Research Interests: Financial Economics, Corporate Governance, Applied Econometrics
Curriculum Vitae
Working Papers:
Yesterday's Heroes: Compensation and Creative
Risk Taking (October 2009)
(with Harrison Hong
and Jose Scheinkman,
Princeton)
Abstract: We investigate the link between compensation and
risk-taking among finance firms during the period of 1992-2008. First,
there are substantial cross-firm differences in total executive
compensation residualized for firm size. Second, residual pay is
correlated with price-based risk-taking measures including firm beta,
return volatility, tail cumulative return performance, and the
sensitivity of firm stock price to the ABX subprime index. Third,
residual compensation is also weakly correlated with balance-sheet based
risk-taking measures such as holdings of non-GSE mortgage-backed
securities and book leverage. Fourth, these risk-taking measures are
correlated with residual pay even though executives are highly
incentivized as measured by insider ownership. Finally, compensation
and risk-taking are not related to governance variables but covary with
ownership by institutional investors who tend to have short-termist
preferences and the power to influence firm management policies. Our
findings suggest that our residual pay measure is picking up other
important high-powered incentives not captured by insider ownership.
They also point to substantial heterogeneity in both firm culture and
investor preferences for short-termism and risk-taking.
Corporate Governance Spillovers (August
24, 2009)
Abstract: Failures of corporate governance at one
firm spill over into short-termism and incentives for managers at other
firms to manipulate earnings fraudulently when relative performance
evaluation is a factor in CEO retention. The model predicts that (i)
manipulation should be U-shaped as a function of relative performance in
the presence of spillovers, that (ii) weak governance predicts earnings
manipulation at competing firms, and (iii) the link between manipulation
and peer governance should be stronger when tolerance for relative
underperformance is small. I provide empirical evidence consistent with
these predictions and the implication that a few "bad apples" can lead
to increased misbehavior at other firms.
Ongoing Projects (Drafts Forthcoming):
Is Short-Term Debt Hazardous? Dynamic Debt Runs, Agency, and Bailouts
(with Konstantin Milbradt, MIT-Sloan)
Do Capital Market Frictions Affect Corporate Policies? A Study in S&P 500 Index Addition
Consumption Inequality During the Great Compression
(with Jonathan Parker, NWU-Kellogg)
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