Board Committees in Corporate Governance: A Cross‐Disciplinary Review and Agenda for the Future

The importance of board committees – specialized subgroups that exist to perform many of the board\u27s most critical functions, such as setting executive compensation, identifying potential board members, and overseeing financial reporting – has grown over time due to increased legal requirements and greater complexity of the environment in which firms operate. This has resulted in a large body of work examining board committees across the accounting, finance, and management disciplines. However, this research has developed rather independently within each discipline, preventing scholars and practitioners from developing a comprehensive understanding of board committees. To address this issue, we conduct a comprehensive review of the literature that: 1) summarizes and synthesizes antecedents and outcomes associated with board committees in publicly‐traded firms in English common law countries; and 2) offers a critical analysis of existing research, providing recommendations for advancements and new directions in board committee research

Debt Overhang and Barter in Russia

In this paper we study, both theoretically and empirically, the relationship between barter and the indebtedness of Russian firms. We build a model in which a firm uses barter to protect its working capital against outside creditors even when barter involves high transaction costs. The main innovation of our work is to allow renegotiation between the firm and its creditors. If the creditors are rational, they often agree to postpone debt payments in order to avoid destroying the firm's working capital. It turns out, however, that even if the firm cannot ensure it will not divert cash ex post, the outcome of renegotiation still provides ex ante incentives to use barter. We show that the greater the debt overhang, the more likely the use of barter, and although the possibility of debt restructuring reduces barter, it does not eliminate it altogether. We also discuss the role of the government bond market and weak bankruptcy legislation. The firm-level evidence is consistent with the model's predictions.barter, demonetisation, debt overhang, renegotiations

The Elastic Tournament: The Second Transformation of the Big Law Firm

In 1991, Galanter and Palay published \u27Tournament of Lawyers: The Transformation of the Big Law Firm\u27, which documented the regular and relentless growth of large U.S. law firms. The book advanced several structural and historical factors to explain these patterns, centering on the adoption of the promotion-to-partnership tournament. Systemic changes in the marketplace for corporate legal services in the intervening years suggest the need for an updated account of the modern large law firm. Using \u27Tournament of Lawyers\u27 as a starting point, we propose to fill this void in the literature. Marching through a wide array of empirical evidence covering the last twenty to thirty years, our findings corroborate some of the core theoretical insights of \u27Tournament of Lawyers\u27. For example, the continuous upward growth of the partnership based on the tournament is clearly evidenced by a \u27smooth\u27 upward trajectory in the partnership ranks while associate hiring hews more closely to the underlying business cycle. On the other hand, the widening ranks of permanent \u27off track\u27 attorneys and non-equity partners, including the prevalence of de-equitizations, suggest the emergence of a more complex and elongated tournament structure that applies to both partners and associates. Under a new model, which we dub the \u27elastic tournament,\u27 the equity core is primarily reserved for partners who control access to key clients. This structure reduces cross-subsidies between lawyers with differential value to the firm, thus reducing the potential for large-scale lateral defections. Yet, this reduced sharing of risks and benefits simultaneously creates an environment in which it becomes more costly - at the individual lawyer level - to faithfully adhere to professional and ethics principles that are in tension with client objectives. Arguably, these dynamics have made zealous advocacy the touchstone of ethical lawyering. The diminution in sharing also reduces the time horizons of individual lawyers and decreases their willingness to invest in firmwide initiatives that do not simultaneously optimize their own practice. Amidst this widening collective action problem, the \u27firm\u27 itself has remarkably little autonomy to pursue non-economic objectives, such as racial and gender diversity (particularly efforts directed at retention) or the training and mentoring of the next generation of lawyers. Further, except in some exceptional cases, the influence of firm culture, which may have moderated lawyer self-interest in an earlier era, is weakened by the sheer size and geographic dispersion of the modern big law firm. Although this model is fundamentally \u27stable\u27 in the economic sense, it raises several philosophical and practical issues regarding lawyer independence and the long-term viability of professional self-regulation

Board Committees in Corporate Governance: A Cross-Disciplinary Review and Agenda for the Future

The importance of board committees – specialized subgroups that exist to perform many of the board\u27s most critical functions, such as setting executive compensation, identifying potential board members, and overseeing financial reporting – has grown over time due to increased legal requirements and greater complexity of the environment in which firms operate. This has resulted in a large body of work examining board committees across the accounting, finance, and management disciplines. However, this research has developed rather independently within each discipline, preventing scholars and practitioners from developing a comprehensive understanding of board committees. To address this issue, we conduct a comprehensive review of the literature that: 1) summarizes and synthesizes antecedents and outcomes associated with board committees in publicly-traded firms in English common law countries; and 2) offers a critical analysis of existing research, providing recommendations for advancements and new directions in board committee research

Board Diversity by Term Limits?

Four-fifths of the corporate board seats in the United States are held by men and a shocking number of companies lack any female representation on their boards. While institutional investors have pushed these companies for change, California took a more aggressive step and followed several European countries by mandating a quota for board representation. Heated argument has ensued over what diversity we should prioritize and what mechanisms should be used to promote diversity. Yet could these challenges be avoided altogether through the use of term limits? This Article is the first academic inquiry exploring the connection between term limits and the sex diversification of the corporate board. Drawing upon quantitative data on director turnover in the S&P 1500 and qualitative data on S&P 500 firms with term limits, our research shows that firms experiencing higher board turnover have more sex diversity. We argue that term limits, a mechanism that increases turnover, may correlate with improved sex diversity on boards. Our findings suggest that promoting term limits in the United States offers a market-based mechanism that could avert this polarized diversity debate

Difficulties of transferring risk-based capital requirements to developing countries

In principle, financial regulation seeks to remedy recognized deficiencies in a nation's economic, political, and bureaucratic incentivestructures. But the social urgency of particular financial policy problems differ according to a country's stage of development. Regulatory strategies that make sense for industrial countries are unlikely to work the same way in developing countries. The author examines opportunities for transferring the framework of risk-based capital requirements negotiated by the G-10 countries under the auspices of the Bank for International Settlements in Basle. He finds that an unchanged transfer of the Basle framework to developing countries is economically inappropriate and politically infeasible. And its voluntary adapation is difficult because the long-run economic appropriateness of the Basle framework of solvency regulations directly opposes their short-run political embraceability. The author believes that what most urgently needs to be transferred to developing countries are elements of supervisory technology: methods of information collection and management, legal processes for prompt and equitable default resolution, and mechanisms for controlling the incentive conflicts that lead bankers and government supervisors to resist the healthy exit or recapitalization of damaged institutions. As a first step, the author recommends that the World Bank and the Bank for International Settlements promote economically beneficial reforms in information collection and management, reforms that do not preclude flexibility in current prudential standards in individual countries.Banks&Banking Reform,Environmental Economics&Policies,Financial Intermediation,Banking Law,Economic Theory&Research

The vicious circles of control - regional governments and insiders in privatized Russian enterprises

How can one account for the puzzling behavior of insider-managers who, in stripping assets from the veryfirms they own, appear to be stealing from one pocket to fill the other? The authors suggest that such asset-stripping and failure to restructure are the consequences of interactions between insiders (manager-owners) and regional governments in a particular property rights regime. In this regime, the ability to realize value is limited by uncertainty and illiquidity, so managers have little incentive to increase value. As the central institutions that rule Russia have ceded their powers to the regions, regional governments have imposed various distortions on enterprises to protect local employment. Prospective outsider-investors doubt they can acquire the control rights they need for restructuring firms and doubt they can avoid the distortions regional governments impose on the firms in which they might invest. The result: little restructuring and little new investment. And regional governments, knowing the firms'taxable cash flows will have been reduced through cash flow diversion, have responded by collecting revenues in kind. To disentangle these vicious circles of control, the authors propose a pilot for transforming ownership in insider-dominated firms through a system of simultaneous tax-debt-for-equity conversion and resale through competitive auctions. The objective: to show regional governments, for example, that a more sustainable way to protect employment is to give managers incentives to increase enterprises'value by transferring effective control to investors. The proposed mechanism would provide cash benefits to insiders who agree to sell control to outside investors. The increased cash revenue (rather than in-kind or money surrogates) would enable regional governments to finance safety nets for the unemployed and to promote other regional initiatives.International Terrorism&Counterterrorism,Municipal Financial Management,Banks&Banking Reform,Economic Theory&Research,Payment Systems&Infrastructure,Municipal Financial Management,Economic Theory&Research,National Governance,Environmental Economics&Policies,Banks&Banking Reform

Consequences of local social norms: A review of the literature in accounting, finance, and corporate governance

We synthesise the empirical archival research on the consequences of local social norms on accounting, finance, and corporate governance outcomes in an international setting. The literature reviewed is premised on the theory that corporations do not make decisions, but managers do, and managers are likely to be influenced by the socioeconomic environment of the region in which they operate and/or by the people with whom they interact. To provide a structure to our review, we identify social capital, religiosity, gambling norms, and corruption culture, as four constructs of local social norms and link these with financial reporting and external auditing, financial, investment, and dividend decisions, capital market consequences and finally, corporate governance and corporate social responsibility behaviour of firms. We highlight some limitations of the existing research and offer some suggestions for future research