Top People
Tone at the Bottom: Measuring Corporate Misconduct Risk from the Text of Employee Reviews
Dennis Campbell & Ruidi Shang
Management Science, forthcoming
Abstract:
This paper examines whether information extracted via text-based statistical methods applied to employee reviews left on the website Glassdoor.com can be used to develop indicators of corporate misconduct risk. We argue that inside information on the incidence of misconduct, as well as the control environments and broader organizational cultures that contribute to its occurrence, are likely to be widespread among employees and to be reflected in the text of these reviews. Our results show that information extracted from such text can be used to develop measures that clearly separate high and low misconduct risk firms. In out-of-sample tests, our measures are incrementally useful in predicting corporate misconduct beyond other readily observable characteristics such as firm size, performance, industry risk, violation history, and press coverage. We provide further evidence on the efficacy of our text-based measures of misconduct risk by showing that they are associated with future employee whistleblower complaints even after controlling for these same observable characteristics.
Stop the presses! Or wait, we might need them: Firm responses to local newspaper closures and layoffs
Min Kim et al.
Journal of Corporate Finance, August 2021
Abstract:
Media as a whole has been shown to play an important role as an information source, information intermediary, and monitor of public firms, but much less is known about whether local newspapers play a similar role. We attempt to shed light on this issue, and we investigate if and how firms respond to changes in the local newspaper industry, where closures and layoffs have become the norm. Compared to a sample of matched control firms, we find that following newspaper closures and large industry layoffs, nearby public companies boost dividend payouts. This result follows from prior research suggesting that investors pressure managers to increase dividends in response to growing agency problems. Cross-sectional analyses confirm that our results are driven by geographically-concentrated firms that rely more heavily on local newspapers as a monitor and information source. Our findings suggest that local newspapers play an important role as an information intermediary and monitor of public firms, and that the disappearance of local newspapers exacerbates agency problems in nearby firms that tend to be remedied by higher dividends.
The effect of media-linked directors on financing and external governance
Alberta Di Giuli & Paul Laux
Journal of Financial Economics, forthcoming
Abstract:
Firms sharing a board member with a media company receive more news coverage. This in turn affects those firms' financing choices: they issue more bonds, rely less on bank loans, and have lower blockholder ownership. These findings are consistent with media coverage acting as an external governance mechanism that substitutes for monitoring by banks and equity blockholders. The effect of media-linked directors on financing is evident in panel and time series analyses and using two different instrumental variable analyses, suggesting a causal relation.
Cross-listings, antitakeover defenses, and the insulation hypothesis
Albert Tsang, Nan Yang & Lingyi Zheng
Journal of Financial Economics, forthcoming
Abstract:
This paper tests a theory conjecturing that cross-listing can insulate firms from potential hostile takeovers owing to the increased cost concern of bidders. We find a significant and positive relation between the corporate control threat and the likelihood that firms cross-list in a foreign country. Firms facing takeover threats are more likely to choose hosting countries with greater accounting differences from the US GAAP. Subsample evidence suggests that cross-listing is more likely to be used as an antitakeover device if firms have foreign market exposure or when all-cash offers are less likely. Tests based on quasi-natural experiments provide further support.
Do the right firms survive bankruptcy?
Samuel Antill
Journal of Financial Economics, forthcoming
Abstract:
In Chapter 11 bankruptcy cases in the United States, firms are either reorganized, acquired, or liquidated. I show that decisions to liquidate often reduce creditor recovery, costing creditors billions of dollars every year. I exploit the within-district random assignment of bankruptcy judges to estimate a structural model of bankruptcy. I estimate that liquidation is frequently chosen when a reorganization would have maximized total creditor recovery. Liquidations involving "363 sales," in which managers sell assets without creditor approval, are especially harmful for creditors. I estimate that courts could dramatically improve creditor recovery by assigning liquidations using a statistical model.
Do commonalities facilitate private information channels? Evidence from common gender and insider trading
Iain Clacher et al.
Journal of Corporate Finance, forthcoming
Abstract:
We examine insider trading profitability and common identity between insiders and top executives. We argue that common gender and the resulting social connections influence access to private information, where insiders benefit from greater information-sharing with top executives of the same gender. Using a large sample of US firms between 1995 and 2016, we find higher (lower) insider trading profitability for female (male) insiders in the presence of a female CEO or CFO. We also find that, in isolation, other social and professional commonalities, such as age, ethnicity, having attended the same university or having worked at the same firm also increase insider profitability, albeit to a lesser extent. Our evidence suggests that some of these commonalities enhance the common gender effect when combined with it. We examine formal interactions and find that attending meetings and serving on committees with top executives of the same gender enables private information-sharing, consistent with gender acting as an informational channel. We also document greater clustering of insiders' trades around the trades made by common gender top executives. Our findings are consistent with flows of private information from CEOs and CFOs to less informed common gender insiders.
Do changes in MD&A section tone predict investment behavior?
John Berns et al.
Financial Review, forthcoming
Abstract:
We find that changes in managerial tone predict firm corporate investment activities. Tone changes within the Management Discussion and Analysis section of the 10-K are positively related to subsequent capital investments and M&A activity. We find the predictive content of tone changes to be present at the firm and industry-levels, and when accounting for alternative sources of incremental information associated with firm investment activities. Our findings broaden the scope of information encapsulated by changes in financial statement tone.
Regulatory Costs of Being Public: Evidence from Bunching Estimation
Michael Ewens, Kairong Xiao & Ting Xu
NBER Working Paper, August 2021
Abstract:
The increased burden of disclosure and governance regulations is often cited as a key reason for the significant decline in the number of publicly-listed companies in the U.S. We explore the connection between regulatory costs and the number of listed firms by exploiting a regulatory quirk: many rules trigger when a firm's public float exceeds a threshold. Consistent with firms seeking to avoid costly regulation, we document significant bunching around multiple regulatory thresholds introduced from 1992 to 2012. We present a revealed preference estimation strategy that uses this behavior to quantify regulatory costs. Our estimates show that various disclosure and internal governance rules lead to a total compliance cost of 4.1% of the market capitalization for a median U.S. public firm. Regulatory costs have a greater impact on private firms' IPO decisions than on public firms' going private decisions. However, heightened regulatory costs only explain a small fraction of the decline in the number of public firms.
The old guard: CEO age and corporate litigation
James Malm et al.
Journal of Behavioral and Experimental Finance, forthcoming
Abstract:
Recent studies have indicated that older Chief Executive Officers (CEOs) tend to be more capable, ethical, and risk-averse as compared to their younger counterparts. Keeping this in mind, we use a unique hand-collected data on corporate lawsuits to examine whether CEO age influences corporate litigation. After controlling for several important variables and employing several estimation techniques, we find that firms with older CEOs face fewer lawsuits. The results continue to hold when we decompose lawsuits into securities and non-securities lawsuits. Decomposing the sample firms into high-tech and labor-intensive firms, we find the negative relationship between CEO age and corporate litigation to be more pronounced in labor-intensive firms. Our results are especially relevant in the post-SOX regulation period suggesting that older CEOs enforce regulations and reduce litigation risks for their firms. Overall, our results uncover an important channel through which firms can mitigate corporate litigation, namely older CEOs.
Employment protection and share repurchases: Evidence from wrongful discharge laws
Viet Dang, Amedeo De Cesari & Hieu Phan
Journal of Corporate Finance, August 2021
Abstract:
We use the staggered adoption of Wrongful Discharge Laws (WDLs) by U.S. state courts as a quasi-natural experiment to examine the causal impact of firing costs and employment protection on corporate payouts. We find that the greater employment protection imposed by WDLs leads to higher share repurchases, and that this finding is more pronounced among firms with greater financial resources and better governance. Our results support the argument that as higher firing costs enhance employee entrenchment and encourage rent extraction behavior, firms have an incentive to increase share buybacks to mitigate a wealth transfer from shareholders to employees.
Regulatory transparency and the alignment of private and public enforcement: Evidence from the public disclosure of SEC comment letters
Amy Hutton, Susan Shu & Xin Zheng
Journal of Financial Economics, forthcoming
Abstract:
Does enhanced regulatory transparency facilitate alignment of private and public enforcement? Utilizing the SEC's 2004 decision to publicly disclose its comment letters, we explore the actions of the SEC and shareholder litigants. We find the two parties converge more on enforcement targets after the public disclosure. The increased alignment is attributable to public scrutiny of SEC oversight enhancing regulator incentives and reducing regulatory capture, and to shareholder plaintiffs gaining information previously accessible only by regulators, enabling litigants to identify cases with "merit." These findings suggest regulatory transparency enhances the complementarity of public and private enforcement, potentially improving enforcement outcomes.
The Effect of Large Corporate Donors on Non-profit Performance
Andrew Finley et al.
Journal of Business Ethics, September 2021, Pages 463-485
Abstract:
Using a dataset of corporate philanthropic gifts of $1 million or more, we examine the influence of corporate donors on the performance of recipient non-profit organizations (NPOs). We find that corporate donors positively influence NPO performance, specifically in the form of higher revenues per employee, program ratios, and fundraising returns. We find little evidence that large foundation or individual donors similarly enhance organizational performance. In additional analysis, we find that large corporate donations matter when the corporation is more likely to have influence over the recipient NPO. These findings suggest that corporate donors provide the monitoring and expertise needed to enhance organizational performance beyond simply providing funding to NPOs. Our results are robust to a two-stage model and propensity score matching to address endogeneity concerns. While prior research has examined the effect of corporate philanthropy on donor organization performance, we contribute to the literature by examining whether corporate philanthropy also improves recipient organization performance.