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This paper investigates whether improvements in the firm's internal corporate governance create value for shareholders. We analyze the market reaction to governance proposals that pass or fail by a small margin of votes in annual meetings. This provides a clean causal estimate that deals with the endogeneity of internal governance rules. We find that passing a proposal leads to significant positive abnormal returns. Adopting one governance proposal increases shareholder value by 2.8%. The market reaction is larger in firms with more antitakeover provisions, higher institutional ownership, and stronger investor activism for proposals sponsored by institutions. In addition, we find that acquisitions and capital expenditures decline and long-term performance improves.CORPORATE GOVERNANCE PROVISIONS grant managers independence to manage the firm. However, they also insulate managers from the monitoring and control of shareholders.1 Establishing empirically how these provisions affect shareholder value and what type of shareholder rights have greater effects is essential for our understanding of the internal governance of firms. In practice, it is generally difficult to find a setting in which a firm's governance structure changes exogenously. As a result, the existing literature has generally not been able to provide causal estimates of the effect of these corporate governance provisions.2 Furthermore, the range of results in the * Vicente Cuñat, London School of Economics; Mireia Gine, WRDS University of Pennsylvania and Public-Private Sector Research Center, IESE Business School; Maria Guadalupe, INSEAD, NBER, CEPR, and IZA. We are grateful to Ashwini Agrawal; Ann Bartel; Ken Chay; Jeff Coles; Jan Eeckhout; Ray Fisman; Laurie Hodrick; Denis Gromb; Raymond Lim; Marco Manacorda; Zacharias Sautner; David Yermack; and seminar participants at Brown University, Columbia Business School, the University of Edinburgh, Goethe University, LeBow College of Business Conference on Corporate Governance, the London School of Economics, University of Michigan, the New York University Paduano Seminar, and the University of Oregon for their helpful comments and suggestions. The usual disclaimer applies.1 See, for example, Shleifer and Vishny (1997), Becht, Bolton, andRöell (2005), Comment and Schwert (1995), Gompers, Ishii, and Metrick (2003), Bebchuck, Cohen, and Ferrell (2004), and Core, Guay, and Rusticus (2006. 2 Prior research shows that legislative changes that affect external governance measures, such as state-level antitakeover legislation, increase managerial slack and reduce performance (Garvey and Hanka (1999), Bertrand and Mullainathan (2003), Giroud and Mueller (2010)). Internal governance arrangements, the ones developed by the firm itself, have been the subject of much research, but the evidence provided in these papers is mixed and, most importantly, based on correlations rather than on causal estimates. 1943

This paper studies the effect of product market competition on the explicit compensation packages that firms offer to their CEOs, executives and workers. We use a large sample of both traded and non-traded UK firms and exploit a quasi-natural experiment associated to an increase in competition. The sudden appreciation of the pound in 1996 implied different changes in competition for sectors with different degrees of openness. Our difference in differences estimates show that a higher level of product market competition increases the performance pay sensitivity of compensation schemes, in particular for executives.JEL classification: J32, J33, M12, J41, J49

This paper studies the effect of changes in foreign competition on the incentives faced by U.S. managers in the form of wage structures, promotion profiles, and job turnover. We use a panel of executives and measure foreign competition as import penetration. Using tariffs and exchange rates as instrumental variables, we estimate the causal effect of globalization on the labor market outcomes of these workers. We find that higher foreign competition leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it raises the return to a promotion and increases pay inequality among the top executives of the firm, with CEOs typically experiencing wage increases while lower-ranking executives see their wages fall. Third, higher competition is associated with a higher probability of leaving the firm. Finally, we show that higher foreign competition also is associated with a higher demand for talent at the top of the firm. These results indicate that increased foreign competition can explain some of the recent trends in compensation structures.JEL codes: M52, L1, J31

This paper studies the interactions between financing constraints and the employment decisions of firms when both fixed-term and permanent employment contracts are available. We first develop a dynamic model that shows the effects of financing constraints and firing costs on employment decisions. Once calibrated, the model shows that financially constrained firms tend to use more intensely fixed term workers, and to make them absorb a larger fraction of the total employment volatility than financially unconstrained firms do. We test and confirm the predictions of the model on a unique panel data of Italian manufacturing firms with detailed information about the type of workers employed by the firms and about firm financing constraints.