Research

Working Papers

The Roles of Activists in Boardrooms: Advisors and Supervisors

Abstract: This paper studies the effects of activist directors on firm outcomes. Using a unique hand-collected data set of activist directors' committee appointments, I show that their impacts depend on whether they sit on advisory or monitoring committees. Shareholders benefit from the appointments of activist directors: the average abnormal return increases by 1.9% and 1.4% around the day of advisory and monitoring directors' appointments, respectively. By using close-call director election results in a regression discontinuity design, I provide causal evidence that activist hedge funds perform two distinct governance roles of advising and monitoring, with each role producing different outcomes. Upon being appointed to advisory committees, activist directors increase operating performance by enhancing profitability and internal capital allocation. They also increase corporate innovation, acquisitions, and divestitures to drive long-term growth. Upon their appointments to monitoring committees, activist directors curb agency problems by increasing shareholder payouts, divestitures, CEO turnover, and pay-performance sensitivity while decreasing acquisitions. My findings shed light on the roles of activists as advisors and supervisors.

The Aftermath of Settlements: Hedge Fund Activism and Corporate Risk-Taking

Abstract: Does an increase in activist settlements lead to an increase in corporate risk-taking? In this paper, I investigate the effects of activist directors on managerial discipline using board settlements and hand-collected golden leash agreements data. I find causal evidence against the claim that board settlements tilt the direction of management toward short-termism, leading to excessive risk-taking. I identify two mechanisms that explain the decrease in corporate risk-taking: increased board monitoring and change in ownership structure. Taken together, my findings show that activists decrease corporate risk-taking, causing improvements in long-term firm value.

Corporate Governance and Corporate Social Responsibility

Abstract: In this paper, I examine the effect of corporate governance on corporate social responsibility (CSR). Using exogenous variation in board independence, I provide causal evidence that improved corporate governance decreases CSR. My findings support the view that CSR is driven by agency problems. Managers overinvest in CSR since they want to build a good social citizen image at the expense of shareholders. Effective corporate governance decreases CSR since it reduces agency conflict.

Work In Progress

Investor Engagement Survey (with David K. Musto, Anne Tucker, and Sarah Relich)

Abstract: Within the corporate governance world, are there observable differences in the nature and mechanisms of shareholder engagement employed by active and index investors? In this paper, we use survey methodology to provide insights into the nature of shareholder engagement and its role in corporate governance and firm performance. The analysis of the survey responses of Corporate Secretaries, or functional equivalents, of US-incorporated public companies tests hypotheses regarding the difference between index and active investors in their exercise of governance over their portfolio companies, particularly regarding Environmental, Social and Governance (ESG) issues.