Executive Compensation: The Trend Toward One Size Fits All
(Job Market Paper; WFA Trefftzs Award for Best Student Paper)
This paper reports the prevalence of a "one-size-fits-all" trend in the structure of executive compensation plans. The way firms distribute total compensation across different components of pay -salary, bonus, stock awards, option awards, non-equity incentives, pensions, and perquisites- has become more similar since 2006. In particular, 25% of the variation across firms disappeared in the last thirteen years. Using close votes surrounding Say-on-Pay's implementation, I find that shareholders' influence on management decisions causes part of this convergence. This finding is robust in both difference-in-difference and RDD estimations. Additional evidence suggests that proxy advisors play a role by pushing towards standardization. I find evidence suggesting that standardization leads to a sub-optimal design of contracts. The more similar a firm's compensation structure becomes to the others, the lower its market value. Additionally, I find a negative impact on delta and vega and a positive impact on total compensation and financial misstatements.
The Effect of Mandatory Information Disclosure on Financial Constraints
(Revise and Resubmit at Journal of Accounting and Economics; presented at AFA 2019)
This paper studies the effects of the mandatory implementation of a more informative disclosure regime on firms' financial constraints and investment policies. I run a difference-in-difference analysis and find that firms moving from a voluntary use of the regime to a mandatory use increase debt issuance and investment in tangible assets, and reduce the level of discussion about difficulties in obtaining debt financing. At the same time, they report higher difficulties obtaining external finance through equity. These findings support the hypothesis that mandatory disclosure provides a commitment device to future disclosure but shuts down the signaling value of voluntary disclosure.
Directors Networks and Innovation Herding
(with Jerry Hoberg)
This paper examines the role of overlapping board networks on firm innovation, competition, and performance. First, we document that, despite the Clayton Act, overlapping directors are surprisingly most prevalent among competitor firm pairs. Using panel data regressions with rigid controls and plausibly exogenous shocks, we find that competing firms in markets with dense director overlaps engage in innovation herding, experience losses in product differentiation, and ultimately perform poorly. We validate these findings using novel network propagation tests of individual technologies, which show that firms with overlapping directors experience larger and faster propagation of technology transfers to their product market peers. Our results are most consistent with an agency conflict that is new to the literature, as directors can realize better career outcomes by leaking sensitive information across boards, even though a consequence of repeated leakage can be value destruction.
Work in Progress
The Product Market Reaction to Opaque IPOs. Evidence from JOBS Act
In this project, I study how firms react to a rival’s IPO when the rival is allowed to stay opaque. An IPO allows a company to raise capital from public investors, improving its competitive position in the product market. At the same time, public firms must meet disclosure requirements, which may reduce the competitive advantage of being opaque. I explore rivals’ reactions to IPOs using JOBS Act as an exogenous shock that reduced the disclosure requirement, creating opaque IPOs. JOBS Act retrospectively took place four months before Congress passed it. Thus it benefited some firms after they already have decided on becoming public. I exploit IPO dates right before and right after the JOBS Act retrospectively took place to identify plausible exogenous variations in IPO opacity. Then, I examine how rivals react to opaque IPOs compared to full-disclosure IPOs. I find that opaque IPOs’ closest competitors increase their level of institutional ownership, become less equity constrained, and invest more in R&D than standard IPOs’ rivals.
Green Incentives in Executive Compensation Plans and Firm Value
(with AJ Chen)
In this project, we study if institutional investors make any difference in firms' environmental policies. We use text analysis of compensation plans to identify if executives have explicit incentives to care about the environment. We find that the higher the institutional investors' ownership, the higher the probability of having green compensation incentives. Do these policies create value? We find that Tobin's Q increases only if the firm is in an industry with a high level of emissions, showing that the market values the effort only when environmentally relevant. To explore whether these policies are effective or not, we are obtaining data on firm-level emissions, ESG indexes, and climate risk exposure, and we will test whether the greenness of a compensation plan has any impact on them.