This study investigates the relation between corporate governance with (i) financial management decisions such as earnings management and sub-optimal investment, and (ii) firm performance in maritime firms. The study reveals that important corporate governance measures, such as insider ownership, board size, presence of corporate governance committees, the percentage of directors serving on the boards of other firms and CEO duality, are associated with financial management decisions and firm performance. The associations revealed can potentially assist in mitigating agency problems and improving financial management decisions and performance in maritime firms.

/pdf/corporate-governance-financial-management-decisions-and-firm-4cszr2ltz5.pdf

Corporate governance, financial management decisions and firm performance: Evidence from the maritime industry

The State of U.S. Corporate Governance: What's Right and What's Wrong?

As the lead article in this issue the article is made free of charge on the OUP website, even to non-subscribers. https://academic.oup.com/rof

/pdf/how-important-are-risk-taking-incentives-in-executive-4581lfjsta.pdf

How important are risk-taking incentives in executive compensation?

Leverage and Corporate Performance: Evidence from Unsuccessful Takeovers

The Subjective and Objective Evaluation of Incentive Stock Options

We document a structure of pre-effort conditions associated with ESOPs. Since we can observe shareholder returns at award we infer incentive effects in a setting where premium and discounted executive stock options are regularly awarded. Discounted (premium) awards are associated with the highest (lowest) exercise rates, implying a successful incentive (disincentive) effect. Exercise restrictions (comprising hurdles and vesting restrictions) necessarily lower exercise rates, but may be preferred in combination with a discounted or premium award. Typically, a discount choice is associated with hurdles but not vesting restrictions. Empirically, shareholders benefit most from regular awards which are discounted and do not have hurdle price restrictions. Shareholders also benefit from hurdle provisions in irregular awards which may expose shareholders to CEO opportunism.

Executive stock options: Evidence that premium and discount awards do matter

/pdf/is-there-a-firm-size-effect-in-ceo-stock-option-grants-1cgl0knp6w.pdf

Is there a firm-size effect in ceo stock option grants?

Purpose




The authors study stock and option grants around abrupt performance declines for continuing CEOs and find that firms facing abrupt financial declines grant more options than stock, while firms facing operational decline grant more stock than options. Firms making these adjustments just prior to performance declines outperform those that do not for three years following the decline and are less likely to engage in asset restructuring. To establish causality, the authors exploit compensation changes instigated by FAS 123R accounting regulation in 2005 that mandated stock option expensing. The result is robust to numerous tests, including rebalancing of incentives and CEO turnover. The paper aims to discuss these issues.




Design/methodology/approach




To establish causality, the authors exploit compensation changes instigated by FAS 123R accounting regulation in 2005 that mandated stock option expensing.




Findings




Firms making these adjustments just prior to performance declines outperform those that do not for three years following the decline and are less likely to engage in asset restructuring. The result is robust to numerous tests, including rebalancing of incentives and CEO turnover.




Originality/value




Several studies examine the relationship between poor performance and compensation of newly appointed CEOs. But firms regularly employ retention or incentive plans when experiencing distress to prevent critical employees from leaving when they are most needed (Goyal and Wang, 2017). Employee turnover results in a loss of continuity coupled with high search and training costs for replacement personnel. Beneish et al. (2017) find that 57 percent of CEOs associated with intentional misreporting retain their jobs, implying the costs of removing CEOs is high, especially if the incumbent CEO has a strong track record relative to industry peers prior to the period before the misreporting begins. The board fires the CEO if future firm value under the CEO is expected to be lower than under the best alternative CEO less adjustment costs (e.g. search costs, severance pay).

CEO incentive pay around performance declines

We test the option incentive models of Hall and Murphy (2000, 2002) and Choe (2003). Hall and Murphy (2000, 2002) posit optimal grant size and exercise price contingent on the executive’s levels of risk aversion and private diversification. Choe (2003) relates these choices to firm characteristics, principally the target risk level and financial leverage. A unique hand-collected data set of Australian grants is employed, wherein exercises prices and grant sizes are unconstrained by taxation and accounting practices. The Hall and Murphy (2000, 2002) model is found to explain observed exercise prices while neither model satisfactorily explains grant sizes. However, there is some evidence that CEO influence is associated with larger grants than posited by these optimal incentive models, but does not impact on exercise prices.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2619780_code2297020.pdf?abstractid=2619780&mirid=4

Australian Evidence on CEO Option Grants

http://www.mfsociety.org/modules/modDashboard/uploadFiles/journals/MJ~0~p18aup6isb1eaj1dvq1bcg18kjrjv4.pdf

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Papers

Executive stock options: Evidence that premium and discount awards do matter

Is there a firm-size effect in ceo stock option grants?

CEO incentive pay around performance declines

Australian Evidence on CEO Option Grants

Australian Evidence on CEO Option Grants