Working Papers
Marijuana Legalization and Firms' Cost of Equity, with Scott Guernsey and Cheng Yan.
After medical marijuana legalization (MML) by U.S. states, firms experience significant reductions in their cost of equity (COE), especially for those with more growth opportunities or a highly skilled workforce. This policy change also attracts inventors and highly skilled and educated workers to the legalizing states, leading to an increase in innovation productivity. Home prices and homeownership rates also rise after MML, reflecting increased local housing demand due to a growing labor supply. These findings align with theoretical models that link asset prices to labor markets and suggest that MML can lower firms' COE by mitigating labor search frictions.
Thirty Years of Change: The Evolution of Classified Boards, with Scott Guernsey, Feng Guo, and Tingting Liu.
Combining machine learning with manual inspection, we create a novel classified (staggered) board database covering all U.S. public firms from 1991 to 2020. Our analysis reveals significant differences in classified board usage over a firm's life cycle depending on the decade the firm matured or the year it went public. While classified boards were rarely removed in the 1990s, firms were more likely to declassify as they matured during the following decades. Decreased collective action costs and increased investments in innovation-related activities, institutional ownership, and scrutiny on governance appear to have contributed to this more dynamic adjustment.
This dataset contains the staggered board status for almost 14,000 firms (over 138,000 firm-year observations) beginning in 1991.
Unveiling the Role of Director-Specific Quality in Creating Firm Value, with Dipesh Bhattarai and Tracie Woidtke.
We create a new measure called director-specific quality (DSQ) that isolates director attributes that are transferable across firms and time and show that DSQ accounts for a significant fraction of the variation in firm value. Directors with higher DSQ also receive greater voter support, and investors respond more (less) favorably when they are appointed (die). Firms with higher board-level DSQ demonstrate improved decision making related to mergers and acquisitions, CEO compensation, innovation, and cash management. During the COVID-19 pandemic, they also experienced relatively higher stock returns. Our results suggest directors have unique value-relevant transferable attributes, and who firms hire matter.
Media Coverage
Do Individual Directors Matter?, November 17, 2022, Columbia Law School Blue Sky Blog.
Regional Clusters and Product Market Outcomes During Turbulent Times, with Sandy Klasa and Hernan Ortiz-Molina.
We examine whether location within a dense regional cluster of interconnected businesses affected firm performance during the Great Recession and the subsequent recovery. Firms in denser regional clusters experienced faster sales growth than their rivals in less dense clusters, especially firms operating in more competitive industries and those more able to reap agglomeration benefits. They also faced lower uncertainty, invested more in both physical capital and intangible capital, and maintained higher employment growth. Their greater resiliency and agility led to significant increases in their valuations. These results suggest that regional clusters provide competitive advantages during turbulent times.
