The high pay of U.S. CEOs relative to their foreign counterparts has been cited as evidence of excesses in U.S. executive compensation practices. This perception of a “pay divide” between the United States and the rest of the world is usually based on estimates provided by professional services firms like Towers Watson that receive a good deal of press coverage. However, attempts to understand the magnitude and determinants of the U.S. pay premium have been plagued by data limitations due to international differences in rules regulating the disclosure of executive compensation.

In our paper, Are U.S. CEOs Paid More? New International Evidence, forthcoming in the Review of Financial Studies, we use new data to compare CEO pay in 1,648 U.S. firms versus 1,615 firms from 13 foreign countries. Thanks to recently expanded disclosure rules, our sample includes publicly listed firms from both Anglo-Saxon and continental European countries that had mandated disclosure of CEO pay by 2006. It covers nearly 90% of the market capitalization of firms in these markets and, importantly, comprises firms with different corporate governance arrangements.

…continue reading: (Why) Are US CEOs Paid More?

In our paper Does Governance Travel Around the World? Evidence from Institutional Investors, forthcoming in the Journal of Financial Economics, we examine whether institutional investors affect corporate governance by analyzing portfolio holdings of institutions in companies from 23 countries during the period 2003-2008.

We find that international institutional investors export good corporate governance practices around the world. In particular, foreign institutional investors and institutions from countries with strong shareholder protection are the main promoters of good governance outside of the U.S. Our results are stronger for firms located in civil-law countries. Thus, international institutional investment is especially effective in improving governance when the investor protection in the institution’s home country is stronger than the one in the portfolio firm’s country.

…continue reading: Does Governance Travel Around the World?

In our paper, Board Structure and Price Informativeness, forthcoming in the Journal of Financial Economics, we theoretically and empirically identify important interactions between internal and external governance mechanisms. We find evidence that stock market monitoring is a substitute for board monitoring. The strength of this relation is influenced by other governance mechanisms such as pay-performance sensitivity and the market for corporate control.

We add a new element to the list of determinants of board structure – price informativeness. We find robust empirical evidence that stock price informativeness is negatively related to board independence. The correlation between price informativeness and board independence is as strong as the ones between board independence and other firm-level variables that have been documented in the literature on corporate boards. Given our long list of control variables and the use of fixed-effects methods, it is unlikely that price informativeness is capturing the effects of omitted variables.

…continue reading: Board Structure and Price Informativeness