This paper examines and finds systematic economic factors behind variations in audit committee composition. Specifically, audit committee independence is positively related to the informativeness of accounting data in valuation and negatively related to the degree of bargaining power that the...

In this paper, we test the hypothesis that granting employee stock options motivates CEOs of banking firms to undertake riskier projects. We also investigate whether granting employee stock options reduces the bank's incentive to borrow while inducing a buildup of regulatory capital. Using a...

We derive a pricing model for employee stock options (ESO) that expands on Ingersoll (2006) by including default risk and that additionally considers the effects of employee over-confidence. We find that illiquidity reduces subjective value and alters incentive effects and value sensitivities....

Executive compensation has increased dramatically in recent times, but so has trading volume and individual investor access to financial markets. We provide a model in which some managers obfuscate financial statements in order to extract additional compensation. Owing to a lack of...

This paper examines whether firms structure their convertible bond transactions to manage diluted EPS. We find that the likelihood of firms issuing contingent convertible bonds (COCOs), which are often excluded from diluted EPS calculations under SFAS 128, is significantly associated with the...

This paper analyzes the performance consequences of employee stock options for a broad sample of firms during the period 1996-1999. Our tests are performed separately for the top-5 executives and all other employees. We estimate the expected level of option incentives based on each firm's...

This study provides empirical evidence that equity-based incentives (stock and stock options) encourage CEOs to manage earnings to increase short run stock prices so that they can cash out a portion of their equity holdings at inflated prices. CEOs who hold high equity-based incentives are more...

Using a detailed data set of employee stock option grants, we compare observed stock-option-based pay plans to hypothetical cash-only or restricted-stock-based plans. We make a variety of assumptions regarding the possible benefits of options relative to cash or stock, and then use observed...

We investigate the incentives that led to the rash of restated financial statements at the end of the 1990s market bubble. We find that the likelihood of a misstated financial statement increases greatly when the CEO has very sizable holdings of in-the-money stock options. Misstatements are also...

This paper empirically examines the relation between the use of derivatives and the risk level of firms in a sample of 431 large Japanese nonfinancial firms. Previous studies investigating whether firms systematically reduce or increase their risk with derivatives show that firms reduce their...