Publications:
"Did They Live Happily Ever After? The Fate of Restructured Firms Post Hedge Fund Activism" with Jongha Lim, The Financial Review, 57(4), 2022
This paper studies the long-term effect of hedge fund activism on distressed firms by tracing the post-emergence performance of firms that successfully resolved distress. We find that the firms restructured with hedge funds' intervention, compared to their counterparts that emerged without such intervention, are more likely to lose their public status, enjoy higher financial stability, and invest more. Notably, the gap in financial strength lasts at least three years after emergence. These findings suggest that the efficiency gains brought by hedge fund activism during the restructuring process tend to positively impact the restructured firms' financial soundness in the post-intervention period.
"Hedge Fund Activism, CEO Turnover and Compensation" with James Gong, Journal of Accounting and Public Policy, 39 (6), 2020
This paper examines the governance role of hedge fund activists by analyzing the impact of these activists on CEO turnover, CEO pay, and CEO pay-performance link in targeted companies. Using the difference-in-difference approach, we first find significantly higher CEO turnover following hedge fund activism. After we split target companies into the CEO-turnover and non-CEO-turnover sub-samples, we find that only new CEOs in targeted companies get more compensation following hedge fund activism while incumbent CEO pay does not significantly change. The relationship between CEO bonuses and return on assets following hedge fund activism also differs across the subsamples split by CEO turnover. Pay-performance relationship is enhanced by hedge fund activism for new CEOs, but not for incumbent CEOs. In additional analyses, we document that CEO turnover is positively associated with Tobin’s Q and shareholder votes on Say on Pay in target companies after hedge fund activism.
“Disclosure Tone of the Spin-off Prospectus and Insider Trading” Journal of Accounting and Public Policy, 39 (1), 2020
This paper documents a negative association between the abnormal tone (optimistic versus pessimistic) of the Management’s Discussion and Analysis in a spin-off prospectus and the insider trading pattern (buy versus sell) in the spun-off subsidiary within three months of the spin-off date. Additional tests show that the negative relation exists only for the transactions by insiders who have also been executives in the parent company before the spin-off. I find that the insider purchases result in substantial long-term excess returns, especially when they are accompanied by abnormally negative tone. Given that insiders are extensive net buyers of stock in new spin-offs, these findings suggest that managers may use more pessimistic tone in the prospectus to disguise the upside potential of the spun-off subsidiary to seize the opportunity to purchase shares at lower cost.
"Corporate Social Responsibility: An Umbrella or a Puddle on a Rainy Day? Evidence Surrounding Corporate Financial Misconduct" with John Bae and Jongha Lim, European Financial Management, 26 (1): 77-117, 2020
We examine the way a fraudulent firm’s pre- and post-misconduct CSR engagement is associated with its stock performance to investigate the reputational role of CSR. In the short-term, firms with good previous CSR performance suffer smaller market penalties upon the revelation of financial wrongdoings, supporting the buffer effect as opposed to the backfire effect of a good social image. In contrast, we find no evidence that the misbehaving firms’ post-misconduct CSR efforts offer any economic benefit. In summary, investments in CSR could be an effective means to help firms weather the corporate storm, but only when they are made ex-ante.
"How Do Investors React to Auditor Resignations?” with Vivek Mande and Myungsoo Son, International Journal of Accounting and Finance, 9 (2/3/4): 205-227, 2019
Many prior studies examining stock market reaction to auditor changes have focused on short windows surrounding their announcements. These studies have found mixed results on how investors process auditor change information. Expanding the test window, we document a downward market reaction that begins 60 days prior to auditor resignation announcements and continues for at least 30 days after the announcements. Our analyses using longer pre- and post-announcement windows provide a fuller picture of the stock market reaction to auditor change events. We also find that there is negative market reaction to reportable events disclosures in the Forms 8-K in the post-SOX years. This suggests that post-SOX, rather than simply assume that resignations are signals of bad news, investors find the specific reasons provided for the resignations to be incrementally useful.
Work-in-Progress:
Effects of Corporate Social Responsibility Performance on CEO Compensation and Turnover
Hedge Fund Activism, Earnings Management and CEO Turnover
Protecting Cybersecurity in the Era of Digital Transformation and Distributed Workforce: The Role of Management Control Systems