This paper demonstrates that the equilibrium impact of capital gains taxes reflects both the capitalization effect (i.e., capital gains taxes decrease demand) and the lock-in effect (i.e., capital gains taxes decrease supply). Depending on time periods and stock characteristics, either effect may dominate. Using the Taxpayer Relief Act of 1997 as our event, we find evidence supporting a dominant capitalization effect in the week following news that sharply increased the probability of a reduction in the capital gains tax rate and a dominant lock-in effect in the week after the rate reduction became effective. Copyright 2008 by The American Finance Association.

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Thus, our analysis focuses on the variations in CEO turnover-performance sensitivity. As mentioned above, family ownership and control can have two opposing effects on agency conflicts. On one hand, founding family members hold concentrated positions in the firm, have long investment horizons, and therefore care about firm value. This will lead to better monitoring of managers by family members and hence a higher likelihood of removing poorly performing CEOs compared to nonfamily firms. On the other hand, the founding family wields significant influence in the firm due to its concentrated ownership and active involvement. This gives rise to the potential for family members to pursue their own interests at the expense of other shareholders. Specifically, if family members serve as CEOs, they enjoy the associated monetary and nonmonetary benefits and might be reluctant to leave the CEO position even when the firm has performed poorly.Consequently, the two effects that originate from family ownership and control, better monitoring of CEOs and potential rent extraction by family owners, have opposite implications for CEO turnover-performance sensitivity depending on who serves as CEO in family firms. To test these implications, we separate family firms that are run by a member of the founding family, that is, family CEO firms, from those run by a hired professional CEO, that is, professional CEO family firms. In a family CEO firm, the founding family enjoys certain private benefits when a family member serves as the CEO. 3 Consequently, the founding family may choose to sacrifice firm value in order to keep these private benefits, leading to low CEO turnover-performance sensitivity. In a nonfamily firm, due to the separation of ownership and management, the incumbent CEO may resist being replaced after poor performance, also leading to low CEO turnover-performance sensitivity. In contrast, in a professional CEO family firm, the effective monitoring by the founding family leads to prompt replacement of poorly performing CEOs and hence high CEO turnover-performance sensitivity. Thus, we predict that CEO turnover-performance sensitivity is lower for both family CEO firms and nonfamily firms than for professional CEO family firms.Using data from 1,865 firms in the S&P 1500 Index over the period 1996-2005, we find that, as predicted, CEO turnover-performance sensitivity is lower for both family CEO firms and nonfamily firms than for professional CEO family firms. When annual stock returns decrease from the top 25th percentile to the bottom 25th percentile, the increase in the predicted CEO turnover probability is about zero for family CEO firms and 2.7 percentage points for nonfamily firms, but 6.7 percentage points for professional CEO family firms. A battery of sensitivity tests (such as the use of alternative performance measures, using forced turnovers, or excluding CEO turnovers where the departing CEO serves as the chairman of the board) leads to the same inferences.We then explore cross-sectional variation within f...

Recent theory suggests that firms incorporate synergistic interrelationships among executives into optimal incentive design (Edmans, Goldstein, and Zhu 2013). We focus on Pay Performance Sensitivities (PPS) and use dispersion in PPS across top executives as a proxy for the incentive design component shaped by an executive team's synergy profile. We model optimal PPS dispersion and use residuals from this model to measure deviations from optimal. We find that firm performance is increasing (decreasing) in the residual when PPS dispersion is too low (too high). We conjecture that deviations from optimal are sustained by adjustment costs, finding that firms only close around 60 percent of the gap between target and actual PPS dispersion over the subsequent year. Viewing a team's equity grants as a vector, we provide evidence that firms use subsequent equity grants to actively manage PPS dispersion toward optimality. Cross-sectional analysis reveals that the deleterious effect of deviations from optimal is decreasing in the duration of a team's tenure together, and increasing in the importance of effort coordination across team members for firm performance. JEL Classifications: M41.