Interdependencies of female board member appointments

We investigate the appointments of female board members of Japanese corporations together with the corporations’ performance. We relate the presence of female board members to the board and ownership networks of the corresponding firms. We find that firms with female board members often show above average performance. We also find that corporate boards and the corresponding members show homophily with respect to gender in their networks. The observed homophily leads to interdependencies in the appointments of new board members. New appointments of female board members are more likely at firms with ties to other boards with female board members.     

Social capital and capital allocation efficiency

Based on the social norms and structural theories of social capital, this study examines the relationship between community social capital and the firms’ capital allocation efficiency. We hypothesize and find that the community social capital of a firm's headquarter area has a negative and statistically significant impact on its capital allocation inefficiency, which is robust to alternative proxies for community social capital and capital allocation inefficiency, propensity score matching and instrumental variable regressions. In addition, we find that the effect of community social capital is more pronounced for firms with poor internal ethical culture and weak network connections to outside executives and directors, implying that community social capital becomes important in these situations. This finding links prior social norms and networks literature to capital allocation studies in that the norms and networks components of community social capital discipline self-interested managers’ behavior and reduce information asymmetry-two channels of capital allocation efficiency. Overall, community social capital works as a compensatory monitoring and information transfer mechanism and improves the firms’ capital allocation efficiency.     

Debt,hedging and human capital

This paper provides a theory of debt and hedging based on human capital. We distinguish human capital from physical capital in two ways: (1) human capital is inalienable and can exercise a one-sided option to leave the firm and (2) human capital is not perfectly replaceable. We show that a firm may reach the first best solution while issuing debt or equity to outsiders provided that either the insiders receive a senior claim or that the firm hedges. We then show that given asymmetric information concerning costs the only viable solution has the firm issuing debt to outsiders and hedging.     

The impact of board capital and board characteristics on firm performance

The purpose of this study is to investigate the effects of board capital on the relationship between CEO duality, board dependence, managerial share ownership and performance. We argue that board capital (the ability of board members to perform manager-monitoring activities and to provide advice and counsel to management) varies across board members. Highly qualified board members will be better at monitoring management and constitute a more valuable resource for firms. Based on a sample of U.S. companies listed in the Compustat S&P 500 and using both resource dependence and agency theories, we predict and find that CEO duality and board dependence negatively affect performance and that board capital mitigates the negative effects. We also predict and find that managerial share ownership positively affects performance and that board capital strengthens this positive relationship. The results are consistent with the view that firms benefit from board capital in terms of outside directors' ability to monitor managers and provide advice and counsel to managers.     

Social capital and payout policies

In this paper, we investigate the relationship between regional social capital and corporate payout policies. Using a large sample of US data, we find a positive relationship between regional social capital and both the likelihood and the amount of cash dividend payouts. However, we find that social capital has no bearing on the likelihood and amount of stock repurchases. The results from additional analyses show that the relationship between social capital and dividends is more pronounced for less geographically dispersed firms. We also find that the network component of social capital has a greater effect on dividends than the social norm component. Our results are robust to alternative specifications of dividends and social capital and to the use of a two-stage least squares (2SLS) analysis to alleviate endogeneity concerns. Overall, we document that regional social capital plays an important role in influencing cash dividend payout policies.     

Social capital and bank stability

Using a sample of public and private banks, we study how social capital relates to bank stability. Social capital, which reflects the level of cooperative norms in society, is likely to reduce opportunistic behavior (Jha and Chen 2015; Hasan et al., 2017) and, therefore, act as an informal monitoring mechanism. Consistent with our expectations, we find that banks in high social capital regions experienced fewer failures and less financial trouble during the 2007–2010 financial crisis than banks in low social capital regions. In addition, we find that social capital was negatively associated with abnormal risk-taking and positively associated with accounting transparency and accounting conservatism in the pre-crisis period of 2000–2006, indicating that risk-taking, accounting transparency, and accounting conservatism are possible channels through which social capital affected bank stability during the crisis.     

Multiple board appointments and firm performance in emerging economies: Evidence from India

This paper extends the literature on multiple directorships, busy directors and firm performance by providing evidence from an emerging economy, India, where the incidence of multiple directorships is high. Using a sample of 500 large firms and a measure of “busyness” that is more general in its applicability, we find multiple directorships by independent directors to correlate positively with firm value. Independent directors with multiple positions are also found to attend more board meetings and are more likely to be present in a company's annual general meeting. These findings are largely in contrast to the existing evidence from the US studies and lend support to the “quality hypothesis” that busy outside directors are likely to be better directors, and the “resource dependency hypothesis” that multiple directors may be better networked thereby helping the company to establish more linkages with its external environment. Multiple directorships by inside directors are, however, negatively related to firm performance. Our results suggest that the institutional specificities of emerging economies like India could work in favor of sustaining high levels of multiple directorships for independent directors without necessarily impairing the quality of corporate governance.     

Social capital and entrepreneurial financing choice

This paper investigates the influence of social capital on young firms' financing arrangements. Using a sample of U.S. start-ups, I find that social capital, as captured by secular norms and social networks in the entrepreneur's county, increases access to outside financing and reduces reliance on owner equity to finance the new venture. Financing to entrepreneurs located in counties with greater social capital involves higher amounts of leverage in the form of outside debt. This finding persists in a difference-in-difference test that controls for unobservable geographic determinants of capital structure.     

Social disclosure, financial disclosure and the cost of equity capital

We test the relation between financial and social disclosure and the cost of equity capital for a sample of Canadian firms with year-ends in 1990, 1991 and 1992. We find that, consistent with prior research, the quantity and quality of financial disclosure is negatively related to the cost of equity capital for firms with low analyst following. Contrary to expectations, there is a significant positive relation between social disclosures and the cost of equity capital. This positive relationship is mitigated among firms with better financial performance. We consider some biases in social disclosures that may explain this result. We also note that social disclosures may benefit the firm through its effect on organizational stakeholders other than equity investors.     

Effective board monitoring over earnings reports and forecasts: Evidence from CFO outside director appointments

Prior evidence that firms adjust their board structure following accounting restatements suggests that firms expect the board to effectively monitor the firm’s financial accounting system. However, little is known about signals firms use to identify monitoring weaknesses or the types of individuals firms appoint to improve the quality of monitoring. We expand on Ghannam, Bujega, Matolcsy, and Spiropolous (2019)’s evidence that firms appoint directors with accounting experience after financial fraud by investigating whether firms that file restatements or issue highly inaccurate earnings forecasts appoint individuals with CFO experience (i.e., a subset of accounting experts) to their audit committee. We find that firms are more likely to appoint an outside director with CFO experience to the audit committee when they have recently restated earnings and when they have higher prior management forecast error. We also find that the appointment of a CFO outside director to the audit committee is followed by a lower likelihood of restatement and more accurate management forecast. Together, our results suggest that firms respond to accounting failures by appointing outside directors with CFO experience. Thus, we provide insight into the signals firms use to identify weaknesses in the monitoring of the accounting function and the types of expertise firms value in addressing those weaknesses.     

Optimal human capital policies

We analyze optimal income taxes and optimal schooling subsidies in a dynamic private information economy with observable human capital accumulation. We show that under plausible conditions the marginal schooling subsidies are positive and that they are zero at both endpoints of the skill distribution.We compute the optimal policies and evaluate their impact over the transition and at the steady state. We find that the optimal schooling policies are significantly smaller than the optimal marginal income taxes. If optimal schooling policies are introduced jointly with optimal income taxes then their welfare and aggregate effects are small. However, if income taxes are not set optimally then the optimal schooling policies have significant welfare and aggregate effects.     

When managers bypass shareholder approval of board appointments: Evidence from the private security market

This paper investigates the influence of managerial entrenchment on private placements by examining the firm's decision to appoint representatives of the private investors to the board without shareholder approval. By analyzing a sample of U.S. firms that appoint directors in combination with private offerings between 1995 and 2000, we find that firms with greater managerial entrenchment are more likely to bypass shareholder approval. Firms that bypass shareholders are less likely to appoint independent directors or to elect one of these directors as chairman. We also show that the market reacts more positively to the private offering announcement when the firm submits its board candidates for shareholder approval. Further, firms that bypass approval underperform compared to firms that obtain it. Overall our findings suggest that managers avoid shareholder approval to perpetuate entrenchment.     

Social media capital: Conceptualizing the nature,acquisition, and expenditure of social media-based organizational resources

The near-universal organizational participation in social media is predicated on the belief there are some tangible or intangible new resources to be had through tweeting, pinning, posting, friending, and sharing. We argue the linchpin of any payoff from engagement in social media is a special form of social capital we refer to as social media capital, and offer a conceptual framework for understanding its nature, acquisition, and expenditure. This paper contributes to existing literature by elaborating a new type of organizational resource and then synthesizing and extending research on the processes through which organizations can translate social media efforts into meaningful organizational outcomes. Understanding this causal chain is critical not only for measuring the return on investment from social media use but also for developing accounting information systems that are both adaptable to social resources and better able to exploit the data analytic and forecasting capabilities of real-time social media data.     

Two-stage capital budgeting,capital charge rates,and resource constraints

We study two-stage, multi-division budgeting mechanisms that allocate scarce resources among divisions using capital charge rates. Each divisional manager observes private sequential project information and competes for scarce resources over two stages. The optimal capital charge rates in our two-stage setting can be quite different from those that arise in a single-stage setting. If the firm faces a resource constraint at only the second stage, a less severe constraint can imply more first-stage project initiation, which can lead to higher second-stage capital charge rates. If resources are constrained at both stages, a decrease in the severity of the constraint at just one stage decreases the capital charge rate at that stage but increases the capital charge rate at the other stage because each constraint affects the intensity of competition at both stages. This result holds regardless of whether the scarce resources are fungible or non-fungible across stages.     

Subsidiary debt,capital structure and internal capital markets

I study external debt issued by operating subsidiaries of diversified firms. Consistent with Kahn and Winton's [2004. Moral hazard and optimal subsidiary structure for financial institutions. Journal of Finance 59, 2537–2575] model, where subsidiary debt mitigates asset substitution, I find firms are more likely to use subsidiary debt when their divisions vary more in risk. Consistent with subsidiary debt mitigating the free cash flow problem, I find that subsidiaries are more likely to have their own external debt when they have fewer growth options and higher cash flow than the rest of the firm. Finally, I find that subsidiary debt mitigates the “corporate socialism” and “poaching” problems modeled in theories of internal capital markets.     

Human capital investment,new firm creation and venture capital

This paper studies the relation between firm investment in general human capital, new firm creation and financial development for new firm financing, such as the existence of a venture capital industry. On one hand, firm investment in general human capital leads employees to generate new innovative ideas for starting their own firm. Since employees need a venture capitalist to start their new firm, firm investment in general human capital encourages the creation of venture capitalists by increasing the need for their services, such as providing advice and monitoring. On the other hand, as new firm financing becomes available, firms’ willingness to invest in general human capital increases, and as a by-product, the creation of employee-founded and venture capital-backed new firms increases in the economy. Hence, our model provides a rational explanation for the emergence of new firms created by employees of established firms, which represents one of the most common type of new firms in many industries.