Empirical evidence on the relations between board independence and key board decisions, CEO incentives and firm performance is generally confounded by major endogeneity issues. We circumvent these endogeneity problems by demonstrating the strong impact of the local director labor market on corporate board structure for all but the largest quartile of S&P 1500 firms. Specifically, we show that proximity to larger pools of local director talent leads to significantly more independent boards. Using local director pools as an instrument for board independence in small and medium-sized firms, we reexamine the effects of board independence on firm value, operating performance and CEO incentives. Empirically, we document that board independence has a significant positive impact on firm value and operating performance, and increases CEO pay and turnover sensitivity to performance. JEL: G30, G34

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This paper conducts a cross-country empirical study of the impact of institutions and agency conflicts on ownership reforms and their implications for changes in performance and efficiency. We examine two main questions. First, we evaluate the effects of certain property rights and institutional quality measures on performance and efficiency. We find that property rights and contracting rights protections contribute to stronger post-privatization performance. Second, we ask whether sectors undergoing changes from state to private ownership exhibit better or worse performance than sectors remaining public. We find an insignificant effect of privatization in ordinary least squares estimates and a negative short-term effect after correcting for endogeneity of privatization decisions that disappears in the long run, consistent with recently privatized enterprises facing short-run costs of restructuring and the challenges of mitigating agency and expropriation concerns.