Takeshi Nishikawa

Sarbanes-Oxley Act and Corporate Credit Spreads

Stock market reaction suggests that despite improved disclosure and increased accountability, Sarbanes-Oxley Act (SOX) is too costly and not beneficial. Noting that bondholders are likely to reap the many potential benefits of SOX without bearing the brunt of costs, we examine how SOX affected corporate credit spreads to better assess its benefits. SOX has led to a significant structural decline in spreads of at least 27 basis points. Riskier firms (low rating, long maturity, high leverage, and small size) and firms closely related to SOX major provisions (earning variability, managerial trading, and corporate governance) experience greater declines in spreads.

Managerial Power in the Design of Executive Compensation: Evidence from Japan

Using a sample of 466 grants of stock options to executives of Japanese firms over the years 1997–2001, this study tests the managerial power theory of compensation design developed by Bebchuk, Fried, and Walker (2002) and Bebchuk and Fried (2004). This theory argues that managers of firms with weak corporate governance will use their “power” to design executive compensation that is “manager-advantageous.” Using our option grants sample, we test to determine if any of the firms governance mechanisms are able to limit managerial self-dealing with respect to executive stock options. We find that smaller boards and a higher percentage of independent directors are important governance mechanisms for the control of managerial influences in the design of stock-option compensation. An alternative hypothesis, that firms elect to grant advantageously designed options to encourage risk taking by managers, is not supported by our empirical results. Finally, we determine that the market response to the announcements of such grants varies inversely with the extent to which the options are managerially advantageous. Overall, we conclude that managerial power effects are present in the design of executive stock options and that theory of managerial power advanced by Bebchuk et al. holds internationally.

Intra-Industry Effects of Stock Splits: Focus on Insurance Companies

This paper examines the intra‐industry effects of 120 stock split announcements within the insurance industry between 1985 and 2006. Our results of the valuation effects are suggestive of dominant competitive effects for stock splits by insurance companies, especially life insurers, thus indicating possible changes in the competitive balance of the industry. The results of our cross‐sectional analyses suggest that for non‐splitting firms with a high concentration of competition the industry effects are less favorable. Industry effects are more favorable when the valuation effects of the splitting firms are more favorable, when the splitting firms are larger, and when the non‐splitting firms are more similar to the splitting firm. Overall, our results show that both industry‐wide and firm‐specific characteristics are important to explain the cross‐sectional variation in the intra‐industry effects, and that competitive effects and contagion effects are not entirely mutually exclusive.

CEO Inside Debt and Risk Taking: Evidence From Property–Liability Insurance Firms

We examine the incentive effects of CEO inside debt holdings (pensions and deferred compensation) on risk taking using the sample of U.S. publicly traded property–liability insurers. To represent managerial risk taking, we employ value at risk (VaR) and expected shortfall (ES), which capture extreme movements in the lower tail of insurer stock return distribution. We also estimate firm default risk, equity volatilities, and insurance-related risk as alternative measures of risk taking. We document that inside debt represents a significant component of CEOs’ compensation in the insurance industry. We find that there is a significant and negative relationship between CEO inside debt holdings and risk-taking behavior. The results suggest that the structure of executive debt-like compensation could be a potential method of reducing managers’ risk-taking incentives.