Executive Compensation: Is It Corrupted?

There is a general view that executive compensation in corporate America is inefficient and corrupted. Discontent with executive pay is not a recent trend; rather, “scrutinizing, criticizing, and regulating high levels of executive pay has been an American pastime for nearly a century.”[1] Since the early 2000s, however, this trend has found a systematic theoretical framework in the “managerial power theory” of executive compensation, espoused most prominently by Harvard law professors Lucian A. Bebchuk and Jesse M. Fried.[2]  In a recently published article, we challenge this view from both a theoretical and empirical perspective.

Managerial power theory … Read more

What Matters in Governance?

In the past 20 years, many corporate law scholars have come to the view that governance arrangements protecting incumbents from removal are what really matter for firm value, arguing that such arrangements help entrench managers and harm shareholders. A major factor supporting this view has been the rise of empirical studies using corporate governance indices to measure a firm’s governance quality. Providing seemingly objective evidence that protecting incumbents from removal reduces firm value, these studies have encouraged the idea that good corporate governance is equivalent to stronger shareholder rights.

In our recent article, we challenge this idea, presenting new empirical … Read more