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RESEARCH PAPERS | CORPORATE GOVERNANCE


CEO Compensation

RELATIVE VERSUS ABSOLUTE PERFORMANCE EVALUATION AND CEO DECISION-MAKING
Karen H. Wruck, and YiLin Wu
2021
We provide new evidence on how performance-based compensation plans affect CEO decision-making, especially risk-taking. Our main finding is that relative performance evaluation (RPE) plans provide incentives for CEOs to make decisions that generate more idiosyncratic performance outcomes; absolute performance evaluation (APE) plans do not. After switches from APE to RPE, the correlation between firm stock return and industry index return falls and firm idiosyncratic risk increases. Further, switches to RPE are followed by larger deviations in financial, investment, and operating policies from industry norms (i.e., more idiosyncratic strategies). All results are opposite for switches to APE. >more


CEO Selection

CEO SELECTION AND EXECUTIVE APPEARANCE
Douglas O. Cook, and Shawn Mobbs
2019
We use a scientifically-based measure of executive facial attractiveness that is correlated with survey assessments, but not as noisy, and find a positive link between attractiveness and CEO selection. We find evidence that better interpersonal relationships is one mechanism through which CEO attractiveness is valuable. Attractive CEOs inform directors more effectively and are more quickly appointed as board chair. We also find that more attractive executives receive higher compensation relative to their peers and that attractiveness is more valuable when executives are otherwise more similarly skilled. Finally, more attractive executives are associated with higher abnormal stock returns around their CEO selection announcement. Overall, facial attractiveness is an important executive trait with significant labor market implications. >more


Compensation

CEO MARKETABILITY, EMPLOYMENT OPPORTUNITIES, AND COMPENSATION: EVIDENCE FROM COMPENSATION PEER CITATIONS
Daewoung Choi, David C. Cicero, and Shawn Mobbs
2021
Mandatory disclosure of CEO compensation peers signals potential outside opportunities for the cited CEOs by revealing which companies view them as viable executive candidates. CEOs cited often as compensation peers – especially by larger firms, which represent attractive employment opportunities – are more likely to leave for better positions or receive compensation increases. Equity-based awards following cites by larger firms have shorter vesting periods, suggesting these CEOs gain negotiating power relative to their boards. The disclosure requirement enhanced labor market transparency and led to higher compensation for highly cited CEOs without penalizing less cited CEOs, putting upward pressure on CEO compensation. >more


Board Diversity

DOES MANDATORY BOARD GENDER-BALANCING REDUCE FIRM VALUE?
B. Espen Eckbo, Knut Nygaard, and Karin S. Thorburn
2022
Mandated board gender-balancing is a social-policy instrument, which in principle is unrelated to concerns about firms' economic performance. Nonetheless, imposing such a policy may have unintended consequences (positive or negative) for firm value, which is important for all of the firm's constituencies - not only shareholders. In this paper, we highlight and extend our recent research on the economic effects of Norway's pioneering gender-quota law, which forced board gender balancing of all domestic public limited corporations by early 2008. This research subsumes and econometrically corrects controversial conclusions of extant studies. Most important, our research shows that quota-induced changes in market valuations and operating performance were both economically and statistically negligible. Furthermore, we show that corporate conversions to a legal form that prevents the firm from raising public equity capital---but does not require gender-balancing - were unrelated to the company's pre-quota female director shortfall. We also present new evidence that boards managed to preserve directors' large-firm CEO experience, without increasing director busyness. We conclude that the supply of qualified female director candidates was sufficiently large to avoid board concentration and negative economic effects of the quota restriction. >more


Director Appointments

WHY DO DIRECTORS JOIN POORLY PERFORMING FIRMS?
Ying Dou, and Emma Jincheng Zhang
2020
Prior research has suggested that sitting on the board of a poorly performing firm can be undesirable to directors. Yet, almost 60% of these firms are able to appoint new directors following director departures. Contrary to a quality matching explanation, we do not find that only poorly performing directors join these firms. Upon joining poorly performing firms, directors are more likely to fill the leadership positions, without necessarily receiving higher pay. These directors subsequently receive career benefits, especially those who are relatively junior in the pool. As such, the evidence is consistent with the leadership positions providing a certification effect. >more


Earnings Forecasts

CEO POLITICAL IDEOLOGY AND VOLUNTARY FORWARD-LOOKING DISCLOSURE
Ahmed Elnahas, Lei Gao, Md Noman Hossain, and Jeong-Bon Kim
2021
This study investigates whether and, if so, how the information disclosure preferences differ systematically between Republican CEOs and Democrat CEOs in the context of management earnings forecasts. We find that Republican CEOs tend to prefer a less asymmetric information environment than Democrat CEOs, and thus make more frequent, timelier, and more accurate disclosures than Democrat CEOs. Results using the propensity score matched sample and the difference-in-differences analysis show that our results are unlikely to be driven by potential endogeneity. Our results are robust to controlling for various CEO characteristics, including personal characteristics, compensation incentives, overconfidence, and managerial ability, and are stronger for firms with higher levels of institutional ownership and litigation risk. >more


COVID-19

CORPORATE HIRING UNDER COVID-19
Murillo Campello, Gaurav Kankanhalli, and Pradeep Muthukrishnan
2020
Big data on job vacancy postings reveal multiple dimensions of the impact of Covid-19 on corporate hiring. Firms disproportionately cut hiring for high-skill jobs (within-firm downskilling). Financially-constrained firms scaled back high-skill hiring most, as did firms with workforces more adaptable to "working-from-home." Applying machine learning to job-ad texts, we show that firms have skewed hiring towards operationally-core positions. New positions take longer to fill, displaying greater flexibility regarding schedules, tasks, and requirements. Financing constraints amplify pandemic-induced changes to the nature of positions firms seek to fill, with constrained firms' new hires witnessing larger adjustments to job roles and employment arrangements. >more


Startups

FLIGHT TO SAFETY: HOW ECONOMIC DOWNTURNS AFFECT TALENT FLOWS TO STARTUPS
Shai Bernstein, Richard Townsend, and Ting Xu
2021
Using proprietary data from AngelList Talent, we study how individuals' job search and application behavior changed during the COVID downturn. We find that job seekers shifted their searches toward more established firms and away from early-stage startups, even within the same individual over time. Simultaneously, they broadened their other search parameters. Relative to more established firms, early-stage startups experienced a decline in applications, primarily driven by higher-quality candidates. These declines hold within a firm as well as within a job posting over time. Our findings uncover a flight to safety channel in the labor market, which may amplify the pro-cyclical nature of entrepreneurial activities. >more


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