A Trust Crisis
Paola Sapienza(Kellogg School of Management, Northwestern University)
Luigi Zingales(University of Chicago Booth School of Business)

We conjecture that the changes in economic activity from late 2008 to early 2009 is due to a drop in trust. We present new survey evidence consistent with this hypothesis.

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Is Pay a Matter of Values?*
en?e Birgit Adams(Banking and Finance, Australian School of Business, University of New South Wales, Sydney)
Mariassunta Giannetti(Department of Finance, Stockholm School of Economics)

Public outrage over executive compensation reached an all-time high during the financial crisis. Around the world, many argued that CEOs and boards were immoral in setting their pay and pressured governments to impose restrictions on executive pay. Using a unique sample of data on human values for CEOs, we show that CEOs and directors have different values than general members of the population. CEOs and directors place more emphasis on power and achievement values than members of the population, and they emphasize self-direction values more. However, values appear to have little explanatory power for pay, in contrast to economic variables. While some CEOs may be unethical in setting their pay, our results suggest that pay is not a matter of values on average.

*We are grateful to Jose Liberti, Ron Masulis, David Robinson, Hannes Wagner, and seminar participants at the CEPR Summer Symposium in Financial Markets in Gerzensee, Erasmus University, and Tilburg University for comments. Adams thanks the SNS Centre for Business and Policy Studies and the Jan Wallander and Tom Hedelius Research Foundation for financial support. Giannetti acknowledges financial support from the Jan Wallanders and Tom Hedelius Foundation, the Bank of Sweden Tercentenary Foundation, and the Swedish National Research Council.

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Governance Characteristics and the Market Reaction to the SEC’s Proxy Access Rule*
Ali C. Akyol(Department of Finance, University of Melbourne)
Wei Fen Lim(Department of Finance, University of Melbourne)
Patrick Verwijmeren(Department of Finance, VU University Amsterdam)

We examine the wealth effects of the Security and Exchange Commission’s (SEC) recent proxy access rule to facilitate director nominations by shareholders. We focus on how a firm’s governance characteristics affect the market reaction to the rule. We find more negative announcement effects for firms with high probabilities of being targeted by shareholders. The announcement effects of the proxy access rule are positively related to the fraction of independent directors and the ratio of non-cash-based compensation, while announcement effects are inversely correlated with board size. Our findings suggest that the marginal shareholder does not perceive the proposed rule as value increasing.

*We thank an anonymous referee, Renée Adams (the Editor), Stephen Brown, Bruce D. Grundy, Craig Lewis, Spencer Martin, Kasper M. Nielsen, seminar participants at the University of Melbourne, and participants at the 2010 Asian Finance Association conference for useful comments.

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How to Sell a (Bankrupt) Company*
Francesca Cornelli(London Business School and CEPR)
Leonardo Felli(London School of Economics and CEPR)

This paper suggests a way to sell a company that maximizes the proceeds from the sale. The key to this proposal is the option left to the seller to retain a fraction of the shares of the company. Indeed, by retaining the minority stake, the seller can transfer the control of the company while reducing to a minimum the rents that the sale of the company leaves in the hands of the buyer. We then focus on two main applications of this idea: bankruptcy procedures and carve-outs.

*We are grateful to an anonymous referee, Renee Adams, Lucian Bebchuk, Patrick Bolton, Dick Brealey, Julian Franks, Denis Gromb, Oliver Hart, Ronen Israel, Pino Lopomo, François Ortalo-Magné, Ben Polak, Oved Yosha, David Webb, Luigi Zingales, Jeff Zwiebel, Bilge Yilmaz and seminar participants at Tel-Aviv University, HEC Paris, Universidade Nova Lisbon, London Business School, London School of Economics, Philadelphia Federal Reserve Bank, USC Law School, Wharton and the AFA meetings for very helpful discussions and comments. Financial support from the Bank of Italy is gratefully acknowledged. We are solely responsible for any remaining errors.

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Regulatory Pressure and Bank Directors’ Incentives to Attend Board Meetings
Ren?e Birgit Adams(Banking and Finance, Australian School of Business, UNSW)
Daniel Ferreira(London School of Economics and ECGI)

The primary way in which directors obtain necessary information is by attending board meetings. Bank directors, in particular, are strongly urged to attend meetings by regulators. We investigate whether such pressure is sufficient for bank directors to have good attendance records. Using data on whether directors were named in proxy statements as attending fewer meetings than they were supposed to, we find that (1) bank directors appear to have worse attendance records than their counterparts in nonfinancial firms, (2) their attendance behavior is related to explicit and implicit incentives for attendance, and (3) past attendance records are not related to the likelihood a director departs the board. Our results suggest that explicit and implicit incentives may provide important complements to regulatory pressure in influencing director behavior.

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