Published and Accepted Papers

CEO Turnover and Director Reputation
with Jonas Romer and Markus Schmid
Journal of Financial Economics,  forthcoming
Swiss Finance Institute Working Paper No. 23-87
European Corporate Governance Institute – Finance Working Paper No. 942/2023

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.

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 the 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 the 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. 

Working Papers

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

R&R Journal of Accounting and Economics
Semifinalist Best Paper Award in Corporate Finance  Financial Management Association 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 and Financial Regulation, Barron's, USA Today, Los Angeles Times,  Deutschlandfunk Nova (in German)

Competition and the Reputational Costs of Litigation
with Vesa Pursiainen and Markus Schmid

R&R Journal of Financial and Quantitative Analysis

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.

On the program of:
German Finance Association (DGF) Meeting 2022, Western Finance Association (WFA) Meeting 2022, Swiss Finance Association (SGF) Meeting 2022, Paris December 2021 Finance Meeting (EUROFIDAI-ESSEC), Boca Corporate Finance and Governance Conference 2021, Corporate Finance Day (Erasmus) 2021, Financial Management Association (FMA) Meeting 2021, CEPR Endless Summer Conference 2021, European Association for Research in Industrial Economics (EARIE) Meeting 2021, International Young Finance Scholars Conference 2021, China International Conference in Finance (CICF) 2021, SFI Research Days 2021, Workshop on Corporate Governance and Investment (WCGI) 2021

Coverage:
Promarket.org

The Long-term Effects of Inflation on Inflation Expectations
with Fabio Braggion, Nic Schaub, and Michael Weber
NBER Working Paper No. 32160
University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-101

Abstract:
We study the long-term effects of inflation surges on inflation expectations. German households living in areas with higher local inflation during the hyperinflation of the 1920s expect higher inflation today, after partialling out determinants of historical inflation and current inflation expectations . Our evidence points towards transmission of inflation experiences from parents to children and 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.

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

Coverage:
Becker Friedman Institute Research Brief, VoxEU, SUERF policy brief, Bloomberg, Het Financieele Dagblad (in Dutch)

Permanent Working Papers

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