James A. Brickley

Ownership structure and voting on antitakeover amendments

Abstract Theory suggests that shareholders who own blocks of stock have a stronger incentive to invest in voting on corporate issues than nonblockholders. Our evidence indicates that institutional investors and other blockholders vote more actively on antitakeover amendments than nonblockholders, and opposition by institutions is greater when the proposal appears to harm shareholders. Our evidence suggests that institutions that are less subject to management influence, such as mutual funds, foundations, and public-employee pension funds, are more likely to oppose management than banks, insurance companies, and trusts, which frequently derive benefits from lines of business under management control.

Leadership Structure: Separating the CEO and Chairman of the Board

Shareholder activists and regulators are pressuring U.S. firms to separate the titles of CEO and Chairman of the Board. They argue that separating the titles will reduce agency costs in corporations and improve performance. The existing empirical evidence appears to support this view. We argue that this separation has potential costs, as well as potential benefits. In contrast to most of the previous empirical work, our evidence suggests that the costs of separation are larger than the benefits for most large firms.

Outside directors and the adoption of poison pills

We find that the average stock-market reaction to announcements of poison pills is positive when the board has a majority of outside directors and negative when it does not. The probability that a subsequent control contest is associated with an auction is also positively related to the fraction of outsiders on the board. These results are largely driven by directors who are retired executives from other companies. The evidence suggests that outside directors serve the interests of shareholders.

The choice of organizational form The case of franchising

Evaluates the agency problems associated with company owned versus franchised units in order to determine whether these agency considerations affect the own/franchise decision. Information on the ownership characteristics of franchise firms were gathered from 112 responses to queries sent to franchise companies listed in the 1982 Norback and Norback and the 1983 Siegel franchise directories. Monitoring problems and costs and franchising contract provisions are discussed. Results support the prediction that the owned units, which presumably entail more on-site monitoring, are located closer to central or regional headquarters than franchised units. In addition, the likelihood of franchising increases with higher monitoring costs, low initial investment costs per unit, and higher frequency of repeat customers. (SFL)

Stock-based incentive compensation and investment behavior*

Abstract This paper examines how excessive concern over current stock price can motivate managers to use observable investment decisions to manipulate the markets inferences about the firm. The result can be overinvestment or underinvestment. Shareholders can induce optimal investment choices by structuring managerial compensation to balance both future and present stock-price performance. Our analysis suggests that firms with high/persistent informational asymmetries between managers and shareholders will tend to favor contracts that focus on long-run stock returns (both current and future) over contracts that focus on near-term stock returns alone. Our empirical results, as well as other results in the literature, are generally consistent with this hypothesis.

What Happens to CEOs After They Retire? New Evidence on Career Concerns, Horizon Problems, and CEO Incentives

This paper provides evidence on a previously unidentified source of managerial incentives: concerns about post-retirement board service. Both the likelihood that a retired CEO serves on his own board two years after departure, as well as the likelihood of serving as an outside director on other boards, are positively and strongly related to his performance while CEO. Retention on the CEOs own board depends primarily on stock returns, while service on outside boards is better explained by accounting returns. The evidence also suggests that firms consider ability in choosing board members.

Shareholder wealth, information signaling and the specially designated dividend: An empirical study☆

Abstract This paper examines common stock returns and dividend and earnings patterns surrounding specially designated dividends labeled by management as ‘extra’, ‘special’ or ‘year-end’ and compares them to those surrounding regular (unlabeled) dividend increases. The results support the notion that management uses the labeling of dividend increases to convey information to the market about the future potential of the firm. Unlabeled increases appear to contain the most positive information. Contrary to the sometimes suggested view, specially designated dividends appear to convey positive information about future dividends and earnings beyond that relating to the current period.

The impact of long-range managerial compensation plans on shareholder wealth

Abstract This study examines the stock price reaction around the announcement of proposed changes in long-term managerial compensation packages. The evidence indicates that on average these plans are met with positive market reactions, i.e., shareholder wealth increases. Further, we are unable to differentiate the market reaction to various types of long-range compensation schemes. This result is consistent with the notion that firms with different characteristics will resolve their managerial compensation requirements differently. Thus no particular compensation package necessarily dominates all others.

Managerial Incentives in Nonprofit Organizations: Evidence from Hospitals

This paper examines the incentives of chief executive officers (CEOs) in a large sample of nonprofit hospitals. The evidence indicates that both turnover and compensation of these CEOs are significantly related to financial performance (return on assets). We find no evidence that nonprofit hospitals provide explicit incentives for their CEOs to focus on altruistic activities. The turnover/performance relation appears stronger in nonprofit hospitals than in for‐profit hospitals and other for‐profit corporations (our data do not allow us to compare compensation incentives). Past research suggests that there is little distinction between the outputs and behaviors of private nonprofit and for‐profit hospitals. Consistent with these findings, our study suggests that managers face incentives to concentrate on financial performance in both types of organizations.

Incentive Conflicts and Contractual Restraints: Evidence from Franchising

This study uses agency theory to develop testable implications about three provisions commonly observed in franchise contracts: (1) restrictions on passive ownership, (2) area development plans, and (3) mandatory advertising expenditures. The primary hypothesis is that these provisions are most likely when there are significant externalities among the units within the franchise system. The evidence, based on a large sample of franchise contracts, is generally consistent with this hypothesis. The evidence also suggests that these incentive instruments are complements. In contrast to the theory, most of the results do not support the hypothesis that the percentage of company‐owned units is related to externalities within the system. Franchisee risk aversion and/or wealth constraints appear more important. While the study focuses on franchising, the results provide insights into related provisions in other contracts.