Reforming CEO pay: Focus on the right dimensions

Alex Edmans 11 September 2014

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Executive pay is a high-profile topic on which almost everyone has an opinion.  Many shareholders, workers, and politicians believe that the system is broken and requires a substantial overhaul.  Despite being well-intentioned, their suggested reforms may not target the elements of pay that are most critical for shareholder value and for society.

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Topics:  Financial markets Labour markets

Tags:  executive pay, corporate governance, Executive compensation, CEOs

Unstash the cash! Corporate governance reform in Japan

Chie Aoyagi, Giovanni Ganelli 19 August 2014

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Cash holdings by Japanese companies are very high compared to other G7 countries. As it can be seen in Figure 1, the average ratio of cash and cash equivalent holdings to market capitalisation of Japanese listed companies during 2004-2012 was above 40%, compared to values in the 15-27% range in other G7 countries. Such high cash holdings coexist with a negative contribution of private investment to growth in the last few years and with falling real wages in the face of positive labour productivity growth for most of the last two decades.

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Topics:  Industrial organisation Microeconomic regulation

Tags:  Japan, corporate governance, cash holdings

Corporate governance of banks and financial stability

Luc Laeven, Lev Ratnovski 21 July 2014

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Corporate governance is the practice of shareholders exercising control over managers so that they act in shareholders’ interests. In non-financial firms, this maximises firm efficiency. Such efficiency effects also exist in banks. For example, banks that face more active takeover markets are more cost-efficient (Brook et al. 1998).

Unlike non-financial firms, bank operations have another relevant dimension besides efficiency: risk. Banks are prone to risk-taking, due to:

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Topics:  Financial markets

Tags:  corporate governance, bank regulation, systemic risk

Through the looking glass: CEO pay in China's listed companies

Alex Bryson, John Forth, Minghai Zhou 24 June 2014

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For many in the West China remains a paradox: a single-party Communist state with a vibrant, thriving economy set to challenge the US in the coming decade. Some have questioned the sustainability of the Chinese growth miracle in the absence of fully-fledged democracy and root-and-branch market reforms. But others point to state-sponsored decentralised market reforms over the past three decades as the key to China's success (Xu 2012).

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Topics:  Financial markets Labour markets

Tags:  China, executive pay, corporate governance, Executive compensation, CEOs

Sustainable growth requires a long-term focus

Pascal Lamy, Ian Goldin 28 March 2014

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Just when we thought high-frequency trading couldn’t get any faster, a US communications company is developing a high-speed laser network between the New Jersey data centres of the New York Stock Exchange and the NASDAQ stock exchange, to shave an additional few nanoseconds off high-frequency trading times.

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Topics:  Environment Financial markets Global crisis International trade

Tags:  growth, climate change, trade, environment, corporate governance, global crisis, high-frequency trading, short-termism, mark-to-market accounting

Say on pay in the UK: Modest effect, even after the crisis

Ian Gregory-Smith, Steve Thompson, Peter Wright 24 March 2014

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The extensive academic literature on the growth of executive compensation has tended to polarise around one of two positions: the rents-capture view and the optimal contracting approach. These analyses lead to very different positions on the value of a ‘say on pay’ policy:

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Topics:  Frontiers of economic research Labour markets Microeconomic regulation Poverty and income inequality

Tags:  voting, UK, executive pay, corporate governance, Executive compensation

Good corporate governance is bad for bank capitalisation

Deniz Anginer, Asli Demirgüç-Kunt, Harry Huizinga, Kebin Ma 10 November 2013

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A failing bank can be defined as one that has insufficient capital. Bank capitalisation strategies thus are crucial in determining the probability of a bank failure. Confirming this, Berger and Bouwman (2013) find that higher levels of pre-crisis capital increase a bank’s probability of survival during a banking crisis. Beltratti and Stulz (2012) and Demirguc-Kunt, Detragiache and Merrouche (2013) find that banks that were better capitalised before the crisis had a better stock-market performance during the crisis.

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Topics:  Financial markets

Tags:  corporate governance, bank capitalisation, banks

Stock market turnover and corporate governance

Alex Edmans, Vivian W Fang, Emanuel Zur 16 February 2013

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The stock market is a powerful tool for controlling corporation’s behaviour. But what is best:

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Topics:  Financial markets

Tags:  financial markets, liquidity, corporate governance, firms, stocks

Brain drain or brain gain? Evidence from corporate boards

Mariassunta Giannetti , Guanmin Liao, Xiaoyun Yu 03 January 2013

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Development economists have long warned about the costs for developing countries of the emigration of the best and brightest that decamp to universities and businesses in the developed world (Bhagwati 1976). This brain drain has attracted a considerable amount of economic research. 

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Topics:  Development

Tags:  brain drain, corporate governance, brain gain

The impact of corporate governance in financial institutions

Hamid Mehran, Alan Morrison, Joel Shapiro 06 April 2012

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A recent op-ed by former Goldman Sachs employee Greg Smith has led to an outcry over Goldman Sachs’ perceived mistreatment of their customers. This illustrates two important themes in the financial sector, both of which came to the fore during the crisis, ie corporate culture and incentives. Obviously, neither regulation nor market forces has put either of these issues to rest. In this column, we look at both through the lens of corporate governance and we highlight the contribution of recent research to these topics.

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Topics:  Financial markets

Tags:  corporate governance, banks, too-big-to-fail

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