Corporate finance.

• Author: Vishny, Robert W.
• Position: National Bureau of Economic Research's Program on Corporate Finance

The NBER's Program on Corporate Finance, directed by Robert W. Vishny of NBER and University of Chicago, met in Cambridge on April 17 to discuss the following papers:

Marianne Bertrand and Sendhil Mullainathan, Harvard University, "Executive Compensation and Incentives: The Impact of Takeover Legislation"

Discussant: Kose John, New York University

Timothy Opler and Lee Pinkowitz, Ohio State University,; Rene Stulz, NBER and Ohio State University; Rohan Williamson, Georgetown University, "The Determinants and Implications of Corporate Cash Holdings"

Discussant: David S. Scharfstein, NBER and MIT

Owen Lamont, NBER and University of Chicago, "Investment Plans and Stock Returns" Discussant: Charles Himmelberg, Columbia University John Graham, Duke University, "How Big are the Tax Benefits of Debt?"

Discussant: Roger H. Gordon, NBER and University of Michigan

Bertrand and Mullainathan investigate the impact of changes in states' antitakeover legislation on executive compensation. They observe increases in both pay-for-performance sensitivities and average (or mean) pay for the firms affected by the legislation (relative to a control group). The increase in average pay may have been more than needed to maintain CEOs' individual rationality constraints, they find. However, the evidence shows that the increased pay-for-performance offsets some of the reduction in incentives caused by lower takeover threats.

Opler, Pinkowitz, Stulz, and Williamson examine the determinants and implications of holdings of cash and marketable securities by publicly traded U.S. firms in 1971-94. They find that firms have target levels of cash holdings. In particular, firms with strong growth opportunities and riskier cash flows hold relatively high ratios of cash to total assets. Firms that have the greatest access to the capital markets (for example, large firms and those with high credit ratings) tend to hold lower ratios of cash to assets. However, firms that do well allow their cash level to...