While the fraction of independent directors has been widely used as a proxy for monitoring effectiveness of the board, there are no clear-cut measures that capture the advising effectiveness of the board. We develop and validate two new measures of board advising: (i) per-outside-director...

We argue that not all independent directors are equally effective in monitoring top management. Specifically, directors who are appointed by the CEO are likely to have stronger allegiance to the CEO and will be weaker monitors. To examine this hypothesis, we propose and empirically deploy two...

We provide evidence that firms reprice out-of-the-money executive stock options in order to realign managerial incentives. A sharp decline in stock price, by reducing the sensitivity of executive pay to firm performance (delta) and, in many cases, increasing sensitivity of executive pay to...

This paper provides empirical evidence of a strong relation between the structure of managerial compensation and both investment policy and debt policy. Higher sensitivity of CEO wealth to stock volatility (vega) is associated with riskier policy choices, including relatively more investment in...

In response to recent requests from academics and practitioners, this note addresses the data and program we use in our published articles on executive compensation and incentives. First, we detail our methodology for the calculation of delta (pay-performance sensitivity), vega (risk-taking...

This paper provides empirical evidence of a strong causal relation between the structure of managerial compensation and investment policy, debt policy, and firm risk. Controlling for CEO pay-performance sensitivity (delta) and the feedback effects of firm policy and risk on the structure of the...

We address two aspects of board dynamics — group-think and teamwork — that both arise from increased director overlap. Overlap captures the extent of common service by board directors. Greater overlap can lead to excessive cohesiveness of the group and thus group-think, where the desire for...

In this paper, we survey the literature on corporate boards, with a specific focus on its primary functions of monitoring and advising the CEO. In particular, we consider how board structure and the individual directors’ characteristics, skill sets, connections, busyness, and incentives affect...

We study the role of foreign directors in U.S. firms. We conclude that foreign directors, especially those from countries that are dissimilar to the U.S. in terms of business environment (i.e., dissimilar directors), are chosen by multinational corporations (MNCs) to provide advice, and this...