Date: May 29, 2012
Time: 10:15 am
Location: Pearlstein 404
Department: Finance

Abstract

Essays in Corporate Governance

Essay #1: Acquisitions by CEOs with supply-chain expertise
Abstract:
This paper studies whether the experience of the bidding CEO in critical supply-chain relationships affecting the target's industry is related to merger quality and to CEO compensation. My results show that acquisitions by CEOs with this supply-chain experience exhibit higher acquirer abnormal returns and higher synergy abnormal returns at deal announcement. Supply-chain expertise is also associated with improved long-term operating performance at the merged firm. However, I find no evidence that CEOs with supply-chain expertise execute acquisitions to detach their pay from poor firm performance. In general, my findings indicate that acquisitions by CEOs with expertise in the target's supply chain generate substantial gains for the acquiring shareholders.

Essay #2: Large wealth creation in mergers and acquisitions
Co-authors: Eliezer Fich and Micah Officer
Abstract:
We examine completed M&A deals with large bidder shareholder dollar wealth gains at announcement. Our results show that large-gain acquisitions are (i) typically "bolt-on" deals that are small relative to the acquirer's size; (ii) transaction-specific events (not firm- or CEO-specific events); (iii) enhanced by synergies from a strategic fit in the supply chain; (iv) executed by bidders with high valuation multiples and; (v) implemented when borrowing costs are low. Many of these findings, which differ from those in the existing literature, provide important insight into the factors associated with considerable wealth creation for acquirer shareholders in M&A deals.

Essay #3: Efficacy of Board Monitoring: Evidence from the appointments of outside directors who have fired CEOs
Co-authors: Jay Cai
Abstract:
Board monitoring of management is arguably the most important internal control mechanism of corporate governance, yet an independent director�s ability to monitor a CEO are often not directly observable to parties outside the boardroom. In this paper, we examine the new board appointments of the outside directors who have demonstrated their monitoring ability through the firing of a CEO at a different firm (henceforth CEO ousters). We document that poorly performing firms and firms with weak board oversight are more likely to appoint CEO ousters. Poorly performing firms experience significantly more positive market reaction to the appointment of CEO ousters. These firms also experience a significant increase in stock and operating performance, as well as CEO turnover sensitivity to performance after a CEO ouster joins the boards. Firms performing well, however, do not appear to benefit from the addition of such directors. Finally, after a CEO ouster joins the compensation committee of a board, overpaid CEOs experience significant decrease in their pay. Our evidence sheds new light on the efficacy of board monitoring.

Date: May 25, 2012
Time: 10:00 am
Location: 3600 Market St., 712
Department: Accounting

Abstract

Transparency and Tax Aggressiveness

This study examines how an increase in transparency affects management's tax avoidance behavior as it relates to uncertain tax positions. Recently the reporting environment for uncertain tax positions has changed significantly, resulting in an increase in the potential costs for engaging in tax aggressiveness. In 2007, FASB required firms to disclose their aggregate tax reserves relating to uncertain tax positions in their annual financial statements, and in 2010, Treasury required firms to individually disclose their uncertain tax positions in their annual tax return. When disclosing information to the IRS, firms want to strategically disclose items that will not raise any red flags for a potential audit. However, due to the ambiguity of the tax code and varied interpretations by Treasury, Courts, and the academic community, management are at times uncertain on whether their firm qualifies for the uncertain tax position. As such, managers are faced with the decision on whether to elect an uncertain tax position that will provide potential tax savings but may also warrant further scrutiny by the IRS. This paper examines the new trade-off management face between tax savings and costs by entering into tax avoidance activities.

Date: May 24, 2012
Time: 09:00 am
Location: Pearlstein 403
Department: Finance

Abstract

Essays in Corporate Governance

Essay #1: Blockholder Attention
Abstract:
The supply of blockholder effort is limited. Yet, the theoretical and empirical literature assume blockholders are unconstrained. In this paper, I study how resource constraints impact the ability of blockholders to monitor the firms they own. I hypothesize that a blockholder allocates its monitoring resources on the basis of the relative position a block holds within its portfolio and is more likely to monitor blocks in which it has a large percentage of its capital invested. I define High Attention Blocks as those blocks that rank within the top ten percent of a blockholder’s portfolio and Non-High Attention Blocks as those outside the top ten percent. After controlling for selection issues, I find firms with High Attention Blocks lower the compensation of overpaid CEOs, reduce pay-for-luck for overpaid CEOs, strengthen the relation between CEO turnover and firm performance, and decrease their propensity to make value destroying acquisitions. Non-High Attention Blocks are not associated with any of these effects. Moreover, the effects of High Attention Blocks, along each of these four dimensions, are all significantly stronger than those of the Non-High Attention Blocks. Overall, there is a strong correlation between the attention a block receives and observable changes in firm governance.


Essay #2: CEO Skill in Acquisitions
Co-authors: Jeff Jaffe and Torben Voetmann
Abstract:
Are there skill differences in mergers and acquisitions? To investigate this question, we focus on persistence in the performance of corporate acquirers, finding significant evidence at the firm level. Persistence may be due to skill differences across either entire corporations or specific executives. We find persistence only when successive deals occur under the same CEO, not when the CEO changes. We conclude that skill differences in acquisitions reside with the CEO, not with the firm as a whole. These differences are economically meaningful. An acquirer that was successful in its last deal and kept its CEO earns, on average, 1.02% more on its next deal than does a previously-unsuccessful firm that also kept its CEO. This percentage difference is equivalent to a $175 million difference in value creation for the shareholders of an average-sized bidder.


 
Essay #3: The Price Effects of Event Risk Protection: The Results from a Natural Experiment
Co-authors: Karl Okamoto and Natalie Pedersen
Published in Journal of Empirical Legal Studies (2011)
Abstract:
Prior studies conclude that bond prices reflect both an issuer’s event risk and a bond’s contractual protections from event risk. Therefore, it is assumed that the market requires a higher return for unprotected bonds than for comparable protected bonds. These prior studies, however, struggle with the problem of isolating the pricing effect by controlling for comparability. Issuers will differ from each other on a number of other attributes that could affect their bond prices. The issue of comparability eludes a simple modeling solution given the indefiniteness and multiplicity of variables that could cause the market to distinguish one issuer from another. Recent court decisions regarding the buyout of Bell Canada Enterprises provide a natural experiment for evaluating the pricing effect of event-risk protection that mitigates this comparability problem. Based on this experiment, we find support for the prior conclusions that an exogenous shift in event-risk protection is priced by the market.