The role of equity compensation in reducing inefficient investment in labor

We investigate whether equity compensation incentivizes executives to make efficient labor investment decisions. In doing so, we examine the extent to which stock options and restricted stock differentially influence labor investment decisions. Consistent with theoretical predictions, we find that stock options exacerbate, while restricted stock mitigates, inefficient labor investment. The effect of stock options (restricted stock) are weaker (stronger) for financially constrained firms. Our results are robust to alternative proxies for inefficient labor investment and when addressing a range of endogeneity concerns. Our research demonstrates that stock options and restricted stock matter in executives' labor investment decisions, but in different ways. Our findings have implications for future research, suggesting that stock options and restricted stock need to be separately considered when examining the impact equity compensation has on capital or investment decision making; and for executive remuneration practice.     

Do employee-friendly firms invest more efficiently? Evidence from labor investment efficiency

We investigate the impact of employee treatment on labor investment efficiency. We provide evidence that employee-friendly treatment is significantly associated with lower deviations of labor investment from the level justified by economic fundamentals, i.e., higher labor investment efficiency. The effect of employee treatment on labor investment efficiency is stronger for firms that are human-capital-intensive, with more skilled labor and knowledge capital, and those that face higher product market competition. Using the 2008–2009 financial crisis as an external shock and applying the difference-in-difference method, we also show that employee-friendly firms have higher labor investment efficiency in the post-financial crisis period, but experience more inefficient labor investments during the crisis. Our results are robust to placebo tests, selection bias, propensity score matching, alternative explanations, alternative proxies for both employee treatment and labor investment efficiency as well as the adjustment for using residuals as dependent variables, additional control variables, and various approaches in addressing endogeneity issues.     

Do analysts’' forecast properties deter suboptimal labor investment decisions? Evidence from Regulation Fair Disclosure

We examine whether analysts' forecast properties deter inefficient labor investment decisions. Using accuracy and dispersion as analysts' forecast properties, we find that more accurate and less dispersed forecasts are associated with less inefficient corporate labor investments. Utilizing Regulation Fair Disclosure (Reg FD) as an exogenous variation to analysts' forecast activities, we find a causal relationship between analysts' forecast properties and labor investment inefficiency. We also find that more accurate and less dispersed forecasts decrease labor cost stickiness. Our results are consistent with the view that analysts' forecast properties enhance the information environment, which, in turn, improves corporate labor investment decisions.     

Independent directors’ board networks and controlling shareholders’ tunneling behavior

As one of the channels by which board directors build important relationships, board networks can affect the governance role of independent directors. Defining director board networks as their connections based on direct ties they establish when serving on at least one common board, this paper explores the role of the network centrality of independent directors in restraining tunneling behavior by controlling shareholders in the Chinese capital market. Our empirical evidence shows that tunneling behavior by controlling shareholders is negatively related to the network centrality of independent directors and that this relationship is stronger when non-operating fund occupation is used as the measure of tunneling. The results of our study show that board networks can help independent directors to restrain tunneling behavior by large shareholders, which plays a positive role in corporate governance.     

The effects of management-board ties on IPO performance

This paper studies the two potentially contrasting effects on IPO pricing and post-IPO operating performance of family ties as well as social ties the top management has with board members. While family ties may solve manager–owner conflicts of interests, they may also give rise to minority-shareholder expropriation and/or private benefits of control. Similarly, social ties may either create value or lead to entrenchment and excessive managerial power. Using q-analysis to measure the strength of top manager ties to board members, we find that IPO performance is positively related to the strength of social ties, but negatively to the strength of family ties. We also find that, controlling for social ties, board independence affects both IPO pricing and post-IPO operating performance. Further, we show that the association between IPO performance and ties depends on whether they are with inside or outside directors.     

Institutional investors’ site visits and corporate employment decision-making

This study examines the effect of institutional investors’ site visits on corporate employment decision-making. Using a unique dataset of corporate site visits (CSVs) to the listed firms in China, we find that CSVs are associated with less labor investment inefficiency. The effect is more pronounced in firms with lower information quality, worse corporate governance, and severe financial constraints. Our results are robust to endogeneity concerns. Further analysis suggests that labor investment inefficiency leads to lower future performance. Overall, our results are consistent with the view that CSVs improve information quality, corporate governance, and access to finance, which in turn, mitigates inefficient labor investment.     

Independent audit committee members’ board tenure and audit fees

An independent audit committee is an audit committee on which all members are independent directors. This study examines whether independent audit committee members’ board tenure affects audit fees. On the basis of the prior literature, we formulate an unsigned hypothesis. This is because on the one hand, long board tenure audit committee members (defined as members with board tenure of 10 or more years) have greater incentives to protect their reputational capitals by purchasing increased audit effort, which positively affects audit fees. On the other hand, audit pricing reflects audit committee quality. Long board tenure audit committee members may have less need for increased audit effort because they can effectively oversee the financial reporting process themselves, which negatively affects audit fees. We find that audit fees are negatively associated with the proportion of long board tenure directors on the independent audit committee, consistent with the notion that audit committee members’ long board tenure results in lower audit effort.     

Conditional conservatism and labor investment efficiency

Prior literature documents that asymmetric timely recognition of losses versus gains (also known as conditional conservatism) can induce management to make more efficient investment decisions by mitigating information asymmetry between management and investors and providing early signals about the profitability of projects that are undertaken. In this paper, we investigate the impact of conservatism on an important investment decision that has been overlooked, namely, investment in labor. We find that conservatism is negatively associated with labor investment inefficiency; more specifically, conservatism reduces inefficient investment practices on the labor market, including over-hiring, under-firing, under-hiring, and over-firing. Our results hold after controlling for managerial ability, corporate governance, and other investments.     

High-speed rail construction and labor investment efficiency: Evidence from an emerging market

This study investigates the association between high-speed rail (HSR) construction and labor investment efficiency. Using unique hand-collected data on HSR construction over the period 2008–2019, we find that HSR construction can significantly decrease inefficient labor investment in China. In addition, we find that this negative relationship is (a) strong in state-owned companies and in firms located in big cities and (b) weak in financially constrained firms and in firms located in areas with a strong religious atmosphere. Consistent with the theoretical prediction, we find that the HSR construction mitigates inefficient labor investment by reducing information asymmetry between managers and investors and enhancing labor mobility. Overall, our findings are robust to alternative measurements, additional controls, fixed effects, and endogeneity concerns. Our findings have implications for firms’ top management to make strategic decisions and for government’s bodies/policymakers in relevance to HSR investment decisions.     

Birds of a feather: Value implications of political alignment between top management and directors

For 2,695 US corporations from 1996 to 2009, we find that alignment in political orientation between the chief executive officer (CEO) and independent directors is associated with lower firm valuations, lower operating profitability, and increased internal agency conflicts such as a reduced likelihood of dismissing poorly performing CEOs, a lower CEO pay-performance sensitivity, and a greater likelihood of accounting fraud. Importantly, we show that our results are driven neither by the effects associated with various measures of similarity and diversity within the board nor the effects of local director labor market and political conditions on board structure. We provide evidence that our measure of individual political orientation reflects the person?s political beliefs rather than opportunistic attempts to seek political favor. Overall, our results suggest that diversity in political beliefs among corporate board members is valuable.     

It pays to have friends

Currently, a director is classified as independent if he or she has neither financial nor familial ties to the CEO or to the firm. We add another dimension: social ties. Using a unique data set, we find that 87% of boards are conventionally independent but that only 62% are conventionally and socially independent. Furthermore, firms whose boards are conventionally and socially independent award a significantly lower level of compensation, exhibit stronger pay-performance sensitivity, and exhibit stronger turnover-performance sensitivity than firms whose boards are only conventionally independent. Our results suggest that social ties do matter and that, consequently, a considerable percentage of the conventionally independent boards are substantively not.     

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.     

Effectiveness of independent boards of UCITS funds

In order to protect fund investors against conflicts of interest with fund management companies, US funds have mandatory independent directors, but this obligation is not required under the European Union Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. Nevertheless, a considerable number of UCITS funds do have independent directors. Whether independent directors should also be mandatory in Europe has been a topic of ongoing debate. Using a sample of Luxembourg UCITS, we test the hypothesis that more independent boards add value for investors through lower costs and/or better investment performance, but we fail to find supporting evidence, even for funds with a higher risk of conflicts of interest. Oversight by independent depositaries and institutional shareholders does not seem to be effective either. It appears that board attitude and the sponsor distribution model are more important since we find evidence that boards that prioritise cost monitoring have lower costs and that independent sponsor funds have better performance. These results question the effectiveness of self-regulation or formal regulation requiring independent board members.     

货币政策对企业劳动投资效率的影响研究

基于2010—2020年我国A股上市公司的相关数据,对货币政策与企业劳动投资效率之间的关系进行探讨。研究发现,在货币政策紧缩时,企业劳动投资效率会有明显的提高,会计稳健性的提高以及自由现金流量的减少是紧缩性货币政策影响企业劳动投资效率的主要作用机制。进一步研究发现,高质量的公司治理水平会抑制紧缩性货币政策对企业劳动投资效率的影响。非效率劳动投资分组检验结果表明,紧缩性货币政策对企业劳动投资效率的促进效应,更多地表现为抑制劳动投资过度。     

The Nature of Board Nominating Committees and Their Role in Corporate Governance

This study examines the association between the employment and composition of nominating committees with board and ownership characteristics. First, the results suggest that the likelihood of using a nominating committee is inversely related to the level of inside ownership and positively weakly, related to the independence, but not the number, of outside board members. Second, the percentage of insiders participating in the committee is positively related to inside ownership, and negatively related to proxies for outside director quality. Finally, outside directors are more likely to serve on the nominating committee the more outside directorships they hold, and the longer their tenure in the firm. The likelihood of insider committee membership rises with a director's equity investment, with board tenure, and with other committee memberships. Taken together, the results are consistent with nominating committees substituting inside ownership in controlling management, mostly improving board quality, and being staffed with independent, experienced, and knowledgable members.     

Family ties,board compensation and firm performance

This study examines the effect of corporate boards with family ties on board compensation and firm performance. Family firms dominate the vast majority of enterprise forms around the world. Despite possible agency problems between large and small shareholders, family boards may contribute specific knowledge and competitive advantage to the firm. This paper shows that the excess board compensation of firms with a non-family CEO is positively related to the percentage of board members with family ties, but the presence of family boards cannot justify the outcome of firm performance, suggesting a negative entrenchment of firms with a non-family CEO. By contrast, the excess board compensation of firms with a family CEO is found to be unrelated to the percentage of board members with family ties, and the presence of family boards is positively associated with firm performance, suggesting the convergence-of-interests of firms with a family CEO.     

External Networking and Internal Firm Governance

We use panel data on S&P 1500 companies to identify external network connections between directors and CEOs. We find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. Using changes in board composition due to director death and retirement for identification, we find that CEO‐director ties reduce firm value, particularly in the absence of other governance mechanisms to substitute for board oversight. Moreover, firms with more CEO‐director ties engage in more value‐destroying acquisitions. Overall, our results suggest that network ties with the CEO weaken the intensity of board monitoring.     

Does independent directors’’ monitoring affect reputation? Evidence from the stock and labor markets

Using novel data on independent directors’ opinions in China, we investigate the stock and labor market effects prompted by independent directors publicly saying “no” to major board decisions. We find that the market reacts negatively to modified director opinions, but positively to firms interlocked with the directors who said “no.” We further find substantial turnover and decline in board seats after independent directors issue modified opinions. Overall, we identify a dilemma in China whereby the labor market does not reward vigilant directors for standing up to firm insiders, although investors add a premium to effective board monitoring.     

New Evidence on the Market for Directors: Board Membership and Pennsylvania Senate Bill 1310

We examine the relation between a board's decision to reject antitakeover provisions of Pennsylvania Senate Bill 1310 and subsequent labor market opportunities of those same board members. Compared to directors retaining all provisions, directors rejecting all protective provisions of SB1310 are three times as likely to gain additional external directorships and are 30 percent more likely to retain their internal slot on the board of that same Pennsylvania company. For external board seats, the results are driven by nonexecutive directors who are not members of the management team; for internal board seats, the results are driven by executive directors.     

Non-GAAP earnings and board independence

We examine the association between board independence and the characteristics of non-GAAP earnings. Our results suggest that companies with less independent boards are more likely to opportunistically exclude recurring items from non-GAAP earnings. Specifically, we find that exclusions from non-GAAP earnings have a greater association with future GAAP earnings and operating earnings when boards contain proportionally fewer independent directors. Consistent with the association between board independence and the permanence of non-GAAP exclusions reflecting opportunism rather than the economics of the firm, we find that the association declines following Regulation G and that managers appear to use exclusions to meet earnings targets prior to selling their shares more often in firms with fewer independent board members. Overall, our results suggest that board independence is positively associated with the quality of non-GAAP earnings.