Agency theory suggests that managerial mischief may occur when the interests of owners and managers diverge and that a solution to this agency problem is alignment of owner and agent interests through agent compensation and equity ownership. We develop the theoretical concept of CEO return and measure and estimate financial alignment as the relationship between CEO and shareholder returns. Our results, based on this new conceptualization and corresponding measurement, suggest stronger alignment than reported in previous work. The magnitude of this alignment is associated with subsequent firm performance, but in ways not clearly articulated or tested in prior research.

Taxes represent a significant cost to the firm and shareholders, and it is generally expected that shareholders prefer tax aggressiveness. However, this argument ignores potential non-tax costs that can accompany tax aggressiveness, especially those arising from agency problems. Firms owned/run by founding family members are characterized by a unique agency conflict between dominant and small shareholders. Using multiple measures to capture tax aggressiveness and founding family presence, we find that family firms are less tax aggressive than their non-family counterparts, ceteris paribus. This result suggests that family owners are willing to forgo tax benefits to avoid the non-tax cost of a potential price discount, which can arise from minority shareholders’ concern with family rent-seeking masked by tax avoidance activities [Desai and Dharmapala, 2006. Corporate tax avoidance and high-powered incentives. Journal of Financial Economics 79, 145–179]. Our result is also consistent with family owners being more concerned with the potential penalty and reputation damage from an IRS audit than non-family firms. We obtain similar inferences when using a small sample of tax shelter cases.

Empirical We ask two research questions: (1) How do CEO stock ownership and options influence the amount of equity capital that a foreign firm raises in US capital markets? (2) How does the foreign firm's home-country risk moderate these relationships? To test our hypotheses, we use a sample of firms from 40 countries that raised equity capital via ADR offerings between 1994 and 2005.Using a full-information maximum likelihood approach to estimate a model that accounts for sample selection associated with non-capital raising ADRs and non-listed ADRs, as well as hot and cold equity markets, we found that CEO stock and option ownership lead to a higher level of equity capital raised. Interestingly, the level of home-country risk of the issuing firm weakens the relationship between the CEO stock ownership and the amount of equity capital raised, but strengthens the relationship between CEO stock options and ADR equity capital raised. We develop a framework that draws on behavioral decision making and agency theory to suggest that executive risk taking varies across countries and different forms of monitoring (stock ownership versus options) and that agents may exhibit risk-seeking as well as risk-averse behaviors. We also examined the potential corporate governance costs associated with principal-principal conflict as it relates to CEO stock-based compensation and the implications for raising equity capital.Because stock ownership and stock options have different risk profiles, and foreign firms operate in countries with different home-country risk, we theorize how home-country risk will moderate the relationship between CEO stock ownership or options with the amount of equity capital raised by a foreign firm in US stock markets through the issuance of American Depository Receipts (ADRs).Our results show that US investors pay attention to the types of stock-based executive compensation used by firms that raise capital in the US. In particular, CEOs of firms from higher risk countries need to consider US investors' perceptions of their stock-based compensation because it may hamper the firm's effectiveness in raising capital in the US. 

In this article the author discusses the objectives and goal of the Committee of Sponsoring Organization of the Treadway Commission (COSO) in the U.S. It explores the importance of understanding the objective and structure of COSO to be able to understand COSO. Moreover, COSO has been perceived essential for gaining knowledge on enterprise risk management and fraud.

Prior research finds that earnings restatements are linked to CEOs' excessive option-based compensation and equity holdings. In this paper, we investigate whether firms that experience earnings restatements recontract with their CEOs to reduce their option-based compensation and if so, whether this leads to improved firm performance. Based on 289 restatement firms over the period 1997-2001, we find that the proportion of CEOs' compensation in the form of options declines significantly in the two years following the restatement. Furthermore, we document that this reduction is accompanied by a decrease in the riskiness of investments, as reflected in lower stock return volatility and subsequent improvements in operating performance. Our results suggest that a decrease in option-based compensation reduces CEOs' incentives to take excessively risky investments, resulting in improved profitability. Overall, our findings provide insights into the design and efficacy of CEO compensation contracts.

This paper examines the link between managers' equity incentives-arising from stock-based compensation and stock ownership-and earnings management. We hypothesize that managers with high equity incentives are more likely to sell shares in the future and this motivates these managers to engage in earnings management to increase the value of the shares to be sold. Using stock-based compensation and stock ownership data over the 1993-2000 time period, we document that managers with high equity incentives sell more shares in subsequent periods. As expected, we find that managers with high equity incentives are more likely to report earnings that meet or just beat analysts' forecasts. We also find that managers with consistently high equity incentives are less likely to report large positive earnings surprises. This finding is consistent with the wealth of these managers being more sensitive to future stock performance, which leads to increased reserving of current earnings to avoid future earnings disappointments. Collectively, our results indicate that equity incentives lead to incentives for earnings management.

Although Internet users are expected to respond in various ways to privacy threats from online companies, little attention has been paid so far to the complex nature of how users respond to these threats. This paper has two specific goals in its effort to fill this gap in the literature. The first, so that these outcomes can be systematically investigated, is to develop a taxonomy of information privacy-protective responses (IPPR). This taxonomy consists of six types of behavioral responses--refusal, misrepresentation, removal, negative word-of-mouth, complaining directly to online companies, and complaining indirectly to third-party organizations--that are classified into three categories: information provision, private action, and public action. Our second goal is to develop a nomological model with several salient antecedents--concerns for information privacy, perceived justice, and societal benefits from complaining--of IPPR, and to show how the antecedents differentially affect the six types of IPPR. The nomological model is tested with data collected from 523 Internet users. The results indicate that some discernible patterns emerge in the relationships between the antecedents and the three groups of IPPR. These patterns enable researchers to better understand why a certain type of IPPR is similar to or distinct from other types of IPPR. Such an understanding could enable researchers to analyze a variety of behavioral responses to information privacy threats in a fairly systematic manner. Overall, this paper contributes to researchers' theory-building efforts in the area of information privacy by breaking new ground for the study of individuals' responses to information privacy threats.

The authors examined one manner in which to decrease the negative impact of social dominance orientation (SDO), an individual difference variable that indicates support for the “domination of ‘inferior’ groups by ‘superior’ groups” (J. Sidanius & F. Pratto, 1999, p. 48), on the selection of candidates from low-status groups within society. Consistent with the tenets of social dominance theory, in 2 studies we found that those high in SDO reported that they were less likely to select a potential team member who is a member of a low-status group (i.e., a White female in Study 1 and a Black male in Study 2) than those low in SDO. However, explicit directives from an authority moderated this effect such that those high in SDO were more likely to select both candidates when authority figures clearly communicated that job performance indicators should be used when choosing team members. Thus, our studies suggest that the negative effects of SDO may be attenuated if those high in SDO are instructed by superiors to use legitimate performance criteria to evaluate job candidates.

We examine the relationship between analyst research and corporate earnings announcements to explore the relative importance of information discovery versus interpretation of previously released information. Using equity market reaction to capture information content, we find that information discovery (interpretation) dominates in the week before (after) firms announce their earnings. In addition, we find that the interpretation role increases in importance with the difficulty of financial accounting information. Analysis of all weeks surrounding earnings announcements shows that the information discovery role is overall more important. We are able to reconcile this result with the opposite finding in Francis et al. (2002).