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ABSTRACT: We study managerial style effects in investment decisions, financing policies, and firm profitability by examining exogenous CEO changes arising from deaths, health issues, and natural retirements. In a comprehensive panel of 8,615 Compustat firms from 1990 to 2007, we find that policy changes and profitability changes subsequent to exogenous turnover do not display abnormally high levels of variability. This evidence casts serious doubt on the hypothesis that managerial style effects play a causal role in firms' investment and financing decisions. We do detect abnormally high levels of variation in policies and profitability after endogenous leadership changes arising from forced CEO turnover. While this is unlikely to reflect a causal relation, it does suggest that underperforming firms tend to simultaneously change both managers and policies. In contrast to prior work, we find no convincing evidence that managers who serve at multiple firms tend to adopt a common style across employers. We also offer some methodological points on testing for the presence of managerial style effects in corporate decisions.
Corporate Finance: Governance, Corporate Control & Organization eJournal. 04/2011;
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ABSTRACT: We find a significant positive relation between a firm's advertising spending in the United States and its contemporaneous foreign cash flow. This relation holds even after controlling for factors that should be related to the optimal level of domestic advertising, and it is stronger for subsets of firms that we expect to be relatively more financially constrained. Our evidence supports the hypothesis that there is a causal and economically substantial link between cash flow and investment spending, even for intangible investments such as advertising. Our evidence also suggests that firms have active internal capital markets in which capital is moved across geographic regions. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org., Oxford University Press.
Review of Financial Studies 01/2009; 22(6):2361-2392. · 4.75 Impact Factor
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ABSTRACT: We study a large sample of brands that are acquired and find that new owners display an abnormal propensity to sharply increase or decrease advertising spending, with large decreases being particularly common. Increased private ownership is associated with a significant downward shift in advertising relative to other deals, primarily reflecting the behavior of private equity purchasers. New owners appear to alter advertising investment to counteract any systematic under or overinvestment by prior owners, and they tend to cut advertising in existing brands that closely overlap with purchased brands. Combined buyer plus seller announcement returns are positively related to measures of post-acquisition cuts in advertising spending and also to indicators of corrections to past investment biases by prior owners. Acquired brands do not on average experience significant losses in market share, even when advertising spending is revised downwards. Our evidence is consistent with the hypothesis that the identity and characteristics of an asset's owner are important determinants of investment policy. The evidence generally supports the notion that changes in investment brought about by an acquisition are efficiency enhancing.
Corporate Finance: Governance, Corporate Control & Organization eJournal. 03/2008;
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ABSTRACT: We study turnover and promotions of division managers in multidivisional firms. Turnover is negatively related to divisional accounting performance, positively related to industry performance, but not significantly related to firm performance or the performance of other divisions. Consistent with tournament theory, promotions are significantly related to whether one division is performing better than others, but are not significantly related to the magnitude of any performance difference. A simple performance metric, divisional ROA, appears more closely related to job allocation decisions than several alternatives. Our evidence is consistent with the hypothesis that accounting information is used by firms when evaluating managerial personnel.
Indian School of Business Research Papers Series. 03/2006;
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ABSTRACT: We assemble a sample of over 10,000 customer-supplier relationships and determine whether the customer owns equity in the supplier. We find that factors related to both contractual incompleteness and financial market frictions are important in the decision of a customer firm to take an equity stake in their supplier. Evidence on the variation in the size of observed equity positions suggests that there are limits to the size of optimal ownership stakes in many relationships. Finally, we find that relationships accompanied by equity ownership last significantly longer than other relationships, suggesting that ownership aids in bonding trading parties together. Copyright 2006 by The American Finance Association.
Journal of Finance. 02/2006; 61(3):1217-1251.
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ABSTRACT: We examine the relation between business school dean turnover and MBA program rankings from 1990-2002. We find little evidence that dean departures are related to changes in a school’s overall rank in the US News & World Report rankings. However, dean turnover increases following drops in the Business Week rankings and deterioration in the student placement score as measured by US News & World Report. These results are significant in both a statistical and economic sense. Our findings suggest that schools react either directly to the rankings or to information that is reflected in the rankings.
Financial Management. 01/2005; 34(1).
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Journal of Financial Economics 02/2004; 74(3):423-460. · 3.72 Impact Factor
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Journal of Accounting and Economics. 02/2004; 37(1):3-38.
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Journal of Corporate Finance. 02/2004; 10(1):105-129.
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ABSTRACT: We examine the relation between dean turnover and changes in rankings in a comprehensive sample of business schools with ranked MBA programs from 1990-2002. We find little evidence that dean departures are related to changes in a school's overall rank in the U.S. News & World Report rankings. However, dean turnover does appear to be elevated when a school drops in the Business Week rankings and when a school deteriorates on the placement dimension as measured by U.S. News & World Report. These results are significant in both a statistical and economic sense. Our findings suggest either that schools respond to changes in rankings or that rankings reflect information schools use in their personnel decisions.
Ross: Finance (Topic). 11/2003;
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C. Edward Fee
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ABSTRACT: We find that executives who jump to chief executive officer (CEO) positions at new employers come from firms that exhibit aboveaverage stock price performance. This relationship is more pronounced for more senior executives. No such relationship exists for jumps to non-CEO positions. Stock options and restricted stock do not appear to significantly affect the likelihood of jumping ship, but the existence of an "heir apparent" on the management team increases the likelihood that executives will leave for non-CEO positions elsewhere. Hiring grants used to attract managers are correlated with the equity position forfeited at the prior employer and with the prior employer's performance. Copyright 2003, Oxford University Press.
Review of Financial Studies 02/2003; 16(4):1315-1357. · 4.75 Impact Factor
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ABSTRACT: We examine the job movements of professional football coaches both within and across employers and compare the mechanisms governing internal and external promotions. We find that the likelihood of an external promotion is strongly related to individual performance measures and only weakly related to team performance. In contrast to external promotions, we find that the overall likelihood of an internal promotion is unrelated to an individual's performance. This difference between internal and external labor markets appears to arise from the process governing job openings within the internal hierarchy, as the likelihood of an internal job opening up is negatively related to performance. Conditional on an internal opening occurring, we do find that increases in individual performance increase the probability of being promoted. Relationships matter a great deal in this labor market in the sense that coaches appear to be fired and hired as a group, suggesting that the value of an individual to an employer depends on the identity of the entire set of individuals who work together. We argue that our findings have implications for several issues related to incentives and organizational design.
Ross: Finance (Topic). 12/2002;
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ABSTRACT: We examine the relationship between management turnover and market structure for newspapers in 50 large cities from 1950 to 1993. We find that competitive markets display greater turnover rates than monopolistic markets and that turnover rates are increasing in the degree to which a newspaper trails its competition in market share. We find no evidence that the turnover-performance relationship varies with market structure. We discuss the implications of these findings for theories concerning competition and managerial employment contracting. The results appear most consistent with the hypothesis that the greater likelihood of liquidation in competitive markets leads to elevated turnover rates. Copyright 2000 by University of Chicago Press.
The Journal of Business. 02/2000; 73(2):205-43.
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ABSTRACT: We find that executives who jump to CEO positions at new employers come from firms that exhibit above-average stock price performance. This relationship is more pronounced for more senior executives. No such relationship exists for jumps to non-CEO positions. Stock options and restricted stock do not appear to significantly affect the likelihood of jumping ship, but the existence of an "heir-apparent" on the management team increases the likelihood that executives will leave for non-CEO positions elsewhere. Hiring grants used to attract managers are correlated with the equity position forfeited at the prior employer and with the prior employer's performance.
