Ford International Career Development Professor
Assistant Professor of Finance
NBER Faculty Research Fellow
Corporate Finance, Behavioral Finance,
Economics of Organizations, Capital Markets
download site for some of the papers is available here.
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Working Papers and Work-In-Progress
CEO Turnover and Relative
(May 2008) Joint with Fadi Kanaan.
Award for the Best Corporate Finance Paper at the 2006 Western Finance Association Meeting.
[ Full Text ]
Abstract: This paper examines whether CEOs are fired after
bad firm performance caused by factors beyond their control. Standard economic
theory predicts that corporate boards filter out exogenous industry and market shocks
from firm performance before deciding on CEO retention. Using a new hand-collected
sample of 1,627 CEO turnovers from 1993 to 2001, we document that CEOs are significantly
more likely to be dismissed from their jobs after bad industry or bad market performance.
A decline in the industry component of firm performance from its 75th
to its 25th percentile increases the probability of a forced CEO
turnover by approximately 50 percent. This result is at odds with the prior empirical
literature, which showed that corporate boards filter exogenous shocks from CEO
dismissal decisions in samples from the 1970s and 1980s. Our findings suggest that
the standard CEO turnover model is too simple to capture the empirical relation
between performance and forced CEO turnovers, and we evaluate several
extensions to the standard model.
Security Issue Timing: What Do Managers Know, and When Do They Know It?
(November 2006) Joint with Katharina Lewellen and Jerold B. Warner.
[ Full Text ]
study put option sales undertaken by corporations during their repurchase
programs. Put sales’ main theoretical
motivation is market timing, providing an excellent framework for studying
whether security issues reflect managers’ ability to identify mispricing. Our evidence is that these bets reflect
timing ability, and are not simply a result of overconfidence. In the 100 days following put option issues,
there is roughly a 5% abnormal stock price return, and the abnormal return is
concentrated around the first earnings release date following put option
sales. Longer term effects are generally
not detected. Put sales also appear to
reflect successful bets on the direction of stock price volatility.
Conflicts of Interests Among Shareholders: The Case of Corporate Acquisitions
(November 2006) Joint with Jarrad Harford and Kai Li.
[ Full Text ]
Abstract: We identify important conflicts of interests
among shareholders and examine their effects on corporate decisions. When a firm is considering an action that
affects other firms in its shareholders’ portfolios, shareholders with
heterogeneous portfolios will disagree about whether to proceed. This effect is large and measurable in the
case of mergers and acquisitions, where bidder shareholders with cross-holdings
in the target want management to maximize a weighted average of both firms’
equity values. Empirically, we find that
these cross-holdings are large for a significant group of institutional shareholders
in the average acquisition and even for a majority of institutional shareholders
in a significant number of deals. We
test whether cross-holding shareholders have influence over management in
structuring deals and find that managers effectively ignore their shareholders’
portfolio concerns and behave as if the cross-holdings do not exist. We note that managers are compensated to
behave as undiversified shareholders in their own firm.
Employee Sentiment and Stock Option Compensation
(November 2006) Joint with Nittai Bergman.
Forthcoming at the Journal
of Financial Economics.
[ Full Text ]
Abstract: The use of equity-based compensation for
rank-and-file employees is a puzzle. We analyze whether the popularity of option
compensation may be driven by employee optimism,
and show that optimism by itself is insufficient to make option compensation
optimal. The crucial insight is that firms compete with
financial markets as suppliers of equity to employees and that employees’ access
to the equity market restricts firms’ ability to profit from employee optimism. Firms
must be able to extract some of the implied rents even though employees can
purchase company equity in the financial markets. Such rent extraction becomes feasible if employees
prefer the stock options offered by firms to the equity offered by the market,
or if the traded equity is overvalued. We provide empirical evidence that firms use
broad-based options compensation when boundedly rational employees are likely
to be excessively optimistic about company stock, and when employees are likely
to strictly prefer options over stock.
Market Timing and Managerial Portfolio Decisions
(August 2005) Journal of Finance
Vol. 60 No. 4.
Nominated for the Brattle Prize for the Best Corporate Finance Paper in the Journal of Finance.
[ Full Text ]
provides evidence that top managers have contrarian views on firm
Managers' perceptions of fundamental value diverge systematically from
market valuations, and perceived mispricing seems an important
of managers' decision making. An analysis of insider trading patterns
shows that low valuation ("value") firms are regarded as undervalued
by their own managers relative to high valuation ("growth") firms. This
finding is robust to controlling for non-information motivated trading.
Managers in value firms actively purchase additional equity on the open
market despite substantial prior exposure to firm risk through stock
option holdings, equity-based compensation and firm-specific human
Further evidence links managers' private portfolio decisions directly
to changes in corporate capital structures, suggesting that managers
actively time the market both in their private trades and in firm-wide
Selling Company Shares to Reluctant Employees: France
(January 2004) Journal of Financial Economics
Vol. 71 No. 1.
Abstract ] [ Full
Joint with Francois Degeorge, Alberto Moel and Peter Tufano.
Executive Compensation, Incentives, and Risk
(April 2002) [ Full Text ]
Award for the Outstanding Doctoral Student Paper at the 2001 SFA Meeting.
Abstract: This paper
the link between equity-based compensation and created incentives by
(1) deriving a measure of incentives suitable for both linear and
non-linear compensation contracts, (2) analyzing the effect of risk on
incentives, and (3) clarifying the role of the agent’s private trading
in incentive creation. With option-based compensation contracts, the
average pay-for-performance sensitivity is not an adequate measure of
ex-ante incentives. Pay-for-performance covaries negatively with
utility and hence overstates the created incentives. Second, more noise
in the performance measure may imply that also the manager is less
about the effect of effort on performance, which in turn makes her less
willing to exert effort. Finally, the private trading decisions by the
have first-order effects on incentives. By reducing her holdings of the
market asset, the manager achieves an effect similar to indexing the
stock or option grant, making explicit indexation of the contract