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We investigate family firms' speed and degree of compliance with board independence requirements and how willingness and ability affect family firms' compliance patterns. Using a longitudinal sample of Indian publicly traded firms during a transitional period of corporate governance reforms, we find that family firms are slower to comply with board independence requirements than non‐family firms. Family firms' compliance speed is even slower as agency costs increase. We also document that family firms are prone to symbolically comply with board independence requirements, as independent directors in family firms are less engaged than their counterparts in non‐family firms. Family firms' symbolic compliance is even more salient when family firms possess larger agency problems and greater resource constraints. Our results also point to a complementary relationship between family firms' willingness and ability to comply, as family firms with greater agency costs and larger resource constraints are among the slowest to comply and are also most likely to comply superficially. Overall, we conclude that family firms' internal logic, agency costs and resource constraints jointly affect their compliance patterns. [ABSTRACT FROM AUTHOR]

SYNOPSIS: We investigate the role of external auditors in constraining managerial slack. Using panel data on Chinese public firms, we find that firms hiring Big 8 auditors are associated with reduced managerial slack after controlling for the endogenous auditor choice. We also document that Big 8 auditors are more effective in mitigating slack in privately controlled firms and firms located in more developed regions. Moreover, we show that international Big 4 auditors are more effective than the domestic Big 4, and the Big 8 effect is more salient in more competitive and less regulated industries, and in industries with higher litigation risks. Finally, we document a positive relationship between managerial slack and audit fees, particularly in the presence of Big 8 auditors. Overall, our results suggest that high-quality external auditors play an important corporate governance role by serving as both bonding and controlling mechanisms to mitigate managerial exploitation of firm resources. Data Availability: Data are publicly available from sources identified in the article. [ABSTRACT FROM AUTHOR]

This research applies the three-tier agency theory and social exchange theory to study the role of audit committees in improving financial reporting quality and reducing the likelihood of earnings restatements. Utilizing a matched sample of restated and non-restated U.S. listed firms between 2002 and 2005, this paper finds that firms with a larger proportion of audit committee members appointed after the CEO are associated with higher incidences of restatements, while the presence of an all-independent nomination committee is associated with a lower likelihood of restatements. The paper also shows that firms whose audit committee members have longer average tenure and receive higher director compensation are associated with a smaller likelihood of restatements. Finally, the paper documents changes in the impact of audit committee characteristics on financial restatements after the enactment of the Sarbanes-Oxley Act. Overall, our results suggest that audit committees’ effectiveness in supervising financial reporting quality is affected by social exchange processes and the broad social context. [ABSTRACT FROM AUTHOR]

This study investigates how CEO behavior and incentives change during the CEO's final years in office, known as the horizon problem. We examine how the horizon problem alters managerial slack, a measure of operational inefficiency and managerial value diversion. Using data on Chinese publicly traded firms between 2003 and 2011, we find that managerial slack increases in the last two years of CEO tenure compared to earlier years. We also show that the increase in managerial slack in CEO final years in office is smaller in privately controlled firms than in state-owned enterprises, smaller in firms with CEO equity ownership and more independent boards compared to those without. We conclude that higher quality corporate governance mechanisms ameliorate the perverse incentives associated with the CEO horizon problem, and reduce CEOs’ tendency to increase managerial slack during their final years in office. [ABSTRACT FROM AUTHOR]

Manuscript Type Empirical Research Question/Issue This paper investigates the influence of CEO compensation on voluntary turnover and the moderating role of the managerial labor market. It explores how institutional contingencies related to labor market transparency, mobility, and competitiveness shape supply and demand conditions of the managerial labor market, and consequently affect the relationship between CEO underpayment and turnover. Research Findings/Insights Using a sample of Chinese listed firms between 2002 and 2011, we document that underpaid CEOs are associated with a larger likelihood of voluntary turnover in China. Importantly, we find that CEO underpayment will increase the likelihood of voluntary turnover to a greater extent when executive compensation disclosure is mandatory, when regional labor mobility is higher, and when industry growth rate is larger. Overall, our study demonstrates that underpayment below the market rate motivates CEOs to exit their organizations and such a reaction is more likely to materialize when managerial labor market conditions are favorable enough to create a strong pull force. Theoretical/Academic Implications This study adopts an interdisciplinary perspective built on institutional theory, organizational psychology, and labor economics to examine the role of the managerial labor market during institutional transition. It integrates the social psychological explanation of turnover with the perspective of labor economics by linking both pull side and push side drivers of organizational participation with demand and supply conditions of the managerial labor market. Practitioner/Policy Implications This study suggests that the design of executive compensation should consider the ongoing labor market rate for retention and motivation reasons, especially when managerial talent is under tight supply and strong demand. [ABSTRACT FROM AUTHOR]

We study asymmetric performance benchmarking in Chinese executive compensation contracts between 2000 and 2010. We predict that while relative performance evaluation criteria are important in executive pay contracts, managerial power and influence will result in a decoupling between pay and performance. We predict that Chinese managers are rewarded for superior performance but not penalized for inferior performance. We test this asymmetric pay-for-performance hypothesis using three performance benchmarks: whether firm performance is positive/negative, above/below industry average, and above/below regional average. We find the sensitivity between executive compensation and firm accounting performance is asymmetric. It is significantly stronger when firm accounting performance is positive or firm performance exceeds industry or regional median benchmarks compared to cases when firm accounting performance is negative or is below industry or regional median benchmarks. We find little evidence that ownership structure and internal governance mechanisms moderate the asymmetric pay-for-performance relationship. [ABSTRACT FROM AUTHOR]

Manuscript Type: Empirical. Research Question/Issue: This study investigates the moderating role of CEO overpayment on the relationship between firm performance and CEO dismissal. We also examine how contextual factors, including compensation disclosure regulation, firm index status, and firm age, influence board attention and attribution, and consequently affect the sensitivity of CEOdismissal to firm performance. Research Findings/Insights: Using a sample of Chinese listed firms between 2002 and 2011, we find that overpaid CEOs are associated with a larger likelihood of dismissal in case of poor firm performance compared to their underpaid counterparts. In addition, CEO overpayment has a larger influence on the turnover-performance relationship when executive compensation disclosure is mandatory, when a firm is index-included, or younger. Theoretical/Academic Implications: This study provides empirical support for attribution theory and the attention-based view. Built on the concept of bounded rationality, it demonstrates that board sense-making and causal attributions affect the CEO dismissal decision. Our study also sheds light on the influence of situational cues on shaping board attention and subsequent corporate governance decisions. Practitioner/Policy Implications: This study offers insights to policymakers interested in enhancing the design of corporate governance mechanisms by paying attention to cognitive processes in the boardroom. [ABSTRACT FROM AUTHOR]

We investigate the relationship between chief executive officer (CEO) turnover and firm performance in China's publicly traded firms. We provide evidence on the use of accounting and market-based performance measures in CEO turnover decision. We also investigate the moderating roles of noise in performance measures, firm growth opportunities, state-owned enterprises, and corporate governance reform on the weights attached to these performance measures. We observe that Chinese listed firms rely more on accounting performance than on stock market performance when determining CEO turnover. Firms with noisier performance measures and larger growth opportunities rely less on both accounting performance and stock market performance in CEO replacement decision. State-controlled firms are more likely to use accounting performance to determine CEO turnover. Finally, we observe that the weight attached to the accounting performance measure is significantly reduced and the weight attached to the stock market performance measure is significantly increased after the governance reform. We also observe that the reform has different impact on state-owned firms and private firms in terms of the sensitivity of CEO turnover to firm performance. [ABSTRACT FROM AUTHOR]

Manuscript Type Empirical Research Questions This study investigates the determination of Chinese CEO pay. We focus on three related questions: (1) Is Chinese CEO pay related to firm performance? (2) Are CEO pay dynamics important? (3) Does corporate governance affect CEO pay and equity incentives in China? Research Findings Using data on CEO compensation in China's public traded firms from 2000 to 2010, we document significant changes in CEO pay, ownership and board structure. We document that CEO pay is positively correlated to both accounting and stock market performance, although the link to accounting performance is more robust. We find that CEO pay dynamics are important as pay in the current year is significantly positively correlated to CEO pay the previous year. We also find that CEO equity ownership and equity grants are influenced by board and ownership structure. Theoretical/Academic Implications This study supplements the standard agency theory approach to executive compensation with insights gained from the dynamics of wage setting theory developed in the labor economics field. It predicts that incomplete information and learning lead to adjustment costs and non-instantaneous changes in CEO pay. Practitioner/Policy Implications This study offers insights to policy makers interested in enhancing the design of executive compensation and internal corporate governance within transition economies. [ABSTRACT FROM AUTHOR]