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Research Question/Issue: We examine how countries' cultural and legal environment, in addition to firm‐level governance mechanisms, affects firms' retention and termination decision of the CEO. Research Findings/Insights: Previous research focuses primarily on the effects of governance structures and incentives on turnover. In this paper, we focus on two additional institutions—cultural and legal. We find that in cultures characterized by higher individualism, competition, and stronger views that hard work leads to success, boards are more likely to replace CEOs in response to poor shareholder performance. Conversely, we find that in more corrupt cultures and cultures more protective of employees, there is lower turnover–performance sensitivity. Theoretical/Academic Implications: Williamson (2000) provided a framework consisting of four levels of institutional influences on economic activity: (1) cultural norms, (2) the legal system, (3) governance structures, and (4) resource allocation and employment. Previous research focuses primarily on the two highest levels; we focus on the two more basic levels, cultural and legal, while controlling for firm‐level governance. Practitioner/Policy Implications: Cultural values and legal conditions combine with the firm's governance structure to affect CEO turnover and its sensitivity to firm shareholder performance. [ABSTRACT FROM AUTHOR]

Research question/issue: We examine whether linking executive compensation to climate‐related performance is associated with better firm‐level climate change impact. We also explore the interaction of culture and climate‐linked incentive compensation with climate change impact. Research findings/insights: Using firm‐level climate change strategy and carbon emissions to measure climate change impacts, we find that climate‐linked compensation is associated with improved climate change strategy. Climate‐related incentives for the CEO and other (operational) executives are found to be negatively associated with firm‐level carbon emissions, although the relationship is not as strong; however, no such association is found for climate‐linked compensation of the board and top‐3 executives. Country‐level attitudes to whether solutions for environmental issues are considered a joint (society) responsibility versus an individual's personal responsibility are found to have an effect on the association between climate‐linked compensation and climate change impacts. We also find that country‐level cultural views enhance the positive association between climate‐linked compensation and climate change strategy but not the association with actual firm‐level carbon emissions. Further analysis shows that non‐US firms drive our study's findings. Finally, improvement in climate strategy is found to have a positive effect on Tobin's Q but has no effect on profitability. Theoretical/academic implications: Academic research is growing on the role of climate change risk and carbon emissions in corporate decisions. The findings of our study are important given that linking executives' compensation with climate performance is gaining momentum. To the best of our knowledge, this is the first study to examine any link between climate‐linked compensation and climate change impact. Practitioner/policy implications: While climate‐linked compensation is associated with positive changes in climate strategy, its association with firm‐level carbon emissions is promising. This is particularly the case when this compensation is offered to executives who are likely to make operational decisions with a direct impact on a firm's carbon footprint and carbon emissions. [ABSTRACT FROM AUTHOR]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2004.12.003 Byline: Natasha Burns (a), Simi Kedia (b) Keywords: Restatements; Misreporting; Compensation; Options Abstract: This paper examines the effect of CEO compensation contracts on misreporting. We find that the sensitivity of the CEO's option portfolio to stock price is significantly positively related to the propensity to misreport. We do not find that the sensitivity of other components of CEO compensation, i.e., equity, restricted stock, long-term incentive payouts, and salary plus bonus have any significant impact on the propensity to misreport. Relative to other components of compensation, stock options are associated with stronger incentives to misreport because convexity in CEO wealth introduced by stock options limits the downside risk on detection of the misreporting. Author Affiliation: (a) Terry College of Business, The University of Georgia, Athens, GA, 30602, USA (b) Rutgers Business School, Rutgers University, Newark, NJ, 07102, USA Article History: Received 17 September 2003; Revised 12 August 2004; Accepted 6 December 2004 Article Note: (footnote) [star] This paper combines the results of two earlier papers: 'Does performance-based compensation explain restatements' by Natasha Burns and 'Do stock options generate incentives for earnings management? Evidence from accounting restatements' by Simi Kedia. We thank Jean Helwege, Andrew Karolyi, and Rene Stulz for their comments and advice. We also thank Jim Hsieh, Kose John, Steven Kaplan, Kevin Murphy, Prabhala, Jeremy Stein, Christof Stahel, Ralph Walking, Karen Wruck, David Yermack, participants at the 2003 NBER Universities Research Conference of Corporate Governance, the 2004 AFA Meetings in San Diego, seminars in Arizona State University, Baruch College, Indiana University, Ohio State University, Penn State University, Rice University, Rutgers University, Southern Methodist University, University of Georgetown, University of Houston, University of Illinois, and University of Pittsburgh for helpful comments. Kim Haufrect and Mihail Miletkov provided excellent research assistance. We are very thankful for the comments and suggestions of an anonymous referee. All errors are the responsibility of the authors.

We find that independent directors in more corrupt countries receive greater pay. This relation could reflect outside directors in corrupt countries expropriating firm value, or it could reflect higher compensation for the additional effort required to lessen the negative effects of corruption. Acquirer acquisition announcement returns are lower in more corrupt countries, and this relation is mitigated by higher director pay. Higher director pay is also associated with greater sensitivity of CEO turnover to firm performance and moderates the negative effects of country‐level corruption on firm value. This evidence is consistent with higher director pay in corrupt countries incentivizing effort. [ABSTRACT FROM AUTHOR]

We examine the impact of the Citizens United decision on firm value. While the value of U.S. firms do not respond significantly to the Citizens United decision on average, we find evidence that firms in industries subject to more extensive regulation react significantly and positively to the announcement. We also find evidence consistent with Justice John Paul Stevens’ argument that the Court decision will affect state laws. Specifically, our results indicate that firms that are headquartered in states with more stringent limits on political spending by corporations respond positively to the announcement. [ABSTRACT FROM PUBLISHER]