Associate Professor of Finance
Academic Director of the Master of Finance Program at CSU
My research focuses on major corporate decisions and the mechanisms that influence CEO and director incentives around those decisions. These mechanisms include corporate governance practices, compensation, antitakeover provisions, networks, and CEO and director labor markets. I am also interested in research relating to capital structure, employee treatment, shareholder perks, networks, spin offs, shorting, acquisitions, and the intersection of finance and law as well as the econometric methods that allow for identification in these settings.
(1) Does the Director Labor Market Offer Ex Post Settling-up for CEOs? The Case of Acquisitions, with Jarrad Harford (University of Washington). Published in the Journal of Financial Economics, 2013, Vol 110(1), pages 1-36. [download]
Summary/Abstract : We examine the rewards for experience and ability in the director labor market. We show that large acquisitions are associated with significantly higher numbers of subsequent board seats for the acquiring CEO, target CEO, and the directors. We also find that, in the case of acquisitions, experience is more important than ability. Both value-destroying and value-increasing acquisitions have significant and positive effects on a CEO's future prospects in the director labor market. In addition to increasing our understanding of the director labor market, these results suggest that the ex post settling-up incentives thought to exist in the director labor market are weak for acquisitions.
Presentations* : Indiana University (March 2012), BYU (March 2012), University of Arizona (April 2012), Chinese University of Hong Kong (May 2012), University of California San Diego (May 2012), Australian National University (Sept 2012), University of New South Wales (Sept 2012), AFA conference (2013)
(2) Do Outside Directors Face Labor Market Consequences? A Natural Experiment from the Financial Crisis, with Steven Davidoff (Berkeley Law) and Andrew Lund (Villanova University). Published in the Harvard Business Law Review, 2014, Vol 4, Issue 1 (print edition), pages 53-83. [download]
Summary/Abstract : The shock of the financial crisis focused shareholder and regulator attention on financial firm performance. We use the crisis as a lens through which to study labor market consequences for outside directors at banks and other financial firms. Examining 4,856 outside director-years at such institutions over the period from 2006 to 2010, we find that the increased chance of being replaced for poor performance is between 1.22% and 5.79% for a one standard deviation change in performance, an arguably trivial amount. We also find no labor market reaction to poor firm performance in the form of lost directorship opportunities at other firms. We draw on these empirical findings to assess the limitations of board-centered responses to the financial crisis.
Presentations* and media coverage : Ohio State (Nov 2012), Indiana University (Nov 2012), American Law and Economics Association Conference (May 2013), Harvard Law School Forum on Corporate Governance post (Feb 2013), New York Times Dealbook article (April 2013), Knowledge@Wharton post (April 2013)
(3) Golden Parachutes, Severance, and Firm Value, with Andrew Lund (Villanova University). Published in the Florida Law Review, 2016, Vol 68, pages 875-906. [download]
Summary/Abstract : Golden parachutes (GPs) are now standard contract provisions for most public company CEOs. While they have become ubiquitous, they have also been blamed in recent research for harming shareholder value. As a result of that research, GPs have been subjected to intense shareholder activism by a small set of individuals in recent years and are now uniquely penalized under both tax and securities law compared with other types of compensation. We revisit the recent studies that have documented a link between GPs and lost firm value and show that this relationship is not robust to using more recent data and is not robust to controlling for regular severance contracts. We discuss reasons why regular severance might be expected to have a large impact on CEO incentives and describe the reasons why earlier studies were unable to adequately control for regular severance incentives when studying the effects of GPs. We also draw attention to the question of whether it seems reasonable to argue that 80% of S&P 1500 firms have adopted provisions in their CEO contracts in recent years that systematically reduce shareholder wealth? We argue that this is not the case and present evidence consistent with this argument.
Presentations* : National Business Law Scholars Conference, Loyola Law School (June 2014), University of Maryland law (Jan 2015)
(4) Do Takeover Defense Indices Measure Takeover Deterrence? with Jon Karpoff (University of Washington) and Eric Wehrly (Western Washington University). The Review of Financial Studies, 2017, Vol 30(7), pages 2359-2412. [download]
Summary/Abstract : The G-index and E-index are used extensively in financial research to measure firms’ takeover defenses. We develop plausibly exogenous instruments for a firm’s use of takeover defenses and report the first direct evidence that the G-index and E-index – as constituted and used in the literature – are negatively related to acquisition likelihood. Our evidence is robust to a variety of specifications and methodologies. Our results provide an empirical basis for the inferences drawn from the large literature that uses the G-index and E-index to proxy for the level of a firm’s takeover defenses. We note that most researchers use the G-index and E-index in their empirical analyses exactly as constructed by Gompers et al. (2003) and Bebchuk et al. (2009), and make inferences based on those results. Hence, in this paper we do not engage in the larger debate over whether the indices are constructed optimally or without error. Rather, our tests focus on the question of whether the indices, as constructed and used in the literature, relate to takeover likelihood after controlling for endogeneity.
Presentations* and media coverage : BYU finance (Feb 2015), Drexel Academic Conference on Corporate Governance (April 2015), European Financial Management Association meetings (June 2015), WFA conference (June 2015), Western Washington University (Nov 2015), AFA conference (Jan 2016), Berkeley Law (Feb 2016), Harvard Law School Forum on Corporate Governance post (Aug 2015)
(5) Right On Schedule: CEO Option Grants and Opportunism, with Grant McQueen (BYU) and Rob Daines (Stanford). The Journal of Financial and Quantitative Analysis, 2018, Vol 53(3), pages 1025-1058. [download]
Summary/Abstract : In the wake of the option backdating news coverage, many firms began awarding options at scheduled times each year. Scheduling option grants eliminates backdating, but creates other agency problems. CEOs that know the dates of upcoming scheduled option grants have an incentive to temporarily depress stock prices before the grant dates to obtain options with lower strike prices. We provide evidence that in recent years some CEOs manipulate stock prices to increase option compensation. We document negative abnormal returns before scheduled option grants and positive abnormal returns after the grants. These returns are explained by measures of a CEO's incentive and ability to influence stock prices. We document several mechanisms CEOs use to lower the strike price, including changing the substance and timing of the firm’s disclosures.
Presentations* : Stanford law and finance (2012, 2013), BYU finance (Oct 2012), American Law and Economics Association Conference (May 2013), BYU accounting (Aug 2013), University of Chicago law (Nov 2013), Columbia University law and finance (Oct 2013), Northwestern law (2014), Harvard law (Mar 2014), Yale law (Mar 2014), NYU Law and Finance (Mar 2014), European Financial Management Association meetings in Rome (June 2014)
(6) Trade Relationships, Indirect Economic Links, and Mergers, with Jared Stanfield (University of New South Wales) and Jarrad Harford (University of Washington). Management Science, 2019, Vol 65(7), pages 2947-3488.
Summary/Abstract : The economic links between firms created by customer and supplier relationships are critical determinants of those firms’ values and actions. We demonstrate that significant trade relationships and indirect economic links incrementally explain which firms are more likely to be involved in acquisitions, which pairs of firms are more likely to merge, and which mergers will have the greatest impact, both on value and in motivating follow-on mergers by rivals. Firms with major trade relationships are significantly less likely to acquire, or be acquired, by firms that do not share in those relationships.
Presentations* : Second European Center for Corporate Control Studies (March 2012), University of New South Wales (Nov 2012), University of Utah (Nov 2012), Australasian Finance and Banking Conference address (Dec 2012), CSU Fullerton (Mar 2013), Exeter (March 2013), City University of Hong Kong (June 2013), Norwegian School of Economics (Sept 2013), BI Oslo (Sept 2013), Georgetown (Oct 2013), Sydney FIRN conference (Oct 2013), Southern Denmark University (Mar 2014)
(7) Golden Parachutes and the Limits of Shareholder Voting, with Andrew Lund (Villanova University) and Albert Choi (University of Michigan). Vanderbilt Law Review, 2020, Vol 73 Vanderbilt Law Review, pages 223-266.
Summary/Abstract : This paper examines the effects of the Say-on-Golden-Parachute (SOGP) vote instituted with the Dodd-Frank Act in 2010. We draw attention not only to the results of these votes but also to key differences in incentives that exist for SOGP votes compared with the more widely studied Say-on-Pay (SOP) votes.
Presentations* : Pace University Law School, University of Virginia Law School, NYU Law School (Law and Finance), 13th Annual Conference on Empirical Legal Studies (Nov 2018), National Business Law Scholars Conference (June 2018), Tulane Corporate Law Conference (March 2019), Columbia Law School Blue Sky workshop (March 2019), University of Delaware’s Weinberg Symposium (March, 2019), American Law and Economic Association Annual Meetings (May 2019)
(8) Shareholder Perks, Ownership Structure, and Firm Value, with Jon Karpoff (University of Washington) and Katsushi Suzuki (Hitotsubashi University). Review of Financial Studies, 2021, Vol 34(12), December 2021, pages 5676-5722.
Summary/Abstract : Shareholder perks are in-kind gifts or purchase discounts that disproportionately reward small shareholders. Data from Japanese firms indicate that firms initiating perk programs attract individual retail shareholders and experience increases in share values. We find support for three channels by which perks increase firm value: an increase in share liquidity, a decrease in the equity cost of capital, and signaling to investors. A fourth channel, by which perks help to market the firm’s products to consumers, receives mixed support. We do not find evidence that perk programs work to entrench managers.
Presentations and media coverage* : BYU finance (April 2016), Asian Finance Association conference (June 2016), FMA (Oct 2016), Research with impact CSU posting (April 2021), Harvard Law School Forum on Corporate Governance (April 2021)
(9) Which Anti-takeover Provisions Matter? with Jon Karpoff (University of Washington) and Eric Wehrly (Western Washington University) , Journal of Corporate Finance, 2022, Volume 75.
Summary/Abstract : Antitakeover provisions play a central role in corporate governance research. But there is little agreement over which, if any, provisions actually affect takeover likelihoods. As a result, researchers variously use the G-index, E-index, ad hoc indices, or selected individual provisions such as classified boards, to measure firms’ takeover defenses. In tests that account for the endogenous use of antitakeover provisions, we find that at most 11 of the 24 G-index provisions are negatively related to takeover likelihood. Various indices used in the literature to measure takeover deterrence relate to takeover likelihood to the extent they include this subset of provisions.
Presentations* : University of Oklahoma (Oct 2017), University of Missouri (Nov 2017), Auburn University (Nov 2017), Denver University (Nov 2017), Miami University (Nov 2017), University of Nebraska-Lincoln (Nov 2017), Utah State
University (Oct 2017), University of Cincinnati (Feb 2019), Colorado State University (Feb 2020)
o Media coverage: Harvard Law School Forum on Corporate Governance post (April 2018)
(10) Determinants of Capital Structure: An Expanded Assessment, with Todd Mitton (BYU) and Toshinori Fukui, forthcoming in Journal of Financial and Quantitative Analysis
Summary/Abstract : Using a standardized methodology, we empirically evaluate 55 proposed determinants of capital structure in terms of statistical significance, economic significance, and identification. We find that robust and economically important determinants of debt ratios are relatively few in number. Nevertheless, because each determinant relates to one of five market imperfections—taxes, distress costs, information asymmetry, agency costs, or supply frictions—we draw conclusions from the evidence as a whole regarding the explanatory power of different capital structure theories. We find greater support for pecking order theory and supply-related theories, with less support for traditional tradeoff theory and agency theory.
Current Work in Progress:
(11) Luck and Skill in the Director Labor Market, with Jarrad Harford (University of Washington) and David Yin (Miami University)
Summary/Abstract : A well-functioning labor market should discriminate between lucky and skilled applicants. In this study, we ask whether the market for directors rewards skill, luck, or both, and if luck is rewarded, how does that affect the advising and monitoring functions of boards made-up of lucky directors? We find that both luck and skill are important in explaining new outside director positions. Skilled directors are more likely to get elected, accompanied by higher announcement returns, and tend to have longer tenures. Boards with skilled director appointments make better acquisitions and are associated with better firm performance.
Presentations* : FMA (Oct 2020), Texas A&M (2021), Southeast University (2021), Colorado State University (2021)
(12) Contaminated Control Variables, with Jeff Dotson (BYU).
Summary/Abstract : Despite guidance in the theoretical literature that there needs to be as many exogenous instruments as endogenous variables for identification when using 2SLS, many papers in empirical finance instrument only the key variable of interest but then include, as though exogenous, an assortment of control variables that may themselves also be endogenous. We discuss the tradeoff between the omitted variable bias associated with excluding these variables versus the bias created by including the endogenous control variables. We suggest a new diagnostic test when thinking about this tradeoff in a 2SLS setting.
(13) Spin-offs, with Terry Nixon (Miami University).
Old/Permanent Working Papers:
(14) Board Networks and Merger Performance, with Param Vir Singh (Carnegie Mellon University)
(15) Acquisition Timing in Merger Waves: Learning from Others
** Listing includes presentations by co-authors