Securities litigation,withdrawal risk and initial public offerings

I examine the relations between litigation risk, withdrawal risk, and the costs of going public using a sample of withdrawn and completed initial public offerings (IPOs) filed during 1996–2005. Firms with a higher probability of offer withdrawal face higher litigation risk if they complete these offers. Firms with higher litigation risk pay slightly higher gross spreads, but do not underprice their IPOs by a greater amount. Withdrawal probability is strongly and positively associated with underwriter gross spreads, consistent with underwriters charging fees that reflect the probability of not getting paid. When the pre-market demand for an IPO is weak, a higher withdrawal probability raises underpricing on completed deals.     

The effects of board gender diversity on a firm's risk strategies

We study whether board gender diversity (BGD) affects corporate risk strategies. Specifically, we investigate the association between BGD and firms’ reputation risk and financial risk. Using S&P data from 1997 to 2013, we find that BGD is negatively associated with tax avoidance, suggesting firms with gender‐diverse boards are more cautious about potential reputation risks associated with aggressive tax strategies. However, we find that BGD is positively associated with firms’ financial risk. The combined findings illustrate that BGD aligns a firm's risk exposure closer to risk‐neutral shareholders’ preferences by reducing reputation risk exposure while enabling necessary financial risk exposure.     

Securities litigation and corporate tax avoidance

We examine whether litigation risk is systematically related to corporate tax avoidance. We find that the exogeneous reduction in the threat of securities class action litigation due to the 1999 ruling of the Ninth Circuit Court of Appeals effectively increases corporate tax avoidance, which is consistent with the notion that the threat of shareholder litigation plays a disciplinary role in curbing managerial rent extraction from tax avoidance activities. This finding is robust to alternative model specifications including two placebo tests and propensity score matching. We further find that labor union and alternative external governance mechanisms such as analyst coverage and institutional ownership mitigate this effect. Overall, our paper provides a significant contribution to the understanding of the relation between corporate governance and tax avoidance.     

Rising board gender diversity and incentives of female directors

As board gender diversity rises, it is important to understand the motivations of female independent directors. Focusing on the primary profession of female directors, we distinguish between promotion incentives of those who are senior executives of other firms (CorpFemales) and service/fee incentives of non-executive directors (OtherFemales). We find that OtherFemales hold more directorships and are more likely to miss board meetings. CorpFemales are more likely to serve on audit committees, which likely improves the reporting quality. CorpFemales, as opposed to OtherFemales exhibit higher M&A announcement returns and pay lower takeover premiums, especially when the choice of payment for acquisitions is equity.     

The effect of board gender diversity on cross-listing

This paper examines whether board gender diversity affects the decision to cross-list firms. The study is based on an extensive sample of 131,022 company-year observations consisting of 15,751 unique companies across 66 industries in 83 countries with different levels of institutional development from 1999 to 2018. Analysis reveals that cross-listing is not rare phenomena, but rather a very attractive strategy that is widely used by corporations seeking financial internationalization. The findings show that greater gender diversity on the board reduces the probability of cross-listing, and are robust to a battery of endogeneity tests including IV of gender grammatical marking, propensity score matching and reverse causality. In addition, we find that stronger institutional context will offset part of the negative effect that having women on the board has on cross-listing.     

Corporate culture and board gender diversity: Evidence from textual analysis

Exploiting a distinctive measure of corporate culture based on advanced machine learning, we investigate the effect of board gender diversity on corporate culture. Our results demonstrate that greater board gender diversity considerably strengthens positive corporate culture. The findings support the notion that board gender diversity enhances board oversight and helps solve agency problems, resulting in managers being compelled to take measures that benefit shareholders and consequently, building a strong company culture. Further analysis validates the results, including propensity score matching (PSM), entropy balancing, an instrumental-variable analysis, Lewbel's (2012) heteroscedastic identification, and Oster's (2019) testing for coefficient stability. Our study is the first to link board gender diversity to corporate culture, using cutting-edge information obtained from sophisticated machine learning.     

Board gender diversity,power, and bank risk taking

Having female board members brings ethical/societal perspectives and new resources to decision making. However, there is lack of evidence on whether it mitigates bank excessive risk-taking; hence, this paper addresses this question. It complements the normative corporate governance literature by combining agency theory and approach/inhibition theory of power from social psychology. For a sample of 195 U.S. commercial banks during 2002–2018, banks invest in more risky assets when female directors perceive the positive rewards of risky investments (in banks that have larger regulatory capital ratios and/or are well-capitalized) and when power shifts away due to CEO equity ownership. On the other hand, banks invest in less risky positions when female directors perceive the penalties inherent in a risky investment during the financial crisis. This paper provides novel evidence on the effect of gender diversity, as a governance mechanism, on risk taking in a social-psychology context. It offers insights on the effect of gender diversity on bank riskiness.     

Board gender diversity and firm risk in UK private firms

This research aims to investigate the effect of board gender diversity on private firm risk. Using a sample of 27,352 UK private firms from 2005 to 2017, we report a negative association between board gender diversity and firm risk. In particular, we find that risk reduction is associated with women owner directors who may have a stronger incentive for better risk management. Firm risk is lower (higher) for boards with local (foreign) women directors suggesting that local market knowledge is more valuable for private firms. Lower director busyness in gender diverse boards is the channel that enables women directors to reduce firm risk by directing more attention to fiduciary responsibilities. Additional analysis reveals that more risky, small to medium-sized firms benefit the most from gender-diverse boards. Our findings are robust to alternate risk measurements and endogeneity corrections.     

Measuring securities litigation risk

Extant research commonly uses indicator variables for industry membership to proxy for securities litigation risk. We provide evidence on the construct validity of this measure by reporting on the predictive ability of alternative models of litigation risk. While the industry measure alone does a relatively poor job of predicting litigation, supplementing this variable with measures of firm characteristics (such as size, growth, and stock volatility) considerably improves predictive ability. Additional variables such as those that proxy for corporate governance quality and managerial opportunism do not add much to predictive ability and so do not meet the cost–benefit test for inclusion.     

Co-opted directors,gender diversity,and crash risk: evidence from China

Review of Quantitative Finance and Accounting - This study examines how the composition of the board of directors at Chinese firms affects crash risk. The results indicate that co-opted directors...     

The moderating role of board gender diversity on the relationship between firm opacity and stock returns

In this study, we examine the impact of board gender diversity on the association between firm opacity and stock price crash. We utilize the negative shock of the 2007–2008 financial crisis to capital markets to examine whether firms with gender-diverse boards witnessed lower stock price crashes due to their lower opacity ex ante. Using a sample of S&P 1500 firms spanning the period 2005–2008, we employ a difference-in-differences research design and find that firms with high opacity ex ante witness more negative returns ex post. We also find that gender-diverse firms ex ante witness less negative returns ex post. Finally, our analysis reveals the moderating role that board gender diversity plays in the association between firm opacity and stock returns around the financial crisis. We subject our results to a range of robustness checks, including instrumental variable regressions, matched-sample analyses, and a set of falsification and placebo tests. Overall, we provide evidence that board gender diversity is associated with increased transparency in financial reporting, which pays off in times of crisis.     

Board gender diversity and acquisition choices

We investigate the influence of gender diversity on the acquisition choices of bidding firms and find that firms with greater gender diversity are more likely to acquire nonlisted targets, use cash as the method of payment, and purchase firms in similar industries. Results show that these preferences are significantly influenced by female directors' financial expertise, target industry experience, mergers and acquisitions (M&A) experience, academic and professional qualifications, and networks. The percentage of female directors on boards is positively correlated with the market response to the announcement of acquisition choices preferred by female directors. Furthermore, bidders improve efficiency and accumulate long-term value gains through the contributions made by their female directors to these acquisition choices.     

Shareholder litigation rights and stock price crash risk

We study the impact of shareholder-initiated litigation risk on a firm's stock price crash risk. Our empirical analysis takes advantage of the staggered adoption of universal demand laws, which led to an exogenous decline in derivative litigation risk. We find that a decline in the threat of derivative litigation reduces crash risk and that information hoarding associated with earnings management is a channel through which litigation risk affects crash risk. The relationship is also moderated by how exposed firms are to the other primary form of shareholder litigation, namely securities class-action lawsuits.     

Tradeoff between corporate investment and CSR: The moderating effect of financial slack,workforce slack,and board gender diversity

This paper investigates the existence of a tradeoff between corporate investment (i.e., tangible and intangible) and corporate social responsibility (CSR) in the presence of the moderating effects of financial slack, human resources slack, and board gender diversity. Based on an international sample of 44,129 firm-year observations between 2005 and 2019, we find that corporate investment leads to significantly lower CSR engagement in all three pillars (i.e., environmental, social, and governance). Furthermore, while financial slack positively moderates between corporate investment and CSR, human resources slack and board gender diversity negatively moderate between corporate investment and CSR. This outcome is robust in terms of endogeneity concerns, alternative sampling, alternative investment proxies, CSR regulations, and timing impacts. Hence, we find the dominance of the shareholders' perspective rather than the stakeholders' perspective. The results outline the tradeoff between corporate investment and CSR and the role of contingencies in this tradeoff relationship.     

Top executive gender diversity and financial reporting quality

We examine whether gender diversity of chief executive and chief financial officers (CEOs and CFOs) is associated with financial reporting quality. The CEOs and CFOs of publicly traded companies are both required to certify the appropriateness of their financial statements and annual disclosures. We argue that gender diverse dyads (groups) of executives can bring different perspectives and professional skepticism to financial reporting. Using a sample of different CEO/CFO gender dyads during 2006–2019, we postulate and find evidence of higher accruals quality among firms led by gender-diverse dyads compared to accruals quality reported by firms led by all-male CEO/CFO pairs. Additional analyses reveal that the auditors of firms with gender-diverse executive dyads issue audit reports later, charge higher audit fees, and are more likely to be one of the Big 4 firms. These findings support the view that top executive gender diversity enhances financial reporting quality, which has important implications for corporate governance mechanisms.     

Institutional monitoring and litigation risk: Evidence from employee disputes

In this article, we investigate how institutional investors help mitigate business‐related risks in a corporate environment. Using a large sample of employment disputes, litigations, and court cases, we find that institutional investors play a significant role in reducing employment litigation. We observe that firms with larger shares of institutional ownership have a lower incidence of employment lawsuits and that long‐term institutional investors are more effective at decreasing employee mistreatment. Our results suggest that institutional investors can improve the employee work environment and help mitigate future employee litigation. The improvement in employee work conditions has been shown to increase a firm's value through increased employee output, reduced litigation, and direct and indirect costs. Our results shed light on the effectiveness of institutional monitoring on a firm's litigation risk.     

Effect of audit report disclosure on auditor litigation risk

Internationally, the escalating number of cases levelled against auditors and the costs of defending such actions has led to the auditing profession calling for measures to reduce their liability burden. Relatively few measures have been taken by the auditing profession by way of adapting the disclosure contained in the audit report to mitigate their litigation risk. This study examines whether the issuance of an audit opinion with a going concern related ‘emphasis of matter’ paragraph or work practices disclosure has any effect on potential litigants' likelihood of pursuing litigation against the auditor. An analysis of 69 responses from advanced law students and 18 practitioners working in corporate liquidation demonstrate that a modified (but not qualified) audit report effectively acts as a ‘red flag’ and reduces potential litigants' propensity to initiate litigation. However, work practices disclosure did not significantly alter potential litigants' inclination to recommend litigation. Despite this finding, respondents (particularly liquidators) indicated that work practices disclosure was an important factor in their litigation decision. These results suggest that further investigation into how to effectively disclose the work done on audit and assurance engagements is needed. This has implications for standard setters and the auditing profession, especially considering recent changes in the disclosure contained in audit and assurance reports.     

Board gender composition,board independence and sustainable supply chain responsibility

The consideration of social and environmental factors in companies’ supply chain is a prevalent research topic because stakeholders are now inquisitive about the social and environmental impacts of companies’ suppliers. Using a sample of S&P 500 firms, we find that board gender composition and board independence are positively associated with sustainable supply chain responsibility (SSCR). We also identify three channels (CEO duality, sustainability committee and sensitive industries) through which board gender composition and board independence affect SSCR, where board gender composition consistently explains SSCR, but the effect of board independence is less pronounced in firms with CEO duality and firms with a sustainability committee. Finally, we explore the reason for the less-pronounced findings for board independence in our subsample analyses and find that, compared with independent female directors who continue to display significant associations with SSCR, independent male directors do not engender SSCR across the three subsample tests.     

The influence of litigation risk and internal audit source on reliance decisions

External auditor reliance on the work of internal auditors in an integrated audit of the financial statements and internal control is an important audit planning procedure that can impact audit efficiency and effectiveness. The purpose of this study is to examine how perceived auditor litigation risk and internal audit source affect external auditors' reliance decisions in an integrated audit environment under varying levels of risk of material misstatement. In an experimental study using 89 practicing Big 4 auditors, this study finds that auditors who perceive low litigation risk from placing reliance on the work of internal auditors will rely more on outsourced internal auditors than in-house internal auditors. The results also show that auditors' reliance decisions are sensitive to the level of account risk consistent with the risk-based approach to the integrated audit encouraged by the PCAOB.     

Gender board diversity and the cost of bank loans

We examine the relationship between female board representation and the cost of lending, using a dataset of 13,714 loans from 386 banks matched with 2432 non-financial firms from 1999 to 2013. We find that firms with female directors command lower loan spreads. In addition, female independent directors have a stronger impact on lowering spreads compared to female directors' other attributes. However, as firms build relationships with their lenders this effect becomes less potent. Finally, when we introduce firm-level heterogeneity we document that changes in gender diversity exert a stronger impact on the cost of lending in the case of bank-dependent firms, especially for relationship borrowers.