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...

The Paper analyses the political decision that determines the degree of investor protection. We show that entrepreneurs and workers can strike a political agreement by which low investor protection is exchanged for high employment protection. This ‘corporatist’ agreement is feasible if the...

This paper presents a political economy model where there is mutual feedback between investor protection and stock market development. Better investor protection induces companies to issue more equity and thereby leads to a broader stock market. In turn, equity issuance expands the shareholder...

We test under what circumstances boards discipline managers and whether such interventions improve performance. We exploit exogenous variation due to the staggered adoption of corporate governance laws in formerly Communist countries coupled with detailed ‘hard’ information about the...

This Paper evaluates the primary mechanisms for changing management or obtaining control in publicly traded corporations with dispersed ownership. Specifically, we analyse and compare three mechanisms: (1) proxy fights (voting only); (2) takeover bids (buying shares only); and (3) a combination...

This Paper develops an account of the role and significance of rent extraction in executive compensation. Under the optimal contracting view of executive compensation, which has dominated academic research on the subject, pay arrangements are set by a board of directors that aims to maximize...

We argue that the existence of CEO private control benefits complements managerial reputation in counteracting costly shareholder risk-shifting incentives during severe financial distress, when job-loss may be imminent. We examine this argument empirically using bankruptcy filings in Sweden,...

This Paper argues that once undistorted shareholder choice is ensured – which can be done by making it necessary for hostile bidders to win a vote of shareholder support – boards should not have veto power over takeover bids. The Paper considers all of the arguments that have been offered...

This paper investigates the governance structure choices of firms when there is competition between legal systems. We study the impact of the allocation of control over choice of governance and reincorporation on firms’ technologies and technological specialization of countries in the context...

We argue that the choice of corporate governance by a firm affects and is affected by the choice of governance by other firms. Firms with weaker governance give higher payoffs to their management to incentivize them. This forces firms with good governance to also pay their management more than...