Female directors, key committees, and firm performance

There is pressure to increase female representation on corporate boards. A number of studies have found no, or in some cases a negative, effect of female representation on boards and firm performance. We demonstrate robust positive and economically meaningful effects on firm performance of female representation on European boards. Moreover, while previous work has considered female representation broadly, we focus on membership of committees involved explicitly in firm governance. We demonstrate marked, larger, e¤ects on performance of having female representation on these committees. Finally, we reconcile this evidence with prior US and UK evidence and demonstrate a positive performance impact of female committee memberships. Our evidence is supportive of the expansion of female involvement in corporate governance from a financial performance perspective

The Structure of Corporate Holdings and Corporate Governance: Evidence from India

This paper examines how the structure of corporate holdings impacts upon the corporate governance mechanisms and outcomes. Using a panel data of 500 large listed Indian …firms we compare …firms with dispersed equity ownership, and business group …firms with cross-holdings and concentrated family ownership, within the same institutional frameworks. Contrary to the popular hypothesis that concentrated shareholding leads to worse corporate governance outcomes, we find that the corporate governance outcomes are similar for both types of …firms, even though the incentive alignment mechanisms may be different. The results of this paper suggest that corporate holding structures and governance mechanisms adjusts to optimize value and performance

MPs and outside business interests: the value of political-corporate connections

In 2002, an amendment to parliamentary regulations removed restrictions on the participation of MPs in proceedings related to their corporate interests. Colin Green and Swarnodeep Homroy demonstrate how both firms and politicians changed their behaviour as a result. Post-amendment, firms were more likely to appoint MPs on their boards and reduce political donations. MPs with corporate connections were more likely to become members and attend meetings of select and joint committee

Do social policies foster innovation? Evidence from India's CSR regulation

We examine the effect of social policies on corporate innovation using India's mandatory Corporate Social Responsibility (CSR) regulation. This regulation mandates firms with pre-tax profits above a certain threshold to spend 2 % of the profits on CSR. We demonstrate a significant bunching of companies just below the profit threshold post-regulation compared to the pre-regulation period. Firms close to the profit threshold manipulate their earnings to avoid compliance by increasing their R&D expenses. We show that, on average, firms that increase R&D expenses to avoid the regulation apply for one more patent and announce two new products. The increase in R&D expenses and patenting is concentrated in firms with a prior history of innovation. Our results suggest that social policies can generate indirect incentives for innovation

The impact of diversity on group and individual performance

Using data on a student group project in which groups are exogenously formed, we examine the potential productivity gains from employing work-teams which are diverse in terms of gender, nationality and ability. We find no significant effect of diversity on overall team performance, except when the team members are from different socio-cultural backgrounds. More importantly, we find that students who have worked in more diverse teams experience a subsequent improvement in individual productivity. These individual productivity gains hold for both domestic and foreign students, and for students of different levels of ability. Our results suggest a mechanism by which diversity enhances individual and collective performance

Essays on Executive Compensation and Managerial Entrenchment.

This thesis is comprised of three empirical studies on CEO pay and CEO turnover in the USA. It specifically examines the effects of the market for corporate control and governance on CEO turnover and CEO pay, and the effect of risk of dismissal on CEO pay. Using data on CEO pay, CEO turnover and acquisitions in the US, we analyze the risk of CEO turnover in the period 1992-2010 and the effect of market for corporate control on turnover probability. 31% of the CEOs in the sample are replaced in this period, either for performance related reasons or following takeovers. Post Sarbanes-Oxley act of 2002, the performance sensitivity of turnover is stronger and CEOs face a higher dismissal risk, which indicates partial success of governance regulations in mitigating agency problems. Small and more independent boards are associated with higher likelihood of CEO exit. Takeovers act as external force of discipline and increase the probability of turnover for poor performing CEOs by 129%. These results contribute to the debate on the role of governance regulations in enforcing optimal contracting. Next, we examine the impact of acquisitions on the pay of acquiring CEOs to explore whether acquisitions exacerbate the divergence of interest between shareholders and CEOs. To examine systematic agency problems, we further examine if CEOs are rewarded differentially for shareholder wealth-generating (good) and shareholder wealth-destroying (bad) acquisitions. Controlling for firm size, our estimates suggest that CEOs are paid a 3.5-4% premium in post-acquisition pay, which increases the pay of the median CEO of an acquiring firm in the sample by US$ 173,000. Consistent with the earlier studies by Bliss and Rosen (2001), we find no evidence that post-acquisition premium in CEO pay is conditional upon the ex-post wealth-effect of the acquisition, thereby suggesting possible decoupling of pay and performance following acquisition. Further, our results that acquisition premium in CEO pay can be partially attributed to weak corporate governance is in agreement with managerial power and rent-seeking hypotheses. Controlling for post-acquisition survivor bias, we observe a smaller acquisition premium in CEO pay which may suggest that stronger governance exposes CEOs undertaking bad acquisitions to higher risk of turnover. Average CEO Pay has grown significantly in the last two decades but so has the risk of forced turnover. Most explanations for increased CEO compensation focus on market power - the increased competition in the external CEO market, or entrenchment - rent extraction by CEOs from captured boards. We attempt to provide an alternate explanation for the recent growth in CEO pay. We estimate the compensating differentials in CEO pay for increasing risk of dismissal. Our estimates suggest that CEOs are paid 2-4% premium in pay for a percentage point increase in the risk of dismissal, which is manifest in the form of increased cash payments. The compensating differential is higher in the post- Sarbanes Oxley sub-period (2003-2010). The increasing use of risk-free cash payments to compensate for higher turnover risk may lower the performance sensitivity in CEO pay. We highlight this as a possible inadvertent effect of governance regulations