Konstantinos Stathopoulos

The University of Manchester · Division of Accounting and Finance

Manuscript Type: Empirical Research Question/Issue: This paper provides new evidence on the effect of compensation consultants on CEO pay. Research Findings/Insights: We produce new evidence on the managerial power approach (MPA) to corporate governance by examining the influence of compensation consultants on CEO pay structures and the decision to...

We investigate the risk choices of risk averse CEOs. Following recent theoretical work, we expect CEO risk aversion to be more pronounced in firms with high leverage, or high default probability. We find that the CEOs of these firms reduce firm risk, even in the presence of strong risk taking incentives. Our results are robust to controls for the s...

We examine the effect of IFRS on the use of accounting-based performance measures for evaluating and rewarding managers. We show that post-IFRS firms decrease the weight of Earnings-per-Share (EPS) based performance measures in CEO pay contracts. We provide indications that IFRS add “noise” to accounting numbers which, based on optimal contracting...

This paper examines the relation between employee welfare practices and corporate cash holdings. We find firms that are strongly committed to employee well-being, measured by ratings on employee relations, to hold more cash. The effect of employee welfare standards on cash holdings is stronger for firms in human-capital-intensive, competitive, and...

Firms differ in their dependence on skilled labor and face labor adjustment costs that increase with their workers’ skill level. We show that firms with a higher share of skilled workers, and thus less flexibility to adjust their labor demand in response to cash flow shocks, hold more precautionary cash. The effect of labor skills on cash holdings...

CEOs with substantial short-term equity incentives behave myopically out of concerns for the stock price. We argue that corporate tax avoidance, given its positive impact on stock prices, is one potential target for managerial myopia. We show that, ceteris paribus, CEO short-term equity incentives are associated with declines in cash effective tax...

We examine the relation between corporate tax planning and firm-level productivity. Using a sample of U.S.-listed firms from 1994 to 2017, we show that, ceteris paribus, lower effective tax rates lead to higher production efficiency. Consistent with the "funding gap" of innovative investments due to debt market frictions, the results indicate that...

We examine the relation between corporate tax planning and firm-level productivity. Using a sample of U.S.-listed firms from 1994 to 2017, we show that, ceteris paribus, lower effective tax rates lead to higher production efficiency. Consistent with the "funding gap" of innovative investments due to debt market frictions, the results indicate that...

Labor unionization has no causal effect on firm risk. Using a regression discontinuity design to study the impact of labor union elections on option-implied firm risk, we find that unionization per se does not affect investor perceptions about firm price, tail, or variance risk. This finding is robust to studying very short (5-trading day) and long...

Firms that follow excessive payout policies (over‐payers) are higher on the financial distress spectrum and have lower survival rates than under‐payers. In addition, over‐payers endure lower future sales and asset growth than under‐payers and experience negative abnormal returns in the bond and stock markets. Exogenous import tariff reductions and...

Monitoring by long-term investors should reduce agency conflicts in firms' labor investment choices. Consistent with this argument, we find that abnormal net hiring, measured as the absolute deviation from optimal net hiring predicted by economic fundamentals, decreases in the presence of institutional investors with longer investment horizons. Fir...

This study finds that the financial press serves an important monitoring role by interpreting the tone of corporate announcements, moderating its impact to market participants in the process. Using textual analysis, we report that the press attenuates both the positive and negative tone of firm-initiated disclosures. However, the effect is asymmetr...

We examine the role of voluntary corporate press releases about firms’ financial performance as a stimulus for financial media coverage. We find that there is a spike of media articles on the same day and one trading day following firms’ press releases. We provide evidence that managers compete for media attention and can use voluntary press releas...

We examine the role of voluntary corporate press releases about firms’ financial performance as a stimulus for financial media coverage. We find that there is a spike of media articles on the same day and one trading day following firms’ press releases. We provide evidence that managers compete for media attention and can use voluntary press releas...

This paper investigates the relation between national culture and bank deposits. Using annual data (1995-2015) for 99 banks that participated in the 2014 stress tests of the European Banking Authority, we document relations between three national cultural traits and bank deposits. The effect of hierarchy and individualism on deposits is stronger (p...

We document that analysts cater to short-term investors by issuing optimistic target prices. Catering dominates among analysts at brokers without an investment banking arm as they face lower reputational cost. The market does not see through the analyst catering activity and their forecasts lead to temporary stock overpricing that short-term instit...

We investigate the relation between national cultural values and bank risk. Despite the rigid transnational regulatory oversight of systemic European banks, we find evidence of an economically significant association between cultural values and domestic bank risk. Specifically, we report a positive (negative) association between the cultural values...

Shareholder investment horizons have a significant impact on say-on-pay voting patterns. Short-term investors are more likely to avoid expressing opinion on executive pay proposals by casting an abstaining vote. They vote against board proposals on pay only in cases where the CEO already receives excessive pay levels. In contrast, long-term investo...

This survey forms part of a one-year research project conducted by ACCA and the ESRC. The results provide insights into the concept of organisational culture and the role of leadership, motivation and incentives in driving corporate behaviour.

Firms that follow excessive payout policies (over-payers) are higher on the financial distress spectrum and have lower survival rates than under-payers. In addition, over-payers endure lower future sales and asset growth than under-payers and experience negative abnormal returns in the bond and stock markets. Exogenous import tariff reductions and...

Manuscript TypeReviewResearch Question/IssueThis study focuses on the role of Say-on-Pay as a mechanism that aims to promote the efficiency of corporate governance by providing an additional channel for the expression of shareholder “voice”. Initially introduced in the UK, Say-on-Pay has subsequently been adopted in a large number of countries and...

Do foreign institutional investors (FII) regard the introduction of rigorous disclosure requirements as a major incentive to invest in U.S. equities? We investigate the role of information asymmetry and the impact of firm-level disclosure on FII decisions. We use a unique context for analysis -- the enactment of the Sarbanes-Oxley Act (SOX), and fi...

Prior research documents that analysts produce less biased forecasts for stocks with high institutional ownership. We show that this result holds only for long-term institutional investors. In the presence of short-term institutional investors, such as hedge funds, analysts strategically bias their forecasts, specifically, they issue optimistic tar...

Shareholder investment horizons have a significant impact on Say-on-Pay voting patterns. Short-term investors are more likely to avoid expressing opinion on executive pay proposals by casting an abstaining vote. They vote against board proposals on pay only in cases where the CEO already receives excessive pay levels. In contrast, long-term investo...

The Split Share Structure Reform in China enables state shareholders of listed firms to trade their restricted shares. This renders the wealth of state shareholders more related to share price movements. We predict this reform will create remuneration arrangements that increase the relationship between Chinese firms’ executive pay and stock market...

This paper examines the investment preferences of foreign institutional investors investing in the U.S. market. We analyse both firm and country-level determinants that influence the foreign institutional investors’ allocation choices. At the country level, we find that the governance quality in a foreign institutional investor’s home country is a...

This paper investigates the effect of the Sarbanes-Oxley Act (SOX) on the relation between institutional ownership (IO) and firm innovation. We find that US firms investing in innovation attract more institutional capital post-SOX. Prior literature identifies two SOX effects on the average US firm that could drive this relation, that is, a decrease...

This study investigates whether mutual fund ownership deters corporate fraudulent behavior among Chinese listed firms. While the existing literature on corporate fraud in China focuses mainly on the impact of internal governance mechanisms, limited attention has been paid to the effect of external governance mechanisms. In China where investor prot...

We show there is a term-structure in analysts’ loss preferences on corporate earnings forecast errors. Using the full I/B/E/S database on US corporate earnings, we estimate the loss function of consensus forecasts of each company in four different horizons and forecast types. Analysts are on average prudent in short horizons and evolve to optimism...

This paper investigates the motives for disclosing an alternative Earnings per Share (EPS) figure. In particular, we extend prior findings for the UK (Choi, Lin, Walker & Young, 2007) by highlighting the role of managerial contracting in the alternative EPS disclosure choice. We examine a specific contractual setting where management is especially...

This paper shows that institutional sell-side herding increased bid-ask spreads and liquidity risk during the 2007-8 financial crisis. Such an impact on liquidity is most pronounced in firms with large numbers of institutions that sold the same stocks, that is, have correlated trades. For the same reason, we find institutional investors with a dedi...

We investigate the impact of CEO networking on compensation arrangements. Unlike existing studies that are largely based on board interlocks, we use a unique measure that calculates the direct ties the CEO has created during her life. We show that a CEO’s compensation is significantly affected by her power in the managerial labour market. We find t...

We examine whether the type of performance measures included in a CEO pay contract is associated with the UK GAAP to IFRS reconciliation process. Using a comprehensive dataset, mainly hand-collected from the firms’ remuneration reports, we report strong indications that, given the existence of an accounting-related vesting target in their contract,...

During the financial crisis in 2007-8, the quoted spread for the average S&P 1500 firm increased by 50%, while the systematic liquidity risk increased by 34%. We find that the trading of a firm's equity by institutional investors increased the firms' quoted spreads, and led to a higher liquidity commonality during the crisis. Institutional sell-sid...

Since the 1990s there has been a surge in the mutual fund industry across the world. Mutual funds offer individual investors both the diversification of investment risk and the expertise to monitor corporate decisions. We find the effect of mutual fund ownership in reducing corporate fraud activities among listed firms in China. This confirms that...

We examine the relation between executive compensation and market-implied default risk for listed insurance firms from 1992-2007. Shareholders are expected to encourage managerial risk-sharing through equity-based incentive compensation. We find that long-term incentives and other share-based plans do not affect the default risk faced by firms. How...

This paper provides new evidence on the effect of compensation consultants on CEO pay. We show that the use of a compensation consultant has an increasing effect on the level of total CEO compensation, which is consistent with the “ratcheting up” effect of consultants on CEO pay argued by the managerial power approach. However, we also find that th...

We examine whether media coverage of company CEOs affects the market valuation of dividends. Assuming that higher media coverage proxies for lower agency costs and/or greater managerial ability, and assuming these underlying effects will offset any taxation disadvantage of dividends, we argue that investors will attach higher (lower) value to divid...

This paper investigates the relationship between a CEO’s social network, firm identity, and firm performance. There are two competing theories that predict contradictory outcomes. Following social network theory, one would expect a positive relation between social networks and firm performance, while agency theory in general and Bebchuk’s manageria...

We value UK executive stock options (ESOs) as American options that are awarded conditional on the probability of the holders achieving some performance criteria. Unlike the standard Black and Scholes (BS) model, which is universally used both in the literature and practice, this provides a more realistic representation of UK ESOs. We show that UK...

This paper provides new evidence on the relationship between managerial incentives and firm risk using a hand-collected database of 3307 executive year observations. We find that the relation between pay performance sensitivity and firm risk exhibits a nonlinear relationship with firm size: for small to medium-sized quoted companies there is a nega...

This study investigates the return predictability of changes in corporate borrowing by conditioning it on equity styles. state of market, and earnings expectation to determine whether it is due to unidentified sources of risk or mispricing. We observe that increases in borrowing are indeed followed by declines in operating and risk-adjusted return...

This paper provides evidence on the level and composition of the pay of the top executives of a sample of UK Public Listed Companies. The study uses hand collected data on the compensation for 698 CEO years and 2609 other-executive years over the period 1995-2000. In order to focus on the consequences of exceptional performance, our sample is strat...

This paper examines the executive compensation practices of listed U.K. retailing companies. We compare “New Economy” retailers (e-commerce/dot-coms) to more traditional retailers operating in the “Old Economy.” We also discriminate between recently floated retailers and their more seasoned counterparts. Using a sample of remuneration contracts for...

This paper examines the executive compensation practices of listed UK retailing companies. We compare New Economy retailers (e-commerce and dot.coms) to more traditional retailers operating in the "Old Economy". We also discriminate between recently floated retailers and their more seasoned counterparts. Using a sample of remuneration contracts for...

Using time series of forecast errors for a large number of US companies, we estimate the parameter of the implicit loss function in sixteen cases for each company, that is, four different forecast types across four different forecast horizons. Our results allowed the formation of an empirical cross sectional distribution of loss preference paramete...