The recent wave of corporate governance reforms has focused on transparency as a key requisite to provide investors with enough information to assess managers’ performance. Regulators also consider transparency effective for avoiding future frauds, like those of Enron or Tyco. But are there costs to transparency, beyond its clear benefits? How should firms and regulators balance such costs and benefits?
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A growing number of mergers and acquisitions (M&As) involves firms from different countries. In these international deals, the locations of the acquiring and target companies determine the extent to which their profits are double taxed. How important is the double taxation of corporate profits for choosing the location of the merged entity? Does the effect of taxation have any sizeable effect on national economies?
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Kellogg Professor Paola Sapienza answered readers' questions on the benefits of the Sarbanes-Oxley Act for shareholders and its compliance costs for listed companies, and on the role of independent directors in corporate governance.

After a wave of particularly destructive corporate scandals - such as the Enron and Arthur Andersen cases - the US Congress passed the Sarbanes-Oxley Act on July 25, 2002. The Act aimed at strengthening control over listed companies and their auditing firms. Has the Act increased stock prices and the operating profits of US firms? Has it affected some firms more than others?
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The huge increase in executive compensation during the last two decades is an issue which has not fully found a clear interpretation. Popular explanations rely on managerial entrenchment, changes in the nature of the executive job, or excessive use of incentive pay. On the other hand, explanations based on competitive and efficient markets are missing. Can a market-based approach account for the increase in executive pay?
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Firms repurchase their own stock when they want to distribute free cash flows, need to fund stock option plans, believe their shares are undervalued, or adjust the firm's capital structure. Although there are several ways to undertake a repurchase, open-market repurchases have become the most common method since the 1980s, dwarfing the magnitude of other methods. Why is this type of purchase so common?
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Raising external funds in capital markets can be costly. Standard valuation models neglect these financing costs and argue that cash balances can be used costlessly to redeem debt at any moment, so that shareholders only have to care about their firms’ net leverage. However, there is evidence that firms do face substantial costs when raising outside capital. How does this affect financial management policies? In other words, is cash simply negative debt?
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There are important macroeconomic consequences to the behavior of banks, and in particular to the amount of risk they take. For this reason, many countries regulate the banking sector and impose rules of prudential behavior. What are the main factors that determine the risk-taking behavior of banks? How important are institutional factors relative to the ownership structure and corporate governance of banks?
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It is often claimed by firms that "leasing preserves capital", i.e. it spares the company from spending its cash and exhausting its credit lines. However, this claim is not supported by financial theory. If the statement proves to be true, then leasing could be among the most important financial vehicles for firms in financial difficulties, and financial theory would have to account for this.
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Increasingly banks sell their loans to other banks and financial institutions. These secondary sales have been growing very fast for nearly two decades. However, banks have a strong incentive to sell their poorly performing loans, and this may undermine the market’s long-term growth. Is this indeed the case? Are banks able to overcome these problems? And what is the effect of loan sales on lending relationships and borrowers’ access to credit?
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