This paper examines when information asymmetry among investors affects the cost of capital in excess of standard risk factors. When equity markets are perfectly competitive, information asymmetry has no separate effect on the cost of capital. When markets are imperfect, information asymmetry can...

This paper discusses two real effects of financial reporting on pay and incentives: (1) Better earnings leads to better incentives, and (2) If pay is mis-measured, pay can be mis-used. The first real effect follows from the fact that incentives are often based on earnings, and the effectiveness...

We model how a firm motivates a risk-averse CEO not only to exert productive effort but also to evaluate and to adopt new projects. Evaluation effort produces better information on risky projects, but the agent may reject a good project in order to avoid risk. Productive effort increases the...

We examine a sample of firms that adopt quot;target ownership plans,quot; under which managers are required to own a minimum amount of stock. We find that prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership...

Using a sample of Damp;O premiums gathered from the proxy statements of Canadian companies, this article examines the Damp;O premium as a measure of ex ante litigation risk. I find a significant association between Damp;O premiums and variables that proxy for the quality of firms' governance...

We study how short-term changes in institutional owner attention affect managers' disclosure choices. Holding institutional ownership constant and controlling for industry-quarter effects, we find that managers respond to attention by increasing the number of forecasts and 8-K filings. Rather...

We use an option pricing framework to model equity valuation when debtholders have the right to take action against a firm that violates an accounting-based covenant prior to debt maturity. The model predicts that the expected value of equity depends on two factors: the economic value of the...

We examine a sample of firms that adopt quot;target ownership plans,quot; under which managers are required to own a minimum amount of stock. We find that prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership...

This paper examines the consequences of the increased use of performance vesting provisions in long-term incentive compensation for CEOs and other executives in the post-2006 period following FAS 123R. We re-examine the agency prediction that incentives provided by accounting or other...