Ruling Corporations
The corporate governance trilemma
Patrick Corrigan
Journal of Legal Analysis, 2025, Pages 141-165
Abstract:
The thesis of this Article is that the ESG movement has been stunted by the failure to appreciate a trilemma: you cannot have responsive governance, liquid shares, and a credible commitment to social mission. The Article provides a novel descriptive account of corporate purpose and develops a transaction cost explanation for the collective action problem faced by pro-social investors. The Article identifies institutional solutions -- and their trade-offs -- for founders and investors that prefer to establish pro-social businesses. The analysis justifies business judgment rule review of disputes about corporate purpose and produces counterintuitive insights into corporate governance matters.
Policymaker Responses to CEO Activism
Christopher Poliquin & Young Hou
Organization Science, forthcoming
Abstract:
CEOs increasingly engage in activism on controversial social and political issues, such as police reform, LGBTQ+ rights, and gun control, to influence the behavior of policymakers. We run an experiment on 514 local elected politicians to examine how revealing information about CEO activism on police reform affects the views of policymakers. Additionally, we examine how CEOs’ controversial positions on social issues affect politicians’ willingness to privately meet with CEOs or publicly advocate for their businesses. We do not find that revealing CEO support for specific police reform policies affects policymakers’ opinions. Policymakers, however, are much less willing to engage -- either privately or publicly -- with CEOs who take controversial positions on social issues. These results do not vary with local economic conditions or the salience of police reform, but they appear to be driven by policymakers’ personal ideological commitments. Our results suggest that CEO activism may have limited influence on local politicians, at least on the topic of police reform, and they underscore the business costs of CEOs taking political positions. We discuss the implications for CEOs and the activist groups that often pressure them to take public positions on controversial issues.
The Discouraging Effect of Overconfidence
Cary Deck & Klajdi Bregu
Southern Economic Journal, forthcoming
Abstract:
Overconfidence is often viewed as encouraging entrepreneurs and CEOs to follow risky strategies such as entering new markets, engaging in innovation, or pursuing mergers and acquisitions. While such undertakings can generate excess returns and profits, overconfidence is frequently offered as an explanation for why so many business ventures fail. However, we show that in a setting where the decision maker does not know whether success is possible, theoretically, overconfidence can also have a discouraging effect, causing one to give up too soon. This counterintuitive result is driven by effectively misattributing one's own failure to an elevated assessment of the chance that success is not possible. In a controlled laboratory experiment, we find general support for the theoretical predictions, although empirically, participants are overly reluctant to engage in repeated innovation attempts.
The Persistence of Miscalibration
Michael Boutros et al.
Review of Financial Studies, forthcoming
Abstract:
We analyze a panel of over 28,400 S&P 500 return forecasts by CFOs to examine whether the extent of CFOs’ miscalibration — providing forecast confidence intervals that are too narrow — decreases over time. We find no improvement with task repetition or evidence of learning, that is, no improvement in response to past performance. Across CFOs, miscalibration appears to be a persistent personal trait. We find some evidence that the degree of miscalibration is related to birth cohort and stock market familiarity.
Speculative and Informative: Lessons from Market Reactions to Speculation Cues
Anthony Cookson, Katie Moon & Joonki Noh
Review of Corporate Finance Studies, forthcoming
Abstract:
Speculative language in corporate disclosures can convey valuable information about firms’ fundamentals. We evaluate this idea by developing a measure for speculative statements based on sentences marked with the “weasel tag” on Wikipedia. In the 16-week test period after filing, greater use of speculative statements in 10-Ks predicts higher and nonreverting abnormal returns, more insider and informed buying, and higher news sentiment. These findings imply that managers’ usage of speculative language in 10-Ks reflects voluntary disclosure of their private information about the positive prospects of events when market implications of the events are uncertain and thus have room for (re)interpretation.
Insider Trading After the 2022 Rule 10b5-1 Amendment
Sehwa Kim, Seil Kim & Shivaram Rajgopal
Columbia University Working Paper, July 2025
Abstract:
We investigate the impact of the controversial 2022 amendment to Rule 10b5-1, which imposed a cooling-off period and restricted overlapping and single trade plans on prearranged insider transactions. The amendment led insiders to (i) execute stock sales under 10b5-1 plans with longer cooling-off periods; (ii) curtail opportunistic sales under 10b5-1 plans prior to stock price drops or earnings misses; (iii) limit the backdating of stock gifts; and (iv) decrease the granting of options around material information events. .Further evidence suggests a reduction in opportunistic 10b5-1 trades rather than a migration toward non-10b5-1 sales. However, we find that firms more affected by the rule amendment experience lower price efficiency after the amendment, implying a potential cost of restricting the flow of information through insider trading. In addition, terminations of 10b5-1 plans are associated with positive subsequent stock returns, suggesting that insiders avoid selling when they expect favorable news. Overall, our findings indicate that while the amendment substantially curtailed the opportunistic use of 10b5-1 plans, it increased the costs of 10b5-1 plans and lowered stock price efficiency.
The Value Implications of Mandatory Clawback Provisions
Tor-Erik Bakke, Hamed Mahmudi & Aazam Virani
Journal of Law and Economics, August 2025, Pages 627-670
Abstract:
We find evidence suggesting that mandatory clawback provisions are value enhancing. We examine the stock market reaction to the US Security and Exchange Commission’s announcement of a proposed rule to make clawback provisions mandatory. The proposed rule was significantly stronger than existing clawback provisions that many firms had voluntarily adopted. We find that firms without clawback provisions exhibited positive abnormal returns of .6 percent around the announcement of the proposed rule. Firms with clawback provisions did not exhibit statistically significant abnormal returns around the announcement. The returns following the announcement are most positive for firms without clawbacks that have more powerful management.
Labor Market Power and Financial Leverage: Evidence from Online Job Postings
John (Jianqiu) Bai et al.
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
Using the near universe of online job postings from 2007 to 2021, we construct a firm-level metric of labor market power. We find that firms with higher labor market power tend to have higher financial leverage. Our findings are not driven by product market competition or correlated labor market characteristics. The evidence is less pronounced among firms hiring in occupations with high labor mobility and skill transferability. To establish causality, we exploit the establishment of Amazon HQ2 in Crystal City as a shock to the labor market power of local firms and show consistent findings with our baseline results.