Corporate Engagement
Corporate Culture Messaging and National Politics
Kateryna Holland & Esther Im
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
This study examines how changes in political leadership and rising U.S. polarization flow through societal culture to corporate culture. Using quasi-experimental methods, we find that executives adjust culture messaging in earnings calls on extensive and intensive margins across varying political contexts. These changes follow two pathways: under political alignment, executives emphasize their firm's culture, motivated by pride; and under political misalignment, executives reduce cultural messaging -- particularly innovation, quality, and respect -- due to lower perceived growth opportunities. Additional tests reveal these changes reflect strategic communication rather than fundamental cultural changes. Our findings highlight how cultural messaging varies with political context.
How Do Chief Executive Officers Make Strategy?
Mu-Jeung Yang et al.
Management Science, forthcoming
Abstract:
We survey 262 chief executive officer (CEO) alumni of Harvard Business School and gather evidence on three aspects of each executive's strategy practice: how formalized it is, how it is developed, and how it is implemented. We report three main results. First, firms with higher adoption of structured strategy practices outperform their peers; they grow faster and are more profitable, especially in industries with greater strategic complexity. Second, the appointment of CEOs with more structured styles appears to drive this outperformance, not firm-specific effects. This raises the question of how an executive comes to adopt more structured strategy practices. Our third finding provides a partial answer; business education can have a lasting impact on a CEO's strategy practices as evidenced by a regression discontinuity analysis centered around a curriculum change at Harvard Business School.
Share Repurchases and Investment Policies
Paul Brockman, Hye Seung (Grace) Lee & Jesus Salas
Financial Review, forthcoming
Abstract:
Our study examines the claim that share repurchases lead to reductions in real investments. Repurchase opponents argue that managers forego valuable investments to conduct opportunistic repurchases, while proponents argue that repurchases return excess cash to shareholders. We compare repurchasing firms' real investments in capital expenditures, R&D, and employment to public and private non-repurchasing firms -- holding constant their growth (i.e., investment) opportunity sets. Our results provide no support for the claim that repurchases lead to lower real investments. Consistent with these findings, we also show that financial analysts do not revise downward their capital expenditure forecasts following repurchases.
The Real Cost of Benchmarking
Christian Kontz & Sebastian Hanson
Stanford Working Paper, October 2025
Abstract:
Benchmark-linked capital flows increase firms' CAPM βs, thereby raising managers' perceived cost of equity and reducing investment. Using exogenous variation from Russell and S&P 500 reconstitutions, we show that inclusion in a benchmark stock index increases a stock's CAPM β. Managers interpret the higher β as a higher cost of equity and reduce investment. Consistent with this mechanism, benchmark inclusion also raises the perceived cost of equity among stock analysts and regulators. Industries with larger increases in βs due to benchmarking have accumulated less capital over the past two decades. Benchmark-induced changes in the cross-section of CAPM βs do not cancel out but affect aggregate investment because higher βs fall on many firms with high investment elasticities, while lower βs benefit a few large but inelastic firms. This mechanism can account for the majority of the missing investment puzzle.
Active Mutual Fund Common Owners' Returns and Proxy Voting Behavior
Ben Charoenwong, Zhenghui Ni & Qiaozhi Ye
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
Active equity mutual funds owning shares in product market competitors have higher risk-adjusted returns, even after fees. This positive association comes from their common ownership positions, and remains robust after controlling for industry concentration, common stock selection, and the tendency to invest in firms with more common ownership. These funds charge higher fees and are active voters: more likely to vote against executive pay-for-performance and for directors with existing directorships in competitors. Our findings suggest that actively managed equity mutual funds are incentivized to soften product market competition, and proxy voting may serve as a mechanism for influencing corporate policy.
To Interact or Not? On the Benefits of Interacting with Unfavorable Analysts During Earnings Calls
Jared Flake
Journal of Accounting Research, December 2025, Pages 2083-2135
Abstract:
Managers prioritize favorable analysts during earnings calls, reinforcing analysts' incentives for optimism. However, managers also frequently interact with unfavorable analysts, and this study examines the determinants and benefits of these interactions. I find that managers interact more with unfavorable analysts when compelled to do so. I then examine two likely benefits of these interactions. First, unfavorable analysts attenuate their negative views after interacting with managers. Second, price reactions to management forecasts are stronger for managers who regularly interact with unfavorable analysts, consistent with enhanced reporting credibility. Finally, using peer firm restatements as exogenous shocks to investors' perceptions of accounting quality, I find that nonrestating firms with managers who regularly interact with unfavorable analysts experience attenuated negative returns relative to other nonrestating peers. Overall, the empirical evidence indicates firms experience significant benefits when managers interact with unfavorable analysts and these benefits persist amongst compelled and voluntary interactions.
Do Busy Bees Still Make Honey? Examining the Impact of Non-CEO Executives' Outside Roles on Firm Performance
Md Raihan Uddin Chowdhury, Alex Holcomb & Feixue Xie
Financial Review, forthcoming
Abstract:
We examine how non-CEO executives (NCEs) serving on outside boards affect their focal firm performance. Firms with such NCEs exhibit lower return on asset (ROA) and profit margins than those without. These effects begin after board service starts, are not explained by busy boards or CEOs, and persist at least a year. The negative impact is monotonically increasing with the number of NCEs on external boards and the number of boards they join. Finally, we show that there may be some benefits to NCE board activity as the negative effects are mitigated somewhat when the NCEs sit on their own firm's board.
Insiders' information advantage: Evidence from competition with short sellers
Harold Contreras, Jana Fidrmuc & Roman Kozhan
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
We study the information content of corporate insiders' trades after earnings announcements. We find little evidence that insiders trade on foreknowledge of material information in the post-SOX period. Conditioning on short-selling activity as a proxy for demand of arbitrageurs who exploit short-term mispricing, we show that insiders profit from selling because of their ability to exploit short-term mispricing after earnings releases. In contrast before SOX, insiders do take advantage of foreknowledge of material information while selling. Insider purchases are based on foreknowledge of material information both before and after SOX, but they are rare and have small economic magnitude.
Shareholder litigation rights, CEO turnover, and board monitoring
Hue Hwa Au Yong, Blake Loriot & Yulia Merkoulova
Journal of Corporate Finance, November 2025
Abstract:
We investigate how shareholder litigation rights impact CEO turnover decisions and board oversight. We exploit an unexpected court ruling that increased hurdles for shareholders of Ninth Circuit firms to initiate securities class action lawsuits. After the ruling, the sensitivity of forced CEO turnover to performance decreases for firms in the Ninth Circuit. Additionally, board independence declines and directors of Ninth Circuit firms attend fewer meetings and hold more external board positions after the decision. These effects are exacerbated in firms that lack monitoring from institutional shareholders. For firms dependent on shareholder litigation, the reduction in litigation rights was economically significant and led to a 9.72% decline in firm value.
State-level political environments and executive compensation in the United States: Evidence on pay inequality
Jiyoung Park, Jiyoon Lee & Jessika Holtta
Economics of Governance, September 2025, Pages 439-467
Abstract:
We examine the association between the political environment and pay inequality among top executives as well as pay-performance sensitivity in CEO compensation. In the United States, the Republican and Democratic parties represent two major political ideologies with distinct priorities and conflicting interests. Republicans typically focus on individual liberties and free markets, while Democrats emphasize equality and social policies. Using state-level political ideology as a proxy for the political environment, we explore whether CEO pay slice -- defined as a CEO's compensation divided by the compensation offered to a firm's top five executives -- differ across ideological environment. Contrary to our expectations, the results do not show that CEO pay is higher in Republican-leaning states relative to Democratic-leaning states. Nor do we find stronger pay-performance sensitivity in Republican-leaning states. These results are robust to several alternative specifications, including the use of stock grants, the exclusion of swing-state firms, and the use of state-level policy orientation measure. Overall, our findings suggest no statistically significant association between the political environment and corporate executive compensation policies.