Blockholder and CEO Wealth-Performance Sensitivity, with Garry Twite
Abstract: CEO incentive contracts both i) substitute blockholder monitoring by reducing the agency problem and ii) complement blockholder monitoring by increasing the disciplinary effect on CEOs when dissatisfied blockholders exit. I model the relation between managerial incentives and blockholder monitoring and show the substitution effect dominates. It is predicted that blockholders who are monitors are less likely to be in a firm as its CEO incentives increase. Empirically, I find higher CEO incentives indeed lead to lower blockholding and that the negative relation is stronger in firms where blockholder monitoring is more likely. To support the causal claim, I examine the FASB and SEC regulation changes in 2006, which required firms to expense and disclose equity-based CEO pay. Firms' concerns about such expenses and disclosures might reduce CEO incentives but should not directly increase blockholding. I find firms that reduced CEO incentives after the regulation changes had significant increases in blockholding.
Presentation (selected): 2022 FMCG PhD Symposium; 2022 FMA European; 2022 EFA Doctoral Tutorial; 2022 FMA Special PhD Paper Presentation; 2022 FIRN PhD Symposium; 2022 Paris December Finance Meeting; 2022 AFBC.
Media Coverage: The FinReg Blog, by the Duke Financial Economics Center at Duke University.
Creditor Control Rights and Blockholder, with Garry Twite
Abstract: This paper looks at how creditor control rights affect blockholders' stakes in a firm. Using a sharp regression discontinuity design, I find that blockholders have higher stakes in a firm after its covenant violations, when creditors have more control and help improve the firm. I also find that such stake increases are less likely for blockholders who are experienced in governance activities. Overall, the results suggest that blockholders, except the activists, are attracted to firms where they can passively generate returns. Despite the desire to generate short-term returns, I find blockholders still care about long-term value as evidenced by their associations with post-violation firm policies and performances. This paper helps depict the multifaceted motives of blockholders in a firm.
Presentation (selected): 2022 FMCG Conference; 2022 FMA Asia Pacific; 2023 AFBC (scheduled).
Ownership Concentration and Crisis Recovery, with Yifan Zhou
Abstract: This paper examines the effects of a firm having blockholders during the 2008-09 financial crisis (GFC) on its post-crisis recovery. We find that firms with higher mid-crisis blockholder ownership recover better in ROA, sales growth, Tobin's Q, and asset turnover in the decade following the GFC. We further discover that during the GFC, blockholder ownership was associated with i) more votes against manager-sponsored proposals, ii) a higher probability of appointing a new CEO and/or director, and iii) issuance of less net debt and net equity. Among these activities, we find that only the governance-related ones might have contributed to a firm's crisis recovery.
Presentation (selected): 2023 AFBC (scheduled).