David Yermack

Erasmus Universiteit Rotterdam, Rotterdam, South Holland, Netherlands

Are you David Yermack?

Claim your profile

Publications (58)50.81 Total impact

  • [Show abstract] [Hide abstract]
    ABSTRACT: We study financial reporting and corporate governance in 216 U.S. companies accused of price fixing by antitrust authorities. We document a range of strategies used by these firms when reporting financial results, including frequent earnings smoothing, segment reclassification, and restatements. In corporate governance, cartel firms favor outside directors who are likely to be inattentive monitors due to their status as foreign or “busy.” When directors resign, they are often not replaced, and new auditors are rarely engaged. Cartel managers exercise their stock options faster than managers of other firms. While our results are based only upon firms engaged in price fixing, we expect that they should apply generally to all companies in which managers seek to conceal poor performance or personal wrongdoing.
    SSRN Electronic Journal 04/2013;
  • David Yermack
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper shows close connections between CEOs’ vacation schedules and corporate news disclosures. I identify vacations by merging corporate jet flight histories with records of CEOs’ property ownership near leisure destinations. Companies disclose favorable news just before CEOs leave for vacation and delay subsequent announcements until CEOs return, releasing news at an unusually high rate on the CEO’s first day back. When CEOs are away, companies announce less news than usual, mandatory disclosures of material news are more likely to be filed late, and stock prices exhibit sharply lower volatility. Volatility increases when CEOs return to work. CEOs spend fewer days out of the office when their ownership is high and when the weather is bad at their vacation homes.
    Journal of Financial Economics 12/2012; · 3.72 Impact Factor
  • Source
    David Yermack
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper shows close connections between CEOs’ vacation schedules and corporate news disclosures. I identify vacations by merging corporate jet flight histories with real estate records of CEOs’ property owned near leisure destinations. Companies disclose favorable news just before CEOs leave for vacation and delay subsequent announcements until CEOs return, releasing news at an unusually high rate on the CEO’s first day back. When CEOs are away, companies announce less news than usual and stock prices exhibit sharply lower volatility. Volatility increases immediately when CEOs return to work. CEOs spend fewer days out of the office when their ownership is high and when the weather at their vacation homes is cold or rainy.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
    03/2012;
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper examines how dividend protection on executive compensation aects corporate pay-out policy. With manually collected data for S&P 500 rms between 2000 and 2009, I show that less than 1% of rms provide a dividend protection on executive option grants while more than 70% of rms pay dividends on unvested restricted stock grants. I nd that the dividend pro-tection on executive compensation is associated with higher dividend payouts and lower share repurchases. Using the 2003 tax reform as an exogenous change in dividend payouts, I provide further evidence that dividend protection on executive compensation cause changes in dividend payout policies.
    02/2012;
  • Source
    David Yermack
    [Show abstract] [Hide abstract]
    ABSTRACT: I analyze changes in apparel company stock prices when Michelle Obama wears designer outfits at public events. Company stock prices rise significantly when the First Lady wears their clothing, increasing about 1.7% in the week following her most closely watched appearances and by about half as much after routine events. During 2009 her public appearances led to immediate gains exceeding $5 billion in shareholder value for various clothiers, in a pattern that closely tracks her daily schedule. Internet users search the names of individual designers with higher frequency after the First Lady wears their creations at major events, a pattern likely associated with surges in online product sales.
    SSRN Electronic Journal 12/2011;
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We investigate whether the diversification discount occurs partly as an artifact of poor corporate governance. In panel data models, we find that the discount narrows by 16% to 21% when we add governance variables as regression controls. We also estimate Heckman selection models that account for the endogeneity of diversification and dynamic panel generalized method of moments models that account for the endogeneity of both diversification and governance. We find that the diversification discount persists even with these controls for endogeneity. However, in selection models the discount disappears entirely when we introduce governance variables in the second stage, and in dynamic panel GMM models the discount narrows by 37% when we include governance variables.
    Journal of Financial Economics 07/2011; · 3.72 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We analyze the relation between CEO compensation and networks of executive and non-executive directors for all listed UK companies over the period 1996-2007. We examine whether networks are built for reasons of information gathering or for the accumulation of managerial influence. Both indirect networks (enabling directors to collect information) and direct networks (leading to more managerial influence) enable the CEO to obtain higher compensation. Direct networks can harm the efficiency of the remuneration contracting in the sense that the performance sensitivity of compensation is then lower. We find that in companies with strong networks and hence busy boards the directors' monitoring effectiveness is reduced which leads to higher and less performance-sensitive CEO compensation. Our results suggest that it is important to have the 'right' type of network: some networks enable a firm to access valuable information whereas others can lead to strong managerial influence that may come at the detriment of the firm and its shareholders. We confirm that there are marked conflicts of interest when a CEO increases his influence by being a member of board committees (such as the remuneration committee) as we observe that his or her compensation is then significantly higher. We also find that hiring remuneration consultants with sizeable client networks also leads to higher CEO compensation especially for larger firms.
    Mathematical Programming. 03/2011; 17(4):2011-14.
  • Source
    Chenyang Wei, David Yermack
    [Show abstract] [Hide abstract]
    ABSTRACT: Pensions and deferred compensation represent substantial components of CEO incentives. We study stockholder and bondholder reactions to companies' initial reports of CEOs' inside debt positions following a 2007 SEC disclosure reform. We find that bond prices rise, equity prices fall, and the volatility of both securities drops for firms whose CEOs have sizeable defined benefit pensions or deferred compensation. Similar changes occur for credit default swap spreads and exchange-traded options. The results indicate a reduction in firm risk, a transfer of value from equity toward debt, and an overall destruction of enterprise value when CEOs' inside debt holdings are large. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
    Review of Financial Studies 02/2011; 24(11):3813-3840. · 4.75 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We examine the relation between CEOs' equity incentives and their use of performance-sensitive debt contracts. These contracts require higher or lower interest payments when the borrower's performance deteriorates or improves, thereby increasing expected costs of financial distress while making a firm riskier to the benefit of option holders. We find that managers whose compensation is more sensitive to stock volatility choose steeper and more convex performance pricing schedules, while those with high delta incentives choose flatter, less convex pricing schedules. Performance pricing contracts therefore seem to provide a channel for managers to increase firms' financial risk to gain private benefits.
    Journal of Financial and Quantitative Analysis 01/2011; · 1.77 Impact Factor
  • Source
    David Yermack
    [Show abstract] [Hide abstract]
    ABSTRACT: This article reviews recent research into corporate voting and elections. Regulatory reforms have given shareholders more voting power in the election of directors and in executive compensation issues. Shareholders use voting as a channel of communication with boards of directors, and protest voting can lead to significant changes in corporate governance and strategy. Some investors have embraced innovative empty voting strategies for decoupling voting rights from cash flow rights, enabling them to mount aggressive programs of shareholder activism. Market-based methods have been used by researchers to establish the value of voting rights and show how this value can vary in different settings.
    Annual Review of Financial Economics 03/2010; 2(1):103-125. · 0.69 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We study the compensation and productivity of more than 2,000 Methodist ministers in a 43-year panel data set. The church appears to use pay-for-performance incentives for its clergy, as their compensation follows a sharing rule by which pastors receive approximately 3% of the incremental revenue from membership increases. Ministers receive the strongest rewards for attracting new parishioners who switch from other congregations within their denomination. Monetary incentives are weaker in settings where ministers have less control over their measured performance. (c) 2010 by The University of Chicago. All rights reserved..
    Journal of Labor Economics 02/2010; 28(3):509-539. · 1.64 Impact Factor
  • Source
    Chenyang Wei, David Yermack
    [Show abstract] [Hide abstract]
    ABSTRACT: Many commentators have suggested that companies pay top executives with deferred compensation, a type of incentive known as inside debt. Recent SEC disclosure reforms greatly increased the transparency of deferred compensation. We investigate stockholder and bondholder reactions to companies' initial reports of their CEOs' inside debt positions in early 2007, when new disclosure rules took effect. We find that bond prices rise, equity prices fall, and the volatility of both securities drops upon disclosures by firms whose CEOs have sizable defined benefit pensions or deferred compensation. Similar changes in value occur for credit default swap spreads and exchange-traded options. The results indicate a reduction in firm risk, a transfer of value from equity toward debt, and an overall destruction of enterprise value when a CEO's deferred compensation holdings are large.
    Federal Reserve Bank of New York, Staff Reports. 01/2010;
  • Source
    David Yermack
    [Show abstract] [Hide abstract]
    ABSTRACT: I study large charitable stock gifts by Chairmen and Chief Executive Officers (CEOs) of public companies. These gifts, which are not subject to insider trading law, often occur just before sharp declines in their companies' share prices. This timing is more pronounced when executives donate their own shares to their own family foundations. Evidence related to reporting delays and seasonal patterns suggests that some CEOs fraudulently backdate stock gifts to increase personal income tax benefits. CEOs' family foundations hold donated stock for long periods rather than diversifying, permitting CEOs to continue voting the shares.
    Journal of Financial Economics 10/2009; 94(1):107-123. · 3.72 Impact Factor
  • Source
    Alexei Tchistyi, David Yermack, Hayong Yun
    [Show abstract] [Hide abstract]
    ABSTRACT: We examine the relation between CEOs’ equity incentives and their use of performance-sensitive debt contracts. These contracts require higher or lower interest payments when the borrower's performance deteriorates or improves, thereby increasing expected costs of financial distress while making a firm riskier to the benefit of option holders. We find that managers whose compensation is more sensitive to stock volatility choose steeper and more convex performance pricing schedules, while those with high delta incentives choose flatter, less convex pricing schedules. Performance pricing contracts therefore seem to provide a channel for managers to increase firms’ financial risk to gain private benefits.
    Journal of Financial and Quantitative Analysis 09/2009; · 1.77 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We also gratefully acknowledge the help from Yalman Onaran of Bloomberg and Shisheng Qu from Moody's KMV.
    08/2009;
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Whom a CEO knows has a substantial impact on pay. An additional connection to an executive or director outside the firm increases a CEO"s compensation by over $17,000 on average, and explains about 10% of total pay. An additional premium is associated with "important" members: insiders at other firms, geographically local connections, or those within the same industry. Needy firms – those whose non-CEO executives are poorly connected and those geographically isolated from industry peers -pay the highest prices for a CEO"s rolodex. Pay-for-connectivity is unrelated to several measures of corporate governance, evidence against rent extraction in favor of a market-based explanation for CEO pay. (Tel) 919-962-6889; Pengjie Gao, Mendoza College of Business, University of Notre Dame, (Email) pgao@nd.edu, (Tel) 574-631-8048; and Christopher Parsons, Kenan-Flagler Business School, University of North Carolina at Chapel Hill, (Email) chris_parsons@kenan-flagler.unc.edu, (Tel) 919-962-4132. Please address all correspondence to Joseph Engelberg. 1 "As first-year CEO Brad Smith tries to reshape software maker Intuit for the online age, he has opened his Rolodex and is cribbing ideas from some tech industry icons. A dinner with Hewlett-Packard (HPQ) CEO Mark Hurd sparked ideas for a massive benchmarking project and reinforced Smith's conviction that Intuit (INTU) had to lay off 7% of its staff. Conversations with Google (GOOG) inspired a program that lets Intuit engineers contribute 10% of their time to experimental projects.
    07/2009;
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper documents that riskier …rms grant more stock options to non-executive employees using a large panel of US …rms from 1992 to 2005. A simple model in which a risk-neutral …rm and an employee with cumulative prospect theory preferences bargain over the employee's pay package can provide an explanation for this otherwise puzzling behavior. The key feature which makes stock options attractive is the well-established tendency of individuals to overweight small probabilities of large gains. I calibrate the model using standard parameters from the experimental literature and …nd that it …ts the data remarkably well. In addition, I show that probability weighting, when combined with the assumption of myopic employees, generates predictions that are quantitatively consistent with observed patterns of stock option exercises.
    12/2008;
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper investigates whether observed executive compensation contracts are designed to provide risk-taking incentives in addition to effort incentives. We develop a stylized principal-agent model, calibrate it individually to the data of 737 U.S. CEOs, and show that it can explain observed compensation practice surprisingly well. In particular, it justifies large option holdings and high base salaries. Our analysis also suggests that options should be issued in the money. If tax effects are taken into account, the model is consistent with the almost uniform use of at-the-money stock options. We conclude that the provision of risk-taking incentives is a major objective in executive compensation practice.
    11/2008;
  • Source
    Crocker H. Liu, David Yermack
    [Show abstract] [Hide abstract]
    ABSTRACT: We study real estate purchases by major company CEOs, compiling a database of theprincipal residences of nearly every top executive in the Standard & Poor s 500 index. When a CEO buys real estate, future company performance is inversely related to the CEO s liquidation of company shares and options for financing the transaction. We also find that, regardless of the source of finance, future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates. We therefore interpret large home acquisitions as signals of CEOentrenchment. Our research also provides useful insights for calibrating utility based models of executive compensation and for understanding patterns of Veblenian conspicuous consumption.
    10/2007;
  • Source
    RANGARAJAN K. SUNDARAM, DAVID L. YERMACK
    [Show abstract] [Hide abstract]
    ABSTRACT: Though widely used in executive compensation, inside debt has been almost entirely overlooked by prior work. We initiate this research by studying CEO pension arrangements in 237 large capitalization firms. Among our findings are that CEO compensation exhibits a balance between debt and equity incentives; the balance shifts systematically away from equity and toward debt as CEOs grow older; annual increases in pension entitlements represent about 10% of overall CEO compensation, and about 13% for CEOs aged 61–65; CEOs with high debt incentives manage their firms conservatively; and pension compensation influences patterns of CEO turnover and cash compensation.
    The Journal of Finance 08/2007; 62(4):1551 - 1588. · 4.22 Impact Factor

Publication Stats

3k Citations
50.81 Total Impact Points

Institutions

  • 2008–2012
    • Erasmus Universiteit Rotterdam
      Rotterdam, South Holland, Netherlands
    • University of Texas at Austin
      • McCombs School of Business
      Austin, TX, United States
  • 2011
    • Tilburg University
      Tilburg, North Brabant, Netherlands
  • 1994–2010
    • CUNY Graduate Center
      New York City, New York, United States
  • 2007
    • Northwestern University
      Evanston, Illinois, United States
    • Columbia University
      New York City, New York, United States
  • 2003–2006
    • Georgetown University
      Washington, Washington, D.C., United States
  • 2005
    • HEC Paris
      Lutetia Parisorum, Île-de-France, France
  • 2004
    • Washington University in St. Louis
      San Luis, Missouri, United States