Directors and officers

Kevin Lewis

January 08, 2019

Second‐order effects of CEO characteristics: How rivals' perceptions of CEOs as submissive and provocative precipitate competitive attacks
Aaron Hill, Tessa Recendes & Jason Ridge
Strategic Management Journal, forthcoming


Integrating victimization into competitive dynamics and upper echelons theorizing, we develop and test theory articulating how rivals' perceptions of a CEO precipitate attacks on the CEO's firm. Rather than treating CEOs' characteristics solely as perpetrating action (a first‐order effect, like research integrating upper echelons into competitive dynamics), we argue firms with CEOs possessing characteristics perceived as more submissive or more provocative are subject to more competitive actions directed toward their firms (a second‐order effect, like victimization research). Empirical analyses of a sample of Fortune 500 CEOs supports our theorizing while interviews of executives corroborate our premise as well. Our framework offers a more complete and socialized understanding of CEOs' roles in competitive dynamics, providing both theoretical and practical insights as well as future research avenues.

How Close Are Close Shareholder Votes?
Laurent Bach & Daniel Metzger
Review of Financial Studies, forthcoming


We show that close votes on shareholder proposals are disproportionately more likely to be won by management than by shareholder activists. Using a sample of shareholder proposals from 2003 to 2016, we uncover a large and discontinuous drop in the density of voting results at the 50% threshold. We document similar patterns for say on pay votes and director elections. Our findings imply that shareholder influence through voting is limited by managerial opposition. It also follows that one cannot routinely use an RDD to identify the causal effects of changes in corporate governance generated by shareholder votes.

Selection versus Talent Effects on Firm Value
Briana Chang & Harrison Hong
Journal of Financial Economics, forthcoming


Measuring the value of labor-market hires for stock prices, be it underwriters when firms go public (IPOs) or chief executive officers (CEOs), is difficult due to selection. Opaque firms with higher costs of capital benefit more from prestigious underwriters, while productive firms benefit more from talented CEOs. Using assignment models, we show that the importance of talent (or agent heterogeneity) relative to selection (or firm heterogeneity) is measured by wage increases across agents of different compensation ranks divided by changes in output across their firms. The median of this ratio is 0.5% for underwriters and 2% for CEOs.

Are Energy Executives Rewarded For Luck?
Lucas Davis & Catherine Hausman
NBER Working Paper, December 2018


In an influential paper, Bertrand and Mullainathan (2001) show that energy executives are rewarded for high oil prices, which they term pay-for-luck. Almost twenty years later, performance-based pay as a portion of executive compensation has nearly doubled; total executive compensation has also nearly doubled; and new disclosure laws and tax rules have changed the regulatory landscape. In this paper, we examine whether their results and their interpretation continue to hold in this changing environment. We find that executive compensation at U.S. oil and gas companies is still closely tied to oil prices, indicating that executives continue to be rewarded for luck despite the increased availability of more sophisticated compensation mechanisms. This finding is robust to including time-varying controls for the firms' scale of operations, and it holds not only for total executive compensation but also for several of the separate individuals components of compensation, including bonuses. Moreover, we show there is less pay-for-luck in better-governed companies, and that pay-for-luck is asymmetric - rising with increasing oil prices more than it falls with decreasing oil prices. These patterns are more consistent with rent extraction by executives than with maximizing shareholder value.

The Power of Shareholder Votes: Evidence from Uncontested Director Elections
Reena Aggarwal, Sandeep Dahiya & Nagpurnanand Prabhala
Journal of Financial Economics, forthcoming


This paper asks whether dissent votes in uncontested director elections have consequences for directors. We show that contrary to popular belief based on prior studies, shareholder votes have power and result in negative consequences for directors. Directors facing dissent are more likely to depart boards, especially if they are not lead directors or chairs of important committees. Directors facing dissent who do not leave are moved to less prominent positions on boards. Finally, we find evidence that directors facing dissent face reduced opportunities in the market for directors. We also find that the effects of dissent votes go beyond those of proxy advisor recommendations.

Managing reputation: Evidence from biographies of corporate directors
Ian Gow, Aida Sijamic Wahid & Gwen Yu
Journal of Accounting and Economics, November-December 2018, Pages 448-469


We examine how directors’ reputations are managed through disclosure choices. We focus on disclosures in the director biographies filed with the SEC. We find that a directorship on another board is more likely to be undisclosed when the other firm experienced an adverse event - such as an accounting restatement, securities litigation, or bankruptcy - during the director's tenure. Withholding such information is associated with a more favorable stock price reaction to the director's appointment and the loss of fewer subsequent directorships. These findings suggest that reputation concerns lead to strategic disclosure choices that have real consequences in capital and labor markets.

Audit Process, Private Information, and Insider Trading
Salman Arif et al.
University of Pennsylvania Working Paper, July 2018


Corporate insiders are typically aware of audit findings prior to the general public. We examine whether corporate insiders exploit this information advantage, and trade based on private information about audit findings. We focus our analysis on insider trading around the audit report date. We find a pronounced spike in insider trading in a short window around the audit report date; that audit reports containing a modified opinion trigger intense insider selling; and that abnormal levels of insider trading disappear shortly before the report is publicly disclosed. Highlighting the non-public nature of the audit findings at the time of the audit report date, we find no evidence of a capital market reaction around this date. Collectively, our results suggest insiders at multiple firms exploit features of the audit process for personal gain.

A Growing Disparity in Earnings Disclosure Mechanisms: The Rise of Concurrently Released Earnings Announcements and 10-Ks
Salman Arif et al.
Journal of Accounting and Economics, forthcoming


We document a growing disparity in earnings disclosure mechanisms. Firms are increasingly disclosing earnings announcements (EA) concurrently with the 10-K filing instead of first issuing a ‘stand-alone’ EA. Firm adoption of concurrent EA/10-Ks is associated with lower investor sophistication, greater impediments to producing timely and reliable earnings information, and greater industry-level concurrent reporting. Concurrent EA/10-Ks differ from stand-alone EAs in that investors anticipate more information in the EA, disclosures are preempted by industry peer EAs, the market reaction is muted even when controlling for EA timing, and post-earnings-announcement drift is greater.

CEO overconfidence and the value of corporate cash holdings
Nihat Aktas, Christodoulos Louca & Dimitris Petmezas
Journal of Corporate Finance, February 2019, Pages 85-106


Cash holding is on average more valuable when firms are managed by overconfident CEOs. Economically, having an overconfident CEO on board is associated with an increase of $0.28 in the value of $1.00 cash holding. The positive effect of CEO overconfidence on the value of cash concentrates among firms that are more likely to suffer from the underinvestment problem (i.e., financially constrained firms which exhibit high growth opportunities). In addition, CEO overconfidence affects negatively the value of cash in firms that are financially unconstrained, a finding which is consistent with the overinvestment hypothesis. The results are robust to various tests and alternative explanations.

How do independent directors view powerful executive risk-taking incentives? A quasi-natural experiment
Viput Ongsakul & Pornsit Jiraporn
Finance Research Letters, forthcoming


We explore how independent directors view managerial risk-taking incentives using a natural experiment. We exploit the passage of the Sarbanes-Oxley Act as an exogenous shock that raised board independence. Our difference-in-difference estimates show that independent directors view powerful risk-taking incentives unfavorably. Our results are consistent with the notion that strong managerial risk-taking incentives lead to excessive risk-taking and, as a result, are reduced in the presence of more effective governance, i.e. stronger board independence. Further analysis confirms the results, including fixed- and random-effects analysis, propensity score matching, and using Oster's (2017) method to test coefficient stability.

Do Long-term Institutional Investors Promote Corporate Social Responsibility Activities?
Hyun-Dong Kim et al.
Journal of Banking & Finance, forthcoming


This paper examines how the investment horizons of a firm's institutional investors affect its corporate social responsibility (CSR) activities. Using data on U.S. firms’ CSR ratings over the 1995-2012 period, we find that longer investment horizons are positively related to CSR. Further, active long-term institutions increase CSR whereas passive long-term institutions have no significant effect. Our results suggest that investors with long-term horizons have more incentives to monitor their firms which leads managers to engage in more vigorous CSR activities.


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