Essays in Empirical Corporate Finance

Essay 1: “Acquisitions by CEOs with supply-chain expertise” Is the experience of the bidding CEO in the target’s supply chain related to the acquirer’s gain from the deal? This paper shows that acquisitions by CEOs with this supply-chain experience exhibit higher acquirer abnormal returns at deal announcement. Supply-chain expertise is also associated with improved long-term operating performance at the merged firm. However, there is no evidence that CEOs with supply-chain expertise receive higher compensation or lower pay-for-performance sensitivity following an acquisition. 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”, with Eliezer Fich and Micah Officer 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; and; (iv) executed by bidders with high valuation multiples. 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”, with Jay Cai 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 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.