This article shows that when a compensation peer firm experiences a significant failure in its say-on-pay (SOP) voting, the focal firm’s stock price is adversely affected, resulting in reduced CEO pay in the subsequent period. This pay-reduction effect is amplified when the board is more powerful, when proxy advisors express concerns about CEO pay, and when the compensation consultant lacks quality. Directors who react to the price drop and cut the CEO’s pay receive higher votes in future director elections, implying a market feedback effect for directors of the focal firm triggered by their peers’ SOP voting failure.

Intergenerational justice is a core principle of sustainability, yet empirical metrics on the impact of business on future generations remain scarce. Moreover, evidence suggests that different ESG scores capture distinct dimensions of corporate responsibility, highlighting the need for more targeted assessments. This study examines the relationship between corporate engagement with children’s rights and financial performance using a dataset of 1672 firm-year observations, combining a novel children’s rights benchmark with Refinitiv’s financial and sustainability metrics. Results indicate a negative association between marketplace ratings, assessing firms’ child welfare considerations in marketing, and accounting-based profitability, even when controlling for ESG subscores. However, no similar relationship emerges in stock market performance. These findings highlight potential tensions between corporate responsibility and short-term financial outcomes, emphasizing the role of regulatory frameworks and stakeholder engagement in balancing financial and social objectives.

Exploiting the executive compensation reform for state-owned enterprises (SOEs) in China that enforce strict pay restrictions, this study examines whether and how pay restrictions affect firms’ labor investment inefficiency. We find that SOEs experience a decrease in abnormal labor investment following the reform relative to non-SOEs, particularly in over-investment in labor. Our results show that the reform is associated with lower labor investment inefficiency through strengthened internal governance and mitigated internal social comparison. In addition, pay restrictions specifically curb firms’ tendency to over-hire. Further analysis reveals that imposing pay restrictions on executives enhances labor quality and also promotes employee well-being. This study offers novel policy insights by showing how pay restrictions to SOE executives can reduce vertical agency costs and investment inefficiency and enhance workforce quality and well-being in weak institutional environments.

Using lenders who become members of the Task Force on Climate-Related Financial Disclosures (TCFD) as an exogenous shock, we examine whether and how lenders’ commitment to transparent climate-related disclosures affects borrowers’ environmental performance. We find that borrowers of TCFD-member lenders, relative to control firms, significantly improve their environmental performance after the TCFD launch. Lenders’ disclosure commitments influence borrowers through credit rationing and monitoring. Specifically, polluting borrowers face higher borrowing costs, reduced access to credit, and greater incorporation of environmental action covenants in loan agreements. Additionally, polluting borrowers of TCFD-member lenders experience heightened financial constraints. Finally, borrowers of TCFD-member lenders are more likely to adopt the TCFD framework for climate-related disclosure after the TCFD establishment. Together, these findings illuminate the role of lenders in driving corporate environmental performance improvement through their commitment to transparent climate-related disclosures.

This study examines the institutional demand for mispriced stocks with incongruent expectations implied by the book-to-market (BM) ratio and financial strength. Institutional trading (or institutional demand) is calculated by both changes in institutional ownership (percentage of shares held) and the number of institutional investors from the previous to the current quarter. Market mispricing and expectation errors in value/glamour stocks can be identified by analysing firms’ recent financial strength (measured by FSCORE). Firms are sorted into value stocks (top 30%), middle stocks (between 30% and 70%) and glamour stocks (bottom 30%) by distribution of BM ratios at the end of the previous fiscal year. Firms in the sample are then double sorted by FSCORE and BM: in each BM portfolio, firms are further classified into high-, mid- and low-FSCORE groups. Consistent with the argument of expectation errors in value/glamour stocks (Piotroski and So, 2012), institutional investors buy value stocks with strong fundamentals (underpriced) and sell glamour stocks with weak fundamentals (overpriced). Independent institutions are more likely to take advantage of the mispricing in value/glamour firms than passive institutions. Institutional trading on expectation errors could reduce the abnormal returns to mispriced stocks. Institutional trading patterns on mispriced value/glamour stocks are also documented in global markets. Our research provides new evidence that the institutional investors do exploit the BM anomalies if the mispricing can be identified by both the BM and the recent financial strength. Our study differs from Caglayan, Celiker and Sonaer (2018) as we emphasise that financial institutions, in addition to relying on only the BM values, process information from financial statements to infer firms’ financial strength. This study is also the first to document that institutional demand on mispricing could attenuate the BM anomaly.

Higher incentive pay is associated with better firm performance. I introduce a model of CEO-firm matching to disentangle the two confounding effects that drive this result. On one hand, higher incentive pay directly induces more effort; on the other hand, higher incentive pay indirectly attracts more talented CEOs. I find both effects are essential to explain the result, with the selection effect accounting for 12.7% of the total effect. The relative importance of the selection effect is the largest in industries with high talent mobility and in more recent years.

The persistent premium of government debt attributes to two main reasons: absolute nominal safety and liquidity. This paper employs two types of measures of government debt supply to disentangle the safety and liquidity part of the premium. The empirical evidence shows that, after controlling for the opportunity cost of money, the quantitative impact of total government debt-to-GDP ratio is still significant and negative, which is consistent with the theoretical predictions of the CAPM with utility surplus of holding convenience assets. The relative availability measure, the ratio of total government liability to all sector total liability, separates the liquidity premium from the safety premium and has a negative impact too. Both theoretical and empirical results suggest that the substitutability between government debt and private safe assets dictates the quantitative impact of the government debt supply.

This paper estimates relative risk aversion using the observed shares of risky assets and characteristics of households from the Household Finance and Consumption Survey of the European Central Bank. Given that the risky share is a fractional response variable belonging to [0, 1], this paper proposes a censored fractional response estimation method using extremal quantiles to approximate the censoring thresholds. Considering that participation in risky asset markets is costly, I estimate both the heterogeneous relative risk aversion and participation cost using a working sample that includes both risky asset holders and non-risky asset holders by treating the zero risky share as the result of heterogeneous self-censoring. Estimation results show lower participation costs and higher relative risk aversion than what was previously estimated. The estimated median relative risk aversions of eight European countries range from 4.6 to 13.6. However, the results are sensitive to households’ perception of the risky asset market return and volatility.