This study examines the effect of unionization on US firms’ accruals‐based earnings management and future employee compensation expenses by employing a research design that overcomes the inherent endogeneity issue of the relationship between unionization and earnings management. First, by comparing firms that just pass unionization by a small number of votes to those that just barely lose elections, the regression discontinuity design estimations document significant downward accruals earnings management for firms that barely pass unionization, compared to those that barely fail to pass unionization. Second, the association between unionization and earnings management is only significant in US states without right‐to‐work legislation, where unions are more powerful. These findings are consistent with recently unionized firms’ incentives to report lower earnings in order to mitigate unions’ demands for greater employee compensation. Further, for firms that barely pass unionization, we find that: (1) unions cannot fully “undo” the effects of earnings management, that is, downward managed earnings depress future compensation expenses, and (2) firms cannot fully “undo” the effects of unionization, that is, compensation expenses increase after unionization despite the downward earnings management.

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This article presents a systematic review of the theoretical and empirical literature on option grants and managerial risk taking. One of the objectives is the motivation of further research on the topic. Risk-averse managers hold less diversified portfolios and, thus, tend to take less risk than optimal for shareholders. More option grants may encourage risk taking and result in higher firm value or alternatively increase the sensitivity of wealth to stock-price fluctuations mitigating overall risk-taking incentives. The net effect of options on risk-taking behavior is, therefore, ambiguous and calls for more empirical investigation. This is crucial for fiscal policymaking and regulation reforms. Yet, establishing a causal link between option granting and managerial risk taking has been challenging due to reverse causality, omitted correlated variables and measurement errors. In this review, we revisit the VegaDelta question by synthesizing the relevant research in economics, finance and accounting. We find that the empirical literature has successfully utilized natural experiments (e.g., regulation changes) to better establish causality, even though some mixed results are also documented. Finally, we also emphasize potential future research avenues especially relating to accounting disclosure, earnings management and tax policy.

This paper is the first (to our knowledge) to analytically model the optimal contracting for a member of the board of directors who holds multiple directorships. Prior literature has found conflicting evidence on the overall effect of multiple directorships on shareholder welfare: busy board members are usually detrimental to firm operating performance due to the limited time and effort they are able to devote to each board; however, multiple directorships can be beneficial to firms if the board members gain knowledge and expertise through their multiple appointments. The objective of our study is to expand the research on the effects of multiple directorships on shareholder welfare by modeling the relationship between optimal incentives (pay–performance sensitivity) and the number of directorships. Modeling within the Linear–Exponential–Normal framework, and solving using Subgame-Perfect Nash Equilibrium, we find that this relationship is positive when efforts across directorships are either substitutive or complementary, which highlights another potential significant downside to multiple directorships: companies need to offer high incentive-based pay to compete for directors’ efforts, leading to high-risk premia and welfare loss to shareholders. Our results may be of interest to policy makers considering setting limits on the number of board seats that may be held by directors at public companies, as well as shareholders considering appointing directors with multiple appointments.