Publications
"Corporate Governance and Managerial Risk-Taking" (with Kose John and Bernard Yeung) PDF, SSRN, Journal of Finance, 2008, Vol. 63-1679-1728. Managers skimming corporate resources avoid taking risky (yet value-enhancing) projects because perk consumption is a "senior" debt-like claim on the corporate cash flow. We develop and test this hypothesis, finding support for it in a large international panel.
"Large Investors, Price Manipulation, and Market Breakdown - An Anatomy of Market Corners," (with Franklin Allen and J.P. Mei) PDF, SSRN, Review of Finance, 2006, Vol. 63: 645-693. Large investors can impact market returns and liquidity through speculative trading. This paper builds up a model able to generate equilibria with market corners and then reviews historical evidence on the extreme situation of market corners, characterizing their liquidity effects and the circumstances under which corners occur.
"Earnings Persistence" (with Richard Frankel) PDF, SSRN, Journal of Accounting and Economics, 2009, Vol. 47: 182-190. Historic earnings variability has predictive power for the persistence of current earnings, however, it does not predict stock returns. (Invited Discussion)
"Can Mutual Fund Managers Pick Stocks? Evidence from Their Trades Prior to Earnings Announcements" (with Malcolm Baker, Jessica Wachter, and Jeffrey Wurgler) PDF, SSRN, Journal of Financial and Quantitative Analysis, 2010, Vol. 45: 1111-1131. This paper tests whether mutual fund managers' trades predict future earnings announcements returns. This approach gets around the usual "joint hypothesis" problem in mutual fund performance studies.
William F. Sharpe Award for scholarship in financial research published in Journal of Financial and Quantitative Analysis in 2010.
"Managerial Entrenchment and Capital Structure: New Evidence," (with Kose John) PDF, SSRN, Journal of Empirical Legal Studies, 2010, Vol. 7: 693-792. Corporate governance mechanisms designed to align managers and shareholders have a variety of important effects on financing decisions.
"Creditor Rights and Corporate Risk-Taking" (with Viral Acharya and Yakov Amihud) PDF, SSRN, Journal of Financial Economics, 2011, Vol. 63: 1679-1728. Strong creditors have the ability to reduce value-enhancing risk-taking.
"Corporate Strategy, Analyst Coverage, and the Uniqueness Paradox" (with Todd Zenger and Patrick Moreton) PDF, SSRN, Management Science, 2012, Vol. 58: 1-19. Unique corporate strategies generate economic rents. Such strategies are difficult to analyze. Paradoxically, firms that pursue such strategies are discounted in financial markets.
"Lawyers and Fools: Lawyer-Directors in Public Corporations," (with Simone M. Sepe and Charles K. Whitehead) PDF, SSRN, Georgetown Law Journal,2013, Vol. 102. The benefits of lawyer-directors in today's world significantly outweigh the costs. Beyond monitoring, they help manage litigation and regulation, as well as structure compensation to align CEO and shareholder interests. The results have been an average 9.5 percent increase in firm value and an almost doubling in the percentage of public companies with lawyer directors.
"Shared Auditors in Mergers and Acquisitions" (with Dan Dhaliwal, Phillip Lamoreaux, and Jordan Neyland) PDF, SSRN, Slides, Journal of Accounting and Economics, 2016, Vol. 61: 49-76. Shared auditors are frequently observed (in a quarter of all public acquisitions) and are associated with significantly lower deal premiums, lower target event returns, higher acquirer event returns, and higher deal completion rates. Moreover, targets are likelier to receive a bid from a firm that has the same auditor.
"Staggered Boards and Long-Term Firm Value, Revisited" (with K.J. Martijn Cremers and Simone M. Sepe) PDF SSRN, Slides, Journal of Financial Economics, 2017, Vol 126: 422-444. Firms that adopt a staggered board increase in firm value, while de-staggering is associated with a decrease in firm value. Short-term oriented shareholders may generate myopic incentives for the firm to underinvest in risky long-term projects. In this case, a staggered board may helpfully insulate the board from opportunistic shareholder pressure.
"Lead Independent Directors: Good Governance or Window Dressing" (with Phillip Lamoreaux and Landon Mauler) PDF, SSRN, Slides, Journal of Accounting Literature, 2019, Vol 43: 47-69. Lead independent directors are a novel governance mechanism that we find to add value to the firm through better alignment of executive incentives and likelier dismissal in case of underperformance.
“Actively Keeping Secrets from Creditors: Evidence from The Uniform Trade Secrets Act” (with Scott Guernsey and Kose John), PDF, SSRN, Journal of Financial and Quantitative Analysis, 2020. Better trade secret protection leads to greater active use of equity to manage corporate capital structure away from debt.
“Expert Advice in the Presence of Conflicts of Interest: The Case of Star-Crossed Acquisitions” (with Gil Aharoni, Bryan Lim, and Jordan Neyland) PDF, SSRN, Review of Accounting Studies, 2021. Star analysts' employed by investment bank advisors to acquirers lead to increased target premia and subsequent acquirer underperformance.
"The Rise of Dual-Class Stock IPOs" (with Dhruv Aggarwal, Ofer Eldar and Yael Hochberg) PDF, SSRN, Slides, Journal of Financial Economics, Dual-class stocks are a non-monolithic structure that varies by the kind of controllers. The recent increase in newly listed dual-class stocks can be partly explained by their increased bargaining power.
“Capitalizing Entrepreneurship: The Rise of Growth Equity” (with Gabriele Lattanzio, William Megginson, and Alina Munteanu) SSRN, Slides, Journal of Applied Corporate Finance. Growt Equity (GE) funds have a similar organizational and operational structure as VC and buyout funds, and their private-firm investments generally fall on the corporate finance spectrum between late-stage VC and buyout financing. We define growth equity as an investment in founding-family owned and managed companies with little or no prior institutional equity investment; a proven business model and substantial revenue growth; that are or soon will be profitable; with little or no firm-level debt; in which GE funds typically purchase minority equity stakes.
“The Effect of Policy Uncertainty on VC Investments Around the World” (with Romora Sitorus and Summer Liu) SSRN and Slides, forthcoming, Journal of Law, Finance, and Accounting. Policy uncertainty causes a decline in venture capital-funded new companies worldwide.
"Growth Equity" (with William Megginson), The Palgrave Encyclopedia of Private Equity, Springer Publishers SSRN.
“Poison Pills in the Shadow of the Law” (with K.J. Martijn Cremers, Simone M. Sepe, and Michal Zator) SSRN and Slides Journal of Financial and Quantitative Analysis. Shadow pills protect managers from opportunistic shareholders, helping them implement long-term value maximization strategies.
“Venture Capitalist Directors and Managerial Incentives” (with William Megginson, Romora Sitorus, and Summer Xia) SSRN and Slides, Journal of Corporate Finance. Listed companies directors with concurrent venture capitalist firm affiliation (i.e., VC directors) sitting on the compensation committee set stronger risk-taking incentives for incumbent CEOs, including setting more often growth (e.g., revenue) targets and away from stock price performance targets. VC directors are more likely to fire an underperforming CEO.
"Corruption and Cash Policy: Evidence from a Natural Experiment" (with Dhruv Aggarwal) SSRN and Slides. Journal of Law, Finance and Accounting. Following a Supreme Court decision restricting the definition of bribery under federal law, regulated firms in high-corruption states increased their cash ratios, presumably to make illicit payments to local politicians, in return for lower state government penalties and more significant state subsidies.
"Big Three (Dis)Engagements" (with Shiva Rajgopal and Dhruv Aggarwal) SSRN. Journal of Law and Economics. We find that asset managers’ choice of engagement targets is virtually unrelated to firm financial performance. Asset managers are less likely to vote against management at firms selected for engagement. Combined with qualitative evidence regarding the limited resources available to engagement personnel, these results cast doubt on the Big Three asset managers’ ability to be active owners.
Working Papers
“Technological Uniqueness and Competitive Advantage” (with Yang Fan, Mu-Jeung Yang, and Todd Zenger) SSRN and Slides. (Revise & Resubmit, Strategic Management Journal). Firms with unique technology patent portfolios face a paradox where uniqueness both helps and hurts - reducing beneficial knowledge spillovers and raising capital costs but protecting against imitation by competitors. We find that technological uniqueness generally improves firm performance, with uniqueness increasing sales growth by 2.4% and Tobin's Q by 8.4%, despite the downsides. The benefits appear strongest for high-growth firms that can leverage unique technologies at scale, while firms in spillover-heavy industries may benefit less.
"Military Experience and Political Cronyism" (with Dhruv Aggarwal) SSRN and Slides. Governors with military experience are less likely to engage in subsidizing politically connected firms at the end of their public service. (Reject & Resubmit, Review of Corporate Finance Studies.)
“New Stories from Old Data? Evidence from a Novel KLD Measure of Relative Environmental Responsibility" (with Gabriele Lattanzio) SSRN and Slides We develop a novel measure of corporate environmental responsibility that captures a multidimensional comparison of its environmental performance vis-a-vis its industry peers and show that this measure is better able to predict environmental pollution and that it positively and causally relates to firm valuation. (Revise & Resubmit, Journal of Accounting, Auditing, and Finance.)
“The CEO Compensation Sustainability Goals’ Disconnect: Evidence from the Oil & Gas Industry” (with Sudheer Chava, Runzu Wang, and Bing Xu) SSRN PDF and Slides Among Forture 250 firms, sustainability goals in CEO annual performance agreements are most common among oil & gas firms. Turning exclusively to the oil & gas industry, we show that those goals are costly regarding excess capital allocation yet benefit only extreme polluters.
"Racial Diversity and Inclusion Without Equity? Evidence from Executive Compensation " (with Eli Fich and Felipe Cabezon) SSRN Non-white executives (except for CEOs) have a different structure of pay, emphasizing less equity-based incentives, thus contributing to the ethnic pay gap in executive compensation.
“Monitoring Secretive Startups” (with Scott Guernsey and David Park) SSRN and Slides Venture capital-backed startups with greater trade secrecy are more frequently funded with lesser round amounts in an effort to closely monitor such startups.
"The Use of Escrow Contracts in Acquisition Agreements" (with Sandy Klasa and Sanjai Bhagat) SSRN and Slides. Escrow agreements are common mechanisms for acquiring private targets., aimed at mitigating transaction risks for both buyer and seller.
“Doing Well by Doing Good or Doing Good Because of Doing Well? The Case of Hospital Indigent Care Services” (with Sam Greco, Mei Li, and John Ni) Outpatient hospital units benefit from establishing indigent care clinics via increased utilization of Medicaid revenue, decreased losses in emergency department care, and increased operating room revenues. Therefore, offering such care is not only socially beneficial, but also a sound business decision.
"Seeking Alpha, Taking Risk: Evidence from Non-Executive Pay in U.S. Bank Holding Companies" (with Viral Acharya and Simone M. Sepe) PDF and Slides. Short-term risk-taking incentives offered to middle managers in banks lead to excessive risk-taking due to labor markets rewarding short-term performance.
"Do Investors Value Uniqueness in Corporate Strategy? Evidence from Mergers and Acquisitions" (with Todd Zenger) SSRN, and Slides. Paradoxically, acquirers who, as an outcome of their acquisitions become less similar to their rivals, receive a significantly negative announcement return, yet, perform better than their rivals in the long term. Moreover, these acquirers are able to purchase targets at a substantial discount, indicating support for the resource-based view of the firm.
"Do Firm Boundaries Affect Financing Policy? Evidence from Non-Financial Conglomerates with Financial Subsidiaries" SSRN and Slides. Non-financial conglomerates with financial subsidiaries have lower excess leverage, highlighting an important downside of internal capital markets.
"Financial Account Characteristics and Debt Covenants" (with Richard Frankel) SSRN We test whether accounting-based covenants are more likely when asymmetric timeliness is higher and accounting discretion is reduced. Overall, we find little association between the use of accounting-based covenants in lending agreements and three financial reporting characteristics.
“Common Ownership, Market Risk and the Implied Equity Cost of Capital” (with Kelly Ha and Gabriele Lattanzio) SSRN Common ownership causes an increase in the cost of equity capital and therefore reduces riskier capital allocation for commonly owned firms.