Research

Working papers

• Shareholder Voice and Executive Compensation
  December 2024
  ssrn
  
  Abstract

  I estimate a model of CEO compensation with non-binding shareholder approval votes (Say-on-Pay). The Board sets compensation and (relative to shareholders) may prefer high total pay; shareholders can fail the vote and punish the Board for high pay. Failed votes are perceived as costly by the Board and shareholders: Say-on-Pay resembles a costly punishment mechanism, raising firm value by 2.4% on average, despite only 7% of votes failing. I analyze a counterfactual binding vote: failure binds pay to prior levels, which may not reflect current information about CEO ability. The failure rate falls, pay levels increase and firm value decreases.
• Human Capital, Competition and Mobility in the Managerial Labor Market
  with Noah Lyman and Lin Zhao
  November 2024
  Draft available upon request
  
  Abstract

  We estimate a search model of managerial careers to quantify the relative importance of human capital accumulation (both general and firm-specific), managerial bargaining power, and imperfect labor market competition in shaping compensation and mobility in the market for US corporate executives. The composition of human capital is career-dependent and varies widely across managers: over tenure, firm-specific capital is the greatest driver of wage growth, whereas over experience in the labor market, job search and competition dominate. Firm-specific capital can help explain the high rate of internal CEO hires and low observed cross-firm CEO mobility. We further show that labor market competition (relative to pure bargaining power) makes up the majority of realized CEO surplus capture, and that firm-specific human capital positively interacts with competition in determining CEOs' shares of rents as it raises the match-specific quality between the firm and manager.
• Sacred Hurdle Rates and Bargaining Power
  with Bruce Carlin, Alan D. Crane and John R. Graham
  December 2024
  ssrn
  previously circulated as Project Development with Delegated Bargaining: The Role of Elevated Hurdle Rates
  
  Abstract

  CFOs report using buffered hurdle rates averaging 6.6 percentage points above the cost of capital. These are taken as given by managers (considered sacred) and are central to company activity: realized returns in our data cluster just above elevated hurdle rates. Buffers convey a bargaining advantage over counterparties in project development and M&A. Our model shows this benefit can exceed the opportunity cost of forgone projects, preserving firm value. Consistent with the model, bidders' elevated hurdle rates in M&A deals associate with higher surplus capture ex post; and in CFO survey data, buffers negatively relate to ex ante bargaining power.

Publications

• Corporate Flexibility in a Time of Crisis
  with Murillo Campello, John R. Graham and Yueran Ma
  Journal of Financial Economics, June 2022
  internet appendix; published version; ssrn; github repo
  
  Abstract

  We use the COVID shock to study the direct and interactive effects of several forms of corporate flexibility on short- and long-term real business plans. We find that i) workplace flexibility, namely the ability for employees to work remotely, plays a central role in determining firms’ employment plans during the health crisis; ii) investment flexibility allows firms to increase or decrease capital spending based on their business prospects in the crisis, with effects shaped by workplace flexibility; and iii) financial flexibility contributes to stronger employment and investment, in particular when fixed costs are high. While the role of workplace flexibility is new to the COVID crisis, CFOs expect lasting effects for years to come: high workplace flexibility firms foresee continuation of remote work, stronger employment recovery, and shifting away from traditional capital investment, whereas low workplace flexibility firms rely more on automation to replace labor.