Findings

Corporate Accounts

Kevin Lewis

October 21, 2020

Shareholder Litigation and Corporate Innovation
Chen Lin, Sibo Liu & Gustavo Manso
Management Science, forthcoming

Abstract:

We investigate whether and to what extent shareholder litigation shapes corporate innovation by examining the staggered adoption of universal demand laws in 23 states from 1989 to 2005. These laws impose obstacles against shareholders filing derivative lawsuits, thereby significantly reducing managers’ litigation risk. Using a difference-in-differences design and a matched sample, we find that, following the passage of the laws, firms invested more in research and development, produced more patents in new technological classes and more patents based on new knowledge, generated more patents with significant impacts, and achieved higher patent value. Our findings suggest that the external pressure imposed by shareholder litigation discourages managers from engaging in explorative innovation activities.


Hidden in Plain Sight: The Role of Corporate Board of Directors in Public Charity Lobbying
Changhyun Ahn, Joel Houston & Sehoon Kim
University of Florida Working Paper, September 2020

Abstract:

Using IRS tax filings by public charities linked to lobbying disclosure and corporate board data, we show that charities with corporate directors on their boards spend more money on lobbying for the connected firms' industry interests. Firms with greater exposure to political risk and lobbying activities more often seek board connections with charities, and the effects of connections are stronger when charities are connected to such firms or when charities are constrained on funding. We rule out assortative matching between directors and charities by controlling for firm-charity pair fixed effects, and address concerns of reverse causality using director turnovers as shocks to firm-charity connections. Consistent with quid-pro-quo relationships between firms and charities, we find that connected firms benefit from increased procurement contracts, and that connected charities receive more grants and donations. Our results highlight executive charitable engagement as a hidden avenue for corporate political activities.


How Do CEOs Make Strategy?
Mu-Jeung Yang et al.
NBER Working Paper, October 2020

Abstract:

We explore the critical question of how executives make strategic decisions. Utilizing a new survey of 262 CEO alumni of Harvard Business School, we gather evidence on four aspects of each executive’s business strategy: its overall structure, its formalization, its development, and its implementation. We report three key results. First, different CEOs use markedly different processes to make strategic decisions; some follow highly formalized, rigorous, and deliberate processes, while others rely heavily on instinct and intuition. Second, more structured strategy processes are associated with larger firm size and faster employment growth. Third, using a regression discontinuity centered around a change in the curriculum of Harvard Business School’s required strategy course, we trace differences in strategic decision making back to differences in managerial education.


Being Extraordinary: How CEOs’ Uncommon Names Explain Strategic Distinctiveness
Yungu Kang, David Zhu & Yan Anthea Zhang
Strategic Management Journal, forthcoming

Abstract:

We build upon recent theories and studies about relational self to explain how a CEO’s uncommon name may be related to a firm’s strategic distinctiveness. Our theory explains why CEOs with uncommon names tend to develop a conception of being different from peers and accordingly pursue strategies that deviate from industry norms. We further suggest that the positive relationship between CEO name uncommonness and strategic distinctiveness is strengthened by the CEO’s confidence, power, and environmental munificence. Using name commonness data from the U.S. Social Security Administration and financial data of 1,172 public firms over a 19‐year period, we find support for our theoretical predictions.


Out of Character: CEO Political Ideology, Peer Influence, and Adoption of CSR Executive Position by Fortune 500 Firms
Abhinav Gupta, Anna Fung & Chad Murphy
Strategic Management Journal, forthcoming

Abstract:

We consider the link between firms’ decisions to adopt a CSR executive position and the political ideology of prior adopter CEOs. We theorize that firms are more likely to adopt a CSR executive position when it has been previously adopted by conservative‐leaning CEOs at other firms, as opposed to liberal‐leaning CEOs. This effect is due, we argue, to the increased perceptual salience and situational attributions associated with ideologically incongruent actions (i.e., actions that appear inconsistent with known political values). We further posit that these effects are stronger when the observing firms experience increased salience of CSR issues due to shareholder pressure and institutional equivalence between the referent and the observing firms. We find support for these ideas in a longitudinal sample of Fortune 500 companies.


Winning a deal in private equity: Do educational ties matter?
Florian Fuchs et al.
Journal of Corporate Finance, forthcoming

Abstract:

In this paper, we investigate the role of educational ties in private equity. Although we cannot observe all the funds that bid for a target company, we construct the set of potential bidders based upon their size and investment cycle, as well as the location and sector of their target companies. By gathering detailed educational histories of fund partners and CEOs of target firms, we find a significantly higher incidence of educational ties in completed deals than exists among the set of potential bidders. We argue that educational ties between fund managers and CEOs of target companies play a (positive) role in sourcing deals and winning competitive transactions. The alma maters of CEOs and private equity partners are notably concentrated among the top universities, and we find that exclusivity of educational ties is important. However, we find no evidence that such educational ties produce higher returns for investors.


Corporate media connections and merger outcomes
Miran Hossain & David Javakhadze
Journal of Corporate Finance, forthcoming

Abstract:

We examine the relation between acquirer social ties with the media and merger outcomes. We find that, consistent with the media management hypothesis, media connectedness is associated with the higher bid announcement return, lower takeover premium, poorer post-merger operating performance, greater likelihood of deal closure, and greater acquisitiveness. The association between media connections and merger announcement returns is more pronounced for stock deals. Examining the underlying channel, we show that the media networks are positively related to acquirers' media coverage and sentiment of the news articles during the pre-bid announcement period. Our findings are robust to alternative variable measurement as well as tests for endogeneity.


Are CEOs incentivized to shelter good information?
Hongrui Feng & Yuecheng Jia
Financial Review, forthcoming

Abstract:

Prior theoretical studies on the agency problem hold different opinions from the empirical literature on two questions: (a) Are CEOs incentivized to shelter good information? (b) Are CEOs incentivized to evenly shelter good and bad information? This paper demonstrates that CEOs with high pay‐performance incentives tend to successfully shelter good information rather than bad information. Furthermore, CEOs with high pay‐performance incentives shelter good information by using real earnings management and textual manipulation but not accrual‐based earnings management. These asymmetric information manipulation behaviors help to decrease corporate cash flow volatility as well as the jump and crash risk on the stock market.


Human Capital-Driven Acquisition: Evidence from the Inevitable Disclosure Doctrine
Deqiu Chen, Huasheng Gao & Yujing Ma
Management Science, forthcoming

Abstract:

We present evidence that the desire to gain human capital is an important motive for corporate acquisitions. Our tests exploit the staggered recognition of the Inevitable Disclosure Doctrine (IDD) by U.S. state courts, which prevents employees with trade secret knowledge from working for other firms. We find a significant increase in the likelihood of being acquired for firms headquartered in states that recognize such a doctrine relative to firms headquartered in states that do not. Our result is stronger for firms with greater human capital and for firms whose employees have better ex ante employment mobility. We show that the IDD is positively associated with the retention of target firms’ key technicians, employees, and top executives after an acquisition. We also show that the IDD is positively associated with synergy creation, acquirers’ announcement returns, and acquirers’ long-run stock and operating performance. Overall, our result indicates that corporate acquisitions can be used as a means for firms to overcome labor market frictions and gain access to valuable human capital.


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