Gaizka Ormazábal

Publications

• This paper examines the economic consequences associated with the board of director's choice of whether to adhere to proxy advisory firm policies in the design of stock option repricing programs. Proxy advisors provide research and voting recommendations to institutional investors on issues subject to a shareholder vote. Since many institutional investors follow the recommendations of proxy advisors in their voting, proxy advisor policies are an important consideration for corporate boards in the development of programs that require shareholder approval such as stock option repricing programs. Using a comprehensive sample of stock option repricings announced between 2004 and 2009, we find that repricing firms following the restrictive policies of proxy advisors exhibit statistically lower market reactions to the repricing, lower operating performance, and higher employee turnover. These results are consistent with the conclusion that proxy advisory firm recommendations regarding stock option repricings are not value increasing for shareholders.

• This paper examines the economic consequences of institutional investors outsourcing research and voting decisions in public company elections to proxy advisory firms. We investigate the implications of these decisions in the context of shareholder say-on-pay voting required in 2011 under the Dodd-Frank Act. We find three primary results: proxy advisory firm recommendations have a substantive impact on say-on-pay voting outcomes, a substantial number of firms change their compensation programs in the time period before formal shareholder votes in a manner consistent with the features known to be favored by proxy advisory firms in an effort to avoid negative voting recommendations, and the stock market reaction to these compensation program changes is statistically negative. These results suggest that outsourcing voting to proxy advisory firms appears to have the unintended economic consequence that boards of directors are induced to make choices that decrease shareholder value.

• Stock market reactions to news of cartel prosecutions are muted when indicted rms have a high proportion of independent directors on their boards. This nding is robust to self-selection and is pronounced when independent directors hold more outside directorships and fewer stock options | when those directors have fewer economic ties to indicted rms. Results are even stronger when independent directors' appointments were attributable to SOX, preceded their CEO's own appointment, or followed class action suits|when directors have fewer ties to indicted CEOs. Independent directors serving on indicted rms are penalized by losing board seats and vote support in otherfirms. Firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs. They are also more likely to dismiss scandal-laden CEOs after public in-dictments. Our results show that cartel prosecution imposes signicant personal costs onto independent directors and that they take actions to mitigate those costs. We argue that understanding these incentive-compatible dynamics is key in designing strategies for cartel detection and prosecution.

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