ABSTRACT This paper demonstrates that the equilibrium impact of capital gains taxes reflects both capitalization effect (i.e., decrease demand) and lock‐in supply). Depending on time periods stock characteristics, either may dominate. Using Taxpayer Relief Act 1997 as our event, we find evidence supporting a dominant in week following news sharply increased probability reduction tax rate after became effective.

ABSTRACT Recent theory suggests that firms incorporate synergistic interrelationships among executives into optimal incentive design (Edmans, Goldstein, and Zhu 2013). We focus on Pay Performance Sensitivities (PPS) use dispersion in PPS across top as a proxy for the component shaped by an executive team's synergy profile. model residuals from this to measure deviations optimal. find firm performance is increasing (decreasing) residual when too low (too high). conjecture are sustained...

ABSTRACT: We argue that reductions in shareholder taxes should lower the cost of equity capital more for financially constrained firms than other companies. Consistent with this prediction, we find that, following 1997 (TRA) and 2003 (JGTRRA) cuts U.S. individual taxes, enjoyed larger their did firms. The results are consistent incidence tax falling mostly on both pressing needs disproportionate ownership by individuals, only shareholders who benefited from legislations. paper provides a...

ABSTRACT We conceptualize equity incentive contracting as a dynamic process in which frictions limit the speed at incentives adjust to target levels. Slower adjustment speeds imply more prolonged deviations from value-maximizing targets and thus severe negative effects on future performance. find that significantly slow of (SOA). Consistent with prolonging persistence target, we magnify influence firm Further, SOA operates through boards’ grant decisions. Our perspective offers new insight...

This paper examines the impact on asset prices from a reduction in long-term capital gains tax rate using an equilibrium approach that considers both buyers' and sellers' responses. We demonstrate of taxes reflects capitalization effect (i.e., decrease demand) lock-in supply). Depending time periods stock characteristics, either may dominate. Using Taxpayer Relief Act 1997 as our event, we find evidence supporting dominant week following news sharply increased probability after became...

This paper investigates how performance risk impacts a board’s ability to learn about CEO’s unknown talent. We theorize that the information content of is increasing in idiosyncratic and decreasing systematic risk. provide robust empirical evidence likelihood CEO turnover risk, turnover-performance-sensitivity also further investigate relations between threat termination compensation, documenting for retained CEOs, both subsequent pay-performance-sensitivity pay levels decrease probability turnover.

This paper examines the impact on asset prices from a reduction in long-term capital gains tax rate using an equilibrium approach that considers both demand and supply responses.We demonstrate of taxes reflects capitalization effect (i.e., decrease demand) lock-in supply).Depending time periods stock characteristics, either may dominate.Using Taxpayer Relief Act 1997 as our event, we find evidence supporting dominant week following news sharply increased probability after became...

ABSTRACT This paper presents an empirical investigation of the impact capital gains taxes on stock return volatility. We predict that more returns are subject to taxation, greater increase in volatility following a tax rate cut due reduced risk-sharing firms' cash flows between shareholders and government. Consistent with this prediction, we find larger increases for appreciated stocks than less non-dividend-paying dividend-paying after both 1978 1997 reductions. The findings imply convey...

This paper investigates the impact of founding family's presence in US public firms on extent agency problems related to CEO turnover decisions and firm valuations after poor performance. In particular, we focus three types firms: family firms, professional (family managed by a hired outside family), non-family firms. We hypothesize that, problem arising from expropriation small shareholders large separation ownership control lead lower turnover-performance sensitivity, compared Professional...

This paper presents an empirical investigation of the effect changes in capital gains tax rate on stock return volatility. We focus two observable cross-sectional variations extent to which affect volatility — unrealized and dividend distributions. For both variations, we predict that more returns are expected be subject taxation, greater increase following a reduction. Consistent with these predictions, after passage 1978 1997 gain reductions, find larger increases for appreciated stocks...

Standard principal-agent theory predicts that the pay-performance sensitivity (PPS) decreases in risk of firm. An alternative literature argues entrenched executives as weak governance firms use compensation contract to extract rent, which renders irrelevant. This paper uses event study approach test both model and CEO power by examining how litigation events affect executive compensation. We examine affects incentive composition (equity pay versus cash pay). Consistent with prediction, we...

We investigate the effect of career concerns young CEOs and female on their willingness to issue voluntary earnings forecasts. argue that labor market's perception about a CEO's uncertain talent leads stronger desire establish good reputation by issuing more forecasts, particularly when news is positive. also negative, stereotype-based expectations against create challenge, which forecasts regardless whether positive or negative. Finally, we predict high compensation reduces CEOs' incentives...

Although the standard principal-agent model predicts a negative relation between incentive strength (i.e., pay-performance-sensitivity or PPS) and firm risk, empirical evidence is mixed (Prendergast, 2002). This study revisits this prediction. Using carefully selected litigation events to conduct comparative static analysis, we show that post lawsuit filing, increases by about 11% for our sample. We then document incremental PPS (measured correlation executive's annual compensation...

This paper examines the trajectory of pay-performance-sensitivity (PPS) in years immediately after chief executive officers (CEOs) assume their positions. We show that PPS “steady state equilibrium” is not achieved overnight, but instead evolves through a process whereby CEO incentives increase gradually before eventually leveling off. discuss various factors might contribute to these observed dynamics including liquidity constraints, career concerns, entrenchment, survivor bias, and...

Drawing on the extensive economics literature wage rigidity, we examine CEO bonus rigidity and, in particular, implications of downward for future performance. We first document distributional support payments. More importantly, find that cuts have distinct negative firm Indeed, our evidence indicates is primary driver positive relation between unexpected cash compensation and performance documented by Hayes Schaefer (2000). Our also broadly consistent with morale theories pay (Bewley, 1995,...

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