Research
Publications
Shareholder Litigation and Corporate Social Responsibility (Journal of Financial and Quantitative Analysis (forthcoming)
Steven Freund, Nam H. Nguyen, and Hieu V. Phan
Abstract
This research examines the relation between shareholder litigation and corporate social responsibility (CSR). Exploiting exogenous changes in shareholder litigation rights following the staggered adoption of universal demand laws by U.S. states and the Ninth Circuit Court of Appeals' ruling on securities class action lawsuits, we show that weaker shareholder litigation rights lead to lower CSR scores. Moreover, the relation is stronger for firms facing higher litigation risk, and a decreased CSR score enhances firm value. Our evidence suggests that firms engage in CSR activities partly to reduce shareholder litigation risk ex ante and mitigate its consequences ex post.
Download: http://ssrn.com/abstract=3889645
CEO Tournament Incentives and Corporate Debt Contracting (Journal of Corporate Finance (forthcoming)
Chinmoy Ghosh, Di Huang, Nam H. Nguyen, and Hieu V. Phan
Abstract
This study examines the relation between CEO tournament incentives, proxied by the difference between CEO pay and the median pay of the senior executives of a given firm, and corporate debt contracting. We find negative relations between CEO pay gap and the cost of debt and default risk, and a positive relation between CEO pay gap and debt maturity. Further analysis indicates that the results are stronger for firms with near-retirement CEOs, which are more likely to run CEO tournaments. Our evidence suggests that creditors view tournament incentives favorably and are willing to provide better debt terms.
Download: http://ssrn.com/abstract=4269563
Employment Protection and Share Repurchases: Evidence from Wrongful Discharge Laws (Journal of Corporate Finance, 69(2021), 102036)
Viet A. Dang, Amedeo De Cesari, and Hieu V. Phan
Abstract
We use the staggered adoption of Wrongful Discharge Laws (WDLs) by U.S. state courts as a quasi-natural experiment to examine the causal impact of firing costs and employment protection on corporate payouts. We find that the greater employment protection imposed by WDLs leads to higher share repurchases, and that this finding is more pronounced among firms with greater financial resources and better governance. Our results support the argument that as higher firing costs enhance employee entrenchment and encourage rent extraction behavior, firms have an incentive to increase share buybacks to mitigate a wealth transfer from shareholders to employees.
Download: http://ssrn.com/abstract=3188011
CEO Inside Debt and Internal Capital Market Efficiency (Journal of Corporate Finance, 68(2021), 101974)
Steven Freund, Hien T. Nguyen, Hieu V. Phan, and Hien T. Tang
Abstract
Agency theory argues that managerial equity-based incentives are more effective when firm solvency is likely while debt-based incentives are more effective when firms face a greater likelihood of bankruptcy. We examine the relation between chief executive officers’ (CEOs’) inside debt holdings and the internal capital market allocation of multi-segment firms. We find that CEO inside debt holdings are associated with conservative capital allocation to firm segments, with the result driven by financially distressed firms. Further analysis indicates that although CEO inside debt, on average, is negatively related to firm value, the relation is positive for financially distressed firms. Our evidence indicates that inside debt holdings align the interests of managers and external creditors, inducing managers to pursue conservative capital allocation strategies that appear to be optimal for firms facing insolvency.
Download: https://authors.elsevier.com/a/1d1XT_L832IDJ-
Political Corruption and Mergers and Acquisitions (Journal of Corporate Finance, 65(2020), 101765)
Nam Nguyen, Hieu V. Phan, and Thuy Simpson
Abstract
This research examines the relation between political corruption and mergers and acquisitions (M&As). We find that local corruption increases firm acquisitiveness but decreases firm targetiveness. The levels of corruption in acquirer areas relate positively to the bid premiums and negatively to the likelihood of deal completion. Corruption motivates acquiring firms to use excess cash for payment, which mitigates the negative effect of corruption on acquirer shareholder value. The evidence indicates that acquisitions help acquiring firms convert cash into hard-to-extract assets and relocate assets from the high to low corruption areas, thereby shielding their liquid assets from expropriation by local officials.
Download: http://ssrn.com/abstract=3185775
Carbon Risk and Corporate Capital Structure (Journal of Corporate Finance, 64(2020), 101713)
Justin Nguyen and Hieu V. Phan
Abstract
This research exploits Australia’s ratification of the Kyoto Protocol, which mandates the country to reduce carbon emissions, thereby exposing Australian firms to increased carbon risk, as a quasi-natural experiment to examine the causal effect of carbon risk on firm capital structure. We find that the Kyoto Protocol ratification leads to a decrease in financial leverage of heavy carbon emitting firms and such a decrease is more pronounced for financially constrained firms. Further analysis indicates that increased carbon risk leads to higher financial distress risk, which motivates firms to decrease financial leverage.
Download: http://ssrn.com/abstract=3074035
The Influence of Economic Policy Uncertainty on Corporate Trade Credit and Firm Value (Journal of Corporate Finance, 64(2020), 101671)
Surendranath R. Jory, Hinh Khieu, Thanh Ngo, and Hieu V. Phan
Abstract
This research investigates the relationship between government economic policy uncertainty (EPU) and trade credit and its value implication for U.S. public firms. We find that firms curtail their receivables periods and face shorter payables periods from suppliers during high EPU. The impact of trade credit policy changes on firm value is nonlinear. Tightening trade credit during periods of high EPU increases shareholder value only to a certain point, beyond which it is value-destroying since overly reducing trade credit can lead to losing customers to competitors.
Download: http://ssrn.com/abstract=3621556
Shareholder Litigation Rights and Capital Structure Decisions (Journal of Corporate Finance, 62(2020), 101601)
Nam H. Nguyen, Hieu V. Phan, and Eunju Lee
Abstract
We exploit the staggered adoption of the universal demand (UD) laws across U.S. states, which impedes shareholder rights to initiate derivative lawsuits, as a quasi-natural experiment to examine the relation between shareholder litigation rights and firm capital structures. We find that weaker shareholder litigation rights due to the UD laws adoption lead to higher financial leverage, which enhances firm value. Furthermore, the positive relation between the UD laws adoption and financial leverage is more pronounced for firms exposed to higher shareholder litigation risk ex ante or financially constrained firms. Our evidence is consistent with lower shareholder litigation threats motivating firms to increase financial leverage.
Download: http://ssrn.com/abstract=3230102
Shareholder Litigation Rights and Corporate Cash Holdings: Evidence from Universal Demand Laws (Journal of Corporate Finance, 52(2018), 192-213)
Hien T. Nguyen, Hieu V. Phan, and Lingna Sun
Abstract
We exploit the staggered adoption of universal demand (UD) laws, which hinders shareholders’ rights to initiate derivative lawsuits, by 23 states in the United States from 1989-2005 as a quasi-natural experiment to examine the effects of shareholder litigation as a corporate governance mechanism on corporate cash holdings and its implication for shareholder value. We find that reduced derivative lawsuit risk following the passage of UD laws leads to lower level and higher value of cash. Further analysis indicates investment as a channel through which UD laws affect the level and value of cash. Our evidence highlights the dark side of shareholder litigation, which induces firms to pursue a conservative liquidity policy that hampers shareholder value.
Download: http://ssrn.com/abstract=3081681
Executive Compensation and Corporate Financing Policy: Evidence from CEO Inside Debt (Journal of Corporate Finance, 50 (2018), 484-504)
Steven Freund, Saira Latif, and Hieu V. Phan
Abstract
We examine the relation between chief executive officer (CEO) inside debt holdings and the firm’s choice between debt and equity financing when it accesses external capital markets. We find positive relations between CEO inside debt holdings and both the firm’s likelihood to issue debt and the proportion of debt of their total external financing. Additional analysis indicates that CEO inside debt is negatively related to the cost of debt and positively related to the stock price reaction around the public debt issue announcement. Our results are consistent with the argument that inside debt aligns managers’ and debtholders’ interests leading to favorable debt terms that motivate firms to raise debt to meet their capital needs.
Download: http://ssrn.com/abstract=3048523
Tournament-Based Incentives, Corporate Cash Holdings, and the Value of Cash (Journal of Financial and Quantitative Analysis, 52 (2017), 1519-1550)
Hieu V. Phan, Thuy Simpson, and Hang T. Nguyen
Abstract
This research examines the relationships between tournament-based incentives and corporate cash holdings and the value of cash. We find robust evidence that tournament-based incentives are positively related to cash holdings and the value of cash. Moreover, the effect of tournament-based incentives on the value of cash is stronger for financially constrained firms. Our evidence indicates that, as tournament-based incentives motivate riskier corporate policy choices that lead to not only larger expected shareholder value but also greater cash flow uncertainty, firms increase cash holdings to cushion potential liquidity shortfalls that may cause underinvestment.
Download: http://ssrn.com/abstract=2956003
Policy Uncertainty and Mergers and Acquisitions (Journal of Financial and Quantitative Analysis, 52 (2017), 613-644)
Nam H. Nguyen and Hieu V. Phan
Abstract
This research examines the relationship between policy uncertainty and mergers and acquisitions (M&As). We find that policy uncertainty is negatively related to firm acquisitiveness and positively related to the time it takes to complete M&A deals. In addition, policy uncertainty motivates acquirers to use stock for payment and to pay lower bid premiums. Acquirers, on average, create larger shareholder value from M&A deals undertaken during the periods of high policy uncertainty, which is attributable to their prudence as well as the wealth transfer from the financially constrained targets to acquirers.
Download: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2910565
Does Earnings Management Relieve the Negative Effects of Mandatory Pension Contributions (Financial Management, Spring 2017, 89-128)
Hieu V. Phan, Hinh Khieu, and Joseph Golec
Abstract
Mandatory pension contributions (MCs) are negative shocks to a firm's liquidity that can unfavorably impact its cost of capital, financing, and investment plans. We study whether firms faced with MCs use both non-cash (NEM) and cash generating earnings management (CEM) to partly offset their negative effects. Firms increase CEM, but not NEM when they experience MCs. We also find that earnings management associated with MCs does not substantially lower the weighted cost of capital, or boost external funding and investment. Our findings suggest that MC firms use CEM because it directly generates cash to fund MCs, whereas NEM does not.
Download: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2425339
CEO Inside Debt and Corporate Debt Maturity Structure (Journal of Banking and Finance, 70 (2016), 38-54)
Viet A. Dang and Hieu V. Phan
Abstract
This paper examines the relation between chief executive officer (CEO) inside debt holdings and corporate debt maturity. We provide robust evidence that inside debt has a positive effect on short-maturity debt and that this effect is concentrated in financially unconstrained firms that face lower refinancing risk. Our analysis further shows that CEO inside debt helps reduce the cost of debt financing. Overall, our results indicate that managerial holdings of inside debt facilitate access to external debt financing and reduce refinancing risk, thus incentivizing managers to use less costly shorter term debt.
Download: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2632849
Inside Debt and Mergers and Acquisitions (Journal of Financial and Quantitative Analysis, 49 (2014), 1365-1401)
Hieu V. Phan
Abstract
I empirically investigate the relation between CEO inside debt holdings and mergers and acquisitions (M&As) and find evidence consistent with the agency theory’s prediction of a negative relation between CEO inside debt holdings and corporate risk taking. Further analysis shows that CEO inside debt holdings are positively correlated with M&A announcement abnormal bond returns and long-term operating performance, but negatively correlated with M&A announcement abnormal stock returns. Finally, I find evidence that acquirers restructure the post-merger composition of CEO compensation that mirrors their capital structure in order to alleviate incentives for wealth transfer from shareholders to bondholders or vice versa.
Download: http://ssrn.com/abstract=2233943
Corporate Governance and Risk-Taking in Pension Plans: Evidence from Defined Benefit Asset Allocations (Journal of Financial and Quantitative Analysis, 48 (2013), 919-946)
Hieu V. Phan and Shantaram Hegde
Abstract:
Based on theoretical advice and empirical evidence suggesting that risk-taking in asset allocation enhances pension returns, we evaluate empirically whether good corporate governance leads to a larger allocation of pension assets to risky securities as compared to safe investments. Our findings suggest that firms with good external and internal corporate governance take more risk by investing heavily in equities and allocating a smaller share of the plan assets to cash, government debt, and insurance company accounts. The main underlying mechanisms appear to be higher investment returns and better pension funding status associated with higher equity and lower safe asset allocations.
Download: http://ssrn.com/abstract=2009943
Pension Contributions and Firm Performance: Evidence from Frozen Defined Benefit Plans (Financial Management, Summer 2013, 373-411)
Hieu V. Phan and Shantaram Hegde
Abstract
We study the impact of freezing defined benefit (DB) pension plans and replacing them with defined contribution (DC) plans on liquidity, financial leverage, investment, and market value of a sample of firms over 2001-2008. We find evidence that the pension freeze tends to attenuate the drain on corporate liquidity and relieve the pressure to borrow to pay for mandatory contributions (MCs) associated with underfunded DB plans. Although investors seem to favor the pension freeze as evidenced by the positive announcement abnormal stock returns, there is little reliable evidence that the freeze increases investment efficiency and long-term stock performance.
Download: http://ssrn.com/abstract=2009997
Other publications
Political Corruption and Corporate Risk-Taking (Journal of Business Ethics, forthcoming)
Hinh Khieu, Nam Nguyen, Hieu V. Phan, and Jon Fulkerson
Abstract
We use variation in corruption convictions across judicial districts in the United States to examine the relationship between political corruption and risk-taking of public firms. Firms headquartered in regions with high levels of political corruption have lower total risk and lower idiosyncratic risk on average. Further analysis shows that corruption tends to encourage firms to pursue risk-decreasing investments, lower the riskiness of their operations, and decrease asset liquidity. While managerial ownership is intended to align the interests of managers and shareholders, the presence of corruption appears to encourage undiversified managers to decrease risk-taking. Our evidence is consistent with agency theory and the asset-shielding argument that political corruption discourages managers from taking risks that expose firms to expropriation by politicians, resulting in suboptimal corporate policies.
Download: http://ssrn.com/abstract=4094855
CEO Personality Traits and Debt Contracting: Evidence from Pilot CEOs (International Review of Financial Analysis, forthcoming)
Steven Freund, Tunde Kovacs, Nam H. Nguyen, and Hieu V. Phan
Abstract
Using pilot certificates as a proxy for the personality trait of sensation seeking, which captures the desire for varied, novel, and complex personal sensations and experiences, we find that firms with pilot CEOs use longer-maturity debt financing even when it is more costly than shorter-term debt. Our findings are robust to controlling for potential endogenous matching between firms and CEOs. Our evidence indicates that CEOs with sensation-seeking personality traits prefer long-term debt financing to avoid the liquidity risk associated with short-term debt financing that may hamper other corporate activities motivated by their sensation seeking.
Download: https://ssrn.com/abstract=3690767
Government Economic Policy Uncertainty and Corporate Debt Contracting (International Review of Finance, 22 (2022), 169-199)
Dung. T. Tran and Hieu V. Phan
Abstract
We examine the relation between government economic policy uncertainty and debt contracting of U.S. firms. We find that policy uncertainty is associated with more stringent debt terms, such as shorter debt maturity, higher cost of debt, and more restrictive debt covenants, and these relations are concentrated in financially constrained firms. Further analysis indicates that the negative real effects of policy uncertainty documented in the literature is more pronounced for financially constrained firms. Overall, our evidence suggests that policy uncertainty dampens external financing and exacerbates firms’ financial constraints, leading to their investment delays.
Download: http://ssrn.com/abstract=3781257
Blockholder Exit Threats and Corporate Cash Holdings (Financial Review, 56 (2021), 821-843)
Lingna Sun, Hieu V. Phan, and Thuy Simpson
Abstract
We investigate the effects of blockholder exit threats, which increase with stock liquidity, on corporate cash holdings and the value of cash to shareholders. Exploiting decimalization as an exogenous shock to stock liquidity to identify the effects of blockholder exit threats, we find robust evidence that blockholder exit threats have a negative effect on corporate cash holdings and a positive effect on the value of cash to shareholders. Further analysis indicates that exit threat induces firms to increase stock repurchases and improve investment efficiency. Our evidence is consistent with the view that blockholder exit threats are an effective corporate governance mechanism.
Download: http://ssrn.com/abstract=3862920
Tournament-Based Incentives and Mergers and Acquisitions (International Review of Financial Analysis, 71 (2020), 101048)
Nam H. Nguyen, Hieu V. Phan, Hung V. Phan, Dung T. Tran, and Hong X. Vo
Abstract
This research examines the relation between tournament-based incentives, which are proxied by the difference between a firm’s CEO pay and the median pay of the senior managers, and mergers and acquisitions (M&As). We find that tournament-based incentives are positively related to firm acquisitiveness and acquiring firms’ stock and operating performance. Further analysis indicates that positive acquisition performance increases the likelihood of the CEO being promoted from inside the acquiring firm. Our evidence is consistent with the view that tournament-based incentives motivate acquiring firms’ managers to make greater efforts and take more risk that result in superior acquisition performance.
Download: http://ssrn.com/abstract=3081663
Market-based Drivers of Cobranding Success (Journal of Business Research, 115(2020), 122-138)
Hang T. Nguyen, William T. Ross, Joseph Pancras, and Hieu V. Phan
Abstract
This research examines the total value impact of cobranding in new product introductions and how the value is distributed between partners. Analysis of 728 cobranded new products in the consumer electronics and packaged goods industries reveals that cobranding does not always create value for partnering firms. In most cases, any value created is distributed asymmetrically between partners. Consistent with resource dependence theory, we find that relative dependencies of partners’ market-based assets (MAs) significantly drive the variance in cobranding value creation and distribution. MA interdependence such as brand, channel, and capability complementarities leads to higher value creation and lesser value asymmetry. In contrast, MA imbalance in terms of brand, channel, and capabilities between partners results in lower value creation and greater value asymmetry. These effects are more pronounced under high market demand uncertainty and competition. The findings offer useful implications for firms looking to build a successful cobranding strategy.
Policy Uncertainty and Firm Cash Holdings (Journal of Business Research, 95(2019), 71-82)
Hieu V. Phan, Nam H. Nguyen, Hien T. Nguyen, and Shantaram Hegde
Abstract
This research examines the relations between government economic policy uncertainty and firm cash holdings and the value of cash. We find robust evidence that policy uncertainty is positively related to corporate cash holdings due to firms’ precautionary motives and investment delays. Policy uncertainty adversely affects the value of cash to shareholders of firms with high growth opportunities because it motivates these firms to hold cash for precautionary purpose while discouraging them from deploying cash for investment. In contrast, policy uncertainty has a positive effect on the value of cash to shareholders of firms with low growth opportunities because it enables these firms to exploit profitable acquisition opportunities while discouraging them from overinvesting in capital expenditures.
Working papers
Managerial Agency and Corporate Social Responsibility: Evidence from Shareholder-Creditor Mergers
Hien T. Nguyen, Hieu V. Phan, and Hong Vo
Abstract
We show that the presence of dual holders following the mergers between institutional shareholders and creditors of industry firms leads to a decrease in the firms’ corporate social responsibility (CSR) activities. The negative effect of dual holders on CSR activities is stronger for firms with weaker corporate governance and lower managerial ownership. Further analysis indicates that decreased CSR activities are associated with higher credit ratings and greater firm value. Our findings provide evidence that dual holders mitigate managerial agency-motivated CSR activities.
Uncertainty and Corporate Trade Credit Policy: Evidence from the COVID-19 Pandemic
Hinh Khieu, Thanh Ngo, and Hieu V. Phan
Abstract
We show that firms exposed to the COVID-19 pandemic demand payment from customers sooner but also face shorter payment periods themselves. Moreover, firms with lower financial flexibility experience a larger decrease in trade credit, and firms with lower operating flexibility adjust their trade credit downward more during the pandemic. Further investigation indicates that, on average, curtailing trade credit to customers decreases firm value during the health crisis. Overall, our evidence highlights the precautionary motive of firms’ trade credit policy induced by the world's largest health shock.
Download: https://ssrn.com/abstract=3909909
Corporate Social Responsibility and the Choice of Payment Method in Mergers and Acquisitions
Hang T. Nguyen, Hien T. Nguyen, Hieu V. Phan, and Hong Vo
Abstract
This study examines the relationship between corporate social responsibility (CSR) and the choice of payment method in mergers and acquisitions (M&As). We find that acquiring firms’ CSR is positively related to cash payments but negatively related to stock payments for acquisition deals, particularly for poorly governed acquiring firms. Further analysis indicates that cash payments are positively related to acquisition bid premiums and reduce the likelihood of bid failure, but this payment method negatively affects shareholder wealth of poorly governed acquiring firms with high CSR scores. Our evidence suggests that acquiring firms’ managerial agency–motivated CSR is a determinant of the method of payment in M&As.