Vinay B. Nair

Governance Mechanisms and Bond Prices

We investigate the effects of shareholder governance mechanisms on bondholders and document two new findings. First, the impact of shareholder control (proxied by large institutional blockholders) on credit risk depends on takeover vulnerability. Shareholder control is associated with higher (lower) yields if the firm is exposed to (protected from)takeovers. In the presence of shareholder control, the difference in bond yields due to differences in takeover vulnerability can be as high as 66 basis points. Second, event risk covenants reduce the credit risk associated with strong shareholder governance. Therefore, without bond covenants, shareholder governance and bondholder interests diverge.A control device for varying the ratio of a hydrostatic transmission or torque converter in response to changes in the load and speed of the prime mover during the transmission. The device senses the load by sensing changes in the vacuum of the intake manifold and senses the speed by utilizing a gear pump driven by the prime mover with the output of the gear pump being modified to correspond to the power curve of the prime mover by either pressure relief means or use of a cam system. The sensed conditions of speed and load are utilized to provide a combined signal to operate a servo which makes adjustments in the ratio of the transmission. In several embodiments, the output of the combined signal is applied to a pilot spool of the servo device through a bar linkage which also is part of the throttle linkage so that changes in load and speed of the prime mover during operation will cause adjustments in the throttle setting.

Bank Debt and Corporate Governance

 The authors thank Yakov Amihud, Allen Berger, Andrew Metrick and Randall Morck for helpful discussions; and seminar participants at New York University and the Australasia Conference for Banking and Finance for comments. Abstract To transfer loans from one debtor to another debtor, banks might transmit borrower information which is collected in the lending process to potential acquirers. In this paper, we investigate the importance of banks in the effectiveness of the takeover mechanism and hence in corporate governance. Using unsolicited takeovers between 1992 and 2003, we find that bank lending intensity and bank client network (the number of firms that the bank deals with) have a significant and positive effect on the probability of a borrower firm becoming a target. We find that this effect is enhanced in cases where the target and acquirer have a relationship with the same bank and is robust to the inclusion of several firm characteristics including the presence of large external shareholders. Moreover, takeover completion rates are positively related to bank lending intensity. Finally, we find that the equity market views takeovers where the target and the acquirer deal with the same bank more positively relative to takeovers with no bank involvement. Overall, the evidence supports the view that banks increase the disciplining role of the market for corporate control.

The Good, the Bad and the Lucky: CEO Pay and Skill

CEO compensation varies widely, even within industries. In this paper, we investigate whether differences in skill explain these differences in CEO pay. Using the idea that skilled CEOs should be more likely to continue prior good performance and more likely to reverse prior poor performance, we develop a new methodology to detect whether skill is related to pay. We find that highly paid CEOs are more skilled than their less well paid peers when pay is performancebased and when there is a large shareholder. This detected link between pay and skill is strong even when we examine industry-wide declines: highly paid CEOs are more likely to reverse the firms fortunes. We also examine CEO turnovers and show that the firms post-turnover performance is related to differences between the two CEOs pay levels. These results highlight conditions where pay and skill are linked, and hence identify firms where high pay appears to have no justification.

Geographic Dispersion and Corporate Decision-Making

We document the role of geographic dispersion on corporate decision-making. First, we find that geographically dispersed firms are less employee-friendly. Second, using division-level data, employee dismissals are less common in divisions located close to corporate headquarters. Third, firms are reluctant to divest in-state divisions. To explain these findings we consider two mechanisms. First, we investigate whether proximity is related to internal information flows. We find that firms are geographically concentrated when information is more difficult to transfer over long distances (soft information industries). Additionally, the protection of proximate employees is stronger in such soft information industries. Second, we investigate how proximity to employees affects managerial alignment with shareholder objectives. We document that the protection of proximate employees only holds when headquarters is located in less-populated counties suggesting concern for proximate employees. Moreover, stock markets respond favorably to divestitures of close divisions, especially for these smaller-county firms. Our findings suggest that social factors work alongside informational considerations in making geographic dispersion an important factor in corporate decision-making.

Corporate Governance and Internal Organization

This paper investigates how corporate governance affects managerial incentives inside the firm. While the internal organization of a firm affects competition between lower level managers to become the CEO, performance-based CEO dismissal and replacement alters the incentives due to this competition. I show that optimal governance mechanisms that dismiss CEOs are more likely to be accompanied by an outside replacement and such governance mechanisms make managerial competition more productive. However, strong governance may also reduce managerial incentives to acquire skill to become the CEO. As lower level managers have a greater impact on firm performance and increase in number, strong governance is optimal.