero. We further find that large portfolio company payouts to private equity on average have no relation to future portfolio company distress, suggesting that debt investors are not suffering systematic wealth losses either. However, we find some evidence of wealth transfers from both strategic buyers and debt investors in some special situations. Finally, we find that portfolio companies invest no differently than a matched sample of public control firms, even when they are not profitable, an observation inconsistent with short-termism.	2014	Governance
Uncertainty, Risk, and Incentives: Theory and Evidence Author: He, Zhiguo, Si Li, Bin Wei, and Jianfeng Yu Journal: Management Science Uncertainty has qualitatively different implications than risk in studying executive incentives. We study the interplay between profitability uncertainty and moral hazard, where profitability is multiplicative with managerial effort. Investors who face greater uncertainty desire faster learning, and consequently offer higher managerial incentives to induce higher effort from the manager. In contrast to the standard negative risk-incentive trade-off, this "learning-by-doing" effect generates a positive relation between profitability uncertainty and incentives. We document empirical support for this prediction.	2014	Governance
Climate Change Risk Management Author: Higgins, Paul A. T. Journal: Report: American Meteorological Society Policy Program Study The study presented here examines potential policy responses to climate change. It identifies our risk management options and explores their strengths and weaknesses.	2014	Environmental
Performance Measures, Consensus on Strategy Implementation, and Performance: Evidence from the Operational-Level of Organizations Author: Ho, Joanna L. Y., Anne Wu, and Steve Y. C. Wu Journal: Accounting, Organizations and Society In this article, we examine how consensus between operational-level managers and employees on strategy implementation affects the effectiveness of performance measures and employee performance. We use field-based surveys and proprietary archival data from a Taiwanese financial services company to answer our research questions. Consistent with the predictions of person-organization fit theory, we find that consensus on the implementation of the customer-oriented strategy is positively associated with frontline employees' performance. Our results also indicate that the incentive effect of using performance measures in performance evaluation and promotion is stronger for employees with a higher level of consensus. Our findings suggest that consensus is critical to the success of an organization's strategy implementation and the effectiveness of performance measures.	2014	Governance
The Role of Investment Banker Directors in M&A Author: Huang, Qianqian, Feng Jiang, Erik Lie, and Ke Yang Journal: Journal of Financial Economics We examine how directors with investment banking experience affect firms' acquisition behavior. We find that firms with investment bankers on the board have a higher probability of making acquisitions. Furthermore, acquirers with investment banker directors experience higher announcement returns, pay lower takeover premiums and advisory fees, and exhibit superior long-run performance. Overall, our results suggest that directors with investment banking experience help firms make better acquisitions, both by identifying suitable targets and by reducing the cost of the deals.	2014	Governance
Why Do Managers Avoid EPS Dilution? Evidence from Debt-Equity Choice Author: Huang, Rong, Carol A. Marquardt, and Bo Zhang Journal: Review of Accounting Studies Survey evidence reveals that managers prefer to avoid dilution of earnings per share (EPS), though financial theory suggests it is irrelevant in firm valuation. We explore contracting and behavioral explanations for this apparent paradox using a large sample of debt-equity issuers. We first provide evidence that firms with greater agency conflicts between managers and shareholders are more likely to use EPS as a performance measure in bonus contracts. After controlling for possible endogeneity related to compensation contract design, we find that managers are more likely to avoid earnings dilution when their bonus compensation explicitly depends upon EPS performance. This effect is increasing in the magnitude of bonus compensation for this subset of firms; we document no such associations for the firms that do not use EPS in setting bonus pay. Additional tests of firms' speed of adjustment to target leverage ratios and firms' debt conservatism levels indicate that explicitly rewarding executives on EPS performance helps to resolve underleveraging problems. We also find that clientele effects are associated with managers' aversion to earnings dilution. Our findings provide a deeper understanding of the factors that underlie the use of accounting performance in compensation contracts and new evidence on the implications of the contracting role of accounting in firm decision-making.	2014	Governance
Gender Differences in Executives' Access to Information Author: Inci, A. Can, M. P. Narayanan, and H. Nejat Seyhun Journal: Working paper We provide the first evidence on gender differences in trading behavior and profitability of senior corporate executives. On average, both female and male executives make positive profits from insider trading. Males, however, earn significantly more than females in equivalent positions and also trade more than females. These gender differences disappear when we limit the sample to firms in which female trading is relatively high. Collectively these results suggest that female executives have a disadvantage relative to males in access to inside information even if they have equal formal status and informal networks may play an important role attenuating this disadvantage.	2014	Social
Earnings Targets and Annual Bonus Incentives Author: Indjejikian, Raffi J., Michal Matejka, Kenneth A. Merchant, and Wim A. Van der Stede Journal: The Accounting Review We examine the extent to which firms use past performance as a basis for setting earnings targets in their bonus plans and assess the implications of such targets for managerial incentives. We find that high-profitability firms commonly decrease earnings targets when their managers fail to meet prior-year targets but rarely increase targets. Conversely, we find that low-profitability firms commonly increase earnings targets when their managers meet or exceed prior-year targets but rarely decrease targets. This target-revision process yields a serial correlation in target difficulty — targets remain relatively easy (or difficult) through time. We also find that firms are reluctant to revise earnings targets below zero, resulting in an unusually high frequency of zero earnings targets that are abnormally difficult to achieve. Collectively, our findings suggest that firms incorporate past performance information into targets, yet they do so only to a limited extent. This is consistent with theoretical arguments that highlight the benefits of contractual commitments.	2014	Governance
The Consequences of Mandatory Corporate Sustainability Reporting: Evidence from Four Countries Author: Ioannou, Ioannis, and George Serafeim Journal: Working paper We examine the effect of sustainability disclosure regulations on firms' disclosure practices and valuations. Specifically, we explore the implications of regulations mandating the disclosure of environmental, social, and governance information in China, Denmark, Malaysia, and South Africa using differences-in-differences estimation with propensity score matched samples. We find that relative to propensity score matched control firms, treated firms significantly increased disclosure following the regulations. We also find increased likelihood by treated firms of voluntarily receiving assurance to enhance disclosure credibility and increased likelihood of voluntarily adopting reporting guidelines that enhance disclosure comparability. These results suggest that even in the absence of a regulation that mandates the adoption of assurance or specific guidelines, firms seek the qualitative properties of comparability and credibility. We do not find any evidence that, on average, the disclosure regulations adversely affected shareholders. Instrumental variables analysis suggests that increases in sustainability disclosure driven by the regulation are associated with increases in firm valuations, as reflected in Tobin's Q.	2014	Environmental, Social, Governance
Acquirer-Target Social Ties and Merger Outcomes Author: Ishii, Joy, and Yuhai Xuan Journal: Journal of Financial Economics This article investigates the effect of social ties between acquirers and targets on merger performance. We find that the extent of cross-firm social connection between directors and senior executives at the acquiring and the target firms has a significantly negative effect on the abnormal returns to the acquirer and to the combined entity upon merger announcement. Moreover, acquirer-target social ties significantly increase the likelihood that the target firm's chief executive officer (CEO) and a larger fraction of the target firm's pre-acquisition board of directors remain on the board of the combined firm after the merger. In addition, we find that acquirer CEOs are more likely to receive bonuses and are more richly compensated for completing mergers with targets that are highly connected to the acquiring firms, that acquisitions are more likely to take place between two firms that are well connected to each other through social ties, and that such acquisitions are more likely to subsequently be divested for performance-related reasons. Taken together, our results suggest that social ties between the acquirer and the target lead to poorer decision making and lower value creation for shareholders overall.	2014	Governance
Optimal Climate Change Mitigation under Long-Term Growth Uncertainty: Stochastic Integrated Assessment and Analytic Findings Author: Jensen, Svenn, and Christian P. Traeger Journal: European Accounting Review Economic growth over the coming centuries is one of the major determinants of today's optimal greenhouse gas mitigation policy. At the same time, long-run economic growth is highly uncertain. This paper is the first to evaluate optimal mitigation policy under long-term growth uncertainty in a stochastic integrated assessment model of climate change. The sign and magnitude of the impact depend on preference characteristics and on how damages scale with production. We explain the different mechanisms driving optimal mitigation under certain growth, under uncertain technological progress in the discounted expected utility model, and under uncertain technological progress in a more comprehensive asset pricing model based on Epstein-Zin-Weil preferences. In the latter framework, the dominating uncertainty impact has the opposite sign of a deterministic growth impact; the sign switch results from an endogenous pessimism weighting. All of our numeric scenarios use a DICE based assessment model and find a higher optimal carbon tax than the deterministic DICE base case calibration.	2014	Environmental
Compensation Systems and Earnings Inequality Author: Jiang, Lily, and Hsi-Cheng Yu Journal: Journal of Economic Inequality We develop a wage-structure determination model in which a firm with incomplete information offers an optimal sequence of contracts for its heterogeneous employees. The model integrating the principal-agent framework and monitoring mechanism is characterized by endogeneity of the selection of two compensation methods: performance-pay and non-performance-pay schemes. The model is used to examine the switching of pay schemes and its inequality effect. We point out that the growth of performance-pay jobs is accompanied by a downward adjustment of the rewards for performance, which brings forth a countervailing effect on wage inequality. The simulation analysis of a case of uniform-distributed ability reveals that the net effect of the growth of performance-pay jobs on wage inequality depends on the driving force behind the switch.	2014	Social
How Does Earnings Management Influence Investor's Perceptions of Firm Value? Survey Evidence from Financial Analysts Author: Jong, Abe de, Gerard Mertens, Marieke van der Poel, and Ronald van Dijk Journal: Review of Accounting Studies Survey evidence shows CFOs to believe that earnings management can enhance investor valuation of their firms. This evidence raises the question of correspondence between the beliefs of CFOs and investors. Surveying financial analysts to gain insight into how earnings management influences investor perception of firm value, we find analysts' and CFOs' beliefs to be generally consistent. We find that analysts perceive meeting earnings benchmarks and smoothing earnings to enhance investor perception of firm value and all earnings management actions to reach a benchmark, save share repurchases, to be value destroying. CFOs, however, are reluctant to repurchase shares, preferring to use techniques viewed by analysts as value destroying (e.g., reductions in discretionary spending). Analysts' inability to unravel such techniques perhaps explains CFOs' preferences.	2014	Governance
Does EU Emissions Trading Bite? An Event Study Author: Jong, Thijs, Oscar Couwenberg, and Edwin Woerdman Journal: Energy Policy The aim of this paper is to examine whether shareholders consider the EU Emissions Trading Scheme (EU ETS) as value-relevant for the participating firms. An analysis is conducted of the share prices changes as caused by the first publication of compliance data in April,2006, which disclosed an over-allocation of emission allowances. Through an event study, it is shown that share prices actually increased as a result of the allowance price drop when firms have a lower carbon-intensity of production and larger allowance holdings. There was no significant value impact from firms' allowance trade activity or from the pass-through of carbon-related production costs (carbon leakage). The conclusion is that the EU ETS does 'bite'. The main impact on the share prices of firms arises from their carbon-intensity of production. The EU ETS is thus valued as a restriction on pollution.	2014	Environmental
The Structural Elaboration of Board Independence: Executive Power, Institutional Logics, and the Adoption of CEO-Only Board Structures in U.S. Corporate Governance Author: Joseph, John, William Ocasio, and Mary-Hunter McDonnell Journal: Academy of Management Journal This study builds on structural elaboration theory by developing a model to explain the adoption of board structures that appear to conform to the prevailing institutional logic, but which in fact contradict it. We test our theory with the case of CEO-only board structures, a formal increase in board independence that prior research has shown to lead to greater CEO entrenchment rather than increased shareholder value. Using an event history analysis of the Fortune 250 over a 27-year period, we examine three mechanisms that drive its adoption: executive interests, executive power, and elaboration opportunities. We show that the CEO-only structure is more likely to occur in firms in which a higher proportion of insiders predate the CEO, and in which the CEO has greater formal power and agenda control. We also find that powerful CEOs are more likely to realize the structural change following institutional opportunities, such as the passage of Sarbanes-Oxley (SOX), and organizational contingencies, such as positive changes in firm performance. By exploring the mechanisms leading to the proliferation of the CEO-only structure, our study contributes to sociopolitical perspectives on corporate governance, as well as to theories of institutional logics and structural elaboration.	2014	Governance
The Market Value of Corporate Votes: Theory and Evidence from Option Prices Author: Kalay, Avner, Oguzhan Karakas, and Shagun Pant Journal: Journal of Finance This paper proposes a new method using option prices to estimate the market value of the shareholder voting rights associated with a stock. The method consists of synthesizing a nonvoting share using put-call parity, and comparing its price to that of the underlying stock. Empirically, we find this measure of the value of voting rights to be positive and increasing in the time to expiration of synthetic stocks. The measure also increases around special shareholder meetings, periods of hedge fund activism, and M&A events. The method is likely useful in studies of corporate control and also has asset pricing implications.	2014	Governance
Outside Directors and Board Advising and Monitoring Performance Author: Kim, Kyonghee, Elaine Mauldin, and Sukesh Patro Journal: Journal of Accounting and Economics Divergent views exist about whether boards must tradeoff advising for monitoring performance when utilizing outside versus inside directors. We suggest a dichotomous tradeoff focus underestimates outside directors' impact on board performance. We find outside director tenure positively associated with firm acquisition/investment policy advising performance and CEO compensation monitoring performance, suggesting that advising and monitoring do not always compete for directors' time. However, tenure is not a panacea — it marginally weakens financial reporting monitoring performance which is instead enhanced by outside directors' financial expertise. Overall, the results suggest outside director tenure and diverse expertise support both advising and monitoring performance.	2014	Governance
Corporate Social Responsibility and Stock Price Crash Risk Author: Kim, Yongtae, Haidan Li, and Siqi Li Journal: Journal of Banking & Finance This study investigates whether corporate social responsibility (CSR) mitigates or contributes to stock price crash risk. Crash risk, defined as the conditional skewness of return distribution, captures asymmetry in risk and is important for investment decisions and risk management. If socially responsible firms commit to a high standard of transparency and engage in less bad news hoarding, they would have lower crash risk. However, if managers engage in CSR to cover up bad news and divert shareholder scrutiny, CSR would be associated with higher crash risk. Our findings support the mitigating effect of CSR on crash risk. We find that firms' CSR performance is negatively associated with future crash risk after controlling for other predictors of crash risk. The result holds after we account for potential endogeneity. Moreover, the mitigating effect of CSR on crash risk is more pronounced when firms have less effective corporate governance or a lower level of institutional ownership. The results are consistent with the notion that firms that actively engage in CSR also refrain from bad news hoarding behavior, thus reducing crash risk. This role of CSR is particularly important when governance mechanisms, such as monitoring by boards or institutional investors, are weak.	2014	Environmental
Professional Investor Relations Within the Firm Author: Kirk, Marcus P., and James D. Vincent Journal: The Accounting Review This paper investigates the effect of investments in internal investor relations (IR) departments on firm outcomes. We find that companies initiating internal professional IR experience increases in disclosure, analyst following, institutional investor ownership, liquidity, and market valuation relative to a matched sample of control firms. We also examine the differential impact the exogenous shock of Regulation Fair Disclosure (Reg FD) had on firms with an established professional IR department. We find these IR firms more than doubled their level of public disclosure post-Reg FD. Despite IR firms losing a potential communications channel following Reg FD adoption, we find they did not suffer adversely and instead show a post-Reg FD increase in analyst following, institutional investors, and liquidity relative to a control sample of similar non-IR firms. This implies that the effectiveness of professionalized internal IR increased post-Reg FD consistent with IR firms being relatively better positioned to navigate the more complicated regulatory environment.	2014	Governance
Environmental Policy, Company Environment Protection, and Stock Market Performance: Evidence from China Author: Kong, Dongmin, Shasha Liu, and Yunhao Dai Journal: Corporate Social Responsibility and Environmental Management This paper studies the impact of environmental protection efforts on the market values of firms using the carbon emission rights trading scheme (CERTS) in China as an exogenous shock. We find that (1) the environmental policy of CERTS increases the market values of firms in the environment industry, (2) the efforts of firms on environmental protection further enhance their market values, and (3) the market values of firms located in the regions with CERTS are further improved. Our findings suggest that firms in the environment industry could improve their market values and obtain benefits by strengthening their environmental protection activities. We offer an important policy implication that the government should enact appropriate policies to improve the activities of firms on environmental protection and the sustainable development of the economy.	2014	Environmental
Power to the Principals! An Experimental Look at Shareholder Say-On-Pay Voting Author: Krause, Ryan, Kimberly A. Whitler, and Matthew Semadeni Journal: Academy of Management Journal With recent legislation mandating that publicly traded corporations submit their CEOs' compensation for a nonbinding shareholder vote, a systematic understanding of shareholder preferences has never been so important. In spite of this, relatively little is known about what impacts shareholders' preferences and, subsequently, their ultimate voting behavior. We integrate two theories to help frame the question and to help predict shareholder behavior. Per agency theory, shareholders, as principals, will disapprove of high CEO rewards and poor firm performance, symmetrically assessing gains and losses. Per prospect theory, shareholders will be loss averse, responding much more strongly to being in a loss position than to being in a gain or neutral position. We combine these theories' predictions in two lab experiments in which we simulate a shareholder "say-on-pay" vote, hypothesizing that shareholders will be concerned with agency costs, but only when they are in a loss position. The results of these simulated votes suggest that shareholders do value "pay for performance", in keeping with agency theory. However, shareholders exhibit this focus on agency- normative prescriptions asymmetrically, showing loss aversion in keeping with prospect theory. This finding has significant implications for both theory and practice as shareholder votes become a regular and high-profile occurrence.	2014	Governance
Pay Convexity, Earnings Manipulation, and Project Continuation Author: Laux, Volker Journal: The Accounting Review This paper studies the optimal design of long-term executive pay plans when boards of directors use accounting information for investment decision-making and executives can take costly actions to manipulate this information. The model predicts that a shift to more convex executive pay plans, such as equity plans that rely more on options and less on stock, is associated with higher levels of manipulation, lower reporting quality, and less efficient investment. When designing the optimal contract, the board trades off these effects with the cost of inducing executive effort. The paper also analyzes how the optimal pay convexity and the equilibrium level of manipulation change when the CEO's opportunistic reporting discretion changes. The model predicts that an increase in the CEO's marginal cost of manipulation increases the optimal level of pay convexity and first increases and then decreases the magnitude of manipulation.	2014	Governance
Watch Your Step: Optimal Policy in a Tipping Climate Author: Lemoine, Derek, and Christian Traeger Journal: American Economic Journal: Economic Policy We investigate the optimal policy response to the possibility of abrupt, irreversible shifts in system dynamics. The welfare cost of a tipping point emerges from the policymaker's response to altered system dynamics. Our policymaker also learns about a threshold's location by observing the system's response in each period. Simulations with a recursive, numerical climate-economy model show that tipping possibilities raise the optimal carbon tax more strongly over time. The resulting policy paths ultimately lower optimal peak warming by up to 0.5°C. Different types of posttipping shifts in dynamics generate qualitatively different optimal pretipping policy paths.	2014	Environmental
Advance Disclosure of Insider Trading Author: Lenkey, Stephen L. Journal: Review of Financial Studies Using a strategic rational expectations equilibrium framework, we show that forcing a well-informed insider to disclose her trades in advance tends to increase welfare for both the insider and less-informed outsiders. Advance disclosure generates price risk for the insider, and to mitigate this risk, the insider trades less aggressively on her private information. Consequently, outsiders face lower adverse selection costs, which improves risk sharing and increases welfare. The drop in trading aggressiveness also causes market efficiency to decline. Furthermore, pretrade disclosure encourages excessive risk taking but may either encourage or discourage managerial effort.	2014	Governance
The Stigma of Affirmative Action: A Stereotyping-Based Theory and Meta-Analytic Test of the Consequences for Performance Author: Leslie, Lisa M., David M. Mayer, and David A. Kravitz Journal: Academy of Management Journal Affirmative action plans (AAPs) are designed to facilitate workplace success for members of the groups they target (e.g., women, ethnic minorities), yet may have the ironic effect of stigmatizing AAP targets and, in turn, decreasing their performance outcomes. Prior work has focused on the stigma of incompetence as the primary mechanism that links AAPs to performance; however, the broader social psychological literature suggests that additional mechanisms may also play a role. We use stereotyping theories to develop a more comprehensive model of the pathways through which AAPs limit targets' performance outcomes. Drawing from the stereotype content model, we propose that the negative effect of AAPs on others' evaluations of targets' performance is driven by perceptions of incompetence and low warmth. Drawing from stereotype threat theory, we propose that the negative effect of AAPs on targets' self-evaluated and objective performance is driven by perceptions of low self-competence, negative state affect, and perceived stereotyping by others. Meta-analytic path analyses support our hypotheses. Our theory and findings demonstrate that multiple mechanisms explain the negative consequences of AAPs for targets' performance outcomes, highlight differences in reactions to AAP targets by others versus the self, and provide insight into preventing the unintended negative effects of AAPs.	2014	Social
Resource Efficiency and Firm Value Author: Leung, Woon Sau, Kevin Evans, and Matthew Barwick-Barrett Journal: Working paper Resource efficiency is the use of fewer resources to produce one unit of revenue. This paper investigates the relationship between firms' resource efficiency and value using Osmosis Investment Management's innovative proprietary Resource Efficiency Score (RES). We argue that resource efficient firms hold additional intangible beneficial characteristics that deliver financial performance, as suggested by the resource based view of the firm. The RES can also be interpreted as a measure of the social value of environmental sustainability and so we also test whether firms can create shared value. We document strong evidence that the Osmosis mutual funds comprising the most resource efficient firms earn considerable risk adjusted returns. Resource efficiency is positively related to subsequent value with high statistical and economic significance. This result holds consistently across international firms, for various econometric tests controlling for selection bias, endogeneity and reverse causality and is robust to the inclusion of control variables and competing value generating factors. Following similar econometric rigour, we show that high RES is also significantly related to higher credit ratings. Our findings lend support to the principles of the resource based view of the firm and shared value theories and we look forward to exploring the underlying mechanisms in future research. Our results show significant returns to investors, value for shareholders, lower risk for creditors and benefits to society through sustainability. The mutually reinforcing relationship between sustainability and economic value should encourage innovation and entrepreneurship in this important area.	2014	Environmental
Soft Shareholder Activism Author: Levit, Doron Journal: Working paper This paper studies informal communications and exit as alternative ways through which investors can influence managers when obtaining control is not feasible or too costly. The first result shows that exit relaxes the tension between investors and managers, and thereby enhances the effectiveness of communications as a form of shareholder activism. The second result shows that public communications are more effective than private communications if and only if managers are concerned about the stock price and their decisions are observed by the market. Overall, the analysis relates the effectiveness of communications to market liquidity; entrenchment and compensation structure of managers; and investors' expertise, investment horizon and ownership size.	2014	Governance
Finance and Society: On the Foundations of Corporate Social Responsibility Author: Liang, Hao, and Luc Renneboog Journal: Working paper We investigate the fundamental determinants and value implications of corporate social responsibility (CSR) around the world. We contrast three broad views on CSR: (1) it is a response to government failures; (2) it reflects individual and societal preferences; (3) it is an equilibrium result of a country's legal origin that shapes the corporations' tradeoff between shareholder and stakeholder values. Using public and proprietary country-level sustainability and firm-level CSR data, we find that: (a) Legal origins are more fundamental sources of CSR than political, social, and firm-level financial forces; (b) The English common law, widely-recognized as being most shareholder-oriented and economically efficient, fosters CSR and sustainability the least, while companies under the civil law origin assume most social responsibilities; (c) Globally, CSR contributes to shareholder value maximization.	2014	Environmental, Social, Governance
CEO Ownership, Stock Market Performance, and Managerial Direction Author: Lilienfeld-Toal, Ulf von, and Stefan Ruenzi Journal: Journal of Finance We examine the relationship between CEO ownership and stock market performance. A strategy based on public information about managerial ownership delivers annual abnormal returns of 4 percent to 10 percent. The effect is strongest among firms with weak external governance, weak product market competition, and large managerial discretion, suggesting that CEO ownership can reverse the negative impact of weak governance. Furthermore, owner-CEOs are value increasing: they reduce empire building and run their firms more efficiently. Overall, our findings indicate that the market does not correctly price the incentive effects of managerial ownership, suggesting interesting feedback effects between corporate finance and asset pricing.	2014	Governance
Communication and Decision-Making in Corporate Boards Author: Malenko, Nadya Journal: Review of Financial Studies Time constraints, managerial power, and reputational concerns can impede board communication. This paper develops a model where board decisions depend on directors' effort in communicating their information to others. I show that directors communicate more effectively when pressure for conformity is stronger — that is, when directors are more reluctant to disagree with each other. Hence, open ballot voting can be optimal, even though it induces directors to disregard their information and conform their votes to others. I also show that communication can be more efficient when directors' preferences are more diverse. The analysis has implications for executive sessions, transparency, and committees.	2014	Governance
The Impact of Targets' Social Performance on Acquisition Premiums Author: Malik, Mahfuja Journal: Working paper This paper examines whether the corporate social responsibility (CSR) performance of target firms influences the acquisition premiums paid by the acquirers. Using U.S. public merger and acquisition (M&A) deals, I find that acquisition premiums increase in the targets' perceived CSR quality, an effect incremental to previously-documented drivers of such premiums. These findings are also robust to (1) using different proxies for CSR measures and acquisition premiums, and (2) considering various dimensions of CSR (environment, community, employee, product, and diversity). Additional analysis reveals that the positive association between target firms' CSR quality and acquisition premiums is stronger for high-CSR acquirers and larger targets. Overall, I combine the CSR and M&A literature by demonstrating that superior quality CSR performance affects acquisition premiums positively and thus expand our understanding of the value-driven role of CSR initiatives in a unique way.	2014	Environmental, Social, Governance
Discussion of "Equilibrium Earnings Management and Managerial Compensation in a Multiperiod Agency Setting" Author: Marinovic, Ivan Journal: Review of Accounting Studies Dutta and Fan (Rev Account Stud, 2014), this issue, study the implications of earnings management on managerial compensation, in a two-period LEN setting. They analyze the level as well as the evolution of compensation. Furthermore, they consider the possibility of joint moral hazard and adverse selection problems. I discuss the empirical implications of their analysis, in the context of a slightly more general dynamic setting, and examine the robustness of some of their results with respect to the assumption that the principal can enforce claw-backs.	2014	Governance
Tax Policy Issues in Designing a Carbon Tax Author: Marron, Donald B., and Eric T. Toder Journal: American Economic Review A carbon tax is a promising tool for discouraging the greenhouse gas emissions that cause climate change. In principle, a well-designed tax could reduce the risk of climate change, minimize the cost of emissions reductions, encourage innovation in low-carbon technologies, and raise new public revenue. But designing a real-world carbon tax poses significant challenges. We analyze those challenges from a public finance perspective, emphasizing three tax policy design issues: setting the tax rate, collecting the tax, and using the resulting revenue. The benefits of a carbon tax will depend on how policymakers address those issues.	2014	Environmental, Social
Selected International Aspects of Carbon Taxation Author: McLure Jr., Charles E. Journal: American Economic Review Disparate commitments to reduce GHG emissions create demands for border carbon adjustments (BCAs) to prevent negative competitive effects and carbon leakage. BCAs that accomplish economic objectives and are administratively feasible, WTO-legal, and politically acceptable may be impossible. BCAs should be limited to a few basic energy-intensive and trade-exposed products and should be based on the lower of the carbon content of production in the importing country and actual carbon content, or perhaps "best available technology." Whether the World Trade Organization (WTO) would condone BCAs is unclear. BCAs violating basic trade rules might qualify for a special exception.	2014	Environmental, Social
Managerial Incentives, Risk Aversion, and Debt Author: Milidonis, Andreas, and Konstantinos Stathopoulos Journal: Journal of Financial and Quantitative Analysis We investigate the risk choices of risk-averse CEOs. Following recent theoretical work, we expect CEO risk aversion to be more pronounced in firms with high leverage or high default probability. We find that the CEOs of these firms reduce firm risk, even in the presence of strong risk-taking incentives. Our results are robust to controls for the sensitivity of CEO wealth to stock price changes, firm risk determinants, the endogenous feedback effects of firm risk on CEO incentives, unobserved firm and market effects, and debt governance. The impact of CEO risk aversion is economically significant.	2014	Governance
An Investigation of How the Informal Communication of Firm Preferences Influences Managerial Honesty Author: Newman, Andrew H. Journal: Accounting, Organizations and Society This study investigates the effectiveness of informal firm communication at motivating managerial honesty. Specifically, it focuses on the effectiveness of informal cost targets, which communicate firms' specific cost preferences to managers without tying managers' compensation to reporting costs that meet those targets. I develop predictions about how the tightness of an informal cost target influences the effect that a cost target has on managers' reporting honesty. Using an experimental setting, I examine three levels of target tightness—loose, moderate, and tight—within a uniformly distributed cost range and where participants' financial incentives are to ignore the cost target and fully misreport their cost information. I find that both moderate and loose cost targets, on average, increase honesty relative to when the firm does not communicate a specific target or it communicates a tight target. Tight targets have no significant effect, positive or negative, on honesty. Whereas prior research focuses only on the potential benefits of firms communicating their general preferences, my study provides important insights regarding the potential incremental effectiveness of communicating specific preferences.	2014	Governance
What Death Can Tell: Are Executives Paid for their Contributions to Firm Value? Author: Nguyen, Bang Dang, and Kasper Meisner Nielsen Journal: Management Science Using stock price reactions to sudden deaths of top executives as a measure of expected contribution to shareholder value, we examine the relationship between executive pay and managerial contribution to shareholder value. We find, first, that the managerial labor market is characterized by positive sorting: managers with high perceived contributions to shareholder value obtain higher pay. The executive pay-contribution relationship is stronger for professional executives and for executives with high compensation. We estimate, second, that an average top executive (chief executive officer) appears to retain 71 percent (65 percent) of the marginal rent from the firm-manager relationship. We examine, third, how the executive pay-contribution relationship varies with individual, firm, and industry characteristics. Overall, our results are informative for the ongoing discussion about the level of executive compensation.	2014	Governance
Agency Conflicts and Cash: Estimates from a Dynamic Model Author: Nikolov, Boris, and Toni M. Whited Journal: Journal of Finance Which agency problems affect corporate cash policy? To answer this question, we estimate a dynamic model of finance and investment with three mechanisms that misalign managerial and shareholder incentives: limited managerial ownership of the firm, compensation based on firm size, and managerial perquisite consumption. We find that perquisite consumption critically impacts cash policy. Size-based compensation also matters, but less. Firms with lower blockholder and institutional ownership have higher managerial perquisite consumption, low managerial ownership is a key factor in the secular upward trend in cash holdings, and agency plays little role in small firms' substantial cash holdings.	2014	Governance
How Does a Firm's Management of Greenhouse Gas Emissions Influence its Economic Performance? Analyzing Effects Through Demand and Productivity in Japanese Manufacturing Firms Author: Nishitani, Kimitaka, Shinji Kaneko, Satoru Komatsu, and Hidemichi Fujii Journal: Journal of Productivity Analysis This paper analyzes how a firm's management of greenhouse gas (GHG) emissions affects its economic performance. The theoretical model we derive from Cobb-Douglas production and inverse demand functions predict that in conducting GHG emissions management, a firm will enhance its economic performance because it promotes an increase in demand for its output and improves its productivity. The estimation results, using panel data on Japanese manufacturing firms during the period 2007-2008, support the view that a firm's GHG emissions management enhances a firm's economic performance through an increase in demand and improvement in productivity. However, the latter effect is conditional. Although a firm's efforts to maintain lower GHG emissions improves productivity, efforts to reduce GHG emissions further does not always improve it, especially for energy-intensive firms. Because firms attempting to maintain lower GHG emissions are more likely to improve their productivity, there is a possibility that firms with high GHG emissions can also enhance economic performance by reducing their emissions in the long term, even if additional costs are incurred. In addition, better GHG emissions management increases the demand of environmentally conscious customers because a product's life cycle GHG emissions in the upper stream of the supply chain influence those in the lower stream, and customers evaluate the suppliers' GHG emissions management in terms of green supply-chain management.	2014	Environmental
Socially Responsible Funds and Market Crises Author: Nofsinger, John, and Abhishek Varma Journal: Journal of Banking & Finance Compared to matched conventional mutual funds, socially responsible mutual funds outperform during periods of market crises. This dampening of downside risk comes at the cost of underperforming during non-crisis periods. Investors seeking downside protection would value the asymmetry of these returns. This asymmetric return pattern is driven by the mutual funds that focus on environmental, social, or governance (ESG) attributes and is especially pronounced in ESG funds that use positive screening techniques. Furthermore, the observed patterns are attributed to the funds' socially responsible attributes and not the differences in fund portfolio management or the characteristics of the companies in fund portfolios.	2014	Environmental, Social, Governance
The Financial Effects of Uniform and Mixed Corporate Social Performance Author: Oikonomou, Ioannis, Chris Brooks, and Stephen Pavelin Journal: Journal of Management Studies Firms typically present a mixed picture of corporate social performance (CSP), with positive and negative indicators exhibited by the same firm. Thus, stakeholders' judgments of corporate social responsibility (CSR) typically evaluate positives in the context of negatives, and vice versa. Building on social judgment theory, we present two alternative accounts of how stakeholders respond to such complexity, which provide differing implications for the financial effects of CSP: reciprocal dampening and rewarding uniformity. Echoing notable findings on strategic consistency, our US panel study finds that firms that exhibit uniformly positive or uniformly negative indicators in particular dimensions of CSP outperform firms that exhibit a mixed picture of positives and negatives, which supports the notion that stakeholders' judgments of CSR reward uniformity.	2014	Environmental, Social, Governance
CEO Optimism and Incentive Compensation Author: Otto, Clemens A. Journal: Journal of Financial Economics I study the effect of chief executive officer (CEO) optimism on CEO compensation. Using data on compensation in US firms, I provide evidence that CEOs whose option exercise behavior and earnings forecasts are indicative of optimistic beliefs receive smaller stock option grants, fewer bonus payments, and less total compensation than their peers. These findings add to our understanding of the interplay between managerial biases and remuneration and show how sophisticated principals can take advantage of optimistic agents by appropriately adjusting their compensation contracts.	2014	Governance
The Boardroom's Quiet Revolution Author: Parsons, Richard D., and Marc A. Feigen Journal: Harvard Business Review In the past 10 years, under pressure from shareholders, stock exchanges, and state and federal governments, corporate boards have changed dramatically. For example, regulations require that a majority of directors be independent; independent directors regularly meet in executive sessions without the CEO; shareholders can review decisions by the compensation committee; and directors are required to attend meetings more often. But externally driven reforms have proved rather ineffectual when it comes to improving boards' managerial oversight. The authors interviewed two dozen directors from the boards they most admire and coupled the directors' insights with their own broad experience leading, serving on, and counseling boards. They present some striking innovations in four main categories: strategy and talent oversight, board composition, the quality of board discussions, and the board's relationship with the CEO. These innovations can help boards dramatically improve the governance of their enterprises.	2014	Governance
Structural Power Equality between Family and Non-Family TMT Members and the Performance of Family Firms Author: Patel, Pankaj C., and Danielle Cooper Journal: Academy of Management Journal The upper echelons of publicly traded family firms can comprise family members and non-family members. Due to ownership and control factors, family members often wield significant influence in the upper echelons. If non-family members lack sources of influence, they may exhibit lower participation. Limited participation by non-family members lowers access to and integration of knowledge from non-family members, thus lowering the ability to devise strategic actions that increase performance. Drawing on the structural basis of power, we set out that greater equality in structural power (or compensation, status, and representation) across family and non-family top management team members increases performance in family firms. Moreover, we posit that this relationship is stronger under increasing environmental dynamism and higher governance performance, but weaker under the presence of a founder CEO. Using a sample of 231 publicly traded family firms, representing 1,934 firm-year observations from 2001 to 2010 and controlling for endogeneity, we find support for these proposed relationships.	2014	Governance
The Effect of Corporate Social Performance on Financial Performance: The Moderating Effect of Ownership Concentration Author: Peng, Chih-Wei, and Mei-Ling Yang Journal: Journal of Business Ethics The purpose of this study is to extend prior research on this topic by investigating whether the impact of ownership concentration moderates the link between corporate social performance (CSP) and financial performance (FP). This study uses a set of unique, hand-collected pollution control data to measure CSP, based on a sample of Taiwanese listed companies during the period from 1996 to 2006. The results of the empirical analysis provide firm support for the idea that the divergence between control rights and the cash flow rights of controlling owners negatively moderates the link between social and short- and long-run FP.	2014	Environmental, Social, Governance
Managerial Incentives and Stock Price Manipulation Author: Peng, Lin, and Ailsa Roell Journal: Journal of Finance We present a rational expectations model of optimal executive compensation in a setting where managers are in a position to manipulate short-term stock prices and the manipulation propensity is uncertain. We analyze the tradeoffs involved in conditioning pay on long- versus short-term performance and show how manipulation, and investors' uncertainty about it, affects the equilibrium pay contract and the informativeness of prices. Firm and manager characteristics determine the optimal compensation scheme: the strength of incentives, the pay horizon, and the use of options. We consider how corporate governance and disclosure regulations can help create an environment that enables better contracting.	2014	Governance
The Executive Turnover Risk Premium Author: Peters, Florian S., and Alexander F. Wagner Journal: Journal of Finance We establish that CEOs of companies experiencing volatile industry conditions are more likely to be dismissed. At the same time, accounting for various other factors, industry risk is unlikely to be associated with CEO compensation other than through dismissal risk. Using this identification strategy, we document that CEO turnover risk is significantly positively associated with compensation. This finding is important because job-risk-compensating wage differentials arise naturally in competitive labor markets. By contrast, the evidence rejects an entrenchment model according to which powerful CEOs have lower job risk and at the same time secure higher compensation.	2014	Governance
Capital is Back: Wealth-Income Ratios in Rich Countries 1700-2010 Author: Piketty , Thomas, and Gabriel Zucman Journal: Quarterly Journal of Economics How do aggregate wealth-to-income ratios evolve in the long run and why? We address this question using 1970-2010 national balance sheets recently compiled in the top eight developed economies. For the United States, United Kingdom, Germany, and France, we are able to extend our analysis as far back as 1700. We find in every country a gradual rise of wealth-income ratios in recent decades, from about 200-300 percent in 1970 to 400-600 percent in 2010. In effect, today's ratios appear to be returning to the high values observed in Europe in the eighteenth and nineteenth centuries (600-700 percent). This can be explained by a long-run asset price recovery (itself driven by changes in capital policies since the world wars) and by the slowdown of productivity and population growth, in line with the Harrod-Domar-Solow formula. That is, for a given net saving rate s = 10 percent, the long-run wealth-income ratio B is about 300 percent if g = 3 percent and 600 percent if g = 1.5 percent. Our results have implications for capital taxation and regulation and shed new light on the changing nature of wealth, the shape of the production function, and the rise of capital shares.	2014	Social
Capital in the Twenty-First Century Author: Piketty, Thomas Journal: Book What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. In Capital in the Twenty-First Century, Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. Piketty shows that modern economic growth and the diffusion of knowledge have allowed us to avoid inequalities on the apocalyptic scale predicted by Karl Marx. But we have not modified the deep structures of capital and inequality as much as we thought in the optimistic decades following World War II. The main driver of inequality — the tendency of returns on capital to exceed the rate of economic growth — today threatens to generate extreme inequalities that stir discontent and undermine democratic values. But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again.	2014	Social
Inequality in the Long Run Author: Piketty, Thomas Journal: Science Magazine This review presents basic facts regarding the long-run evolution of income and wealth inequality in Europe and the United States. Income and wealth inequality was very high a century ago, particularly in Europe, but dropped dramatically in the first half of the 20th century. Income inequality has surged back in the United States since the 1970s so that the United States is much more unequal than Europe today. We discuss possible interpretations and lessons for the future.	2014	Social
Financial Performance of Socially Responsible Investing (SRI): What Have We Learned? A Meta-Analysis Author: Revelli, Christophe, and Jean-Laurent Viviani Journal: Business Ethics: A European Review With a meta-analysis of 85 studies and 190 experiments, the authors test the relationship between socially responsible investing (SRI) and financial performance to determine whether including corporate social responsibility and ethical concerns in portfolio management is more profitable than conventional investment policies. The study also analyses the influence of researcher methodologies with respect to several dimensions of SRI (markets, financial performance measures, investment horizons, SRI thematic approaches, family investments and journal impact) on the effects identified. The results indicate that the consideration of corporate social responsibility in stock market portfolios is neither a weakness nor a strength compared with conventional investments; the heterogeneous results in prior studies largely reflect the SRI dimensions under study (e.g. thematic approach, investment horizon and data comparison method).	2014	Environmental, Social, Governance
Framing Controversial Actions: Regulatory Focus, Source Credibility, and Stock Market Reaction to Poison Pill Adoption Author: Rhee, Eunice Y., and Peer C. Fiss Journal: Academy of Management Journal We contribute to the research on organizational accounts by examining the role of different framing languages and the credibility of the frame articulator on justifying controversial organizational actions. Drawing on regulatory focus theory and the literature on source credibility, we develop novel arguments as to how a gains-versus-nonlosses framing and the perceived credibility of the speaker influence stakeholder responses, as well as how the effectiveness of these aspects is influenced by context. We test our arguments using data on the framing of the adoption of "poison pills" by U.S. firms between 1983 and 2008. Using content analysis and an event study, we find that a gains framing aligned with the dominant institutional logic leads to a positive stock market reaction, while statements emanating from speakers with potentially self-serving interests negatively affect the stock market reaction. Our findings further show that the effectiveness of framing and source credibility are dependent on contextual attributes such as speaker visibility, prior performance, and practice prevalence.	2014	Governance
Will Disclosure of Friendship Ties between Directors and CEOs Yield Perverse Effects? Author: Rose, Jacob M., Anna M. Rose, Carolyn Strand Norman, and Cheri R. Mazza Journal: The Accounting Review Our paper examines three related questions: Will directors who have friendship ties with the CEO manage earnings to benefit the CEO in the short term while potentially sacrificing the welfare of the company in the long term? Will public disclosure of friendship ties mitigate or exacerbate such behavior, and will disclosure of friendship ties influence investors' perceptions of director decisions? We conduct an experiment involving 56 active and experienced corporate directors from U.S. firms and a second experiment with M.B.A. students. We find that friendship ties caused directors to be more willing to approve reductions to research and development (R&D) expenses that cause earnings to rise enough to meet the CEO's minimum bonus target more often than when the directors and CEO were not friends. However, disclosing friendship ties resulted in even greater reductions in R&D expenses and higher CEO bonuses than not disclosing friendship ties. In a second experiment, we find that shareholders were more likely to agree with directors' decisions to approve cuts to R&D when friendship ties were disclosed. These findings have potentially important implications for corporate governance because they suggest that friendship ties between the CEO and board members can impair the directors' independence and objectivity, and that disclosure of the relationships can worsen this effect.	2014	Governance
Corporate Governance and Innovation: Theory and Evidence Author: Sapra, Haresh, Ajay Subramanian, and Krishnamurty V. Subramanian Journal: Journal of Financial and Quantitative Analysis We develop a theory to show how external and internal corporate governance mechanisms affect innovation. We predict a U-shaped relation between innovation and external takeover pressure, which arises from the interaction between expected takeover premia and private benefits of control. Using ex ante and ex post innovation measures, we find strong empirical support for the predicted relation. We exploit the variation in takeover pressure created by the passage of antitakeover laws across different states. Innovation is fostered either by an unhindered market for corporate control or by antitakeover laws that are severe enough to effectively deter takeovers.	2014	Governance
On Melting Summits: The Limitations of Field-Configuring Events As Catalysts of Change in Transnational Climate Policy Author: Schussler, Elke, Charles-Clemens Ruling, and Bettina B.F. Wittneben Journal: Academy of Management Journal Although field-configuring events have been highlighted as catalysts of institutional change, scholars still know little about the specific conditions that allow such change to occur. Using data from a longitudinal study of United Nations climate conferences, we analyze how regular and high- stakes events in an event series interacted in producing and preventing institutional change in the transnational climate policy field. We uncover variations in event structures, processes, and outcomes that explain why climate conferences have not led to effective solutions to combat human- induced global warming. Results in particular highlight that growing field complexity and issue multiplication compromise the change potential of a field-configuring event series in favor of field maintenance. Over time, diverse actors find event participation useful for their own purposes, but their activity is not connected to the institutions at the center of the issue-based field. In discussing how events configuring a field are purposefully staged and enacted but also influenced by developments in the field, our study contributes to a more complete understanding of field-configuring events, particularly in contested transnational policy arenas.	2014	Environmental
Why Do Managers Act Fairly in the First Place? A Daily Investigation of "Hot" and "Cold" Motives and Discretion Author: Scott, Brent A., Adela S. Garza, Donald E. Conlon, and You Jin Kim Journal: Academy of Management Journal Although considerable research has focused on employee reactions to organizational justice, far less research has examined why managers adhere to rules of justice in the first place. Taking a proactive approach to organizational justice, we address this void by examining managerial motives for adhering to distributive, procedural, informational, and interpersonal rules of justice on a day-to-day basis. Results of an experience-sampling study of 90 managers who completed daily surveys over a three-week period revealed that both "cold" cognitive (i.e., effecting compliance, identity maintenance, and establishing fairness) and "hot" affective (i.e., high positive affect and low negative affect) motives were associated with managerial adherence to justice rules. Moreover, "cold" motives were more strongly associated with justice rule adherence for justice dimensions over which managers perceived less discretion, while "hot" motives were more strongly associated with justice rule adherence for justice dimensions over which managers perceived greater discretion. We discuss the implications of our findings for both theory and practice.	2014	Governance
Investors' Reaction to the Use of Poison Pills As a Tax Loss Preservation Tool Author: Sikes, Stephanie A., Siaoli Tian, and Ryan Wilson Journal: Journal of Accounting and Economics The recent economic downturn resulted in firms generating significant tax losses, which they risked losing if they experienced an ownership change. In response, a number of loss firms adopted poison pill plans. We document a significant negative market reaction to the announcement of 62 poison pill adoptions related to net operating losses (NOLs), suggesting that in general investors do not consider management's claim that the pills are adopted to preserve a valuable tax asset to be credible. However, we find cross-sectional variation consistent with investors considering whether a pill is legitimately adopted to preserve the NOL or to entrench management.	2014	Governance
Antitakeover Provisions and Shareholder Wealth: A Survey of the Literature Author: Straska, Miroslava, and H. Gregory Waller Journal: Journal of Financial and Quantitative Analysis We survey theoretical and empirical research on antitakeover provisions, focusing on the relation between antitakeover provisions and shareholder value. We divide the empirical studies based upon the evidence that they provide: short-term event studies, studies on performance and policy changes around adopting antitakeover provisions or passing state antitakeover laws, studies on the impact of antitakeover provisions on takeovers, studies on the relation between antitakeover provisions and firm characteristics, and long-term studies on the relation between antitakeover provisions and firm performance or policies. We also discuss the place of antitakeover provisions in the current debate about "good governance" practices.	2014	Governance
On Not Revisiting Official Discount Rates: Institutional Inertia and the Social Cost of Carbon Author: Sunstein, Cass R. Journal: American Economic Review Within the federal government, official decisions are a product of both substantive judgments and institutional constraints. With respect to discounting, current practice is governed by OMB Circular A-4 and the 2010 and 2013 technical support documents of the Interagency Working Group on the Social Cost of Carbon. Reconsideration of existing judgments must be subjected to a demanding process of internal review (and potentially to external review as well). Institutional constraints, including the need to obtain consensus, can impose obstacles to efforts to rethink existing practices, especially in an area like discounting, which is at once technical and highly controversial. Both decisions costs and error costs must be considered.	2014	Environmental, Social
The Role of Stock Ownership by US Members of Congress on the Market for Political Favors Author: Tahoun, Ahmed Journal: Journal of Financial Economics I examine whether stock ownership by politicians helps to enforce noncontractible quid pro quo relations with firms. The ownership by US Congress members in firms contributing to their election campaigns is higher than in noncontributors. This bias toward contributors depends on the financial incentives of politicians and the relation's value. Firms with a stronger ownership-contribution association receive more government contracts. The financial gains from these contracts are economically large. When politicians divest stocks, firms discontinue contributions to the politicians, lose future contracts, and perform poorly. Politicians divest the stocks in contributors, but not in noncontributors, in anticipation of retirement.	2014	Governance
Big Data Investment, Skills, and Firm Value Author: Tambe, Prasanna Journal: Management Science This paper analyzes how labor market factors have shaped early returns on big data investment using a new data source — the LinkedIn skills database. The data source enables firm-level measurement of the employment of workers with technical skills such as Hadoop, MapReduce, and Apache Pig. From 2006 to 2011, Hadoop investments were associated with 3 percent faster productivity growth, but only for firms (a) with significant data assets and (b) in labor markets where similar investments by other firms helped to facilitate the development of a cadre of workers with complementary technical skills. The benefits of labor market concentration decline for investments in mature data technologies, such as Structured Query Language-based databases, for which the complementary skills can be acquired by workers through universities or other channels. These findings underscore the importance of geography, corporate investment, and skill acquisition channels for explaining productivity growth differences during the spread of new information technology innovations.	2014	Governance
Board Monitoring and Endogenous Information Asymmetry Author: Tian, Jie Joyce Journal: Contemporary Accounting Research Boards of directors are frequently questioned pertaining to their monitoring role in executive decision making and compensation. The sequence of financial fraud in the early 2000s called public attention that boards have not done enough to align executive incentives with shareholders' interests. Following the recent credit crisis, boards are again urged to tighten up their monitoring function, especially in risky investment decisions. At the same time, boards are criticized for inadequate monitoring of executive compensation; for example, the pay-performance relationship for the chief executive officer (CEO) is set too weak to provide incentives for the CEO to take appropriate actions. Since shareholders do not normally observe executives' actions and may not even know what actions executives should have taken to maximize shareholder value, increasing board effort to reduce such information asymmetry is commonly viewed as desirable. The present study challenges this common view that increasing board effort in monitoring is always desirable.	2014	Governance
Rethinking Governance in Management Research (From the Editors) Author: Tihanyi, Laszlo, Scott Graffin, and Gerard George Journal: Academy of Management Journal In the field of management, the study of governance has primarily dealt with decision-making by boards of directors, chief executives, and senior managers. The corporate governance literature has generated important insights regarding incentive alignment, risk taking, and coordination challenges. Emerging trends, highlighted in this issue, raise new questions regarding managerial roles, organizational contexts, internal and social processes, and changes in governance over time. We encourage management scholars to rethink their approach to governance research by considering stakeholder engagement, the implications of big data, social impact, global dimensions, and comparative analysis of governance. A broadened conceptualization of governance may also deal with the dynamics of interorganizational arrangements, including the co-creation of organizations of varying governance forms.	2014	Governance
The Idealized Electoral College Voting Mechanism and Shareholder Power Author: Van Wesep, Edward D. Journal: Journal of Financial Economics Increasing concern over corporate governance has led to calls for more shareholder influence over corporate decisions, but allowing shareholders to vote on more issues may not affect the quality of governance. We should expect instead that, under current rules, shareholder voting will implement the preferences of the majority of large shareholders and management. This is because majority rule offers little incentive for small shareholders to vote. I offer a potential remedy in the form of a new voting rule, the Idealized Electoral College (IEC), modeled on the American Electoral College, that significantly increases the expected impact that a given shareholder has on election. The benefit of the mechanism is that it induces greater turnout, but the cost is that it sometimes assigns a winner that is not preferred by a majority of voters. Therefore, for issues on which management and small shareholders are likely to disagree, the IEC is superior to majority rule.	2014	Governance
Can Shareholder Activism Improve Gender Diversity on Corporate Boards? Author: Wiedman, Christine I., and Carol A. Marquardt Journal: Working Paper We empirically examine the antecedents of shareholder activism related to increasing the gender diversity of corporate boards of directors (BOD) and whether such activism is an effective mechanism for achieving this goal. Because both ethical and economic considerations may drive campaigns for increased gender diversity, we condition our analysis on activists' motivations for achieving their objectives. Based on a sample of S&P 1500 firms over 1997-2011, we find that female board representation and board independence are negatively associated the likelihood of being targeted by a shareholder proposal related to gender diversity while firm size and profitability are positively associated. We further document that financially-motivated activists are more likely to target firms with extremely low female board representation than are socially-motivated activists. Targeted firms significantly increase their female board representation in the two-year period following proposal initiation, relative to that of a matched sample of non-targeted firms, with no differences observed across activist motivations. We conclude that shareholder proposals are an effective means of improving the gender diversity of corporate BODs in U.S. firms.	2014	Social
Resilience in a Hotter World Author: Winston, Andrew Journal: Harvard Business Review As the planet warms, storms and floods are becoming wilder--killing thousands, disrupting supply chains and power grids, and causing billions of dollars in damage. Meanwhile, supplies of all kinds of resources are dwindling, and demand is rising. These two megachallenges — extreme weather and resource scarcity — could have an unprecedented impact on corporate profits and global prosperity, warns Winston. To manage these threats, companies must do what he calls "the big pivot." The big pivot represents a radical change in strategy, operations, and mind-set. Instead of focusing first on short-term earnings and treating environmental challenges as niche issues, firms must prioritize tackling the world's big problems and use the tools of capitalism to do so profitably. That means taking new approaches to vision, valuation, and collaboration: Companies must set long-term goals based on science and pursue innovations that seem heretical (dyes that don't need water, say, or services that replace products). They'll need new ROI tools that factor in unpriced costs and benefits. And they'll have to work with other organizations, including competitors, to reduce resource dependency (for instance, sharing methods for reducing energy use). By making these moves, firms will increase their resilience to volatile resource prices, electrical outages, and shifts in customer needs. They will improve business performance while advancing the common good.	2014	Governance
The Impact of Corporate Environmental Violation on Shareholders' Wealth: A Perspective Taken from Media Coverage Author: Xu, X. D., S. X. Zeng, H. L. Zou, and Jonathan J. Shi Journal: Business Strategy and the Environment This study provides empirical evidence of the way in which media coverage of corporate environmental violation events affects shareholders' wealth due to stock market reactions. Data relating to the media coverage of the environmental violations of 173 publically traded companies in China, gathered using web crawler technology, were analyzed through multi-dimensional variables with the purpose of examining the impact of media coverage on stock market reactions in terms of cumulative abnormal return (CAR) under different event windows based on the methodology of event study. The variables include the intensity of media coverage, media information sources, disclosure mode, media newsworthiness, violation entity, whether the company is punished by the government, whether the company makes a clarification and whether the company is ISO 14001 certified. The results obtained reveal that media coverage affects the market values of the event companies to some extent, and that those companies that attract high levels of media attention generally see greater losses in their shareholders' wealth. Copyright © 2014 John Wiley & Sons, Ltd and ERP Environment.	2014	Environmental
The Role of Board Gender on the Profitability of Insider Trading Author: Zhong, Tian, Robert Faff, Allan Hodgson, and Lee J. Yao Journal: International Journal of Accounting & Information Management Purpose — The purpose of this paper is to examine the impact of female board membership on the profitability of corporate insider purchases. Design/methodology/approach - The authors use a classic event study approach. They measure abnormal returns around the insider purchase events, and analyze the cross-sectional variation of this market impact in terms of female board membership, controlling for a range of other factors. Findings - The authors find a strong positive market reaction in the aggregated data, and after decomposing transactions according to gender, they find that the profitability of female directors is statistically indistinguishable from their male counterparts. Additionally, they find evidence that with more females sitting on the board, the profitability of the male directors decreases but the profitability of their female counterparts does not. Originality/value - The authors' findings suggest that having females on the board increases corporate governance of male directors. The results also suggest that female directors are no less inclined to exploit the asymmetric information advantage provided by board membership.	2014	Social
How Directors' Prior Experience With Other Demographically Similar CEOs Affects their Appointments onto Corporate Boards and the Consequences for CEO Compensation Author: Zhu, David H., and James D. Westphal Journal: Academy of Management Journal In recent years, new director appointments have increasingly posed a dilemma for corporate leaders: while CEOs prefer individuals who have similar backgrounds to them, they face increased pressure to appoint new directors who have a different demographic profile. We suggest that CEOs may resolve this dilemma by appointing new directors who have prior experiences working with other demographically similar CEOs. We then explain why this tendency is stronger when new directors are demographically more different from CEOs. Moreover, we posit that new directors' prior experiences with other similar CEOs will reduce the negative effect of their demographic differences from the CEO on CEO compensation. Longitudinal analysis of Fortune 500 companies' new director appointments and subsequent CEO compensation provided support for our theoretical expectations. This study identifies an important new role that interlock ties to other CEOs can play in corporate governance and leadership. In particular, we suggest that such ties are a means by which CEOs evaluate whether a new director will support their leadership and decision making. In explaining the role of directors' ties to other CEOs in influencing director appointments and CEO compensation, this study also highlights the important influence of triads on CEO-director dyadic relations.	2014	Governance
Recategorization into the In-group: The Appointment of Demographically Different New Directors and their Subsequent Positions on Corporate Boards Author: Zhu, David H., Wei Shen, and Amy J. Hillman Journal: Administrative Science Quarterly This study advances a recategorization perspective to explain how an increasing number of directors have successfully obtained major board appointments and played important roles on boards despite their demographic differences from incumbent directors. We theorize and show that existing directors tend to select a demographically different new director who can be recategorized as an in-group member based on his or her similarities to them on other shared demographic characteristics. We further explain how a new director's prior social ties to existing directors strengthen this recategorization process and posit that recategorization increases demographically different directors' tenures and likelihood of becoming board committee members and chairs. Results from analyses of Fortune 500 boards from 1994 to 2006 provide strong support for our theory. This study suggests that increased board diversity on some demographic characteristics is associated with reduced diversity on others. It also suggests that some demographic characteristics, such as gender and ethnicity, would be more salient during the recategorization process than other characteristics. As a result, female and ethnic minority directors would need to be more similar to incumbents along shared dimensions than other demographically different directors (such as a young director) for them to be recategorized into the in-group.	2014	Governance
Innovation and Institutional Ownership Author: Aghion, Philippe, John Van Reenen, and Luigi Zingales Journal: American Economic Review We find that greater institutional ownership is associated with more innovation. To explore the mechanism, we contrast the "lazy manager" hypothesis with a model where institutional owners increase innovation incentives through reducing career risks. The evidence favors career concerns. First, we find complementarity between institutional ownership and product market competition, whereas the lazy manager hypothesis predicts substitution. Second, CEOs are less likely to be fired in the face of profit downturns when institutional ownership is higher. Finally, using instrumental variables, policy changes, and disaggregating by type of institutional owner, we argue that the effect of institutions on innovation is causal.	2013	Governance
The Impact of Investor Protection Law on Corporate Policy and Performance: Evidence from the Blue Sky Laws Author: Agrawal, Ashwini K. Journal: Journal of Financial Economics Recent studies have debated the impact of investor protection law on corporate behavior and value. I exploit the staggered passage of state securities fraud statutes ("blue sky laws") in the United States to estimate the causal effects of investor protection law on firm financing decisions and investment activity. The statutes induce firms to increase dividends, issue equity, and grow in size. The laws also facilitate improvements in operating performance and market valuations. Overall, the evidence is strongly supportive of theoretical models that predict investor protection law has a significant impact on corporate policy and performance.	2013	Governance
Does Environmental Management Improve Financial Performance? A Meta-Analytical Review Author: Albertini, Elisabeth Journal: Organization & Environment The relationship between corporate environmental performance and financial performance has received a high degree of attention in research literature and the results are still contradictory. Most of the findings have shown that environmental performance improves financial performance while others have suggested that the relationship is neutral or even negative. Our article integrates prior research studying this relationship and identifies the potential moderators that may have played a role in the apparent inconsistent results observed to date. We conducted a meta-analysis of 52 studies over a 35-year period that confirms a positive relationship between environmental performance and financial performance. Moderators' analysis reveals that the relationship is significantly influenced by the environmental and financial performance measures, the regional differences, the activity sector and the duration of the studies. After discussing the theoretical and managerial implications, this meta-analysis tries to answer the question: "When and how does it pay to be green?"	2013	Environmental
Peer Choice in CEO Compensation Author: Albuquerque, Ana M., Gus De Franco, and Rodrigo S. Verdi Journal: Journal of Financial Economics Current research shows that firms are more likely to benchmark against peers that pay their Chief Executive Officers (CEOs) higher compensation, reflecting self serving behavior. We propose an alternative explanation: the choice of highly paid peers represents a reward for unobserved CEO talent. We test this hypothesis by decomposing the effect of peer selection into talent and self serving components. Consistent with our prediction, we find that the association between a firm's selection of highly paid peers and CEO pay mostly represents compensation for CEO talent.	2013	Governance
The Value of Local Political Connections in a Low-Corruption Environment Author: Amore, Mario Daniele, and Morten Bennedsen Journal: Journal of Financial Economics We use exogenous changes in Danish local municipality sizes to identify a large positive effect of political power on the profitability of firms related by family to local politicians. Our difference-in-differences estimate is consistent with a unitary elasticity of connected firms' performance to political power (as measured by population per elected politician). Increasing power boosts firms' operating returns, especially in industries relying heavily on public demand. Focusing on arguably the world's least corrupt country, we highlight the importance of corporate rent seeking at local governmental levels, which account for nearly half of total public expenditures.	2013	Governance
The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans Author: Armstrong, Christopher S, Ian D. Gow, and David F. Larcker Journal: Journal of Accounting Research This study examines the effects of shareholder support for equity compensation plans on subsequent CEO compensation. Using cross-sectional regression, instrumental variable, and regression discontinuity research designs, we find little evidence that either lower shareholder voting support for, or outright rejection of, proposed equity compensation plans leads to decreases in the level or composition of future CEO incentive compensation. We also find that, in cases where the equity compensation plan is rejected by shareholders, firms are more likely to propose, and shareholders are more likely to approve, a plan the following year. Our results suggest that shareholder votes for equity pay plans have little substantive impact on firms' incentive compensation policies. Thus, recent regulatory efforts aimed at strengthening shareholder voting rights, particularly in the context of executive compensation, may have limited effect on firms' compensation policies.	2013	Governance
Do Hostile Takeovers Stifle Innovation? Evidence from Antitakover Legistlation and Corporate Patenting Author: Atanassov, Julian Journal: Journal of Finance I examine how strong corporate governance proxied by the threat of hostile takeovers affects innovation and firm value. I find a significant decline in the number of patents and citations per patent for firms incorporated in states that pass antitakeover laws relative to firms incorporated in states that do not. Most of the impact of antitakeover laws on innovation occurs 2 or more years after they are passed, indicating a causal effect. The negative effect of antitakeover laws is mitigated by the presence of alternative governance mechanisms such as large shareholders, pension fund ownership, leverage, and product market competition.	2013	Governance
Firm Value and the Quality of Sustainability Reporting in Australia Author: Bachoo, Kaveen, Rebecca Tan, and Mark Wilson Journal: Australian Accounting Review This paper investigates the relationship between firm value and the quality of Australian listed corporations' sustainability reporting. We examine whether firms that make higher-quality sustainability disclosures exhibit systematically higher equity prices, through either (or both) cost of capital or expected future performance effects. Using proprietary data obtained from a specialist responsible investment research firm, we document a significant negative association between quality sustainability reporting and the cost of equity capital for ASX 200 firms from 2003-2005, and a significant positive association between expected future performance and the quality of sustainability reporting. We also test for industry-specific associations and find that our main results are driven heavily by the reporting behaviour of, and market response to, firms in environmentally sensitive industries.	2013	Environmental, Social, Governance
The Separation of Ownership and Control and Corporate Tax Avoidance Author: Badertscher, Brad A., Sharon P. Katz, and Sonja O. Rego Journal: Journal of Accounting and Economics We examine whether variation in the separation of ownership and control influences the tax practices of private firms with different ownership structures. Fama and Jensen (1983) assert that when equity ownership and corporate decision-making are concentrated in just a small number of decision-makers, these owner-managers will likely be more risk averse and thus less willing to invest in risky projects. Because tax avoidance is a risky activity that can impose significant costs on a firm, we predict that firms with greater concentrations of ownership and control, and thus more risk averse managers, avoid less income tax than firms with less concentrated ownership and control. Our results are consistent with these expectations. However, we also consider a competing explanation for these findings. In particular, we examine whether certain private firms enjoy lower marginal costs of tax planning, which facilitate greater income tax avoidance. Our results are consistent with the marginal costs of tax avoidance and the separation of ownership and control both influencing corporate tax practices.	2013	Governance
Employment Protection Legislation, Adjustment Costs and Cross-Country Differences in Cost Behavior Author: Banker, Rajiv D., Dmitri Byzalov, and Lei (Tony) Chen Journal: Journal of Accounting and Economics Central to the economic theory of sticky costs is the proposition that managers consider adjustment costs when changing resource levels. We test this proposition using employment protection legislation (EPL) provisions in different countries as a proxy for labor adjustment costs. Using a large sample of firms in 19 OECD countries during 1990-2008, we find that the degree of cost stickiness at the firm level varies with the strictness of the country-level EPL provisions. This finding supports the theory that cost stickiness reflects the deliberate resource commitment decisions of managers in the presence of adjustment costs.	2013	Social
The Relation between CEO Compensation and Past Performance Author: Banker, Rajiv D., Masako N. Darrough, Rong Huang, and Jose M. Plehn-Dujowich Journal: The Accounting Review This study focuses on the relation between current compensation and past performance measures as signals of a chief executive officer's (CEO's) ability. We develop a simple two-period principal-agent model with moral hazard and adverse selection and test theoretical predictions using CEO compensation data from 1993-2006. Consistent with the predictions, we find that salary (bonus) is positively (negatively) associated with past performance for both continuing and newly hired CEOs. We also find that while current salary is positively associated with future performance, current bonus is not. As the model suggests, salary is adjusted to meet the reservation utility and information rent, and is positively correlated over time to reflect ability. Bonus serves to address moral hazard and adverse selection by separating high-ability agents into riskier contracts. Our results indicate that it is important to disaggregate cash compensation into salary and bonus components to understand the dynamic interaction between incentives and performance.	2013	Governance
Cross-Country Differences in Productivity: The Role of Allocation and Selection Author: Bartelsman, Eric, John Haltiwanger, and Stefano Scarpetta Journal: American Economic Review This paper investigates the effect of idiosyncratic (firm-level) policy distortions on aggregate outcomes. Exploiting harmonized firm-level data for a number of countries, we show that there is substantial and systematic cross-country variation in the within-industry covariance between size and productivity. We develop a model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and distortions. The model can be readily calibrated so that variations in the distribution of distortions allow matching the observed cross-country moments. We show that the differences in the distortions that account for the size-productivity covariance imply substantial differences in aggregate performance.	2013	Governance
Financial Reporting for Employee Stock Options: Liabilities or Equity? Author: Barth, Mary E., Leslie D. Hodder, and Stephen R. Stubben Journal: Review of Accounting Studies This study seeks to determine whether employee stock options share key characteristics of liabilities or equity. Consistent with warrant pricing theory, we find that common equity risk and expected return are negatively associated with the extent to which a firm has outstanding employee stock options, which is opposite to the association for liabilities. We also find the following. (1) The association is positive for firms that reprice options and less negative for firms that have options with longer remaining terms to maturity, which indicates that some employee stock options have characteristics that make them more similar to liabilities. (2) Leverage measured based on treating options as equity has a stronger positive relation with common equity risk than leverage measured based on treating options as liabilities. (3) The sensitivity of employee stock option value to changes in asset value mirrors that of common equity value and is opposite to that of liability value. Also, we find that, unlike liabilities, employee stock options have substantially higher risk and expected return than common equity. Our findings are not consistent with classifying employee stock options as liabilities for financial reporting if classification were based on the directional association of a claim with common equity risk and expected return. Rather, our findings suggest the options act more like another type of equity.	2013	Governance
Extreme Wage Inequality: Pay at the Very Top Author: Bell, Brian D., and John Van Reenen Journal: American Economic Review We provide new evidence on the growth in pay at the very top of the wage distribution in the United Kingdom. Sectoral decompositions show that workers in the financial sector have accounted for the majority of the gains at the top over the last decade. New results are also presented on the pay of CEOs in the United Kingdom. We show how improved measurement of pay points to a stronger pay-performance link than previously estimated. This link is stronger, and more symmetric, for those firms in which institutional investors play a larger role.	2013	Social
CEO Compensation Contagion: Evidence from an Exogenous Shock Author: Bereskin, Frederick L., and David C. Cicero Journal: Journal of Financial Economics We examine how Chief Executive Officer (CEO) compensation increased at a subset of firms in response to a governance shock that affected compensation levels at other firms in the economy. We first show that Delaware-incorporated firms with staggered boards and no outside blockholders increased CEO compensation following the mid-1990s Delaware legal cases that strengthened their ability to resist hostile takeovers. Consistent with the Gabaix and Landier (2008) contagion hypothesis, non-Delaware firms subsequently increased CEO compensation when the rulings affected a substantial number of firms in their industries. We further show how these legal developments contributed significantly to the rapid increase in CEO compensation in the late 1990s.	2013	Governance
Raising Companies' Profile With Corporate Social Performance: Variations in Investor Recognition and Liquidity Linked to VIGEO CSP Rating Disclosures Author: Bertrand, Philippe, Alexis Guyot, and Vincent Lapointe Journal: Working paper This paper examines whether the initiation of Vigeo Corporate Social Performance (CSP) rating impacts company profiles. Using a sample of European listed firms, we confirm that there is a positive and significant relationship between CSP rating and a firm's liquidity and investor base. Consistent with the neglected stock effect, this relationship is sensitive to firm size. Our results have important implications for practitioners. Firstly, investment in Corporate Social Responsibility (CSR) could represent an alternative method of improving a company's stock market quality alongside liquidity provider contracting or market listing transfer. Secondly, when a firm's board investigates the opportunity to invest in CSR, it should consider the benefits of lowering the company's cost of capital through the aforementioned liquidity effect. Finally, from an asset manager's perspective, any change in CSP should be taken into account, as it can affect company valuation and therefore portfolio performance.	2013	Environmental, Social, Governance
Director Ownership, Governance, and Performance Author: Bhagat, Sanjai, and Brian Bolton Journal: Journal of Financial and Quantitative Analysis We study the impact of the Sarbanes-Oxley Act on the relationship between corporate governance and company performance. We consider 5 measures of corporate governance during the period 1998-2007. We find a significant negative relationship between board independence and operating performance during the pre-2002 period, but a positive and significant relationship during the post-2002 period. Our most important contribution is a proposal of a governance measure, namely, dollar ownership of the board members, that is simple, intuitive, less prone to measurement error, and not subject to the problem of weighting a multitude of governance provisions in constructing a governance index.	2013	Governance
Exit As Governance: An Empirical Analysis Author: Bharath, Sreedhar T., Sudarshan Jayaraman, and Venkey Nagar Journal: Journal of Finance Recent theory posits a new governance channel available to blockholders: threat of exit. Threat of exit, as opposed to actual exit, is difficult to measure directly. However, a crucial property is that it is weaker when stock liquidity is lower and vice versa. We use natural experiments of financial crises and decimalization as exogenous shocks to stock liquidity. Firms with larger blockholdings experience greater declines (increases) in firm value during the crises (decimalization), particularly if the manager's wealth is sensitive to the stock price and thus to exit threats. Additional tests suggest exit threats are distinct from blockholder intervention.	2013	Governance
The Pay of Corporate Executives and Financial Professionals As Evidence of Rents in Top 1 Percent Incomes Author: Bivens, Josh, and Lawrence Mishel Journal: Journal of Economic Perspectives The debate over the extent and causes of rising inequality of American incomes and wages has now raged for at least two decades. In this paper, we will make four arguments. First, the increase in the incomes and wages of the top 1 percent over the last three decades should be interpreted as driven largely by the creation and/or redistribution of economic rents, and not simply as the outcome of well-functioning competitive markets rewarding skills or productivity based on marginal differences. This rise in rents accruing to the top 1 percent could be the result of increased opportunities for rentshifting, increased incentives for rent-shifting, or a combination of both. Second, this rise in incomes at the very top has been the primary impediment to having growth in living standards for low- and moderate-income households approach the growth rate of economy-wide productivity. Third, because this rise in top incomes is largely driven by rents, there is the potential for checking (or even reversing) this rise through policy measures with little to no adverse impact on overall economic growth. Lastly, this analysis suggests two complementary approaches for policymakers wishing to reverse the rise in the top 1 percent's share of income: dismantling the institutional sources of their increased ability to channel rents their way and/or reducing the return to this rent-seeking by significantly increasing marginal rates of taxation on high incomes.	2013	Social
Does Management Matter? Evidence from India Author: Bloom, Nicholas, Benn Eifert, Aprajit Mahajan, David McKenzie, and John Roberts Journal: Quarterly Journal of Economics A long-standing question is whether differences in management practices across firms can explain differences in productivity, especially in developing countries where these spreads appear particularly large. To investigate this, we ran a management field experiment on large Indian textile firms. We provided free consulting on management practices to randomly chosen treatment plants and compared their performance to a set of control plants. We find that adopting these management practices raised productivity by 17 percent in the first year through improved quality and efficiency and reduced inventory, and within three years led to the opening of more production plants. Why had the firms not adopted these profitable practices previously? Our results suggest that informational barriers were the primary factor explaining this lack of adoption. Also, because reallocation across firms appeared to be constrained by limits on managerial time, competition had not forced badly managed firms to exit.	2013	Governance
The Role of State and Foreign Owners in Corporate Risk-Taking: Evidence from Privatization Author: Boubakri, Narjess, Jean-Claude Cosset, and Walid Saffar Journal: Journal of Financial Economics Using a unique database of 381 newly privatized firms from 57 countries, we investigate the impact of shareholders' identity on corporate risk-taking behavior. We find strong and robust evidence that state (foreign) ownership is negatively (positively) related to corporate risk-taking. Moreover, we find that high risk-taking by foreign owners depends on the strength of country-level governance institutions. Our results suggest that relinquishment of government control, openness to foreign investment, and improvement of country-level governance institutions are key determining factors of corporate risk-taking in newly privatized firms.	2013	Governance
The Effect of Rising Income Inequality on Taxation and Public Expenditures: Evidence from U.S. Municipalities and School Districts, 1970-2000 Author: Boustan, Leah, Fernando Ferreira, Hernan Winkler, and Eric M. Zolt Journal: Review of Economics and Statistics The income distribution in many developed countries widened dramatically from 1970 to 2000. Some scholars argue that income inequality contributes to a host of social ills by undermining voters' willingness to support public expenditures. In contrast, we find that growing income inequality is associated with an expansion in government revenues and expenditures on a wide range of services in U.S. municipalities and school districts. Results are robust to a number of model specifications, including instrumental variables that address the endogeneity of the local income distribution. Our results are inconsistent with models predicting that heterogeneous societies provide lower levels of public goods.	2013	Social
Labor Unions and Management's Incentive to Signal a Negative Outlook Author: Bova, Francesco Journal: Contemporary Accounting Research Evidence suggests that the negotiated wage for a unionized employee group is an increasing function of the firm's prior profitability. As a result, managers may have an incentive to strategically signal a negative outlook to their unionized workers in order to improve the firm's bargaining position. I assess the strategy of missing mean consensus analysts' earnings estimates as a way for managers to signal a negative outlook to their unionized employees. I find that unionized firms are more likely to miss estimates than their nonunionized counterparts. Additionally, this propensity to miss estimates is increasing in both the firm's percentage of unionized employees and multiunionism, but is unaffected by the timing of the signal relative to contract renewal. Finally, the increased propensity to miss estimates appears to be driven by both differences in expectations management and earnings management across the two groups. Specifically, managers of unionized firms take less action than their nonunionized counterparts to guide forecasts downward when estimates are too high, and they take more action to deflate earnings when expectations are too low. Taken together, the findings suggest that managers do seek to project a negative outlook to their unions, and that this tendency is increasing in the union's negotiation strength.	2013	Social
Law, Stock Markets, and Innovation Author: Brown, James R., Gustav Martinsson, and Bruce C. Petersen Journal: Journal of Finance We study a broad sample of firms across 32 countries and find that strong shareholder protections and better access to stock market financing lead to substantially higher long-run rates of R&D investment, particularly in small firms, but are unimportant for fixed capital investment. Credit market development has a modest impact on fixed investment but no impact on R&D. These findings connect law and stock markets with innovative activities key to economic growth, and show that legal rules and financial developments affecting the availability of external equity financing are particularly important for risky, intangible investments not easily financed with debt.	2013	Governance
The Social Cost of Stochastic and Irreversible Climate Change Author: Cai, Yongyang, Kenneth L. Judd, and Thomas S. Lontzek Journal: National Bureau of Economic Research Working paper There is great uncertainty about the impact of anthropogenic carbon on future economic wellbeing. We use DSICE, a DSGE extension of the DICE2007 model of William Nordhaus, which incorporates beliefs about the uncertain economic impact of possible climate tipping events and uses empirically plausible parameterizations of Epstein-Zin preferences to represent attitudes towards risk. We find that the uncertainty associated with anthropogenic climate change imply carbon taxes much higher than implied by deterministic models. This analysis indicates that the absence of uncertainty in DICE2007 and similar models may result in substantial understatement of the potential benefits of policies to reduce GHG emissions.	2013	Environmental
Optimal CEO Compensation With Search: Theory and Empirical Evidence Author: Cao, Melanie, and Rong Wang Journal: Journal of Finance We integrate an agency problem into search theory to study executive compensation in a market equilibrium. A CEO can choose to stay or quit and search after privately observing an idiosyncratic shock to the firm. The market equilibrium endogenizes CEOs' and firms' outside options and captures contracting externalities. We show that the optimal pay-to-performance ratio is less than one even when the CEO is risk neutral. Moreover, the equilibrium pay-to-performance sensitivity depends positively on a firm's idiosyncratic risk and negatively on the systematic risk. Our empirical tests using executive compensation data confirm these results.	2013	Governance
Dividend Policy at Firms Accused of Accounting Fraud Author: Caskey, Judson, and Michelle Hanlon Journal: Contemporary Accounting Research Recent studies and some policy experts have posited that dividends indicate higher-quality earnings. In this study, we test this conjecture by comparing the dividend policies of firms accused of accounting fraud to those of firms not accused of accounting fraud. Specifically, we examine whether alleged fraud firms are as likely to be dividend payers as non-fraud firms, and whether managers of dividend-paying fraud firms increase dividends at the same rate as managers of non-fraud firms. Our data reveal that dividend paying status is negatively associated with the probability of committing accounting fraud. In addition, we also find that, during the alleged fraud period, the earnings-dividends relation is weaker for the alleged fraud firms relative to firms not accused of fraud. Finally, using propensity score match tests, the data provide evidence that managers of alleged fraud firms increase dividends less often than managers of firms not accused of fraud, consistent with the alleged fraud firms not being able to match the dividend policies of firms not accused of fraud. Overall, our results suggest that dividends, especially dividend increases, are associated with higher earnings quality.	2013	Governance
Forecasting Without Consequence? Evidence on the Properties of Retiring CEOs' Forecasts of Future Earnings Author: Cassell, Cory A., Shawn X. Huang, and Juan Manuel Sanchez Journal: The Accounting Review We investigate whether retiring CEOs engage in opportunistic terminal-year forecasting behavior and the circumstances in which such behavior is likely to be more or less pronounced. Using a within-CEO empirical design, we find that retiring CEOs are more likely to issue forecasts of future earnings, and that they issue such forecasts more frequently in their terminal year relative to other years during their tenure with the firm. Further, retiring CEOs' terminal-year forecasts of future earnings are more likely to convey good news and are more optimistically biased relative to pre-terminal years. Opportunistic terminal-year forecasting behavior is: (1) more pronounced in the presence of higher CEO equity incentives and when discretionary expenditures are cut in the terminal year, and (2) less pronounced in the presence of stronger monitoring mechanisms, such as higher institutional ownership. Collectively, our results provide evidence on a potential implication of the CEO horizon problem that has not been investigated previously.	2013	Governance
The Cost of Carbon: Capital Market Effects of the Proposed Emission Trading Scheme (ETS) Author: Chapple, Larelle, Peter M. Clarkson, and Daniel L. Gold Journal: Abacus In March 2008, the Australian Government announced its intention to introduce a national Emissions Trading Scheme (ETS), now expected to start in 2015. This impending development provides an ideal setting to investigate the impact an ETS in Australia will have on the market valuation of Australian Securities Exchange (ASX) firms. This is the first empirical study into the pricing effects of the ETS in Australia. Primarily, we hypothesize that firm value will be negatively related to a firm's carbon intensity profile. That is, there will be a greater impact on firm value for high carbon emitters in the period prior (2007) to the introduction of the ETS, whether for reasons relating to the existence of unbooked liabilities associated with future compliance and/or abatement costs, or for reasons relating to reduced future earnings. Using a sample of 58 Australian listed firms (constrained by the current availability of emissions data) which comprise larger, more profitable and less risky listed Australian firms, we first undertake an event study focusing on five distinct information events argued to impact the probability of the proposed ETS being enacted. Here, we find direct evidence that the capital market is indeed pricing the proposed ETS. Second, using a modified version of the Ohlson (1995) valuation model, we undertake a valuation analysis designed not only to complement the event study results, but more importantly to provide insights into the capital market's assessment of the magnitude of the economic impact of the proposed ETS as reflected in market capitalization. Here, our results show that the market assesses the most carbon intensive sample firms a market value decrement relative to other sample firms of between 7 percent and 10 percent of market capitalization. Further, based on the carbon emission profile of the sample firms we imply a "future carbon permit price" of between AUD$17 per tonne and AUD$26 per tonne of carbon dioxide emitted. This study is more precise than industry reports, which set a carbon price of between AUD$15 to AUD$74 per tonne.	2013	Environmental
Human Capital, Capital Structure, and Employee Pay: An Empirical Analysis Author: Chemmanur, Thomas J., Yingmei Cheng, and Tianming Zhang Journal: Journal of Financial Economics We test the predictions of Titman (1984) and Berk, Stanton, and Zechner (2010) by examining the effect of leverage on labor costs. Leverage has a significantly positive impact on cash, equity-based, and total compensation of chief executive officers (CEOs). Compensation of new CEOs hired from outside the firm is positively related to prior-year firm leverage. In addition, leverage has a positive and significant impact on average employee pay. The incremental total labor expenses associated with an increase in leverage are large enough to offset the incremental tax benefits of debt. The empirical evidence supports the theoretical prediction that labor costs limit the use of debt.	2013	Governance
Voluntary Adoption of More Stringent Governance Policy on Audit Committees: Theory and Empirical Evidence Author: Chen, Feng, and Yue Li Journal: The Accounting Review This study exploits an exogenous change to audit committee policy in Canada and presents new evidence on how high-quality corporate governance mitigates managerial resource diversion and improves firm values. We first examine why some firms listed on the Toronto Venture Exchange (TSX Venture) voluntarily adopted the more stringent governance policy in 2004 that requires all audit committee members to be independent and financially literate. We develop a parsimonious analytical model that shows that both compliance costs and financing needs have an impact on firms' adoption decisions. Confirming the model's predictions, we find that TSX Venture firms with low compliance costs and greater future financing needs are more likely to adopt the new policy voluntarily. The analytical model also shows that high-quality audit committees enhance firm values by reducing the likelihood of managerial resource diversion. Consistent with the predictions of our analytical model, we find that the adoption decision has a positive impact on firm value and a negative impact on firms' cost of equity capital for both Toronto Stock Exchange (TSX) and TSX Venture firms. As corroborating evidence of the economic impact of the more stringent governance policy, we also show that both TSX and TSX Venture firms have improved investment efficiency following the adoption decisions.	2013	Governance
When Do Secondary Markets Harm Firms? Author: Chen, Jiawei, Susanna Esteban, and Matthew Shum Journal: American Economic Review To investigate whether secondary markets aid or harm durable goods manufacturers, we build a dynamic model of durable goods oligopoly with transaction costs in the secondary market. Calibrating model parameters using data from the US automobile industry, we find the net effect of opening the secondary market is to decrease new car manufacturers' profits by 35 percent. Counterfactual scenarios in which the size of the used good stock decreases, such as when products become less durable, when the number of firms decreases, or when firms can commit to future production levels, increase the profitability of opening the secondary market.	2013	Governance
Fair Value Accounting and Managers' Hedging Decisions Author: Chen, Wei, Hun-Tong Tan, and Elaine Ying Wang Journal: Journal of Accounting Research We conduct two experiments with experienced accountants to investigate how fair value accounting affects managers' real economic decisions. In experiment 1, we find that participants are more likely to make suboptimal decisions (e.g., forgo economically sound hedging opportunities) when both the economic and fair value accounting impact information is presented than when only the economic impact information is presented, or when both the economic and historical cost accounting impact information is presented. This adverse effect of fair value accounting is more likely when the price volatility of the hedged asset is higher, which is a situation where, paradoxically, hedging is more beneficial. We find that the effect is mediated by participants' relative considerations of economic factors versus accounting factors (e.g., earnings volatility). Experiment 2 shows that enhancing salience of economic information or separately presenting net income not from fair value remeasurements reduces the adverse effect of fair value accounting. Our findings are informative to standard setters in their debate on the efficacy of fair value accounting.	2013	Governance
Family Ownership and CEO Turnovers Author: Chen, Xia, Ziang Cheng, and Zhonglan Dai Journal: Contemporary Accounting Research Family ownership and control is prevalent. For example, family firms account for about one third of S&P 500 firms and approximately one half of S&P 1500 firms. The presence of the founding family significantly influences agency conflicts within a firm. On one hand, family ownership and control leads to better monitoring of chief executive officers (CEOs), alleviating conflicts of interest betweeen shareholders and managers. On the other hand, family ownership and control can lead to family entrenchment and conflicts of interest between family shareholders and other shareholders. Such unique agency conflicts in family firmst likely have important implications for firm decisions. In this paper, we examine how family ownership and control affect CEO turnover decisions.	2013	Governance
Minority Shareholders' Control Rights and the Quality of Corporate Decisions in Weak Investor Protection Countries: A Natural Experiment from China Author: Chen, Zhihong, Bin Ke, and Zhifeng Yang Journal: The Accounting Review Using a 2004 Chinese securities regulation that requires equity offering proposals to obtain the separate approval of voting minority shareholders, we examine whether giving minority shareholders increased control over corporate decisions helps to reduce value-decreasing corporate decisions for firms domiciled in weak investor protection countries. We find that the regulation deters management from submitting value-decreasing equity offering proposals in firms with higher mutual fund ownership. There is also weak evidence that minority shareholders are more likely to veto value-decreasing equity offering proposals in firms with higher mutual fund ownership in the post-regulation period. Overall, our evidence suggests that in weak investor protection countries, the effect of granting minority shareholders increased control over corporate decisions on the quality of corporate decisions depends on the composition of minority shareholders.	2013	Governance
Executive Pay Disparity and the Cost of Equity Capital Author: Chen, Zhihong, Yuan Huang, and K. C. John Wei Journal: Journal of Financial and Quantitative Analysis Executive pay disparity, as measured by chief executive officer (CEO) pay slice (CPS), is positively associated with the implied cost of equity, even after controlling for other determinants of the cost of equity. The difference in the cost of equity can explain 43 percent of the difference in the valuation effect attributable to CPS reported by Bebchuk, Cremers, and Peyer (2011). Further analysis shows that the positive association is stronger when agency problems of free cash flow are more severe and when CEO succession planning is more important. Our evidence suggests that a large CPS is associated with CEO entrenchment and high succession risk.	2013	Governance
Managerial Incentives and Management Forecast Precision Author: Cheng, Qiang, Ting Luo, and Heng Yue Journal: The Accounting Review Managers have great discretion in determining forecast characteristics, but little is known about how managerial incentives affect these characteristics. This paper examines whether managers strategically choose forecast precision for self-serving purposes. Building on the prior finding that the market reaction to vague forecasts is weaker than its reaction to precise forecasts, we find that for management forecasts disclosed before insider sales, more positive (negative) news forecasts are more (less) precise than other management forecasts. The opposite applies to management forecasts disclosed before insider purchases. These results are consistent with managers strategically choosing forecast precision to increase stock prices before insider sales and to decrease stock prices before insider purchases. Additional analyses indicate that the impact of managerial incentives on forecast precision is less pronounced when institutional ownership is high or when disclosure risk is high, and is more pronounced when investors have difficulty in assessing the precision of managers' information.	2013	Governance
A Theory of Voluntary Disclosure and Cost of Capital Author: Cheynel, Edwige Journal: Review of Accounting Studies This paper explores the links between firms' voluntary disclosures and their cost of capital. Existing studies investigate the relation between mandatory disclosures and cost of capital and find no cross-sectional effect but a negative association in time-series. In this paper, I find that when disclosure is voluntary firms that disclose their information have a lower cost of capital than firms that do not disclose, but the association between voluntary disclosure and cost of capital for disclosing and nondisclosing firms is positive in aggregate. I further examine whether reductions in cost of capital indicate improved risk-sharing or investment efficiency. I also find that high (low) disclosure frictions lead to overinvestment (underinvestment) relative to first-best. As average cost of capital proxies for risk-sharing but not investment efficiency, the relation between cost of capital and ex ante efficiency may be ambiguous and often irrelevant.	2013	Governance
Board Interlocks and Earnings Management Contagion Author: Chiu, Peng-Chia, Siew Hong Teoh, and Feng Tian Journal: The Accounting Review We test whether earnings management spreads between firms via shared directors. We find that a firm is more likely to manage earnings when it shares a common director with a firm that is currently managing earnings and is less likely to manage earnings when it shares a common director with a non-manipulator. Earnings management contagion is stronger when the shared director has a leadership or accounting-relevant position (e.g., audit committee chair or member) on its board or the contagious firm's board. Irregularity contagion is stronger than error contagion. The board contagion effect is robust to controlling for endogenous matching of firms with directors, fixed firm/director effects, incidence of M&A, industry, and contagion via a common auditor or geographical proximity. These findings support the view that board monitoring plays a key role in the contagion and quality of firms' financial reports.	2013	Governance
Corporate Social Responsibility Performance Information and Information Asymmetry Author: Cho, Seong, Cheol Lee, and Ray Pfeiffer Journal: Journal of Accounting and Public Policy Using Corporate Social Responsibility (CSR) performance scores from KLD STAT, we investigate whether CSR performance affects information asymmetry. We find that both positive and negative CSR performance reduce information asymmetry. Moreover, we find that the influence of negative CSR performance is much stronger than that of positive CSR performance in reducing information asymmetry. We also investigate the effect of informed investors on the CSR performance-asymmetry relation. We find that the negative association between CSR performance and bid-ask spread decreases for firms with a high level of institutional investors compared to those with a low level of institutional investors. This finding suggests that informed investors may exploit their CSR information advantage. Overall, our results suggest that CSR performance plays a positive role for investors by reducing information asymmetry and that regulatory action may be appropriate to mitigate the adverse selection problem faced by less-informed investors.	2013	Environmental, Social, Governance
Personally Tax Aggressive Executives and Corporate Tax Sheltering Author: Chyz, James A. Journal: Journal of Accounting and Economics This paper investigates whether executives who evidence a propensity for personal tax evasion (suspect executives) are associated with tax sheltering at the firm level. I adapt recent research to identify the presence of these executives and examine associations between suspect executive presence and firm-level measures of tax sheltering. The results indicate that the presence of suspect executives is positively associated with proxies for corporate tax sheltering. In addition, firm-years with suspect executive presence have significantly higher cash tax savings relative to firm-years without suspect executive presence. I also investigate the firm value implications of suspect executive presence and find that increases in tax sheltering are incrementally more valuable for firms that have suspect executives than similar increments made by firms that do not have suspect executives.	2013	Governance
Legislating Stock Prices Author: Cohen, Lauren, Karl Diether, and Christopher Malloy Journal: Journal of Financial Economics We demonstrate that legislation has a simple, yet previously undetected, impact on stock prices. Exploiting the voting record of legislators whose constituents are the affected industries, we show that the votes of these "interested" legislators capture important information seemingly ignored by the market. A long-short portfolio based on these legislators' views earns abnormal returns of over 90 basis points per month following the passage of legislation. Industries that we classify as beneficiaries of legislation experience significantly more positive earnings surprises and positive analyst revisions in the months following passage of the bill, as well as significantly higher future sales and profitability. We show that the more complex the legislation, the more difficulty the market has in assessing the impact of these bills. Further, the more concentrated the legislator's interest in the industry, the more informative are her votes for future returns.	2013	Governance
Voluntary Environmental Disclosures in 10-Ks and Environmental Reports: Determinants and Relationship to Firm Risk Premium Author: Connors, Elizabeth, and Holly H. Johnston Journal: Working paper Recent studies have examined the motivations of firm voluntary disclosure of environmental and social responsibility performance stand-alone reports. We extend this literature by examining firm voluntary disclosure of environmental performance in stand-alone reports (CERs) and 10-Ks. We model disclosure in these reports as jointly determined, endogenous functions of private information regarding environmental performance and demand for disclosure through shareholder resolutions. When voluntary and mandatory environmental performance information is subsequently made public, we examine the relationship between the level of disclosure and firm risk premium. Our results relating to firms in the chemicals and electric utility industries show a positive association between the levels of voluntary disclosure in CERs and 10-Ks. There is a negative relationship between emissions and CER disclosure. Environmental disclosure related shareholder resolutions are associated with higher disclosures in both types of reports. Finally, the association between disclosure and firm risk premium is dependent on industry sector.	2013	Environmental
Globalization Discourses and Performance Measurement Systems in a Multinational Firm Author: Cooper, David J., and Mahmoud Ezzamel Journal: Accounting, Organizations and Society This paper examines the role of management control systems, in particular performance measurement systems (PMSs) such as the Balanced Scorecard and key performance indicators, in a multinational context. We begin by exploring how globalization discourses are engaged with, consumed, appropriated, re-produced, disseminated and promoted in a major multinational company. We link the adaptation and dissemination of global discourses of senior managers with Said's (1975/1997) concepts of authority and molestation. We then examine how PMS are translated and customized within local manufacturing plants and sales units in the UK and China, the significance of benchmarking and the extent to which PMS render managerial discourses of globalization practical. We comment on the importance of discourse in understanding control systems in general and the way in which external discourses impact the internal practices of the organization. We also explore some of the sources that give rise to molestation (deviation of practice from global aspirations of senior managers). We conclude by stressing the potential for the globalizing effects of PMS through the interaction of the discourses of HQ and subunits, even in the absence of explicit statements about globalization.	2013	Governance
Estimating the Costs of Issuer-Paid Credit Ratings Author: Cornaggia, Jess, and Kimberly J. Cornaggia Journal: Review of Financial Studies We compare the stability and timeliness of credit ratings produced by a traditional issuer-paid rating agency (Moody's Investors Service) and a subscriber-paid rater (Rapid Ratings). Moody's ratings exhibit less volatility but are slower to identify default risk. We control for Moody's aversion to ratings volatility and still find its ratings lag Rapid Ratings'. More importantly, accuracy ratios indicate that Rapid Ratings provides a better ordinal ranking of credit risk. We quantify the loss avoidance associated with Rapid Ratings' signals to estimate costs associated with regulatory and contractual systems based on issuer-paid ratings.	2013	Governance
CEO Contract Design: How Do Strong Principals Do it? Author: Cronqvist, Henrik, and Rüdiger Fahlenbrach Journal: Journal of Financial Economics We study changes in chief executive officer (CEO) contracts when firms transition from public ownership with dispersed owners to private ownership with strong principals in the form of private equity sponsors. The most significant changes are that a significant portion of equity grants performance-vests based on prespecified measures and that unvested equity is forfeited by fired CEOs. Private equity sponsors do not reduce base salaries, bonuses, and perks, but redesign contracts away from qualitative measures. They use some subjective performance evaluation, do not use indexed or premium options, and do not condition vesting on relative industry performance. We compare the contracts to predictions from contracting theories, and relate our results to discussions of executive compensation reform.	2013	Governance
How Do CEOs Matter? The Effect of Industry Expertise on Acquisition Returns Author: Custodio, Claudia, and Daniel Metzger Journal: Review of Financial Studies This paper shows how chief executive officer (CEO) characteristics affect the performance of acquirers in diversifying takeovers. When the acquirer's CEO has previous experience in the target industry, the acquirer's abnormal announcement returns are between 1.2 and 2.0 percentage points larger than those generated by a CEO who is new to the target industry. This outcome is driven by the industry-expert CEO's ability to capture a larger fraction of the merger surplus. Industry-expert CEOs typically negotiate better deals and pay a lower premium for the target. This effect is stronger when information asymmetry is high and in bilateral negotiations compared to auctions. We also find that industry-expert CEOs on average select lower surplus deals. This evidence is consistent with industry-expert CEOs having superior negotiation skills.	2013	Governance
Diversity among Norwegian Boards of Directors: Does a Quota for Women Improve Firm Performance? Author: Dale-Olsen, Harald, Pal Schone, and Mette Verner Journal: Feminist Economics Exploiting the Norwegian boards of directors' quota reform of 2003, this study evaluates the impact of increased diversity on firm performance. Applying difference-in-difference approaches to accounting data covering the period 2003-07, the paper compares the return on assets for non-finance public limited companies (PLCs) and ordinary limited companies (LTDs), whereof only the former were affected by the reform. The impact of the reform on firm performance is negligible. Neither changed return on total assets (ROA) nor changed operating revenues and cost can be attributed to the reform. However, following the reform PLCs have to a larger extent accumulated capital, financed by debt or by a combination of debt and own capital.	2013	Social
Soft-Talk Management Cash Flow Forecasts: Bias, Quality, and Stock Price Effects Author: Dambra, Michael, Charles E. Wasley, and Joanna Shuang Wu Journal: Contemporary Accounting Research In their review of the management earnings forecast (MEF) literature, Hirst, Koonce, and Venkataraman (2008) develop a framework that views MEFs as consisting of three components. These components are forecast antecedents, forecast characteristics, and forecast consequences. Forecast antecedents are firm-specific and environmental characteristics (e.g., legal, analyst, and investor environments, litigation risk, information asymmetry, and managerial incentives); forecast characteristics consist of the choices managers make with regard to forecast features (e.g., form, horizon, and level of specificity); and forecast consequences reflect the reactions to forecasts (e.g., stock price reactions and revisions to analysts' forecasts). Based on their review, Hirst et al. (2008) conclude that forecast characteristics are the least understood component of the forecasting process. As discussed below, this study provides new evidence on this component of the management forecasting process by examining a novel characteristic of management cash flow forecasts (MCFFs). As a result, this study addresses the shortcoming of prior research noted by Hirst et al. 2008 while also extending the management forecast literature from its traditional focus on MEFs to a management disclosure which has received virtually no attention in the literature, namely, MCFFs.	2013	Governance
Can a Code of Ethics Improve Manager Behavior and Investor Confidence? An Experimental Study Author: Davidson, Bruce I., and Douglas E. Stevens Journal: The Accounting Review Policy makers and corporations have recently emphasized a code of ethics as an effective aspect of corporate governance. The corporate governance literature in accounting, however, provides little empirical or theoretical support for this emphasis. We address this gap between public policy and the literature by studying the effectiveness of a code of ethics in an experimental setting. Using Bicchieri's (2006) model of social norm activation, we predict that a code of ethics will improve manager return behavior and investor confidence to the extent that it activates social norms that control opportunistic behavior. Further, we predict that adding a certification choice whereby the manager can publicly certify that he will adhere to the code will enhance the potential for the code of ethics to activate such norms. We find that a code of ethics only improves manager return behavior and investor confidence when the code incorporates a public certification choice by the manager. When the code is present but there is no certification choice, manager return behavior does not improve and investor confidence erodes over time because of increased expectations that are not met by managers. An analysis of individual return decisions and exit questionnaire responses supports the activation of social norms as the underlying mechanism behind our results.	2013	Governance
An Exploratory Analysis of Corporate Social Responsibility and Disclosure Author: Dawkins, Cedric E., and John W. Fraas Journal: Business & Society Previous studies indicate two possibly asymmetric findings about the relationship between corporate social performance (CSP) and annual report disclosure practices: (a) disclosure practices of companies with favorable CSP emanate from a sense of ethical duty, and (b) there are strategic reasons to link CSP with disclosure practices. To test the relationship between CSP and annual report disclosure, this study divided S&P 500 companies into two groups, defined for low CSP (resulting n = 148) and high CSP (resulting n = 69). For the low CSP group of companies, disclosure was positively related to CSP strengths. For the high CSP group of companies, disclosure was positively related to CSP weaknesses. The authors conclude that low CSP disclosure practices are related to CSP strengths to build or repair reputation, whereas high CSP disclosure practices are associated with CSP weaknesses to protect favorable CSP brand.	2013	Governance
Environmental Standards and Labor Productivity: Understanding the Mechanisms That Sustain Sustainability Author: Delmas, Magali A., and Sanja Pekovic Journal: Journal of Organizational Behavior In the last decade, a rising number of firms have adopted voluntary international environmental management and product standards, such as the international ISO 14001 management standard or organic certification. Although emerging research analyzes the impact of these standards on environmental and financial performance, there is to our knowledge no empirical research on how they affect the productivity of employees. In this paper, we investigate the direct relationship between environmental standards and labor productivity, as well as two mediating mechanisms through which environmental standards influence labor productivity: employee training and enhanced interpersonal contacts within the firm. Our empirical results, based on a French employer-employee survey from 5220 firms, reveal that firms that have adopted environmental standards enjoy a one standard deviation higher labor productivity than firms that have not adopted such standards.	2013	Environmental
Managerial Ability and Earnings Quality Author: Demerjian, Peter R., Baruch Lev, Melissa F. Lewis, and Sarah E. McVay Journal: The Accounting Review We examine the relation between managerial ability and earnings quality. We find that earnings quality is positively associated with managerial ability. Specifically, more able managers are associated with fewer subsequent restatements, higher earnings and accruals persistence, lower errors in the bad debt provision, and higher quality accrual estimations. The results are consistent with the premise that managers can and do impact the quality of the judgments and estimates used to form earnings.	2013	Governance
Creating Value by Changing the Old Guard: The Impact of Controlling Shareholder Heterogeneity on Firm Performance and Corporate Policies Author: Deng, Hua, Fariborz Moshirian, Peter Kien Pham, and Jason Zein Journal: Journal of Financial and Quantitative Analysis Theory suggests that controlling shareholders can influence firm value through both shared benefits creation and private benefits consumption. Using negotiated control-block transfers from 31 countries, we look beyond ownership concentration and investigate how controlling shareholder heterogeneity influences the relative importance of these two effects. We document that a control transfer precipitates positive firm outcomes particularly when the vendor has maintained control over an extended period and the acquirer displays a strong incentive to engage in restructuring. In such cases, we observe a sustained positive price reaction, more focused corporate investments, lower leverage, higher operating efficiency, and superior long-term performance.	2013	Governance
Insider Trading Restrictions and Top Executive Compensation Author: Denis, David J., and Jin Xu Journal: Journal of Accounting and Economics The use of equity incentives is significantly greater in countries with stronger insider trading restrictions, and these higher incentives are associated with higher total pay. These findings are robust to alternative definitions of insider trading restrictions and enforcement, and to panel regressions with country fixed effects. We also find significant increases in top executive pay and the use of equity-based incentives in the period immediately following the initial enforcement of insider trading laws. We conclude that insider trading laws are one channel through which cross-country differences in pay practices can be explained.	2013	Governance
Do They Walk the Talk? Gauging Acquiring CEO and Director Confidence in the Value Creation Potential of Announced Acquisitions Author: Devers, Cynthia E., Gerry McNamara, Jerayr Haleblian, and Michele E. Yoder Journal: Academy of Management Journal We explore whether acquiring CEOs and directors act consistently with the idea that their newly announced acquisitions will increase long-term firm value. Specifically, we examine postannouncement adjustments to CEOs' equity-based holdings and find acquiring CEOs tend to exercise options and sell firm stock following acquisition announcements. Moreover, positive short-term market performance exacerbates this effect. Further, we find directors tend to grant their acquiring CEOs stock options, after acquisition announcement, presumably to more tightly align CEO- shareholder interests. These findings suggest that when CEOs and directors manage acquiring CEOs' equity-based holdings, they do not appear to anticipate long-term value creation from their acquisitions.	2013	Governance
Pollution and Firm Value Author: Di Giuli, Alberta Journal: Working paper This paper tests the effect of pollution and peaks in pollution caused by companies on their market value and on the value of their competitors. Using the US TRI (Toxic Release Inventory) database of chemical toxic emissions, provided by the EPA (Environmental Protection Agency) to track SP500 firms' emissions from 1996 to 2007, we find that the market does not penalize firms that pollute heavily (at least in the long run), and consumers do not punish polluting firms, switching to competitors. Pollution peaks are associated with an increase in the market values of competitors in the year of the peak. Results suggest that the positive effect is driven by investors' overreaction and fear of possible consumer switch, loss of reputation and penalties for the polluting firm.	2013	Environmental
From Bench to Board: Gender Differences in University Scientists' Participation in Corporate Scientific Advisory Boards Author: Ding, Waverly W., Fiona Murray, and Toby E. Stuart Journal: Academy of Management Journal This article examines the gender difference in the likelihood that male and female academic scientists will join corporate scientific advisory boards (SABs). We assess (i) demand-side theories that relate the gap in scientists' rate of joining SABs to the opportunity structure of SAB invitations, and (ii) supply-side explanations that attribute that gap to scientists' preferences for work of this type. We statistically examine the demand- and supply- side perspectives in a national sample of 6,000 life scientists whose careers span more than 30 years. Holding constant professional achievement, network ties, employer characteristics, and research foci, male scientists are almost twice as likely as females to serve on the SABs of biotechnology companies. We do not find evidence in our data supporting a choice-based explanation for the gender gap. Instead, demand-side theoretical perspectives focusing on gender-stereotyped perceptions and the unequal opportunities embedded in social networks appear to explain some of the gap.	2013	Social
Indexing Executive Compensation Contracts Author: Dittmann, Ingolf, Ernst Maug, and Oliver G. Spalt Journal: Review of Financial Studies We analyze the efficiency of indexing executive pay by calibrating the standard compensation model to a large sample of U.S. CEOs. The benefits from indexing the strike price of options are small, and fully indexing all options would increase compensation costs by 50 percent for most firms. Indexing has several effects with overall ambiguous outcome; the quantitatively most important effect is to reduce incentives, because indexed options pay off when CEOs' marginal utility is low. The results also hold if CEOs can extract rents and extend to the case of indexing shares. Our findings may justify the common practice of "pay-for-luck."	2013	Governance
Ownership Dynamics With Large Shareholders: An Empirical Analysis Author: Donelli, Marcelo, Borja Larrain, and I. Francisco Urzua Journal: Journal of Financial and Quantitative Analysis We study the empirical determinants of corporate ownership dynamics using a unique, hand-collected 20-year data set on the ownership structure of Chilean companies. Controllers' blockholdings are on average high and stable over time. Controllers still make changes to their holdings through issuance and block trades. In a typical year controllers' blockholdings decrease (increase) by 5 percentage points or more in approximately 6 percent (7 percent) of firms. We find that the separation between controllers' voting and cash-flow rights reduces the likelihood of ownership dilution. Dilution is preceded by high stock returns and predicts low stock returns in the future when done through issuance.	2013	Governance
Boards, CEO Entrenchment, and the Cost of Capital Author: Dow, James Journal: Journal of Financial Economics Existing research on chief executive officer (CEO) turnover focuses on CEO ability. This paper argues that board ability is also important. Corporate boards are reluctant to replace CEOs, as this makes financing expensive by sending a negative signal about board ability. Entrenchment in this model does not result from CEO power, or from agency problems. Entrenchment is mitigated when there are more assets-in-place relative to investment opportunities. The paper also compares public and private equity. Private ownership eliminates CEO entrenchment, but market signals improve investment decisions. Finally, the model implies that board choice in publicly listed firms will be conservative.	2013	Governance
Riding the Merger Wave: Uncertainty, Reduced Monitoring, and Bad Acquisitions Author: Duchin, Ran, and Breno Schmidt Journal: Journal of Financial Economics We show that acquisitions initiated during periods of high merger activity ("merger waves") are accompanied by poorer quality of analysts' forecasts, greater uncertainty, and weaker CEO turnover-performance sensitivity. These conditions imply reduced monitoring and lower penalties for initiating inefficient mergers. Therefore, "merger waves" may foster agency-driven behavior, which, along with managerial herding, could lead to worse mergers. Consistent with this hypothesis, we find that the average long-term performance of acquisitions initiated during "merger waves" is significantly worse. We also find that corporate governance of in-wave acquirers is weaker, suggesting that agency problems may be present in merger wave acquisitions.	2013	Governance
Divisional Managers and Internal Capital Markets Author: Duchin, Ran, and Denis Sosyura Journal: Journal of Finance Using hand-collected data on divisional managers at S&P 500 firms, we study their role in internal capital budgeting. Divisional managers with social connections to the CEO receive more capital. Connections to the CEO outweigh measures of managers' formal influence, such as seniority and board membership, and affect both managerial appointments and capital allocations. The effect of connections on investment efficiency depends on the tradeoff between agency and information asymmetry. Under weak governance, connections reduce investment efficiency and firm value via favoritism. Under high information asymmetry, connections increase investment efficiency and firm value via information transfer.	2013	Governance
Truth-telling by Third-party Auditors and the Response of Polluting Firms: Experimental Evidence from India Author: Duflo, Esther, Michael Greenstone, Rohini Pande, and Nicholas Ryan Journal: Quarterly Journal of Economics In many regulated markets, private, third-party auditors are chosen and paid by the firms that they audit, potentially creating a conflict of interest. This article reports on a two-year field experiment in the Indian state of Gujarat that sought to curb such a conflict by altering the market structure for environmental audits of industrial plants to incentivize accurate reporting. There are three main results. First, the status quo system was largely corrupted, with auditors systematically reporting plant emissions just below the standard, although true emissions were typically higher. Second, the treatment caused auditors to report more truthfully and very significantly lowered the fraction of plants that were falsely reported as compliant with pollution standards. Third, treatment plants, in turn, reduced their pollution emissions. The results suggest reformed incentives for third-party auditors can improve their reporting and make regulation more effective.	2013	Environmental, Governance
The Performance Frontier Author: Eccles, Robert G., and George Serafeim Journal: Harvard Business Review Too often, companies launch sustainability programs with the hope that they'll be financially rewarded for doing good, even when those programs aren't relevant to their strategy and operations. They fail to understand the trade-offs between financial performance and performance on environmental, social, and governance (ESG) issues. Improving one typically comes at a cost to the other. But it doesn't have to be this way. It's possible to simultaneously boost both financial and ESG performance-if you focus strategically on issues that are the most "material" to shareholder value, and you develop major innovations in products, processes, and business models that prioritize those concerns. Maps being developed by the Sustainability Accounting Standards Board, which rank the materiality of 43 issues for 88 industries, can provide valuable guidance. And broad initiatives undertaken by three companies-Natura, Dow Chemical, and CLP Group-demonstrate the kind of innovations that will push performance into new territory. Communicating the benefits to stakeholders is also critical, which is why integrated reports, which combine financial and ESG reporting, are now gaining in popularity.	2013	Environmental, Social, Governance
Is Pay for Performance Detrimental to Innovation? Author: Ederer, Florian, and Gustavo Manso Journal: Management Science Previous research in economics shows that compensation based on the pay-for-performance principle is effective in inducing higher levels of effort and productivity. On the other hand, research in psychology argues that performance-based financial incentives inhibit creativity and innovation. How should managerial compensation be structured if the goal is to induce managers to pursue more innovative business strategies? In a controlled laboratory setting, we provide evidence that the combination of tolerance for early failure and reward for long-term success is effective in motivating innovation. Subjects under such an incentive scheme explore more and are more likely to discover a novel business strategy than subjects under fixed-wage and standard pay-for-performance incentive schemes. We also find evidence that the threat of termination can undermine incentives for innovation, whereas golden parachutes can alleviate these innovation-reducing effects.	2013	Governance
The Effect of Liquidity on Governance Author: Edmans, Alex, Vivian W. Fang, and Emanuel Zur Journal: Review of Financial Studies This paper demonstrates a positive effect of stock liquidity on blockholder governance. Liquidity increases the likelihood of block formation. Conditional upon acquiring a stake, liquidity reduces the likelihood that the blockholder governs through voice (intervention) — as shown by the lower propensity for active investment (filing Schedule 13D) than passive investment (filing Schedule 13G). The lower frequency of activism does not reflect the abandonment of governance, but governance through the alternative channel of exit (selling one's shares): A 13G filing leads to positive announcement returns and improvements in operating performance, especially in liquid firms. Moreover, taking into account the increase in block formation, liquidity has an unconditional positive effect on voice as well as exit. We use decimalization as an exogenous shock to liquidity to identify causal effects.	2013	Governance
Executive Turnover Following Option Backdating Allegations Author: Efendi, Jap, Febecca Files, Bo Ouyang, and Edward P. Swanson Journal: The Accounting Review We find that the likelihood of forced turnover in the CEO and CFO positions is significantly higher for firms in the aftermath of option backdating than in propensity-score matched control firms. Forced turnover occurs in about 36 percent of the accused firms. The forced turnover rates for CEOs and CFOs are similar and several times higher than normal. The displaced managers are further punished by the managerial labor market, as they are much less likely than control firm managers to be rehired at comparable positions. We also find that backdating firms restructure CEO compensation to rely less on stock options. Finally, we learn the higher turnover extends to the General Counsel. While boards are often viewed as unresponsive to criticisms involving executive compensation, they did respond quite decisively to option backdating allegations and the accompanying adverse publicity.	2013	Governance
Industry-Specific Human Capital, Idiosyncratic Risk, and the Cross-Section of Expected Stock Returns Author: Eiling, Esther Journal: Journal of Finance Human capital is one of the largest assets in the economy and in theory may play an important role for asset pricing. Human capital is heterogeneous across investors. One source of heterogeneity is industry affiliation. I show that the cross-section of expected stock returns is primarily affected by industry-level rather than aggregate labor income risk. Furthermore, when human capital is excluded from the asset pricing model, the resulting idiosyncratic risk may appear to be priced. I find that the premium for idiosyncratic risk documented by several empirical studies depends on the covariance between stock and human capital returns.	2013	Governance
CEO Turnover in a Competitive Assignment Framework Author: Eisfeldt, A. L., and C. M. Kuhnen. Journal: Journal of Financial Economics There is widespread concern about whether Chief Executive Officers (CEOs) are appropriately punished for poor performance. While CEOs are more likely to be forced out if their performance is poor relative to the industry average, overall industry performance also matters. This seems puzzling if termination is disciplinary, however, we show that both absolute and relative performance-driven turnover can be natural and efficient outcomes in a competitive assignment model in which CEOs and firms form matches based on multiple characteristics. The model also has new predictions about replacement managers' equilibrium pay and performance. We document CEO turnover events during 1992-2006 and provide empirical support for our model.	2013	Governance
Organization Capital and the Cross-Section of Expected Returns Author: Eisfeldt, Andrea L., and Demitris Papanikolaou Journal: Journal of Finance Organization capital is a production factor that is embodied in the firm's key talent and has an efficiency that is firm specific. Hence, both shareholders and key talent have a claim to its cash flows. We develop a model in which the outside option of the key talent determines the share of firm cash flows that accrue to shareholders. This outside option varies systematically and renders firms with high organization capital riskier from shareholders' perspective. We find that firms with more organization capital have average returns that are 4.6 percent higher than firms with less organization capital.	2013	Social
Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies Author: Ellul, Andrew, and Vivjay Yerramilli Journal: Journal of Finance We construct a risk management index (RMI) to measure the strength and independence of the risk management function at bank holding companies (BHCs). The U.S. BHCs with higher RMI before the onset of the financial crisis have lower tail risk, lower nonperforming loans, and better operating and stock return performance during the financial crisis years. Over the period 1995 to 2010, BHCs with a higher lagged RMI have lower tail risk and higher return on assets, all else equal. Overall, these results suggest that a strong and independent risk management function can curtail tail risk exposures at banks.	2013	Governance
The Price of a CEO's Rolodex Author: Engelberg, Joseph, Pengjie Gao, and Christopher A. Parsons Journal: Review of Financial Studies CEOs with large networks earn more than those with small networks. An additional connection to an executive or director outside the firm increases compensation by about $17,000 on average, more so for "important" members, such as CEOs of big firms. Pay-for-connectivity is unrelated to several measures of corporate governance, evidence in favor of an efficient contracting explanation for CEO pay.	2013	Governance
The Price of Diversifiable Risk in Venture Capital and Private Equity Author: Ewens, Michael, Charles M. Jones, and Matthew Rhodes-Kropf Journal: Review of Financial Studies This paper demonstrates how the principal-agent problem between venture capitalists and their investors (limited partners) causes limited partner returns to depend on diversifiable risk. Our theory shows why the need for investors to motivate VCs alters the negotiations between VCs and entrepreneurs and changes how new firms are priced. The three-way interaction rationalizes the use of high discount rates by VCs and predicts a correlation between total risk and net of fee investor returns. We take our theory to a unique data set and find empirical support for the effect of the principal-agent problem on equilibrium private equity asset prices.	2013	Governance
Is Disclosure an Effective Cleansing Mechanism? The Dynamics of Compensation Peer Benchmarking Author: Faulkender, Michael, and Jun Yang Journal: Review of Financial Studies Firms routinely justify CEO compensation by benchmarking against companies with highly paid CEOs. We examine whether the 2006 regulatory requirement of disclosing compensation peers mitigated firms' opportunistic peer selection activities. We find that strategic peer benchmarking did not disappear after enhanced disclosure. In fact, it intensified at firms with low institutional ownership, low director ownership, low CEO ownership, busy boards, large boards, and non-intensive monitoring boards, and at firms with shareholders complaining about compensation practices. The effect is also stronger at firms with new CEOs. These findings call into question whether disclosure regulation can remedy potential problems in compensation practices.	2013	Governance
Inequality, Stock Market Participation, and the Equity Premium Author: Favilukis, Jack Journal: Journal of Financial Economics The last 30 years saw substantial increases in wealth inequality and stock market participation, smaller increases in consumption inequality and the fraction of indebted households, a decline in interest rates and the expected equity premium, as well as a prolonged stock market boom. In an incomplete markets, overlapping generations model I jointly explain these trends by the observed rise in wage inequality, decrease in participation costs, and loosening of borrowing constraints. After accounting for these changes, I show that the stock market played a major role in increasing wealth inequality. Crucially, these phenomena must be considered jointly; studying one independently leads to counterfactual predictions about others.	2013	Social
On the Importance of Golden Parachutes Author: Fich, Eliezer M., Anh L. Tran, and Ralph A. Walkling Journal: Journal of Financial and Quantitative Analysis In acquisitions, target chief executive officers (CEOs) face a moral hazard: Any personal gain from the deal could be offset by the loss of the future compensation stream associated with their jobs. Larger, more important parachutes provide greater relief for these losses. To explicitly measure the moral hazard target CEOs face, we standardize the parachute payment by the expected value of their acquisition-induced lost compensation. We examine 851 acquisitions from 1999-2007, finding that more important parachutes benefit target shareholders through higher completion probabilities. Conversely, as parachute importance increases, target shareholders receive lower takeover premia, while acquirer shareholders capture additional rents from target shareholders.	2013	Governance
Are Busy Boards Detrimental? Author: Field, Laura, Michelle Lowry, and Anahit Mkrtchyan Journal: Journal of Financial Economics Busy directors have been widely criticized as being ineffective. However, we hypothesize that busy directors offer advantages for many firms. While busy directors may be less effective monitors, their experience and contacts arguably make them excellent advisors. Among IPO firms, which have minimal experience with public markets and likely rely heavily on their directors for advising, we find busy boards to be common and to contribute positively to firm value. Moreover, these positive effects of busy boards extend to all but the most established firms. Benefits are lowest among Forbes 500 firms, which likely require more monitoring than advising.	2013	Governance
Corporate Responsibility Reporting and its Determinants in Comparative Perspective - A Review of the Empirical Literature and a Meta-Analysis Author: Fifka, Matthias S. Journal: Business Strategy and the Environment For four decades, reporting on corporate responsibility by businesses has been the subject of empirical research. In the 1970s and 1980s, studies mostly originated from Anglo-Saxon and Western European countries. During the last two decades research on responsibility reporting was increasingly undertaken in emerging and developing countries as well - always following the reporting practices of the respective businesses. Consequentially, a very large number of studies exist today. Many of these have empirically investigated the determi- nants of responsibility reporting and examined whether internal factors like size and industry or external factors like stakeholder pressures have an impact on disclosure. Thus, the purpose of the following paper is twofold. First, it seeks to provide an overview of the existing literature in order to facilitate further research. Overall, 186 studies have been examined for the determinants which they considered and have been grouped according to their geographical origin. This provides for an analysis of whether academics from different regions have taken different approaches to the empirical examination of responsibility reporting and if their results differed. The findings show that scholars across regions have taken different paths in empirical research, but indications for a variation in the impact of specific determinants on reporting are weak.	2013	Governance
The Informational Role of Voluntary Certification: Evidence from the Mexican Clean Industry Program Author: Foster, Andrew D., and Emilio Gutierrez Journal: American Economic Review In the presence of imperfect information, voluntary certification can provide an important complement to mandatory inspections as a basis for environmental regulation in low income countries. Using data from Mexico's Clean Industry Program, we show that patterns of compliance and certification by sector are consistent with a model in which selection into the voluntary program permits more efficient targeting of regulator effort. As expected given the informational role played by certification in the model, we also find evidence, for a sample of publicly traded firms, of positive stock price deviations linked to the announcement of certification.	2013	Environmental
Determinants of Corporate Cash Policy: Insights from Private Firms Author: Gao, Huasheng, Jarrad Harford, and Kai Li Journal: Journal of Financial Economics We provide one of the first large sample comparisons of cash policies in public and private U.S. firms. We first show that despite higher financing frictions, private firms hold, on average, about half as much cash as public firms do. By examining the drivers of cash policies for each group, we are able to attribute the difference to the much higher agency costs in public firms. By combining evidence from across public and private firms as well as within public firms across different qualities of governance, we are able to reconcile existing mixed evidence on the effects of agency problems on cash policies. Specifically, agency problems affect not only the target level of cash, but also how managers react to cash in excess of the target.	2013	Governance
Which US Market Interactions Affect CEO Pay? Evidence from UK Companies Author: Gerakos, Joseph J., Joseph D. Piotroski, and Suraj Srinivasan Journal: Management Science This paper examines how different types of interactions with U.S. markets by non-U.S. firms are associated with higher levels of CEO pay, greater emphasis on incentive-based compensation, and smaller pay gaps with U.S. firms. Using a sample of CEOs of UK firms and using both broad cross-sectional and narrow event-window tests, we find that capital market relationship in the form of a U.S. exchange listing is related to higher UK CEO pay; however, the effect is similar when UK firms have a listing in any foreign country, implying a foreign listing effect not unique to the United States. Product market relationships measured by the extent of sales in the United States by UK companies are associated with higher pay, greater use of U.S.-style pay arrangements, and a reduction in the U.S.-UK pay gap. The product market effect is incremental to the effect of a U.S. exchange listing, the extent of the firm's non-U.S. foreign market interactions, and the characteristics of the executive. The U.S.-UK CEO pay gap reduces in UK firms that make U.S. acquisitions. Furthermore, the firm's use of a U.S. compensation consultant increases the sensitivity of UK pay practices to U.S. product market relationships.	2013	Governance
Opening the Black Box: Internal Capital Markets and Managerial Power Author: Glaser, Markus, Florencio Lopez-de-Silanes, and Zacharias Sautner Journal: Journal of Finance We analyze the internal capital markets of a multinational conglomerate, using a unique panel data set of planned and actual allocations to business units and a survey of unit CEOs. Following cash windfalls, more powerful managers obtain larger allocations and increase investment substantially more than their less connected peers. We identify cash windfalls as a source of misallocation of capital, as more powerful managers overinvest and their units exhibit lower ex post performance and productivity. These findings contribute to our understanding of frictions in resource allocation within firms and point to an important channel through which power may lead to inefficiencies.	2013	Governance
Identifying the Valuation Effects and Agency Costs of Corporate Diversification: Evidence from the Geographic Diversification of U.S. Banks Author: Goetz, Martin R., Luc Laeven, and Ross Levine Journal: Review of Financial Studies This paper assesses the impact of the geographic diversification of bank holding company (BHC) assets across the United States on their market valuations. Using two new identification strategies based on the dynamic process of interstate bank deregulation, we find that exogenous increases in geographic diversity reduced BHC valuations. We also find that the geographic diversification of BHC assets increased insider lending and reduced loan quality. Taken together, these findings are consistent with theories predicting that geographic diversity intensifies agency problems.	2013	Governance
Unions and Executive Compensation Author: Gomez, Rafael, and Konstantinos Tzioumis Journal: Centre for Economic Performance Discussion Paper No. 720 We estimate the relation between union presence and executive compensation, using a unique panel of executives in publicly listed US firms during the period 1992-2001. We find evidence that union presence is associated with moderately lower levels of executive compensation. Moreover, the magnitude of the union estimate becomes larger at the right tail of the conditional distribution of executive compensation. We also find that the elasticity of cash pay to financial performance is similar across unionized and non-unionized firms, and that union presence is associated with a more compressed inter-firm executive compensation structure.	2013	Social
CEO Compensation and Corporate Risk: Evidence from a Natural Experiment Author: Gormley, Todd A., David A. Matsa, and Rodd Milbourn Journal: Journal of Accounting and Economics This paper examines the two-way relationship between managerial compensation and corporate risk by exploiting an unanticipated change in firms' business risks. The natural experiment provides an opportunity to examine two classic questions related to incentives and risk — how boards adjust incentives in response to firms' risk and how these incentives affect managers' risk-taking. We find that, after left-tail risk increases, boards reduce managers' exposure to stock price movements and that less convexity from options-based pay leads to greater risk-reducing activities. Specifically, managers with less convex payoffs tend to cut leverage and R&D, stockpile cash, and engage in more diversifying acquisitions.	2013	Governance
Managerial Attitudes and Corporate Actions Author: Graham, John R., Campbell R. Harvey, and Manju Puri Journal: Journal of Financial Economics We administer psychometric tests to senior executives to obtain evidence on their underlying psychological traits and attitudes. We find US CEOs differ significantly from non-US CEOs in terms of their underlying attitudes. In addition, we find that CEOs are significantly more optimistic and risk-tolerant than the lay population. We provide evidence that CEOs' behavioral traits such as optimism and managerial risk-aversion are related to corporate financial policies. Further, we provide new empirical evidence that CEO traits such as risk-aversion and time preference are related to their compensation.	2013	Governance
Developing a Social Cost of Carbon for U.S. Regulatory Analysis: A Methodology and Interpretation Author: Greenstone, Michael, Elizabeth Kopits, and Ann Wolverton Journal: Review of Environmental Economics and Policy The US government recently developed a range of values representing the monetized global damages associated with an incremental increase in carbon dioxide (CO2) emissions, commonly referred to as the social cost of carbon (SCC). These values are currently used in benefit-cost analyses to assess potential federal regulations. For 2010, the central value of the SCC is $21 per ton of CO2 emissions, with sensitivity analyses to be conducted at $5,$35 , and $65 per ton of CO2 (2007 dollars). This article summarizes the methodology and interagency process used to develop these SCC values, offers our own commentary on how the SCC can be used to inform regulatory decisions, and identifies priorities for further research.	2013	Environmental
Rating Shopping or Catering? An Examination of the Response to Competitive Pressure for CDO Credit Ratings Author: Griffin, John M., Jordan Nickerson, and Dragon Yongjun Tang Journal: Review of Financial Studies We examine whether "rating shopping" or "rating catering" is a more accurate characterization of rating agency interactions regarding collateralized debt obligations (CDOs). Although investors paid a premium for dual ratings, AAA CDO tranches rated by both Moody's and S&P defaulted more frequently than tranches rated by only one of them, which is inconsistent with pure rating shopping. Rating agencies made upward adjustments beyond their model when their competitor had more lenient assumptions. Finally, consistent with rating catering, S&P's and Moody's adjustments and disagreements at security issuance were reflected in subsequent rating downgrades, suggesting that adjustments were harmful.	2013	Governance
Dysfunction in the Boardroom Author: Groysberg, Boris, and Deborah Bell Journal: Harvard Business Review Though boards claim they strive for diversity, the number of female directors remains low; women held only 16.6 percent of Fortune 500 board seats in 2012. To find out why-and learn about the women appointed to boards and their experiences- Harvard Business School's Groysberg and organizational researcher Bell teamed up with Heidrick & Struggles and WomenCorporateDirectors to conduct annual surveys of board members. In this article they reveal the findings of their 2010 survey of 294 women and 104 men, presenting a profile of the typical female director, what directors thought about the benefits of diversity and the dynamics between men and women on boards, and best practices for recruiting and managing directors. Three themes emerged from the data: (1) Women had to be more qualified than men to be considered for boards. Contrary to popular belief, female directors had more operational and leadership experience than male directors. (2) Boards don't know how to leverage diversity. The women said they were not treated as full members of the group, though the men were largely oblivious to this problem. (3) Great talent is not enough to create a great board. Boards need processes and cultures that encourage inclusiveness as well as diversity.	2013	Governance
Great Leaders Who Make the Mix Work Author: Groysberg, Boris, and Katherine Connolly Journal: Harvard Business Review Business leaders send a powerful message when they make a commitment to diversity that goes beyond rhetoric. But what motivates them to do so, and how do they actually create inclusive cultures? To find out, the authors interviewed 24 CEOs whose firms were known for embracing people of all backgrounds. These executives saw diversity as a strategic and moral imperative and made promoting it a personal mission. Many had experienced what it was like to be an outsider, which gave them a deeper L48understanding of the barriers that women, in particular, face at work. The CEOs resoundingly agreed that an inclusive environment was one in which employees contributed to success as their authentic selves, and the organization respected and leveraged their talents and provided a sense of connectedness. Eight best organizational practices for instilling such a culture emerged from their interviews: 1. Measure diversity and inclusion. 2. Hold managers accountable. 3. Support flexible arrangements. 4. Recruit and promote from diverse pools of candidates. 5. Provide leadership education. 6. Sponsor employee resource groups and mentoring programs. 7. Offer quality role models. 8. Make the chief diversity officer position count. It's also key for CEOs to dedicate time to work personally on diversity initiatives. That sets the tone for everyone and helps ensure that organizations attract and develop the best talent.	2013	Governance
Changes in Institutional Ownership: Liquidity, Activism, and Firm Performance Author: Haddaji, Wady, and Jie Yang Journal: Working paper We document a negative (positive) relationship between firm performance and changes in the ownership of large (small) institutional investors. Small investors "exit" while blockholders increase their holdings following poor performance. We find evidence that large investors increase ownership following poor performance to protect the value of initial holdings and to benefit from undertaking value-enhancing interventions. We observe that poorly performing firms in which blockholders increase their ownership experience more aggressive restructuring policies than firms in which blockholders reduce their ownership. Finally, we find that firms with passive investors recover faster than firms with active investors following poor performance.	2013	Governance
Does the Director Labor Market Offer Ex Post Settling-Up for CEOs? The Case of Acquisitions Author: Harford, Jarrad, and Robert J. Schonlau Journal: Journal of Financial Economics We examine the rewards for experience and ability in the director labor market. We show that large acquisitions are associated with significantly higher numbers of subsequent board seats for the acquiring CEO, target CEO, and the directors. We also find that, in the case of acquisitions, experience is more important than ability. Both value-destroying and value-increasing acquisitions have significant and positive effects on a CEO's future prospects in the director labor market. In addition to increasing our understanding of the director labor market, these results suggest that the ex post settling-up incentives thought to exist in the director labor market are weak for acquisitions.	2013	Governance
Rising Top Incomes Do Not Raise the Tide Author: Herzer, Dierk, and Sebastian Vollmer Journal: Journal of Policy Modeling This paper examines the long-run relationship between top income shares and economic growth for a panel of nine high-income countries over the period from 1961 to 1996. We use panel cointegration and causality techniques that are robust to omitted variables, slope heterogeneity, and endogenous variables. Our main findings are that an increase in the top decile of income share reduces growth, and that long-run causality also runs in the opposite direction — from economic growth to top income shares.	2013	Social
Is Corporate Social Responsibility (CSR) Associated With Tax Avoidance? Evidence from Irresponsible CSR Activities Author: Hoi, Chun Keung, Qiang Wu, and Hao Zhang Journal: The Accounting Review We examine the empirical association between corporate social responsibility (CSR) and tax avoidance. Our findings suggest that firms with excessive irresponsible CSR activities have a higher likelihood of engaging in tax-sheltering activities and greater discretionary/permanent book-tax differences. Moreover, at the onset of FASB Interpretation No. 48, these firms have more uncertain tax positions; also, these firms' initial tax positions are likely supported by weaker facts and circumstances as indicated by their larger post-FIN 48 settlements with tax authorities and their higher likelihood of a net decrease in the overall level of uncertain tax positions after FIN 48. Collectively, these results suggest that firms with excessive irresponsible CSR activities are more aggressive in avoiding taxes, lending credence to the idea that corporate culture affects tax avoidance.	2013	Governance
The Impact of Gender Diversity on the Performance of Business Teams Author: Hoogendoorn, Sander, Hessel Oosterbeek, and Mirjam Van Praag Journal: Management Science This paper reports on a field experiment conducted to estimate the impact of the share of women in business teams on their performance. Teams consisting of undergraduate students in business studies start up a venture as part of their curriculum. We manipulated the gender composition of teams and assigned students randomly to teams, conditional on their gender. We find that teams with an equal gender mix perform better than male-dominated teams in terms of sales and profits. We explore various mechanisms suggested in the literature to explain this positive effect of gender diversity on performance (including complementarities, learning, monitoring, and conflicts) but find no support for them.	2013	Governance
Managerial Incentives and the Role of Advisors in the Continuous-Time Agency Model Author: Hori, Keiichi, and Hiroshi Osano Journal: Review of Financial Studies We explore a continuous-time agency model with double moral hazard. Using a venture capitalist (VC)- entrepreneur relationship where the VC both supplies costly effort and chooses the optimal timing of the initial public offering (IPO), we show that optimal IPO timing is earlier under double moral hazard than under single moral hazard. Our results also indicate that the manager's compensation tends to be paid earlier under double moral hazard. We derive several comparative static results, notably that IPO timing is earlier when the need for monitoring by the VC is smaller and when the volatility of cash flows is larger.	2013	Governance
Gender and Corporate Finance: Are Male Executives Overconfident Relative to Female Executives? Author: Huang, Jiekun, and Darren J. Kisgen Journal: Journal of Financial Economics We examine corporate financial and investment decisions made by female executives compared with male executives. Male executives undertake more acquisitions and issue debt more often than female executives. Further, acquisitions made by firms with male executives have announcement returns approximately 2 percent lower than those made by female executive firms, and debt issues also have lower announcement returns for firms with male executives. Female executives place wider bounds on earnings estimates and are more likely to exercise stock options early. This evidence suggests men exhibit relative overconfidence in significant corporate decision making compared with women.	2013	Social, Governance
Environmental Disclosure Quality: Evidence on Environmental Performance, Corporate Governance and Value Relevance Author: Iatridis, George Emmanuel Journal: Emerging Markets Review This study focuses on common-law Malaysia, which is classified as an advanced emerging market. It assesses the association between environmental disclosure and environmental performance and examines the financial attributes of companies with different environmental disclosure scores. It investigates the relation between environmental disclosure quality and corporate governance, and also examines the extent to which effective environmental disclosures are value relevant and how they influence investor perceptions. The findings of the study show that environmental disclosure is positively linked to environmental performance. Company attributes, such as large size, the need for capital, profitability and capital spending, are positively associated with environmental disclosure quality. High quality environmental disclosers display effective corporate governance and would tend to face less difficulties in accessing capital markets. They generally are audited by a big 4 auditor or cross-listed on foreign stock exchanges and display significant levels of managerial and institutional ownership. High quality environmental disclosures are value relevant and improve investor perceptions. High quality disclosers overall belong to beverages, chemicals, food producers, forestry and paper, and industrial metals and mining.	2013	Environmental
Monitoring and Corporate Disclosure: Evidence from a Natural Experiment Author: Irani, Rustom M., and David Oesch Journal: Journal of Financial Economics Using an experimental design that exploits exogenous reductions in coverage resulting from brokerage house mergers, we find that a reduction in coverage causes a deterioration in financial reporting quality. The effect of coverage on disclosure is more pronounced for firms with weak shareholder rights, consistent with a substitution effect between analyst monitoring and other corporate governance mechanisms. The effects we uncover using our experimental design are an order of magnitude larger than estimates from ordinary least squares regressions that do not account for the endogeneity of coverage. Overall, our results suggest that security analysts monitor managers and entrenched managers adopt less informative disclosure policies in the absence of such scrutiny.	2013	Governance
Valuation Consequences of Clawback Provisions Author: Iskandar-Datta, Mai, and Yonghong Jia Journal: The Accounting Review We investigate the degree to which including a clawback provision in executive compensation contracts is an effective governance mechanism by documenting the impact of clawback adoption on stock prices. We expect this ex post settling-up mechanism to be beneficial because it diminishes financial reporting risks. In support of our hypotheses, we find that the shareholders of adopting firms experience statistically significant positive stock-valuation consequences relative to propensity-score-matched control samples. Further, firms with previous financial restatements had the largest economic gains, suggesting that a clawback policy can be effective at curtailing incentives for earnings manipulation. Analysis of the bid-ask spread provides evidence that these provisions contribute to reducing financial reporting risk for restating firms, while non-restating firms experience no change in the spread. We find no evidence that clawback provisions entail costs in the form of higher CEO compensation following adoption nor do they influence the design of compensation contracts.	2013	Governance
Gender Diversity in the Boardroom and Firm Performance: What Exactly Constitutes a "Critical Mass?" Author: Joecks, Jasmin, Kerstin Pull, and Karin Vetter Journal: Journal of Business Ethics The under-representation of women on boards is a heavily discussed topic —not only in Germany. Based on critical mass theory and with the help of a hand-collected panel dataset of 151 listed German firms for the years 2000-2005, we explore whether the link between gender diversity and firm performance follows a U-shape. Controlling for reversed causality, we find evidence for gender diversity to at first negatively affect firm performance and — only after a "critical mass" of about 30 percent women has been reached — to be associated with higher firm performance than completely male boards. Given our sample firms, the critical mass of 30 percent women translates into an absolute number of about three women on the board and hence supports recent studies on a corresponding "magic number" of women in the boardroom.	2013	Social
Do Defaulting CEOs and Directors Increase the Likelihood of Financial Distress of the Firm? Author: Kallunki, Juha-Pekka, and Elina Pyykko Journal: Review of Accounting Studies We hypothesize that the information on a CEO's and directors' (board members) past personal payment default entries in public credit data files significantly increases the predictive power of Altman's (in J Fin 23(4):589-609, 1968) and Ohlson's (In J Acc Res 18(1):109-131, 1980) distress prediction models. We base our hypothesis on the literature showing that (1) managerial traits such as overconfidence, over-optimism, and the illusion of control affect corporate decisions and that (2) these same personal traits explain personal over-indebtedness and credit defaults. Our results of analyzing the credit data files of more than 100,000 CEOs and directors of the Finnish private limited liability companies support this hypothesis. Our results remain materially unchanged when using the bootstrapping method to assess their significance and when excluding small firms (firm size below the sample median). Collectively, our results imply that creditors should recognize the increased distress risk of firms appointing defaulting CEOs and directors.	2013	Governance
Moving Forward With Incorporating 'Catastrophic' Climate Change into Policy Analysis Author: Kopits, Elizabeth, Alex L. Marten, and Ann Wolverton Journal: National Center for Environmental Economics Working Paper This paper provides a foundation for improving the economic modeling of potential large scale impacts of climate change in order to understand their influence on estimates of socially efficient climate policy. We begin by considering how the term "catastrophic impacts" has been used in the scientific literature to describe changes in the climate system and carefully review the characteristics of the events that have been discussed in this context. We contrast those findings with a review of the way in which the economic literature has modeled the potential economic and human welfare impacts of events of this nature. We find that the uniform way in which the economic literature has typically modeled such impacts along with the failure to understand differences in the end points and timescales examined by the natural science literature has resulted in the modeling of events that do not resemble those of concern. Based on this finding and our review of the scientific literature we provide a path forward for better incorporating these events into integrated assessment modeling, identifying areas where modeling could be improved even within current modeling frameworks and others where additional work is needed.	2013	Environmental
CEO Entrenchment and Corporate Hedging: Evidence from the Oil and Gas Industry Author: Kumar, Praveen, and Ramon Rabinovitch Journal: Journal of Financial and Quantitative Analysis Using a unique data set with detailed information on the derivative positions of upstream oil and gas firms during 1996-2008, we find that hedging intensity is positively related to factors that amplify chief executive officer (CEO) entrenchment and free cash flow agency costs. There is also robust evidence that hedging is motivated by the reduction of financial distress and borrowing costs, and that it is influenced by both intrinsic cash flow risk and temporary spikes in commodity price volatility. We present a comprehensive perspective on the determinants of corporate hedging, and the results are consistent with the predictions of the risk management and agency costs literatures.	2013	Governance
Looking Back, Looking Forward: A Hitchhiker's Guide to Research on Social and Sustainable Investing Author: Kurtz, Lloyd Journal: Book Worldwide today, trillions of assets are managed using Sustainable and Responsible Investing strategies, and the numbers keep rising steadily. The very magnitude of this commitment of capital raises serious questions. Do social and sustainable investors understand what they are doing? Are their strategies based on sound research? A great deal of analytical work has been done over the years, but can we draw definite conclusions from it? In short, what have we learned? In "A Hitchhiker's Guide to Research on Social and Sustainable Investment", SRI-expert Lloyd Kurtz provides a succinct overview of relevant research over the last couple of decades. The author's unrivaled work and achievements in the domain of socially responsible investing allows him to bridge the gap between science and practice, making this E-book a must-have for researchers, investors and business practitioners and policy makers. This guide bundles articles on studies and books which have been published on FSinsight.	2013	Environmental, Social, Governance
Proxy Advisory Firms and Stock Option Repricing Author: Larcker, David F., Allan L. McCall, and Gaizka Ormazabal Journal: Journal of Accounting and Economics This paper examines the economic consequences associated with the board of director's choice of whether to adhere to proxy advisory firm policies in the design of stock option repricing programs. Proxy advisors provide research and voting recommendations to institutional investors on issues subject to a shareholder vote. Since many institutional investors follow the recommendations of proxy advisors in their voting, proxy advisor policies are an important consideration for corporate boards in the development of programs that require shareholder approval such as stock option repricing programs. Using a comprehensive sample of stock option repricings announced between 2004 and 2009, we find that repricing firms following the restrictive policies of proxy advisors exhibit statistically lower market reactions to the repricing, lower operating performance, and higher employee turnover. These results are consistent with the conclusion that proxy advisory firm recommendations regarding stock option repricings are not value increasing for shareholders.	2013	Governance
Enhancing the Returns of SRI Portfolios Using a Low-Volatility Small-Basket Strategy Author: Larsen, Glen A. Journal: Working paper The focus of this research is on enhancing the returns of socially responsible investment (SRI) portfolios by constructing minimum variance small-basket portfolios. The results suggest that individual investors and professional financial planners on behalf of their clients can realize enhanced performance relative to SRI funds that contain a large number of stocks by constructing minimum variance portfolios that generally contain fewer than 10 stocks. Over the 10-year period from 2002 through 2011, which is a function of the availability of SRI fund return data, the average annual excess returns for the minimum variance small-basket portfolios range from 2.59 percent to 6.99 percent relative to the larger SRI funds from which the small-basket funds are constructed. Measures of total risk and downside risk further support the enhanced performance of the minimum variance small-basket portfolio strategy. Perhaps most importantly, the minimum variance small-basket strategy that we describe can be easily implemented by individual investors or by professional financial planners on behalf of their clients.	2013	Environmental, Social, Governance
Integrating Tipping Points into Climate Impact Assessments Author: Lenton, Timothy M., and Juan-Carlos Ciscar Journal: Climatic Change There is currently a huge gulf between natural scientists' understanding of climate tipping points and economists' representations of climate catastrophes in integrated assessment models (IAMs). In particular, there are multiple potential tipping points and they are not all low-probability events; at least one has a significant probability of being passed this century under mid-range (2-4 °C) global warming, and they cannot all be ruled out at low (<2 °C) warming. In contrast, the dominant framing of climate catastrophes in IAMs, and in critiques of them, is that they are associated with high (> 4 °C) or very high (> 8 °C) global warming. This discrepancy could qualitatively alter the predictions of IAMs, including estimates of the social cost of carbon. To address this discrepancy and assess the economic impact of crossing different climate tipping points, we highlight a list of scientific points that should be considered, at least in a stylised form, in simplified IAMs. For nine different tipping events, the range of expected physical climate impacts is summarised and some suggestions are made for how they may translate into socio-economic impacts on particular sectors or regions. We also consider how passing climate tipping points could affect economic growth.	2013	Environmental
Productivity, Restructuring, and the Gains from Takeovers Author: Li, Xiaoyang Journal: Journal of Financial Economics This paper investigates how takeovers create value. Using plant-level data, I show that acquirers increase targets' productivity through more efficient use of capital and labor. Acquirers reduce capital expenditures, wages, and employment in target plants, though output is unchanged. Acquirers improve targets' investment efficiency through reallocating capital to industries with better investment opportunities. Moreover, changes in productivity help explain the merging firms' announcement returns. The combined announcement returns are driven by improvements in target's productivity. Targets with greater productivity improvements receive higher premiums. These results provide some first empirical evidence on the relation between productivity and stock returns in takeovers.	2013	Governance
Does Family Control Matter? International Evidence from the 2008-2009 Financial Crisis Author: Lins, Karl V., Paolo Volpin, and Hannes F. Wagner Journal: Review of Financial Studies We study whether and how family control affects valuation and corporate decisions during the 2008- 2009 financial crisis using a sample of more than 8,500 firms from 35 countries. We find that family - controlled firms underperform significantly, they cut investment more relative to other firms, and these investment cuts are associated with greater underperformance. Further, we find that within family groups liquidity shocks are passed on through investment cuts across the group. Our evidence is consistent with families taking actions to increase the likelihood that the firms under their control and their control benefits survive the crisis, at the expense of outside shareholders.	2013	Governance
What is the Right Price for Carbon Emissions? Author: Litterman, Bob Journal: Regulation As concern over climate change grows, policymakers face a difficult question: How much should society spend today to protect future generations against the unknown risks emissions create? Two issues make determining the appropriate price of carbon emissions a particularly difficult question for economists. First, the unusually long time before environmental damages are expected to be realized makes them difficult to value today. Second, the potential for a low-probability, high-damage scenario to occur is fundamentally uncertain.	2013	Environmental
Women on Boards and Firm Performance Author: Luckerath-Rovers, Mijntje Journal: Journal of Management & Governance This study investigates the financial performance of Dutch companies both with and without women on their boards. The analysis extends earlier methods used in research by Catalyst (The bottom line: corporate performance and women's representation on boards, 2007) and McKinsey (Women matter. Gender diversity, a corporate performance driver. McKinsey & Company, USA, 2007), two studies that are often cited in the literature, although, each has a number of methodological shortcomings. This article adds to the international debate, which is often normative, through examining 99 listed companies in the Dutch Female Board Index. Our results show that firms with women directors perform better than those without women on their boards.	2013	Social
How Control System Design Influences Performance Misreporting Author: Maas, Victor S., and Marcel Van Rinsum Journal: Journal of Accounting Research This paper investigates reporting honesty when managers have monetary incentives to overstate their performance. We argue that managers who report about their performance will take into account how their report affects their peers (i.e., other managers at the same hierarchical level). This effect depends on the design of the organization's control system, in particular, on the reward structure and the information policy regarding individual performance reports. The reward structure determines if peers' monetary payoff is increased or decreased when managers claim a higher level of performance. The information policy determines if managers will be able to link individual peers to their reports and affects the nonmonetary costs of breaking social norms. We present the results of a laboratory experiment. As predicted, we find that participants are more likely to overstate their performance if this increases the monetary payoff of others than if their reported performance decreases others' monetary gains. In addition, overstatements are lower under an open information policy, where each individual's reported performance is made public, compared to a closed information policy, where participants only learn the average performance of the other participants. Our findings have several important implications for management accounting research and practice.	2013	Governance
A Servant to Many Masters: Competing Shareholder Preferences and Limits to Catering Author: Manconi, Alberto, and Massimo Massa Journal: Journal of Financial and Quantitative Analysis We study what determines catering through the payout policy and how catering affects firm value. We create a catering index, measuring how the firm caters to its investors' payout preferences. The index is based on the revealed payout preferences of mutual funds holding the firm's stocks. Catering is constrained by market segmentation and dispersion in investor payout preferences. It is also associated with positive value effects: Firms increasing their catering index also experience an increase in value. Furthermore, greater catering ability is associated with a more positive market reaction to corporate announcements of equity issues and dividend payouts.	2013	Governance
Inequality of Opportunity and Growth Author: Marrero, Gustavo A., and Juan G. Rodriguez Journal: Journal of Development Economics Theoretical and empirical studies exploring the effects of income inequality upon growth reach a disappointing inconclusive result. This paper postulates that one reason for this ambiguity is that income inequality is actually a composite measure of inequality of opportunity and inequality of effort. They may affect growth through opposite channels, thus the relationship between inequality and growth depends on which component is larger. Using the PSID database for the U.S. in 1970, 1980 and 1990 we find robust support for a negative relationship between inequality of opportunity and growth, and a positive relationship between inequality of effort and growth.	2013	Social
Access Denied: Low Mentoring of Women and Minority First-Time Directors and Its Negative Effects on Appointments to Additional Boards Author: McDonald, Michael L., and James D. Westphal Journal: Academy of Management Journal This study contributes to the literature on women and minorities in corporate leadership by developing theory that can help to explain the persistent underrepresentation of women and minorities among those who are seen as members of the "corporate elite" because they hold multiple corporate board seats. Our conceptual framework suggests how disadvantages in the receipt of mentoring regarding prevailing norms in the corporate elite are negatively affecting the ability of women and minorities to secure multiple board appointments. Our theory explains why women and minority first-time directors receive comparatively less mentoring regarding a core norm in the corporate elite that outside directors should avoid exercising independent control over firm strategy. Our theory also explains why lower levels of mentoring result in women and racial minority first-time directors receiving relatively fewer appointments to other boards. This study also contributes to the corporate leadership literature by explaining how fundamental intergroup biases are negatively impacting the demographic diversity of the corporate elite. This article further highlights a specific social mechanism that undermines efforts to move toward more meritocratic outcomes in corporate leadership whereby those who are relatively qualified will have greater success in rising to the highest-level positions in the corporate world.	2013	Social
On Welfare Frameworks and Catastrophic Climate Risks Author: Millner, Antony Journal: Journal of Environmental Economics and Management Recent theoretical work in the economics of climate change has suggested that climate policy is highly sensitive to 'fat-tailed' risks of catastrophic outcomes (Weitzman, 2009) [68]. Such risks are suggested to be an inevitable consequence of scientific uncertainty about the effects of increased greenhouse gas concentrations on climate. Criticisms of this controversial result fall into three categories: The first suggests that it may be irrelevant to cost benefit analysis of climate policy, the second challenges the fat-tails assumption, and the third questions the behavior of the utility function assumed in the result. This paper analyses these critiques and suggests that those in the first two categories have formal validity, but that they apply only to the restricted setup of the original result, which may be extended to address their concerns. They are thus ultimately unconvincing. Critiques in the third category are shown to be robust however they open up new ethical and empirical challenges for climate economics that have thus far been neglected — how should we 'value' catastrophes as a society? I demonstrate that applying results from social choice to this problem can lead to counterintuitive results, in which society values catastrophes as infinitely bad, even though each individual's utility function is bounded. Finally, I suggest that the welfare functions traditionally used in climate economics are ill-equipped to deal with climate catastrophes in which population size changes. Drawing on recent work in population ethics I propose an alternative welfare framework with normatively desirable properties, which has the effect of dampening the contribution of catastrophes to welfare.	2013	Environmental
CEOs Under Fire: The Effects of Competition from Inside Directors on Forced CEO Turnover and CEO Compensation Author: Mobbs, Shawn Journal: Journal of Financial and Quantitative Analysis This study examines board monitoring when a credible chief executive officer (CEO) replacement is on the board. Inside directors whose talents are in greater demand externally, as reflected by their holding outside directorships, are more likely to become CEOs, and their presence is associated with greater forced CEO turnover sensitivity to accounting performance and CEO compensation sensitivity to stock performance. These results reveal that certain insiders strengthen board monitoring by serving as a readily available CEO replacement and contradict the presumption that all insiders are under CEO control. Furthermore, the results persist when accounting for the endogenous firm selection of talented inside directors.	2013	Governance
Optimizing Environmental, Social and Governance Factors in Portfolio Construction: Analysis of Three ESG-tilted Strategies Author: Nagy, Zoltán, Doug Cogan, and Dan Sinnreich Journal: Working paper Institutional investors wanting to integrate Environmental, Social and Governance (ESG) factors in their investment strategies need the right tools to measure portfolio risk characteristics and performance. MSCI's BarraOne and Barra Portfolio Manager can provide this utility with Intangible Value Assessment (IVA) ratings from MSCI ESG Research. In this study, we examine the use of IVA ratings with the Barra Global Equity Model (GEM3) to build optimized portfolios with improved ESG ratings, while keeping risk, performance, country, industry, and style characteristics similar to conventional benchmarks, such as the MSCI World Index. The currently available dataset of IVA scores allowed us to compare three strategies during the period between February 2008 and December 2012, using current IVA ratings methodology. Of the three strategies, we found the best active returns during this period were achieved by overweighting firms whose IVA ratings improved over the recent time period, showing ESG momentum. Underweighting assets with low ESG ratings also raised portfolio performance during this period. The highest ESG rated assets had more uneven performance; they generally did better in periods of limited risk appetite during this volatile market cycle.	2013	Environmental, Social, Governance
Internal versus External CEO Choice and the Structure of Compensation Contracts Author: Palomino, Frederic, and Eloic Peyrache Journal: Journal of Financial and Quantitative Analysis Any firm choosing a chief executive officer (CEO) faces a double problem: candidate selection and choice of a compensation scheme. We derive sufficient conditions where the unique optimal compensation scheme is a capped-bonus contract in a pure moral-hazard environment, while equity is used when the firm also faces adverse selection. Then, we provide a rationale for the simultaneous increases in CEO pay, use of equity in compensation, and external hiring of CEOs. Our results are consistent with empirical evidence that shows externally hired CEOs earn more than those internally hired and that externally hired CEOs get a higher fraction of their compensation equity based.	2013	Governance
Social Discrimination in the Corporate Elite: How Status Affects the Propensity for Minority CEOs to Receive Blame for Low Firm Performance Author: Park, Sun Hyun, and James D. Westphal Journal: Administrative Science Quarterly This study examines social discrimination in the attributions that top executives make about the performance of other firms with minority CEOs in their communications with journalists. Drawing from the literatures on intergroup relations and status competition, our theory suggests how out-group biases and negative forms of envy toward higher-status minority CEOs may increase the propensity for white male CEOs to make negative or internal attributions for the low performance of the minority CEOs' firms. We also examine how CEOs' internal attributions in conversations with journalists increase the tendency for those journalists to attribute performance to internal causes in reporting on the minority CEOs' firms. We consider how the gender and race of journalists could moderate the influence of CEOs' performance attributions on journalists' reports, such that female or racial minority journalists would be less easily persuaded by white male CEOs' internal attributions for the low performance of firms with female or racial minority CEOs, and thus less prone to issuing negative statements about the CEOs' leadership. Empirical analyses based on original survey data from a large sample of CEOs and journalists provided strong support for our hypotheses. We discuss implications of the findings for theory and research on social discrimination in the corporate elite and social psychological determinants of corporate leader reputation.	2013	Governance
Political Uncertainty and Risk Premia Author: Pástor, Luboš, and Pietro Veronesi Journal: Journal of Financial Economics We develop a general equilibrium model of government policy choice in which stock prices respond to political news. The model implies that political uncertainty commands a risk premium whose magnitude is larger in weaker economic conditions. Political uncertainty reduces the value of the implicit put protection that the government provides to the market. It also makes stocks more volatile and more correlated, especially when the economy is weak. We find empirical evidence consistent with these predictions.	2013	Governance
Corporate Governance and Risk Taking in Pension Plans: Evidence from Defined Benefit Asset Allocations Author: Phan, Hieu V., and Shantaram P. Hegde Journal: Journal of Financial and Quantitative Analysis Based on theoretical advice and empirical evidence suggesting that risk taking in asset allocation enhances pension returns, we evaluate empirically whether good corporate governance leads to a larger allocation of pension assets to risky securities as compared to safe investments. Our findings suggest that firms with good external and internal corporate governance take more risk by investing heavily in equities and allocating a smaller share of the plan assets to cash, government debt, and insurance company accounts. The main underlying mechanisms appear to be higher investment returns and better pension funding status associated with higher equity and lower safe asset allocations.	2013	Governance
Cultural Diversity and Team Performance: The Role of Team Member Goal Orientation Author: Pieterse, Anne Nederveen, Daan van Knippenberg, and Dirk van Dierendonck Journal: Academy of Management Journal As workforce diversity increases, knowledge of factors influencing whether cultural diversity results in team performance benefits is of growing importance. Complementing and extending earlier research, we develop and test theory about how achievement setting readily activates team member goal orientations that influence the diversity-performance relationship. In two studies, we identify goal orientation as a moderator of the performance benefits of cultural diversity and team information elaboration as the underlying process. Cultural diversity is more positive for team performance when team members' learning approach orientation is high and performance avoidance orientation is low. This effect is exerted via team information elaboration.	2013	Social
A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value Author: Popadak, Jillian Journal: Working paper I show corporate culture is an important channel through which shareholder governance affects firm value. I develop a novel data set to measure aspects of corporate culture and use a regression discontinuity strategy to demonstrate stronger shareholder governance significantly changes aspects of culture. I find greater results-orientation but less customer-focus, integrity, and collaboration. Consistent with a positive link between governance and value, shareholders initially realize financial gains: increases in sales, profitability, and payout occur. However, over time, I find intangible assets associated with customer satisfaction and employee integrity deteriorate, which partly reverses the gains from greater results-orientation. These findings are consistent with a model of multitasking where stronger governance incentivizes managers to concentrate on easy-to-observe benchmarks at the expense of the harder-to-measure intangibles, even though such actions are not in the firm's best long-term interest. On average, I find firm value declines 1.4 percent through this corporate culture channel. I use an instrumental variable design and interventions by activist hedge funds to test the external validity of the inferences. Across these complementary research designs, I consistently find strong support for the economic importance of a corporate culture channel.	2013	Governance
How Do Ex Ante Severance Pay Contracts Fit into Optimal Executive Incentive Schemes? Author: Rau, P. Raghavendra, and Jin Xu Journal: Journal of Accounting Research We analyze a sample of over 3,600 ex ante explicit severance pay agreements in place at 808 firms and show that firms set ex ante explicit severance pay agreements as one component in managing the optimal level of equity incentives. Younger executives are more likely to receive explicit contracts and better terms. Firms with high distress risk, high takeover probability, and high return volatility are significantly more likely to enter into new or revised severance contracts. Finally, ex post payouts to managers are largely determined by the ex ante contract terms.	2013	Governance
The Influence of Director Stock Ownership and Board Discussion Transparency on Financial Reporting Quality Author: Rose, Jacob M., Cheri R. Mazza, Carolyn S. Norman, and Anna M. Rose Journal: Accounting, Organizations and Society Seventy-two active corporate directors participate in an experiment where management insists on aggressive recognition of revenue, but the chief audit executive proposes a more conservative approach. Results indicate interactive effects of director stock ownership and the transparency of director decisions. Stock-owning directors are more likely to oppose management's attempts to manage earnings when transparency increases. For non-stock owning directors, however, increasing transparency does not affect the likelihood that directors oppose management's attempts to manage earnings. The current study challenges suppositions that equate director stock ownership with improved financial reporting and higher corporate governance quality, and it provides evidence that increased transparency is beneficial when director compensation plans threaten director independence.	2013	Governance
ROE and Corporate Social Responsibility: Is There a Return on Ethics? Author: Sabbaghi, Omid, and Min Xu Journal: Journal of Accounting and Finance In light of the financial crisis of 2008, this study examines the return performance of U.S. companies that exhibit high ratings for ethics and corporate social responsibility (CSR). The highly rated CSR firms are identified via Corporate Responsibility (CR) Magazine's Best 100 Corporate Citizens list for 2010, known as one of the world's top corporate responsibility ranking. We employ traditional event study methodology to assess the effects of the CSR news announcement. In our study, we find that the return performance of socially responsible firms exhibits similar time-series dynamics to that of a broad market portfolio comprising of all NYSE, Nasdaq, and AMEX stocks. While several CSR firms may provide exceptionally high returns, we find that on average, the socially responsible portfolio's risk-return profile does not differ significantly from that of the broad-based market portfolio. While we document a rise in the cumulative abnormal return for the CSR portfolio prior to the news announcement, we find that the upward drift in asset prices disappears following the announcement date and after controlling for market-wide sources of risk. This study is one of the first investigations that focuses on the return performance of CSR firms in the aftermath of the global financial crisis of 2008. Our results collectively provide evidence in support of the Efficient Markets Hypothesis and suggest that the CSR rankings announcement provided by Corporate Responsibility Magazine is indicative of good news for these firms.	2013	Environmental, Social, Governance
What Do Boards Really Do? Evidence from Minutes of Board Meetings Author: Schwartz-Ziv, Miriam, and Michael S. Weisbach Journal: Journal of Financial Economics We analyze a unique database from a sample of real-world boardrooms — minutes of board meetings and board-committee meetings of eleven business companies for which the Israeli government holds a substantial equity interest. We use these data to evaluate the underlying assumptions and predictions of models of boards of directors. These models generally fall into two categories: "managerial models" that assume boards play a direct role in managing the firm, and "supervisory models" that assume that boards monitor top management but do not make business decisions themselves. Consistent with the supervisory models, our minutes-based data suggest that boards spend most of their time monitoring management: approximately two-thirds of the issues boards discussed were of a supervisory nature, they were presented with only a single option in 99 percent of the issues discussed, and they disagreed with the CEO only 2.5 percent of the time. Nevertheless, at times boards do play a managerial role: Boards requested to receive further information or an update for 8 percent of the issues discussed, and they took an initiative with respect to 8.1 percent of them. In 63 percent of the meetings, boards took at least one of these actions or did not vote in line with the CEO. Taken together our results suggest that boards can be characterized as active monitors.	2013	Governance
CEO Compensation and Fair Value Accounting: Evidence from Purchase Price Allocation Author: Shalev, Ron, Ivy Xiying Zhang, and Yong Zhang Journal: Journal of Accounting Research This study investigates the impact of CEO compensation structure on post-acquisition purchase price allocation, an accounting procedure that involves fair value estimation of various assets and liabilities. We find that CEOs whose compensation packages rely more on earnings-based bonuses are more likely to overallocate the purchase price to goodwill, the largest asset recorded post-acquisition. Because goodwill is not amortized, the overallocation likely increases post-acquisition earnings and bonuses. We also find that, when the acquirer's CEO bonus plan includes performance measures that are not affected, or are less affected, by the overstatement of goodwill, such as cash flows, sales, or earnings growth, the overallocation to goodwill motivated by bonus plans diminishes.	2013	Governance
"I Care About Nature, but...": Disengaging Values in Assessing Opportunities That Cause Harm Author: Shepherd, Dean A., Holger Patzelt, and Robert A. Baron Journal: Academy of Management Journal Some managers and entrepreneurs decide to act in ways that result in harm to the natural environment, despite the fact that such actions violate their own values. Building on moral self-regulation theory (Bandura, 1991), we propose that entrepreneurs' assessments of the attractiveness of opportunities that harm the natural environment depend on the simultaneous impact of values and personal agency. By cognitively disengaging their pro-environmental values, decision makers (i.e., entrepreneurs) can (under certain circumstances) perceive opportunities that harm the environment as highly attractive and thus suitable for exploitation. The results of a judgment task that generated 1,264 opportunity assessments nested within 83 business founders offered support for this general prediction and indicated that the extent of founders' disengagement of their pro-environmental values was stronger when they had high, rather than low, entrepreneurial self-efficacy, and stronger when industry munificence was perceived as low rather than high. We discuss our new measure of moral disengagement in a decision-making context and the implications of the study's findings for extant literatures on moral disengagement and sustainable entrepreneurship.	2013	Environmental
Internal Control over Financial Reporting and Managerial Rent Extraction: Evidence from the Profitability of Insider Trading Author: Skaife, Hollis A., David Veenman, and Daniel Wagerin. Journal: Journal of Accounting and Economics This paper examines the association between ineffective internal control over financial reporting and the profitability of insider trading. We predict and find that the profitability of insider trading is significantly greater in firms disclosing material weaknesses in internal control relative to firms with effective control. The positive association is present in the years leading up to the disclosure of material weaknesses, but disappears after remediation of the internal control problems. We find insider trading profitability is even greater when insiders are more likely to act in their own self interest as indicated by auditors' weak "tone at the top" adverse internal control opinions and this incremental profitability is driven by insider selling. Our research identifies a new setting where shareholders are most at risk for wealth transfers via insider trading and highlights market consequences of weak "tone at the top".	2013	Governance
Earnings Inequality and Skill Mismatch in the U.S.: 1973-2002 Author: Slonimczyk, Fabian Journal: Journal of Economic Inequality This paper shows that skill mismatch is a significant source of inequality in real earnings in the U.S. and that a substantial fraction of the increase in wage dispersion during the period 1973-2002 was due to the increase in mismatch rates and mismatch premia. In 2000-2002, surplus and deficit qualifications taken together accounted for 4.3 and 4.6 percent of the variance of log earnings, or around 15 percent of the total explained variance. The dramatic increase in over-education rates and premia accounts for around 20 and 48 percent of the increase in the Gini coefficient during the 30 years under analysis for males and females respectively. The surplus qualification factor is important in understanding why earnings inequality polarized in the last decades.	2013	Social
Impression Management, Myth Creation and Fabrication in Private Social and Environmental Reporting: Insights from Erving Goffman Author: Solomon, Jill F., Aris Solomon, Nathan L. Joseph, and Simon D. Norton Journal: Accounting, Organizations and Society This paper explores the nature of private social and environmental reporting (SER). From interviews with UK institutional investors, we show that both investors and investees employ Goffmanesque, staged impression management as a means of creating and disseminating a dual myth of social and environmental accountability. The interviewees' utterances unveil private meetings imbued with theatrical verbal and physical impression management. Most of the time, the investors' shared awareness of reality belongs to a Goffmanesque frame whereby they accept no intentionality, misrepresentation or fabrication, believing instead that the 'performers' (investees) are not intending to deceive them. A shared perception that social and environmental considerations are subordinated to financial issues renders private SER an empty encounter characterised as a relationship-building exercise with seldom any impact on investment decision-making. Investors spoke of occasional instances of fabrication but these were insufficient to break the frame of dual myth creation. They only identified a handful of instances where intentional misrepresentation had been significant enough to alter their reality and behaviour. Only in the most extreme cases of fabrication and lying did the staged meeting break frame and become a genuine occasion of accountability, where investors demanded greater transparency, further meetings and at the extreme, divested shares. We conclude that the frontstage, ritualistic impression management in private SER is inconsistent with backstage activities within financial institutions where private financial reporting is prioritised. The investors appeared to be in a double bind whereby they devoted resources to private SER but were simultaneously aware that these efforts may be at best subordinated, at worst ignored, rendering private SER a predominantly cosmetic, theatrical and empty exercise.	2013	Environmental, Social, Governance
The Structure of Economic Modeling of the Potential Impacts of Climate Change: Grafting Gross Underestimation of Risk onto Already Narrow Science Models Author: Stern, Nicholas Journal: Journal of Economic Literature Scientists describe the scale of the risks from unmanaged climate change as potentially immense. However, the scientific models, because they omit key factors that are hard to capture precisely, appear to substantially underestimate these risks. Many economic models add further gross underassessment of risk because the assumptions built into the economic modeling on growth, damages and risks, come close to assuming directly that the impacts and costs will be modest and close to excluding the possibility of catastrophic outcomes. A new generation of models is needed in all three of climate science, impact and economics with a still stronger focus on lives and livelihoods, including the risks of large-scale migration and conflicts.	2013	Environmental
Earnings Manipulation and the Cost of Capital Author: Strobl, Gunter Journal: Journal of Accounting Research The widespread use of accounting information by investors and financial analysts to help value stocks creates an incentive for managers to manipulate earnings in an attempt to influence short-term stock price performance. This paper examines the role of earnings management in affecting a firm's cost of capital. Using an agency model with multiple firms whose cash flows are correlated, we demonstrate that the extent of earnings manipulation varies across the business cycle. Depending on a firm's earnings profile, it can have stronger incentives to overstate its performance in good times or in bad times. Because of this dependence on the state of the economy, earnings manipulation can influence a firm's cost of capital despite the forces of diversification.	2013	Governance
CEO Wage Dynamics: Estimates from a Learning Model Author: Taylor, Lucian A Journal: Journal of Financial Economics The level of Chief Executive Officer (CEO) pay responds asymmetrically to good and bad news about the CEO's ability. The average CEO captures approximately half of the surpluses from good news, implying CEOs and shareholders have roughly equal bargaining power. In contrast, the average CEO bears none of the negative surplus from bad news, implying CEOs have downward rigid pay. These estimates are consistent with the optimal contracting benchmark of Harris and Hölmstrom (1982) and do not appear to be driven by weak governance. Risk-averse CEOs accept significantly lower compensation in return for the insurance provided by downward rigid pay.	2013	Governance
The Double-Edged Nature of Board Gender Diversity: Diversity, Firm Performance, and the Power of Women Directors As Predictors of Strategic Change Author: Triana, Maria del Carmen, Toyah L. Miller, and Tiffany M. Trzebiatowski Journal: Organization Science Diverse boards have been seen as providing impetus for initiating change. However, diversity may introduce conflict and impede decision making, which could hinder the ability of the firm to make strategic change, especially in times when firm performance is low. Integrating threat-rigidity theory and team diversity research, we examine how board gender diversity, firm performance, and the power of women directors interact to influence the amount of strategic change. Results support a three-way interaction, indicating that when the board is not experiencing a threat as a result of low firm performance and women directors have greater power, the relationship between board gender diversity and amount of strategic change is the most positive. However, when the board is threatened by low firm performance and women directors have greater power, the relationship between board gender diversity and amount of strategic change is the most negative. Results suggest that diversity is double-edged because it can propel or impede strategic change depending on firm performance and the power of women directors.	2013	Social
Are Relative Performance Measures in CEO Incentive Contracts Used for Risk Reduction and/or Strategic Interaction? Author: Vrettos, Dimitris Journal: The Accounting Review This study offers evidence that the use of RPE (Relative Performance Evaluation) in CEO incentive contracting depends on the type of strategic competition between a firm and its peers. Specifically, CEO pay is negatively (positively) associated with peer—group performance when firms compete as strategic substitutes (complements). This finding suggests that firms provide CEO incentives in order to influence strategic interaction with peer firms. Further, the directionally opposite pay-for-peer-group-performance sensitivities, i.e., negative (positive) for substitutes (complements), cancel each other in aggregate, which may explain the lack of consistent support found in prior research for the role of RPE in filtering out common noise from the CEO's performance. I also document that the weight on both substitute and complement peer performance increases, in absolute value, with the intensity of industry competition relative to the weight on own—firm performance. Finally, taking firms' explicit RPE disclosures into account does not affect the results.	2013	Governance
Explaining Differences in Firms' Responses to Activism Author: Waldron, Theodore L., Chad Navis, and Greg Fisher Journal: Academy of Management Review Activist campaigns describe efforts to modify socially or environmentally detrimental industry practices by contesting prominent industry members' versions of those practices (i.e., target firms). We adopt a sociocognitive perspective to account for variance in when and how the managers of target and nontarget firms attend to, interpret, and respond to pressure from activists. Overall, we enhance theory by explaining why firms in an industry differ in their reactions to activism, even when they are subject to common campaigns and strategies.	2013	Governance
Voluntary Disclosure and Investment Author: Wen, Xiaoyan Journal: Contemporary Accounting Research This paper examines the determinants and economic efficiency of corporate voluntary disclosue. The focus is on the trade-off for an individual firm when the benefits and costs of voluntary disclosure stem from the consequences of its investment decisions and the impact on its share price. When a firm's investment incentive is provided by the short-term market pricing of its shares, as well as long-term cash flow payoffs, investment and voluntary disclosure decisions are intertwined. Opportunistic use of disclosure has a feedback effect on investment efficiency and may cause the real investment to be distorted at the margin. Here, the voluntary disclosure plays a negative role and incurs an ex ante cost to the firm. My study shows that the economic efficiency of voluntary disclosure is determined by both the positive and negative effects of voluntary disclosure.	2013	Governance
Greed is Good: The Agency Costs of Blockholder Philanthropy Author: White, Roger Journal: Working paper Recent experimental CSR research suggests that principal philanthropy offers benefits to the firm. I test this finding using archival data in a natural experiment. In publically traded firms, I find that charitable pledges by blockholders create agency problems that overwhelm any benefits and destroy shareholder value. This effect is stronger when the blockholder has, beyond his economic incentives, a fiduciary duty (as a director or fund manager) to monitor the firm and its managers. I attribute these findings to small investors relying on the self-interest of major shareholders to monitor managers and other investors. A charitable pledge lessens the market's expectation of the philanthropic blockholder's self-interest, which reduces the ability of minor shareholders to rely on him (and his preference for wealth-maximization) to monitor the firm.	2013	Governance
The Acquisitiveness of Youth: CEO Age and Acquisition Behavior Author: Yim, Soojin Journal: Journal of Financial Economics I demonstrate that acquisitions are accompanied by large, permanent increases in Chief Executive Officer (CEO) compensation, which create strong financial incentives for CEOs to pursue acquisitions earlier in their career. Accordingly, I document that a firm's acquisition propensity is decreasing in the age of its CEO: a firm with a CEO who is 20 years older is approximatley 30 percent less likely to announce an acquisition. This negative effect of CEO age on acquisitions is strongest among firms where CEOs likely anticipate or can influence high post-acquisition compensation, and is absent for other investment decisions that are not rewarded with permanent compensation gains. The age effect cannot be explained by the selection of young CEOs by acquisition-prone firms, nor by a story of declining overconfidence with age. This paper underscores the relevance of CEO personal characteristics and CEO-level variation in agency problems for corporate decisions.	2013	Governance
The Preventive Effect of Hedge Fund Activism Author: Zhu, Heqing Journal: Working paper This paper examines the effectiveness of hedge fund activism in preventing corporate policy deviations. Whereas previous studies focus on policy changes in target firms after intervention, I examine proactive policy changes in all firms that face a threat of intervention. Using mutual fund fire sales as an instrument, I find that an increase in intervention likelihood leads to increases in shareholder distribution as well as decreases in CEO pay, cash, and investments. Given the reduction in managerial rent seeking, cash hoarding and empire building behaviors, it is unsurprising that operating performance as measured by ROA also improves significantly. The relationships are causal, significant, and robust to a variety of alternative model specifications and sample divisions. The results suggest the existence of a preventive effect of hedge fund activism as well as a stronger and broader impact of hedge fund activism on corporate policy than previously documented.	2013	Governance
More Estrogen, More Accuracy Author: Harvard Business Review Journal: Harvard Business Review Companies with at least one female director are 38 percent less likely to have to restate their financial-performance figures in order to correct errors than companies with all-male boards are, according to a team led by Lawrence J. Abbott, of the University of Wisconsin—Milwaukee. Gender diversity may make a board more open to viewpoints that oppose the CEO's and may encourage a more deliberative and collaborative decision-making process, the researchers say.	2013	Social, Governance
The Fine Line Between Collaboration and Conspiracy Author: Harvard Business Review Journal: Harvard Business Review The article reports on the results of a study conducted by researcher Vikramaditya S. Khanna which found that companies whose top four executives were appointed by the current chief executive officer (CEO) are 35 percent more likely to commit fraud and 20 percent less likely to be caught than companies in which no executives were appointed by the current CEO.	2013	Governance
Women in the Workplace: A Research Roundup Author: Harvard Business Review Journal: Harvard Business Review A variety of recent research by business, psychology, and sociology scholars offers a window into women's collective experiences at work. Some of these studies confirm widely held assumptions: that women are paid less than men; that the numbers of women drop dramatically the higher you go in organizations; that women are more ethical. But some cast doubt on other popular notions: that caring for their families is a major reason that high-achieving women leave their careers; that female MBAs are less likely to get job offers than male MBAs are; that being disliked is a disadvantage in the workplace. And some studies bring to light forms of discrimination that are less obvious but pernicious: the way men receive more plum assignments, more key sales accounts, and other marks of favor, while women get more praise but not necessarily the big promotions. One of the most disturbing studies — One that reveals the extent to which both women and men are biased against working mothers.	2013	Social, Governance
Female Board Presence and the Likelihood of Financial Restatement Author: Abbott, Lawrence J., Susan Parker, and Theresa J. Presley Journal: Accounting Horizons This paper investigates the impact of one form of board diversity on the incidence of financial restatement. More specifically, we hypothesize that there is a negative relation between female board presence (defined as whether or not a board has at least one female director) and the likelihood of a financial restatement. Our hypothesis is consistent with a female board presence contributing to the board's ability to maintain an attitude of mental independence, diminishing the extent of groupthink and enhancing the ability of the board to monitor financial reporting. Utilizing the U.S. General Accounting Office (U.S. GAO 2002) report on restatements, we construct a matched-pair sample of 278 annual (187 quarterly) restatement and 278 annual (187 quarterly) control firms. After controlling for other restatement-related factors, we find a significant association between the presence of at least one woman on the board and a lower likelihood of restatement. Our results continue to hold in annual restatements from the post-Sarbanes-Oxley (SOX) time period.	2012	Social, Governance
Climate Damages in the Fund Model: A Disaggregated Analysis Author: Ackerman, Frank, and Charles Munitz Journal: Ecological Economics We examine the treatment of climate damages in the FUND model. By inserting software switches to turn individual features on and off, we obtain FUND's estimates for 15 categories of damages, and for components of the agricultural category. FUND, as used by the U.S. government to estimate the social cost of carbon, projects a net benefit of climate change in agriculture, offset by a slightly larger estimate of all other damages. Within agriculture there is a large benefit from CO2 fertilization, a moderate cost from the effect of temperature on yields, and a much smaller impact of the rate of change. In FUND's agricultural modeling, the temperature-yield equation comes close to dividing by zero for high-probability values of a Monte Carlo parameter. The range of variation of the optimal temperature exceeds physically plausible limits, with 95 percent confidence intervals extending to 17 °C above and below current temperatures. Moreover, FUND's agricultural estimates are calibrated to research published in 1996 or earlier. Use of estimates from such models is arguably inappropriate for setting public policy. But as long as such models are being used in the policymaking process, an update to reflect newer research and correct modeling errors is needed before FUND's damage estimates can be relied on.	2012	Environmental
Shareholders in the Boardroom: Wealth Effects of the SEC's Proposal to Facilitate Director Nominations Author: Akyol, Ali C., Wei Fen Lim, and Patrick Verwijmeren Journal: Journal of Financial and Quantitative Analysis Current attempts to reform financial markets presume that shareholder empowerment benefits shareholders. We investigate the wealth effects associated with the Securities and Exchange Commission's rule to facilitate director nominations by shareholders. Our results are not in line with shareholder empowerment creating value: The average daily abnormal returns surrounding events that increase (decrease) the probability of the proposal's passage are significantly negative (positive). Furthermore, given an increase in the probability of the proposal's passage, firms whose shareholders are more likely to use the rule to nominate directors experience more negative abnormal returns.	2012	Governance
The Competitiveness Impacts of Climate Change Mitigation Policies Author: Aldy, Joseph E., and William A. Pizer Journal: Working paper The pollution haven hypothesis suggests that unilateral domestic emission mitigation policies could cause adverse "competitiveness" impacts on domestic manufacturers as they lose market share to foreign competitors and relocate production activity — and emissions — to unregulated economies. We construct a precise definition of competitiveness impacts appropriate for climate change regulation that can be estimated exclusively with domestic production and net import data. We use this definition and a 20 year panel of 400 U.S. manufacturing industries to estimate the effects of energy prices, which is in turn used to simulate the impacts of carbon pricing policy. We find that a U.S.-only $15 per ton CO2 price will cause competitiveness effects on the order of a 1.0 to 1.3 percent decline in production among the most energy-intensive manufacturing industries. This amounts to roughly one-third of the total impact of a carbon pricing policy on these firms' economic output.	2012	Environmental
Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable Challenge Author: Becker, Bo, Daniel Bergstresser, and Guhan Subramanian Journal: Working paper We use the Business Roundtable's challenge to the SEC's 2010 proxy access rule as a natural experiment to measure the value of shareholder proxy access. We find that firms that would have been most vulnerable to proxy access, as measured by institutional ownership and activist institutional ownership in particular, lost value on October 4,2010, when the SEC unexpectedly announced that it would delay implementation of the Rule in response to the Business Roundtable challenge. We also examine intra-day returns and find that the value loss occurred just after the SEC's announcement on October 4. We find similar results on July 22,2011, when the D.C. Circuit ruled in favor of the Business Roundtable. These findings are consistent with the view that financial markets placed a positive value on shareholder access, as implemented in the SEC's 2010 Rule.	2012	Governance
The Sustainability of Mean-Variance and Mean-Tracking Error Efficient Portfolios Author: Boudt, Kris, Jonathan Cornelissen, and Christophe Croux Journal: Working paper In recent years, the market share of socially responsible investment funds has rapidly increased. This has sparked interest of academics and practitioners for the impact of single stock sustainability screening on portfolio performance. Besides eliminating non sustainable assets from the investment universe, a socially responsible investor also cares about the average level of portfolio sustainabiliity. We provide a characterization of the sustainability of mean-variance and mean-tracking error efficient portfolios and derive the impact on performance of imposing a constraint on the portfolio sustainability. Over the period 2003-2010, we find that for the universe of US stocks belonging to the MSCI World index, the theoretically linear relationship between the portfolio return and sustainability of the efficient portfolios is not significant. Furthermore, we estimate the increase in variance (for a given target return) and the loss in return (for a given target variance) due to a sustainability constraint and find that the performance loss is economically small.	2012	Environmental, Social, Governance
Doing-Good' and 'Doing-Well' in Chinese Publicly Listed Firms Author: Cheung, Yan-Leung, Kun Jiang, and Weiqiang Tan Journal: China Economic Review Recently, the presumed benefits of corporate social responsibility have become an important issue, especially for China where institutional settings are quite different from other parts of the world. Using an internationally accepted benchmark (OECD's Principles of Corporate Governance, OECD, 2004), this study constructs a corporate social responsibility (CSR) index to measure the quality of the corporate social responsibility practices of the 100 major Chinese listed firms during 2004-2007. This enables us to evaluate the progress of the corporate social responsibility practices of Chinese firms. The results show that Chinese companies have been making progress in their corporate social responsibility practices. The findings also show that market rewards Chinese firms for improving their corporate governance practices which implies 'doing-good' leads to 'doing-well' in the equity market in China. We also find that overseas-listed and more profitable Chinese firms have better improvement in CSR practice. This study has policy implications in pushing for further CSR initiatives in other emerging markets.	2012	Environmental, Social, Governance
Corporate Disclosure of Environmental Capital Expenditures: A Test of Alternative Theories Author: Cho, Charles H., Martin Freedman, and Dennis M. Patten Journal: Accounting, Auditing & Accountability Journal Purpose: The purpose of this paper is to examine three potential explanations for the corporate choice to disclose environmental capital spending amounts. Design/methodology/approach: Using archival data from a sample of Fortune 500 US firms operating in industries subject to both the Environmental Protection Agency's (EPA) TRI program and the Occupational Safety and Health Administration's Hazard Communication Standards, the authors conduct quantitative threshold tests to first investigate whether disclosure appears to be a function of the materiality of the spending. Using statistical tests, including multiple regression analyses, the authors next attempt to differentiate the choice to disclose across voluntary disclosure theory and legitimacy theory arguments. Findings: First, the authors find that, for the overwhelming majority of observations, the disclosed amounts are not quantitatively material. This suggests that non-disclosure is likely due to immateriality. Next, their findings show that disclosing firms do not exhibit improved subsequent environmental performance relative to non-disclosing companies. Further, controlling for firm size and industry class, they find the choice to disclose is associated with worse environmental performance. Research limitations/implications: The sample includes only relatively larger firms from certain industries and this limits the generalizability of the findings. Smaller firms and those from excluded industries may have other reasons to choose to disclose environmental information. Further, the authors rely on TRI data to assess pollution performance, but TRI is self-reported and its reliability is only as good as the inputs. Finally, although environmental capital spending is potentially relevant information, this investigation does not examine other types of environmental information disclosure. Practical implications: This paper provides corroborating evidence that companies use the disclosure of environmental capital spending as a strategic tool to address their exposures to political and regulatory concerns. Hence, interpreting disclosed environmental information would appear to require careful understanding of the underlying motivations. Originality/value: This paper extends the environmental accounting and reporting literature by contributing to the unresolved question of what drives differences in the corporate disclosure of environmental information. The authors add to this body of research by investigating the disclosure of one specific piece of environmental information, the amount of capital expenditures incurred for pollution abatement and control.	2012	Environmental
Influencing Climate Change Policy: The Effect of Shareholder Pressure and Firm Environmental Performance Author: Clark, Cynthia E., and Elise Perrault Crawford Journal: Business & Society Firms face a great deal of pressure to engage in the heightened debate about climate change policies and practices. Building on the corporate political strategy literature, the authors evaluate how firms choose to influence those policies when faced with pressure from shareholders and activists. The authors triangulate firms' choice of corporate political activity (CPA) with their environmental performance to draw out whether performance affects the firm's choice of engagement level in CPA. The authors find that firms in the S&P 500 use a form of constituency-building (CB) more often than a financial-incentive (FI) tactic and that environmental performance moderates this choice. To date, there is little research connecting corporate political activity and climate change policies and performance. This research is intended to contribute to this literature gap.	2012	Environmental
The Valuation Relevance of Environmental Performance: Evidence from the Academic Literature Author: Clarkson, Peter M. Journal: In Contemporary Issues in Sustainability Accounting, Assurance and Reporting, edited by S. Jones and J. Ratnatunga Traditional economic theory suggests that firms should meet only the minimal environmental standards prescribed by law and will be reluctant to spend more than necessary (McCain, 1978). The underlying argument is that over-compliance with environmental regulation diverts financial resources from productive investments and thereby results in reduced profitability (Friedman, 1970; Gray & Shadbegian, 1993; Walley & Whitehead, 1994). Here, Friedman suggests pollution is a cost borne by the public and that reducing the public cost amounts to philanthropy, not profit maximization.	2012	Environmental
Institutional Investor Activism Author: Del Guercio, Diane, and Hai Tran Journal: In Socially Responsible Finance and Investing: Financial Institutions Corporations Investors and Activists edited by H. K. Baker and J. R. Nofsinger For the past quarter century, institutional investors have been frequent activist shareholders on corporate governance issues. A large literature of academic research examines whether this activity is effective in influencing target firms and enhancing the performance of both target firms and activists' portfolios. The importance of this question stems from the role of institutional investors as large and influential investors in the capital markets and as financial fiduciaries who are entrusted with the assets of millions of clients and beneficiaries. This chapter examines the many parallels between the issues that institutions face today in incorporating environmental, social, and governance criteria into their investment and activism programs, and the issues arising 25 years ago in the context of corporate governance. In short, socially responsible activism appears to be at the early stages of gaining momentum and legitimacy among mainstream institutional investors, with a steady stream of academic research likely to follow.	2012	Environmental, Social, Governance
Does Female Representation in Top Management Improve Firm Performance? A Panel Data Investigation Author: Dezso, Cristian L., and David Gaddis Ross Journal: Strategic Management Journal We argue that female representation in top management brings informational and social diversity benefits to the top management team, enriches the behaviors exhibited by managers throughout the firm, and motivates women in middle management. The result should be improved managerial task performance and thus better firm performance. We test our theory using 15 years of panel data on the top management teams of the S&P 1,500 firms. We find that female representation in top management improves firm performance but only to the extent that a firm's strategy is focused on innovation, in which context the informational and social benefits of gender diversity and the behaviors associated with women in management are likely to be especially important for managerial task performance.	2012	Social
Climate Policy under Sustainable Discounted Utilitarianism Author: Dietz, Simon, and Geir B. Asheim Journal: Journal of Environmental Economics and Management Empirical evaluation of policies to mitigate climate change has been largely confined to the application of discounted utilitarianism (DU). DU is controversial, both due to the conditions through which it is justified and due to its consequences for climate policies, where the discounting of future utility gains from present abatement efforts makes it harder for such measures to justify their present costs. In this paper, we propose sustainable discounted utilitarianism (SDU) as an alternative principle for evaluation of climate policy. Unlike undiscounted utilitarianism, which always assigns zero relative weight to present utility, SDU is an axiomatically based criterion, which departs from DU by assigning zero weight to present utility if and only if the present is better off than the future. Using the DICE integrated assessment model to run risk analysis, we show that it is possible for the future to be worse off than the present along a 'business as usual' development path. Consequently SDU and DU differ, and willingness to pay for emissions reductions is (sometimes significantly) higher under SDU than under DU. Under SDU, stringent schedules of emissions reductions increase social welfare, even for a relatively high utility discount rate.	2012	Environmental
Voting With their Feet or Activism: Institutional Investors' Impact on CEO Turnover Author: Helwege, Jean, Vincent J. Intintoli, and Andreq Zhang Journal: Journal of Corporate Finance We examine the relation between institutional investors and management discipline over the last several decades to better understand how CEO turnover has increased. Using a sample of forced and voluntary turnovers, we investigate the changing roles of activism and exit among institutional investors between 1982-1994 and 1995-2006. We find evidence of activist investors throughout the sample period and their impact is consistently significant in multivariate analysis. In contrast, voting with their feet has declined to the point where it no longer affects turnover outcomes. Nonetheless, activism is fairly uncommon and does not explain the higher turnover observed over time. Block holdings of known activists have increased and are linked to improving target firms. However, other blocks merely reflect the increasing size of institutional money managers. Going forward, the increasing size of institutional investors seems likely to inhibit voting with their feet while activism remains an important vehicle for change.	2012	Governance
Is Earnings Quality Associated With Corporate Social Responsibility? Author: Kim, Yongtae, Myung Seok Park, and Benson Wier Journal: The Accounting Review This study examines whether socially responsible firms behave differently from other firms in their financial reporting. Specifically, we question whether firms that exhibit corporate social responsibility (CSR) also behave in a responsible manner to constrain earnings management, thereby delivering more transparent and reliable financial information to investors as compared to firms that do not meet the same social criteria. We find that socially responsible firms are less likely (1) to manage earnings through discretionary accruals, (2) to manipulate real operating activities, and (3) to be the subject of SEC investigations, as evidenced by Accounting and Auditing Enforcement Releases against top executives. Our results are robust to (1) controlling for various incentives for CSR and earnings management, (2) considering various CSR dimensions and components, and (3) using alternative proxies for CSR and accruals quality. To the extent that we control for the potential effects of reputation and financial performance, our findings suggest that ethical concerns are likely to drive managers to produce high-quality financial reports.	2012	Environmental, Social, Governance
Why Does the Reduction of Greenhouse Gas Emissions Enhance Firm Value? The Case of Japanese Manufacturing Firms Author: Nishitani, Kimitaka, and Katsuhiko Kokubu Journal: Business Strategy and the Environment This paper examines the influence of firms' reductions of greenhouse gas (GHG) emissions on firm value, measured by Tobin's q. If the stockholders/investors regard the reduction of GHG emissions as a form of intangible value, the reduction of GHG emissions will enhance firm value. To prove this relation more precisely, this paper analyzes not only the effect of the reduction of GHG emissions on firm value but also that of the market discipline imposed by the stockholders/investors in terms of the reduction of GHG emissions. Using data on 641 Japanese manufacturing firms in the period 2006-2008, the random effect instrumental variable estimate supports the view that firms with strong market discipline imposed by stockholders/investors are more likely to reduce GHG emissions and, consequently, firms that reduce more GHG emissions are more likely to enhance firm value.	2012	Environmental
Economic Policy in the Face of Severe Tail Events Author: Nordhaus, William D. Journal: Journal of Public Economic Theory From time to time, something occurs which is outside the range of normal expectations. We will call these "tail events" in the sense that they are way out of the tail of a probability distribution. I consider the question of the implications of tail events for economic policy and climate-change economics. This issue has been analyzed by Martin Weitzman who proposed a Dismal Theorem. The general idea is that, under limited conditions concerning the structure of uncertainty and risk aversion, society has an indefinitely large expected loss from high-consequence, low-probability events. Under such conditions, standard economic tools such as cost-benefit analysis cannot be applied. The present study is intended to put the Dismal Theorem in context and examine the range of its relevance, with an application to catastrophic climate change. I conclude that tail events are sometimes of extreme importance, and we must be extremely careful to include them in situations of deep uncertainty. However, we conclude that no loaded gun of strong tail dominance has been uncovered to date.	2012	Environmental
A Synthesis of Modern Portfolio Theory and Sustainable Investment Author: Peylo, Benjamin Tobias Journal: Journal of Investing Implemented in corporate strategies, the concept of sustainability with its synthesis between economical, social and ecological objectives can have a strong business case. In consequence, companies associated with sustainability-related products and ways of production become increasingly attractive investments — both from a financial and an ethical point of view. Yet traditional theories and models of investment theory and especially portfolio theory do not take into account these developments and are so far strictly limited to return and risk as exclusive criteria for the investment decision. This gives rise to controversy and more importantly poses methodological constraints, possibly limiting the potential of successful sustainable investment. As a consequence, the homogenous implementation of sustainable investment into investment theory becomes desirable but has not yet been established. This article proposes a method based on the concept of multi-dimensional decision making. It enhances Markowitz' Modern Portfolio Theory allowing the investor to define a flexible degree of sustainability as an additional optimization criterion in the portfolio selection process. The method is applied to the investment universe of the German stock market index (DAX) and is analyzed empirically over the period 2003-2010. The achieved results are significantly above the benchmark with respect to both performance and sustainability objectives, giving credit to the concept as a viable approach for the synthesis of portfolio theory and sustainable investment.	2012	Environmental
Labor Unions As Shareholder Activists: Champions or Detractors? Author: Prevost, Andrew K., Ramesh P. Rao, and Melissa A. Williams Journal: Financial Review We examine the impact of labor union shareholder activism through the submission of shareholder proposals during the period 1988-2002. We examine the effect of labor union-sponsored shareholder proposals on announcement period returns; on the corporate governance environment of the firm including shareholder rights, board composition, and CEO compensation; on changes in unionization rates and labor expense; and on long-run shareholder wealth. We do not find any observable patterns for the overall sample of proposals. However, subsets of proposals associated with union presence at the target firm and shareholder voting support for the proposal are associated with significant effects surrounding and subsequent to targeting.	2012	Social
Income Inequality and Economic Growth Author: Shin, Inyong Journal: Economic Modeling Despite the extensive existing literature on income inequality and economic growth, there remains considerable disagreement on the effect of inequality on economic growth. Existing literatures find either a positive or a negative relationship. In this paper, we attempt to theoretically examine that relationship with a stochastic optimal growth model. We make the disagreement clear within a single model. We conclude (i) that both are possible — that is, higher inequality can retard growth in the early stage of economic development, and can encourage growth in a near steady state, (ii) that income redistribution by high income tax does not always reduce income inequality. Income inequality can be reduced by higher income tax in a near steady state, but it cannot be reduced in the early stage of economic development, and (iii) that two government polices — rapid economic growth and low income inequality — can be achieved by low income tax in the early stage of economic development, but both cannot be achieved simultaneously in a near steady state.	2012	Social
Ethics, Equity and the Economics of Climate Change: Economics and Politics Author: Stern, Nicholas Journal: Working paper How should the scale and the nature of the immense risks we appear to face from unmanaged climate change influence the way we frame both the economics and the approaches to the values or ethics which we bring to the policy analysis? If we fail to understand the issues of policy towards climate change in terms of the management of these great risks our policy suggestions are likely to be profoundly misleading. The policy analysis will have to embrace both ethics and economics, which place the magnitude and nature of the risks at centre-stage and are capable of tackling issues of scale of impacts which lie outside more familiar methods or perspectives which may be appropriate for smaller perturbations or effects.	2012	Environmental
Corporate Governance and Environmental Performance: Is There Really a Link? Author: Walls, Judith L., Pascual Berrone, and Phillip H. Phan Journal: Strategic Management Journal Corporate governance scholars are increasingly interested in firms' social and environmental performance. Empirical research in this area, however, has moved forward in an uncoordinated fashion, producing fragmented and contradictory results. Our paper seeks to address this situation by adopting a fact-based research approach that comprehensively explores the link between corporate governance and environmental performance. Specifically, we aim to understand how the relationships between and among the firms' owners, managers, and boards of directors influence environmental performance. We are particularly interested in understanding the interactions among these three key sets of actors. In the end, we offer some observations about governance practices and discuss the implications for theory.	2012	Environmental
GHG Targets As Insurance against Catastrophic Climate Damages Author: Weitzman, Martin L. Journal: Journal of Public Economic Theory A critical issue in climate change economics is the specification of the so-called "damages function" and its interaction with the unknown uncertainty of catastrophic outcomes. This paper asks how much we might be misled by our economic assessment of climate change when we employ a conventional quadratic "damages function" and/or a thin-tailed probability distribution for extreme temperatures. The paper gives some numerical examples of the indirect value of various greenhouse gas (GHG) concentration targets as insurance against catastrophic climate change temperatures and damages. These numerical exercises suggest that we might be underestimating considerably the welfare losses from uncertainty by using a quadratic damages function and/or a thin-tailed temperature distribution. In these examples, the primary reason for keeping GHG levels down is to insure against high-temperature catastrophic climate risks.	2012	Environmental
Stock Market's Reaction to Disclosure of Environmental Violations: Evidence from China Author: Xu, X. D., S. X. Zeng, and Chi Ming Tam Journal: Journal of Business Ethics The stock market's reaction to information disclosure of environmental violation events (EVEs) is investigated multi-dimensionally for Chinese listed companies, including variables such as pollution types, information disclosure sources, information disclosure levels, modernization levels of the region where the company locates, ultimate ownership of the company, and ownership held by the largest shareholder. Using the method of event study, daily abnormal return (AR) and accumulative abnormal return (CAR) are calculated under different event window for examining the extent to which the stock market responds to the EVEs. Furthermore, statistical significance of the difference in stock market reaction is compared between event firms with different characteristics. The relationship between CAR and its impact factors is examined by multivariate analysis. The findings reveal that the average reduction in market value is estimated to be much lower than the estimated changes in market value for similar events in other countries, demonstrating that the negative environmental events of Chinese listed companies currently have weak impact on the stock market.	2012	Environmental
Beyond the Glass Ceiling: Does Gender Matter? Author: Adams, Renee B., and Patricia Funk Journal: Management Science A large literature documents that women are different from men in their choices and preferences, but little is known about gender differences in the boardroom. If women must be like men to break the glass ceiling, we might expect gender differences to disappear among directors. Using a large survey of directors, we show that female and male directors differ systematically in their core values and risk attitudes, but in ways that differ from gender differences in the general population. These results are robust to controlling for differences in observable characteristics. Consistent with findings for the population, female directors are more benevolent and universally concerned but less power oriented than male directors. However, in contrast to findings for the population, they are less tradition and security oriented than their male counterparts. They are also more risk loving than male directors. Thus, having a woman on the board need not lead to more risk-averse decision making.	2011	Social
Does Gender Matter in the Boardroom? Evidence from the Market Reaction to Mandatory New Director Announcements Author: Adams, Renee B., Stephen Gray, and John Nowland Journal: Working paper Around the world, policy makers are mandating gender quotas for boards of publicly-traded firms. Since the benefits and costs of these quotas accrue to shareholders, it is important to see how they react to the appointment of female directors. Using data on mandatory announcements of new director appointments, we find that the gender of directors appears to be value-relevant. On average, shareholders value additions of female directors more than they value additions of male directors. Firms with workplace practices in place to promote workplace equality appear to benefit the most from boardroom gender diversity. This suggests that appointing female directors may help resolve value-decreasing stakeholder conflicts.	2011	Social
Does Social Performance Affect the Risk of Financial Firms? Author: Bouslah, Kais, Lawrence Kryzanowski, and Bouchra M'Zali Journal: Working paper This paper examines the impact of social performance (SP) on the financial firm's risk (total, idiosyncratic, systematic and tail). We find that the aggregate measure of SP (concerns) is significantly and negatively (positively) related to a financial firm's risk. Only some SP dimensions significantly affect the risk of financial firms. Specifically, Employee, Product and Corporate Governance concerns positively affect total risk, idiosyncratic risk, systematic risk, and the Value at Risk (VaR), whereas Product strengths positively affect the VaR. Additional analysis shows that SP affects the risk of banks and trading firms, but not insurance firms.	2011	Governance
Equality, Diversity and Corporate Responsibility: Sexual Orientation and Diversity Management in the UK Private Sector Author: Colgan, Fiona Journal: Diversity and Inclusion: An International Journal The purpose of this paper is to explore the triggers to the development of sexual orientation diversity policy and practice in the UK private sector, based on the perspectives of those "championing" sexual orientation diversity work. Design/methodology/approach: The paper is based on 22 in-depth key informant interviews which can be broken down as follows: diversity specialists (5), management (6, of whom 3 were sexual orientation senior management "champions" in their organisations), trade union (3) and LGBT network group representatives (8), as well as access to company and trade union web sites and publications. Interviews sought to trace the history of sexual orientation equality and diversity work, development of structures, policies and practices as well as triggers and barriers to progress and areas of innovation. Findings: Recent literature on equality and diversity in the British national context has sought to explore the implications of a social justice versus a business case driven equality and diversity agenda. This paper considers that this dichotomous analysis can be unhelpful. Within the private sector case studies, the difference between the two approaches was not clear-cut. The corporate social responsibility agenda seemed to offer a broader vision for sexual orientation diversity work in a global context. It promised a more activist awareness of international human rights standards, stakeholder involvement plus links between employee and customer rights and concerns. Originality/value: The paper addresses a gap in knowledge regarding sexual orientation diversity management in the UK private sector. It also considers the links between corporate social responsibility and sexual orientation diversity management.	2011	Social
A Tale of Values-Driven and Profit-Seeking Social Investors Author: Derwall, Jeroen, Kees Koedijk, and Jenke Ter Horst Journal: Journal of Banking & Finance The segmentation of the socially responsible investing (SRI) movement with a values-versus-profit orientation solves the puzzling evidence that both socially responsible and controversial stocks produce superior returns. We derive that the segment of values-driven investors primarily uses "negative" screens to avoid controversial stocks, while the profit-driven segment uses "positive" screens. As the result of an empirical analysis over the period 1992-2008, we base our segmentation on investment screens that help us to examine whether values affect prices. We find that, although the profit-driven segment earns abnormal returns in the short run, these profit-generating opportunities do not persist in the long run for SRI stocks. However, our conclusions highlight the observation that different views on SRI can be complementary in the short run.	2011	Environmental, Social, Governance
High Impact, Low Probability? An Empirical Analysis of Risk in the Economics of Climate Change Author: Dietz, Simon Journal: Climatic Change To what extent does economic analysis of climate change depend on low-probability, high-impact events? This question has received a great deal of attention lately, with the contention increasingly made that climate damage could be so large that societal willingness to pay to avoid extreme outcomes should overwhelm other seemingly important assumptions, notably on time preference. This paper provides an empirical examination of some key theoretical points, using a probabilistic integrated assessment model. New, fat-tailed distributions are inputted for key parameters representing climate sensitivity and economic costs. It is found that welfare estimates do strongly depend on tail risks, but for a set of plausible assumptions time preference can still matter.	2011	Environmental
Corporate Social Responsibility: Should I Invest For It or Against It? Author: Dravenstott, John, and Natalie Chieffe Journal: Journal of Investing In this article, the authors compare the returns of a portfolio composed of socially responsible companies with those of a portfolio composed of companies without that distinction. They find that socially responsible companies perform worse than "irresponsible companies". The reason for this seems to depend on the individual socially responsible investment (SRI) screens. Some screens have a positive impact on returns, some have a negative impact. Corporate governance is the only SRI screen with a positive relationship to returns: A positive rating helps returns, while a negative rating hurts returns. Most other screens show an inverse relationship: Companies with poor social responsibility have higher returns, or companies with good social responsibility have lower returns.	2011	Environmental, Social, Governance
Does Corporate Social Responsibility Affect the Cost of Capital? Author: Ghoul, Sadok El, Omrane Guedhami, Chuck C. Y. Kwok, and Dev R. Mishra Journal: Journal of Banking & Finance We examine the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of US firms. Using several approaches to estimate firms' ex ante cost of equity, we find that firms with better CSR scores exhibit cheaper equity financing. In particular, our findings suggest that invest- ment in improving responsible employee relations, environmental policies, and product strategies con- tributes substantially to reducing firms' cost of equity. Our results also show that participation in two "sin" industries, namely, tobacco and nuclear power, increases firms' cost of equity. These findings sup- port arguments in the literature that firms with socially responsible practices have higher valuation and lower risk.	2011	Governance
Institutional Investors, Shareholder Activism, and Earnings Management Author: Hadani, Michael, Maria Goranova, and Raihan Khan Journal: Journal of Business Research The widespread practice of earnings management adversely impacts the quality of financial reports and increases information asymmetries between owners and managers. The present study investigates the effect of shareholder activism (as expressed by the proxy proposals sponsored by shareholders), and monitoring by the largest institutional owner on earnings management. Our longitudinal analyses indicate that the number of shareholder proposals received by firms is positively related to subsequent earnings management, yet concurrently, monitoring by the largest institutional owners is negatively related to earnings management. Our findings shed light on the equivocal results reported by prior research regarding the impact of shareholder activism on firm performance, on one hand, and ownership monitoring and performance, on the other.	2011	Governance
Corporate Governance and CSR Nexus Author: Harjoto, Maretno, and Hoje Jo Journal: Journal of Business Ethics Some argue that managers over-invest in corporate social responsibility (CSR) activities to build their personal reputations as good global citizens. Others claim that CEOs strategically choose CSR activities to reduce the probability of CEO turnover in a future period through indirect support from activists. Still others assert that firms use CSR activities to signal their product quality. We find that firms use governance mechanisms, along with CSR engagement, to reduce conflicts of interest between managers and non-investing stakeholders. Employing a large and extensive sample of firms within Russell 2000, S&500 and Domini 400 indices during the 1993-2004 period, we find that consistent with the conflict-resolution hypothesis, the CSR choice is positively associated with governance characteristics, including board independence, institutional ownership, and analyst following. In addition, after correcting for endogeneity of CSR engagement, our results show that CSR engagement positively influences operating performance and firm value, supporting the conflict-resolution hypothesis as opposed to the over-investment and strategic-choice arguments. We find only a weak support of the product-signaling hypothesis as a major motive of CSR engagement.	2011	Environmental, Social, Governance
Australian Socially Responsible Funds — Performance, Risk and Screening Intensity Author: Humphrey, Jacquelyn E., and Darren D. Lee Journal: Journal of Business Ethics We investigate the performance and risk of Socially Responsible Investment (SRI) equity funds in the Australian market and find no significant difference between the returns of SRI and conventional funds. In an extension to prior literature, we examine the impact of the number of positive, negative and total screens funds impose on performance and risk. We find little evidence of positive or negative screening impacting total return, but find weak evidence that funds with more screens overall provide better risk-adjusted performance. Positive screening significantly reduces funds' risk. However, negative screening significantly increases risk and reduces funds' abilities to form diversified portfolios.	2011	Environmental, Social, Governance
Four Degrees and Beyond: The Potential for a Global Temperature Increase of Four Degrees and its Implications Author: New, Mark, Diana Liverman, Heike Schroder, and Kevin Anderson Journal: Philosophical Transactions of the Royal Society The 1992 UN Framework Convention on Climate Change commits signatories to preventing 'dangerous anthropogenic interference with the climate system', leaving unspecified the level of global warming that is dangerous. In the late 1990s, a limit of 2°C global warming above preindustrial temperature was proposed as a 'guard rail' below which most of the dangerous climate impacts could be avoided. The 2009 Copenhagen Accord recognized the scientific view 'that the increase in global temperature should be below 2 degrees Celsius' despite growing views that this might be too high. At the same time, the continued rise in greenhouse gas emissions in the past decade and the delays in a comprehensive global emissions reduction agreement have made achieving this target extremely difficult, arguably impossible, raising the likelihood of global temperature rises of 3°C or 4°C within this century. Yet, there are few studies that assess the potential impacts and consequences of a warming of 4°C or greater in a systematic manner. Papers in this themed issue provide an initial picture of the challenges facing a world that warms by 4°C or more, and the difficulties ahead if warming is to be limited to 2°C with any reasonable certainty. Across many sectors — coastal cities, agriculture, water stress, ecosystems, migration — the impacts and adaptation challenges at 4°C will be larger than at 2°C. In some cases, such as farming in sub-Saharan Africa, a +4°C warming could result in the collapse of systems or require transformational adaptation out of systems, as we understand them today. The potential severity of impacts and the behavioural, institutional, societal and economic challenges involved in coping with these impacts argue for renewed efforts to reduce emissions, using all available mechanisms, to minimize the chances of high-end climate change. Yet at the same time, there is a need for accelerated and focused research that improves understanding of how the climate system might behave under a +4°C warming, what the impacts of such changes might be and how best to adapt to what would be unprecedented changes in the world we live in.	2011	Environmental
Sea-Level Rise and its Possible Impacts Given a 'Beyond 4°C World' in the Twenty-First Century Author: Nicholls, Robert J., Natasha Marinova, Jason A. Lowe, Sally Brown, Pier Vellinga, Diogo de Gusmao, Jochen Hinkel, and Richard S. J. Tol Journal: Philosophical Transactions of the Royal Society The range of future climate-induced sea-level rise remains highly uncertain with continued concern that large increases in the twenty-first century cannot be ruled out. The biggest source of uncertainty is the response of the large ice sheets of Greenland and west Antarctica. Based on our analysis, a pragmatic estimate of sea-level rise by 2100, for a temperature rise of 4°C or more over the same time frame, is between 0.5 m and 2 m — the probability of rises at the high end is judged to be very low, but of unquantifiable probability. However, if realized, an indicative analysis shows that the impact potential is severe, with the real risk of the forced displacement of up to 187 million people over the century (up to 2.4 percent of global population). This is potentially avoidable by widespread upgrade of protection, albeit rather costly with up to 0.02 per cent of global domestic product needed, and much higher in certain nations. The likelihood of protection being successfully implemented varies between regions, and is lowest in small islands, Africa and parts of Asia, and hence these regions are the most likely to see coastal abandonment. To respond to these challenges, a multi-track approach is required, which would also be appropriate if a temperature rise of less than 4°C was expected. Firstly, we should monitor sea level to detect any significant accelerations in the rate of rise in a timely manner. Secondly, we need to improve our understanding of the climate-induced processes that could contribute to rapid sea-level rise, especially the role of the two major ice sheets, to produce better models that quantify the likely future rise more precisely. Finally, responses need to be carefully considered via a combination of climate mitigation to reduce the rise and adaptation for the residual rise in sea level. In particular, long-term strategic adaptation plans for the full range of possible sea-level rise (and other change) need to be widely developed.	2011	Environmental
Growth in Emission Transfers Via International Trade from 1990 to 2008 Author: Peters, Glen P., Jan C. Minx, Christopher L. Weber, and Ottmar Edenhofer Journal: Proceedings of National Academy of Sciences Despite the emergence of regional climate policies, growth in global CO2 emissions has remained strong. From 1990 to 2008 CO2 emissions in developed countries (defined as countries with emission-reduction commitments in the Kyoto Protocol, Annex B) have stabilized, but emissions in developing countries (non-Annex B) have doubled. Some studies suggest that the stabilization of emissions in developed countries was partially because of growing imports from developing countries. To quantify the growth in emission transfers via international trade, we developed a trade-linked global database for CO2 emissions covering 113 countries and 57 economic sectors from 1990 to 2008. We find that the emissions from the production of traded goods and services have increased from 4.3 Gt CO2 in 1990 (20 percent of global emissions) to 7.8 Gt CO2 in 2008 (26 percent). Most developed countries have increased their consumption-based emissions faster than their territorial emissions, and non-energy-intensive manufacturing had a key role in the emission transfers. The net emission transfers via international trade from developing to developed countries increased from 0.4 Gt CO2 in 1990 to 1.6 Gt CO2 in 2008, which exceeds the Kyoto Protocol emission reductions. Our results indicate that international trade is a significant factor in explaining the change in emissions in many countries, from both a production and consumption perspective. We suggest that countries monitor emission transfers via international trade, in addition to territorial emissions, to ensure progress toward stabilization of global greenhouse gas emissions.	2011	Environmental
The Role of Shareholder Proposals in Corporate Governance Author: Renneboog, Luc, and Peter G. Szilagyi Journal: Journal of Corporate Finance This paper examines the corporate governance role of shareholder-initiated proxy proposals. We find that target firms tend to underperform and have generally poor governance structures, with little indication of systematic agenda-seeking by the proposal sponsors. Governance quality also affects the voting outcomes and the announcement period stock price effects, with the latter strongest for first-time submissions and during stock market peaks. Proposal implementation is largely a function of voting success but is affected by managerial entrenchment and rent-seeking. The results imply that shareholder proposals are a useful device of external control, countering arguments that they should be restricted rather than facilitated under the SEC's current regulatory agenda.	2011	Governance
Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change Author: Weitzman, Martin L. Journal: Review of Environmental Economics and Policy In this article, I revisit some basic issues concerning structural uncertainty and catastrophic climate change. My target audience here are general economists, so this article could also be viewed as a somewhat less technical exposition that supplements my previous work. Using empirical examples, I argue that it is implausible that low-probability, high-negative impact events would not much influence an economic analysis of climate change. I then try to integrate the empirical examples and the theory together into a unified package with a unified message that the possibility of catastrophic climate change needs to be taken seriously.	2011	Environmental
A New Era of Sustainability: UN Global Compact-Accenture CEO Study 2013 Author: Accenture & UNGC Journal: Report: United Nations Global Compact and Accenture In the world's largest CEO study on sustainability to date, more than 1,000 top executives from 27 industries across 103 countries assess the past, present and future of sustainable business; discuss a new global architecture to unlock the full potential of business in contributing to global priorities; and reveal how leading companies are adopting innovative strategies to combine impact and value creation.	2010	Environmental
Fat Tails, Exponents, Extreme Uncertainty: Simulating Catastrophe in DICE Author: Ackerman, Frank, Elizabeth A. Stanton, and Ramon Bueno Journal: Ecological Economics The problem of low-probability, catastrophic risk is increasingly central to discussion of climate science and policy. But the integrated assessment models (IAMs) of climate economics rarely incorporate this possibility. What modifications are needed to analyze catastrophic economic risks in an IAM? We explore this question using DICE, a well-known IAM. We examine the implications of a fat-tailed probability distribution for the climate sensitivity parameter, a focus of recent work by Martin Weitzman, and the shape of the damage function, one of the issues raised by the Stern Review. Forecasts of disastrous economic outcomes in DICE can result from the interaction of these two innovations, but not from either one alone.	2010	Environmental
The High Purpose Company Author: Arena, Christine Journal: Book In The High-Purpose Company, corporate strategist and researcher Christine Arena shows that some extraordinary companies are driven by purpose, whereas others simply pretend to be. The High-Purpose Company draws a clear line in the sand, enabling readers to easily distinguish between these two groups — and make a giant leap forward. Using a groundbreaking methodology, Arena and her research team conducted thousands of hours of analysis on the corporate social responsibility (CSR) practices of 75 well-known firms. The surprising results of the study defy long-held myths, rewrite rules, reframe strategic priorities, and reveal a new breed of business. Real CSR is about change, not charity. The High-Purpose Company uncovers this and other truths, and guides readers through the step-by-step process that is currently embraced by the world's most forward-thinking firms.	2010	Environmental, Social, Governance
Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States Author: Beck, Thorsten, Ross Levine, and Alexey Levkov Journal: Journal of Finance We assess the impact of bank deregulation on the distribution of income in the United States. From the 1970s through the 1990s, most states removed restrictions on intrastate branching, which intensified bank competition and improved bank performance. Exploiting the cross-state, cross-time variation in the timing of branch deregulation, we find that deregulation materially tightened the distribution of income by boosting incomes in the lower part of the income distribution while having little impact on incomes above the median. Bank deregulation tightened the distribution of income by increasing the relative wage rates and working hours of unskilled workers.	2010	Social
The CSR-Firm Performance Missing Link: Complementarity between Environmental, Social and Business Behavior Criteria? Author: Cavaco, Sandra, and Patricia Crifo Journal: Working paper This article analyses the complementarity between various dimensions of corporate social responsibility (CSR) and financial performance. We hypothesise that the absence of consensus in the empirical literature on the CSR-financial performance relationship may be explained by the existence of synergies (complementarity) and trade-offs (substitutability) between the different CSR components. We investigate such relationships using a sample of 595 firms from 15 European countries over the 2002-2007 period. The results suggest some kind of trade-offs between CSR components. Some CSR combinations appear as relative complements, human resources and business behaviour towards customers and suppliers, suggesting mutual benefits and less conflicts between those stakeholders. Conversely, environment and business behaviour towards customers and suppliers appear as relative substitutes, suggesting more conflict or over investment between such types of stakeholders.	2010	Environmental, Social, Governance
How Firms Respond to Being Rated Author: Chatterji, Aaron K., and Michael W. Toffel Journal: Strategic Management Journal While many rating systems seek to help buyers overcome information asymmetries when making purchasing decisions, we investigate how these ratings also influence the companies being rated. We hypothesize that ratings are particularly likely to spur responses from firms that receive poor ratings, and especially those that face lower-cost opportunities to improve or that anticipate greater benefits from doing do. We test our hypotheses in the context of corporate environmental ratings that guide investors to select 'socially responsible,' and avoid 'socially irresponsible,' companies. We examine how several hundred firms responded to corporate environmental ratings issued by a prominent independent social rating agency, and take advantage of an exogenous shock that occurred when the agency expanded the scope of its ratings. Our study is among the first to theorize about the impact of ratings on subsequent performance, and we introduce important contingencies that influence firm response. These theoretical advances inform stakeholder theory, institutional theory, and economic theory.	2010	Environmental
Shareholder Activism through Proxy Proposals: The European Perspective Author: Cziraki, Peter, Luc Renneboog, and Peter G. Szilagyi Journal: European Financial Management This paper is the first to investigate the corporate governance role of shareholder-initiated proxy proposals in European firms. Proposal submissions in Europe remain infrequent compared to the USA, especially in Continental Europe. In the UK proposals typically relate to a proxy contest seeking board changes, while in Continental Europe they are more focused on specific governance issues. There is some evidence that proposal sponsors are valuable monitors, because the target firms tend to underperform and have low leverage. Sponsors also consider the ownership structure of the firm, because proposal probability increases in the target's ownership concentration and the equity stake of institutional investors. While proposals enjoy limited voting success across Europe, they are relatively more successful in the UK. The outcomes are strongest for proposals targeting the board but are also affected by the target characteristics including the CEO's pay-performance sensitivity. Proposals are met with a significant negative abnormal return of -1.23%, when they are voted upon at general meetings. The low voting support gathered by proposals and the strongly adverse market reaction suggest that shareholders of European companies use proposals as an emergency brake rather than a steering wheel.	2010	Governance
Pricing Carbon: The European Union Emissions Trading Scheme Author: Ellerman, A. Denny, Frank J. Convery, and Christian de Perthuis Journal: Book The European Union's Emissions Trading Scheme (EU ETS) is the world's largest market for carbon and the most significant multinational initiative ever taken to mobilize markets to protect the environment. It will be an important influence on the development and implementation of trading schemes in the US, Japan, and elsewhere. However, as is true of any pioneering public policy experiment, this scheme has generated much controversy. Pricing Carbon provides the first detailed description and analysis of the EU ETS, focusing on the first 'trial' period of the scheme (2005-7). Written by an international team of experts, it allows readers to get behind the headlines and come to a better understanding of what was done and what happened based on a dispassionate, empirically based review of the evidence. This book should be read by anyone who wants to know what happens when emissions are capped, traded, and priced.	2010	Environmental
Firms' Environmental, Social, and Governance (ESG) Choices, Performance and Managerial Motivation Author: Gillan, Stuart L., Jay C. Hartzell, Andrew Koch, and Laura T. Starks Journal: Working paper During the last decade there has been increased scrutiny of corporate performance on dimensions other than stock price. For example, many market participants now pay close attention to firms' environmental, social, and governance (ESG) or corporate social responsibility (CSR) policies. We examine the extent to which a widely-used measure of firms' ESG performance is related to firms' operating performance, efficiency, compensation practices, and trading by institutional investors, and ultimately, valuation. Our goal is to better understand why firms typically adopt stronger ESG policies and the extent to which the market values or trades on these decisions. We find that operating performance, efficiency, and firm value tend to increase with stronger ESG performance. We also find that CEOs who adopt stronger ESG policies receive lower unexplained salary compensation than their peers. Taken together, these results suggest that firms with stronger ESG policies also enjoy increased efficiency and higher valuations than their peers. However, we find no evidence that the valuation effects are driven by institutional trading — if anything, it appears that institutional investors are less likely to own or buy more shares of stronger environmental or socially responsible firms. At the same time, however, we observe that institutions do appear to prefer firms with fewer corporate governance concerns.	2010	Environmental, Social, Governance
Corporate Social Responsibility and the Board of Directors Author: Krüger, Philipp Journal: Working paper What is the relationship between social responsibility and corporate governance? To shed light on this issue, I examine whether and how positive and negative social responsibility events relate to characteristics of a firm's board of directors. In doing so, I rely on a panel data set of 2417 publicly listed US firms between 1999 and 2007 for which I observe the occurrence of social responsibility events and director characteristics. When boards include a higher fraction of inside and experienced directors, negative events are less frequent. In line with experimental evidence that women are more concerned with altruism, I also document that firms with a higher fraction of women on the board show more pro-social behavior. Finally, when more directors have no equity ownership, positive events are less frequent.	2010	Environmental, Social, Governance
A New Quality Factor: Finding Alpha With Asset4 Data Author: Ribando, Jason M., and George Bonne Journal: Working paper On November 30,2009, Thomson Reuters announced the acquisition of ASSET4, the leading provider of environmental, social, and corporate governance (ESG) data. ASSET4 gathers extensive, objective, quantitative and qualitative ESG data on 3100 global companies (as of Q2 2010) and scores them on four pillars: Environmental, Social, Corporate Governance, and Economic. In turn, the pillar scores form the basis of an overall company score summarizing a company's strength in adhering to ESG principles. With its origins in Socially Responsible Investing (SRI), the ideas behind ESG investing have been gaining more traction in the recent decade because of environmental issues surrounding global warming and corporate governance issues leading to the demise of several large firms. Yet, ESG information is still largely ignored by many investors and represents an untapped source for enhanced portfolio strategies. We have undertaken a study to determine the efficacy of ASSET4 scores as equity selection factors. We find that in addition to displaying significant stand-alone performance, ASSET4 signals complement other quality factors such as StarMine Earnings Quality (EQ). Our results show the ASSET4 scores add value on an absolute basis as well as a risk-adjusted basis, and that their value-added generally increases with the investment holding period. These results are consistent with the theory that companies that score highly on ESG principles are focused on creating long-term shareholder value. The results are good news for fund managers who "invest with a conscience."	2010	Environmental, Social, Governance
Stock Price Reactions to GLBT Nondiscrimination Policies Author: Wang, Peng, and Joshua L. Schwarz Journal: Human Resource Management This study examines workplace issues of gay, lesbian, bisexual, and transgender (GLBT) employees. Specifically, we analyze the effect of firm GLBT nondiscrimination policies on that firm's stock market value. Corporate equality index (CEI) is used as a proxy for how firms manage GLBT issues. Results reveal that changes in firms' standardized CEI scores are positively associated with changes in firms' standardized stock price trend during the following year. Our findings suggest that the stock prices of firms with more progressive GLBT nondiscrimination policies relative to competing firms in the same industry outperform otherwise equivalent firms with lower CEI scores.	2010	Social
Limitations of Integrated Assessment Models of Climate Change Author: Ackerman, Frank, Stephen J. DeCanio, Richard B. Howarth, and Kristen Sheeran Journal: Climatic Change The integrated assessment models (IAMs) that economists use to analyze the expected costs and benefits of climate policies frequently suggest that the "optimal" policy is to go slowly and to do relatively little in the near term to reduce greenhouse gas emissions. We trace this finding to the contestable assumptions and limitations of IAMs. For example, they typically discount future impacts from climate change at relatively high rates. This practice may be appropriate for short-term financial decisions but its extension to intergenerational environmental issues rests on several empirically and philosophically controversial hypotheses. IAMs also assign monetary values to the benefits of climate mitigation on the basis of incomplete information and sometimes speculative judgments concerning the monetary worth of human lives and ecosystems, while downplaying scientific uncertainty about the extent of expected damages. In addition, IAMs may exaggerate mitigation costs by failing to reflect the socially determined, path-dependent nature of technical change and ignoring the potential savings from reduced energy utilization and other opportunities for innovation. A better approach to climate policy, drawing on recent research on the economics of uncertainty, would reframe the problem as buying insurance against catastrophic, low-probability events. Policy decisions should be based on a judgment concerning the maximum tolerable increase in temperature and/or carbon dioxide levels given the state of scientific understanding. The appropriate role for economists would then be to determine the least-cost global strategy to achieve that target. While this remains a demanding and complex problem, it is far more tractable and epistemically defensible than the cost-benefit comparisons attempted by most IAMs.	2009	Environmental
Strong Managers, Weak Boards? Author: Adams, Renee B., and Daniel Ferreira Journal: Working paper Many governance reform proposals are based on the view that boards have been too friendly to executives, for example, by awarding them excessive pay. Although boards are often on friendly terms with executives, it is less clear that they have systematically failed to function in the interests of shareholders. Understanding board monitoring requires a theory of boards that takes into account how firms provide incentives for their CEOs through other means. We develop a model in which a CEO's ownership stake and private benefits have opposite effects on his willingness to share private information with an independent board of directors. To encourage the CEO to communicate, the board may optimally commit to a low monitoring intensity when either CEO ownership is low or private benefits are high. Our model suggests that the existing cross-section evidence on the correlation between board composition and CEO ownership and tenure needs reevaluation. Using a new proxy for board monitoring, we provide new evidence that this cross-sectional correlation appears to be non-monotonic, with board independence first decreasing and then increasing in CEO ownership and tenure. We discuss the implications of our model for the design and evaluation of governance structures.	2009	Governance
Mitigating Climate Change through Reductions in Greenhouse Gas Emissions: The Science and Economics of Future Paths for Global Annual Emissions Author: Bowen, Alex, and Nicola Ranger Journal: Report: Grantham Research Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy Brief In order to inform negotiations, the Grantham Research Institute on Climate Change and the Environment and the Cenre for Climate Change Economics and Policy have produced this policy brief. It examines how much global emissions of greenhouse gases will have to fall from present levels to create a reasonable change (i.e., a 50 percent probability) of avoiding a rise in global average temperature of more than 2 degrees celcius above its pre-industrial levels, and explores the economics of achieving this target within the context of an international agreement on climate change policy.	2009	Environmental
Is There a Green Factor? Author: Chia, Chin-Ping, Lisa R. Goldberg, David T. Owyong, Peter Shepard, and Tsvetan Stoyanov Journal: Journal of Portfolio Management Climate change has far-reaching implications for the global economy and is increasingly being recognized by investors as a long-term investment theme. As more investors take note of companies that are well positioned to handle climate change, a common factor may account, in part, for the share prices of these companies. The authors search for the existence of this common factor, which they call the green equity factor. During the three-year period from May 2005 through May 2008, the authors find that a sample portfolio of renewable energy stocks outperformed the broad, global MSCI All Country World Index (ACWI), as well as a subindex consisting of traditional energy stocks. Their findings persist after adjusting for size, value, and country biases in the sample portfolio. Furthermore, a systematic analysis based on the Barra Global Equity Model supports the existence of a renewable energy risk factor.	2009	Environmental
CalPERS' Emerging Equity in the Markets Principle Author: Eccles, Robert G., and Aldo Sesia Journal: Harvard Business School Organizational Behavior Unit The California Public Employees' Retirement System (CaIPERS)-the largest public pension fund in the U.S.-had adopted a new principles-based approach to investing in emerging market equities in November 2007. Previously, CalPERS internal and external money managers were prohibited from investing in certain developing countries because the countries failed to meet certain standards for political stability, human rights, market regulation, etc. The new principles-based approach would allow CalPERS money managers to invest in companies that were financially attractive and competitively positioned provided their business practices were sound from an environmental, social, & governance (ESG) perspective regardless of where they were located. By allowing investment in these types of companies regardless of where they operated, CalPERS had hoped to improve its investment returns. The case is set in January 2009, a little more than a year from the time the principles-based approach had been adopted. It is a good time to review the implementation process and how the new principles-based approach changed CaIPERS' emerging market equities portfolios and their returns. The case focuses on one of CalPERS' external fund managers, Dimensional Fund Advisors, and a service provider to DFA and CalPERS, KLD Research & Analytics. One question facing CalPERS with this new approach is whether to invest in PetroChina, which had been off-limits previously due to the screening criteria that were used to identify which countries qualified for emerging markets investments. The case also raises the issue of the difference between "value" and "values" investing and the future importance of ESG investing.	2009	Governance
The Impact of Shareholder Activism on Financial Reporting and Compensation: The Case of Employee Stock Options Expensing Author: Ferri, F., and T. Sandino Journal: The Accounting Review We examine the economic consequences of more than 150 shareholder proposals to expense employee stock options (ESO) submitted during the proxy seasons of 2003 and 2004, the first case in which the SEC allowed a shareholder vote on an accounting matter. Our results indicate that these proposals affected accounting and compensation choices. Specifically, (1) targeted firms were more likely to adopt ESO expensing relative to a control sample of S&P 500 firms, (2) among targeted firms, the likelihood of adoption increased in the degree of voting support for the proposal, and (3) non-targeted firms were more likely to adopt ESO expensing when a peer firm was targeted. Additionally, (1) CEO pay decreased in firms in which the proposal was approved relative to a control sample of S&P 500 firms, and (2) among targeted firms, approval of the proposal was associated with decreases in CEO compensation and the use of ESO in CEO pay. Our findings reveal an increasing influence of shareholder proposals on governance practices.	2009	Governance
The Relationship between Corporate Social Responsibility and Shareholder Value: An Empirical Test of the Risk Management Hypothesis Author: Godfrey, Paul C., Craig B. Merrill, and Jared M. Hansen Journal: Strategic Management Journal Do shareholders gain when managers disperse corporate resources through activities classified as corporate social responsibility (CSR)? Strategy scholars have recently developed a theoretical model that links such activities to shareholder value when a firm suffers a negative event; we test key portions of this theory of the 'insurance-like' property of CSR activity. We posit that such activity leads to positive attributions from stakeholders, who then temper their negative judgments and sanctions toward firms because of this goodwill. We extend the risk management model by theorizing that some types of CSR activities will be more likely to create goodwill and offer insurance-like protection than other types. We delineate several firm and event specific characteristics that we expect to influence the link between CSR activities and an insurance effect. We then test our model using an event study of 178 negative legal/regulatory actions against firms throughout the 11 years from 1993-2003. We find that participation in institutional CSR activities — those aimed at a firm's secondary stakeholders or society at large — provides an 'insurance-like' benefit, while participation in technical CSRs — those activities targeting a firm's trading partners — yields no such benefits. We conclude by considering the implications of our findings for future theorizing and research into the economic value of CSR engagement.	2009	Environmental, Social, Governance
Corporate Social Responsibility for Developing Country Multinational Corporations: Lost War in Pertaining Global Competitiveness? Author: Gugler, Philippe, and Jacylyn Y. J. Shi Journal: Journal of Business Ethics This article explores the conceptual and practical gap existing between the developed and developing countries in relation to corporate social responsibility (CSR), or the North-South 'CSR Divide', through the analysis of possible impact on the competitiveness of developing countries' and economies' SMEs and MNEs in globalization. To do so, this article first reviewed the traditional wisdom on the concept of strategic CSR developed in the North and the role that CSR engagement can play in corporate competitiveness, and compare with the impact on the competitive advantage of the South through the supply chains. It points out that among the many factors that could explain the 'CSR Divide', the negative impact of CSR on comparative advantage is the final resort where developing countries are reluctant and defensive toward western-style CSR. It did point out that developing countries are changing their approaches to make CSR work in favor of their competitive position in global trade, such as China who has started to adopt proactive approach by becoming CSR standards-setter. This article concludes with two policy proposals that aim to bridge the CSR gap, the first is to improve CSR standard-setting participation from both sides, and the second to search for solutions in the international investment legal framework which will define corporate obligations in relating to CSR in a more explicit way.	2009	Governance
Is Corporate Social Responsibility Viewed As a Risk Factor? Evidence from an Asset Pricing Analysis Author: Manescu, Cristiana Journal: Working paper Using detailed data on corporate social responsibility (CSR) for a long panel of large publicly traded U.S. firms during July 1992-June 2008, this study investigates whether an overall measure of CSR, aggregated over seven dimensions (community, corporate governance, diversity, employee relations, environment, human rights, and product safety), can explain variation in stock returns, using Fama and MacBeth (1973) month-by-month cross-sectional regressions approach. Risk- factor analysis indicates a shift in the effect of CSR, with a positive effect on stock returns during July 1992 - June 2003, and a negative effect during July 2003 - June 2008. These results are robust even after controlling for ten industry-specific effects. Analysis on the disaggregated CSR measures reveals that it is only the Community and Employee Relations dimensions generating the positive effect of CSR on stock returns during 1992-2003. The negative effect during 2003-2008 was mainly generated by the Human Rights, Product Safety, and Employee Relations dimensions. This constitutes evidence that these three CSR dimensions function as risk factors.	2009	Environmental, Social, Governance
Fostering Labor Rights in Developing Countries: An Investors' Approach to Managing Labor Issues Author: Montgomery, Robert H., and Gregory F. Maggio Journal: Journal of Business Ethics While private sector investment plays a key role in fostering sustainable economic development in developing countries, respect for internationally recognized worker rights is also a vital component. The paper presents a methodology to assist investors in large-scale private infrastructure and other industry sector projects to utilize internationally recognized core labor rights and related standards for fostering sound labor management. The methodology involves due diligence or analysis of labor conditions and subsequent supervision and monitoring of performance and promotes the use of best practices to complement existing minimum requirements. Case study examples are presented and challenges in applying the approach are discussed.	2009	Social
Assessing the Costs of Adaptation to Climate Change: A critique of the UNFCCC Author: Parry, Martin, Nigel Arnell, Pam Berry, David Dodman, Samuel Frankhauser, Chris Hope, Sari Kovats, Robert Nicholls, David Satterthwaite, Richard Tiffin, and Tim Wheeler Journal: Book This book takes another look at the costs of adapting to climate change. The estimates for 2030 used by the UN Framework Convention on Climate Change are likely to be substantial under-estimates. Professor Martin Parry and his co-authors look at the estimates from a range of perspectives, and conclude that: the current cost assessments do not include some key sectors, such as ecosystems, energy, manufacturing, and retailing some of the sectors included have been only partially covered in cost estimates the additional costs of adaptation have sometimes been calculated as 'climate mark-ups' against low levels of assumed investment. In some parts of the world, low levels of investment have led to an adaptation deficit, and this deficit will need to be made good by full funding of development, without which the funding for adaptation will be insufficient. Residual damages also need to be evaluated and reported because not all damages from climate change can be avoided. There is an urgent need for more detailed assessments of these costs, including case studies of costs of adaptation in specific places and sectors. This report aims to demonstrate the need for the further and transparent refinement of cost estimates for responding to climate change.	2009	Environmental
Evaluation of the Financial Performance of European SRI Funds Using Structural Equation Models Author: Sanchez, Jose L. Fernandez, and Ladislao Luna Sotorrio Journal: Working paper The aim of this study is to evaluate the performance of a sample of European equity funds and to examine whether there is any relationship between investment in socially responsible firms (social factor of the investment) and the financial performance of the funds. Two kinds of analysis are proposed to compare the results: one classical commonly used in empirical research into the subject based on the bivariate testing of difference in means (Mann-Whitney test), and another, more innovative approach, based on the multivariate technique of structural equation models (SEM). The main conclusion of this study is that the application of social criteria in investment decisions carries a cost to the investor in terms of lower return.	2009	Environmental, Social, Governance
A Blueprint for a Safer Planet: How to Manage Climate Change and Create a New Era of Progress and Prosperity Author: Stern, Nicholas Journal: Book Further substantial climate change is unavoidable and the risks to the natural world, the economy and our everyday lives are immense. The way we live in the next thirty years — how we invest, use energy, organise transport and treat forests — will determine whether these risks become realities. Although poor countries — the least responsible for climate change — will be hit earliest and hardest, all countries must adapt to the effects: hurricanes and storms strike New Orleans and Mumbai; flooding causes devastation in England and Mozambique; droughts occur in Australia and Darfur; and sea level rise will affect Florida and Bangladesh. Lord Stern, author of the Stern Review on the Economics of Climate Change and former chief economist at the World Bank, is the world's leading authority on what we can do in the face of such unprecedented threat. Action on climate change will require the greatest possible international collaboration, but if successful will ensure not just our future, but our future prosperity. Focusing on the economic management of investment and growth from the perspective of both adaptation and mitigation, Stern confronts the most urgent questions facing us now: what is the problem; what are the dangers; what can be done to reduce emissions, at what cost; how can the world adapt; and, what does all this mean for corporations, governments and individuals. A Blueprint for a Safer Planet provides authoritative, inspirational, and hopeful, answers.	2009	Environmental
On Modeling and Interpreting the Economics of Catastrophic Climate Change Author: Weitzman, Martin L. Journal: Review of Economics and Statistics With climate change as prototype example, this paper analyzes the implications of structural uncertainty for the economics of low-probability, high-impact catastrophes. Even when updated by Bayesian learning, uncertain structural parameters induce a critical "tail fattening" of posterior-predictive distributions. Such fattened tails have strong implications for situations, like climate change, where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages. This paper shows that the economic consequences of fat-tailed structural uncertainty (along with unsureness about high-temperature damages) can readily outweigh the effects of discounting in climate-change policy analysis.	2009	Environmental
The Influence of CSR Disclosure on Corporate Governance and Company Performance Author: Beardsell, Julie Journal: Working paper It is argued that corporate social responsibility (CSR) can be a potent source of innovation and competitive advantage. Those firms typically investing in socially responsible practices, both in ways that solve pressing social issues and improve the firms' competitive edge using the same frameworks that guide their core business choices, are discovering that CSR can be much more than a cost, a constraint or a charitable deed; they are discovering that it can be an enabler for competitive advantage. This paper explores how the application of CSR starts with vision, innovation and an organizational design to tackle CSR at the core of a firm's business strategy. Firms are grappling on strategic, tactical and operational levels to identify ways to meet society's demands, this in combination with achieving company performance targets in an economic climate under pressure. It may take firms and stakeholders time to work through the issues of how to disclose and monitor the CSR practices of the firm in a standardized way, in a currency that crosses global and organizational boundaries; yet being part of the solution, rather than part of the problem is essential to creating value in this domain. Various forms of self-regulatory practices which are applied on a discretionary basis are explored in this paper, arguing that while incomplete contracts and imperfect knowledge debar form resorting to reputation effects in order to support discretional self-regulation, on the contrary an explicit standard for CSR strategic management, both publicly shared by stakeholders and firms through social dialogue - make it possible to put again at work the reputation mechanism inducing endogenous incentives of compliance with a voluntary standard; the result being that stakeholders are encouraged to 'trust' in the firm's practices and commitment to CSR.	2008	Governance
Incorporating Labor and Human Rights Risk into Investment Decisions Author: Bernstein, Aaron Journal: Working paper A mounting number of institutional investors and global lenders are widening conventional investment decision-making to incorporate assessments of the risks posed by company practices affecting labor and human rights. These efforts are part of a broader movement to include corporate environmental, social, and governance behavior into portfolio and lending decisions. While investors face significant obstacles analyzing all of these factors, some of the most difficult challenges involve the appraisal of labor and human rights risks, due to the lack of objective and quantitative data available about corporate activities in these areas. One model for obtaining such data can be found in the supply-chain factory monitoring regimes designed to verify the labor codes of conduct issued by many multinationals. In the absence of government regulation, the investment community may only find robust labor and human rights data, and achieve meaningful reductions in risky corporate behavior, by adopting the shareholder engagement tactics used to pressure companies about environmental and governance risks.	2008	Social
Value Creation or Destruction? Hedge Funds As Shareholder Activists Author: Clifford, Christopher P. Journal: Journal of Corporate Finance I examine the effects of shareholder activism by hedge funds from 1998-2005. When hedge funds accumulate more than 5 percent of a firm, they must file a regulatory disclosure with the SEC that indicates whether their investment intentions are active or passive. Firms which are targeted by hedge funds for active purposes earn larger excess stock returns and improvements in operating performance (ROA) than a control group of firms that are targeted by the same hedge funds for passive purposes. These operational improvements appear to be driven by the divestiture of under-performing assets. I examine the organizational structure of the hedge funds and find that funds engaging in activism are more likely to have longer lock-ups and withdrawal notification periods than their non-activist peers; indicating that liquidity concerns may be an important determinant in the efficacy of activism. Finally, I document that the returns to the hedge fund are larger for their active blocks than their passive blocks, indicating that activist shareholders may use higher returns to mitigate the cost of their monitoring effort.	2008	Governance
Do Boards Pay Attention When Institutional Investor Activists"Just Vote No"? Author: Del Guercio, Diane, Laura Seery, and Tracie Woidtke Journal: Journal of Financial Economics We examine "just vote no" campaigns, a recent innovation in low-cost shareholder activist tools whereby activists encourage their fellow shareholders to withhold votes toward a director's election to express dissatisfaction with management performance or the firm's corporate governance structure. Grundfest [1993. Just vote no: a minimalist strategy for dealing with barbarians inside the gates. Stanford Law Review 45, 857-937] argues that a substantial withheld vote motivates directors to take immediate action to avoid further embarrassment. We find a variety of supportive evidence, including operating performance improvements and abnormal disciplinary chief executive officer (CEO) turnover, indicating that such campaigns induce boards to take actions in shareholders' interests. Furthermore, abnormal turnover is robust to controlling for concurrent events and firm- and CEO-specific controls.	2008	Governance
Why Economic Analysis Supports Strong Action on Climate Change: A Response to the Stern Review's Critics Author: Dietz, Simon, and Nicholas Stern Journal: Review of Environmental Economics and Policy Economic research that opposes the strategy of strong and urgent reductions in greenhouse gas emissions often makes the observation, misleadingly, that while scientists, environmentalists, politicians, and others would favor strong action, economists would not. Drawing on the Stern Review on the Economics of Climate Change, this paper argues that strong and urgent action is in fact good economics. Much of the previous economic literature on climate change has failed to grasp the necessary scale and timing of action because it has failed to simultaneously assign the necessary importance to issues of risk and ethics. The case for strong and urgent action set out in the Review is based, first, on the severe risks that the science now identifies and, second, on the ethics of the responsibility of current generations for future generations. It is these two issues—risk and ethics—that are crucial.	2008	Environmental
Analysing the Costs and Benefits of Climate Policy: Value Judgements and Scientific Uncertainties Author: Hof, Andries F., Michel G. J. den Elzen, and Detlef P. van Vuuren Journal: Global Environmental Change The Stern Review on the Economics of Climate Change compares costs and benefits of stringent climate policy and concludes that the benefits of stringent policy considerably outweigh the costs. Many other cost-benefit analyses have come up with less ambitious optimal emission reductions. In this study, we systematically explore the impacts of scientific uncertainties and value judgements on the suggested "optimal target" for international climate policy. In this context, we have varied the most important parameters using a range of values from several widely used Integrated Assessment Modes in one consistent framework. Our analysis shows that uncertainties about abatement and damage costs play an almost equally important role as the discount rate. Both stringent and moderate climate policy can be justified by using other parameter settings. Furthermore, for most parameter settings there is a wide range of concentration levels close to the optimal target, providing a much wider range for political choices than often suggested.	2008	Environmental
Managing Sexual Orientation Diversity: The Impact on Firm Value Author: Johnston, Derek, and Mary A. Malina Journal: Group Organization Management This article examines the relation between a firm's stock market value and the extent to which the firm manages sexual orientation diversity in its workplace. To investigate this issue, we analyze the stock market reaction to the release of the inaugural corporate equality index (CEI). The CEI rates firms on how extensively they manage gay, lesbian, bisexual, and transgender (GLBT) workplace issues. The article is structured as a series of competing hypotheses that parallel societal views on GLBT workplace equality. Proponents of GLBT workplace equality suggest that good corporate citizenship increases firm value although opponents argue that the primary, if not sole, purpose of the firm is to maximize shareholder wealth, and that the value of the firm may be negatively affected due to public backlash. Our findings suggest that GLBT-friendly workplace policies are at worst value neutral and firms are not penalized for supporting GLBT workforce diversity.	2008	Social
Superstar CEOs Author: Malmendier, Ulrike, and Geoffrey Tate Journal: Working paper Compensation, status, and press coverage of managers in the U.S. follow a highly skewed distribution: a small number of 'superstars' enjoy the bulk of the rewards. We evaluate the impact of CEOs achieving superstar status on the performance of their firms, using prestigious business awards to measure shocks to CEO status. We find that award-winning CEOs subsequently underperform, both relative to their prior performance and relative to a matched sample of non-winning CEOs. At the same time, they extract more compensation following the award, both in absolute amounts and relative to other top executives in their firms. They also spend more time on public and private activities outside their companies, such as assuming board seats or writing books. The incidence of earnings management increases after winning awards. The effects are strongest in firms with weak governance, even though the frequency of obtaining superstar status is independent of corporate governance. Our results suggest that the ex-post consequences of media-induced superstar status for shareholders are negative.	2008	Governance
Globalization and Corporate Social Responsibility Author: Scherer, Andreas Georg, and Guido Palazzo Journal: In The Oxford Handbook of Corporate Social Responsibility Edited by A. Crane A. McWilliams D. Matten J. Moon and D. Siegel. First, we will explain the concept of globalization. We will describe its conceptual variants and point to some of the phenomena that are associated with this process. Next we will describe the traditional paradigm of CSR where the responsibilities of businesses are discussed vis-a-vis a more or less properly working nation state system and a homogenous moral (cultural) community. We will argue that both these assumptions become problematic in the current 'post-national constellation' (Habermas 2001). We describe the new situation with regulatory gaps in global regulation, an erosion of national governance (loss of national sovereignty and the exterritorial application of national law), and a loss in moral and cultural homogeneity in the corporate environment. We discuss the consequences of the post-national constellation with the help of two recent observations of business firms' behavior which call for a fresh view on the concept of CSR. We describe the necessary paradigm shifts toward a new politically enlarged concept of CSR in a globalized world.	2008	Governance
The Economics of Climate Change Author: Stern, Nicholas Journal: American Economic Review Greenhouse gas (GHG) emissions are externalities and represent the biggest market failure the world has seen. We all produce emissions, people around the world are already suffering from past emissions, and current emissions will have potentially catastrophic impacts in the future. Thus, these emissions are not ordinary, localized externalities. Risk on a global scale is at the core of the issue. These basic features of the problem must shape the economic analysis we bring to bear; failure to do this will, and has, produced approaches to policy that are profoundly misleading and indeed dangerous. The purpose of this lecture is to set out what I think is an appropriate way to examine the economics of climate change, given the unique scientific and economic challenges posed, and to suggest implications for emissions targets, policy instruments, and global action. The subject is complex and very wide-ranging. it is a subject of vital importants but one in which the economics is fairly young. A central challenge is to provide the economic tools necessary as quickly as possible, because policy decisions are both urgent and moving quickly — particularly following the recent United Nations Framework Convention on Climate Change (UNFCCC) meetings.	2008	Environmental
Private Global Business Regulation Author: Vogel, David J. Journal: Annual Review of Political Science Regulations that govern the social and environmental impacts of global firms and markets without state enforcement are a relatively new dimension of global business regulation. The growth of such voluntary "civil regulations" reflects both the expansion of legitimate authority in the global economy outside the state and the increasing use of alternative regulatory instruments to govern firms, including self-regulation, market-based instruments, and soft laws. In response to global social activism, many firms have adopted voluntary regulatory standards to avoid additional regulation and/or to protect their reputations and brands. Activists have targeted highly visible firms and have been willing to work cooperatively with them. The most important civil regulations are multi-stockholder codes, whose governance is shared by firms and nongovernmental organizations (NGOs), and which rely on product and producer certifications. Such codes face the challenge of acquiring legitimacy and of persuading both firms and NGOs of the value of their standards. The emergence of civil regulation addresses but does not resolve the challenge of making global firms and markets more effectively and democratically governed.	2008	Governance
The Effect of CSR on Stock Performance: New Evidence for the USA and Europe Author: von Arx, Urs, and Andreas Ziegler Journal: Working paper This paper provides new empirical evidence for the effect of corporate social responsibility (CSR) on corporate financial performance. In contrast to former studies, we examine two different regions, namely the USA and Europe. Our econometric analysis shows that environmental and social activities of a firm compared with other firms within the industry are valued by financial markets in both regions. However, the respective positive effects on average monthly stock returns between 2003 and 2006 appear to be more robust in the USA and, in addition, to be nonlinear. Our analysis furthermore points to biased parameter estimations if incorrectly specified econometric models are applied: The seemingly significantly negative effect of environmental and social performance of the industry to which a firm belongs vanishes if the explanation of stock performance is based on the Fama-French three-factor or the Carhart four-factor models instead of the simple Capital Asset Pricing Model.	2008	Environmental, Social, Governance
Performance and Predictability of Social Screens Author: Anderson, Anne Marie, and David H. Myers Journal: Working paper This paper examines the performance and predictability of returns of U.S. equities through the use of socially responsible investment (SRI) screens. We extend the socially responsible investing literature by examining a broader set of social screens. We also extend the socially responsible investment (SRI) research by examining the persistence in performance of SRI screens and by including conditional measures of return. We find that there is no cost to being good by investing according to SRI screens. In other words, investors are no worse off investing in accordance with their social beliefs.	2007	Environmental, Social, Governance
Postcards from the Edge: A Review of the Business and Environment Literature Author: Berchicci, Luca, and Andrew King Journal: The Academy of Management Annals Environmental issues, while of growing interest, have been outside the main focus of business scholarship. This position on the periphery may have been a good thing. It allowed scholars of business and the environment to consider unusual theories and evaluate overlooked phenomenon. In doing so, they have created a body of research providing new insights into two topics of mainstream interest: (a) the sources of competitive advantage and (b) the origin and function of self-regulatory institutions.	2007	Environmental
Corporate Governance and the New Hedge Fund Activism: An Empirical Analysis Author: Briggs, Thomas W. Journal: Journal of Corporation Law Hedge funds are not "normal" institutional investors. They launch proxy fights for corporate control. Their recent successes and "wolf pack" tactics have garnered headlines, but leave us with a question: what does hedge fund activism mean for corporate governance in the United States? This Article undertakes a legal, empirical, and theoretical study in an effort to answer this question. The heart of the Article is an empirical study of obtainable instances of hedge fund activism during 2005 and the 2006 proxy season. The Article starts by showing that the SEC opened the door to hedge fund activism when it stopped censoring most proxy material in 1992 and started allowing proxy "free communication" in 2000. This article's empirical survey found over 50 instances of hedge fund activism, and also found the in terrorem effect of these examples to be considerable. The survey further found that the combination of "wolf pack" tactics and the increasing influence of activist proxy advisory firms (the recommendations of which many institutional investors follow automatically) have made hedge fund activists a real power in corporate governance. Despite some claims that hedge funds often hold short positions or are otherwise dangerously conflicted, the survey found very limited evidence for this; the survey also found that hedge funds have, in fact, disclosed these conflicts, though the proxy and Williams Act rules in this respect should be clarified. The Article then subjects these results to theoretical analysis using current nexus of contracts, shareholder primacy, director primacy, team production, connected contracts, and other theories, and finds none completely satisfactory. The Article concludes that an almost unprincipled balance-of-power political model best explains the hedge fund activism phenomenon. In the end, if these activities cause managements to review and reassess their strategies, corporate governance is improved.	2007	Governance
Reflections on the Stern Review (1): A Robust Case for Strong Action to Reduce the Risks of Climate Change Author: Dietz, Simon, Chris Hope, Nicholas Stern, and Dimitri Zenghelis Journal: Review of World Economics Those who deny the importance of strong and urgent action on climate change essentially offer one of, or a combination of, the following arguments. First, there are those who deny the scientific link between human activities and global warming; most people, and the vast majority of scientists, would find that untenable given the weight of evidence. Second, there are those who, while accepting the science of anthropogenic climate change, argue that the human species is very adaptable and can make itself comfortable whatever the climatic consequences; given the scale of the outcomes that we now have to regard as possible or likely under business-as-usual (BAU), this must be regarded as reckless. Finally, there are those who accept the science of climate change and the likelihood that it will inflict heavy costs, but simply do not care much for what happens in the future beyond the next few decades; most would regard this as unethical. This paper deals primarily with the latter two arguments. Policy issues, especially at the international level, are discussed in a companion paper, in this issue.	2007	Environmental
Universal Owners: Challenges and Opportunities Author: Hawley, James P., and Andrew T. Williams Journal: Corporate Governance: An International Review This special issue of Corporate Governance is devoted to the concept of "universal ownership" (UO) and grows out of a conference of universal owners, institutional investors, investment professionals and academics held in April 2006 at Saint Mary's College of California, under the sponsorship of the Center for the Study of Fiduciary Capitalism (A report of the conference is available at http://www.fidcap.org). Four of the seven articles in this issue are based on papers presented at the conference, while an additional three (by Lydenberg, Syse and Gjessing, and Lippman et al.) were written specifically for this issue. The conference purposefully developed a practitioners' perspective on "universal ownership" and these articles reflect this orientation, although each article in its own way breaks new ground which academics, policy researchers and practitioners can and should develop.	2007	Governance
Universal Owners and ESG: Leaving Money on the Table? Author: Kiernan, Matthew J. Journal: Corporate Governance: An International Review ESG (environmental, social and governance) issues represent both a t"ragedy of the commons" and a golden opportunity for a positive system change. Universal Owners should recognise both their power and their responsibilities, and then to leverage their investment strategies to catalyse ESG improvements in their investee companies. This can be done through both stock selection and direct engagement with companies. To date, unfortunately, a myriad of largely cognitive barriers have prevented Universal Owners from mobilising their considerable investment power in this way to any significant extent. There is, however, some encouraging evidence that this is beginning to change.	2007	Governance
The Corporate Sustainability Discount Puzzle Author: Lee, Darren David, and Robert W. Faff Journal: Working paper Does investing in a global portfolio of leading corporate sustainability firms add to, detract from, or have no material impact on portfolio performance? To answer this question we undertake an analysis of leading and lagging corporate sustainability firms using data from the Dow Jones Sustainability World Index. An analysis of two mutually exclusive equally weighted leading and lagging global corporate sustainability portfolios finds that leading sustainability firms do not underperform the market portfolio. However, we find a portfolio of lagging corporate sustainability firms outperforms both the market portfolio and a leading corporate sustainability portfolio. Interestingly, we find leading/lagging corporate social performance (CSP) firms exhibit lower/higher idiosyncratic risk, which may provide a possible explanation for the returns premium of lagging CSP firms. Our findings are robust to country, industry, size, style (value/growth), momentum (country, industry and stock) and corporate sustainability industry ranking.	2007	Environmental, Social, Governance
Universal Investors and Socially Responsible Investors: A Tale of Emerging Affinities Author: Lydenberg, Steve Journal: Corporate Governance: An International Review This paper posits three types of investors in today's financial markets: Universal Investors, Social Investors and Rational Investors. It argues that the Universal and Social Investor are theoretically inclined to seek returns that benefit society and the environment as a whole, while the tenets of modern portfolio theory lead the Rational Investor to seek returns based primarily on market price. Because of the dominance of modern portfolio theory, the actual practices of the Universal and Social Investor reproduce those of the Rational Investor in most regards today. However, Universal and Social Investors are now pioneering at least three investment practices that promote returns to the economy and society. These are engagement with corporate management, investments that benefit underserved communities, and the setting of social and environmental standards in selecting investments. These practices differ from those of the mainstream in that they deliberately take into account more than market price in seeking returns on investments. This paper argues that measuring the value of corporations to society solely on their stock price and their ability to raise that price is not only a narrow expression of the value of corporations to society, but a potentially dangerous one. It views Universal and Social Investors as having the potential to build on and improve upon the practices of Rational Investors by developing an expanded and more complete conception of investment returns and of corporations' role in providing those returns. This paper hypothesises that universal investors and socially responsible investors - two classes of investors whose investment practices are increasingly gaining recognition around the world - share a basic affinity for the promotion of a just and sustainable society. Although the two currently differ in certain regards, together they constitute a theoretically coherent model of investment that builds and improves upon the dominant investment theory and practice of rational investors, which focus primarily on market-based returns.	2007	Governance
Finding the [Financial] Cost of Socially Responsible Investing Author: Minor, Dylan Journal: Journal of Investing Socially responsible investing (SRI) is an increasingly important investment issue, gaining popularity among both institutional and individual investors. In the past, SRI research has almost exclusively focused on whether or not there is a financial "cost" in SRI. With rare exception, no material cost has been observed. We find if we examine SRI in terms of total costs and benefits (i.e., financial and social), there may not be a cost, but when considering only financial cost, there must be a cost in SRI. We examine several economic principles that require such cost, and estimate what this cost might be. Finally, we address why we have not "seen" a financial cost in SRI thus far.	2007	Environmental, Social, Governance
Two Challenges for Fiduciary Capitalism Author: Monks, Robert A. G. Journal: Corporate Governance: An International Review The modern institutional trustee in its incarnation as majority owner of American business has conflicts of interest of debilitating proportions. Notwithstanding the inveterate and unchanging rigour of trust law requiring the fiduciary to administer assets "for the exclusive benefit of plan participants", today's conglomerate - understandably enough in a world where there is no enforcement - persistently favours its own interest in pleasing present and potential customers. There has been no enforcement of breach of fiduciary obligations either by the executive or judicial branches of government. In light of the trend of some courts towards the Law & Economics policy of "efficient compliance", there must be some doubt as to whether courts will require compliance with trust law. What has emerged is a badly crippled owner. Enforceability of the trust promise is what is required for the concept of "fiduciary ownership" to flower. Ironically, casting the majority owner of public companies in trust mode has twice cursed the beneficiaries. On the one hand, the trustees made extensive use of trust assets to protect themselves against any possibility of liability by hiring "consultants", the sum of whose contribution to the economic welfare of participants is highly problematic. Their real value is in providing trustees defence against any claim of negligence. On the other hand, trustees, with "no skin in the game" were motivated to adopt the most minimalist policies of investment, thus ensuring mediocre results. The only fiduciaries, largely public employee pension plans, free of conflict of interest are identified with what might be styled the "anti business" end of the spectrum of ownership. Until the balance of owners participate, the promise of "fiduciary capitalism" will not be fulfilled.	2007	Governance
The 'New Conditionality' of Socially Responsible Investing Strategies: The Politics of Equity Financing in Emerging Markets Author: Soederberg, Susanne Journal: New Political Economy Since the early 1990s, private capital flows have become an important source of funding for 'emerging markets'. According to the International Finance Corporation (IFC), a sister institution of the World Bank, private capital flows now comprise four times the amount of international aid. Notwithstanding the role of foreign direct investment (FDI), which still consitutes the bulk of private capital flows, equity financing has become a significant source of credit for emerging markets. Equity financing refers to the method by which publicly traded companies in the global South rais long-term capital through the sale of shares (equity) to investors, rather than through other financing means, such as bank loans. Since the 1990s, Western-based intitutional investors, such as US-based public pension funds, have been among the main suppliers of equity financing.	2007	Governance
The Economics of Climate Change: The Stern Review Author: Stern, Nicholas Journal: Book There is now clear scientific evidence that emissions from economic activity, particularly the burning of fossil fuels for energy, are causing changes to the Earth's climate. A sound understanding of the economics of climate change is needed in order to underpin an effective global response to this challenge. The Stern Review is an independent, rigourous and comprehensive analysis of the economic aspects of this crucial issue. It has been conducted by Sir Nicholas Stern, Head of the UK Government Economic Service, and a former Chief Economist of the World Bank. The Economics of Climate Change will be invaluable for all students of the economics and policy implications of climate change, and economists, scientists and policy makers involved in all aspects of climate change.	2007	Environmental
Increasing Long-Term Market Returns: Realising the Potential of Collective Pension Fund Action Author: Thamotheram, Raj, and Helen Wildsmith Journal: Corporate Governance: An International Review This paper seeks to offer a perspective from two practitioners on how the potential for retirement fund collaboration to improve long-term market returns could be realised. After looking at the Universal Owner hypothesis and long-term market returns, and their relevance to pension funds, the paper looks at collaboration to date, and the problems of collective action in general. After outlining several current collaborative opportunities, the ways in which they address the problems of collective action are outlined. The paper ends with a call to action to the leaders of the world's largest pension funds.	2007	Governance
Shareholder Proposals in the New Millennium: Shareholder Support, Board Response, and Market Reaction Author: Thomas, Randall S., and James F. Cotter Journal: Journal of Corporate Finance Although the owners of publicly traded companies have had the right to offer shareholder proposals using Rule 14a-8 for several decades, the effectiveness of the rule has been frequently questioned because few of these proposals received substantial support from other shareholders and even fewer have been implemented by boards. Using new data from the 2002-2004 proxy seasons, we analyze shareholder voting patterns on these proposals, board reactions to them, and market responses. We find some big changes from earlier periods: many more proposals are receiving majority shareholder support during our sample period relative to earlier studies, and this support has translated into directors implementing more of the actions called for by shareholders. In particular, boards are increasingly willing to remove important anti-takeover defenses, such as the classified board and poison pill, in response to shareholders'' requests, something rarely seen in the past. Despite the increase in support for shareholder proposals and board action in response, we find small and insignificant stock market reaction. We conclude that shareholder proposals under Rule 14a-8 have an emerging role in reducing agency costs by increasing director responsiveness to shareholder concerns to open the market more fully to corporate control.	2007	Governance
Integrated Environmental and Financial Performance Metrics for Investment Analysis and Portfolio Management Author: Thomas, Simon, Robert Repetto, and Daniel Dias Journal: Corporate Governance: An International Review This paper introduces a new measure, based on a study by Trucost and Dr. Robert Repetto, combining external environmental costs with established measures of economic value added, and demonstrates how this measure can be incorporated into financial analysis. We propose that external environmental costs are relevant to all investors: universal investors are concerned about the scale of external costs whether or not regulations to internalise them are likely; mainstream investors need to understand external costs as an indication of future regulatory compliance costs; and SRI investors need to evaluate companies on both financial and social performance. The paper illustrates our new measure with data from US electric utilities and illustrates how the environmental exposures of different fund managers and portfolios can be compared. With such measures fund managers can understand and control portfolio-wide environmental risks, demonstrate their environmental credentials quantitatively and objectively and compete for the increasing number of investment mandates that have an environmental component.	2007	Governance
Does Good Corporate Governance Include Employee Representation? Evidence from German Corporate Boards Author: Fauver, Larry, and Michael E. Fuerst Journal: Journal of Financial Economics Within the German corporate governance system, employee representation on the supervisory board is typically legally mandated. We propose that such representation of labor on corporate boards confers valuable first-hand operational knowledge to corporate board decision-making. Indeed, we find that labor representation provides a powerful means of monitoring and reduces agency costs within the firm. Moreover, we show that the greater the need for coordination within the firm, the greater the potential improvement there is in governance effectiveness through the judicious use of labor representation. These benefits do not appear to hold for union representatives.	2006	Governance
Hedge Fund Activism Author: Klein, April, and Emanuel Zur Journal: Working paper This paper examines the causes and consequences of hedge fund activism. Hedge funds target profitable and healthy firms, with above-average cash holdings. The target firms earn significantly higher abnormal stock returns around the initial 13D filing date than a sample of control firm. However, they do not show improvements in accounting performances in the year after the initial purchase. Instead, hedge funds extract cash from the firm through increases in the target's debt capacity and higher dividends. Examination of proxy fights and threats accompanying the activist campaign suggests that hedge fund managers achieve their goals by posing a credible threat of engaging the target in a costly proxy solicitation contest.	2006	Governance
Corruption and International Valuation: Does Virtue Pay? Author: Lee, Charles M. C., and David T. Ng Journal: Working paper Using firm-level data from 44 countries, we investigate the relation between corruption and international corporate values. Our analysis shows that firms from more corrupt countries trade at significantly lower market multiples. The effect is both economically and statistically significant. Furthermore, using a two-stage estimation procedure, we show that corruption impacts firm value primarily through lower expected future cash flows, most directly captured by firms' profitability forecasts. Collectively, our evidence shows corruption has significant economic consequences for shareholder value.	2006	Governance
The "CalPERS Effect" Revisited Again Author: Nelson, James M. Journal: Journal of Corporate Finance Smith [Smith, M., 1996. Shareholder activism by institutional investors: evidence from CALPERS. Journal of Finance 51, 227-252] and Wahal [Wahal, S., 1996. Public pension fund activism and firm performance. Journal of Financial and Quantitative Analysis 31, 1-23] identify significant positive abnormal returns surrounding the announcement of performance targetings by the California Public Employees' Retirement System (CalPERS), dubbed the "CalPERS effect". More recent studies suggest that this "CalPERS effect" continues in later samples. While I confirm the early period results, I find the results reported in studies examining later periods are driven by the inclusion of early 1992-1993 targetings and from a significant bias in the market model parameters caused by estimation during periods of known under-performance. Additionally, these results are partially driven by the failure to control for contaminating events and the use unnecessarily long event windows. Contrary to previous studies, after addressing these methodological concerns, I find no evidence to support the continued existence of a "CalPERS effect".	2006	Governance
Three Lenses on the Multinational Enterprise: Politics, Corruption and Corporate Social Responsibility Author: Rodriguez, Peter L., Donald S. Siegel, Lorraine Eden, and Amy Hillman Journal: Working paper Scholars who study multinational enterprises (MNEs) recognize the complex relationship between international business and society. However, compared to other international business topics, research on politics, corruption and corporate social responsibility (CSR) - three 'lenses' on the MNE - remains somewhat embryonic, with critical unresolved issues regarding frameworks, measurement, methods and theory. This creates rich opportunities for integration and extension of disciplinary perspectives, which we explore in this article. Building on the three lenses framework, we identify common concepts and tools, outline an agenda for additional theoretical and empirical research, and review the papers in this special issue.	2006	Governance
On Climate Change and Economic Growth Author: Fankhauser, Samuel, and Richard S.J. Tol Journal: Resource and Energy Economics The economic impact of climate change is usually measured as the extent to which the climate of a given period affects social welfare in that period. This static approach ignores the dynamic effects through which climate change may affect economic growth and hence future welfare. In this paper we take a closer look at these dynamic effects, in particular saving and capital accumulation. With a constant savings rate, a lower output due to climate change will lead to a proportionate reduction in investment which in turn will depress future production (capital accumulation effect) and, in almost all cases, future consumption per capita. If the savings rate is endogenous, forward looking agents would change their savings behavior to accommodate the impact of future climate change. This suppresses growth prospects in absolute and per capita terms (savings effect). In an endogenous growth context, these two effects may be exacerbated through changes in labour productivity and the rate of technical progress. Simulations using a simple climate-economy model suggest that the capital accumulation effect is important, especially if technological change is endogenous, and may be larger than the direct impact of climate change. The savings effect is less pronounced. The dynamic effects are more important, relative to the direct effects, if climate change impacts are moderate overall. This suggests that they are more of a concern in developed countries, which are believed to be less vulnerable to climate change. The magnitude of dynamic effects is not sensitive to the choice of discount rate.	2005	Environmental
Additions to Corporate Boards: The Effect of Gender Author: Farrell, Kathleen A., and Philip L. Hersch Journal: Journal of Corporate Finance During the decade of the 1990s the number of women serving on corporate boards increased substantially. Over this decade, we show that the likelihood of a firm adding a woman to its board in a given year is negatively affected by the number of woman already on the board. The probability of adding a woman is materially increased when a female director departs the board. Adding a director, therefore, is clearly not gender neutral. Although we find that women tend to serve on better performing firms, we also document insignificant abnormal returns on the announcement of a woman added to the board. Rather than the demand for women directors being performance based, our results suggest corporations responding to either internal or external calls for diversity.	2005	Social
Declining Discount Rates: The Long and Short of It Author: Groom, Ben, Cameron Hepburn, Phoebe Khoundouri, and David Pearce Journal: Environmental and Resource Economics The last few years have witnessed important advances in our understanding of time preference and social discounting. In particular, several rationales for the use of time-varying social discount rates have emerged. These rationales range from the ad hoc to the formal, with some founded solely in economic theory while others reflect principles of intergenerational equity. While these advances are to be applauded, the practitioner is left with a confusing array of rationales and the sense that almost any discount rate can be justified. This paper draws together these different strands and provides a critical review of past and present contributions to this literature. In addition to this we highlight some of the problems with employing DDRs in the decision-making process, the most pressing of which may be time inconsistency. We clarify their practical implications, and potential pitfalls, of the more credible rationales and argue that some approaches popular in environmental economics literature are ill-conceived. Finally, we illustrate the impact of different approaches by examining global warming and nuclear power investment. This includes an application and extension of Newell and Pizer [Discounting the benefits of climate change mitigation: how much do uncertain rates increase valuations?' Journal of Environmental Economics and Management 46 (2003) 52] to UK interest rate data.	2005	Environmental
Shifting Ground: Emerging Global Corporate-Governance Standards and the Rise of Fiduciary Capitalism Author: Hawley, James P., and Andrew T. Williams Journal: Environment and Planning A In this paper we examine the long-term interests that large institutional owners (for example, the California Public Employees' Retirement System, Hermes, and the Universities Superannuation Scheme) have in the development of global corporate governance standards, especially as governance standards increasingly become intertwined with other standards and regime parameters involved in the globalization debates. We argue that institutional owners have a unique perspective and voice with which to contribute to the formulation of global standards in a variety of areas on the basis of their long-term financial interests. This conclusion is supported by an analytic review of the current state of global corporate governance, including multilateral initiatives (for example, the Organisation for Economic Co-operation and Development, the World Bank); an analysis of significant institutional investors, the role of various rating agencies (for example, Fitch, Moody's), the International Corporate Governance Network, and the growing role of various nongovernmental organizations (for example, the Coalition for Environmentally Responsible Economics, the Carbon Disclosure Project) in relation to corporate governance.	2005	Governance
Corporate Social Responsibility: An Economic and Financial Framework Author: Heal, Geoffrey Journal: Geneva Papers on Risk & Insurance - Issues & Practice I analyze corporate social responsibility (CSR) from economic and financial perspectives. and suggest how it is reflected in financial markets. CSR is defined as a programme of actions to reduce externalized costs or to avoid distributional conflicts. It has evolved in response to market failures, a Coasian solution to problems associated with social costs. The analysis suggests that there is a resource-allocation role for CSR programmes in cases of market failure through private-social cost differentials, and also where distributional disagreements are strong. In some sectors of the economy private and social costs are roughly in line and distributional debates are unusual: here CSR has little role to play. Such sectors are outnumbered by those where CSR can play a valuable role in ensuring that the invisible hand acts, as intended, to produce the social good. It can also act to improve corporate profits and guard against reputational risks.	2005	Governance
Recalling Why Corporate Officers are Fiduciaries Author: Johnson, Lyman, and David Millon Journal: William & Mary Law Review The thesis of this article is that corporate officers are fiduciaries because they are agents. The argument is not that agency principles should be introduced formalistically or uncritically into corporate governance. Rather, the claim is that drawing on the fiduciary duties of agents for guidance in fashioning modern understandings of corporate officer duties - and differentiating those duties from those of directors - can provide much-needed structure to what otherwise threatens to be an ad hoc enterprise.	2005	Governance
Answers to Four Questions Author: Kurtz, Lloyd Journal: Journal of Investing Socially responsible investing (SRI) is rapidly becoming an investment discipline in its own right. Despite the volume of work, the scope of SRI research has actually narrowed. Hardly any new quantitative work has been done on many topics that matter greatly to clients, such as corporate charitable giving, plant closings, corporate crime, involvement in nuclear power, or military contracting. But this narrowness also has important benefits. Four key questions about SRI have been studied intensively, and these are the first questions an interested fiduciary is likely to ask: 1) What do financial theories have to say about SRI? 2)What has the performance been, and what are the risks? 3) Could there be an investment benefit to SRI? And 4) What do we know about social investors and their behavior? This article will review each of these questions in detail.	2005	Environmental, Social, Governance
Does Good Corporate Governance Really Work? More Evidence from CalPERS Author: Nelson, James M. Journal: Journal of Asset Management The California Public Employee Retirement System (CalPERS) asserts 'Our activism creates significant value for our members and all shareholders'. As evidence for this claim, CalPERS cites Anson et al. ('The Shareholder Wealth Effects of CalPERS' Focus List', Journal of Applied Corporate Finance,15, 8-17, 2003), who show that positive excess (abnormal) returns from focus list firms average about 12 per cent for the 90 days following targetings between 1992 and 2001. In a follow-up study, Anson et al. ('Good Corporate Governance Works: More Evidence from CalPERS', Journal of Asset Management,5, 149-56, 2004) show excess returns of 59 per cent for the 365 trading days following CalPERS' targeting. This study finds that their results are driven by a significant bias in their market model alphas caused by estimation during periods of known underperformance and compounded over unnecessarily long event windows. When their analysis is repeated using parameters estimated post-event, no evidence of significant abnormal returns attributable to CalPERS activism is found. When shorter event windows immediately surrounding the announcement of the CalPERS focus lists are examined, no evidence that the market values CalPERS activism is found. Contrary to the results of Anson et al. (2003, 2004), after addressing various methodological concerns, this study finds no evidence of any shareholder wealth effects attributable to CalPERS activism.	2005	Governance
How to Present the Business Case for Healthcare Quality to Employers Author: Nicholson, Sean, Mark V. Pauly, Daniel Polsky, Catherine M. Baase, Gary M. Billotti, Ronald J. Ozminkowski, Marc L. Berger, and Claire E. Sharda Journal: Applied Health Economics and Health Policy Many employers in the US are investing in new programmes to improve the quality of medical care and simultaneously shifting more of the healthcare costs to their employees without understanding the implications on the amount and type of care their employees will receive. These seemingly contradictory actions reflect an inability by employers to accurately assess how their health benefit decisions affect their profits. This paper proposes a practical method that employers can use to determine how much they should invest in the health of their workers and to identify the best benefit designs to encourage appropriate healthcare delivery and use. This method could also be of value to employers in other countries who are considering implementing programmes to improve employee health. The method allows a programme that improves workers' health to generate four financial benefits for an employer — reduced medical costs, reduced absences, improved on-the-job productivity, and reduced turnover — and uses accurate estimates of the benefits of reducing absences and improving productivity.	2005	Social
The Economics of Short-Term Performance Obsession Author: Rappaport, Alfred Journal: Financial Analysts Journal In theory, discounted cash flows (DCFs) set prices in well-functioning capital markets. In practice, investment managers attach substantial weight in stock selection to short-term performance, particularly earnings and tracking error. Corporate executives blame this behavior for their own obsession with short-term earnings. Are stock prices likely to allocate financial resources efficiently when short-term earnings dominate investment decisions? Can investment managers who identify stocks as mispriced on a DCF basis earn excess returns? This article explains why maximizing long-term cash flow is the most effective way to create value for shareholders and charts a course for alleviating the obsession with short-term performance.	2005	Environmental, Social, Governance
Exploring the Financial Value of a Reputation for Corporate Social Responsibility During a Crisis Author: Schnietz, Karen E., and Marc J. Epstein Journal: Corporate Reputation Review Is there financial value in a reputation for corporate social responsibility during a crisis? The existing empirical evidence for a corporate social-financial performance link has been mixed, but perhaps this is, in part, due to most studies' emphasis on a reputation's impact on positive news. What of the opposite case — whether a reputation for social responsibility acts as a 'reservoir of goodwill' during corporate crises? This paper draws on literature from the fields of reputation, strategy, risk and social responsibility to outline the reasons why there might be financial value in a reputation for corporate social responsibility during a crisis and then tests them by examining investor reaction to the 1999 Seattle World Trade Organization (WTO) failure, caused by disagreement among member nations on labor and environmental standards and public protests over the same. Seattle represented apparent heightened demand for corporate social responsibility and an increased risk of stricter, future regulation. It was found that a reputation for social responsibility protected firms from stock declines associated with this crisis, even when controlling for possible trade and industry effects.	2005	Governance
Investing in Socially Responsible Companies is a Must for Public Pension Funds - Because There is No Better Alternative Author: Sethi, S. Prakash Journal: Journal of Business Ethics With assets of over US$1.0 trillion and growing, public pension funds in the United States have become a major force in the private sector through their holding of equity positions in large publicly traded corporations. More recently, these funds have been expanding their investment strategy by considering a corporation's long-term risks on issues such as environmental protection, sustainability, and good corporate citizenship, and how these factors impact a company's long-term performance. Conventional wisdom argues that the fiduciary responsibility of the pension funds' trustees must be solely focused on their beneficiaries and, therefore, their investment criteria must be based strictly on narrowly defined financial measures. It is also asserted that well-established financial measurements of corporate performance already include long-term risk assessment through discounted present value of future flow of earnings. Consequently, all other criteria are contrary to the best interest of the pension funds' beneficiaries. In this paper, we assert that, contrary to conventional wisdom, pension funds, and for that matter other mutual funds, must be concerned with the long-term survival and growth of corporations. These measures are generally referred to "socially responsible investing" (SRI) and when applied to corporations, it is termed "socially responsible corporate conduct (SRCC)." We demonstrate that current measurement of future risk assessment invariably understates, and quite often completely overlooks, these long-term risks because of the inherent bias towards short-run on the part of financial intermediaries whose compensation depends greatly on short-term results. Furthermore, there is ample evidence to suggest that these intermediaries have been engaging in self-serving practices and thus failing in their duties to serve their clients', i.e. pension funds', best interests. Because of their large holdings in the total market as well as individual companies, these funds cannot easily divest from poorly performing companies without destabilizing the companies' stock and overall markets. Hence, they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long-term aspects of their operations in terms of their impact on environment, sustainability, and community welfare, to name a few. We argue that an exclusionary, and even a primary, focus on short-term financial criteria is no longer a viable option. It also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance. Thus socially responsible investing practices are not merely discretionary and desirable activities; they are a necessary imperative, which both the corporations and public pension funds, and other large institutional holders, will ignore at serious peril to themselves. Finally, the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities. It also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long-term corporate survival and growth in the context of a changing economic, environmental and socio-political dynamic.	2005	Governance
Normal Investors, Then and Now Author: Statman, Meir Journal: Financial Analysts Journal Investors were normal in 1945 when the first issue of the Financial Analysts Journal was published, and they remain normal today, 60 years later. But in between was a long period, starting in the late 1950s, when investors were described as rational. The portrait of investors as rational is the first foundation block of standard finance. Other foundation blocks are market efficiency, mean-variance portfolio theory, and the capital asset pricing model. This article provides descriptions of normal investors as they were portrayed in the FAJ and other finance journals before standard finance was introduced and as they have emerged recently in behavioral finance.	2005	Governance
Good Corporate Governance Works: More Evidence from CalPERS Author: Anson, Mark, Ted White, and Ho Ho Journal: Journal of Asset Management The 'CalPERS Effect' has been documented in a number of studies with respect to the many shareowner proposals and proxy contests that CalPERS has sponsored over the years. There is, however, another way to measure the CalPERS Effect and that is through the annual publication of the CalPERS Focus List of poorly governed public corporations. This paper examines the CalPERS Effect as it relates to the publication of the CalPERS Focus List and finds that there is a significant and positive long-term shareowner wealth effect from the publication of the Focus List. The authors also examine various sub-samples of Focus List companies to find where the CalPERS Effect might have its greatest impact.	2004	Governance
Talking Trash: Legitimacy, Impression Management, and Unsystematic Risk in the Context of the Natural Environment Author: Bansal, Pratima, and Iain Clelland Journal: Academy of Management Journal Applying institutional theory, we argue that environmentally legitimate firms incur less unsystematic stock market risk than illegitimate firms. Firms earn environmental legitimacy when their performance with respect to the natural environment conforms to stakeholders' expectations. This relationship was supported with the analysis of media reports and stock prices of 100 firms over a five-year period. The analysis also showed that firms with low environmental legitimacy can attenuate this effect by expressing commitment to the natural environment.	2004	Environmental
Pension Fund Corporate Engagement: The Fifth Stage of Capitalism Author: Clark, Gordon L., and Tessa Hebb Journal: Industrial Relations Pension fund capitalism is a new, albeit evolving, stage of Anglo-American capital market development. It is marked by the ability of pension funds to aggregate the widely disbursed ownership of beneficiaries and therefore act as single entities with a unified voice. Pension funds within their investment portfolios are increasingly using this voice to engage companies. Such corporate engagement in its broadest definition is the use of one's ownership position to influence company management decision making. Corporate engagement brings together four distinct underlying currents: first, the increased use of passive index funds; second, the corporate governance movement; third, the growing impact of socially responsible investing; and, finally, the impact of new global standards. At its best corporate engagement offers a long-term view of value that both promotes higher corporate, social and environmental standards and adds share value, thus providing long-term benefits to future pension beneficiaries.	2004	Governance
The "CalPERS Effect" Revisited Author: English, Philip C., Thomas I. Smythe, and Chris R. McNeil Journal: Journal of Corporate Finance Institutional investors have become more active in corporate governance with the relaxation of Depression Era securities laws. The California Public Employees' Retirement System (CalPERS) is a leading institutional activist. In this paper, we examine the relationship between CalPERS' public targeting and both short- and long-term stock returns to address what has been dubbed the "CalPERS effect". Our results indicate evidence of an announcement effect and that, while there is also evidence of some long-term improvement, it is limited to 6 months from the announcement of the target list in the Wall Street Journal when more consistent empirical methodologies are employed.	2004	Governance
Housekeeping and Plumbing: The Investability of Emerging Markets Author: Ladekarl, Jeppe, and Sara Zervos Journal: Working paper Ladekarl and Zervos look at the investment allocation process employed by portfolio investors in emerging markets. In particular, they examine the first of a two-stage decision process: First, investors create a subset of investable countries to be analyzed later in further detail; second, they weigh expected returns versus risk and subsequently allocate their funds. The authors hypothesize that the determination of whether a country is investable or not is influenced by a number of factors, especially related to size, quality of housekeeping, (macroeconomic policies, political economy, local financial markets, corporate governance, and so on), and efficiency of plumbing (legal and regulatory framework, custody, clearing and settlement, taxes, and so on). By interviewing many types of these investors in both the United States and the United Kingdom, the authors delve into their decision-making processes as well as attempt to uncover the factors they indicate matter most in defining the investable universe. They determine the relative importance of such housekeeping and plumbing factors while highlighting the role of external issues, such as index benchmarking and U.S. foreign policy. The authors recognize from the outset that the most profound effects on investment flows, or the required minimum expected returns, arise from improvements or deteriorations in macroeconomic policies. However, at the margin, improvements can be made in country policies that will, for a given macroeconomic situation, improve the ability of a country to attract international investment flows.	2004	Governance
The Impact of Public Opinion on Board Structure Changes, Director Career Progression, and CEO Turnover: Evidence from CalPERS' Corporate Governance Program Author: Wu, YiLin Journal: Journal of Corporate Finance Extant research investigates the effects of legal mechanisms and shareholder activism on corporate governance. Zingales [Journal of Finance 55 (2000) 1623] calls for research concerning the effects of public opinion on corporate governance. The California Public Employees' Retirement System (CalPERS) influences public opinion by publicly naming the companies having poor corporate governance. This study hypothesizes that public naming by CalPERS damages the reputations of management and directors at these companies, and these companies respond by improving their corporate governance. This hypothesis is supported by three findings. First, companies are more likely to decrease the number of inside directors after being named publicly by CalPERS. A large proportion of departing inside directors remains full-time employees in the named companies. Second, departing inside directors are less likely to take up future directorships after their companies are named publicly by CalPERS. Finally, the likelihood of CEO dismissal increases and the relation between performance and CEO dismissal becomes stronger after companies are named publicly by CalPERS. These three findings are consistent with the hypothesis that CalPERS influences public opinion and that reputation concerns are effective in compelling companies to improve their corporate governance system.	2004	Governance
The Shareholder Wealth Effects of CalPERS' Focus List Author: Anson, Mark, Ted White, and Ho Ho Journal: Journal of Applied Corporate Finance Shareholder activism can help to protect shareholder value by promoting sound corporate governance practices. As an active institutional investor, CalPERS takes its role in the corporate governance process very seriously. In addition to many other initiatives, CalPERS publishes each year a list of six to twelve public companies with poor corporate governance principles and poor financial performance—its well-known "Focus List"—in the hope that the managements of these companies will be motivated to improve their performance and increase shareholder value for CalPERS and their other equity owners. In an attempt to assess the effectiveness of CalPERS' governance program, the authors examine the market impact of the Focus List and find that companies on the list experience positive excess stock returns of about 12 percent over the three months following release of the list. Moreover, this wealth effect is even greater for companies with a large, widely dispersed shareholder base, as might be expected given the relative inability of such shareholders to act collectively.	2003	Governance
Socially Responsible Investments in Germany, Switzerland, and the United States: An Analysis of Investment Funds and Indices Author: Schroder, Michael Journal: Working paper The aim of this study is the analysis of so called socially responsible investments (SRI). First, the performance of SRI equity investment funds and equity indices is investigated using Jensen's alpha as performance measure. The analysis considers market timing strategies of the fund management and takes publicly available information into account (conditional performance). In the second part sensitivities regarding macroeconomic factors are estimated and the third part investigates the investment style of the SRI funds and indices. It is found that most of the SRI assets have a similar performance than their benchmarks. Only a few funds and indices exhibit a relatively poor performance. As SRI funds and indices seem to have some specific risk-return characteristics (investment styles) that might be characterised as special investment vehicles different from conventional assets.	2003	Environmental, Social, Governance
Does Coordinated Institutional Investor Activism Reverse the Fortune of Underperforming Firms? Author: Song, Wei-Ling, and Samuel Szewczyk Journal: Journal of Financial and Quantitative Analysis We investigate the impact of Focus Listing by the Council of Institutional Investors on targeting poorly performing firms. Post-listing stock returns for the targeted firms differ insignificantly from those of a suitable benchmark group. Institutional investors increase their holdings of targeted firms, but not by more than those of the benchmark firms. Similarly, though analysts revise earnings forecasts up for Focus Listed firms, they do so well after the listing event and positive revisions are no greater than the benchmark group. Moreover, there appears to be little difference between Focus List and benchmark firms in the incidence of post-listing events such as mergers and stock repurchases. Overall, we find very little evidence of the efficacy of shareholder activism.	2003	Governance
The Role of the Global Reporting Initiative's Sustainability Reporting Guidelines in the Social Screening of Investments Author: Willis, Alan Journal: Journal of Business Ethics Social screening of investments calls not only for investment policy and criteria, but also for information about companies, their policies, practices and performance. The Global Reporting Initiative (GRI) and its June 2000 Sustainability Reporting Guidelines have the potential to significantly improve the usefulness and quality of information reported by companies about their environmental, social and economic impacts and performance. The GRI aims to develop a voluntary reporting framework that will elevate sustainability reporting practices to a level equivalent to that of financial reporting in rigour, comparability, auditability and general acceptance. This will be a welcome and efficient supplement to the questionnaires, interviews, press releases, media reports and other sources of information traditionally used for screening in investment decision making — social/ethical and mainstream. The Dow Jones Sustainability Group Index, the Jantzi Social Index and the Innovest EcoValue'21 analytical platform, together with the SRI community, are all likely to benefit from GRI-style sustainability reports. One of the GRI's key challenges is to accommodate the broad variety of disclosure needs and expectations of a wide range of report users and company stakeholders. To maximize the usefulness of the GRI Guidelines, report users, including the SRI community, need to be engaged in the process of developing and refining the Guidelines over time. The GRI Guidelines are emerging as an important instrument in enabling companies to communicate with their stakeholders about performance and accountability beyond just the financial bottom line.	2003	Governance
How Socially Responsible Investment (SRI) Could Redefine Corporate Excellence in the 21st Century Author: Kawamura, Masahiko Journal: Working paper This paper describes developments in SRI in Japan and abroad, and examines the possibility that it could actually redefine the criteria of corporate excellence for the 21st century. The author's main contribution is in his conclusion. He concludes that regardless of the particular form, SRI offers a way for investors to express their own social priorities — whether for social justice, economic development, world peace, or environmental preservation — based on how they invest and that, by changing where funds are invested and altering the condition of companies, SRI can transform markets and the flow of funds in society. In the past, corporate excellence had been defined in terms of product quality, price, delivery time, and profitability. However, this definition will no longer suffice in the 21st century; excellent companies not only must pursue economic rationality, but social and environmental rationality. Stated differently, market valuation will reflect the relationship of companies to society, as well as their underlying integrity and ethical values. In this sense, SRI promises to be a powerful tool for redefining excellent companies in the context of their social existence. SRI represents an ideal opportunity for individuals to participate in the flow of funds in society.	2002	Governance
Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios Author: Stone, Bernell K., John B. Guerard, Jr., Mustafa N. Gultekin, and Greg Adams Journal: Working paper In Investing for Good, Kinder, Lydenberg, and Domini [1993, p.3] identify three main types of social investors: 1) social guideline investors, 2) shareholder activists, and 3) community-development investors. This article treats social guideline investing. Social guideline investing (SGI) includes two types: 1) social screens and 2) positive social tilts. Social Screening is prohibiting investment in the securities of companies/industries that the investor perceives to be engaged in socially negative behavior such as defense, alcohol, tobacco, gambling, pollution, etc. Positive social tilting is proactively investing in the securities of companies that the investor perceives to be engaged in socially positive business activities and/or to be exhibiting socially proactive management practices such as affirmative hiring/promotion, progressive child care, employee education, etc. This paper concerns the performance cost of social screening. It does not treat positive social tilting.	2002	Environmental, Social, Governance
The Effectiveness of Institutional Activism Author: Caton, Gary L., Jeremy Goh, and Jeffrey Donaldson Journal: Financial Analysts Journal We examined earnings-forecast revisions and stock returns after release of the Focus List of poorly performing companies by the Council of Institutional Investors. Using Tobin's q as a measure of a company's ability to improve performance, we found significant and positive abnormal forecast revisions and post-release stock returns for companies with q greater than 1. For companies with q less than 1, neither forecast revisions nor post-release stock returns were significantly different from zero. For the full sample of companies on the Focus List, regression analysis showed a significant positive relationship between forecast revisions and post-release stock returns. These findings support our proposition that institutional activism is effective for underperforming companies—but only those companies with the ability to respond to the challenge to improve performance.	2001	Governance
Value Maximization, Stakeholder Theory and the Corporate Objective Function Author: Jensen, Michael C. Journal: Journal of Applied Corporate Finance This paper examines the role of the corporate objective function in corporate productivity and efficiency, social welfare, and the accountability of managers and directors. The author argues that because it is logically impossible to maximize in more than one dimension, purposeful behavior requires a single-valued objective function. Two hundred years of work in economics and finance implies that, in the absence of externalities and monopoly, social welfare is maximized when each firm in an economy maximizes its total market value. The main contender to value maximization as the corporate objective is stakeholder theory, which argues that managers should make decisions so as to take account of the interests of all stakeholders in a firm, including not only financial claimants, but also employees, customers, communities, and governmental officials. Because the advocates of stakeholder theory refuse to specify how to make the necessary tradeoffs among these competing interests, they leave managers with a theory that makes it impossible for them to make purposeful decisions. With no clear way to keep score, stakeholder theory effectively makes managers unaccountable for their actions (which helps explain the theory's popularity among many managers). But if value creation is the overarching corporate goal, the process of creating value involves much more than simply holding up value maximization as the organizational objective. As a statement of corporate purpose or vision, value maximization is not likely to tap into the energy and enthusiasm of employees and managers. Thus, in addition to setting up value maximization as the corporate scorecard, top management must provide a corporate vision, strategy, and tactics that will unite all the firm's constituencies in its efforts to compete and add value for investors. In clarifying the proper relation between value maximization and stakeholder theory, the author introduces a somewhat new corporate objective called "enlightened value maximization." Enlightened value maximization uses much of the structure of stakeholder theory — notably the need to consider the interests of all corporate stakeholders — while continuing to posit maximization of long-run firm value as the criterion for making the necessary tradeoffs among stakeholders. The paper comes to similar conclusions about the Balanced Scorecard, which is described as the managerial equivalent of stakeholder theory. Although the Balanced Scorecard can add value by helping managers better understand the drivers of shareholder value, it should not be used as a performance measurement and incentive compensation system because it fails to provide a single valued score, a clear way of distinguishing superior from substandard performance.	2001	Governance
Sustainability: Advantaged or Disadvantaged? Author: King, Michael Journal: Journal of Corporate Citizenship Corporate organisations play a critical role in today's society. The dominance of market-based liberal democracy and the globalisation of the world economy means that 48 of the 100 largest economies in the world are companies. There has long been a debate about the role of business: whether it exists only to make profit or whether it has wider goals and responsibilities. If organisations are required to respond to wider expectations, then they will potentially have to be able to deliver across a variety of objectives for different stakeholders. From one viewpoint, business exists only to make profit and if it loses this singular focus it will be disadvantaged and suffer from the processes of competition. This study investigates whether organisations that respond to wider objectives and expectations are disadvantaged in terms of their financial performance. The study finds that companies can deliver across multiple objectives. Indeed, aggregate performance of the sustainable companies is better than their peers and relevant market indices over a five-year period.	2001	Environmental, Social, Governance
Catholic Investing: The Effects of Screens on Financial Returns Author: Naber, Mary Journal: Journal of Investing The author evaluates the value and returns of five different portfolios constructed on the basis of Catholic religious beliefs for the five-year period 1991–1995. The screened portfolios perform no worse on a risk-adjusted basis than the benchmark unscreened portfolio, although the "sin" portfolio — constructed of the divested stocks — performs exceptionally well. Multivariate regression analysis identifies military, community, and diversity screens as significant factors. While isolation of a few offensive companies might result in abnormal returns as demonstrated in the sin portfolio, exclusion of such industries should not significantly alter the returns of a diversified risk-adjusted portfolio.	2001	Environmental, Social, Governance
Less is More: Making Institutional Investor Activism a Valuable Mechanism of Corporate Governance Author: Romano, Roberto Journal: Yale Journal on Regulation Institutional investors have increasingly engaged in corporate governance activities, introducing proxy proposals and negotiating with management, with a goal of improving performance. As shareholder activism has become more pronounced, financial economists have attempted to measure its effect on performance. This Article reviews the finance literature on institutional investors' activities in corporate governance and uses the findings of the empirical literature to inform normative recommendations for the proxy process. In brief, there is an apparent paradox: notwithstanding the development of shareholder activism and commentators' generally positive assessments of it, the empirical research indicates that such activism has little or no effect on targeted firms' performance. This implies that activist institutions ought to reassess their agendas, in order to use their resources more effectively. The Article takes a two-pronged approach to furthering this aim. First, it suggests a mechanism of internal control, whereby funds would engage in periodic review of their shareholder-activism programs to identify the most fruitful governance objectives. Second, it seeks ways to provide incentives to undertake such internal revaluations, advocating elimination or significant reduction of the subsidy of proposal sponsorship under the SEC rules unless a proposal achieves substantial voting support, or permitting firms' shareholders to choose what level of subsidy they wish to provide proposal sponsors. The estimated savings from eliminating the subsidy for proposals that fail to receive at least 40 percent of the votes ranges from $293 million to $1.9 billion.	2001	Governance
Stepping Towards Sustainable Business: An Evaluation of Waste Minimization Practices in US Manufacturing Author: Clelland, Iain J., Thomas J. Dean, and Thomas J. Douglas Journal: Interfaces Central to the movement of organizations toward environmental sustainability is the financial viability and environmental effectiveness of the techniques for improving environmental performance. While waste-minimization practices (WMPs) have been touted as a key element in moving manufacturing organizations toward sustainability, we know little about their utilization and effectiveness across a range of industrial and organizational contexts. Using waste-minimization data collected as part of the Toxics Release Inventory, we studied 250 manufacturing firms to provide empirical evidence to enable plant managers to prioritize waste-minimization options. We found clear evidence of a corporate double bonus WMPs can provide through pollution reduction and enhanced operational efficiency relative to traditional end-of-pipe solutions. In the array of ecologically sustainable business practices, it appears that WMPs provide immediate environmental and operational benefits and build momentum for further steps toward environmentally sustainable economic development.	2000	Environmental
Beyond Built-to-Last... Stakeholder Relations in 'Built to Last' Companies Author: Graves, Samuel B., and Sandra A. Waddock Journal: Business and Society Review Collins and Porras show that visionary companies have performed well for shareholders over long periods. The question remains, however, the extent to which these companies also attain their extraordinary performance by working productively and positively with other primary stakeholders such as customers, employees, and communities, as well as the environment. Recent empirical research has suggested that there may be a positive link between the overall quality of management in a firm and its social performance, defined in terms of stakeholder relationships. Called the good management hypothesis, this research suggests that the quality of management is associated with the ways companies treat certain key stakeholders on an ongoing basis. In this view, positive treatment of stakeholders is also, by extension, related to better performance outcomes, typically measured in financial terms. In this article, we extend the work of Collins and Porras by assessing the stakeholder, as well as financial, performance of Collins and Porras' visionary and comparison companies. We explore the differences between visionary and comparison companies in their treatment of primary stakeholders. Thus, we attempted to determine whether visionary companies really did focus on "more than profits" by treating their multiple stakeholders more generously than did the comparison group	2000	Environmental, Social, Governance
Environmental Marketing: A Source of Reputational, Competitive, and Financial Advantage Author: Miles, Morgan P., and Jeffrey G. Covin Journal: Journal of Business Ethics Corporate reputation is an intangible asset that is related to marketing and financial performance. The social, economic, and global environment of the 1990'shas resulted in environmental performance becoming an increasingly important component of a company's reputation. This paper explores the relationship between reputation, environmental performance, and financial performance, and looks at the contingencies that impact environmental policy making.	2000	Environmental
The Shareholder Wealth Effect of CalPERS' Activism Author: Crutchley, Claire E., Carl D. Hudson, and Marlin R. H. Jensen Journal: Financial Services Review In the past decade, institutional investors have become more active in monitoring management and voting the shares they control. The California Public Employees' Retirement System (CalPERS) was a leader in this wave of activism. This study investigates the long-term returns an investor with public information could earn by buying a portfolio of firms targeted by CalPERS and whether the success of CalPERS' activism depends on the aggressiveness of the targeting. The evidence supports the idea that visible and aggressive activism leads to substantial increases in shareholder wealth while a quieter activism does not.	1998	Governance
A Survey of Shareholder Activism: Motivation and Empirical Evidence Author: Gillan, Stuart L., and Laura T. Starks Journal: Working paper Shareholder activism by institutions is an important aspect of U.S. financial markets. We provide an overview of shareholder activism by institutional and individual investors, emphasising their focus on corporate governance, the identity of the activists, and a brief history of their activities. We also present a survey of the theoretical and empirical research regarding the motivations and outcomes of shareholder activism.	1998	Governance
Should Labor be Allowed to Make Shareholder Proposals? Author: Thomas, Randall S., and Kenneth J. Martin Journal: Washington Law Review In this Article, we investigate whether labor unions and related entities should be permitted to continue to make shareholder proposals using Rule 14a-8 of the federal securities laws. We focus on the claim that labor is using the shareholder proposal mechanism to further the interests of workers at the expense of other shareholders. In particular, corporate management groups have suggested that when labor is involved in collective bargaining negotiations with management, it should be barred from submitting shareholder proposals because labor proposals seek to further interest not shared by other security holders of company. Using data on shareholder proposals from 1994 proxy season, we find that labor union proposals as a whole get as much or more support than do similar proposals made by other shareholder groups. Furthermore, when we examine a subset of labor union proposals that have been identified by management groups as instances where labor was acting in its own self-interest, we find no significant differences between shareholder support for these proposals and for other shareholders' proposals of similar nature. We conclude that regulatory reform is necessary.	1998	Governance
Does Ethical Investing Impose a Cost Upon the Firm? A Theoretical Examination Author: Angel, James, and Pietra Rivoli Journal: Journal of Investing While many investors clearly select their portfolios so as to maximize their risk-adjusted returns, many others consider particular social or ethical factors in the management of their portfolios. In this article, we ask whether investor screening of firms for ethical or social reasons is likely to have any effect upon the firm. We show that the effect of investor ethical screens is not uniform across firms. For certain type of firms, such screens may result in higher capital costs and may therefore be effective in investor attempts to change firm behavior. For other firms, the effects of the investor behavior are likely to be negligible. When investors exclude certain firms from their portfolios, the result is a segmented market: the firm has access to one segment of the equity market but not to another. Finance theory suggests that the effects of equity market segmentation will be to raise the cost of equity capital. Higher capital costs, in turn, reduce the economic profit associated with the firm's activities.	1997	Environmental, Social, Governance
Does Improving a Firm's Environmental Management System and Environmental Performance Result in a Higher Stock Price? Author: Feldman, Stanley, Peter Soyka, and Paul Ameer Journal: Journal of Investing At a larger, more general level, there has been little empirical evidence or analysis regarding the overall impacts of corporate environmental activities on the business success of the firm as a whole, and virtually no meaningful theory or evidence linking wide-spectrum environmental improvement initiatives to either expected or actual enhancements in the firm's sales, earnings, competitive position, investment risk profile, or market value. In this paper, we articulate a conceptual model that establishes some of these linkages, and provide the results of a quantitative application of this model to a large and representative sample of the most prominent public companies in the U.S. (more than 300 of the 500 companies within the Standard & Poor's index). Our results suggest that adopting a more environmentally proactive posture has, in addition to any direct environmental and cost reduction benefits, a significant and favorable impact on the firm's perceived riskiness to investors and, accordingly, its cost of equity capital and value in the market place. To test these posited relationships and our conceptual approach, we developed and applied an empirical model. Our results, which are discussed in the sections that follow, strongly suggest that firms that improve both their environmental management system and environmental performance can increase their stock price by as much as five percent.	1997	Environmental, Social, Governance
The Impact of High Performance Work Systems, Implementation Effectiveness, and Alignment With Strategy on Shareholder Wealth Author: Huselid, Mark A., and Brian E. Becker Journal: Academy of Management Proceedings We estimate the impact of the presence of a High Performance Work System and its effectiveness and alignment with firm competitive strategy on shareholder wealth in 702 firms. We find that a one standard deviation increase in these factors is associated with a $42,000 per employee increase in market value. The nature and pace of recent changes in the economic environment have motivated both managers and scholars to look for new sources of competitive advantage and profitability. As many of the traditional sources of competitive advantage (technology, economies of scale, patents, etc.) have diminished in value, the role of a skilled, motivated and flexible workforce has become more prominent (Pfeffer, 1994). Within that context a broadly defined High Performance Work System (HPWS) can be viewed as a key strategic lever, both as a means to develop and sustain core competencies and as a necessary condition for strategy implementation. This study focuses on a recurring theme in this literature; namely, to what extent is the HRM-firm performance relationship contingent upon the degree to which such systems have been implemented effectively, the "fit" among HRM policies, and the "fit" between those polices and the firm's larger strategic objectives? Our tests for complementarities include an evaluation of the "within HR" fit and tests of fit with corporate and business strategy. The latter tests are unique because we compare the effects of HR contingencies using both a variable indicating firm generic competitive strategy (Porter, 1985) and a more flexible measure that provides for a more firm-specific "idiosyncratic" contingency (Huselid and Becker; 1996b; Becker and Gerhart, 1996).	1997	Governance
No Effect, or No Net Effect? Studies on Socially Responsible Investing Author: Kurtz, Lloyd Journal: Journal of Investing The author reviews the literature on the performance impact of socially responsible investing and focuses on equity portfolios. The key issues addressed are whether social screens have harmed investment performance or whether information effects have offset diversification costs. In other words, the central issues are whether social screening has no effect on performance or no net effect. Based on the studies examined, the author concludes that those portfolio managers wanting to eliminate the active exposures of social screens can do so without incurring material costs.	1997	Governance
The Impact of Social-Responsibility Screens on Investment Performance: Evidence from the Domini 400 Social Index and Domini Equity Mutual Fund Author: Sauer, David A. Journal: Review of Financial Economics Socially responsible investors apply both financial and social criteria when evaluating investments in order to ensure that the securities selected are consistent with their personal value system and beliefs. This paper examines the potential impact these additional restrictions have on investment performance by comparing the performance characteristics of a carefully constructed, well diversified portfolio of socially screened stocks with two unrestricted benchmark portfolios. In contrast to prior research, the performance of the socially responsible portfolio examined in this paper is not subject to the confounding effects of transaction costs, management fees, or differences in investment policy that are associated with actively managed mutual funds. Therefore, it is possible to more clearly isolate the potential performance implications associated with subjecting the investment opportunity set to social screening. Contrary to expectations, our findings indicate that application of social-responsibility screens does not necessarily have an adverse impact on investment performance.	1997	Environmental, Social, Governance
Worker Representation on Boards of Directors: A Study of Competing Roles Author: Hammer, Tove H., Steven C. Currall, and Robert N. Stern Journal: Industrial and Labor Relations Review The study examines worker representation on boards of directors as a form of employee participation in organizational decision-making in 14 U.S. firms in the early 1980s. The authors develop a model of worker director role definitions and role performance to explain how opposition by managers and conventional board directors to labor advocacy on the board can make worker directorships ineffective labor voice mechanisms when other structures of participation are absent in a firm. The analysis shows that corporate managers and workers had widely divergent definitions of the worker director role: management emphasized downward communication from the board to employees, whereas worker directors and their constituents stressed the protection of workers' interests as the main function of worker directors. Both management and labor influenced worker role definitions and role behavior through selection and socialization processes.	1991	Social
Active Ownership Author: Dimson, Elroy, Oguzhan Karakas, and Xi Li Journal: Review of Financial Studies We analyze an extensive proprietary database of corporate social responsibility engagements with U.S. public companies from 1999-2009. Engagements address environmental, social, and governance concerns. Successful (unsuccessful) engagements are followed by positive (zero) abnormal returns. Companies with inferior governance and socially conscious institutional investors are more likely to be engaged. Success in engagements is more probable if the engaged firm has reputational concerns and higher capacity to implement changes. Collaboration among activists is instrumental in increasing the success rate of environmental/social engagements. After successful engagements, particularly on environmental/social issues, companies experience improved accounting performance and governance and increased institutional ownership.	2015	Governance
Signaling Through Corporate Accountability Reporting Author: Lys, Thomas, James P. Naughton, and Clare Wang Journal: Journal of Accounting and Economics We analyze an extensive proprietary database of corporate social responsibility engagements with U.S. public companies from 1999-2009. Engagements address environmental, social, and governance concerns. Successful (unsuccessful) engagements are followed by positive (zero) abnormal returns. Companies with inferior governance and socially conscious institutional investors are more likely to be engaged. Success in engagements is more probable if the engaged firm has reputational concerns and higher capacity to implement changes. Collaboration among activists is instrumental in increasing the success rate of environmental/social engagements. After successful engagements, particularly on environmental/social issues, companies experience improved accounting performance and governance and increased institutional ownership.	2015	Governance
Thirty Years of Shareholder Rights and Firm Value Author: Cremers, Matijn, and Allen Ferrell Journal: Journal of Finance This paper introduces a new hand-collected data set that tracks restrictions on shareholder rights at approximately 1,000 firms from 1978 to 1989. In conjunction with the 1990 to 2006 IRRC data, we track shareholder rights over 30 years. Most governance changes occurred during the 1980s. We find a robustly negative association between restrictions on shareholder rights (using G-index as a proxy) and Tobin's Q. The negative association only appears after judicial approval of antitakeover defenses in the 1985 landmark Delaware Supreme Court decision Moran v. Household. This decision was an unanticipated exogenous shock that increased the importance of shareholder rights.	2014	Governance
Are Red or Blue Companies More Likely to Go Green? Politics and Corporate Social Responsibility Author: Di Guli, Alberta, and Leaonard Kostovetsky Journal: Journal of Financial Economics Using the firm-level corporate social responsibility (CSR) ratings of Kinder, Lyndenberg, Domini, we find that firms score higher on CSR when they have Democratic rather than Republican founders, CEOs, and directors, and when they are headquartered in Democratic rather than Republican-leaning states. Democratic-leaning firms spend $20 million more on CSR than Republic-leaning firms ($80 million more within the sample of S&P 500 firms), or roughly 10 percent of net income. We find no evidence that firms recover these expenditures through increased sales. Indeed, increases in firm CSR ratings are associated with negative future stock returns and declines in firm ROA, suggesting that any benefits to stakeholders from social responsibility come at the direct expense of firm value.	2014	Governance
Firm-Value Effects of Carbon Emissions and Carbon Disclosures Author: Matsummura, Ella mae, Rachna Prakash, and Sandra C. Vera-Munoz Journal: The Accounting Review Using hand-collected carbon emissions data fro 2006 to 2008 that were voluntarily disclosed to the Carbon Disclosure Project by S&P 500 firms, we examine the effects on firm value of carbon emissions and of the act of voluntarily disclosing carbon emissions. Correcting for self-selection bias from managers' decisions to disclose carbon emissions, we find that, on average, for every additional thousand metric tons of carbon emissions, firm value decreases by $212,0, where the median emissions for the disclosing firms in our sample are 1.07 million metric tons. We also examine the firm-value effects of managers' decisions to disclose carbon emissions. We find that the median value of firms that disclose their carbon emissions is about $2.3 billion higher than that of comparable non-disclosing firms. Our results indicate that the markets penalize all firms for their carbon emissions, but a further penalty is imposed on firms that do not disclose emissions information. The results are consistent with the argument that capital markets impound both carbon emissions and the act of voluntary disclosure of this information in firm valuations.	2014	Environmental
Learning and the Disappearing Association between Governance and Returns Author: Bebchuk, Llucian A., Alma Cohen, and Charles C. Y. Wang Journal: Journal of Financial Economics The correlation between governance indices and abnormal returns documented for 1990-1999 subsequently disappeared. The correlation and its disappearance are both due to market participants' gradually learning to appreciate the difference between good-governance and poor-governance firms. Consistent with learning, the correlation's disappearance was associated with increases in market participants' attention to governance; market participants and security analysts were, until the beginning of the 2000s but not subsequently, more positively surprised by the earning announcements of good-governance firms; and, although governance indices no longer generated abnormal returns during the 2000s, their negative association with firm value and operating performance persisted.	2013	Governance
Monitoring Managers: Does it Matter? Author: Cornelli, Francesca, Zbigniew Kominek, and Alexander Ljungqvist Journal: Journal of Finance We study how well-incentivized boards monitor CEOs and whether monitoring improves performance. Using unique, detailed data on boards' information sets and decisions for a large sample of private equity-backed firms, we find that gathering information helps boards learn about CEO ability. "Soft" information plays a much larger role than hard data, such as the performance metrics that prior literature focuses on, and helps avoid firing a CEO for bad luck or in response to adverse external shocks. We show that governance reforms increase the effectiveness of board monitoring and establish a casual link between forced CEO turnover and performance improvements.	2013	Governance
Strange Bedfellows? Voluntary Corporate Social Responsibility Disclosure and Politics Author: Griffin, Paul A., and Estelle Sun Journal: Accounting & Finance We show a reliable association between voluntary corporate social responsibility (CSR) disclosure and company political interests, which we proxy by company employees' contributions to political action committees and statewide voting in presidential elections. This relation is most pronounced for the contributions of Democratic employees at companies in states that vote for the Democratic presidential candidate. We also show a positive association between corporate political contributions and excess stock returns. A portfolio strategy of investing based on company size, CSR disclosure intensity and corporate political contributions produces a significant positive mean excess stock return of 4.5 percent over 3 months following CSR disclosure.	2013	Environmental
Going Green: Market Reaction to CSRwire News Releases Author: Griffin, Paul A., and Yuan Sun Journal: Journal of Accounting and Public Policy Voluntary disclosure theory predicts than an optimal disclosure decision should produce an overall net benefit for shareholders, and that such net benefit should decrease in public information availability. This study supports the predictions of voluntary disclosure theory in the context of climate chance. Using voluntary disclosures made through the CSRwire news service, we find that mangers' disclosure decisions involving greenhouse gas emissions produce positive returns to shareholders. This response varies negatively with company size and public information availability. For small companies in a limited public information environment, we find that mean market-adjusted share price increases significantly by 2.32 percent over days -2 to 2 around the CSR newswire release date. Our sample of disclosing companies received an aggregate market value boost from their CSR news releases of approximately ten billion dollars, independent of differences in public information availability.	2013	Environmental
Do Private Equity Fund Managers Earn Their Fees? Compensation, Ownership, and Cash Flow Performance Author: Robinson, David T., and Berk A. Sensoy Journal: Review of Financial Studies We study the relations between management contract terms and performance in private equity using new data for 837 funds from 1984-2010. We find no evidence that higher fees or lower managerial ownership are associated with lower net-of-fee performance. Nevertheless, compensation rises and shifts to performance-insensitive components during fundraising booms. Further, the behavior of distributions around contractual fee triggers is consistent with an underlying agency conflict between investors and fund managers. Our evidence suggest that managers with higher fees deliver higher gross performance, and highlights that agency costs are inevitable consequence of the information frictions endemic to agency relationships.	2013	Governance
The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness Author: Servaes, Henri, and Ane Tamayo Journal: Management Science This paper shows that corporate social responsibility (CSR) and firm value are positively related for firms with high customer awareness, as proxied by advertising expenditures. For firms with low customer awareness, the relation is either negative or insignificant. In addition, we find that the effect of awareness on the CSR-value relation is reversed for firms with a poor prior reputation as corporate citizens. This evidence is consistent with the view that CSR activities can add value to the firm but only under certain conditions.	2013	Governance
The Relevance to Investors of Greenhouse Gas Emission Disclosures Author: Griffin, Paul A., David H. Lont, and Estelle Sun Journal: UC Davis Graduate School of Management Research Paper No. 01-11 This study documents that investors care about companies' greenhouse gas (GHG) emission disclosures. Three kinds of evidence support this finding. First, using companies that disclose GHG emissions voluntarily through the Carbon Disclosure Project (CDP), we show that investors act as if they use GHG emission information to assess company value. Second, our evidence finds that investors view estimates of non-disclosure GHG emission amounts as value relevant, suggesting that stock prices reflect GHG information from channels other than CDP disclosure. Third, we conduct an event study and observe a significant stock market response when companies disclose climate change information in an 8-K filing. Our results strengthen for GHG-intensive industries such as utilities, energy, and materials companies, whose valuation effects are more negative. Economically, our results suggest that for every ton of GHG emitted by the median company in our sample at an assumed cost of $20 per ton, the stock market recognizes about 20-50 percent of that amount as an off-balance sheet liability.	2012	Environmental
Financial Constraints on Corporate Goodness Author: Hong, Harrison G., Jeffrey D. Kubik, and Jose A. Scheinkman Journal: Working paper An influential theses, dubbed "Doing Well by Doing Good", argues that corporate social responsibility is profitable. We establish that, if anything, the reverse is true: firms do good only when they do well in the sense of having financial slack. We model a firm's optimal choices of capital and goodness subject to financial constraints. Less-constrained firms spend more on goodness. We verify that in the data less constrained firms indeed have higher goodness scores and establish causality by using a quasi-experiment. During the Internet bubble, previously constrained firms experienced a temporary relaxation of their constraints and their goodness also temporarily increased relative to their previously unconstrained peers. Goodness is also more sensitive to financial constraints than capital or R&D spending.	2012	Environmental, Social, Governance
The Relationship Between Environmental Social Governance Factors and U.S. Stock Performance Author: Peiris, Dinusha, and John Evans Journal: Journal of Investing The focus by investment practitioners on the impacts of non-traditional environmental and governance issues has intensified in recent times as a result of global events. Most studies examine the relationship between environmental social governance (ESG) factors and portfolio returns. This article extends those studies by analyzing the impacts on stock valuation and operating performance of U.S. listed companies. Using a multifactor framework, the article provides evidence of a significant positive relationship between particular ESG rating criteria and both return on assets and market-to-book-value measures, supporting the theory that Corporate Social Performance is positive for Corporate Financial Performance. Analysis also shows that employment conditions are a more relevant influence than other stakeholder criteria and that a company's involvement in more general non-stakeholder-related social issues contributes negatively to both operating performance and stock return.	2010	Environmental, Social, Governance
Barriers to Boardrooms Author: Ada,s, Renee B., and Tom Kirchmaier Journal: Working paper Boardroom diversity policies link societal and corporate governance objectives. To understand whether they can meet both objectives we argue one must understand why female directors are relatively underrepresented. We document that boardroom diversity is lower than most surveys suggest. We then show that across countries and US states there are more women in the director pool when more women work full time. However, working full-time may not be sufficient for women to make it to the top because of economic and cultural barriers. Our evidence suggest current boardroom diversity policies may be less effective when barriers to boardrooms are bigger.	2015	Social
The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market Author: Aggarwal, Reena, Pedro A. C. Saffi, and Jason Sturgess Journal: Journal of Finance This paper investigates voting preferences of institutional investors using the unique setting of the securities lending market. Investors restrict lendable supply and/or recall loaned shares prior to the proxy record date to exercise voting rights. Recall is higher for investors with greater incentives to monitor, for firms with poor performance or weak governance, and for proposals where returns to governance are likely higher. At the subsequent vote, recall is associated with less support for management and more support for shareholder proposals. Our results indicate that institutions value their vote and use the proxy process to affect corporate governance.	2015	Governance
Institutional Ownership and Corporate Social Responsibility: The Non-Linear Relation and its Implication for Stock Return Volatility Author: Harjoto, Maretno A., Hoje Jo, and Yongtae Kim Journal: Working paper This study examines the relation between corporate social responsibility (CSR) and institutional investor ownership, and the impact of this relation on stock return volatility. We find that institutional ownership does not strictly increase or decrease in CSR; rather, institutional ownership is a concave function of CSR. This evidence suggests that institutional investors do not see CSR as strictly value enhancing activities. Institutional investors adjust their percentage of ownership when CSR activities go beyond the perceived optimal level. Employing the path analysis, we also examine the mediating effect of institutional ownership on the relation between CSR and stock return volatility. We find that CSR decreases stock return volatility at a decreasing rate through its effect on institutional ownership. Our results remain robust under several different CSR measures and estimation methods.	2015	Environmental, Social, Governance
Do Managers Do Good with Other Peoples' Money? Author: Cheng, Ing-Haw, Harrison G. Hong, and Kelly Shue Journal: Working paper We find support for three key predictions of an agency motive for corporate social responsibility. First, increasing insider ownership decreases measures if firm goodness. We use the 2003 Divided Tax Cut to increase after-tax insider ownership. Firms with moderate levels of insider ownership cut goodness by more than firms with low levels (where the tax cut has no effect) and high levels (where agency is less of an issue). Second, improved governance reduces corporate goodness. A regression discontinuity design of close votes around the 50 percent cut-off finds that passage of shareholder governance proposals leads to slower growth in goodness. Finally, we validate our results by showing that another measure of corporate perks, use of corporate jets, is correlated with corporate goodness and reacts similarly to shocks to governance.	2014	Governance
Independent Director Incentives: Where Do Talented Directors Spend their Limited Time and Energy? Author: Masulis, Ronald W., and Shawn Mobbs Journal: Journal of Financial Economics We study the repuation incentives in the director labor market and find the directos with multiple directorships distribute their effort unequally based on the directorship's relative prestige. When directos experience an exogenous increase in a directorship;s relative ranking, their board attendance rate increases and subsequent firm perfomance improves. Also, directors are less willing to relinquish their relatively more prestigious directorships, even when firm performance declines. Finally, forced Chief Executive Officer departure sensitivity to poor performance rises when a larger fraction of independent directors view the board as relatively more prestigious. We conclude that director reputation is a powerful incentive for independent directors.	2014	Governance
Corporate Governance and Value Creation: Evidence from Private Equity Author: Acharya, Viral V., Oliver F. Gottschalg, Moritz Hahn, and Conor Kehoe Journal: Review of Financial Studies Using deal-level data from transactions initiated by large private equity houses, we find that the abnormal performance of deals is positive on average, after the controlling for leverage and sector returns. Higher abnormal performance is related to improvement in sales and operating margin during the private phase, relative to that for quotes peers. General partners who are ex-consultants or ex-industry managers are associated with outperforming deals focused on internal value-creation programs, and ex-bankers or ex-accountants with outperforming deals involving significant mergers and acquisitions. The findings suggest the presence, on average, of positive but heterogeneous skills at the deal-partner level in large private equity transactions.	2013	Governance
Alliances and Corporate Governance Author: Bodnaruk, Andriy, Massimo Massa, and Andrei Simonov Journal: Journal of Financial Economics We study the link between a firm's quality of governance and its alliance activity. We consider alliances as a commitment technology that helps a company's Chief Executive Officer overcome agency problems that relate to the inability to ex ante motivate division mangers. We show that well-governed firms are more likely to avail themselves of this technology to anticipate ex post commitment problems and resolve them. The role of governance is particularly important when the commitment problems are more acute, such as for significantly risky/long-horizon projects ("longshots") or firms more prone to inefficient internal redistribution of resources (conglomerates), as well as in the absence of alternative disciplining parters; dominant alliance partners agree to a more equal split of power with junior partners that are better governed. An "experiment" that induces cross-sectional variation in the cost of the alliance commitment technology provides evidence of a casual link between governance and alliances.	2013	Governance
Profiting from Regulation: Evidence from the European Carbon Market Author: Bushnell, James B., Howard Chong, and Erin T. Mansur Journal: American Economic Journal: Economic Policy We investigate how cap-and-trade regulation affects profits. In late April 2006, the EU CO2 allowance price dropped 50 percent, equating to a €28 billion reduction in the value of aggregate annual allowances. We examine daily returns for 552 stocks from the EUROSTOXX index. Despite reductions in environmental costs, we find that stock prices fell for firms in both carbon- and electricity-intensive industries, particularly for firms selling primarily within the EU. Our results imply that investors focus on product price impacts, rather than just compliance costs and the nominal value of pollution permits.	2013	Environmental
Optimal Corporate Governance in the Presence of an Activist Investor Author: Cohn, Jonathan B., and Uday Rajan Journal: Review of Financial Studies We provide a model of governance in which a board arbitrates between an activist investor and a manger facial reputational concerns. The optimal level of internal board governance depends on both the severity of the agency conflict and the strength of external governance. Internal governance creates a certification effect so greater intervention by the board can lead to worse managerial behavior. Internal and external governance are substitutes when external governance is weak (the board commits to an interventionist policy to induce participation from the activist) and complements when external governance is strong (the board relies to a greater extent on the activist's information).	2013	Governance
Shareholder Votes and Proxy Advisors: Evidence from Say on Pay Author: Ertimur, Yonca, Fabrizio Ferri, and David Oesch Journal: Journal of Accounting Research We investigate the economic role of proxy advisors (PAs) in the context of mandatory "say on pay" votes, a novel and complex item requiring significant firm-specific analysis. PAs are more likely to issue an Against recommendation at firms with poor performance and higher levels of CEO pay and do not appear to follow a "one-size-fits-all" approach. PAs' recommendations are the key determinant of voting outcome but the sensitivity of shareholder votes to these recommendations varies with the institutional ownership structure, and the rationale behind the recommendation, suggesting that at least some shareholders do not blindly follow these recommendations. More than half of the firms respond to the adverse shareholder vote triggered by a negative recommendation by engaging with investors and making changes to their compensation plan. However, we find no market reaction to the accouncement of such changes, even when material enough to result in a favorable recommendation and vote the following year. Our findings suggest that, rather than identifying and promoting superior compensation practices, PAs' key economic role is processing a substantial amount of executive pay information on behalf of institutional investors, hence reducing their cost of making informed voting decisions. Our findings contribute to the literature on shareholder voting and the related policy debate.	2013	Governance
The Costs of Shareholder Activism: Evidence from a Sequential Decision Model Author: Gantchev, Nickolay Journal: Journal of Financial Economics This paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism. I model activism as a sequential decision process consisting of demand negotiations, board representation, and proxy contest and estimate the costs of each activism stage. A campaign ending in a proxy fight has average costs of $10.71 million. I find that the estimated monitoring costs reduce activist return by more than two-thirds. The mean net activist return is close to zero but the top quartile of activists earn higher returns on their activist holdings than on their non-activist investments. The large-sample evidence presented in this paper aids in understanding the nature and evolution of activist engagements.	2013	Governance
Diversity and Performance Author: Li, Feng, and Venky Nagar Journal: Management Science This study measures the performance of U.S. firms initiating same-sex domestic partnership benefit (SSDPB) policies. The results show that holding these firms upon their SSDPB initiation in a calendar portfolio earns a four-factor annualized excess return (alpha) of approximately 10 percent over the 1995-2008 period, beating 95 percent of all professional mutual funds in the United States. This finding is robust to several tests of revers causality. SSDPB adopters also show significant improvement in operating performance relative to nonadopters.	2013	Social
Environmental Policies and Firm Value Author: Al'Najjar, Basil, and Aspioni Anfimiadou Journal: Buisness Strategy and the Environment Many organizations are currently becoming more environmentally friendly. Eco-efficiency maximizes the effectiveness of a business operation while reducing its impact on the environment; with the necessary skills, organizations, can create more value while using less input. Prior empirical studies have suggested that firms engaging in eco-efficient activities are better valued than those without such activities. Therefore, this will enhance business efficiency and excellence. This study investigates the link between eco-efficiency, as environmental policy, and firm value in the United Kingdom (UK) for the period 1999 to 2008. We generate new insights into environmental-financial performance by using different definitions of the term 'eco-efficiency'. In the UK context our results support that eco-efficient firms have higher market values than those lacking environmental strategies. Hence, we recommend that firms become involved in environmental policies since the adoption of these policies will have a positive impact on firm value.	2012	Environmental
Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting Author: Dhaliwal, Dan S., Oliver Zhen Li, Albert Tsangm and Yong George Yang Journal: The Accounting Review We examine a potential benefit associated with the initiation of voluntary disclosure of corporate social responsibility (CSR) activities: a reduction in firms' cost of equity capital. We find that firms with a high cost of equity capital in the previous year tend to initiate disclosure of CSR activities in the current year and that initiating firms with superior social responsibility performance enjoy a subsequent reduction in the cost of equity capital. Further, initiating firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Moreover, these analysts achieve lower absolute forecast errors and dispersion. Finally, we find that firms exploit the benefit of a lower cost of equity capital associated with the initiation of CSR disclosure. Initiating firms are more likely than non-initiating firms to raise equity capital following the initiations; among firms raising equity capital, initiating firms raise significantly larger amount than do non-initiating firms.	2011	Governance
Vice vs. Virtue Investing Around the World Author: Lobe, Sebastian, and Christian Walkshäusl Journal: Working paper In this paper, we empirically test the extent to which a portfolio of socially not responsible firms screened out of a market portfolio will trade at a discount. We create a set of global and domestic sin indexes consisting of a large number of publicly traded socially not responsible stocks around the world belonging to what we label as the Sextet of Sin: adult entertainment, alcohol, gambling, nuclear power, tobacco, and weapons. We compare their stock market performance directly with a set of virtue comparable consisting of the most important international socially responsible investment indexes. Employing a multi-factor performance measurement framework and recent boot-strap procedures for robust performance testing, we find no compelling evidence in the data that ethical an unethical screens lead to a significant difference in their financial performance.	2011	Environmental, Social, Governance
Disclosed Corporate Responses to Climate Change and Stock Performance: An International Empirical Analysis Author: Ziegler, Andreas, Timo Busch, and Volker H. Hoffmann Journal: Energy Economics This paper examines the relationship between disclosed corporate responses to climate change and stock performance on the European and US stock markets. Methodologically, we consider investor expectations and compare risk-adjusted returns of stock portfolios comprising corporations that differ in this indicator for environmental performance. In this respect, we apply the flexible Carhart four-factor model in addition to the restricted one-factor model based on the Capital Asset Pricing Model (CAPM). The main result of our portfolio analysis is that a trading strategy which consists of buying stocks of corporations disclosing responses to climate change and selling stocks of corporations with no disclosure has become more worthwhile over time in Europe. Furthermore, it can be shown that the relationship between disclosed corporate responses to climate change and stock performance has been positive for energy firms in the USA. One reason for these results could be the underlying stringency of institutional pressure with respect to global warming.	2011	Environmental
Socially Repsonsible Investments: Institutional Aspects, Performace, and Investor Behavior Author: Renneboog, Luc, Jenke Ter Horst, and Chendi Zhang Journal: Journal of Banking & Finance This paper provides a critical review of the literature on socially responsible investments (SRI). Particular to SRI is that both financial goals and social objectives are pursued. Over the past decade, SRI has experienced an explosive growth around the world reflecting the increasing awareness of investors to social, environment, ethical and corporate governance issues. We argue that there are significant opportunities for future research on the increasingly important area of SRI. A number of questions are reviewed in this paper on the causes and the shareholder-value impact of corporate social responsibility (CSR) , the risk exposure and performance of SRI funds and firms, as well as fund subscription and redemption behavior of SRI investors. We conclude that the existing studies hint but do not unequivocally demonstrate that SRI investors are wiling to accept suboptimal financial performance to pursue social or ethical objectives. Furthermore, the emergence of SRI raises interesting questions for research on corporate finance, asset pricing, and financial intermediation.	2008	Environmental, Social, Governance
Stakeholder Influence Capacity and the Variability of Financial Returns to Corporate Social Responsibility Author: Barnett, Michael L. Journal: Academy of Management Review I argue that research on the business case for corporate social responsibility must account for the path-dependent mature of firm-stakeholder relations, and I develop the construct of stakeholder influence capability to fill this void. This construct helps explain why the effects of corporate social responsibility on corporate financial performance vary across firms and time. I develop a set of propositions to aid future research on contingencies that produce variable financial returns to investment in corporate social responsibility.	2007	Environmental, Social, Governance
The Price of Ethics: Evidence from Socially Responsible Mutual Funds Author: Renneboog, Luc, Jenke Ter Horst, and Chendi Zhang Journal: Working paper This paper estimates the price of ethics by studying the risk-return relation in socially responsible investment (SRI) funds. Consistent with investors paying a price for ethics, SRI funds in many European and Asia-Pacific countries strongly underperform domestic benchmark portfolios by about 5 percent per annum, although UK and US SRI funds do not significantly underperform their benchmarks. The underperformance of SRI funds does not seem to be driven by the loading on an ethical risk factor. SRI funds do not suffer a cost reduced selectivity nor do SRI funds managers time the market. There is mixed evidence of a smart money effect: SRI investors are unable to identify the funds that will outperform in the future, whereas they show some fund-selection ability in identifying ethical funds that will perform poorly. The screening activities of SRI funds have a significant impact on funds' riskadjusted returns and loadings on risk factors: corporate governance and social screens generate better risk-adjusted returns whereas other screens (e.g. environmental ones) yield significantly lower returns.	2007	Environmental, Social, Governance
Socially Repsonsible Indexes: Composistion and Performance Author: Statman, Meir Journal: Working paper One purpose of this study is to explore the characteristics that define socially responsible companies by comparing the content of the S&P 500 Indext of conventional companies to the contents of four indexes of socially responsible companies, the Domini 400 Social Index (DS 400 Index), the Calvert Social Index, the Citizens Index, and the U.S. portion of the Dow Jones Sustainability index. A second purpose of the study is to compare the returns of the four SRI indexes to those of the conventional S&P 500 Index, and to examine the tracking errors of the SRI indexes relative to the S&P 500 Index. We find that SRI indexes vary in composition and social responsibility scores but the mean social scores of each is higher than that of the S&P 500 Index. Socially responsible indexes differ in the emphasis they place on social characteristics. For example the DS 400 Index is the strongest among all indexes on the environement while the Calvert Index is the strongest on corporate governance. We find that the returns of the DS 400 Index were higher than those of the S&P 500 Index during the overall May 1990 - April 2004 but not in every sub-period. In general, SRI Indexes did better than the S&P 500 Index during the boom of the late 1990s but lagged during the bust of the early 2000s. The correlations between the returns of SRI Index are high, ranging from 0.939 of the DJ Sustainability Index during January 1995 - April 2004 to the 0.985 of the DS 400 Indez during September 1999 - April 2004. But tracking errors are substantial. For example, the expected difference between 12-month returns of the DS 400 Index and the S&P 500 Index, based on correlation and standard deviations during May 1990 - April 2004, was 2.84 percent and the realized mean difference was 2.49 percent.	2005	Environmental, Social, Governance
Shareholder Activism and Corporate Governance in the United States Author: Black, Bernard S. Journal: The New Palgrave Dictionary of Economics and the Law I survey corporate governance activity by institutional investors in the United States, and the empirical evidence on whether this activity affects firm performance. A small number of American institutional investors, mostly public pension plans, spend a trivial amount of money on overt activism efforts. They don't conduct proxy fights, and don't try to elect their own candidates to the board of directors. Legal rules, agency costs within the institutions, information costs, collective action problems, and limited institutional competence are all plausible partial explanations for this relative lack of activity. The currently available evidence, taken as a whole, is consistent with the proposition that the institutions achieve the effects on firm performance that one might expect from this level of effort -- namely, not much.	1998	Governance
The Corporate Social Performance and Corporate Financial Performance Debate: Twenty-Five Years of Incomparable Research Author: Griffin, Jennifer J., and John F. Mahon Journal: Business & Society This article extends earlier research concerning the relationship between corporate social performance and corporate financial performance with particular emphasis on methodological inconsistencies. Research in this area is extended in three critical areas. First, it focuses on a particular industry, the chemical industry. Second, it uses multiple sources of data-two that are perceptual based (KLD Index and Fortune reputation survey), and two that are performance based (TRI database and corporate philanthropy) in order to triangulate toward assessing the corporate social performance. Third, it uses the five most commonly applied accounting measures in the corporate social performance and corporate financial performance (CSP/CFP) literature to assess corporate financial performance. The results indicate that the a prioiri use of measures may actually predetermine the CSP/CFP relationship outcome. Surprisingly, Fortune and KLD indices very closely track one another, whereas TRI and corporate philanthropy differentiate between high and low social performers and do not correlate to the firm's financial performance.	1997	Environmental, Social, Governance
The Impact of Environmental Performance on Firm Performance Author: Klassen, Robert D., and Curtis P. McLaughlin Journal: Management Science Environmental management has the potential to play a pivotal role in the financial performance of the firm. Many individuals suggest that profitability is hurt by the higher production costs of environmental management initiatives, while others cite anecdotal evidence of increased profitability. A theoretical model is proposed that links strong environmental management to improved perceived future financial performance, as measured by stock market performance. The linkage to firm performance is tested empirically using financial event methodology and archival data of firm-level environmental and financial performance. Significant positive returns were measured for strong environmental management as indicated by environmental performance awards, and significant negative returns were measured for weak environmental management as indicated by environmental crises. The implicit financial market valuation of these events also was estimated. Cross-sectional analysis of the environmental award events revealed differences for first-time awards and between industries. First-time award announcements were associated with greater increases in market valuation, although smaller increases were observed for firms in environmentally dirty industries, possibly indicative of market skepticism. This linkage between environmental management and financial performance can be used by both researchers and practitioners as one measure of the benefits experienced by industry leaders, and as one criterion against which to measure investment alternatives.	1996	Environmental