Competition and the Reputational Costs of Litigation (open access)
with Vesa Pursiainen and Markus Schmid
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
We study the role of competition in customers’ reactions to litigation against firms, using anonymized mobile phone location data. A class action lawsuit filing results in a 4% average reduction in customer visits to target firms’ outlets in the following months. The effect strongly depends on competition. Outlets facing more competition experience significantly larger negative effects. Closer competition matters more, both in terms of geographic and industry proximity. Announcement returns and quarterly accounting revenues around lawsuit filings also strongly depend on competition. Our results suggest that competition is an important component in customers’ ability to discipline firms for misbehavior.
Coverage:
Promarket.org
CEO Turnover and Director Reputation (open access)
with Jonas Romer and Markus Schmid
Journal of Financial Economics, 2025, 136, 103971
Swiss Finance Institute Working Paper No. 23-87
European Corporate Governance Institute – Finance Working Paper No. 942/2023
SSRN (paper including Online Appendix)
Abstract:
This paper analyzes the reputational effects of forced CEO turnovers on outside directors. We find that directors interlocked to a forced CEO turnover experience large and persistent increases in withheld votes at subsequent re-elections relative to non-turnover-interlocked directors. Directors are not penalized for an involvement in a turnover per se but for forced CEO turnovers that are related to governance failures by the board. Our results challenge the widespread view that forcing out a CEO can generally be understood as a sign of a well-functioning corporate governance.
Coverage:
Harvard Law School Forum on Corporate Governance
Inflation and Individual Investors' Behavior: Evidence from the German Hyperinflation (open access)
with Fabio Braggion and Nic Schaub
Review of Financial Studies, 2023, 36, 5012-5045
CEPR Discussion Paper DP15947
SSRN (paper including Online Appendix)
Best Paper Award Inquire Europe Spring Seminar 2023
Abstract:
We analyze how individual investors respond to inflation. We introduce a unique dataset containing information on local inflation and security portfolios of more than 2,000 clients of a German bank between 1920 and 1924, covering the German hyperinflation. We find that individual investors buy fewer (sell more) stocks when facing higher local inflation. This effect is more pronounced for less sophisticated investors. Moreover, we document a positive relation between local inflation and forgone returns following stock sales. Our findings are consistent with individual investors suffering from money illusion. Alternative explanations, such as consumption needs, are unlikely to drive our results.
Coverage:
VoxEU, WHU youtube summary
Industry Expert Directors
with Wolfgang Drobetz, David Oesch, and Markus Schmid
Journal of Banking and Finance, 2018, 92, 195-215
SSRN (ungated version including Online Appendix)
Abstract:
We analyze the valuation effect of board industry experience and channels through which industry experience of outside directors relates to firm value. Our analysis shows that firms with more experienced outside directors are valued at a premium compared to firms with less experienced outside directors. Additional analyses, including a quasi-experimental setting based on director deaths, mitigate endogeneity concerns. The association between having directors with more industry experience and higher firm value is more pronounced for firms with larger investment programs, larger cash reserves, and during crises. In contrast, it is weaker in more dynamic industries, i.e., industries that rank high in terms of sales growth, R&D expenditures, merger activities, competitive threat, and product market changes, where the value of previously acquired experience is likely to be diminished. Overall, our findings are consistent with board industry experience being a valuable corporate governance mechanism.
Is Director Industry Experience Valuable?
with David Oesch and Markus Schmid
Financial Management, 2016, 45, 207-237
SSRN (ungated version)
Abstract:
We investigate whether investor reactions to the announcement of a new outside director appointment significantly depend upon the director's experience in the appointing firm's industry. Our sample includes 688 outside director appointments to boards of S&P 500 companies from 2005 to 2010. We find significantly higher announcement returns upon appointments of experienced versus inexperienced directors. To alleviate endogeneity concerns, we use the deaths of 200 directors holding 280 outside directorships as an identification strategy and find significantly more negative announcement returns associated with the deaths of experienced versus inexperienced directors. However, while our results are robust to accounting for time‐fixed unobservable director and firm characteristics, we still cannot completely rule out endogenous firm‐director matching driving our results.
As California Goes, So Goes the Nation? Board Gender Quotas and Shareholders' Distaste of Government Interventions
with Alexandra Niessen-Ruenzi, Markus Schmid, and Steven Davidoff Solomon
European Corporate Governance Institute – Finance Working Paper No. 785/2021
Semifinalist Best Paper Award in Corporate Finance Financial Management Associate Meeting 2020
Abstract:
In 2018, California became the first U.S. state to adopt a mandatory board gender quota for all firms headquartered in the state. In 2022, it became the first U.S. state to invalidate a board gender quota. We document large negative abnormal returns to the adoption of the gender quota for California firms and large spillover effects to non-California firms. We show that director labor market frictions are not the main driver of these effects and propose a novel explanation: Shareholders’ distaste of stakeholder-friendly government interventions. Consistently, we find that more stakeholder-friendly firms, measured by their ESG scores or presence of SRI funds among their shareholder base, react more positively to the California gender quota. We also find that California and non-California firms with higher sensitivity to regulatory uncertainty react more negatively to the quota’s adoption, and more positively to its invalidation. For non-California firms, the effects are concentrated among firms in states that are likely to follow California’s legislative lead.
On the program of:
Corporate Finance Day (Erasmus) 2021, ECGI Global Corporate Governance Colloquia (Yale) 2021, American Finance Association Meeting (AFA) 2020, Financial Management Association (FMA) 2020, Paris Financial Management Conference (PFMC) 2019, American Law and Economics Association (ALEA) 2019
Coverage:
Harvard Law School Forum on Corporate Governance, Barron's, USA Today, Los Angeles Times, Deutschlandfunk Nova (in German)
The Long-term Effects of Inflation on Inflation Expectations
with Fabio Braggion, Nic Schaub, and Michael Weber
NBER Working Paper No. 32160
CEPR Discussion Paper No. 18936
University of Chicago Becker Friedman Institute for Economics Working Paper No. 2023-101
CESifo Working Paper No. 11679
Abstract:
We study the long-term effects of inflation surges on inflation expectations using Germany as a laboratory. Households living in areas with higher local inflation during the hyperinflation of the 1920s expect higher inflation today, even after controlling for known determinants of historical inflation and inflation expectations and despite facing similar inflation rates today. Our evidence points towards a vertical transmission of inflation experiences from parents to children and a horizontal transmission through collective memory. Differential historical inflation also modulates the updating of expectations to current inflation, the response to economic policies affecting inflation, and financial decisions. We obtain similar results for Polish households residing in formerly German areas. Overall, our findings are consistent with inflationary shocks having a long-lasting impact on attitudes towards inflation, which raises the costs of disinflationary policies by central banks.
On the program of:
Joint BoC-FRBNY-ECB-Conference on Expectations Surveys 2023, Georgia Tech – Atlanta Fed Household Finance Conference 2024, Swiss Finance Association (SGF) Meeting 2024, SFS Cavalcade North America 2024, Hyperinflation Financial History Conference, European Finance Association (EFA) Conference 2024, Central Bank Research Association (CEBRA) Conference 2024, Annual Bank of Canada Economic Conference 2024, 14th ifo Conference on Macroeconomics and Survey Data, CEPR Paris Symposium 2024, American Economic Association (AEA) Conference 2025
Coverage:
Colorado Sun, CNN, Bloomberg, Het Financieele Dagblad (in Dutch), Becker Friedman Institute Research Brief, VoxEU, SUERF policy brief
Insurers' Carbon Underwriting Policies
with Olimpia Carradori and Zacharias Sautner
Swiss Finance Institute Working Paper No. 25-58
European Corporate Governance Institute – Finance Working Paper No. 1071/2025
HKU Jockey Club Enterprise Sustainability Global Research Institute Paper No. 2025/094
Abstract:
We study the determinants, structure, implementation, and effects of carbon underwriting policies among the world’s largest insurers. Adoption is more common among European insurers and less so among specialty and unlisted firms, with coal policies preceding those for oil and gas. Using novel mine-insurance data, we show that implementation is often incomplete, and some insurers expand coal coverage despite commitments. On average, insurers reduce the number of insured mines by 16%, insured coal volumes by 56%, and make continued coverage 13pp less likely. Affected mines are more likely to be abandoned and experience constrained operations.
On the program of:
SFI Research Days 2025, St. Gallen Financial Economics Workshop 2025, NBER Climate Finance Conference 2025, Exeter Sustainable Finance Conference 2025, German Finance Association (DGF) 2025
Coverage:
Summary by UZH Initiative in Sustainable Finance, Insurance Post, Handelszeitung (in German), Mining Magazine, Insure Our Future, Insurance Asia
Peer Effects in Corporate Earnings Management
with Constantin Charles and Markus Schmid
Abstract:
We show that peer firms play an important role in shaping corporate earnings management decisions. To overcome identification issues in isolating peer effects, we use an instrumental variables strategy based on two plausibly exogenous events: fund flow-induced selling pressure by passive open-end equity mutual funds and treatment status in a regulatory experiment conducted by the Securities and Exchange Commission (Regulation SHO). Managers respond to these events by adjusting earnings management policies. We then measure focal firms’ reactions to instrumented changes in earnings management at their peer firms. The documented peer effect in earnings management is not only statistically, but also economically significant. We find that peer effects arise because of herding within peer groups as well as out of compensation concerns.
On the program of:
American Finance Association (AFA) Meeting Poster Session 2018, French Finance Association (AFFI) Meeting 2017, German Finance Association (DGF) Meeting 2017, European Financial Management Association (EFMA) Meeting 2018, Financial Management Association (FMA) (Europe) Meeting 2017, Paris December Finance Meeting 2017, Paris Financial Management Conference (PFMC) 2017, Swiss Finance Association (SGF) Meeting 2017
Coverage:
Columbia Law School's Blue Sky Blog