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). The book provides a detailed account of how structural flaws in corporate governance have enabled managers to influence their own pay and have produced widespread distortions in pay arrangements. The book also examines how these flaws and distortions can best be addressed. Part IV of the book discusses how executive compensation -and corporate governance more generally -can be improved. We examine the extent to which pay arrangements can be improved by adopting board process rules, imposing shareholder approval requirements, and making pay more transparent. We conclude that problems with compensation arrangements cannot be fully addressed without ensuring that directors focus on shareholder interests and operate at arm's length from the executives whose compensation they set. To achieve this result, we argue, it is not sufficient to make directors independent of executives as recent reforms has sought to do; it is also necessary to make directors dependent on shareholders by changing the legal arrangements that insulate boards from shareholders.

We survey the evidence on the relationship between board composition and firm performance. Boards of directors of American public companies that have a majority of independent directors behave differently, in a number of ways, than boards without such a majority. Some of these differences appear to increase firm value; others may decrease firm value. Overall, within the range of board compositions present today in large public companies, there is no convincing evidence that greater board independence correlates with greater firm profitability or faster growth. In particular, there is no empirical support for current proposals that firms should have "supermajority-independent boards " with only one or two inside directors. To the contrary, there is some evidence that firms with supermajority-independent boards are less profitable than other firms. This suggests that it may be useful for firms to have a moderate number of inside directors (say three to five on an average-sized eleven member board). We offer some possible explanations for these results, based on board dynamics, the informational advantages possessed by inside (and, often, affiliated) directors, and the value of interaction between different types of directors who bring different strengths to the board. published in

We document that ownership by officers and directors of publicly-traded firms is on average higher today than earlier in the century. Managerial ownership rises from 13 percent for the universe of exchange-listed corporations in 1935, the earliest year for which such data exist, to 21 percent in 1995. We examine in detail the robustness of the increase and explore hypotheses to explain it. Higher managerial ownership has not substituted for alternative corporate governance mechanisms. Lower volatility and greater hedging opportunities associated with the development of financial markets appear to be important factors explaining the

This paper uses a unique dataset from Denmark to investigate the impact of family characteristics in corporate decision making, and the consequences of these decisions on firm performance. We focus on the decision to appoint either a family or an external chief executive officer (CEO). The paper uses variation in CEO succession decisions that result from the gender of a departing CEO’s first-born child. This is a plausible instrumental variable (IV) as male firstchild firms are more likely to pass on control to a family CEO relative to female first-child firms, but the gender of a first child is unlikely to affect firms ’ outcomes. We find that family successions have a large negative causal impact on firm performance: operating profitability on assets falls by at least four percentage points around CEO transitions. Our IV estimates are significantly larger than those obtained using ordinary least squares. Furthermore, we show that family-CEO underperformance is particularly large for firms in high-growth industries and for relatively large firms. Overall, the empirical results demonstrate that professional non-family CEOs provide extremely valuable services to the organizations they head.

This paper is a survey of the literature on boards of directors, with an emphasis on

Executives can only impact …rm outcomes if they have in‡uence over crucial decisions. Based on this idea we develop and test the hypothesis that …rms whose CEOs have more decision-making power should experience more variability in performance. We construct proxies for the CEO’s power to in‡uence decisions and show that stock returns are signi…cantly more variable for …rms run by powerful CEOs. We …nd similar results using alternative measures of performance. These …ndings suggest that the interaction between executive characteristics and organizational variables may have important consequences for …rm performance. 1 In some …rms the CEO makes all the major decisions. In other …rms decisions are more clearly the product of consensus among the top executives. The distribution of decision-making power within …rms should therefore a¤ect which decisions are made. Managerial decisions may or may not a¤ect …rm outcomes, but if they do, both executive characteristics and organizational variables should be important determinants of …rm performance.

Business School, MIT, and the University of Washington for helpful comments and suggestions. We especially thank Johannes Ledolter for useful discussions on implementation and interpretation of ordered logit models.

Many firms deploy takeover defenses at the time of their IPOs, although at significantly lower rates than for seasoned corporations. We find that IPO managers deploy takeover defenses particularly when their compensation is high, shareholdings are small, and the oversight from non-managerial shareholders is weak. We also find that the presence of a takeover defense in IPO firms is negatively related to acquisition likelihood, yet has no impact on takeover premiums for those firms that are acquired. Together, these results suggest that shareholders ’ marginal costs of takeover defenses exceed the benefits. Takeover Defenses at IPO Firms 1.

We describe and present time series evidence on the leveraged buyout / private equity industry, both firms and transactions. We discuss the existing empirical evidence on the economics of the firms and transactions. We consider similarities and differences between the recent private equity wave and the wave of the 1980s. Finally, we speculate on what the evidence implies for the future of private equity. 1 Electronic copy available at: