This study contains two chapters with respect to CEO compensation and CEO turnovers. Recent regulation of Sarbanes-Oxley Act (SOX) stresses the need for more financial experts on boards. Among other types of financial experts on the board, commercial bankers receive particular attention because of conflict of interest would be most severe compared to other types of independent board of directors (Jensen and Meckling, 1976; Krozner and Strahan, 2001). As regards, in the second chapter, we try to examine whether banker directors are working for the best interest of shareholders or not by examining the CEO compensation and CEO turnovers. Generally, we find that firms with banker directors are more likely to fire CEOs and decrease CEO equity compensation when firm performance is poor. In fact, such CEO dismissal decisions by banker-director-firms are perceived positively by the stock market. In the meantime, firms with more affiliated bankers on the board show stronger sensitiveness to firm's risk and act accordingly in terms of CEO dismissal and CEO compensation decisions. Moreover, I find no direct evidence that risk-averse decision on CEO dismissals by firms with banker directors create positive stock market response, supporting conflict of interest hypothesis. Consistent with prior research, bankers' appointment to the board in firms facing high credit risk or weak cash flow problems are welcomed by the stock market. In the third chapter, we examine whether CEO turnover decisions become more short-term oriented when stock market becomes more liquid. Previous research claim that better liquidity would improve market efficiency by better impounding the information about long-term projects, such as R&D investments, and make the CEO turnover more long-term oriented. Another strand of literature asserts that better liquidity would give transient institutional investors (Bushee, 1998) increased flexibility to unwind their position, creating more positive feed-back trading, and make the CEO dismissal more short-term oriented. Using data on CEO turnover of Execucomp firms from 1993 to 2009, we find that the implicit incentive of CEO dismissal is more (less) sensitive to the annual EPS being negative for the companies with high transient (dedicated) institutional ownership under better stock liquidity, which is proxied by either "after decimalization" of year 2001 or lower Amihud (2002) illiquidity measure. Moreover, after decimalization, firms that dismiss their CEOs under the pressure of transient institutions are more likely to reduce their R&D investments after the CEO dismissal. Our event study reveals that stock market investors see through and respond negatively to short-termism-driven CEO turnover.
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