Research

Publications:

Abstract: We examine how sovereign wealth fund (SWF) investments affect target firms’ cost of debt. Using a large sample across 39 countries from 2004 to 2019, and applying a difference-in-differences (DiD) approach, we find that the loan spread of target firms decreases after equity investment by SWFs. This result holds when we use alternative specifications, and address endogeneity issues. Moreover, the negative effect is more pronounced for borrowing firms with higher risk. We also show that SWFs help reduce the cost of debt when they have a strong relationship with the lead banks.


Abstract: We use a difference-in-differences approach, and find that, on average, SWF investments are negatively related to target firms’ corporate governance. This impact  holds for small SWF cross-border equity investments only, and is stronger for firms that are weakly governed and for those located in jurisdictions with weak shareholder protection. The negative relation is more pronounced when SWFs’ home countries have lower-quality investor protection, corruption control, governmental effectiveness, and law enforcement than their host countries. We find further that SWF investments are positively associated with target firms’ earnings management, and negatively associated with investment efficiency. Finally, the target firm value is found to decrease after SWF investments. This study has important policy implications for investors, SWF managers, and policymakers. The passive role of SWFs in corporate governance should prompt minority shareholders to look for alternative monitoring mechanisms. Moreover, SWF managers may realize the need to target firms with strong corporate governance at the outset to compensate for the post-acquisition decline. Host country policymakers may need to condition SWF investments on commitments to improve the corporate governance of investee firms, which would be akin to the performance requirements imposed on inward FDI. This is particularly relevant for SWFs from countries with weak institutions that are targeting countries with strong institutions.


Working papers:


Abstract: We examine the impact of sovereign wealth fund (SWF) investments on the corporate social responsibility (CSR) practices of investee firms. Employing a difference-in-differences methodology, we find a significant increase in CSR following investments by SWFs. Our results are robust to various tests for endogeneity and alternative model specifications. Furthermore, we find that this effect is more pronounced for SWFs with lower levels of transparency, accountability, and higher levels of political motivations. Our findings provide support for the hypothesis that investee firms engage in CSR activities to counteract the negative image associated with SWF investments. This research highlights the importance of CSR as a means to mitigate the potential negative impacts of SWFs on investee firms.

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Abstract: I exploit the passage of state-level corporate opportunity waiver law as an exogenous decrease in contracting costs to examine how contracting flexibility with raising capital, building efficient investor bases, and securing optimal management arrangements affect capital structure. I show that firms’ financial leverage ratios are increased following the passage of the law, with this result being stronger for small firms that would benefit more from contracting flexibility. I also document that, following the passage of the law, small firms become less financially constrained, have lower costs of equity, and experience higher earnings persistency. Overall, these results have important implications for corporate fiduciaries, investors, and corporate lawmakers. 


Abstract: We examine the difference in CEO compensation between US and non-US CEOs. Using a large time-series data across 45 countries during the period 2001 to 2018, we find that the US CEOs, on average, are paid more by 22 percent than the non-US CEOs after controlling for firm size, ownership structure, board structure, CEO characteristics, and macroeconomic condition. This pay premium is primarily driven by the difference in CEO pay between the US and non-G7 developing countries. We investigate the pay difference under other scenarios and discuss possible explanations.


Abstract: Using 3,632 IPOs from 2000 to 2020, we find that the average IPO return over days with FOMC meetings and Fed Chair’s press conferences is 21 percent versus 13.5 percent for those on other days. The difference is statistically significant and not driven by outliers. In contrast, the IPO returns over days with FOMC meetings without press conferences are indifferent to those on other days. We find evidence that seems to support the systematic risk and investment sentiment hypothesis rather than the uncertainty resolution hypothesis.


     Abstract: This paper assesses whether corporate board reforms affect financial reporting worldwide. Using a sample across 40 countries, our difference-in-differences design shows that corporate board reforms decrease firms’ earnings management, with additional tests suggesting this relation is causal. In addition, the decrease in earnings management is associated with the intensity and major components of the reform. Further analyses show that the decrease in earnings management following board reforms is due to the mitigation of agency problems and information asymmetry. Our paper complements the literature by shedding light on one of the channels through which board reform can enhance firm value.


Abstract: With over ten percent of U.S. firms led by lawyer CEOs, our study delves into their unique advantages. Lawyer CEOs have the expertise to enhance firm value through effective tax management and earnings management while reducing legal risks. This advantage is especially valuable for firms with information disparities and weak monitoring. Our results hold in many robustness tests such as propensity-matched control samples and 2SLS analysis. In all, we reveal the rationale for appointing lawyer CEOs.