Executive Equity Risk-Taking Incentives and Firms’ Choice of Debt Structure
Iftekhar Hasan, Walid Saffar, Yangyang Chen, Leon Zolotoy
Journal of Banking and Finance,
December
2021
Abstract
We examine how executive equity risk-taking incentives affect firms’ choice of debt structure. Using a longitudinal sample of U.S. firms, we document that when executive compensation is more sensitive to stock volatility (i.e., has higher vega), firms reduce their reliance on bank debt financing. We utilize the passage of the Financial Accounting Standard (FAS) 123R option-expensing regulation as an exogenous shock to management option compensation to account for potential endogeneity. In cross-sectional analyses, we find that the documented effect of vega is amplified among firms with higher growth opportunities and more opaque financial information; we also find vega's effect is mitigated in firms with limited abilities to tap into public debt market. Supplemental analyses suggest that firms with higher vega face more stringent bank loan covenants. We conclude that, by encouraging risk-taking, higher vega reduces firms’ reliance on bank debt financing in order to avoid more stringent bank monitoring.
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Military Directors, Governance and Firm Behavior
Chen Cai, Iftekhar Hasan, Yinjie (Victor) Shen, Shuai Wang
Advances in Accounting,
December
2021
Abstract
We build a large dataset of board of directors with military experience and document a substantial and persistent presence of independent military directors serving on corporate boards. We find that firms with independent military directors are associated with better monitoring outcomes, including less excessive CEO compensation, greater forced CEO turnover–performance sensitivity, and less earnings management.
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Stock Price Fragility and the Cost of Bank Loans
Bill Francis, Iftekhar Hasan, Yinjie (Victor) Shen, Pengfei Ye
Journal of Empirical Finance,
September
2021
Abstract
This study examines whether the flow volatility experienced by institutional investors affects firms’ financing costs. Using Greenwood and Thesmar’s (2011) stock price fragility measure, we find that there is a positive relationship between fragility and firms’ costs of bank loans. This effect is most pronounced when lenders rely more on institutional shareholders to discipline corporate management, or when loans are made by relationship lenders, suggesting that unstable flows could weaken institutional investors’ monitoring effectiveness and strengthen relationship banks’ bargaining power.
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29.07.2021 • 20/2021
Kommunikation statt Konflikt – was weibliche CEOs für Hedgefonds interessant macht
Der Wert weiblich geführter Unternehmen wird durch die Intervention aktivistischer Investoren stärker erhöht als der von Unternehmen mit männlichen CEOs. Das geht aus einer aktuellen Veröffentlichung von Iftekhar Hasan (Fordham University und IWH) und Qiang Wu (Rensselaer Polytechnic Institute, RPI) am Leibniz Institut für Wirtschaftsforschung Halle (IWH) hervor. „Die Ergebnisse zeigen, dass weibliche CEOs aufgrund ihrer starken kommunikativen und zwischenmenschlichen Fähigkeiten besonders von der Intervention von aktivistischen Hedgefonds profitieren“, erklärt Iftekhar Hasan. Denn im Durchschnitt erhöht das Eingreifen eines aktivistischen Hedgefonds den Wert des Unternehmens ex post. Um das zu erreichen, setzen aktivistische Hedgefonds wie Carl Icahn, Trian Fundmanagement oder Elliott bevorzugt auf Kommunikation und Kooperation mit dem Management.
Reint E. Gropp
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Executives with Customer Experience and Firm Performance in the B2B Context
Yiwei Fang, Cong Feng, Iftekhar Hasan, Jiong Sun
European Journal of Marketing,
Nr. 7,
2021
Abstract
Purpose:
This paper aims to examine the presence of an executive with customer experience (ECE) in a supplier firm’s top management team (TMT). The role of ECE presence remains understudied in the marketing literature. This study attempts to examine the relationship between ECE presence and firm performance.
Design/methodology/approach:
This paper draws on the resource-based view of the firm and adopts a panel firm fixed effects estimator to test the proposed hypotheses. The empirical analysis uses a sample of 1,974 firm-year observations with 489 unique supplier firms. Selection-induced endogeneity is mitigated through the Heckman procedure.
Findings:
ECE presence improves firm performance. Additionally, firms benefit less from ECE presence if a board member with customer experience (BCE) is also present, if a chief executive officer commands a higher pay slice (compared to other executives), and if a TMT is more functionally diversified. However, ECE presence is particularly beneficial if the overall economy is in contraction. Comparing the functional positions held by ECEs reveals that ECE in the marketing function (as a chief marketing officer) offers the largest benefit to an average supplier firm. ECE presence is also associated with other firm outcomes (e.g. bankruptcy odds, innovation and customer orientation).
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Unethical Employee Behavior Against Coworkers Following Unkind Management Treatment: An Experimental Analysis
Sabrina Jeworrek, Joschka Waibel
Managerial and Decision Economics,
Nr. 5,
2021
Abstract
We study unethical behavior toward unrelated coworkers as a response to managerial unkindness with two experiments. In our lab experiment, we do not find that subjects who experienced unkindness are more likely to cheat in a subsequent competition against another coworker who simultaneously experienced mistreatment. A subsequent survey experiment suggests that behavior in the lab can be explained by individuals' preferences for norm adherence, because unkind management behavior does not alter the perceived moral appropriateness of cheating. However, having no shared experience of managerial unkindness opens up some moral wiggle room for employees to misbehave at the costs of others.
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Family Firms and Management Practices
Margarita Tsoutsoura
Oxford Review of Economic Policy,
Nr. 2,
2021
Abstract
This article reviews the existing literature about management practices in family firms, the most prevalent form of corporate ownership around the world. I summarize the existing evidence that shows family firms are less likely to adopt structured management practices, especially ‘dynastic’ family firms that combine family ownership and control. I discuss what might be the unique features of family firms that drive the lower adoption of management practices, despite the evidence that improving management boosts their productivity and performance.
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Financial Analysts' Career Concerns and the Cost of Private Debt
Bill Francis, Iftekhar Hasan, Liuling Liu, Qiang Wu, Yijiang Zhao
Journal of Corporate Finance,
April
2021
Abstract
Career-concerned analysts are averse to firm risk. Not only does higher firm risk require more effort to analyze the firm, thus constraining analysts' ability to earn more remuneration through covering more firms, but it also jeopardizes their research quality and career advancement. As such, career concerns incentivize analysts to pressure firms to undertake risk-management activities, thus leading to a lower cost of debt. Consistent with our hypothesis, we find a negative association between analyst career concerns and bank loan spreads. In addition, our mediation analysis suggests that this association is achieved through the channel of reducing firm risk. Additional tests suggest that the effect of analyst career concerns on loan spreads is more pronounced for firms with higher analyst coverage. Our study is the first to identify the demand for risk management as a key channel through which analysts help reduce the cost of debt.
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The State Expropriation Risk and the Pricing of Foreign Earnings
Iftekhar Hasan, Ibrahim Siraj, Amine Tarazi, Qiang Wu
Journal of International Accounting Research,
Nr. 2,
2021
Abstract
We examine the pricing of U.S. multinational firms' foreign earnings in regard to their risk of expropriation and unfair treatment by the governments of the countries in which their international subsidiaries are located. Using 8,891 firm-years observations during the 2001–2013 period, we find that the value relevance of foreign earnings increases with the improvement of the protection from state expropriation risk in the subsidiary host-countries. Our results are not driven by the earnings management practice, investor distraction, country informativeness, and political and trade relationship of a foreign country with the U.S. Furthermore, our results are robust to the confounding effects of country factors, measurement error in the variable of the risk of expropriation, the influence of private contracting institutions, and endogeneity in the decision of the location of subsidiaries.
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The Influence of Bondholder Concentration and Temporal Orientation on Investments in R&D
Pengfei Ye, Jonathan O’Brien, Christina Matz Carnes, Iftekhar Hasan
Journal of Management,
Nr. 3,
2021
Abstract
Although innovation can be a critical source of competitive advantage, research has found that debt can erode management’s willingness to invest in R&D. In this article, we employ a stakeholder bargaining power perspective to argue that this effect is most pronounced when the firm’s bonds are concentrated in the hands of bond blockholders. Furthermore, we contend that the temporal orientation of bondholders influences this relationship. Specifically, while it is commonly assumed that bondholders have a limited temporal orientation that induces them to focus on short-term value appropriation, we argue that some bond blockholders adopt a long-term temporal orientation. This orientation, in turn, makes them more inclined to support long-term value creation for the firm in the form of enhanced investments in R&D. Moreover, while agency theory suggests that there is an inherent conflict of interest between shareholders and bondholders, our results suggest that the temporal orientation of investors (i.e., both shareholders and bondholders) matters much more than whether they invested in the firm’s equity or its debt.
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