Working papers
with Scott E. Yonker
Using a large sample of U.S.-based public corporations, we evaluate the business case for board racial diversity. Our analysis shows that board racial diversity is positively associated with firm performance and value, and negatively associated with realized risk. However, causal tests that use mandated board racial diversity in California and the acceleration of the BLM movement as shocks to the demand for racial minority directors indicate that forced increases in board racial diversity have no effect on firm performance, value, risk, or other traditional corporate finance policies. Firms compelled to select racial minority directors find candidates with qualifications similar to those of existing directors, suggesting that in these settings board racial diversity itself does not impact performance and value outcomes. Overall the evidence suggests that the business case is insufficient on its own to either justify or oppose mandated racial diversity on boards.
Featured in the Harvard Law School Forum on Corporate Governance.
I provide evidence that activist investors create value through the efficient reallocation of human capital by nominating directors at the firms they target. Stock returns are significantly higher at targeted firms when a new director is appointed and takes on a monitoring role to improve governance. Examining director biographies extracted from proxy filings, I show that effective activists match directors to firms that bring new skills and additional prior experience to the board. Consistent with directors' monitoring role and the reduction of agency problems, firms with new directors are more likely to replace the CEO and curb investment levels. Whereas prior research claims that value creation in activism is limited to takeovers, this paper shows that the human capital of directors also predicts returns for firms that are not acquired. Instrumental variables tests that exploit exogenous variation in director appointment rates indicate that the observed relationship is causal.
with Jiri Svec and Danika Wright
The evolution of firms is not necessarily uniform. Exploring how this affects credit risk models, we find that firm life cycle provides additional explanatory power not captured by age. Firm age has an ambiguous effect on default risk and its impact during periods of high volatility is insignificant. Unobserved firm heterogeneity is an important determinant of credit default swap spreads and, when accounted for, riskier growth firms command a lower spread compared to mature firms that commonly benefit from the lowest spreads. Firms that age well by maintaining a growth profile are rewarded with lower cost of capital.
Research notes
Matching observations across multiple datasets for corporate governance research carries with it some well-known and other less known challenges. This paper highlights best practices for carrying out merging the widely used BoardEx, CRSP and Compustat databases accessed via Wharton Research Data Services (WRDS), utilizing their respective company and security identifiers. A companion Github repository of the associated SAS code is made available to assist researchers in consistently applying the discussed matching techniques.
This paper provides guidance on the appropriate calculation of financial ratios for capital markets-based empirical research in finance and accounting. Practical examples are provided employing the widely-used Compustat database, and all calculated ratios are made available for download in a dataset. A companion Github repository of the associated SAS code is offered to assist researchers in consistently calculating key financial ratios.