This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

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We investigate the relation between founding-family ownership and firm performance. We find that family ownership is both prevalent and substantial; families are present in one-third of the S&P 500 and account for 18 percent of outstanding equity. Contrary to our conjecture, we find family firms perform better than nonfamily firms. Additional analysis reveals that the relation between family holdings and firm performance is nonlinear and that when family members serve as CEO, performance is better than with outside CEOs. Overall, our results are inconsistent with the hypothesis that minority shareholders are adversely affected by family ownership, suggesting that family ownership is an effective organizational structure. FOUNDING-FAMILYOWNERSHIPAND CONTROL in public U.S. firms is commonly perceived as a less efficient, or at the very least, a less profitable ownership structure than dispersed ownership. Fama and Jensen (1983) note that combining ownership and control allows concentrated shareholders to exchange profits for private rents. Demsetz (1983) argues that such owners may choose nonpecuniary consumption and thereby draw scarce resources away from profitable projects. Shleifer and Vishny (1997) observe that the large premiums associated with superiorvoting shares or control rights provide evidence that controlling shareholders seek to extract private benefits from the firm. More generally, firms with large, undiversified owners such as founding families may forgo maximum profits because they are unable to separate their financial preferences with those of outside owners.1 Families also often limit executive management positions to family

https://www.jstor.org/stable/pdfplus/3094581.pdf

Founding-Family Ownership and Firm Performance: Evidence from the S&P 500

Corporate governance, chief executive officer compensation, and firm performance

Audit committee, board of director characteristics, and earnings management

Introduction J. Carpenter, D. Yermack. Part I:- 1. Top Executive Incentives in Germany, Japan and the U.S.: A Comparison S.N. Kaplan. 2. Corporate Governance, Executive Pay and Performance in Europe M.J. Conyon, J. Schwalbach. 3. A Better Way to Pay CEOs? B.J. Hall. 4. Discussion: The Winner-Takes-All: An Alternative View of CEO Incentives T.T. Milbourn. Part II:- 5. Dual Agency: Corporate Boards with Reciprocally Interlocking Relationships K.F. Hallock. 6. Discussion A.H. Rosenbloom. Part III:- 7. The Rise and Fall of Executive Share Options in Britain B.G.M. Main. 8. Patterns of Employee Stock Option Exercises in the United States S. Huddart. 9. Discussion S. Matsunaga. 10. Discussion J. Samuels.

Executive compensation and shareholder value : theory and evidence

https://www.nber.org/system/files/working_papers/w19975/w19975.pdf

Risk, Ambiguity, and the Exercise of Employee Stock Options

This paper studies separation payments made when CEOs leave their firms. In my sample ofFortune 500 companies these packages are widespread and lucrative. Almost 80 percent of CEOs receive separation pay, and its mean present value exceeds $4.5 million. Severance is positively associated with future pay that CEOs might expect until age 65, and is higher when CEOs depart involuntarily. Shareholders react negatively when separation agreements are disclosed, but only in cases of voluntary CEO turnover. Some evidence suggests that severance pay acts as a bonding device between the board and CEO, while other evidence accords with theories of rent extraction.

/pdf/golden-handshakes-rewards-for-ceos-who-leave-508qry33h6.pdf

Golden Handshakes: Rewards for CEOs Who Leave

﻿I study “donor governance,” which occurs when contributors to non-profit firms place restrictions on their gifts to limit the discretion of managers. In a study of U.S. art museums, I find that this practice has grown significantly in recent years, and it represents the largest source of permanent capital in the industry. When donor restrictions are strong, museums shift their cost structures away from administration and toward program services, and they exhibit very high savings rates, retaining in their endowments 45 cents of each incremental dollar donated. Retention rates are near zero for cash generated from other activities. Restricted donations appear to stabilize non-profits and significantly influence their activities, but they reduce management flexibility and may contribute to lower profit margins. Rising donor governance in U.S. art museums may represent a reaction by contributors to the industry’s high rates of financial distress, weak boards of trustees, and large private benefits of control enjoyed by managers.

David Yermack

Papers

Executive compensation and shareholder value : theory and evidence

Risk, Ambiguity, and the Exercise of Employee Stock Options

Golden Handshakes: Rewards for CEOs Who Leave

Donor Governance and Financial Management in Prominent U.S. Art Museums

Executive Compensation and Shareholder Value