Corporate Service
An Economic View of Corporate Social Impact
Hunt Allcott et al.
NBER Working Paper, October 2023
Abstract:
The growing discussions of impact investing and stakeholder capitalism have increased interest in measuring companies' social impact. We conceptualize corporate social impact as the welfare loss that would be caused by a firm's exit. To illustrate, we quantify the social impacts of 74 firms in 12 industries using a new survey measuring consumer and worker substitution patterns combined with models of product and labor markets. We find that consumer surplus is the primary component of social impact (dwarfing profits, worker surplus, and externalities), suggesting that consumer impacts deserve more attention from impact investors. Existing ESG and social impact ratings are essentially unrelated to our economically grounded measures.
CEO Political Ideology and Voluntary Forward-Looking Disclosure
Ahmed Elnahas et al.
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
This study investigates whether the management earnings forecasts of Republican and Democratic CEOs differ due to systematic differences in their information disclosure preferences. We find that Republican CEOs 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 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 and are stronger for firms with higher levels of institutional ownership and litigation risk.
The impact of TCJA on CEO compensation
LeAnn Luna, Kathleen Schuchard & Danielle Stanley
Journal of Accounting and Public Policy, forthcoming
Abstract:
The 2017 Tax Cuts and Jobs Act (TCJA) expanded the impact of IRC Section 162(m) by disallowing a tax deduction for any compensation over $1 million paid to top executives. Under prior law, qualified performance-based compensation was exempt from the $1 million limit. Using OLS regressions, we examine whether TCJA affected CEO compensation immediately after enactment. We find evidence that CEO salaries, non-equity incentive pay, stock awards and total compensation are all higher after TCJA. While the law change increases the after-tax cost of compensation for the average firm, our results show that TCJA did not constrain CEO compensation. However, relative to the average effect, in cross-sectional analyses, we find some evidence that compensation was lower for strong CEOs post TCJA. We also find some evidence that CEOs at firms with high leverage and net deferred tax assets, including tax net operating losses, saw a decrease in various types of incentive compensation post TCJA.
Market Reaction to CEOs’ Dynamic Hemifacial Asymmetry of Expressions
Rajiv Banker et al.
Management Science, forthcoming
Abstract:
Neuropsychological studies propose that listeners unconsciously assess speakers’ trustworthiness via their facial expressions. Building on this theory, we investigate how investors respond to CEOs’ dynamic hemifacial asymmetry of expressions (HFAsy) shown in CNBC’s video interviews about corporate earnings. Consistent with the neuropsychological prediction that facial asymmetry induces distrust, we document that (1) the stock market reacts negatively to the CEO’s HFAsy shown in the interview video, and (2) the market reaction to favorable earnings news is negatively associated with the CEO’s HFAsy. We also find a significantly positive association between the short-window abnormal bid-ask spreads and HFAsy, suggesting a larger investor disagreement for firms with high-HFAsy CEOs. Furthermore, we show that analyst forecast revisions are negatively associated with CEOs’ HFAsy. Our results are robust to conducting a falsification test using the previous quarter as a pseudo-event, employing an alternative measure of HFAsy, and using more granular trading data at the second level. Overall, our study provides evidence that investor trust and trading behavior are affected by the dynamic hemifacial asymmetry of expressions appearing on CEOs’ faces.
The market for general counsel
Dhruv Chand Aggarwal
Journal of Empirical Legal Studies, forthcoming
Abstract:
This paper presents the first systematic descriptive study of the market for general counsel (GCs) in publicly traded US companies. Using a hand-collected dataset, I track the backgrounds and careers of 3409 GCs, and establish basic facts about the hiring, firing, demographics, and politics of inhouse counsel. Most GCs are outsiders to their companies, not having previously worked in subordinate positions within the legal department or served as external counsel. I find that the share of women GCs has risen sharply over time, with GCs now about five times as likely to be female as chief executive officers (CEOs). GCs have also become more Democratic-leaning over time, in sharp contrast to business-side employees such as CEOs. GC tenures have decreased significantly over time. Outsider GCs are especially likely to be fired from their positions, controlling for biographical details, firm financials, and alleged misconduct by their employer.
Common Venture Capital Investors and Startup Growth
Ofer Eldar & Jillian Grennan
Review of Financial Studies, forthcoming
Abstract:
We exploit the staggered introduction of liability waivers when investors hold stakes in conflicting business opportunities as a shock to venture capital (VC) investment and director networks. After the law changes, we find increases in within-industry VC investment and common directors serving on startup boards. Despite the potential for rent extraction, same-industry startups inside VC portfolios benefit by raising more capital, failing less, and exiting more successfully. VC directors serving on other startup boards are the primary mechanism associated with positive outcomes, consistent with common VC investment facilitating informational exchanges in VC portfolios.
Ownership Concentration and Firm Value: New Evidence from Owner Stakes in IPOs
Borja Larrain et al.
Management Science, forthcoming
Abstract:
We study the relationship between ownership concentration and firm value using hand-collected data on the stakes of owner–managers before and after initial public offerings (IPOs). We instrument for the reduction in stake using market returns shortly before IPOs. Short-run market returns are plausible instruments because owners engage in market timing by selling more when prior returns are high, but high short-run returns are unlikely to directly affect firm value years after the IPO. As predicted by agency theory, a large reduction in ownership concentration at the IPO is negatively related to valuation. Future asset growth is low when owners have low stakes.
Convergent Evolution Toward the Joint-Stock Company
David Le Bris, William Goetzmann & Sébastien Pouget
NBER Working Paper, November 2023
Abstract:
The origin of the modern publicly-held joint-stock company is typically traced to large-scale maritime trading companies in England and the Netherlands in the early 17th century. Highlighting medieval cases in southern Europe, we claim that the joint-stock company likely emerged in several times and places, in response to a similar set of needs and requirements for coordinating large-scale enterprises. These prior appearances support the theory of convergent evolution toward the joint-stock company. We document the different legal genealogies of the various paths, their independence and their socio-economic contexts. These observations have implications for identifying the necessary legal and political background underlying the emergence of the joint-stock company, and for the debate regarding the link between institutions and economic development.