This dissertation comprises two papers on corporate governance: (1) A number of recent studies have suggested that firms alter the properties of their financial reporting to reduce information asymmetries and improve contracting outcomes. In particular, a significant recent literature has examined the relationship between conditional conservatism, the tendency for firms to recognize losses on a more timely basis than gains, and posited demands for such conservatism arising from contracting needs or information asymmetries. However, this literature has not identified a plausible set of mechanisms through which firms can commit to greater conditional conservatism. This paper fills this gap by suggesting a role for corporate governance mechanisms related to the financial reporting process. Focusing on the setting of debt contracting with financial covenants, I develop a model that yields predictions regarding relations between underlying firm characteristics, contracting outcomes, such as the tightness of debt covenants, and choices regarding corporate governance mechanisms related to the financial reporting. Using a large data set related to private debt contracting in the United States, I find evidence consistent with the predictions of my model. (2) Proxy advisory and corporate governance rating firms (such as Riskmetrics' ISS) play an increasingly important role in U.S. public markets. They rank the quality of firm corporate governance, advise shareholders how to vote and sometimes press for governance changes. We examine whether these commercially available corporate governance rankings provide useful information for shareholders. Our results suggest that they do not. Commercial ratings do not predict governance-related outcomes with the precision necessary to support the bold claims made for them. Moreover, we find little or no relation between the governance ratings provided by RiskMetrics with either their voting recommendations or the actual votes by shareholders on proxy proposals. We argue that the lack of association between corporate governance ratings and firm outcomes is expected even if the ratings reliably capture important dimensions of firms' corporate governance choices.
展开▼
