Corporate Governance

Kevin Lewis

January 12, 2021

Media Partisanship and Fundamental Corporate Decisions
April Knill, Baixiao Liu & John McConnell
Journal of Financial and Quantitative Analysis, forthcoming


Using the introduction of Fox News as a natural experiment, we investigate whether partisanship in television news coverage influences fundamental corporate decisions. We find that, during the George W. Bush presidency, firms led by Republican-leaning managers headquartered in regions into which Fox was introduced shift upward their total investment expenditures and financial leverage. Our findings imply that in making fundamental corporate decisions, Republican-leaning managers are swayed by the Republican slant of Fox that presents an optimistic macroeconomic outlook. The results highlight the importance of heterogeneity in media slant in understanding the role of the media in corporate decision-making.

Evaluating Board Candidates: A Threat-Contingency Model of Shareholder Dissent Against Female Director Candidates
Arjun Mitra, Corinne Post & Steve Sauerwald
Organization Science, forthcoming


Given the growing corporate social responsibility (CSR) pressures to increase board gender diversity and the scrutiny afforded to firms that fail to appoint female directors, one may expect shareholders to vote with greater support for women (than for men) nominated to boards. However, diversity management research suggests that pressures to improve female representation in organizations and in leadership roles may also backfire. We propose a threat-contingency model of shareholder dissent against female director candidates to explain when shareholders will be more or less likely to dissent against female (relative to male) directors. Specifically, we advance CSR legitimacy threats and agency threats as conditions contextualizing shareholder dissent against female director candidates. Using a sample of 50,202 director elections at 1,104 public firms from 2003 to 2015, we find that female directors receive less dissent from shareholders; further, low female board representation intensifies this leniency as CSR legitimacy threats become more salient. However, when firm-related agency threats occur (e.g., firm underperformance and media controversies), shareholders' leniency toward female director candidates dissipates, and when directors themselves present agency threats (e.g., director attendance problems and nonindependence), shareholders evaluate female directors more harshly than male directors. Underlining the relevance of our theory, our supplementary analyses show that shareholder dissent increases the probability of director turnover. These findings contribute to theory and research on women on boards, firm responses to institutional pressures, and shareholder dissent.

Political Corruption and Corporate Payouts
Ashrafee Tanvir Hossain et al.
Journal of Banking & Finance, forthcoming


Firms headquartered in more corrupt US environments (states) provide higher payouts to their shareholders. Our results are robust to, for example propensity score matching, instrumental variable approach, headquarters relocations, quasi natural experiments using exogenous shocks, use of alternative measures of corruption and payouts, use of additional (possibly omitted) variables, and various alternative explanations based on additional channels and moderating factors. Our study finds that the use and marginal value of dividend payout as a shielding channel is affected by state-level corruption. Our study also adds geographic-based shielding as another important motivation for firms to make corporate payouts.

Analyst talent, information, and insider trading
Chongyu Dang et al.
Journal of Corporate Finance, forthcoming


We examine 1984-2018 data and show that the talent or ability of sell-side financial analysts affects a covered firm's information environment - more so than the simple number of analysts covering a firm. We find that while analysts in general produce market and industry-level information, high-ability analysts contribute more firm-specific information. Firms covered by high-ability analysts experience significantly less insider trading prior to positive earnings news. Results only reside in opportunistic (not routine) trades. When an analyst initiates (terminates) coverage we find decreased (increased) subsequent insider trading. Both changes are primarily driven by analyst talent. Analyst ability also negatively relates to insider trading profitability.

Activist-Appointed Directors
Jun-Koo Kang et al.
Journal of Financial and Quantitative Analysis, forthcoming


We examine the value impact of independent directors nominated by activists (Activist IDs). Firms appointing Activist IDs experience larger value increases than firms appointing other directors, particularly when Activist IDs have private firm experience and when their nominators remain as shareholders. This value increase persists over a long period and is greater than that of activism events without director appointments. The increase is also higher among firms with greater monitoring needs and entrenched boards. Moreover, the appointments of Activist IDs are greeted more positively by the market, and Activist IDs obtain more favorable shareholder votes and additional future directorships.

Are CEOs' purchases more profitable than they appear?
Christopher Armstrong, Terrence Blackburne & Phillip Quinn
Journal of Accounting and Economics, forthcoming


Little is known about why CEOs voluntarily purchase shares of their firm other than to earn direct profits. Since CEOs are risk-averse, undiversified, and face litigation costs from trading on private information, direct profits are unlikely to be the sole motive - especially since many purchases are ultimately unprofitable. We find that CEOs who have recently purchased shares are less likely to be terminated following poor performance and that this relation varies predictably with (i) their cost of purchasing shares, (ii) the profitability of their prior purchases, and (iii) their board's access to alternative sources of information about them. We find that some CEOs voluntarily purchase shares despite the cost of foregone diversification - and, sometimes outright unprofitability - to indirectly benefit by prolonging their tenure. Our estimates imply that the average abnormal returns that CEOs earn from their purchases increases from 3% to 58% after incorporating the indirect benefit of prolonged tenure.

Why Do Firms Disagree with Short Sellers? Managerial Myopia versus Private Information
Leonce Bargeron & Alice Bonaime
Journal of Financial and Quantitative Analysis, December 2020, Pages 2431-2465


Though short sellers on average succeed at identifying overvalued equity, firms often signal disagreement with short sellers by repurchasing stock when short interest increases. We investigate whether this disagreement reflects a myopic defense of inflated prices, or positive private information. These repurchases appear motivated by managers' private information, not agency issues, even when managerial benefits to short-termism are enhanced or monitoring is weaker. Managers' informational advantage relates to subsequent news, earnings, and risk, but is attenuated if activists target management or insiders sell. A trading strategy based on our findings earns 7.5% annually.

Reductions in CEO career horizons and corporate policies
Nihat Aktas et al.
Journal of Corporate Finance, forthcoming


We provide evidence on the effect of personal shocks that reduce a CEO's expected career horizon on corporate policies. The timing of these events is not predictable based on observable characteristics, and affected CEOs experience greater turnover rates and shorter residual time-in-office. Following the shock, these firms moderate both R&D and capital expenditures and increase cash distributions. While these changes are consistent with greater short-term orientation, they are not detrimental to shareholders, as performance increases after the shock. Earnings management and firm risk remain unchanged, while both CEO total compensation and equity-based compensation decline. Overall, our results indicates that the improved performance comes from the implementation of more efficient firm policies, likely driven by an internal tournament effect after the shock rather than from opportunistic behavior.

What is the effect of an additional dollar of IPO proceeds?
Michael Dambra, Matthew Gustafson & Kevin Pisciotta
Journal of Corporate Finance, forthcoming


We examine the effect of IPO proceeds on post-IPO liquidity and market monitoring. To do so we exploit variation in the amount of proceeds raised that is unrelated to firm size and manager decisions using an instrumental variable approach. We find that marginal increases in IPO proceeds lead to large increases in liquidity, analyst coverage, and institutional ownership in the first two years a firm is public. Increases in IPO proceeds also lead to more frequent follow-on offerings and longer survival as a public firm. We find evidence that immediate shocks to ownership dispersion represent one plausible channel through which changes in IPO proceeds affect long-run liquidity and market monitoring. Overall, our findings support the theoretical liquidity and market quality benefits associated with reductions in ownership concentration.


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