Governance,product market competition and cash management in IPO firms

This study evaluates the link between CEO governance heterogeneity, power structure of the firm, and product market competition on various facets of post-IPO cash policy. Our results suggest that post-IPO cash holdings as well as marginal value of cash reserves are higher under a founder CEO governance regime relative to non-founder CEOs. Concentrating board power in the hands of founder CEOs however, reduces their ability to maintain higher post-IPO cash reserves. Our results also suggest that product market competition influences both the level and marginal value of cash reserves in the hands of founder CEOs. Further, we find that stronger internal governance reduces the tendency of IPO firms to deploy excess cash reserves to fund internal investments in excess of industry rivals. Finally, our results suggest that excess cash reserves in competitive industry environments lead to superior post-IPO operating performance.     

CEO compensation structure and firm performance

The objectives of our study are to estimate a model of ‘efficient’ compensation structure based on firm characteristics and test the performance consequences of deviation from the efficient compensation structure. Our results are based on 3503 firm years for the period from 1999 to 2005. The results suggest that firms whose CEOs receive compensation inconsistent with their firm characteristics have a lower performance compared to those firms whose CEOs’ compensation is consistent with their firms’ characteristics. Our measure of performance is based on both accounting and market‐based performance measures. Overall, our study provides some important new insights into the links between CEO compensation structure and firm performance.     

Organizational complexity and CEO labor markets: Evidence from diversified firms

We examine whether CEO turnover and succession patterns vary with firm complexity. Specifically, we compare CEO turnover in diversified versus focused firms. We find that CEO turnover in diversified firms is completely insensitive to both accounting and stock-price performance, but CEO turnover in focused firms is sensitive to firm performance. Diversified firms also experience less forced turnover than focused firms. Following turnover, replacement CEOs in diversified firms are older, more educated, and are paid more when hired. Collectively, our results indicate that the labor market for CEOs is different across diversified and focused firms and that firm complexity and scope affect CEO succession.     

Value or Glamour? An empirical investigation of the effect of celebrity CEOs on financial reporting practices and firm performance

In this study, I investigate the impact of managerial reputation, as proxied by high‐profile awards to CEOs, on financial reporting practices and firm performance. Using a sample of 269 awards given to 189 celebrity CEOs (CEOs who win awards) from 1987 to 2003, I compare within‐firm changes in financial reporting practices and firm performance before and after each CEO wins their first award. I find that celebrity CEOs engage in more conservative accounting practices and are less likely to engage in opportunistic earnings management to meet short‐term earnings benchmarks. In addition, firm performance improves after celebrity CEOs win awards.     

CEO power,M&A decisions,and market reactions

In this study we examine the relationship between CEO power, corresponding acquisition activities and market reactions to mergers and acquisitions (M&A) announcements with a Canadian M&A dataset (1997–2005). We use CEO excess pay as a proxy for CEO power. Our empirical results show that the market reactions to M&A announcements are not related to CEO power. It implies that powerful CEOs do not necessarily make value destroying acquisitions. Our results further show that CEO power levels are significantly higher for acquiring firms compared to the CEOs of non-acquiring firms. In other words, CEOs with more relative power make more acquisitions. Such acquisitions will increase the size of the firm and will allow CEOs to demand a higher compensation level for managing larger asset pools and to derive higher performance incentives that are also generally tied to firm size.     

Outsider CEOs and corporate debt

We examine the extent to which outsider chief executive officers (CEOs) influence corporate financial leverage policies. We define an outsider CEO as one who appears in the reporting year and became CEO either immediately upon joining or within 3 months of joining a firm. There are arguments in the literature that the selection of an outsider CEO can either increase or decrease financial leverage. We investigate this issue using 11,118 Australian firm-year observations from 1216 firms listed during the period 2001–2015. Our findings suggest that, in the short-term after their appointment, outsider CEOs reduce firm dependence on debt. This result is robust to several additional tests and four measures to minimize endogeneity concerns. However, with an increase in their tenure at the firm, outsider CEOs revert to greater dependency on corporate debt. After supplementary analyses, we determine that the outsider CEOs short-term strategy of reducing financial leverage involves using cash reserves and restricting dividends to reduce existing debt. Instead, outsider CEOs finance capital expenditure projects thus providing a positive signal to the market that such CEOs are more creditworthy. Our results also suggest that outsider CEOs exercise more control over financial leverage when they have specialist attributes.     

Do CEOs Matter? Evidence from Hospitalization Events

Using variation in firms’ exposure to their CEOs resulting from hospitalization, we estimate the effect of chief executive officers (CEOs) on firm policies, holding firm-CEO matches constant. We document three main findings. First, CEOs have a significant effect on profitability and investment. Second, CEO effects are larger for younger CEOs, in growing and family-controlled firms, and in human-capital-intensive industries. Third, CEOs are unique: the hospitalization of other senior executives does not have similar effects on the performance. Overall, our findings demonstrate that CEOs are a key driver of firm performance, which suggests that CEO contingency plans are valuable.     

Powerful CEOs,cash bonus contracts and firm performance

We investigate whether powerful chief executive officers (CEOs) influence the conditions of their cash bonus contracts. Specifically, we examine (i) the association between CEO power and the proportion of ex-ante cash bonus to base salary (bonus ratio), (ii) the association between CEO power and the relative use of non-financial to financial performance targets in cash bonus contracts, and (iii) the performance consequences of incorporating non-financial targets in cash bonus contracts. Results show that powerful CEOs are associated with greater ex-ante bonus ratios and higher proportions of non-financial performance targets compared to less powerful CEOs. Furthermore, the use of quantitative and corporate social responsibility (CSR)-related non-financial performance targets is positively associated with subsequent firm performance, and the use of undefined non-financial performance targets is negatively associated with subsequent firm performance. These results are robust to alternative econometric specifications and variable definitions.     

The Use of Performance‐based Remuneration: High versus Low‐growth Firms

This study analyses the CEO remuneration structure and level for 100 Australian‐listed entities. Consistent with expectations, it finds that high‐growth firms pay their CEOs a greater proportion of performance‐based pay, when equity‐based rewards only are considered. High‐growth firms also place greater reliance on market and/or non‐financial performance standards for the award of performance‐based pay. The extent to which performance‐based remuneration is used as a component of CEO pay is positively associated with firm size and growth options. Other potential determinants of performance‐based pay, such as financial performance, are not significantly associated with the use of performance‐based remuneration.     

Star CEOs or Political Connections? Evidence from China's Publicly Traded Firms

This paper studies China's “star CEOs” defined as members of the National People's Congress (NPC) or the National Committee of the Chinese People's Political Consultative Conference (CPPCC) and “politically connected” CEOs who have previous government or military experience. We evaluate the effect of “star CEOs” and “politically connected” CEOs on firm performance and CEO compensation. We find that announcement date returns, CEO compensation and incentives are all higher in firms that appoint “star CEOs”. However, the mechanism explaining these various premiums is largely political connectedness of these star CEOs. Our study finds only modest evidence that star‐CEO status directly determines firm performance. Our analysis strongly suggests that compensation and performance premiums are mostly driven by CEO political connections, as opposed to CEO talent/star effects.     

Outside options and CEO turnover: The network effect

Most studies consider chief executive officer (CEO) turnover from the firm's perspective. In this paper, I suggest that the labor market conditions for CEOs affect turnover outcomes. I use CEOs' positions on corporate executive and director networks to assess their employment options. Controlling for performance, firm characteristics, and personal traits, I find that CEO connectedness significantly increases turnover probability, especially for poor performers. I also show that connectedness increases the likelihood of CEOs leaving for other full-time positions, or their retiring and taking part-time positions elsewhere, but does not have a significant effect on the likelihood that they will step down and remain with the firm in other capacities. The evidence supports the idea that a CEO's connectedness expands outside options and thus increases turnover probability.     

Can CEO dismissals be proactive?

We find significant variation in the prior stock returns of firms that dismiss their CEOs between 1996 and 2008. 49% of firms that dismiss their CEOs do so in the absence of negative industry-adjusted stock returns prior to dismissal (37% dismiss in the absence of negative raw returns). We find evidence for two reasons why boards may dismiss CEOs early, i.e., in the absence of significant poor prior stock performance. First, we find that early dismissals are more likely to be associated with corporate scandals, suggesting that CEOs that are found to engage in unethical or illegal activities are dismissed although their actions may not have a significant adverse impact on firm value. Second, we find support for the argument that early dismissals are proactive actions by boards to dismiss low ability CEOs. We find that firms with more equity-based compensation for directors and higher independent director ownership are more likely to dismiss their CEOs early. Boards with strong incentives are more likely to be proactive and act on their private information about the CEO than boards with poor incentives. Early dismissal firms experience a short-lived decline in operating performance around the date of CEO dismissal, and their operating performance recovers immediately after the CEO is replaced. On the other hand, the operating performance of late dismissal firms declines significantly prior to dismissal and improves substantially after dismissal. We also find that CEOs that are dismissed early are not more likely to find new CEO positions than CEOs that are dismissed late, supporting the idea that early dismissal CEOs may not have different ability than late dismissal CEOs.     

Executive compensation and non-financial risk: An empirical examination

Executives face potentially severe (non-financial) personal risks if firm environmental performance is below industry best practice. We examine the relation between CEO compensation and the non-financial risk associated with environmental exposure, and how use of environmental performance as an explicit determinant of compensation affects this relation. We find evidence that CEOs are compensated for exposure to environmental risk, even after controlling for financial risk. We also find that this premium is reduced when the CEO has greater opportunities to improve the firm’s environmental performance.     

The efficiency of compensation contracting in China: Do better CEOs get better paid?

Over recent years, China adopted a number of ‘western-style’ reforms of corporate governance and executive compensation. We investigate whether boards of Chinese firms evaluate CEO ability and remunerate their CEOs accordingly, an essential tenet of efficient compensation contracting. Using Data Envelopment Analysis to measure CEO ability, we do not find any evidence that CEO ability matters in compensation contracting decisions—it does not lead to either higher pay, stronger pay-for-performance sensitivity, or a higher likelihood of equity grants. This is surprising, since we find evidence that higher ability CEOs achieve superior firm performance. In contrast, we find that powerful CEOs do not overperform, while they enjoy large abnormal pay. Overall, our results suggest that Chinese firms fail to embrace new corporate governance reforms and are unable to fully utilize the reforms’ benefits.

     

行政垄断、公司规模与CEO权力薪酬

由于国有企业CEO薪酬由国资委决定,CEO权力无法影响自身薪酬,因此国有企业CEO薪酬可能并不适用管理层权力假说,但现有文献结论并非如此。规模、行政垄断以及业绩是高管薪酬契约最主要的决定因素,管理层权力对其影响较弱,因此仅仅在回归中控制行业、规模、所有制等因素,所得结论可能并不稳健。本文以2007—2010年间4277个A股上市公司为样本的研究发现:在控制行政垄断与规模因素后,非国有企业CEO权力与CEO薪酬显著正相关,而国有企业CEO权力与CEO薪酬不符合管理层权力假说。本文研究有助于丰富薪酬管理层权力假说,有助于理解CEO权力在薪酬决定中的作用。     

Local CEOs,career concerns and voluntary disclosure

I study whether the management guidance provided by local chief executive officers (CEOs) differs from the guidance provided by nonlocal CEOs. The geographic preferences of the CEOs lead to segmented executive labor markets, which impose higher relocation costs and give rise to lower job mobility. I find that local CEOs, who grew up in the same states where the firm headquarters are located, provide fewer items in guidance and less frequent guidance than nonlocal CEOs. I also show that local CEOs have greater asymmetric withholding of bad news relative to good news and that they increase their disclosure during economic downturns in their home states. Collectively, these findings suggest that the geographically segmented CEO labor markets play an important role in the disclosure choices of CEOs.     

Disagreement-induced CEO turnover

We propose and test a new explanation for forced CEO turnover, and examine its implications for the impact of firm performance on CEO turnover. Investors may disagree with management on optimal decisions due to heterogeneous prior beliefs. Theory suggests that such disagreement may be persistent and costly to firms; we document that this induces them to sometimes replace CEOs who investors disagree with, controlling for firm performance. A lower level of CEO-investor disagreement serves to partially “protect” CEOs from being fired, thus reducing turnover-performance sensitivity, which we also document. We also show that firms are more likely to hire an external CEO as a successor if disagreement with the departing CEO is higher. Disagreement declines following forced CEO turnover. Using various empirical strategies, we rule out other confounding interpretations of our findings. We conclude that disagreement, independently of firm performance, affects forced CEO turnover.     

Firm Competition and CEO Turnover: Evidence from US Railroad Deregulation

In this article, I examine how changes in the competitive environment of firms affect matches between chief executive officers (CEOs) and firms. I exploit the 1980 Staggers Rail Act, which drastically deregulated the freight railroad industry, as a source of arguably exogenous variation in the operating environment. Using hand‐collected data, I obtain three main findings: first, CEO turnover rates increase; second, relative to utility firms, railroad CEOs have more business education and show broader work experience after deregulation; and third, firm performance leads to CEO turnover only during the regulated period.     

Understanding the relationship between founder–CEOs and firm performance

We use instrumental variables methods to disentangle the effect of founder–CEOs on performance from the effect of performance on founder–CEO status. Our instruments for founder–CEO status are the proportion of the firm's founders that are dead and the number of people who founded the company. We find strong evidence that founder–CEO status is endogenous in performance regressions and that good performance makes it less likely that the founder retains the CEO title. After factoring out the effect of performance on founder–CEO status, we identify a positive causal effect of founder–CEOs on firm performance that is quantitatively larger than the effect estimated through standard OLS regressions. We also find that founder–CEOs are more likely to relinquish the CEO post after periods of either unusually low or unusually high operating performances. All in all, the results in this paper are consistent with a largely positive view of founder control in large US corporations.     

CEO DIRECTORS,EXECUTIVE INCENTIVES,AND CORPORATE STRATEGIC INITIATIVES

I study how directors who are chief executive officers (CEOs) of other firms affect board effectiveness. I find that CEOs are paid more and their compensation is less sensitive to firm performance when other CEOs serve as directors. This is not an employment risk premium because CEO directors are not associated with higher turnover‐performance sensitivity. Also, CEO directors have no effect on corporate innovation but are associated with higher acquisition returns, especially for complex deals. My results suggest that the advisory benefits of CEO directors must be balanced against the distortions in executive incentives associated with their board service.