PUBLISHED AND ACCEPTED PAPERS
Relative Performance Evaluation and Strategic Competition (with Toni M. Whited and Ran Guo)
Accepted at Review of Financial Studies
Abstract: We examine how relative performance evaluation (RPE) affects industry competition—a question relevant for corporate boards interested in incentivizing executives. Using U.S. airline data, we estimate a dynamic game of competition between heterogeneous firms in an oligopolistic market, with managers incentivized by RPE contracts. While RPE can induce a firm to compete more intensely by smoothing compensation, it also amplifies a firm’s cost efficiency relative to its peers and can weaken competition from inefficient firms. The first effect dominates in small markets and the second in median-sized markets. RPE has little effect in large, highly profitable markets.
Conferences: EFA 2019, CICF 2022
WORKING PAPERS
R&R at Review of Financial Studies
Abstract: Why do so few women become CEOs? To understand this glass ceiling, we estimate a dynamic model of the CEO gender decision, which contains perceived gender productivity differences, search costs reflecting limited female labor supply, and employer disutility from discrimination. The key factor is the shortage of suitable female candidates, as boards prefer hiring women, and productivity differences between genders are minimal. We find no evidence of a glass cliff in which women become CEOs just as firms are failing. While better governance is associated with women becoming CEOs, the importance of limited female labor supply is unrelated to governance.
Conferences: EFA 2023, ESSFM Gerzensee 2023
Featured by: Harvard Law School Forum on Corporate Governance
Abstract: We claim that Compustat firms are run by outsider CEOs only 8.4% of the time largely because boards have a subjective preference for promoting insiders. We estimate a dynamic model of a board’s CEO hiring choices to confront the subjective preference channel to other forces against external appointments. Search costs, transition costs, and lower productivity are reasons for infrequent external hiring, but their combined effects are smaller than the board’s preferences alone. Without such bias, we predict a 49% frequency of outsider control. Younger boards are the most biased towards internal promotions, suggesting that career concerns shape directors’ hiring preferences.
Conferences: FIRS 2024, Aarhus Workshop on Strategic Interaction in Corporate Finance 2024
Abstract: Payroll rigidity incentivizes firms to use financial leverage to absorb shocks. I quantify the relative magnitudes of the underlying economic forces by estimating a dynamic model in which investment, employment, and financing decisions are determined endogenously as a result of exogenous labor market frictions. In the model, firms reduce leverage after negative productivity shocks because they cannot cut payroll. After positive productivity shocks, firms avoid hiring in anticipation of payroll rigidity, allowing them to increase leverage. I validate the model with a difference-in-differences analysis that exploits state changes in Social Security legislation as an exogenous shock to payroll rigidity.