Officers and directors
Organizational Political Ideology and Corporate Openness to Social Activism
Abhinav Gupta & Forrest Briscoe
Administrative Science Quarterly, forthcoming
Abstract:
This paper argues that organizations tend to be more “open” or “closed” as a function of their members’ political ideologies and that this variation can help explain firms’ responses to social activism. Integrating research on social activism with political psychology, we propose that when firms experience activists’ protests, a liberal-leaning firm will be more likely to concede to activists’ demands than its conservative-leaning counterpart, because its decision makers will more readily accept the interconnectedness of the firm’s activities with the activists’ claims. Building on this core concept, we examine how factors that increase the salience of an organization’s ideology also amplify its effect on responses to protests. Based on a longitudinal sample of 558 protest events directed against Fortune 500 firms from 2001 to 2015, our results support the notion that liberal-leaning firms concede more to activism, an effect that exists after accounting for the ideological valence of the protest issues. When an organization’s members are more proximate to the corporate headquarters, this effect of its ideology is heightened. The same is true when the firm’s ideology is incongruent with that of its local community or its industry. These findings inform research on the organizational implications of political ideologies, as well as on social movements, institutional complexity, and non-market strategy.
CEO Traits and Firm Outcomes: Do Early Childhood Experiences Matter?
Todd Henderson & Irena Hutton
University of Chicago Working Paper, April 2019
Abstract:
This paper examines the impact of early childhood characteristics of top corporate decision makers on firm policies and value. Using a unique dataset, we study the effect of CEO birth order, family size, socioeconomic status, parent occupational choices and childhood trauma, all of which have been shown to affect personality development and social capital. Overall, we find that firstborn CEOs, CEOs from families with higher socioeconomic resources and those with less childhood trauma prefer safer investment and leverage policies, which also lead to lower firm value. Socioeconomic status dominates other childhood characteristics as a determinant of firm policies. Though our analyses indicate a moderate effect of birth order, it intensifies in CEO family owned firms where family dynamics facilitate expression of personal risk taking.
Married CEOs and corporate social responsibility
Shantaram Hegde & Dev Mishra
Journal of Corporate Finance, October 2019, Pages 226-246
Abstract:
Studies in social sciences suggest that a normative commitment to stable, biological married life is a potent catalyst for inculcating and nourishing prosocial values, preferences and behaviors among family members. Extrapolating from this literature, we investigate whether firms led by married chief executive officers (CEOs) are associated with better corporate social responsibility (CSR). Our analysis of 2163 U.S. public corporations from 1993 to 2008 shows that firms led by married CEOs are associated with significantly higher scores on a popular CSR index, after controlling for a wide range of firm characteristics and CEO attributes. Further, the observed positive relation is particularly sharper with the diversity and employee relations components of CSR. Our findings highlight CEO marital status as an important driver of socially responsible corporate decision making.
Board Ancestral Diversity and Firm-Performance Volatility
Mariassunta Giannetti & Mengxin Zhao
Journal of Financial and Quantitative Analysis, June 2019, Pages 1117-1155
Abstract:
We proxy for board members’ opinions and values using directors’ ancestral origins and show that diversity has costs and benefits, leading to high performance volatility. Consistent with the idea that diverse groups experiment more, firms with ancestrally diverse boards have more numerous and more cited patents. In addition, their strategies conform less to those of the industry peers. However, firms with greater ancestral diversity also have more board meetings and make less predictable decisions. These findings suggest that diversity may lead to inefficiencies in the decision-making process and conflicts in the boardroom.
CEO Extraversion and the Cost of Equity Capital
Biljana Adebambo et al.
University of San Diego Working Paper, March 2019
Abstract:
We examine whether CEO extraversion, an important personality trait associated with leadership, affects firms’ expected cost of equity capital. We measure CEO extraversion using CEOs’ speech patterns during the unscripted portion of conference calls. After controlling for several CEO and firm specific variables, we find a strong positive incremental association between CEO extraversion and firms’ expected cost of capital. In addition, we find that firms with relatively extraverted CEOs take more risk and enjoy higher organizational capital, each of which is associated with higher cost of equity capital. Firms with extraverted CEOs also exhibit lower valuations and lower equity issuance. These results are not driven by reverse causality, analyst optimism, or CEO entrenchment.
Does Target Geographical Complexity Impact Acquisition Performance
Imed Chkir, Shantanu Dutta & Boushra El Haj Hassan
Finance Research Letters, forthcoming
Abstract:
Using a sample of 738 U.S. M&A deals, we examine whether a target's geographical complexity affects acquisition performance. Our results show that target geographical complexity is associated with (i) lower acquirer abnormal returns, and (ii) higher acquisition premiums. These results imply that acquiring firms overestimate their synergistic gains associated with more geographically diversified targets and acquirer shareholders are less enthusiastic about such deals. Further, we find that despite unfavorable market reactions, acquiring firm managers are not likely to abandon geographically complex target deals. Our main results remain qualitatively similar after addressing plausible endogeneity bias.
The Effect of Social Identity on the Financial Reporting Aggressiveness of Former Auditors
Eric Condie et al.
Georgia Tech Working Paper, April 2019
Abstract:
In this study, we leverage social identity theory to study the financial reporting behavior of chief financial officers (CFOs) with prior auditing experience. Social identity theory suggests that the values learned within a profession are likely to influence behavior after an individual leaves the profession. Our tests indicate that, on average, CFOs who were former auditors report less aggressively than CFOs without previous auditing experience. Thus, the public accounting social identity – which should include a mindset that values ethical, conservative, and transparent financial reporting – appears to persist when auditors take high-level positions in industry. However, we also find that the reporting behavior of prior-auditor CFOs becomes more aggressive over time as the salience of their public accounting experience decays. Auditors appear to adjust effort similarly, as both audit fees and audit delay are lower for clients with prior-auditor CFOs but increase as the CFOs’ time away from public accounting increases. Overall, our study provides support for social identity theory in a new setting and offers important insights regarding how auditing experience impacts the financial reporting decisions of top executives.
The Effects of the Extant Clauses Limiting Auditor Liability on Audit Fees and Overall Reporting Quality
Henock Louis et al.
Journal of Empirical Legal Studies, June 2019, Pages 381-410
Abstract:
Regulators and shareholders generally oppose any restriction on clients' rights to sue their auditors, believing that such restrictions would impair reporting quality. However, the evidence suggests that the opposition to limitation of liability agreements (LLAs) between clients and auditors is likely unwarranted. Specifically, the evidence indicates that LLAs are beneficial to clients by lowering their audit fees. More importantly, we find no evidence that they impair financial reporting quality in general. Hence, the extant contracts limiting clients' rights to sue their auditors appear to benefit auditors and their clients without any apparent detriment to the quality of financial reporting.