This article examines whether firm-level idiosyncratic shocks propagate in production networks. We identify idiosyncratic shocks with the occurrence of natural disasters. We find that affected suppliers impose substantial output losses on their customers, especially when they produce specific inputs. These output losses translate into significant market value losses, and they spill over to other suppliers. Our point estimates are economically large, suggesting that input specificity is an important determinant of the propagation of idiosyncratic shocks in the economy. JEL Codes: L14, E23, E32.

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In many instances, "independently-minded" top-ranking executives can impose strong discipline on their CEO, even though they are formally under his authority. This paper argues that the use of such a disciplining mechanism is a key feature of good corporate governance.We provide robust empirical evidence consistent with the fact that firms with high internal governance are more efficiently run. We empirically label as "independent from the CEO" a top executive who joined the firm before the current CEO was appointed. In a very robust way, firms with a smaller fraction of independent executives exhibit (1) a lower level of profitability and (2) lower shareholder returns after large acquisitions. These results are unaffected when we control for traditional governance measures such as board independence or other well-studied shareholder-friendly provisions.

In the 'size of stakes' view quantitatively formalised in Gabaix and Landier (2008) Executive compensation remains very much at the center-stage of academic and policy debates. A relative lack of consensus seems to prevail regarding the origins of the large rise of executive compensation observed in the US since the 70s. According to some scholars (see e.g. Bebchuck and Fried (2004) for a summary of this view), rising compensation is due to a higher ability of CEOs to extract rents from shareholders, e.g. by capturing their board (Shivdasani and Yermack, 1999) or appointing compensation consultants that cater to their interests (Murphy and Sandino, 2010). Hermalin (2005) argues instead that the rise in CEO pay reflects tighter corporate governance: pay increases to compensate CEOs for the greater risk of being fired. Others argue that the very function of CEOs has changed over time: they are now more often poached from outside firms than before (Murphy and Zabojnik, 2004;Frydman, 2005); shareholders have become more convinced of the importance of financial incentives (Jensen et al., 2004). By contrast, Gabaix and Landier (2008, henceforth GL) argue that the bulk of variations in CEO compensation across time and across companies can be explained as the result of competitive market forces. They show that under fairly general assumptions, in a market,