We develop three complementary tests to examine how adverse selection affects the design of executive compensation contracts: First, we show that externally hired CEOs receive higher total pay and have fewer equity incentives relative to internally promoted CEOs, consistent with their ability to...

We examine the sorting role of broad-based equity pay using detailed employee-level data. We propose trust in management as an important and beneficial characteristic over which equity pay sorts employees, as such pay typically leaves employees with concentrated positions in employer stock and...

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...

In this study, we investigate the role of national culture in firms' choice between bank debt and public debt. We postulate that culture influences corporate debt choice through five channels. Using a new international dataset on debt structure and a large sample of firms from 30 countries, we...

This paper demonstrates that executive compensation convexity, measured as the sensitivity of managerial equity compensation portfolios to stock volatility, predicts firm-specific crashes. A bottom-to-top decile change in compensation convexity results in a 21% increase in a firm's crash risk...

Accounting research, whether founded in an economics or sociological paradigm, has generally treated regulation as an exogenous part of the environment that shapes the behavior of those who operate within it. Recently, joining those who have advanced the regulator capture hypothesis, the...

The likelihood that tripping a debt covenant would precipitate the dismissal of top management provides an implicit incentive for managers to perform that is incremental to the explicit incentives in compensation contracts. I assess the sensitivity of the CEO's cash compensation to earnings and...

This paper studies the first day return of 227 carve-outs during 1996-2013. I find that the first day return of newly issued subsidiary stocks is explained by the reporting distortions in the pre IPO period, conditioned on whether the executives and directors of the subsidiary received stock...

Using data that includes specific contractual details of Relative Performance Evaluation (RPE) contracts granted to executives for 1,833 firms for the period 1998 to 2012, we develop new methods to characterize RPE awards and measure their value and incentive properties. The frequency in the use...

Traditional finance theory suggests that riskier investments should yield higher returns. Challenging this notion, anecdotal and empirical evidence suggests that highly-incented managers may take on excessive risk, leading to greater losses, while other theoretical research argues that high...